Deck 1: The Science of Macroeconomics

Question 1

The annual inflation rate in Canada averaged:

A)nearly zero between 1920 and 1945.
B)nearly zero between 1950 and 2000.
C)about 10 percent between 1920 and 1945.
D)about 10 percent between 2000 and 2017.

Answer 1

nearly zero between 1920 and 1945.

Question 2

The total income of everyone in the economy adjusted for the level of base year prices is called:

A)a recession.
B)an inflation.
C)real GDP.
D)a business fluctuation.

Answer 2

real GDP.

Question 3

Compared with the real GDP during a recession, real GDP during a depression:

A)increases more rapidly.
B)increases at approximately the same rate.
C)decreases at approximately the same rate.
D)decreases more severely.

Answer 3

decreases more severely.

Question 4

A measure of how fast the general level of prices is rising is called the:

A)growth rate of real GDP.
B)inflation rate.
C)unemployment rate.
D)market-clearing rate.

Question 5

The study of the economy as a whole is called:

A)household economics.
B)business economics.
C)microeconomics.
D)macroeconomics.

Question 6

A severe recession is called a(n):

A)depression.
B)deflation.
C)exogenous event.
D)market-clearing assumption.

Question 7

Compared with its level in 1900, the real GDP per person in Canada today is about:

A)50 percent higher.
B)twice as high.
C)three times as high.
D)11 times as high.

Question 8

Real GDP _____ over time, and the growth rate of real GDP _____.

A)grows; fluctuates
B)is steady; is steady
C)grows; is steady
D)is steady; fluctuates

Question 9

Macroeconomics is the study of the:

A)activities of individual units of the economy.
B)decision-making by households and firms.
C)economy as a whole.
D)interaction of firms and households in the marketplace.

Question 10

Deflation occurs when:

A)the real GDP decreases.
B)the unemployment rate decreases.
C)prices fall.
D)prices increase but at a slower rate.

Question 11

A typical trend during a recession is that:

A)the unemployment rate falls.
B)the popularity of the prime minister rises.
C)incomes fall.
D)the inflation rate rises.

Question 12

A period of falling prices is called:

A)deflation.
B)inflation.
C)a depression.
D)a recession.

Question 13

Recessions are periods when the real GDP:

A)increases slowly.
B)increases rapidly.
C)decreases mildly.
D)decreases severely.

Question 14

Macroeconomics does not try to answer the question of:

A)why some countries experience rapid growth.
B)what is the rate of return on education.
C)why some countries have high rates of inflation.
D)what causes recessions and depressions.

Question 15

All of the following except _____ are important macroeconomic variables.

A)real GDP
B)the unemployment rate
C)the marginal rate of substitution
D)the inflation rate

Question 16

The inflation rate is a measure of how fast:

A)the total income of the economy is growing.
B)unemployment in the economy is increasing.
C)the general level of prices in the economy is rising.
D)the number of jobs in the economy is expanding.

Question 17

Two striking features of a graph of Canadian real GDP per capita over the twentieth century are the:

A)overall upward trend interrupted by a large downturn due to the economic depression in the 1930s.
B)nearly constant level with a large downturn in the 1930s.
C)downward trend in the first half of the century followed by the upward trend in the second half.
D)constant level in the first half of the century followed by the upward trend in the second half.

Question 18

All of the following are types of macroeconomics data except the:

A)price of a computer.
B)growth rate of real GDP.
C)inflation rate.
D)unemployment rate.

Question 19

Which of the combinations listed is not a prime minister and an important economic issue of his administration?

A)Prime Minister Pierre Trudeau, inflation
B)Prime Minister Brian Mulroney, budget deficits
C)Prime Minister Stephen Harper, low productivity growth
D)Prime Minister Justin Trudeau, inflation

Question 20

The ability of macroeconomists to predict the future course of economic events:

A)is no better than a meteorologist's ability to predict the next month's weather.
B)is much better than a meteorologist's ability to predict the next month's weather.
C)has gotten worse over time.
D)is less precise than it was in the 1920s.

Question 21

Variables that a model takes as given are called:

A)endogenous.
B)exogenous.
C)market clearing.
D)macroeconomic.

Question 22

The unemployment rate:

A)was zero during the 1990s in Canada.
B)was zero on average between 1900 and 1950 in Canada.
C)has never been zero in Canada.
D)is usually zero when the economy is not in a recession or depression.

Question 23

In a simple model of the supply and demand for pizza, the endogenous variables are:

A)the price of pizza and the price of cheese.
B)aggregate income and the quantity of pizza sold.
C)aggregate income and the price of cheese.
D)the price of pizza and the quantity of pizza sold.

Question 24

In an economic model:

A)exogenous variables and endogenous variables are both determined outside the model.
B)endogenous variables and exogenous variables are both determined within the model.
C)endogenous variables affect exogenous variables.
D)exogenous variables affect endogenous variables.

Question 25

Endogenous variables are:

A)fixed at the moment they enter the model.
B)determined within the model.
C)the inputs of the model.
D)from outside the model.

Question 26

All of the following statements about sticky prices are true except:

A)in the short run, some wages and prices are sticky.
B)the sticky-price model describes the equilibrium toward which the economy slowly gravitates.
C)for studying year-to-year fluctuations, most macroeconomists believe that price stickiness is a better assumption than is price flexibility.
D)magazine publishers tend to change their newsstand prices only every three or four years.

Question 27

Macroeconomic models are used to explain how _____ variables influence _____ variables.

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

Question 28

Which of the following statements about economic models is true?

A)There is only one correct economic model.
B)All economic models are based on the same assumptions.
C)The purpose of economic models is to show how endogenous variables affect exogenous variables.
D)Economists use different models to address different economic phenomena.

Question 29

In the relationship expressed in functional form Y = G(K, L), Y stands for real GDP, K stands for the amount of capital in the economy, and L stands for the amount of labour in the economy. In this case G( ):

A)is the growth rate of real GDP when the amount of capital and labour in the economy is fixed.
B)indicates that the variables inside the parentheses are endogenous variables in the model.
C)is the symbol that stands for government input into the production process.
D)is the function telling how the variables in the parentheses determine real GDP.

Question 30

Macroeconomic models:

A)assume that all wages and prices are sticky.
B)assume that all wages and prices are flexible.
C)make different assumptions to explain different aspects of the macroeconomy.
D)focus primarily on the optimizing behaviour of households and firms.

Question 31

Variables that a model tries to explain are called:

A)endogenous.
B)exogenous.
C)market clearing.
D)fixed.

Question 32

In a simple model of the supply and demand for pizza, when buyers' income increases, the price of pizza _____ and the quantity purchased _____.

A)increases; decreases
B)increases; increases
C)decreases; increases
D)decreases; decreases

Question 33

A graph of the rate of inflation in Canada over the twentieth century shows:

A)an overall upward trend interrupted by a large downturn in the 1930s.
B)some periods of deflation mixed with mostly positive rates of inflation before 1955 but only positive rates of inflation after 1955.
C)a relatively steady, positive level throughout the century except for deflation in the 1930s.
D)a constant rate of inflation in the first half of the century followed by an upward trend in the second half.

Question 34

Important characteristics of macroeconomic models include all of the following except:

A)simplifying assumptions.
B)functional relationships based on randomized control trials.
C)endogenous and exogenous variables.
D)implicit or explicit consistency with microeconomic foundations.

Question 35

Which statement below best illustrates the "art," rather than the "science," of macroeconomics?

A)Macroeconomic data provide the motivation for new macroeconomic theory.
B)Macroeconomic relationships can be expressed using symbols and equations.
C)Macroeconomists must determine which simplifying assumptions clarify our thinking and which ones mislead us.
D)Graphs and charts can be used to illustrate the history of macroeconomic variables.

Question 36

Exogenous variables are:

A)determined outside the model.
B)determined within the model.
C)the outputs of the model.
D)explained by the model.

Question 37

A graph of the unemployment rate in Canada over the twentieth century shows:

A)an overall upward trend in the unemployment rate interrupted by a large upturn in the 1930s.
B)an overall downward trend in the unemployment rate interrupted by a large upturn in the 1930s.
C)rates of unemployment always greater than zero with substantial variations from year to year.
D)alternating periods of positive and negative rates of unemployment.

Question 38

In a simple model of the supply and demand for pizza, when the price of cheese increases, the price of pizza _____ and the quantity purchased _____.

A)increases; increases
B)decreases; increases
C)decreases; decreases
D)increases; decreases

Question 39

During the period between 1900 and 2000, the unemployment rate in Canada was highest in the:

A)1920s.
B)1930s.
C)1970s.
D)1980s.

Question 40

The assumption of continuous market clearing means that:

A)sellers can sell all that they want at the going price.
B)buyers can buy all that they want at the going price.
C)in any given month, buyers can buy all that they want and sellers can sell all that they want at the going price.
D)at any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price.

Question 41

Give two examples of macroeconomic variables and microeconomic variables.

Question 42

What is an exogenous variable? Illustrate with graphs the effect of a change in the exogenous variable on a demand and supply relationship. Mark the x-axis and y-axis clearly.

Question 43

Are the terms "market clearing" and "equilibrium" one and the same? Explain.

Question 44

Assume that the equation for demand for bread at a small bakery is Q^d = 60 - 10P_b + 3Y, where Q^d is the quantity of bread demanded in loaves and Y is the average income in the town in thousands of dollars.
a. If the average income in the town is 10, state the equation for Q^d in terms of P_b.
b. Draw a graph of the demand curve with Q^d on the horizontal axis and P_b on the vertical axis.Label the curve DD.

Question 45

Why do we call macroeconomics an imperfect science? Explain.

Question 46

What is the difference between recession and depression in an economy? Provide an example of depression from the real world that has hit the global economy.

Question 47

Assume that the equation for demand for bread at a small bakery is Q^d = 60 - 10P_b + 3Y, where Q^d is the quantity of bread demanded in loaves, P_b is the price of bread in dollars per loaf, and Y is the average income in the town in thousands of dollars. Assume also that the equation for supply of bread is Q^s = 30 + 20P_b - 30P_f, where Q^s is the quantity supplied and P_f is the price of flour in dollars per pound. Assume finally that markets clear, so that Q^d = Q^s.
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a.If Y is 10 and P_f is $1, solve mathematically for equilibrium Q and P_b.
b.If the average income in the town increases to 15, solve for the new equilibrium Q and P_b.​

Question 48

Using a market-clearing model to analyze the labour market is _____ because wages usually change _____.

A)realistic; frequently
B)realistic; infrequently
C)unrealistic; frequently
D)unrealistic; infrequently

Question 49

The production function for an economy can be expressed as Y = F(K,L), where Y is real GDP, K is the quantity of capital in the economy, and L is the quantity of labour in the economy.
​
a.If F( ) = 100 + 3K + 9L, what is real GDP if the quantity of capital is 200 and the quantity of labour is 500?
b.What is/are the endogenous variable(s) in this model?
c.What is/are the exogenous variable(s) in this model?​

Question 50

Which of the following is the best example of a sticky price?

A)the price of a barrel of oil
B)the price of the Canadian dollar in terms of euros
C)the price of a share of stock
D)the price of a can of pop in a vending machine

Question 51

The quantity of coffee demanded, Q^d, depends on the price of coffee, P_c, and the price of tea, P_T. The quantity of coffee supplied, Q^s, depends on the price of coffee, P_c, and the price of electricity, P_E , according to the following equation:
​
​
Q^d = 17 - 2P_c + 10P_T
​
Q^s = 2 + 3P_c - 5P_E
a.If the price of tea is $1.00 and the price of electricity is $0.50, what are the equilibrium price and quantity of coffee?
b.What is/are the endogenous variable(s) in this model?
c.What is/are the exogenous variable(s) in this model?​

Question 52

Macroeconomists are like scientists in that they both:

A)design data and conduct controlled experiments to test their theories.
B)rely on data analyzed from experiments they set up in a laboratory.
C)are unlimited in their use of controlled experiments.
D)collect data, develop hypotheses, and analyze the results.

Question 53

Do you agree with the statement "macroeconomics rests on the foundation of microeconomics"? Explain.

Question 54

What is the difference between sticky prices and flexible prices? Explain.

Question 55

An assumption of _____ is more plausible for studying the short-run behaviour of the economy, while an assumption of _____ is more plausible for studying the long-run equilibrium behaviour of the economy.

A)deflation; inflation
B)inflation; deflation
C)flexible prices; sticky prices
D)sticky prices; flexible prices

Question 56

The assumption of flexible prices is a more plausible assumption when applied to price changes that occur:

A)from minute to minute.
B)from year to year.
C)in the long run.
D)in the short run.

Question 57

Which of the following is the best example of a flexible price?

A)the price of a cup of coffee in a coffee shop
B)the price of gasoline at a service station
C)the price of a ticket at a movie theatre
D)the price of a book in a bookstore

Question 58

When studying the short-run behaviour of the economy, an assumption of _____ is more plausible, whereas when studying the long-run equilibrium behaviour of an economy, an assumption of _____ is more plausible.

A)inflation; unemployment
B)unemployment; inflation
C)flexible prices; sticky prices
D)sticky prices; flexible prices