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

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

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

Question 2

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

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

Question 3

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

Question 4

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

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

Question 4 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 5

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

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

Question 6

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

A	if the person is waiting to start a new job.
B	if the person is searching for employment, but lacks proper skills or education.
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 7

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

Question 8

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

Question 9

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

Question 10

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

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

Question 11

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

Question 11 Explanation: 

6% of $1000 must be kept as reserves.

Question 12

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

Question 13

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

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

Question 14

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	Lower the bank rate.
C	Increase the money supply.
D	Lower the reserve ratio.

Question 14 Explanation: 

Bank of Canada should implement a contractionary monetary policy.

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

Question 16

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

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

Question 17

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

Question 18

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

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

Question 19

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

A	Workers are least likely to leave the company in the long run hence reducing costs associated with restaffing.
B	Higher wages will allow the company to be competitive in the open market operations by increasing the profit marking through price adjustments.
C	Higher the wage, lower will be the cost of obtaining raw materials.
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 20

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

Question 20 Explanation: 

Labor force = Total population - Population under 18

Question 21

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

Question 22

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

Question 23

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

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

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

Question 26

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

Question 27

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

Question 28

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

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

Question 28 Explanation: 

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

Question 29

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

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

Question 30

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

Question 31

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

Question 31 Explanation: 

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

Question 32

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

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

Question 33

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

Question 34

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 34 Explanation: 

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

Question 35

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	Bolivia and Morocco
C	Bolivia
D	Thailand and Australia
E	Japan

Question 35 Explanation: 

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

Question 36

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

Question 37

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

Question 37 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 38

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

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

Question 39

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 decreases and the labor force participation is unaffected.
C	the unemployment rate is unaffected and the labor force participation increases.
D	the unemployment rate increases 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 40

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

Question 40 Explanation: 

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

Question 41

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

Question 42

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

Question 42 Explanation: 

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

Question 43

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

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

Question 44

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

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

Question 45

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

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

Question 46

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	30
D	5

Question 46 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 47

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	shift , have no effect on
C	shift , shift
D	have no effect on , have no effect on
E	have no effect on , shift

Question 47 Explanation: 

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

Question 48

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

Question 49

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

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

Question 50

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

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

Question 51

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

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

Question 51 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 52

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	42.5% or half of employment rate.
C	It is depend on the adult population.
D	15% because labor force must add up to 100%.

Question 53

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 54

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

Question 54 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 55

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

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

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

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

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

Question 57

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 left, increased spending and increase in interest rate.
C	Shift in aggregate demand curve to the right, increased spending and decrease in interest rate.
D	Shift in aggregate demand curve to the right, increased spending and increase in interest rate.
E	Shift in aggregate demand curve to the left, increased spending and decrease in interest rate.

Question 58

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

Question 59

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	3.00
B	1.00
C	4.00
D	0.75

Question 59 Explanation: 

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

Question 60

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

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

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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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