11. Which school of thought believed that long-run equilibrium occurs automatically and is the normal state of affairs in a market economy?

A)

Keynesians

B)

Neoclassicists

C)

Supply-siders

D)

Symbolic analysts

12.

According to Keynes, what determines interest rates?

A)

The level of saving

B)

The level of investment

C)

The velocity of money

D)

Both saving and investment

E)

The interaction of the demand and supply of money

13.

All of the following, except one, are pillars on which neoclassical theory is built. Which is the exception?

A)

The flexibility of production

B)

The validity of Say's Law

C)

The flexibility of prices

D)

The flexibility of interest rates

E)

The flexibility of wages

14.

What characterized the decades of the 1950s and 1960s?

A)

Low growth and high unemployment

B)

Low unemployment and high inflation

C)

Stagflation

D)

Economic stability with reasonably low unemployment and inflation

15.

What is the result if an economy is at full-employment equilibrium and the money supply is increased?

A)

Real GDP will rise.

B)

A recessionary gap will emerge.

C)

Interest rates will rise.

D)

The transactions demand for money will fall.

E)

None of the above.

16.

When the Bank of Canada implements a tight money policy, what happens to the interest rate?

A)

It falls.

B)

It rises.

C)

It remains constant.

D)

It moves in the same direction as does the price of bonds.

The graph relates to a closed, non-government economy presently at an equilibrium income level of $4000.

17.

Refer to the graph above to answer this question. What is the rate of interest at equilibrium?

A)6%.B)8%.C)12%.D)20%.

18.

Refer to the graph above to answer this question. If the full-employment level of national income is $5,000, and the interest rate is 8%, then what should the Bank of Canada do?

A)

It should lower the interest rate by 2% points.

B)

It should lower the interest rate by 4% points.

C)

It should raise the interest rate by 2% points.

D)

It should raise the interest rate by 4% points.

19.

What characterized the economic conditions in Canada from 1990-2008?

A)

Low inflation and steady economic growth

B)

Stagflation

C)

Rising levels of unemployment but low inflation

D)

Low unemployment and high inflation.

20.

Which of the following best explains the Phillips curve relationship?

A)

Inflation increases at a faster rate as the economy moves toward full employment.

B)

Unemployment falls as the economy moves toward full employment.

C)

Inflation decreases as the economy moves closer to full employment.

D)

As unemployment decreases, so does the rate of inflation.

E)

None of the above.

21.

The Phillips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment:

A)

unemployment may actually increase because of the crowding-out effect.

B)

tax revenues may increase even though tax rates have been reduced.

C)

inflation may result.

D)

the natural rate of unemployment may fall.

22. What is the result of expansionary fiscal and monetary policies if an economy is suffering stagflation?

A)Unemployment may be cured but at the cost of higher inflation.

B)Inflation may be cured but at the cost of higher unemployment.

C)It will increase the levels of both unemployment and inflation.

D)It will decrease the levels of both unemployment and inflation.

23.

All of the following, except one, are reasons why some economists favour fixing the Canadian exchange rate to the U.S. dollar.Which is the exception?

A)

Monetary independence in Canada is overrated in that Canada almost always follows U.S. policy anyway.

B)

Investment in Canada would be stabilized and encouraged.

C)

The U.S. economy is more stable than the Canadian economy.

D)

The brain-drain of Canadian talent to the U.S. would be reduced.

24.

"A fixed exchange rate implies a fixed ____ which results in monetary policy being ____."(Fill in the blanks.)

A)

Price level; very effective.

C)

Interest rate; very effective.

B)

Price level; ineffective.

D)

Interest rate; ineffective.

25.All of the following statements about deflation, except one, are true. Which is the exception?

A)It is characterized by interest rates at zero or near zero.

B)Apart from one year, it has not occurred in Canada since the Great Depression.

C)It means that a return on idle money is possible.

D)It encourages consumers to postpone major purchases.

E)It encourages large-scale investment in the economy.

26.

Keynes did not agree with neoclassical theory about prices and wages being flexible, nor did he believe that their adjustment would guarantee full employment. Why is this?

A)

Because monopolistic forces in the economy cause wages and prices to be inflexible and lower wages will result in decreased spending.

B)

Because it is adjustments in the interest rate that will guarantee full employment.

C)

Because in modern capitalism there is too much competition to permit price-wage flexibility.

D)

Because wage receivers and price setters belong to different groups who have different objectives.

Assume that the economy illustrated is presently at full employment equilibrium.

27.

Refer to the graph above to answer this question. Which point represents the economy's present position?

A)a.B)b.C)c.D)d.E)None of the above.

28.

Refer to the graph above to answer this question. If aggregate demand falls and price and wages are sticky, which point represents the economy's new position?

A)a.B)b.C)c.D)d.E)None of the above.

29.

Refer to the graph above to answer this question. If aggregate demand falls and prices and wages are flexible, which point represents the economy's new position?

A)a.B)b.C)c.D)d.E)None of the above.

30.

Which of the following is an argument of Arthur Laffer, the supply-side economist?

A)

That present tax rates are too high but a cut in tax rates will lead to a drop in tax revenues.

B)

That present tax rates are too low and should be increased.

C)

That an increase in tax rates will force people to work harder.

D)

That a cut in tax rates will lead to higher tax revenues.

E)

None of the above.

31.

Why did economists, at first, have trouble diagnosing the stagflation of the 1970s?

A)

They were still wedded to Say's Law.

B)

They had not resolved the debate over the asset demand for money.

C)

They did not yet understand the quantity of exchange equation.

D)

They thought that aggregate supply played a very passive role in the economy.

E)

All of the above.

32.

Which of the following is a criticism of supply-side economics?

A)

That tax cuts will affect aggregate demand more than aggregate supply.

B)

It is not yet proven that decreases in tax rates provide incentives to work, save and invest more.

C)

A decline in tax rates will give rise to large government budget deficits.

D)

Supply-side policies lead to greater inequalities of income and wealth.

E)

All the above.

33.According to supply-siders, what is one of the keys to curbing stagflation?

A)An increase in the money supply and a cut in government spending

B)A decrease in the money supply and an increase in government spending.

C)An increase in aggregate demand

D)Convincing people to buy domestic rather than foreign-produced goods

E)A cut in tax rates

Use the following to answer questions 34-35:

34.

Refer to the graph above to answer this question. Which statement is true of the shift from AS2 to AS1?

A)

It could be caused by a tax cut.

B)

It illustrates stagflation.

C)

It would cause real GDP to rise.

D)

It illustrates economic growth.

E)

It could be a result of counter-cyclical monetary policy.

35.

Refer to the graph above to answer this question. Which statement is true of the shift from AS1 to AS2?

A)

It could be the result of technological change.

B)

It could be caused by a tax cut.

C)

It moves the economy from one equilibrium to another equilibrium level of real GDP.

D)

All of the above.

36.

Which of the following is a reason for the decline in the value of the Canadian dollar for most of the 1990s?

A)

Higher commodity prices.

B)

Political stability in Quebec.

C)

Decrease in foreign investment coming into Canada.

D)

High level of exports.

E)

All of the above.

37.

Which of the following best describes the federal government's annual budgets for the last eighteen years?

A)

There were budget surpluses for the first several years, then budget deficits for several more, followed by two years of surpluses.

B)

There were budget deficits for the first couple of years, then budget surpluses for several more, followed by several years of deficits.

C)

There were budget deficits for all of the years.

D)

There were budget surpluses for all of the years.

38.

Refer to the figure below to answer this question. According to supply-side economists, at what level are present tax rates in Canada?

A)

At some level like 0a.

C)

At some level like 0c.

B)

At some level like 0b.

D)

At 0d.

39.Refer to the figure above to answer this question. According to neoclassicists, which of the following is true?

A)The horizontal axes of both graphs A and B show nominal GDP.

B)It is not possible for an economy to be at Y2 in graph B.

C)The shift from AD3 to AD4 is caused by an increase in the price level.

D)Graph A illustrates that changes in aggregate demand have no effect on the price

level.

E)Graph B illustrates a Laffer-curve-type trade-off.

40.Refer to the figure above to answer this question. According to Keynesians, which of the following is true?

A)The horizontal axes of graphs A and B show nominal GDP.

B)The shift from AD3 to AD4 illustrates what should have happened in the 1930s but did not.

C)Graph B illustrates a Phillips-curve-type trade-off.

D)A shift from AD1 to AD2 is the result of contractionary fiscal and monetarypolicy.

41.A major shift in perceptions about the role of government occurred during which of the following periods in history?

A)Immediately following WW II

B)In the middle of the Great Depression

C)Just prior to World War I

D)In the 1990s

42.

How is a historical look at the macroeconomy of Canada beneficial?

A)

It assures us that the real issues of the day do not change.

B)

It enables us to realize that the views of economists about the issues of the day are very similar over time.

C)

It helps us to identify the relationship between economic events and changes in macroeconomy theory.

D)

It establishes the unchanging nature of macroeconomic theory.

43.Which one of the following does not explain why Canada survived the financial crisis so much better than did the United States.

A)Canada's banking regulations limit the amount of leverage and securitization possible.

B)Canada's Financial Consumer Agency restricted sub-prime lending.

C)Canadians never got caught up in the ideology that denies any need for regulation of the banking system.

D)House prices in Canada did not increase.

44.What is the essential difference between Keynesian and neoclassical views of macroeconomy?

A)The Keynesian view is that the economy is capable of automatically adjusting to economic changes because of the flexibility of wages, prices, and interest rates, while the neoclassical view is that the economy could get stuck in a recessionary gap because of their inflexibility.

B)The neoclassical view is that the economy can automatically adjust to economic changes because of the flexibility of wages, prices, and interest rates, while the Keynesian view is that the economy could get stuck in a recessionary gap because of their inflexibility

C)While both views agree on the automatic adjustment ability of the economy, the Keynesian view sees wages as flexible, but the neoclassical view does not.

D)While both views agree on the automatic adjustment ability of the economy, the neoclassical view sees wages as flexible, but the Keynesians do not.

45.What was the supply-side diagnosis of stagflation?

A)It was triggered by the high price of imported oil and accentuated by declining productivity rates.

B)It was triggered by the stock market crash and accentuated by the low price of imported oil.

C)It was triggered by the stock market crash and accentuated by declining productivity rates.

D)It was triggered by the stock market crash and accentuated by the high price of imported oil.

Please read the following statements to answer Question #46:

1. Housing prices will always rise.

2. Unregulated markets are preferable to markets that are regulated.

3. The risks inherent in granting sub-prime mortgages can never be hedged.

4. The collapse of Long Term Capital Management's hedge fund was a precursor to the future.

5. No one was responsible for the hundreds of billions of dollars that were being loaned out.

46.Chapter 13 identifies three blunders during the several years leading up to the financial crisis of 2007-2010. Which three of these statements reflect those blunders?

A)1, 3 and 4

B)2, 3, and 5

C)1, 2 and 5

D)3, 4, and 5

47.With which of the following events are derivatives, hedge funds, and sub-prime mortgages all associated?

A)The Great Depression

B)The post-World War II economic boom period

C)The financial crisis of 2008-2010

D)The stagflation years of the 1970s

48.According to neoclassical economists, what would happen if total spending was less than total output?

A)Product prices would rise, but wage rates would fall.

B)Product prices would fall, but wage rates would rise.

C)Nominal GDP would rise, but real GDP would remain constant.

D)Both product prices and wage rates would fall.

E)Both product prices and wage rates would rise.

49.

Which of the following statements is likely to be true in the future?

A)

Unemployment will continue to be a problem for some individuals despite an overall strong and growing economy.

B)

Inflation is likely to remain low.

C)

Income distribution patterns will show increased gaps between the rich and the poor, despite a strong and growing overall economy.

D)

All of the above.

50.

What is the most likely effect of the new economy?

A)

Knowledge will increasingly be substituted for financial capital.

B)

Firms will face an increased need for large inventories.

C)

Real capital will become even more important.

D)

The multi-national corporation will fade away.

E)

All of the above.