Question 1

Which of the following best describes how what is produced and consumed in an economy is determined, according to the study materials?

Accepted Answer

Jointly by the preferences of consumers and by firms.

Question 2

Improvements in a country’s standard of living are brought about in the long run primarily by:

Accepted Answer

Rising productivity.

Question 3

In 2021 Canada, what fraction of GDP did consumption represent?

Accepted Answer

About 60%.

Question 4

Which of the following statements best describes the concept of a procyclical variable in macroeconomics?

Accepted Answer

A variable that moves in the same direction as GDP over the business cycle.

Question 5

Suppose the time series graph shows GDP and another variable that rises and falls more than GDP during recessions and expansions. This 'other variable' is most likely:

Accepted Answer

Procyclical and more variable than GDP.

Question 6

Is employment typically considered a lagging, leading, or coincident variable in the business cycle?

Accepted Answer

Lagging variable.

Question 7

Labour market tightness reflects the degree of difficulty that:

Accepted Answer

Employers have in filling job vacancies.

Question 8

Suppose a consumer can earn a higher wage rate for working 'overtime.' For the first $$h$$ hours, the consumer earns wage $$w$$, and for hours above $$h$$, the wage is $$w^* \u003e w. $$What is the slope of the consumer’s budget constraint for hours above $$h$$?

Accepted Answer

$$w^*$$

Question 9

If the real wage rate increases, what happens to the consumer’s optimal consumption choice when the tax on dividends ($$T) $$and dividend income ($$r) $$remain constant?

Accepted Answer

Consumption may increase or decrease due to opposing income and substitution effects.

Question 10

Suppose the marginal rate of substitution is $$MRS = C/L. If $$the endowment bundle is $$(C, L) = (30, 10)$$, which bundle would the consumer choose to maximize utility while satisfying the budget constraint?

Accepted Answer

$$(C = 30, L = 15)$$

Question 11

Suppose the government introduces new regulations that reduce the efficiency of a firm’s production process. Which way does the firm’s labour demand curve shift?

Accepted Answer

Shifts left (decreases demand for labour).

Question 12

Consider the production function $$Y = K$$^{0.5}$$N^{0.5}$$, where $$N is $$labour input. If a natural disaster destroys part of the capital stock $$K$, what happens to the firm’s labour demand curve?

Accepted Answer

Shifts left.

Question 13

Suppose the government introduces a tax rate $$t$$ that is proportional to firm profits. The firm’s after-tax profit function is $$\Pi = (1-t)Y - wN. $$What is the profit-maximizing condition for labour demand?

Accepted Answer

$$(1-t)\frac{\partial Y}{\partial N} = w$$

Question 14

If the budget constraint rotates counterclockwise and labour supply increases, which of the following could have caused this?

Accepted Answer

Real wage rate ($$w) $$increases.

Question 15

In Figure 2, what does the distance AB represent?

Accepted Answer

The Marginal Product of Labour.

Question 16

Suppose the representative consumer’s budget constraint is $$C = wh + r + T. If $$the real wage rate ($$w) $$increases, what happens to the consumer’s optimal consumption choice?

Accepted Answer

Consumption may increase or decrease due to income and substitution effects.

Question 17

Suppose the government increases lump sum taxes ($$T) $$while dividend income ($$r) $$and real wage rate ($$w) $$remain constant. What happens to the budget constraint and optimal labour supply?

Accepted Answer

The budget constraint shifts in (no change in slope) and labour supply decreases.

Question 18

Which of the following is NOT a component of GDP?

Accepted Answer

Imports.

Question 19

Suppose the production function is $$Y = K$$^{0.5}$$N^{0.5}$$ and $$K = 900$$, $$N = 25. $$What is the output $$Y$?

Accepted Answer

$$Y = 75$$

Question 20

If the marginal rate of substitution between consumption and leisure is $$MRS = C/L$$, what does this imply about the consumer’s preferences?

Accepted Answer

The consumer is willing to give up more leisure for additional consumption as consumption increases.

Intermediate Macroeconomics I: Key Concepts and Applications (Chapters 1–4)

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