Deck 1: Introduction to Macroeconomics and the Great Recession

Question 1

Since 1900,real GDP per capita in Canada has ________ in the short run and has ________ in the long run.

A) fluctuated; displayed a strong upward trend
B) remained fairly stagnant; grown considerably
C) decreased more often than it has increased; increased more often than it has decreased
D) grown at a stable and consistent rate; wildly fluctuated

Answer 1

A

Question 2

From 2005 to 2008,the average unemployment rate in Canada

A) was higher than the average unemployment rates in most high-income European countries.
B) and the average unemployment rates in other high-income countries varied significantly.
C) was roughly the same as the average unemployment rates in other high-income countries.
D) was the lowest of all high-income countries.

Answer 2

B

Question 3

In the short run,macroeconomic analysis focuses on ________,while in the long run,the focus is on ________.

A) fiscal policy; monetary policy
B) short-run economic growth; population demographics
C) unemployment; inflation
D) the business cycle; long-run economic growth

Answer 3

D

Question 4

The underlying fluctuations in real GDP due to the business cycle are reflected by fluctuations in

A) inflation.
B) population growth.
C) the labour force.
D) real GDP per capita.

Question 5

As a result of the Great Recession,the unemployment rate in Canada increased from ________ in 2007 to ________ in 2009.

A) 5%; 10%
B) 6%; 9.3%
C) 7%; 11.4%
D) 5%; 8.8%

Question 6

In Canada,most periods of very high inflation occurred

A) during times of war.
B) during recessions.
C) in the past 25 years.
D) before the year 1800.

Question 7

The gap between Canadian GDP per capita and GDP per capita in other high-income countries,such as the United States and Japan,is ________,and the gap between the high-income countries and the low-income countries is ________.

A) relatively large; relatively large
B) relatively large; relatively small
C) relatively small; relatively small
D) relatively small; relatively large

Question 8

A common measure of the standard of living is

A) labour productivity.
B) the average duration of a typical business cycle.
C) the labour force participation rate.
D) real GDP per capita.

Question 9

The labour force is

A) the sum of the employed and unemployed workers in an economy.
B) the total number of people in an economy who are over the age of 16.
C) the total number of employed people in an economy.
D) the percentage of employed people divided by the population.

Question 10

The business cycle is usually illustrated using movements in

A) the inflation rate.
B) labour productivity.
C) real GDP.
D) the size of the labour force.

Question 11

In Canada,periods of deflation

A) primarily occurred during times of war.
B) were virtually nonexistent until after 1980.
C) have never occurred for more than one year.
D) were relatively common prior to 1930.

Question 12

________ refers to alternating periods of economic expansion and economic recession in an economy.

A) Fiscal policy
B) Labour productivity
C) The business cycle
D) Positive economic analysis

Question 13

Financial markets and financial intermediaries together comprise the

A) business cycle.
B) economic system.
C) macroeconomic model.
D) financial system.

Question 14

Long-run economic growth is the process by which productivity increases

A) the employment rate.
B) the average standard of living.
C) the size of the labour force.
D) federal tax revenues.

Question 15

Firms are able to expand their operations by acquiring funds from households.They can do this directly through financial markets such as ________,or indirectly through financial intermediaries such as ________.

A) stock markets; bond markets
B) stock markets; banks
C) banks; bond markets
D) bond markets; stock markets

Question 16

China has recently been experiencing rapid economic growth,and current Chinese real GDP per capita is

A) roughly equal to real GDP per capita in Canada.
B) still significantly less than real GDP per capita in Canada.
C) on par with real GDP per capita in most high-income countries.
D) still at a level equivalent to real GDP per capita in the poorest countries in the world.

Question 17

The process by which productivity raises the average standard of living is referred to as

A) long-run economic growth.
B) labour productivity.
C) population growth analysis.
D) the economic prosperity hypothesis.

Question 18

Labour productivity refers to the quantity of goods and services that can be produced

A) by the entire labour force.
B) by one worker or one hour of work.
C) in the entire economy in one year.
D) by all employed workers.

Question 19

The quantity of goods and services that can be produced by one worker or by one hour of work is known as

A) per-capita GDP.
B) labour productivity.
C) real domestic output.
D) the labour force participation rate.

Question 20

In Canada,public spending on health care was approximately ________ of GDP in 2012,and is expected to be approximately ________ of GDP by 2031.

A) 12%; 50%
B) 8%; 13%
C) 40%; 5%
D) 25%; 65%

Question 21

The actions that the Bank of Canada takes to ________ to pursue macroeconomic policy objectives refer to monetary policy.

A) manage the money supply and interest rates
B) set tax rates
C) regulate imports and exports
D) establish exchange rates

Question 22

What is long-run economic growth and how is it measured?

Question 23

Changes in government taxes and purchases that are intended to achieve macroeconomic policy objectives refer to

A) fiscal policy.
B) monetary policy.
C) quantitative analysis.
D) government transparency.

Question 24

In Canada,the inflation rate during the past 25 years

A) has, on average, been negative.
B) has generally been below 5%.
C) has averaged 0%.
D) has increased at its fastest pace in history.

Question 25

As a percentage of GDP,Canadian imports have been ________ and U.S.imports have been ________ since 1980.

A) growing; declining
B) declining; growing
C) growing; growing
D) declining; declining

Question 26

Changes in ________ that are intended to achieve macroeconomic policy objectives refer to fiscal policy.

A) exchange rates
B) interest rates
C) government taxes and purchases
D) the money supply

Question 27

Which of the following is an example of a monetary policy?

A) The federal government decreases income tax rates on people earning less than $40 000.
B) The Bank of Canada redesigns the $20 bill.
C) The central bank takes action to increase the money supply during an economic recession.
D) Congress authorizes an increase in spending on health care.

Question 28

Over the past 20 years,foreign financial investment in Canada has

A) increased significantly.
B) decreased significantly.
C) remained fairly consistent.
D) become negative.

Question 29

How are the labour force and the unemployment rate calculated?

Question 30

Explain how the standard of living of the average person in an economy can increase.

Question 31

Which of the following is an example of a monetary policy?

A) The federal government increases income tax rates on people earning more than $250 000.
B) The duration of unemployment benefits is extended to 99 weeks.
C) The Bank of Canada increases interest rates.
D) Congress authorizes a cut in spending on education.

Question 32

Over the past 20 years,purchases of foreign financial assets by Canadian investors has

A) increased significantly.
B) decreased significantly.
C) remained fairly consistent.
D) become negative.

Question 33

From 1950 to 2007,Canada experienced ________ business cycle expansions,followed by ________ recessions.

A) long; long
B) long; brief
C) brief; long
D) brief; brief

Question 34

What is the key macroeconomic issue of the short run and what is the key macroeconomic issue of the long run?

Question 35

The actions that the Bank of Canada takes to manage the money supply and interest rates to pursue macroeconomic policy objectives refer to

A) fiscal policy.
B) monetary policy.
C) quantitative analysis.
D) Federal Reserve transparency.

Question 36

Economists measure the "openness" of an economy in terms of

A) its immigration policies.
B) how often it holds free elections.
C) the percentage of foreign-born workers in its labour force.
D) how much it trades with other economies.

Question 37

Explain what is happening to spending on health care as the Canadian population continues to age.Why might this spending change pose problems for the Canadian economy?

Question 38

The openness of the Canadian economy has

A) increased over time.
B) decreased over time.
C) remained fairly consistent over time.
D) decreased over the past 30 years, following a 50-year increase.

Question 39

Which of the following is an example of a fiscal policy?

A) The federal government increases income tax rates on people earning more than $250 000.
B) The Bank of Canada takes action to greatly decrease the money supply.
C) The Bank of Canada increases interest rates.
D) Businesses begin to export and import more products and services.

Question 40

Which of the following is an example of a fiscal policy?

A) The Bank of Canada takes action to increase the money supply during an economic recession.
B) The federal government increases infrastructure spending during an economic recession.
C) The Bank of Canada decreases interest rates during an economic recession.
D) Businesses begin to lay off employees and cut back on spending during an economic recession.

Question 41

In building an economic model,variables that are taken as given are referred to as ________ variables.

A) exogenous
B) endogenous
C) concrete
D) presumptive

Question 42

If you were building a macroeconomic model that explores the effect of the aging population on the needed expenditure for social security and health care,the exogenous variable(s)would be the

A) aging population.
B) needed expenditure on social security.
C) needed expenditure on health care.
D) needed expenditure on both social security and health care.

Question 43

All of the following are part of an economic model,except

A) data.
B) opinions.
C) assumptions.
D) hypotheses.

Question 44

Which of the following statements would make a reasonable hypothesis to test?

A) Deflation is worse than inflation in any economy.
B) An unemployment rate below 4% is bad for the economy.
C) As tax rates increase, eventually tax revenues will decline.
D) Higher real GDP per capita figures lead to happier citizens.

Question 45

In building an economic model,variables that will be explained by the model are referred to as ________ variables.

A) exogenous
B) endogenous
C) fluctuating
D) demonstrative

Question 46

A hypothesis in an economic model is a statement that ________ about an economic variable.

A) is correct
B) is incorrect
C) may be either correct or incorrect
D) cannot be proven either correct or incorrect

Question 47

Which of the following is a positive economic statement?

A) Income tax rates for the rich should be increased.
B) The Bank of Canada should not increase interest rates until the unemployment rate falls below 7%.
C) Rising global demand for gasoline has led to an increase in the price of oil.
D) The government should increase spending on infrastructure to lower the unemployment rate.

Question 48

If you were building a macroeconomic model that explores the effect of the aging population on the needed expenditure for social security and health care,the endogenous variable(s)would be the

A) aging population.
B) needed expenditure on social security.
C) needed expenditure on health care.
D) needed expenditure on both social security and health care.

Question 49

The severity of the 2007-2009 recession was due to the severity of the accompanying financial crisis.Explain what is meant by financial crisis.

Question 50

What does the inflation rate measure,and what is deflation?

Question 51

Which of the following statements about economic analysis is true?

A) Unlike positive economic analysis, normative economic analysis can be tested.
B) Neither positive nor normative analysis can be tested.
C) Positive economic analysis is concerned with "what is," whereas normative economic analysis is concerned with "what ought to be."
D) Economics is primarily about normative analysis, which measures the costs and benefits of different courses of action.

Question 52

If you were building a macroeconomic model that explores the effect of an increase in income tax rates on the size of the labour force,the endogenous variable(s)would be

A) income tax rates.
B) the size of the labour force.
C) both income tax rates and the size of the labour force.
D) neither income tax rates nor the size of the labour force.

Question 53

What is monetary policy?

Question 54

Economic models do all of the following,except

A) simplify some aspect of economic life.
B) answer economic questions.
C) make economic ideas explicit and concrete for use by decision makers.
D) portray reality in all its minute details.

Question 55

If you were building a macroeconomic model that explores the effect of the increase in interest rates on the inflation rate in Great Britain,interest rates would be an ________ variable and the inflation rate would be an ________ variable.

A) endogenous; endogenous
B) endogenous; exogenous
C) exogenous; exogenous
D) exogenous; endogenous

Question 56

The economic analysis of extending the duration of unemployment benefits to 99 weeks involves both positive and normative analysis.Consider the following consequences of extending the duration of unemployment benefits: a. Extending the duration of unemployment benefits to 99 weeks will create less incentive for some unemployed workers to seek employment.
B) Extending the duration of unemployment benefits to 99 weeks will increase the total amount of government expenditure on unemployment benefits.
C) The benefits received by those collecting unemployment benefits should be valued more highly than the increase in government expenditure needed to pay the benefits.
D) By extending the duration of unemployment benefits to 99 weeks,the unemployed will have more time to acquire new skills before reentering the workforce.
Which of the consequences above are positive statements and which are normative statements?

A) a and b are positive statements; c and d are normative statements.
B) Only b is a positive statement; a, c, and d are normative statements.
C) a and d are positive statements; b and c are normative statements.
D) a, b, and d, are positive statements; only c is a normative statement.

Question 57

What is fiscal policy?

Question 58

How do economists measure the "openness" of an economy? Explain if the Canadian economy has become more or less "open" over the past 30 years.

Question 59

If you were building a macroeconomic model that explores the effect of an increase in income tax rates on the size of the labour force,the exogenous variable(s)would be

A) income tax rates.
B) the size of the labour force.
C) both income tax rates and the size of the labour force.
D) neither income tax rates nor the size of the labour force.

Question 60

Which of the following is a normative economic statement?

A) Income tax revenues decreased during the recession.
B) Despite government stimulus spending, the unemployment rate remained above 9% in 2010.
C) When the price of gasoline rises, transportation costs rise.
D) The government should decrease spending on foreign aid to lower the federal deficit.

Question 61

What are the five steps generally used by economists to develop a model?

Question 62

All of the following statements would make a reasonable hypothesis to test except

A) Long-run economic growth leads to higher real GDP per capita.
B) An inflation rate below 3% is good for an economy.
C) Increasing tax rates eventually lead to a decrease in work effort.
D) Decreases in the unemployment rate lead to increases in the rate of inflation.

Question 63

What is the difference between positive analysis and normative analysis?

Question 64

Which of the following would make a reasonable hypothesis to test?

A) Rising inflation is bad for the Canadian economy.
B) An inflation rate above 4% is dangerous for the British economy.
C) As interest rates increase, eventually the inflation rate will decline.
D) Increases in inflation are worse for the U.S. economy than are increases in public sector borrowing.

Question 65

Explain how the "euro crisis" could potentially affect Canadian exports.

Question 66

What is the difference between an endogenous variable and an exogenous variable?

Question 67

Explain the difference between correlation and causation.

Question 68

Describe how you might analyze and evaluate the following claim: College students who graduate during an economic recession accept jobs that,on average,pay 9% less than jobs accepted by students who graduate during economic expansions.