Question 1

Analyzing the effect of a shock on a macroeconomic model is called

Accepted Answer

Analyzing the effect of a shock on a macroeconomic model involves conducting comparative static experiments, which involves determining the changes in equilibrium values resulting from changes in exogenous variables, while holding other variables constant. This allows us to understand how the economy will respond to various shocks, such as changes in government policies or external economic conditions.

Question 2

When an economist wants to develop a theory to explain the effect of the price of oil on economic growth

Accepted Answer

The first step in developing a theory is to clearly state the research question that the theory aims to answer. This will provide a framework for examining the relevant data and working out the implications of the theory. Microeconomic analysis may be relevant, but it is not necessarily the starting point for developing a theory about the effect of oil prices on economic growth.

Question 3

Determine whether each of the following is a positive or normative statement.
a.The Bank of Canada should lower interest rates to increase economic growth,because we're in a recession.
b.Higher government budget deficits cause higher interest rates.
c.The trade deficit should decline because of the fall in the value of the dollar.
d.Because of our high inflation rate,we must reduce the rate of money growth.
e.A generous unemployment insurance system is a primary cause of high unemployment in Europe.
f.Increased average labour productivity in a country should lead to faster growth.
g.Government budget deficits are too high in Canada and should be reduced.

Accepted Answer

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Question 4

Comparative static experiments

Accepted Answer

Comparative static experiments assume that the model is in equilibrium before exploring the impact of changing one or more variables. This is a common technique used in economics to analyze how changes in one variable impact other variables in an equilibrium setting. While comparative static experiments may use economic surveys and analyze economic behavior, they are not necessarily conducted in social science labs and typically do not rely solely on data to compare empirical results.

Question 5

How did Keynes propose to solve the problem of high unemployment?

Accepted Answer

Keynes proposed that the government should increase its demand for goods and services through fiscal policy measures such as increasing government spending or cutting taxes. This would stimulate aggregate demand and production, leading to an increase in employment and reduction in unemployment. Option A (increase the growth rate of the money supply) is a monetarist approach that does not necessarily address unemployment directly. Option B (allow wages to decline) may worsen living standards for workers and reduce their ability to consume, thus further depressing aggregate demand. Option C (wage and price controls) may lead to shortages, inefficiencies, and reduced incentives to produce, leading to a stifling of economic growth.

Question 6

Explain what Keynes meant by the phrase "in the long-run we are all dead."

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Question 7

Macroeconomists cannot conduct experiments in the manner of physicists or chemists,because

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Question 8

Which of the following is considered as a fiscal policy?

Accepted Answer

Removing energy subsidies can be considered as a fiscal policy as it relates to government spending and revenue. Fiscal policy involves the use of government spending, taxation, and borrowing to influence the economy. Removing energy subsidies can increase revenue for the government, which can be used to fund other programs or reduce the budget deficit.

Option A (fixing the exchange rate) is a monetary policy, as it involves managing the money supply and interest rates to achieve economic goals. Lowering interest rates and increasing mortgage rates are also monetary policies, as they impact the availability and cost of credit.

Question 9

Economists evaluate an economic model based on

Accepted Answer

Economists evaluate economic models based on their ability to be tested by empirical analysis. The results of the model and consistency of assumptions are also important, but the testability of the implications is essential for determining if the model accurately reflects real-world economic behavior. Data availability is also a consideration but does not necessarily determine the value of the model.

Question 10

Which of the following is NOT true?

Accepted Answer

The statement in option D is not true. According to the information given in the options, Canadian workers are working fewer hours but their real wages are higher, on average, than in the past. Therefore, option D is the correct answer as it contradicts this information.

Question 11

The critical assumptions behind the idea of Adam Smith's invisible hand are

Accepted Answer

The invisible hand theory is based on the idea that wage and price flexibility allows for market forces to efficiently allocate resources, and individuals pursuing their own self-interests leads to an overall positive outcome for society as a whole.

Question 12

Macroeconomic information for the economy of Anchovy is given below:
 $$\begin{array} { | l r r } 
\hline & 2000 & 2001 \
\hline \text { Output (pizzas) } & 800 \mathrm { C } & 9000 \
\hline \text { Employment (workers) } & 70 \mathrm { C } & 800 \
\hline \text { Unemployed (workers) } & 70 & 100 \
\hline \text { Labour force (workers) } & 77 \mathrm { C } & 900 \
\hline \text { Price per pizza } & \$ 8.0 \mathrm { C } & \$ 9.00 \
\hline
\end{array}$$ 
a.What was the growth rate of average labour productivity in Anchovy between 2000 and 2001?
b.What was the inflation rate in Anchovy between 2000 and 2001?
c.What was the unemployment rate in 2000? In 2001?

Accepted Answer

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Question 13

What are the four major areas in which macroeconomists work? Give an example of a job in each.

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Question 14

Describe what the two key assumptions are in the "invisible hand" idea.

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Question 15

Discuss the major difference between classical and Keynesian economists.Be sure to explain how they differ with regard to how quickly equilibrium is restored in the economy as well as what role they see for government action in restoring equilibrium.

Accepted Answer

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Question 16

Which of the following event is NOT considered as a shock?

Accepted Answer

An anticipated change in interest rates is not considered a shock because it is a predicted occurrence that has been factored into financial models and market expectations. The other three events mentioned (natural disaster, changes in commodity prices, and stock market volatility) are considered shocks because they are unpredictable and have immediate and potentially significant effects on markets and economies.

Question 17

You are asked to analyze the effect of the Bank of Canada's new interest rate policy on housing prices.Using a comparative static experiment,describe the steps you need to follow to produce a sound theoretical macroeconomic analysis.

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Question 18

A theoretical analysis of the effect of an oil shock on inflation is an example of

Accepted Answer

A comparative static experiment analyzes the change in economic outcomes resulting from a change in an external factor, such as an oil shock, while holding other factors constant.

Question 19

Which of the following is NOT an issue addressed by macroeconomists?

Accepted Answer

The price of gasoline is a microeconomic issue, as it relates to the pricing decisions of oil companies and individual consumers. Macroeconomists focus on broader issues and phenomena that affect entire economies, such as inflation, unemployment, and economic growth.

Question 20

Explain the main assumptions in a balanced and unified approach to macroeconomics.

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Quiz 1: Introduction to Macroeconomics