Chapter 5 MCQ

Question 1

Klingon look-alikes are working for money, and paying money to buy products and services. This evidence suggests input and output markets. T  F

Answer 1

True. Working means input markets; products and services sold in output markets.

Question 2

Yoda look-alikes are paying taxes, and some are receiving transfer payments from the government. Thisevidence suggests that government is part of thecircular flow of economic life. T  F

Answer 2

True. Government sets rules of the game and chooses where to interact.

Question 3

Every government worker on Plutonomics is a superstar at solving microeconomic problems. Therefore, the government of Plutonomics must beasuperstar at solving macroeconomic problems. T  F

Answer 3

False. Superstars at microeconomics may not be superstars at macroeconomics.

Question 4

Everyone on Plutonomics is a superstar at saving. Therefore, the Planet of Plutonomics must be a superstar at saving. T  F

Answer 4

False. Fallacy of composition — individual superstars may not function as a superstar team. They might not be able to work effectively together.

Question 5

Government policies on Plutonomics were based on the special interests of female Yoda look-alikes rather than on the public interest, resulting in a high level of unemployment for men. This suggests that the high unemployment level for men could have been caused by government failure. T  F

Answer 5

True. Policy fails to serve the public interest.

Question 6

A political party on Plutonomics called the Laissez-Faire-Isn’t-Fair Party believes that governmentpolicy can improve market outcomesbyacting in the public interest. Thissuggeststhe political party prefers a hands-onapproach. T  F

Answer 6

True. Believe market failure more likely than government failure.

Question 7

A political party on Plutonomics called the Lazy Far Right Party believes that an invisible hand promotes efficiency and raises living standards. This suggests that this political party prefers a hands-on approach. T  F

Answer 7

False. They prefer a hands-off approach believing that left alone, markets quickly self-adjust to produce desirable outcomes.

Question 8

A political party on Plutonomics called the Hazy Far Left Party believes that the whole of Plutonomics is greater than the sum of the parts. This suggests that this political party prefers a hands-on approach. T  F

Answer 8

True. Hands-on camp believes in fallacy of composition.

Question 9

The GDP per person on Plutonomics steadily declined in recent years. This suggests that their standard of living is increasing. T  F

Answer 9

False. If fewer products and services per person available, then standard of living of aliens is decreasing.

Question 10

Unemployment on Plutonomics increased in recent years. This suggests that their situation is improving. T  F

Answer 10

False. More workers looking for work, but unable to find work, is bad news.

Question 11

The prices of iPads, Bridgestone tires, slim-fitting jeans, Dippity-Do hair gel, piercings, and tattoos are all rising on Plutonomics. This suggests that there is inflation in their economy. T  F

Answer 11

True. Inflation is a rise in the average level of all prices.

Question 12

The Planet of Plutonomics does not use Canadian dollars. This suggests that they would never be able to buy Canadian exports. T  F

Answer 12

False. To buy Canadian exports, aliens can convert their money into Canadian dollars.

Question 13

Home buyers on Plutonomics will be affected by their government’s monetary policy. T  F

Answer 13

True. Monetary policy affects interest rates, including mortgage interest rates.

Question 14

The high level of unemployment on Plutonomics suggests that workers have the advantage in bargaining with employers. T  F

Answer 14

False. Employers can choose from large pool of job applicants.

Question 15

The best understanding of the macroeconomy of Plutonomics comes from studying the input markets alone and the output markets alone. T  F

Answer 15

False. Macroeconomic thinking focuses on connections between markets.

Question 16

What do the Great Depression and Global Financial Crisis have in common?

Both were great for depression.

Both had a stock market crash.

Both had rising prices.

Both had government programs like employment insurance.

Answer 16

b) No inflation in either, and no government programs in Great Depression.

Question 17

Who is to blame for inflating the housing price bubble?

Homeowners

Mortgage lenders

Banks and other
financial institutions

All of the above

Answer 17

d) All made bad choices by assuming prices would always go up.

Question 18

During the Global Financial Crisis, all of these indicators fell except

stock market values.
unemployment.
housing prices.
asset prices.

Answer 18

b) Unemployment increased.

Question 19

When everyone saves their money, total savings decrease. This is an example of

the Zero Sum Scenario.

the Fallacy of Combination.

Say’s Law.

the Paradox of Thrift.

Answer 19

d) Spending and GDP decrease, incomes decrease, so people can’t save as much as they hoped to.

Question 20

Say’s Law claims that

supply is greater than demand.

demand is greater than supply.

supply creates its own demand.

demand creates its own supply.

Answer 20

) Definition.

Question 21

Those favouring a government hands-off approach argue that markets will

self-adjust.

quickly self-adjust.

not quickly self-adjust.

quickly-self adjust if left alone by government.

Answer 21

d) No need for government policy.

Question 22

Which political party supports a hands-off approach by government?

Liberal Party of Canada

Conservative Party of Canada

NDP

Bloc Québécois

Answer 22

b) Hands-off usually associated with political right.

Question 23

The performance of the Canadian economy is measured by the key outcome(s) of

GDP.
unemployment.
inflation.
all of the above.

Answer 23

d) Three key performance outcomes.

Question 24

Purchases of new factories and equipment by businesses are called

stock investments.
investment spending.
labour costs.
exports.

Answer 24

b) Different from financial investments in stocks.

Question 25

Transfer payments by governments to consumersinclude

Employment Insurance for the unemployed.

Old Age Security payments to seniors.

Canadian Child Tax Benefit payments to low-income families.

all of the above.

Answer 25

d) All federal transfer payments to individuals.

Question 26

Monetary policy is the responsibility of the

Bank of Montreal.
Bank of Nova Scotia.
Bank of Canada.
Government of Canada.

Answer 26

c) Bank of Canada is largely independent of Government of Canada.

Question 27

Unemployment matters to your personal economic success because it affects your ability to

find a job.

bargain for higher wages.

bargain for better working conditions.

do all of the above.

Answer 27

d) Lower unemployment improves all conditions for workers.

Question 28

When unemployment increases,

the chance of finding a job decreases.

GDP increases.

the economy is growing.

all of the above.

Answer 28

a) Increasing unemployment connected to decreasing GDP and growth.

Question 29

Inflation is a rise in the

average price level in the economy.

value of money.

quantity of products and services in the economy.

standard of living in the economy.

Answer 29

a) Value of money falls with inflation.

Question 30

Which connection is not important for thinking like a macroeconomist?

Connection between households and consumers

Connection between input and output markets

Connection between Canada and the rest of the world

Connection between money/banks/expectations and input and output markets

Answer 30

a) Households are consumers when spending or saving.

Question 31

‘Supply creates its own demand’ is known as

A.
the linear flow.
B.
the accepted view.
C.
Adam Smith’s Law.
D.
Say’s Law.

Answer 31

Say’s Law

The belief that market economies would always quickly self adjust was based on work by​ Jean-Baptiste Say​ (1767-1832), a French economist and supporter of Adam​ Smith’s views on free trade and markets.​ Say’s Law claimed that​ “supply creates its own​ demand.”

Question 32

A theory explaining how consumer spending affects overall employment

a. micro
b. macro

A description of why the price of a television has fallen

a. micro
b. macro

Answer 32

1. macro
2. micro

Question 33

A macroeconomist would study

A.
market shortages and surpluses.
B.
choices made by individual businesses.
C.
price signals in markets.
D.
the economy’s unemployment level.

Answer 33

d. the economy’s unemployment level

Question 34

According to the paradox of​ thrift,

A.
attempts to increase spending cause aggregate savings to increase.
B.
the whole is greater than the sum of the individual parts.
C.
thrifty people cannot afford to buy many products.
D.
attempts to increase savings cause aggregate savings to decrease.

Answer 34

D. According to the paradox of​ thrift, attempts to increase savings cause aggregate savings to decrease because of falling employment and incomes.

Question 35

Market failure can occur because

A.
it is easy to make honest mistakes in choosing macroeconomic polices.
B.
government can be ‘captured’ by special interest groups.
C.
policymakers lack adequate and timely information for making good decisions.
D.
economies of scale fail to produce outcomes in the public interest.

Answer 35

D.

Due to economies of scale or​ externalities, markets can fail to produce outcomes in the public interest. Government policy can improve market outcomes by acting in the public interest.
It is possible that government policy may not act in the public interest.​ Lobbying, campaign​ contributions, and political pressure can cause governments to act in the interests of​ businesses, labour​ organizations, or other special interest groups. Even when aiming for the public​ interest, government policy makers often lack timely and accurate information for making smart policy decisions. The complexity of the​ economy, the banking​ system, changeable​ expectations, and connections to the global economy make it easy for government policy makers to make​ “honest mistakes” when trying to solve​ complex, interconnected macroeconomic problems. When government policy fails to serve the public​ interest, it is called government failure.

Question 36

Economists in the ​’Yes -Markets Quickly Self -Adjust​’ camp
A.
believe government policies generally serve the public interest.
B.
include federal Liberals comma New Democrats comma and the Bloc Quebecois.
C.
argue for a hands minus on role for government.
D.
believe that markets channel self minus interest to promote efficiency and increasing living standards.

Answer 36

D.

The Yes minus Markets Quickly Self minus Adjust camp allows for some ups and downs in economic activity nbsp
and occasional unemployment and inflation comma but believes those economic problems are caused by events
outside the economy or by government policies. This camp argues for a hands - off role for the government.

Question 37

Question content area

Fiscal policy includes changes in
A.
exports.
B.
interest rates.
C.
government purchases.
D.
none of the above.

Answer 37

C.
government purchases.

Fiscal policy uses government​ purchases, taxes, and transfers to achieve the macroeconomic outcomes of steady​ growth, full​ employment, and stable prices

Question 38

Monetary policy is chosen by
A.
consumers.
B.
all of the above.
C.
government.
D.
the Bank of Canada and banking system.

Answer 38

D.
the Bank of Canada and banking system.

Monetary policy is chosen by the Bank of Canada and banking system. Fiscal policy is chosen by government.

Question 39

The largest group of macroeconomic players that chooses whether or not to hire Canadian workers is
A.
government.
B.
businesses.
C.
consumers.
D.
none of the above

Answer 39

B.
businesses.

Consumer​ choices:
​-spend income or save
​- buy Canadian products and​ services, or imports
Business​ choices:
​-investment spending ​- business purchases of new factories and equipment
-hiring workers or not
-buying inputs domestically or importing
-selling outputs domestically or exporting

Question 40

The largest group of macroeconomic players that makes the most choices about selling imports to Canada is
A.
the rest of the world.
B.
Canadian consumers.
C.
the Canadian government.
D.
none of the above.

Answer 40

A.
the rest of the world.

Question 41

Government policy decisions to purposefully leave the economy alone or influence it can take the form of changes in
A.
labour productivity.
B.
government purchases.
C.
prices.
D.
unemployment.

Answer 41

B.
government purchases.

One of the forms of government policy decisions to purposefully leave the economy alone or influence is fiscal policy. It involves changes in government purchases and taxes and transfers intended to achieve the macroeconomic outcomes of steady​ growth, full​ employment, and stable prices.

Question 42

To think like a​ macroeconomist, to understand how the economy as a whole works and how well it​ performs, the key is to focus on
A.
international relations.
B.
consumer decisions.
C.
connections inside the economy and out to the rest of the world.
D.
none of the above.

Answer 42

C.
connections inside the economy and out to the rest of the world.

Question 43

As GDP goes up comma unemployment goes
A.
up​, and workers have an advantage when bargaining for higher wages.
B.
down​, and workers have a disadvantage when bargaining for higher wages.
C.
up​, and workers have a disadvantage when bargaining for higher wages.
D.
down​, and workers have an advantage when bargaining for higher wages.

Answer 43

D.
down​, and workers have an advantage when bargaining for higher wages.

Question 44

Macroeconomics affects your future because
A.
you vote for governments that make policy decisions that influence the​ economy’s performance.
B.
without an understanding of the​ macroeconomy, you cannot establish a career.
C.
politicians do not understand how the macroeconomy works.
D.
of Market failure.

Answer 44

A.
you vote for governments that make policy decisions that influence the​ economy’s performance.