Deck 5: Introduction to Macroeconomics

Question 1

During the Great Depression of the 1930s, U.S.president Herbert Hoover introduced an economic policy that turned out to be flawed.What was this policy?  

A) a decrease in taxes 
B) an increase in taxes 
C) an increase in government spending 
D) a decrease in government spending

Answer 1

 an increase in taxes 

Question 2

Suppose that firms expect greater demand for their products, invest in more capital, and hire more labour.Which of the following characterizes how the economy will be affected?  

A) Inflation will likely increase and taxation will likely rise. 
B) The business cycle is likely to move from peak to trough. 
C) The expected prosperity will likely be encouraged. 
D) Consumers will probably spend less in anticipation of a decline in economic activity.

Answer 2

 The expected prosperity will likely be encouraged. 

Question 3

Which of the following describes a flow variable?  

A) You own $5,000 worth of government bonds. 
B) You own a $100,000 house. 
C) You own a coin collection valued at $10,000. 
D) You earn $500 per week.

Answer 3

 You earn $500 per week.

Question 4

Which of the following describes a stock variable?  

A) You save $100 each week. 
B) You buy $10 worth of gasoline each week. 
C) You earn $500 per week at your job. 
D) You own $5,000 worth of government bonds.

Question 5

Which of the following is a flow variable?  

A) the Canadian population 
B) money supply 
C) investment spending 
D) household debt

Question 6

Which of the following is a stock variable?  

A) gross domestic product 
B) consumption spending 
C) the money supply 
D) federal income tax

Question 7

If GDP rises, what happens to income and expenditure?  

A) Income must rise and expenditure must rise. 
B) Income must fall and expenditure must fall. 
C) Income must rise, but expenditure may rise or fall. 
D) Expenditure must rise, but income may rise or fall.

Question 8

An economic variable can be measured in units of time, such as spending per year.What is this economic variable known as?  

A) as a stock variable 
B) as a periodic variable 
C) as an expectations variable 
D) as a flow variable

Question 9

Which of the following characterizes the nature of economic fluctuations?  

A) The number of businesses started changes. 
B) The TSX average fluctuates relative to a long-term economic growth trend. 
C) Consumption spending changes. 
D) The level of economic activity fluctuates, relative to a long-term economic growth trend.

Question 10

Which of the following is NOT the proper subject matter for macroeconomics?  

A) unemployment levels 
B) inflation rates 
C) levels of national output 
D) the price of corn

Question 11

Which country has the largest and most complex economy in world history?  

A) China 
B) the United States 
C) Mexico 
D) Germany

Question 12

Which of the following news headlines is most closely related to what macroeconomists study?  

A) Unemployment Rate Rises from 5 Percent to 5.5 Percent 
B) Price of Gold Grows by 3.1 Percent in Third Quarter 
C) Number of Tourists Visiting Canadian National Parks Declines 
D) Price of Oranges Rises after Early Frost

Question 13

If all firms expect greater demand for their products or services, they will hire more resources.What will the economy experience in this case?  

A) recession 
B) growth 
C) federal budget deficits 
D) stagnation

Question 14

Which of the following is NOT a flow variable?  

A) the amount of spending by consumers this holiday season 
B) the number of times a dollar bill is spent in a day 
C) the number of shares of stock traded per week 
D) the $100 Susan keeps in her purse, in case an emergency arises

Question 15

While economic expansions average about 3.5 years in duration, what is the average duration of an economic contraction?  

A) about 1 year 
B) about 2 years 
C) about 3 years 
D) about 4 years

Question 16

If GDP falls, what happens to income and expenditure?  

A) Income must rise and expenditure must rise. 
B) Income must fall and expenditure must fall. 
C) Income must rise, but expenditure may rise or fall. 
D) Expenditure must rise, but income may rise or fall.

Question 17

Which of the following is a stock variable?  

A) sales by corporations 
B) borrowing by the federal government 
C) household wealth 
D) net exports

Question 18

What is gross world product?  

A) the value of all final goods and services produced in the world during a given period 
B) the value of all final goods produced in the world during a given period 
C) the value of all final goods and services produced in Canada during a given period 
D) the value of all final goods and services produced in all countries of the world except Canada during a given period

Question 19

Which of the following is a stock variable?  

A) business spending on capital equipment 
B) consumer income 
C) the federal government's debt 
D) the federal government's budget deficit

Question 20

What is the ultimate objective of macroeconomics?  

A) to reduce the unemployment rate 
B) to stabilize the economy's growth rate 
C) to develop and test theories about how the overall economy works 
D) to improve the international competitiveness of Canadian financial markets

Question 21

Which statement best characterizes Canadian business cycle activity since 1980?  

A) Only one business cycle has occurred. 
B) No recessions have occurred. 
C) Expansions have generally lasted longer than contractions. 
D) Each cycle has lasted longer than the previous one.

Question 22

What do economists mean when they refer to the economy's price level?  

A) the rate of inflation 
B) the price of goods and services relative to consumers' incomes 
C) a general measure of prices of all goods and services 
D) a period of level, or steady, prices

Question 23

Which of the following would indicate the beginnings of an expansion of the economy?  

A) Fewer new firms are being started. 
B) Stock market prices are declining. 
C) Consumer confidence is improving. 
D) Housing construction is slowing.

Question 24

Which term refers to a period of sustained growth of output in the economy?  

A) expansion 
B) contraction 
C) peak 
D) trough

Question 25

What is the definition of a depression?  

A) a mild reduction in total production coupled with a rising unemployment rate that lasts for several years 
B) a decline in total production that lasts less than 6 months 
C) a severe fall in stock prices that causes financial panic and lasts several years 
D) a severe reduction in total production coupled with high unemployment that lasts several years

Question 26

Certain economic activities signal forthcoming changes in the economy.What are these activities known as?  

A) coincidental economic indicators 
B) lagging economic indicators 
C) composite economic indicators 
D) leading economic indicators

Question 27

Which of the following can partially explain long-term growth in production?  

A) trade surpluses that lead to accumulations of precious metals 
B) a gradual but consistent increase in the price level 
C) general optimism about the future and the pioneering spirit of Canada 
D) improvements in technology

Question 28

Which term refers to a period of sustained decline of output in the economy?  

A) expansion 
B) peak 
C) trough 
D) contraction

Question 29

Which of the following best characterizes the meaning of a recession?  

A) a period during which the percentage of the population employed is declining 
B) a period during which employment, output, and income are declining 
C) a period during which the price level is declining 
D) a period during which more resources are being used

Question 30

Which of the following can partially explain long-term growth in production?  

A) improvements in the "rules of the game" that facilitate production and exchange 
B) the peaks and troughs of the business cycle (or economic fluctuations) 
C) trade surpluses that lead to accumulations of precious metals 
D) federal government budget deficits

Question 31

What do economists mean by a "leading economic indicator"?  

A) an indicator of future economic activity 
B) an indicator that measures current economic activity 
C) a highly accurate indicator that is easily measured 
D) an indicator that is accurate most of the time

Question 32

Which of the following could be a leading economic indicator?  

A) interest rates 
B) the unemployment rate 
C) personal income 
D) unsold goods

Question 33

In terms of growth rates in output, what do the data from 1978 until 2011 illustrate about the relationship between Canada and the United States?  

A) Canadian real GDP grew faster than U.S. real GDP despite similar patterns of economic fluctuations. 
B) U.S. real GDP doubled while Canadian GDP was stagnant. 
C) The United States and Canada experienced recession in roughly the same years. 
D) Canada experienced only one recession while the United States experienced three.

Question 34

Which of the following can partially explain long-term growth in production?  

A) increases in government spending 
B) increases in availability of resources 
C) reductions in federal taxes 
D) a gradual but consistent increase in the price level

Question 35

Which statement about economic fluctuations best characterizes how nations interact with each other?  

A) Economic fluctuations in one nation are usually independent of economic fluctuations in its major trading partner nations. 
B) Economic fluctuations in one nation are usually independent of economic fluctuations in bordering nations. 
C) Economic fluctuations in one nation are often linked to economic fluctuations in other economies. 
D) Economic fluctuations in one nation are linked internationally such that that a recession in one nation means an expansion in the economy of its major trading partner.

Question 36

Which statement best describes how economic fluctuations in one country are related to fluctuations in other countries?  

A) Economic fluctuations are linked, but NOT perfectly synchronized, across countries. 
B) Economic fluctuations are perfectly synchronized across countries. 
C) Economic fluctuations in one country are independent of fluctuations in other countries. 
D) Economic fluctuations in Canada always lag behind fluctuations in other developed economies.

Question 37

Which statement best characterizes how economic fluctuations affect the global economy?  

A) Economic fluctuations can be experienced by the world economy as well as by a single nation. 
B) Economic fluctuations tend to be equal in length and intensity regardless of country. 
C) Economic fluctuations have become more severe since the government has attempted to stabilize the economy. 
D) Economic fluctuations have been completely offset by appropriate government policy during the last 40 years.

Question 38

What is the definition of a recession?  

A) a period during which employment, production, and income are decreasing 
B) a period during which the price level is increasing 
C) a period during which inventories are falling dramatically 
D) a period during which the unemployment rate is falling while the price level is rising

Question 39

What is the distinction between a recession and a depression?  

A) A recession is longer than a depression. 
B) A recession is more severe than a depression. 
C) A recession is accompanied by a price increase, and a depression is accompanied by a price decrease. 
D) A recession is shorter and less severe than a depression.

Question 40

Which of the following is a lagging economic indicator?  

A) the unemployment rate 
B) unsold goods 
C) a decline in new home purchases 
D) an increase in new car purchases

Question 41

What type of slope does the aggregate supply curve have?  

A) a negative slope 
B) a positive slope 
C) a zero slope 
D) an infinite slope

Question 42

Which statement best characterizes what happens to the aggregate demand curve when the price level falls?  

A) A fall in the price level moves the economy rightward along the aggregate demand curve. 
B) A fall in the price level moves the economy leftward along the aggregate demand curve. 
C) A fall in the price level shifts the aggregate demand curve to the left. 
D) A fall in the price level shifts the aggregate demand curve to the right.

Question 43

Which statement best characterizes what happens to the aggregate demand curve when the price level rises?  

A) A rise in the price level moves the economy rightward along the aggregate demand curve. 
B) A rise in the price level moves the economy leftward along the aggregate demand curve. 
C) A rise in the price level shifts the aggregate demand curve to the left. 
D) A rise in the price level shifts the aggregate demand curve to the right.

Question 44

Why does the aggregate demand curve slope downward?  

A) because, at a higher price level, fewer goods and services are available 
B) because the periods when the price level is rising are usually times of swift declines in economic activity 
C) because households feel poorer when average prices increase 
D) because if the Canadian price level rises, foreigners will buy more Canadian goods, leaving fewer Canadian goods for domestic consumers

Question 45

As the price level increases, the amount of goods and services that consumers, businesses, and governments desire to purchase will change.How will this be reflected in the aggregate demand curve?  

A) as a leftward movement of the aggregate demand curve 
B) as a rightward movement of the aggregate demand curve 
C) as a movement upward along the aggregate demand curve 
D) as a movement downward along the aggregate demand curve

Question 46

In the history of the Canadian economy, which economic era saw both high unemployment and high inflation at the same time?  

A) before and during the Great Depression 
B) from after the Great Depression to the early 1970s 
C) from the early 1970s to the early 1980s 
D) since the early 1980s

Question 47

Which of the following best characterizes what an aggregate demand curve depicts?  

A) the quantity of goods and services demanded during a given time period at different interest rates, other things held constant 
B) the final quantity of goods and services actually produced by the economy during a given time period, other things held constant 
C) the quantity of goods and services demanded at different price levels during a given time period, other things held constant 
D) the quantity of goods and services that the economy is capable of producing during a given time period, other things held constant

Question 48

Which of the following is an explanation for the negative slope of the aggregate demand curve?  

A) because as prices rise nominal income falls and so does the demand for real goods and services 
B) because as prices rise government spends less to drive the price level back down 
C) because businesses increase spending when inflation is high and rising 
D) because as prices rise domestic goods become more expensive relative to foreign goods, which reduces exports

Question 49

In reference to the aggregate supply curve, what would an increase in the price level cause?  

A) an increase in the quantity of aggregate output supplied 
B) a decrease in the quantity of aggregate output supplied 
C) a leftward shift of the aggregate supply curve 
D) a rightward shift of the aggregate supply curve

Question 50

Suppose the Canadian price level increases.What happens to the aggregate quantity of Canadian output demanded?  

A) It decreases because Canadian products become cheaper relative to foreign products. 
B) It decreases because Canadian products become more expensive relative to foreign products. 
C) It increases because Canadian products become cheaper relative to foreign products. 
D) It increases because Canadian products become more expensive relative to foreign products.

Question 51

Which statement best characterizes why an aggregate demand curve slopes downward?  

A) because a decrease in the price level decreases the real value of household wealth 
B) because a decrease in the domestic price level increases imports 
C) because an increase in the price level leads to a decrease in demand for money, which decreases interest rates 
D) because a decrease in the domestic price level increases exports

Question 52

Suppose the Canadian price level decreases.What happens to the aggregate quantity of Canadian output demanded?  

A) It decreases because Canadian products become cheaper relative to foreign products. 
B) It decreases because Canadian products become more expensive relative to foreign products. 
C) It increases because Canadian products become cheaper relative to foreign products. 
D) It increases because Canadian products become more expensive relative to foreign products.

Question 53

In reference to the aggregate supply curve, what would a decrease in the price level cause?  

A) an increase in the quantity of aggregate output supplied 
B) a decrease in the quantity of aggregate output supplied 
C) a leftward shift of the aggregate supply curve 
D) a rightward shift of the aggregate supply curve

Question 54

What does the aggregate supply curve indicate?  

A) the quantity of aggregate output that producers are willing and able to supply at each possible price level 
B) the total quantity of a particular good that all producers are willing to supply at each possible price level 
C) the total quantity of a particular good that all producers are willing to supply at the equilibrium price level 
D) the quantity of aggregate output that producers are willing and able to supply at the equilibrium price level

Question 55

Why does the aggregate demand curve slope downward?  

A) because when the price level increases, consumers feel poorer and therefore buy less 
B) because when the price level increases, consumers feel richer and therefore buy more 
C) because when domestic prices increase, consumers substitute domestic goods for imported ones 
D) because when the price of a particular good increases, consumers substitute away from that good

Question 56

What is aggregate output?  

A) the total amount of goods and services produced during a given period in the economy 
B) only the total amount produced of goods during a given period in the economy 
C) the relationship between the price level and the quantity of output demanded during a given period in the economy 
D) the relationship between the price level and the quantity of output supplied during a given period in the economy

Question 57

Suppose the wealth of consumers increases substantially.How would this be reflected in the aggregate demand curve?  

A) The aggregate demand curve would shift outward. 
B) The aggregate demand curve would NOT change. 
C) The aggregate demand curve would shift inward. 
D) The aggregate demand curve would become vertical.

Question 58

Which statement characterizes a short-run aggregate supply curve?  

A) The short-run aggregate supply curve portrays an inverse relationship between the price level and quantity of aggregate output. 
B) Resource utilization is constant along the short-run aggregate supply curve. 
C) A movement along a short-run aggregate supply curve that is reflected in a decrease in the price level encourages firms to expand production. 
D) A movement along a short-run aggregate supply curve that is reflected in an increase in the price level encourages firms to expand production.

Question 59

The global financial panic in September 2008 led to a sharp fall in business investment spending and in consumer spending.How could these sharp falls be viewed?  

A) as a sharp decrease in aggregate supply 
B) as a sharp decrease in aggregate demand 
C) as a sharp decrease in aggregate supply and in aggregate demand 
D) as a modest increase in aggregate supply

Question 60

Why is the aggregate demand curve downward sloping?  

A) because, as prices fall, nominal income rises and so does the demand for real goods and services. 
B) because rising prices reduce people's wealth, thereby reducing spending 
C) because the government decides to spend less to increase the price level 
D) because, as prices fall, domestically produced goods become more expensive relative to foreign-produced products, which increases production

Question 61

Refer to the graph in the exhibit.What represents equilibrium?  

A) line a 
B) line b 
C) line c 
D) point e

Question 62

Refer to the graph in the exhibit.Which line represents aggregate supply?  

A) line a 
B) line b 
C) line c 
D) line d

Question 63

What does Adam Smith's "invisible hand" explain?  

A) why people act in their own best interests 
B) why the government intervenes to overcome failures in private markets 
C) how people, acting out of self-interest, unintentionally promote the general good 
D) how comparative advantage and specialization promote international trade

Question 64

Suppose the economy was initially in equilibrium, and the aggregate demand curve shifted to the left.Which of the following would likely occur in this model?  

A) Employment would likely fall. 
B) The price level would likely rise. 
C) The aggregate supply curve would likely shift rightward. 
D) The aggregate supply curve would likely shift leftward.

Question 65

According to John Maynard Keynes' The General Theory of Employment, Interest, and Money, what should the government do in order to get an economy out of a depression?  

A) increase spending 
B) decrease spending 
C) reduce taxes 
D) increase taxes

Question 66

Refer to the graphs in the exhibit.What happens to the equilibrium price level in period 1 as the aggregate demand curve shifts from AD to AD'?  

A) It falls from 4 to 1. 
B) It falls from 4 to 3. 
C) It rises from 3 to 4. 
D) It rises from 1 to 4.

Question 67

Refer to the graphs in the exhibit.From the beginning of period 1 to the end of period 2, what happened to real GDP?  

A) Real GDP decreased, and then it increased. 
B) Real GDP increased, and then it decreased. 
C) Real GDP fell from $10,000 to $6,000. 
D) Real GDP rose from $6,000 to $10,000.

Question 68

Refer to the graph in the exhibit.Which line represents real GDP?  

A) line a 
B) line b 
C) line c 
D) line d

Question 69

Which of the following best describes the equilibrium of aggregate supply and aggregate demand?  

A) a situation in which the slope of aggregate demand equals the slope of aggregate supply 
B) a situation in which quantity demanded exceeds quantity supplied 
C) a situation in which quantity demanded equals quantity supplied at a unique price level 
D) a situation in which quantity supplied exceeds quantity demanded at a unique price level

Question 70

Refer to the graph in the exhibit.Which line represents the price level?  

A) line a 
B) line b 
C) line c 
D) line d

Question 71

On an aggregate demand and aggregate supply graph, how can the Great Depression be pictured?  

A) as a leftward shift of the aggregate supply curve 
B) as a rightward shift of the aggregate supply curve 
C) as a leftward shift of the aggregate demand curve 
D) as a rightward shift of the aggregate demand curve

Question 72

Refer to the exhibit.Which line represents aggregate demand?  

A) line a 
B) line b 
C) line c 
D) line d

Question 73

Suppose the Canadian price level increased relative to price levels in foreign countries.How would domestic aggregate supply and aggregate demand curves be affected?  

A) The aggregate supply curve would shift outward, and the aggregate demand curve would remain unchanged. 
B) The aggregate supply curve would shift inward, and the aggregate demand curve would remain unchanged. 
C) The aggregate demand curve would shift outward, and the aggregate supply curve would remain unchanged. 
D) The aggregate demand curve would shift inward, and the aggregate supply curve would remain unchanged.

Question 74

What happened to unemployment, prices, and output during the Great Depression of the early 1930s?  

A) Unemployment and prices increased while output decreased. 
B) Unemployment increased while output and prices decreased. 
C) Unemployment and prices decreased while output increased. 
D) Unemployment and output decreased while prices increased.

Question 75

With reference to aggregate demand and aggregate supply, when output rises what would be expected to happen to employment?  

A) Employment would rise. 
B) Employment would fall. 
C) Employment would remain constant. 
D) Employment would first rise, and then fall.

Question 76

Refer to the graphs in the exhibit.From the beginning of period 1 to the end of period 2, what happened to real GDP?  

A) It increased from $6,000 to $10,000 and stayed there. 
B) It decreased from $10,000 to $6,000 and stayed there. 
C) It decreased from $10,000 to $,6,000 in period 1, and it increased from $6,000 to $10,000 in period 2. 
D) It increased from $6,000 to $10,000 in period 1, and it decreased from $10,000 to $6,000 in period 2.

Question 77

In terms of the aggregate demand and supply framework, how can the Great Depression be viewed?  

A) as a rightward shift of the aggregate demand curve 
B) as a rightward shift of the aggregate supply curve 
C) as a leftward shift of the aggregate demand curve 
D) as a leftward shift of the aggregate supply curve

Question 78

A laissez-faire doctrine was in vogue before the Great Depression of the 1930s.How did this perspective influence the Canadian government's view of business downturns?  

A) The Canadian government viewed business downturns as natural phases in an otherwise healthy system, and therefore it took short-term deficit spending measures to help recovery. 
B) The Canadian government viewed business downturns as natural phases in an otherwise healthy system, and therefore it waited for recovery to occur naturally. 
C) The Canadian government viewed business downturns as serious maladies in an otherwise healthy system, and therefore it worked to redesign the system to avoid such failure in the future. 
D) The Canadian government viewed business downturns as failures of the type of system Adam Smith envisaged, and therefore it worked to move toward a modern, more managed economy.

Question 79

$$\begin{array} { c c c } \hline \begin{array} { c } \text { Aggregate demand } \\\text { (quantity demanded, } \\\text { in billions of dollars) }\end{array} & \text { Price level } & \begin{array} { c } \text { Aggregate supply } \\\text { (quantity supplied, } \\\text { in billions of dollars) }\end{array} \\\hline \$ 100 & 150 & \$ 1,200 \\200 & 125 & 1,000 \\400 & 100 & 800 \\600 & 75 & 600 \\800 & 50 & 400 \\1,000 & 25 & 200 \\\hline\end{array}$$

-Refer to the aggregate demand and aggregate supply schedules in the exhibit.What is the equilibrium level of output?
 

A) 200 
B) 400 
C) 600 
D) 800

Question 80

$$\begin{array} { c c c } \hline \begin{array} { c } \text { Aggregate demand } \\\text { (quantity demanded, } \\\text { in billions of dollars) }\end{array} & \text { Price level } & \begin{array} { c } \text { Aggregate supply } \\\text { (quantity supplied, } \\\text { in billions of dollars) }\end{array} \\\hline \$ 100 & 150 & \$ 1,200 \\200 & 125 & 1,000 \\400 & 100 & 800 \\600 & 75 & 600 \\800 & 50 & 400 \\1,000 & 25 & 200 \\\hline\end{array}$$

-Refer to the aggregate demand and aggregate supply schedules in the exhibit.What is the equilibrium price level?  

A) 25 
B) 50 
C) 75 
D) 100