Final Exam

Question 1

Great Depression

Answer 1

• 1929-1933
• involved financial bubbles that burst
• high unemployment
• falling living standards
• bankruptcies
• government policy mistakes
• worse than global financial crisis because there were no government programs to help unemployed

Question 1

Global Financial Crisis

Answer 1

• 2008-2009
• housing bubbles that burst
• failure of banks and financial institutions
• falling asset prices, housing prices and stock market values

Question 2

Macroeconomics

Answer 2

analyzes performance of the whole Canadian economy and global economy → combined outcomes of all microeconomic choices

Question 3

Microeconomics

Answer 3

analyzes choices that individuals in households, businesses and governments make and how those choices interact in markets

Question 4

Fallacy of Composition

Answer 4

what is true for one is not true for all → the whole is greater then the sum of individual parts

Question 5

Paradox of Thrift

Answer 5

attempts to increase savings because total savings to decreases of falling employment and incomes

Question 6

3 players in the circular flow market

Answer 6

1. households
2. businesses
3. governments

Question 7

In input markets…

Answer 7

households are sellers and businesses are buyers

Question 8

In output markets…

Answer 8

households are buyers and businesses are sellers

Question 9

Microeconomic focuses on…

Answer 9

interaction of demand and supply in input markets alone or output markets alone

Question 10

Macroeconomics focuses on…

Answer 10

connections between input and output markets

Question 11

What are part of macro focus on whole economy?

Answer 11

money, banks and expectations

Question 12

Says Law

Answer 12

supply creates its own demand

Question 13

Market Failure

Answer 13

market outcomes are inefficient or inequitable and fail to serve the public interest

Question 14

Government Failure

Answer 14

government policy fails to serve public interest

Question 15

“Yes - left alone, markets self adjust - hands off” camp believes:

Answer 15

• macro and micro outcomes are the same
• external events or government policy cause business cycles
• government failure is more likely than market failure
• governments should be hands off
• prices are flexible
• supply creates its own demand

Question 16

“No - left alone, markets often fail - hands on” camp believes:

Answer 16

• fallacy of composition → macro and micro outcomes are different
• markets cause business cycles through connection failures between input and output markets, roles of money, banking and expectations
• self adjustment will not always maintain stable prices
• market failure is more likely than government failure
• government should be hands on

Question 17

Politicians in “Yes - left alone, markets self adjust - hands
off” camp (3)

Answer 17

1. conservatives
2. capitalists
3. republicans

Question 18

Politicians in “No - left alone, markets fail often - hands on”
camp (2)

Answer 18

1. liberals
2. NDP

Question 19

Agreements between the two camps:

Answer 19

• business cycle happens even without government failure
• some role for government
• markets eventually adjust, but how long do they take

Question 20

Key performance outcomes of Canadian economy are:

Answer 20

GDP, unemployment, and inflation;produced by the 5 macroeconomic players - consumers, businesses, government, Bank of Canada and the banking system, and the rest of the world

Question 21

Good outcomes are:

Answer 21

• higher GDP (gross domestic product)
• lower unemployment
• low/predictable inflation

Question 22

Consumer choices:

Answer 22

• spend income or save it
• buy Canadian products/services or imports

Question 23

Business choices:

Answer 23

• investment spending
• hiring workers or not
• buying inputs or not
• buying inputs domestically or importing
• selling outputs domestically or exporting

Question 24

Investment Spending

Answer 24

business purchases new factories and equipment