EC250 midterm 1 Questions and Answers complete set verified 2026
What is the key macroeconomic issue of the short run and what is the key
macroeconomic issue of the long run? - ANSWERIn the short run,
macroeconomics focuses on the business cycle, and in the long run,
macroeconomics focuses on long-run economic growth.
What is long-run economic growth and how is it measured? - ANSWERLong-
run economic growth is the process by which productivity raises the average
standard of living. It is measured by labour productivity, which is the quantity
of goods and services that can be produced by one worker or by one hour of
work.
Explain how the standard of living of the average person in an economy can
increase. - ANSWERThe only way that the standard of living of an average
person in an economy can increase is if production increases faster than
population growth. This is possible only through increases in labour
productivity.
Explain what is happening to spending on health care as the Canadian
population continues to age. Why might this spending change pose problems
for the Canadian economy? - ANSWERSpending on programs such as health
care has increased significantly to 8% of GDP, and is projected to be 13% by
2030. Since most of the money for these programs comes from taxes paid by
people currently working, as the population ages, there are fewer workers
paying taxes relative to the number of people receiving these payments. This
,results in a funding crisis that can be solved only by either reducing these
government payments, reducing expenditure on other programs, or raising
the taxes paid by current workers.
How are the labour force and the unemployment rate calculated? -
ANSWERThe labour force is the sum of employed and unemployed workers in
the economy. The unemployment rate is the percentage of the labour force
that is unemployed, so is calculated as the number of unemployed people
divided by the labour force.
What does the inflation rate measure, and what is deflation? - ANSWERThe
inflation rate measures the percentage increase in the price level from one
year to the next. Deflation is a sustained decrease in the price level.
The severity of the 2007-2009 recession was due to the severity of the
accompanying financial crisis. Explain what is meant by financial crisis. -
ANSWERA financial crisis involves a significant disruption in the flow of funds
from lenders to borrowers.
What is monetary policy? - ANSWERMonetary policy refers to the actions
that the Bank of Canada takes to manage the money supply and interest rates
to pursue macroeconomic policy objectives.
What is fiscal policy? - ANSWERFiscal policy refers to changes in government
taxes and purchases that are intended to achieve macroeconomic policy
objectives.
How do economists measure the "openness" of an economy? Explain if the
Canadian economy has become more or less "open" over the past 30 years. -
ANSWEREconomists measure the "openness" of an economy in terms of how
, much it trades with other economies. Over the past 30 years, the Canadian
economy has become more open, with both imports and exports steadily
increasing as a percentage of GDP.
What are the five steps generally used by economists to develop a model? -
ANSWER1. Decide on the assumptions to be used in developing the model
and decide which endogenous variables will be explained by the model and
which exogenous variables will be taken as given.
2. Formulate a testable hypothesis.
3. Use economic data to test the hypothesis.
4. Revise the model if it fails to explain the economic data well.
5. Retain the revised model to help ANSWER similar economic questions in
the future.
Describe how you might analyze and evaluate the following claim: College
students who graduate during an economic recession accept jobs that, on
average, pay 9% less than jobs accepted by students who graduate during
economic expansions. - ANSWERFirst, you can look at historical data showing
average introductory salaries for college graduates and at data showing the
start and end dates for economic recessions and economic expansions over
the years. You can then plot this data on a graph, comparing the average
starting salaries to the years when the economy was experiencing economic
recessions and economic expansions. Comparing the average starting salaries
during each economic recession and during the economic expansions that
immediately preceded and followed each recession will help you evaluate the
claim.
What is the difference between an endogenous variable and an exogenous
variable? - ANSWERAn endogenous variable is a variable explained by an
economic model. An exogenous variable is a variable that is taken as given
and is not explained by an economic model.
What is the key macroeconomic issue of the short run and what is the key
macroeconomic issue of the long run? - ANSWERIn the short run,
macroeconomics focuses on the business cycle, and in the long run,
macroeconomics focuses on long-run economic growth.
What is long-run economic growth and how is it measured? - ANSWERLong-
run economic growth is the process by which productivity raises the average
standard of living. It is measured by labour productivity, which is the quantity
of goods and services that can be produced by one worker or by one hour of
work.
Explain how the standard of living of the average person in an economy can
increase. - ANSWERThe only way that the standard of living of an average
person in an economy can increase is if production increases faster than
population growth. This is possible only through increases in labour
productivity.
Explain what is happening to spending on health care as the Canadian
population continues to age. Why might this spending change pose problems
for the Canadian economy? - ANSWERSpending on programs such as health
care has increased significantly to 8% of GDP, and is projected to be 13% by
2030. Since most of the money for these programs comes from taxes paid by
people currently working, as the population ages, there are fewer workers
paying taxes relative to the number of people receiving these payments. This
,results in a funding crisis that can be solved only by either reducing these
government payments, reducing expenditure on other programs, or raising
the taxes paid by current workers.
How are the labour force and the unemployment rate calculated? -
ANSWERThe labour force is the sum of employed and unemployed workers in
the economy. The unemployment rate is the percentage of the labour force
that is unemployed, so is calculated as the number of unemployed people
divided by the labour force.
What does the inflation rate measure, and what is deflation? - ANSWERThe
inflation rate measures the percentage increase in the price level from one
year to the next. Deflation is a sustained decrease in the price level.
The severity of the 2007-2009 recession was due to the severity of the
accompanying financial crisis. Explain what is meant by financial crisis. -
ANSWERA financial crisis involves a significant disruption in the flow of funds
from lenders to borrowers.
What is monetary policy? - ANSWERMonetary policy refers to the actions
that the Bank of Canada takes to manage the money supply and interest rates
to pursue macroeconomic policy objectives.
What is fiscal policy? - ANSWERFiscal policy refers to changes in government
taxes and purchases that are intended to achieve macroeconomic policy
objectives.
How do economists measure the "openness" of an economy? Explain if the
Canadian economy has become more or less "open" over the past 30 years. -
ANSWEREconomists measure the "openness" of an economy in terms of how
, much it trades with other economies. Over the past 30 years, the Canadian
economy has become more open, with both imports and exports steadily
increasing as a percentage of GDP.
What are the five steps generally used by economists to develop a model? -
ANSWER1. Decide on the assumptions to be used in developing the model
and decide which endogenous variables will be explained by the model and
which exogenous variables will be taken as given.
2. Formulate a testable hypothesis.
3. Use economic data to test the hypothesis.
4. Revise the model if it fails to explain the economic data well.
5. Retain the revised model to help ANSWER similar economic questions in
the future.
Describe how you might analyze and evaluate the following claim: College
students who graduate during an economic recession accept jobs that, on
average, pay 9% less than jobs accepted by students who graduate during
economic expansions. - ANSWERFirst, you can look at historical data showing
average introductory salaries for college graduates and at data showing the
start and end dates for economic recessions and economic expansions over
the years. You can then plot this data on a graph, comparing the average
starting salaries to the years when the economy was experiencing economic
recessions and economic expansions. Comparing the average starting salaries
during each economic recession and during the economic expansions that
immediately preceded and followed each recession will help you evaluate the
claim.
What is the difference between an endogenous variable and an exogenous
variable? - ANSWERAn endogenous variable is a variable explained by an
economic model. An exogenous variable is a variable that is taken as given
and is not explained by an economic model.
