Economics 203 is the Principles Of Macroeconomics class. Depending on the Professor, the exams format may or may not be multiple choice. This quiz only covers materials from Chapters 9, 10, 11, 14, 15 and 16 from 6th Canadian Edition of Principles of Macroeconomics by Mankiw, Kneebone and McKenzie. You may try Midterm I and Final exams for questions from other chapters.

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Economics (ECON 203-UCAL) Final Exam

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Question 1

If the reserve ratio is 25% and banks do not hold excess reserves, when the Bank of Canada sells $50 million of bonds to the public, bank reserves will (ID-MAF-16)

A	decrease by $50 million and money supply decreases by $800 million.
B	increase by $50 million and money supply decreases by $300 million.
C	increase by $50 million and money supply decreases by $800 million.
D	decrease by $50 million and money supply decreases by $200 million.
E	increase by $50 million and money supply decreases by $200 million.

Question 2

When does the arbitrage opportunity exists for Canadians? (ID-MAF-37)

A	When the price levels in Canada is lower than rest of the world.
B	When the purchasing power parity is at the equilibrium.
C	During periods of appreciation in Canadian dollar.
D	During an inflation in the Canadian market.

Question 3

Improved international relations and more optimistic population will result in which of the following? (ID-MAF-18)

A	Shift in aggregate demand curve to the right, increased spending and decrease in interest rate.
B	Shift in aggregate demand curve to the right, increased spending and increase in interest rate.
C	None of the the answers are correct.
D	Shift in aggregate demand curve to the left, increased spending and decrease in interest rate.
E	Shift in aggregate demand curve to the left, increased spending and increase in interest rate.

Question 4

The statement, every 1% increase in unemployment rate would lead to GDP to lower by 2% is best known as... (ID-MAF-22)

A	Principle of Economic Relativity
B	Liquidity Effect
C	Crowding Out Effect
D	Okun's Law
E	Inflation Principle
F	Short Run Economics Principle

Question 5

Ceteris paribus, if the employment rate of a country is 85%, what is the unemployment rate? (ID-MAF-26)

A	15% because labor force must add up to 100%.
B	It is depend on the adult population.
C	42.5% or half of employment rate.
D	The unemployment rate cannot be determined with the given information.

Question 6

The ____ is the rate banks typically charge other banks for loans and ____ is the rate which banks changes for loans for their best customers. (ID-MAF-33)

A	prime rate , standard rate
B	overnight rate , prime rate
C	None of the answers are correct.
D	bank rate , prime rate
E	standard rate , prime rate

Question 7

Calculate the labor force using following statistical data from a particular country. Assume the age of majority is 18. (ID-MAF-24)
Total population = 44 million
Population under 18 = 8 million
Non-residents (visitors) not counted in total population = 4 million

A	5 million
B	40 million
C	44 million
D	36 million
E	Not enough information is provided to answer this question.

Question 7 Explanation: 

Labor force = Total population - Population under 18

Question 8

Which of the following equations represents a closed economy? (ID-MAF-46)

A	Y = C + I + G +NX
B	I = Y - C + G
C	Y = C + I + G
D	S = I - G
E	Y = C + I + G - NX

Question 9

How would you describe the intersection point II between red and green curves on the following simplified inflation verses unemployment graph? (ID-MAF-36)

A	Long run Phillip equilibrium.
B	Expected inflation under expansionary monitory policy.
C	Short run inflation rate.
D	Natural rate of unemployment at equilibrium.

Question 10

What is the velocity of money if 50 loonies circulating in the economy with a price of a typical bundle of goods is $40 and the real GDP is 70 bundles? (ID-MAF-41)

A	5
B	70
C	56
D	30

Question 10 Explanation: 

MV = PY
Note 50 loonies = $50; suppose it is 50 ten dollar bills, then you must multiply 50 x 10 = $500 to obtain the value for M. M variable is the monitory value of the money itself not how many coins/notes in circulation.

Question 11

Which of the following describes the situation of debasing through coinage? (ID-MAF-32)

A	Government producing coins with lower amounts of precious metals during a recession.
B	Clipping of money by the population that uses it.
C	Replacement of one currency by a lower valued currency.
D	Unintentional wear off of coins.
E	Acquisition of less goods at a higher price level.

Question 12

What would you label the green curve on the following simplified inflation verses unemployment graph? (ID-MAF-35)

A	Long Run Demand Curve
B	Employment Curve
C	Long Run Phillips Curve
D	Short Run Supply Curve
E	Inflation Curve
F	Short Run Phillips Curve

Question 13

The natural unemployment rate is different from observed unemployment rate due to which of the following? (ID-MAF-02)

A	Cyclical unemployment
B	Structural unemployment
C	Rules imposed by governments
D	Fluidity of natural unemployment

Question 14

Which of the following groups would most likely gain from unanticipated inflation? (ID-MAF-57)

A	Individuals who have borrowed money at fixed interest rates.
B	Banks that have loaned all excess reserves at a fixed interest rate.
C	Individuals who have fixed retirement incomes
D	Individuals who earn high incomes
E	Landlords who own apartments in cities with rent controls

Question 15

In the short-run economics, what is the relationship between the money demanded and the interest rate? (ID-MAF-14)

A	The interest rate changes at a rate of as twice as much as the money demanded.
B	They are directly related to each other.
C	The money demanded changes at a rate of as twice as much as the interest rate.
D	They are inversely related to each other.

Question 16

Expansionary fiscal policy will typically result in which of the follwong? (ID-MAF-20)

A	Decrase in government spending and increase in tax rates.
B	Increase in government spending and decrease in tax rate.
C	Increase in government spending and increase in tax rate.
D	Decrease in government spending and decrease in tax rate.

Question 17

Which of the following is not a duty of Bank of Canada? (ID-MAF-03)

A	Manage funds for the federal government.
B	Act as a commercial bank for financial intermediaries.
C	Facilitate financial activities of large corporations.
D	Issue currency for circulation.
E	Govern the monitory policies of the country.

Question 18

According to quantity theory of money, the increase in money supply will result in which of the following? (ID-MAF-39)

A	Increase in inflation rate
B	Decrease in price
C	Decrease in velocity of money
D	Increase in velocity of money

Question 18 Explanation: 

MV = PY, and increase in M (money supply) will proportionally increase the Price (P). Increase in price will result in inflation.

Question 19

Purchasing power parity is strongly associated with which of the following? (ID-MAF-05)

A	Exchange rates
B	Investments
C	Inflation
D	Doughnuts
E	Lonable funds

Question 20

Given the following currency rates, which currency(ice) does purchasing power parity hold? (ID-MAF-11)

Country	Currency	Currency per Canadian $	Canadian Price Index	Currency Price Index
Bolivia	Boliviano	5.00	100	500
Japan	Yen	100.00	100	20,000
Morocco	Dirham	10.00	100	2000
Thailand	Baht	30.00	100	2500
Australian	Dollar	2.00	100	350

A	Japan
B	Japan, Morocco and Thailand
C	Bolivia
D	Thailand and Australia
E	Bolivia and Morocco

Question 20 Explanation: 

For Bolivia, 500/100 = 5.00 hence the PPP holds.

Question 21

Lowering of reserve ratio by Bank of Canada will result in which of the following? (ID-MAF-30)

A	Increase in unemployment.
B	Increase in public confidence in the economy.
C	Increase in money supply.
D	Contractionary monetary environment.

Question 22

Ceteris paribus, the domestic price level increase compared to the foreign price level. This would result in which of the following? (ID-MAF-29)

A	Increase in nominal exchange rate and the Canadian dollar would appreciate.
B	Decrease in nominal exchange rate and no ambiguous change to the Canadian dollar.
C	Decrease in nominal exchange rate and the Canadian dollar would appreciate.
D	Increase in nominal exchange rate and the Canadian dollar would depreciate.
E	Decrease in nominal exchange rate and the Canadian dollar would depreciate.

Question 23

According to the following simplified inflation verses unemployment graph, which action would cause the economy to move from position III to position IV? (ID-MAF-59)

A	Expansionary monitory policy involving decrease in money supply.
B	Expansionary monitory policy involving decrease in banking reserve ratio.
C	Contractionary monetary policy involving buying bonds from the public by Bank of Canada.
D	Contractionary monetary policy involving decrease in banking reserve ratio.

Question 24

Ceteris paribus, the foreign price level increase compared to the Canadian price level. This would result in which of the following? (ID-MAF-07)

A	Decrease in nominal exchange rate and the Canadian dollar would appreciate.
B	Increase in nominal exchange rate and the Canadian dollar would depreciate.
C	Decrease in nominal exchange rate and no ambiguous change to the Canadian dollar.
D	Decrease in nominal exchange rate and the Canadian dollar would depreciate.
E	Increase in nominal exchange rate and the Canadian dollar would appreciate.

Question 25

Change in market price will... (ID-MAF-40)
a) _______ aggregate supply curve
b) _______ aggregate demand curve.

A	shift , have no effect on
B	have no effect on , shift
C	None of the listed answers are correct.
D	have no effect on , have no effect on
E	shift , shift

Question 25 Explanation: 

However, if the expected price (not the market price) changes, the aggregate supply curve would shift one way or the other.

Question 26

What would happen to the aggregate demand curve if the government spends more and at the same time price level decreases? (ID-MAF-17)

A	The aggregate demand (AD) curve would not shift, but we would move up along the AD curve.
B	The aggregate demand (AD) curve would not shift, but we would move down along the AD curve.
C	The aggregate demand curve would move to the right.
D	The outcome is ambiguous.
E	The aggregate demand curve would move to the left.

Question 26 Explanation: 

GDP = Y = C + I + G and if the G increases, then the Y increases resulting shift to the right. The change in price level would not shift the curve. Shift is as a result of change in Y.

Question 27

In the following figure, without a minimum-wage law, the equilibrium market wage is ______, and the equilibrium market quantity of labour hired is ______. (ID-MAF-50)

A	W0 , L0
B	W1 , L0
C	W1 , L2
D	W0 , L1
E	W1 , L1

Question 28

According to misrepresentation theory of short run aggregate supply curve, which of the following is true? (ID-MAF-60)

A	Wages of workers will increase as profit for companies increase.
B	Wages would not be properly adjusted to the price fluctuations in the market.
C	Supply of goods will decrease as production levels falls.
D	Prices would not be adjusted properly to the fluctuations in cost of raw materials.

Question 29

Ceteris paribus, how would the Canadian consumers normally react if the Canadian dollar depreciates? (ID-MAF-56)

A	Canadian consumers will buy more domestic goods and more foreign goods.
B	Canadian consumers will buy more domestic goods and fewer foreign goods.
C	Canadian consumers will buy fewer domestic goods and more foreign goods.
D	Canadian consumers will buy fewer domestic goods and fewer foreign goods.

Question 30

Which of the following statement best describes inflation tax? (ID-MAF-44)

A	Government restrict the sales of both public and private bonds.
B	Government deregulates the free market.
C	Government regulates the free market.
D	Government prints more money to generate revenue.
E	Government increase the reserve ratio for all banks.

Question 30 Explanation: 

By definition, inflation tax is the revenue the government raises by creating money. This process will result in lowering of the value of money.

Question 31

What is the purchasing power of a Canadian consumer if an item in Canada is sold for $4.00 CAD while the same item is sold in US for $3.00 CAD? (ID-MAF-28)

A	0.75
B	4.00
C	1.00
D	3.00

Question 31 Explanation: 

(Foreign Price)/(Domestic Price) = PPP
($3.00)/($4.00) = 0.75

Question 32

Which of the following has the greatest influence on net exports? (ID-MAF-45)

A	Domestic price level
B	Real exchange rate
C	Nominal exchange rate
D	Output or real GDP

Question 32 Explanation: 

All of the above answers have some form of an impact on net exports. However, the most impact is caused by the changes in nominal exchange rate.

Question 33

James has just finish high school and started looking for his first job, but he was unable to find employment. Ceteris paribus, (ID-MAF-48)

A	the unemployment rate decreases and the labor force participation is unaffected.
B	the unemployment rate increases and the labor force participation decreases.
C	the unemployment rate increases and the labor force participation increases.
D	the unemployment rate is unaffected and the labor force participation increases.
E	the unemployment rate decreases and the labor force participation decreases.
F	the unemployment rate increases and the labor force participation is unaffected.

Question 34

This theory suggests that the decrease in price level will result in higher purchasing power when describing the aggregate demand curve. (ID-MAF-15)

A	Adverse Supply Shock
B	Pigou's Wealth Effect
C	Keynes' Effect
D	Real Exchange Rate Effect
E	Sticky-wage Theory

Question 35

The inconvertible paper money made legal tender by a government decree is known as.... (ID-MAF-04)

A	tender.
B	credits.
C	currency.
D	bater.
E	fiat money.

Question 36

Typically, how would inflation impact the nominal interest rate of a country? (ID-MAF-42)

A	There is no relationship between the nominal interest rate and inflation.
B	Increase in 1% point of inflation would result in decrease in 2% point in nominal interest rate.
C	Increasing inflation would lead to increase in nominal interest rate.
D	Increase in 1% point of inflation would result in increase in 2% point in nominal interest rate.
E	Increasing inflation would lead to decrease in nominal interest rate.

Question 36 Explanation: 

Inflation would add to the real interest rate and how much it increase is typically 1:1. The nominal interest rate = real I + Inflation

Question 37

If the Bank of Canada requires banks to have a reserve ratio of 6%, how much of $1000 should a particular bank keep in its reserve? (ID-MAF-31)

A	$30
B	$60
C	None
D	$940
E	$1160

Question 37 Explanation: 

6% of $1000 must be kept as reserves.

Question 38

Labor force or workforce includes... (ID-MAF-01)

A	everyone over the age of 18 in Canada. Hint: In Canada people as young as 14 years old can work.
B	all the people who are legally allow to work.
C	all the people who are currently employed in full time jobs.
D	all the people that are currently employed.

Question 39

Arbitrage opportunities exists when... (ID-MAF-06)

A	two or more markets are not at equilibrium.
B	the exchange rate falls significantly.
C	the exchange rate increases significantly at the same time the inflation rate falls.
D	two or more markets are at equilibrium.

Question 39 Explanation: 

Arbitrage is basically buying in one market and simultaneously selling in another, profiting from a temporary difference. This is considered riskless profit for the investor/trader.

Question 40

If the Bank of Canada want to move from position I to position II on the following simplified inflation verses unemployment graph, which action should they take? (ID-MAF-38)

A	Open market operations of selling bonds.
B	Increase the money supply.
C	Lower the bank rate.
D	Lower the reserve ratio.

Question 40 Explanation: 

Bank of Canada should implement a contractionary monetary policy.

Question 41

In the following figure, the quantity of labour supplied after the imposition of the minimum wage law is ______, the equilibrium market quantity of labour demanded is ______, and the amount of unemployment or surplus labour is ______. (ID-MAF-52)

A	L1 , L2, zero
B	L2 , L1, L2 minus L1
C	L1 , L1, zero
D	L0 , L1, L0 minus L1
E	L2 , L0, L2 minus L0
F	L0 , L0, zero

Question 42

Which of the following would shift the short-run aggregate supply curve to the right? (ID-MAF-34)

A	A decrease in natural resources.
B	A decrease in the price level.
C	A decrease in the capital stock.
D	None of the answers are correct.
E	A decrease in the expected price level.

Question 42 Explanation: 

According to Y = Y_N + a (P - P^e).

Question 43

According to the quantity theory of money, which of the following variable is least effected by increase or decrease in money supply? (ID-MAF-43)

A	Real GDP
B	Price level
C	Velocity of money
D	Nominal GDP

Question 43 Explanation: 

MV = PY and velocity of money (V) is relatively stable and all other variable are highly influenced by money supply.

Question 44

What is the primary premise for efficiency wages? (ID-MAF-54)

A	Higher wages will allow the company to be competitive in the open market operations by increasing the profit marking through price adjustments.
B	Higher the wage, lower will be the cost of obtaining raw materials.
C	Workers are least likely to leave the company in the long run hence reducing costs associated with restaffing.
D	Workers are most likely to postpone their retirement hence increasing the number of experienced workers.
E	Consumers are most likely to buy goods and use services from companies that offer higher wages.

Question 45

If the exchange rate changes from 80 yen per Canadian dollar to 85 yen per Canadian dollar, then the Canadian dollar has... (ID-MAF-55)

A	revalued.
B	devalued.
C	depreciated.
D	appreciated.

Question 46

A person is said to be unemployed due to all of the following criteria except... (ID-MAF-27)

A	if the person is searching for employment, but lacks proper skills or education.
B	if the person is waiting to start a new job.
C	employment is hindered or prevented by physical disabilities.
D	if the person has been employed within the last few weeks, but currently have no employment.

Question 47

The Phillip Curve deals with which of the following? (ID-MAF-21)

A	It deals with long run tradeoffs between inflation and unemplymet.
B	It deals with long run tradeoffs between government spending and tax increases.
C	It deals with sort run tradeoffs between government spending and tax increases.
D	It deals with sort run tradeoffs between inflation and unemplymemt.

Question 48

Given the following currency rates, which currency(ice) is/are less valuable than predicted by the purchasing power parity (PPP)? (ID-MAF-12)

Country	Currency	Currency per Canadian $	Canadian Price Index	Currency Price Index
Bolivia	Boliviano	5.00	100	500
Japan	Yen	100.00	100	20,000
Morocco	Dirham	10.00	100	2000
Thailand	Baht	30.00	100	2500
Australian	Dollar	2.00	100	350

A	Australian Dollar and Japanese Yen
B	Japanese Yen, Moroccan Dirham and Australian Dollar
C	Moroccan Dirham
D	Japanese Yen
E	Thai Baht
F	Bolivian Boliviano

Question 48 Explanation: 

Thai Baht because PPP predicted is 30 but the calculated is 2500/100 = 25, which is less than 30.

Question 49

Clipping, sweating and debasing are examples of which of the following? (ID-MAF-09)

A	Types of monitory controls by the government.
B	Appreciation of the value of fiat money.
C	Changes in the inflation rate.
D	Depreciation of the value of fiat money.

Question 50

In the following figure, the equilibrium market wage after the imposition of the minimum wage law is ______, and the equilibrium market quantity of labour hired is ______. (ID-MAF-51)

A	W1 , L2
B	W0 , L0
C	W1 , L1
D	W1 , L0
E	W0 , L1

Question 51

Ceteris paribus, if an unemployed person quits looking for work, (ID-MAF-49)

A	the unemployment rate increases and the labor force participation decreases.
B	the unemployment rate is unaffected and the labor force participation increases.
C	the unemployment rate decreases and the labor force participation is unaffected.
D	the unemployment rate decreases and the labor force participation decreases.
E	the unemployment rate increases and the labor force participation increases.
F	the unemployment rate increases and the labor force participation is unaffected.

Question 52

Suppose Bank of Canada requires all banks to have reserve ratio of exactly 5%. If $1000 enters the Canadian banking system, what is the cumulative new deposit value of that $1000? (ID-MAF-23)

A	$20,000
B	$10,000
C	$5000
D	$4500
E	$3000

Question 52 Explanation: 

$1000 x (1/0.5) = $20,000

Question 53

A short-run Phillips curve shows an inverse relationship between (ID-MAF-58)

A	interest rates and borrowing.
B	inflation & unemployment.
C	prices and quantity demand.
D	wage rate and unemployment.
E	income and consumption.

Question 54

Which of the following is the best action a government should take to lower the natural unemployment rate? (ID-MAF-25)

A	Implement an expansionary fiscal policy.
B	Decrease the minimum wage.
C	Increase the minimum wage.
D	Increase funding for post secondary education.

Question 55

If the Bank of Canada conducts open market purshases, the money supply will... (ID-MAF-19)

A	decrease and aggregate demand curve will not shift.
B	increase and aggregate demand curve will not shift.
C	decrease and aggregate demand curve will shift to the right.
D	increase and aggregate demand curve will shift to the right.
E	increase and aggregate demand curve will shift to the left.

Question 56

The net exports also known as the... (ID-MAF-13)

A	global economy.
B	trade balance.
C	global influence.
D	balanced trade.
E	global input.

Question 57

A person may save money through the financial system. Which of the following saving type considered as a demand deposit? (ID-MAF-10)

A	A chequing account with no interest.
B	A tax free saving account a high interest and mixed investments.
C	Buying a stock from a company.
D	A saving account with investments to supply the demands of lonable funds.
E	Buying a bond from a company or the government.

Question 58

When a union bargains successfully with an employer, it ______ the quantity of labour supplied and ______ the quantity of labour demanded, resulted in ______. (ID-MAF-53)

A	lowers , lowers , unemployment
B	None of the answers are correct.
C	raises , raises , more unemployment
D	lowers , raises , unemployment
E	raises , lowers , more unemployment

Question 59

Janet loses his job and immediately begins looking for another. Ceteris paribus, (ID-MAF-47)

A	the unemployment rate decreases and the labor force participation decreases.
B	the unemployment rate decreases and the labor force participation is unaffected.
C	the unemployment rate increases and the labor force participation is unaffected.
D	the unemployment rate is unaffected and the labor force participation increases.
E	the unemployment rate increases and the labor force participation decreases.
F	the unemployment rate increases and the labor force participation increases.

Question 60

Natural rate of unemployment is... (ID-MAF-08)

A	amount of unemployment that an economy normally experiences.
B	the unemployment rate corrected for inflation, skill levels and other external factors.
C	determined only based on the permanent long-term employment opportunities.
D	rate at which the unemployment fluctuates.

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Credits: Based on the excellent class notes provided by, Dr. Peter Tracey during Fall 2015 and textbook ISBN-978-0-17-653085-3.
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