Question 1

Which of the following best describes the concept of opportunity cost in economics?

Accepted Answer

The value of the next best alternative foregone when a choice is made.

Question 2

Suppose the Canadian government increases its spending on infrastructure. According to the aggregate expenditure model, what is the most likely short-run effect on equilibrium national income?

Accepted Answer

Equilibrium national income will increase as aggregate demand rises.

Question 3

Which equation correctly represents the calculation of GDP using the expenditure approach?

Accepted Answer

$$ GDP = C + I + G + (X - M) $$

Question 4

If the Bank of Canada wants to decrease the money supply, which of the following actions is it most likely to take?

Accepted Answer

Sell government bonds to the public.

Question 5

A country experiences a negative aggregate demand shock. In the short run, what is the most likely effect on real GDP and the price level?

Accepted Answer

Real GDP decreases and the price level falls.

Question 6

Which of the following is NOT a component of desired aggregate expenditure in the simplest short-run macro model?

Accepted Answer

Imports (M)

Question 7

If the marginal propensity to consume (MPC) is 0.8, what is the value of the simple expenditure multiplier?

Accepted Answer

$$ \frac{1}{1 - 0.8} = 5 $$

Question 8

Which of the following best describes the role of money in the Canadian economy?

Accepted Answer

Money acts as a medium of exchange, a unit of account, and a store of value.

Question 9

Suppose the Canadian dollar appreciates relative to the US dollar. What is the most likely effect on Canadian exports and imports?

Accepted Answer

Exports decrease, imports increase.

Question 10

Which of the following statements about fiscal stabilization policy is correct?

Accepted Answer

It involves changes in government spending and taxation to influence aggregate demand.

Question 11

If the price level in an economy increases while nominal GDP remains constant, what happens to real GDP?

Accepted Answer

Real GDP decreases.

Question 12

Which of the following is a limitation of using GDP as a measure of economic well-being?

Accepted Answer

GDP does not account for the distribution of income.

Question 13

In the context of the Canadian banking system, what is the primary function of the Bank of Canada?

Accepted Answer

To regulate the money supply and implement monetary policy.

Question 14

Which of the following best explains why long-run economic growth is important for a country?

Accepted Answer

It increases the standard of living over time.

Question 15

If the government increases taxes while holding government spending constant, what is the likely short-run effect on aggregate demand?

Accepted Answer

Aggregate demand decreases.

Question 16

Which of the following equations represents the relationship between desired aggregate expenditure (AE), consumption (C), investment (I), government spending (G), exports (X), and imports (M)?

Accepted Answer

$$ AE = C + I + G + (X - M) $$

Question 17

Which of the following is an example of a supply-side shock in the Canadian economy?

Accepted Answer

A technological breakthrough that increases productivity.

Question 18

If the Bank of Canada lowers interest rates, what is the most likely effect on investment and aggregate demand?

Accepted Answer

Investment increases, aggregate demand increases.

Question 19

Which of the following best describes inflation targeting as practiced by the Bank of Canada?

Accepted Answer

Aiming to keep inflation within a specified target range over time.

Question 20

Suppose the Canadian economy is operating below potential output. Which policy mix is most likely to restore full employment in the short run?

Accepted Answer

Increase government spending and/or decrease taxes.

BBUS 1007 – Macroeconomics: Canada in the Global Environment – Course Structure and Key Topics

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