Econ Final Exam

Question 1

What are the key sources of productivity growth?

Answer 1

Physical capital, human capital, and technological progress.

Question 2

What is diminishing returns to physical capital?

Answer 2

Increasing physical capital leads to smaller productivity gains when other factors are fixed.

Question 3

What is the aggregate production function?

Answer 3

Relationship between input factors (capital, labour, human capital) and output.

Question 4

What is growth accounting?

Answer 4

Method to estimate contributions of inputs and technology to growth.

Question 5

What is total factor productivity?

Answer 5

Output produced with a given quantity of inputs, influenced by technology.

Question 6

What is the convergence hypothesis?

Answer 6

Countries with lower GDP per capita grow faster, narrowing income gaps over time.

Question 7

What factors explain differences in growth rates?

Answer 7

Savings, investment, education, and research & development (R&D).

Question 8

How do governments promote growth?

Answer 8

Subsidies (infrastructure, education, R&D), financial stability, property rights, and good governance.

Question 9

What is the savings-investment spending identity?

Answer 9

Savings = Investment spending.

Question 10

What are national savings?

Answer 10

Private savings + public savings (budget surplus or deficit).

Question 11

What is net foreign investment (NFI)?

Answer 11

Domestic funds invested abroad - foreign funds invested domestically.

Question 12

What is the loanable funds market?

Answer 12

A market matching savers with borrowers.

Question 13

What shifts the demand for loanable funds?

Answer 13

Changes in business opportunities and government policies.

Question 14

What shifts the supply of loanable funds?

Answer 14

Changes in savings behavior and government budget balance.

Question 15

What is crowding out?

Answer 15

Government borrowing increases interest rates, reducing private investment.

Question 16

What is the Fisher Effect?

Answer 16

Higher expected inflation raises nominal interest rates, leaving real rates unchanged.

Question 17

What are the three tasks of a financial system?

Answer 17

Reduce transaction costs, reduce risk, and provide liquidity.

Question 18

What are the main types of financial assets?

Answer 18

Loans, bonds, stocks, and loan-backed securities.

Question 19

What are financial intermediaries?

Answer 19

Institutions that transform funds from savers into financial assets (e.g., banks, mutual funds).

Question 20

What are the roles of money?

Answer 20

Medium of exchange, store of value, and unit of account.

Question 21

What is a bank run?

Answer 21

Mass withdrawal of deposits due to fears of bank failure.

Question 22

What is the money supply?

Answer 22

Total value of liquid financial assets (e.g., currency and chequable deposits).

Question 23

What are monetary aggregates?

Answer 23

Measures of money supply, e.g., M1+ (most liquid assets) and M2 (near-moneys).

Question 24

What is deposit insurance?

Answer 24

Guarantees deposits (e.g., up to $100,000 in Canada) to protect against bank failure.

Question 25

How do banks create money?

Answer 25

By lending out deposits, keeping only a fraction as reserves.

Question 26

What is the money multiplier?

Answer 26

Ratio of the money supply to the monetary base.

Question 27

What are the Bank of Canada’s tools of monetary control?

Answer 27

Open-market operations, reserve requirements, and the bank rate.

Question 28

What is the overnight rate?

Answer 28

Interest rate for interbank borrowing of reserves.

Question 30

What is the money demand curve?

Answer 30

Shows inverse relationship between interest rates and money demand.

Question 31

What shifts the money demand curve?

Answer 31

Changes in price level, GDP, credit technology, and institutions.

Question 32

What is the liquidity preference model?

Answer 32

Interest rate is determined by money supply and demand.

Question 33

What is expansionary monetary policy?

Answer 33

Increases aggregate demand by lowering interest rates.

Question 34

What is contractionary monetary policy?

Answer 34

Reduces aggregate demand by raising interest rates.

Question 35

What is monetary neutrality?

Answer 35

In the long run, money supply changes affect prices, not real GDP or interest rates.

Question 36

What is the quantity equation?

Answer 36

M × V = P × Y, where M = money supply, V = velocity, P = price level, Y = real GDP.

Question 37

What is the role of the Bank of Canada?

Answer 37

Oversees banking, controls the monetary base, and implements monetary policy.