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

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

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

Question 2

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

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

Question 3

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

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

Question 3 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 4

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

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

Question 5

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

A	Workers are most likely to postpone their retirement hence increasing the number of experienced workers.
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	Higher wages will allow the company to be competitive in the open market operations by increasing the profit marking through price adjustments.
E	Consumers are most likely to buy goods and use services from companies that offer higher wages.

Question 6

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

Question 7

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

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

Question 7 Explanation: 

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

Question 8

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

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

Question 9

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

Question 10

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

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

Question 11

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

Question 11 Explanation: 

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

Question 12

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

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

Question 13

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

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

Question 14

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	Acquisition of less goods at a higher price level.
C	Unintentional wear off of coins.
D	Clipping of money by the population that uses it.
E	Replacement of one currency by a lower valued currency.

Question 15

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

Question 15 Explanation: 

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

Question 16

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

Question 17

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

Question 17 Explanation: 

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

Question 18

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

Question 19

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

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

Question 19 Explanation: 

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

Question 20

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

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

Question 21

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

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

Question 22

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

Question 23

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

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

Question 24

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	appreciated.
B	depreciated.
C	devalued.
D	revalued.

Question 25

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

Question 26

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

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

Question 27

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

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

Question 28

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

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

Question 29

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

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

Question 30

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

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

Question 30 Explanation: 

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

Question 31

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

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

Question 32

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

Question 32 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 33

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	Sticky-wage Theory
D	Real Exchange Rate Effect
E	Keynes' Effect

Question 34

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

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

Question 35

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

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

Question 36

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

Question 37

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

Question 37 Explanation: 

Labor force = Total population - Population under 18

Question 38

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

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

Question 39

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	3.00
D	1.00

Question 39 Explanation: 

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

Question 40

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	56
B	70
C	5
D	30

Question 40 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 41

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

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

Question 41 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 42

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

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

Question 43

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

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

Question 44

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

Question 44 Explanation: 

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

Question 45

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

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

Question 46

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

A	None of the the answers are correct.
B	Shift in aggregate demand curve to the right, increased spending and decrease in interest rate.
C	Shift in aggregate demand curve to the right, increased spending and increase in interest rate.
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 47

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

Question 47 Explanation: 

Bank of Canada should implement a contractionary monetary policy.

Question 48

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

Question 49

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

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

Question 50

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

Question 51

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

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

Question 52

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

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

Question 53

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

Question 54

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

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

Question 54 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 55

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

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

Question 55 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 56

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

A	the unemployment rate increases and the labor force participation is unaffected.
B	the unemployment rate decreases and the labor force participation decreases.
C	the unemployment rate decreases 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 57

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

Question 58

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

Question 58 Explanation: 

6% of $1000 must be kept as reserves.

Question 59

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

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

Question 60

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

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

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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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