Choose the correct statement.
A) Tax cuts increase aggregate supply and aggregate demand.
B) Tax cuts strengthen the incentive to work and to invest.
C) The tax multiplier becomes smaller as time passes.
D) According to Barro and Uhlig, tax cuts are a less powerful way to stimulate real
GDP than spending increases.
E) Both A and B are correct.
The opportunity cost of a hot dog in terms of hamburgers is
A) the ratio of the slope of the supply curve of hot dogs to the slope of the supply curve
of hamburgers.
B) the ratio of the money price of a hot dog to the money price of a hamburger.
C) the ratio of the slope of the demand curve for hot dogs to the slope of the demand
curve for hamburgers.
D) the money price of a hot dog minus the money price of a hamburger.
E) smaller in the winter than in the summer.
A chemical factory and a fishing club share a lake. Producing chemicals creates water
pollution that harms the fish. Initially the lake is owned by no one. Keeping in mind the
Coase theorem, suppose transactions costs are low and the chemical factory is given
ownership of the lake. Compared to the situation with no property rights, the quantity of
chemicals produced
A) decreases.
B) stays the same.
C) increases.
D) changes but the direction of the change is unknown.
E) decreases only if the marginal external benefit decreases.
Suppose the production possibilities frontier for skirts and pants is a straight line. As the
production of skirts increases, the marginal benefit from skirts
A) increases and marginal cost is constant.
B) is constant and marginal cost decreases.
C) decreases and marginal cost increases.
D) decreases and marginal cost decreases.
E) decreases and marginal cost is constant.
Which of the following statements about the monetarist view of the macroeconomy is
incorrect?
A) The money wage rate is sticky.
B) Taxes should be kept low to avoid disincentive effects that decrease potential GDP.
C) All recessions result from inappropriate monetary policy.
D) Left alone, the economy rarely operates at full employment.
E) Provided that the quantity of money is kept on a steady growth path, no active
stabilization is needed to offset changes in aggregate demand.
The ATC curve shifts upward if
A) factor prices rise.
B) a new technology is introduced.
C) more workers are hired.
D) all of the above
E) none of the above
The fundamental force that drives international trade is
A) comparative advantage.
B) absolute advantage.
C) a country’s desire to increase its trade surplus.
D) cheap labour in countries like China and India.
E) unemployment of factors of production.
Suppose you think that the Canadian dollar exchange rate will depreciate against the
U.S. dollar over the next month. What should you do now in anticipation of profit?
A) Buy Canadian dollars.
B) Buy U.S. dollars.
C) Sell Canadian dollars.
D) Sell U.S. dollars.
E) Do both B and C.
The demand for high-skilled labour is derived from the
A) exploitation of the low-skilled workers.
B) marginal cost of production.
C) lower wage of the labour.
D) supply of the high-skilled labourers.
E) value of marginal product of high-skilled labour.
A voucher can eliminate the deadweight loss and lead to an efficient outcome if the
value of the voucher equals the ________ of the good.
A) marginal external cost
B) marginal social benefit
C) marginal private benefit
D) marginal social cost
E) marginal external benefit
If a firm faces a perfectly elastic demand for its product, then
A) it is not a price taker.
B) it will want to lower its price to increase sales.
C) it will want to raise its price to increase total revenue.
D) its marginal revenue curve is horizontal at the market price.
E) it will always make zero economic profit.
Use the table below to answer the following questions.
Table 27.3.1
The following table shows the relationship between aggregate planned
expenditure and real GDP in the hypothetical economy of Econoworld.
Refer to Table 27.3.1. What is the slope of the AE curve?
A) 0.8
B) 0.6
C) 0.75
D) 1
E) 1.3
Use the information below to answer the following questions.
Fact 9.3.2 Boom Time for “Gently Used” Clothes
Most retailers are blaming the economy for their poor sales, but one store chain that
sells used name-brand children’s clothes, toys, and furniture is boldly declaring that an
economic downturn can actually be a boon for its business. Last year, the company took
in $20 million in sales, up 5% from the previous year. Sales are already up 5% this year.
Refer to Fact 9.3.2. According to the news clip, used clothing is ________ good. If the
price of used clothing falls and income remains the same, the quantity of used clothing
bought ________.
A) an inferior; decreases
B) an inferior; increases
C) a normal; increases
D) a normal; decreases
E) a substitute; decreases
Which one of the following is not true in consumer equilibrium?
A) The total utilities of all goods are equal.
B) The consumer is maximizing utility, given her income and the prices of goods and
services.
C) The marginal utility per dollar is equal for all goods.
D) Given prices and her income, the consumer finds that any other choice of goods to
consume would lower her utility.
E) The consumer will not change her choices unless prices or income change.
The Government of Canada promises to produce more defence goods without any
decrease in the production of other goods. This promise is valid
A) if Canada is producing at a point outside its PPF.
B) if Canada is producing at a point on its PPF.
C) if Canada is producing at a point inside its PPF.
D) only if the PPF shifts rightward.
E) only if technology advances or capital increases.
Using the Rule of 70, if the country of Flowerdom’s current growth rate of real GDP per
person is 7 percent a year, how long will it take the country’s real GDP per person to
double?
A) 1 year
B) 2 years
C) 10 years
D) 49 years
E) 7 years
In a competitive market, the market demand curve measures the ________ if ________
exist.
In a competitive market, the market supply curve measures the ________ if ________
exist.
A) marginal social benefit; no external costs; marginal social cost; no external benefits
B) firms’ marginal benefit; external benefits; consumers’ marginal cost; external costs
C) marginal social benefit; no external benefits; marginal social cost; no external costs
D) marginal social benefit; external benefits; marginal social cost; external costs
E) consumer surplus; external benefits; producer surplus; external costs
Use the figure below to answer the following questions.
Figure 11.2.1
Refer to Figure 11.2.1 which illustrates Tania’s total product curve. Which one of the
following statements is false?
A) All the points above the curve are unattainable.
B) All the points below the curve are attainable.
C) All the points below the curve are inefficient.
D) The cost of producing at point B equals the cost of producing at point C.
E) All the points on the curve are attainable.
Refer to Figure 29.3.1, which shows the outlays and revenues for the government of
Pianoland. Discretionary fiscal policy would be shown as a movement
A) from right to left along the revenues curve.
B) from left to right along the revenues curve.
C) from right to left along the outlays curve.
D) from left to right along the outlays curve.
E) none of the above
Refer to the table below to answer the following questions.
Table 25.1.1
Refer to Table 25.1.1. Between 2009 and 2010, the Canadian dollar ________ versus
the euro and ________ versus the yen.
A) appreciated; depreciated
B) appreciated; appreciated
C) depreciated; depreciated
D) depreciated; appreciated
E) not changed; not changed
Ernie’s Earmuffs produces 200 earmuffs per year at a total cost of $2,000 and $400 of
this cost is fixed. What is Ernie’s total variable cost?
A) $400
B) $8
C) $2
D) $2,400
E) $1,600
Which one of the following can start a demand-pull inflation?
A) a sharp increase in the price of oil
B) higher wages negotiated by unions
C) a cut in the interest rate
D) a decrease in investment as a result of a decrease in expected future profits
E) a decrease in government expenditure on goods and services
Which one of the following would likely shift a production possibilities frontier
inward?
A) technological change
B) a drought
C) a decrease in the price of natural resources
D) an increase in human capital
E) None of the above, because production possibilities frontiers do not shift inward.
Which approach to measuring GDP is being used when Statistics Canada sums
spending on goods and services for consumer goods, government, business investments
and net exports?
A) value added
B) income
C) factor cost
D) expenditure
E) opportunity cost
In the price range below minimum average variable cost, a perfectly competitive firm’s
supply curve is
A) horizontal at the market price.
B) vertical at zero output.
C) the same as its marginal cost curve.
D) the same as its average variable cost curve.
E) the same as its total variable cost curve.
If the population increases, then potential GDP ________, and potential GDP per hour
of labour ________.
A) increases; decreases
B) increases; increases
C) decreases; increases
D) decreases; decreases
E) increases; does not change
The business cycle is defined as the
A) regular growth rate of the real GDP.
B) regular fluctuations of real GDP below potential GDP.
C) irregular fluctuations of prices around real GDP.
D) periodic but irregular up-and-down movement of total production and other
measures of economic activity.
E) periodic and regular up-and-down movement of total production.
Use the table below to answer the following questions.
Table 1A.4.2
Table 1A.4.2 shows that,
A) the number of boxes of strawberries purchased is negatively related to the price of
strawberries, holding income constant.
B) the number of boxes of strawberries purchased is negatively related to income,
holding the price of strawberries constant.
C) the price of strawberries is negatively related to family income, holding purchases of
strawberries constant.
D) B and C.
E) A and B.
Suppose your annual income is $65 000 and your favourite magazine costs you $28 a
year. Your demand for the magazine is likely to be
A) perfectly elastic.
B) inelastic.
C) unit elastic.
D) elastic.
E) elastic the same as your demand for all other goods.
If the Bank of Canada fears inflation it will undertake an open market ________ of
securities, the overnight loans rate will ________ and the long-term real interest rate
will ________.
A) sale; rise; fall
B) sale; rise; rise
C) purchase; rise; fall
D) purchase; fall; rise
E) sale; fall; fall
A very small country is an international borrower. Its supply of loanable funds increases
but it still remains a net foreign borrower. As a result, the equilibrium quantity of
loanable funds used in the country ________ and the country’s foreign borrowing
________.
A) does not change; decreases
B) does not change; does not change
C) does not change; increases
D) increases; does not change
E) increases; decreases
Which of the following are equal to one another?
I. aggregate production
II. aggregate expenditure
III. aggregate income
A) I equals II, but I does not equal III.
B) I equals III, but I does not equal II.
C) II equals III, but II does not equal I.
D) III equals II, but III does not equal I
E) I equals II equals III.
A university decides to change its late night bus service between the campus and
student housing from a fare-based service to a free service. This statement means that
the incentive to ride the bus ________ and the opportunity cost of a bus ride ________.
The university’s decision is a ________ decision.
A) changes; decreases; microeconomic
B) changes; decreases; macroeconomic
C) remains the same; remains the same; macroeconomic
D) remains the same; remains the same; microeconomic
E) changes; increases; microeconomic
Use the table below to answer the following question.
Table 1A.4.3
Refer to Table 1A.4.3. The table shows some data on the quantity of ice cream
consumed at different prices and in different weather conditions. To draw a graph of the
relationship between the quantity of the ice cream consumed and the price of ice cream,
we must
A) decrease the temperature as the price rises.
B) pick the temperature that prevailed when the price was $1.00.
C) increase the temperature as the price rises.
D) hold the temperature constant at any of the four levels shown.
E) hold the price constant at any of the five levels shown.