PRINCIPLES OF
MACROECONOMICS SIXTH
CANADIAN EDITION TEST
BANK – N. GREGORY
MANKIW, STUDY GUIDE,
PRACTICE QUESTIONS, KEY
CONCEPTS & EXAM
REVIEW
Principles of Macroeconomics, Sixth Canadian Edition
(Mankiw/Kneebone/McKenzie)
Practice Exam with Rationales
Instructions: Choose the best answer for each question. Correct answers are bolded,
with rationale provided beneath each item.
,Chapter 1: Ten Principles of Economics
1. The word "economy" comes from the Greek word for:
A. Market
B. Trade
C. One who manages a household
D. Wealth
Rationale: The term "economy" derives from the Greek word "oikonomos" (oikos =
household, nomos = management). This highlights that economics fundamentally deals
with managing limited resources, much like a household must budget its income and
expenses .
2. Which scenario best illustrates the economic principle that "people face trade-
offs"?
A. A government increasing spending on healthcare without changing taxes
B. A student deciding to sleep an extra hour instead of studying for an exam
C. A factory utilizing more efficient machinery to produce more output
D. A consumer buying a product because its price decreased
Rationale: Option B correctly identifies a trade-off (sleep vs. grades). Option A ignores
the budget constraint, C is about productivity, and D is about the law of demand .
3. The primary concern of economics is the study of:
A. Money and banking systems
B. How society manages its scarce resources
C. Government regulation of markets
D. How to eliminate poverty
Rationale: Resources (land, labor, capital) are limited while human wants are unlimited,
so society must make choices about how to allocate those resources efficiently .
4. Which scenario best illustrates the concept of opportunity cost?
A. A student deciding to study for an exam instead of going to a concert
B. A government printing more money to pay its debts
C. A factory producing more cars without increasing costs
D. A consumer buying a product on sale
,Rationale: Opportunity cost is the value of the next best alternative forgone when
making a decision. By choosing to study, the student gives up the enjoyment of the
concert .
5. Economists use the phrase "There is no such thing as a free lunch" to illustrate
that:
A. Inflation always rises over time
B. All economic decisions involve trade-offs
C. Businesses need to make profits
D. People are naturally selfish
Rationale: Even if a lunch is provided "free" to an individual, someone incurred a cost to
produce it. Resources used for that lunch cannot be used elsewhere, representing a
trade-off .
6. People are likely to respond to incentives because:
A. Incentives only work in market economies
B. Rational people compare marginal benefits to marginal costs
C. Government mandates all behavior
D. Incentives are always monetary
Rationale: The fourth principle of economics states that "People respond to incentives."
Rational decision-makers take actions only if the marginal benefit exceeds the marginal
cost .
7. A marginal change is defined as a:
A. Large, significant policy shift
B. Small, incremental adjustment to a plan of action
C. Change made only to government budgets
D. Change that involves taxes and spending
Rationale: "Marginal" means "edge." Rational decision-making often involves
comparing the additional benefits of a small change against the additional costs .
8. Adam Smith's "invisible hand" metaphor describes how:
A. Government intervention always improves market outcomes
B. Free markets guide self-interested buyers and sellers to produce socially optimal
outcomes
, C. Central planning is necessary for economic efficiency
D. Markets always fail without regulation
Rationale: The invisible hand concept describes how free markets guide self-interested
buyers and sellers to produce outcomes that are often socially optimal, such as
producing goods consumers want at lower prices .
9. The property of society getting the most it can from its scarce resources is
called:
A. Equity
B. Efficiency
C. Productivity
D. Opportunity cost
Rationale: Efficiency means society gets the maximum benefits from its scarce
resources, while equity refers to distributing economic prosperity fairly among members
of society .
10. Which of the following is NOT one of the Ten Principles of Economics?
A. People face trade-offs
B. Markets are usually a good way to organize economic activity
C. Governments should own all major industries
D. Prices rise when the government prints too much money
Rationale: The Ten Principles include how people make decisions, how people interact,
and how the economy as a whole works. Government ownership of industries is not one
of the principles .
Chapter 2: Thinking Like an Economist
11. When economists use the scientific method, they:
A. Rely solely on laboratory experiments
B. Use theories to observe phenomena and data to test theories
C. Avoid making assumptions
D. Focus only on normative statements
MACROECONOMICS SIXTH
CANADIAN EDITION TEST
BANK – N. GREGORY
MANKIW, STUDY GUIDE,
PRACTICE QUESTIONS, KEY
CONCEPTS & EXAM
REVIEW
Principles of Macroeconomics, Sixth Canadian Edition
(Mankiw/Kneebone/McKenzie)
Practice Exam with Rationales
Instructions: Choose the best answer for each question. Correct answers are bolded,
with rationale provided beneath each item.
,Chapter 1: Ten Principles of Economics
1. The word "economy" comes from the Greek word for:
A. Market
B. Trade
C. One who manages a household
D. Wealth
Rationale: The term "economy" derives from the Greek word "oikonomos" (oikos =
household, nomos = management). This highlights that economics fundamentally deals
with managing limited resources, much like a household must budget its income and
expenses .
2. Which scenario best illustrates the economic principle that "people face trade-
offs"?
A. A government increasing spending on healthcare without changing taxes
B. A student deciding to sleep an extra hour instead of studying for an exam
C. A factory utilizing more efficient machinery to produce more output
D. A consumer buying a product because its price decreased
Rationale: Option B correctly identifies a trade-off (sleep vs. grades). Option A ignores
the budget constraint, C is about productivity, and D is about the law of demand .
3. The primary concern of economics is the study of:
A. Money and banking systems
B. How society manages its scarce resources
C. Government regulation of markets
D. How to eliminate poverty
Rationale: Resources (land, labor, capital) are limited while human wants are unlimited,
so society must make choices about how to allocate those resources efficiently .
4. Which scenario best illustrates the concept of opportunity cost?
A. A student deciding to study for an exam instead of going to a concert
B. A government printing more money to pay its debts
C. A factory producing more cars without increasing costs
D. A consumer buying a product on sale
,Rationale: Opportunity cost is the value of the next best alternative forgone when
making a decision. By choosing to study, the student gives up the enjoyment of the
concert .
5. Economists use the phrase "There is no such thing as a free lunch" to illustrate
that:
A. Inflation always rises over time
B. All economic decisions involve trade-offs
C. Businesses need to make profits
D. People are naturally selfish
Rationale: Even if a lunch is provided "free" to an individual, someone incurred a cost to
produce it. Resources used for that lunch cannot be used elsewhere, representing a
trade-off .
6. People are likely to respond to incentives because:
A. Incentives only work in market economies
B. Rational people compare marginal benefits to marginal costs
C. Government mandates all behavior
D. Incentives are always monetary
Rationale: The fourth principle of economics states that "People respond to incentives."
Rational decision-makers take actions only if the marginal benefit exceeds the marginal
cost .
7. A marginal change is defined as a:
A. Large, significant policy shift
B. Small, incremental adjustment to a plan of action
C. Change made only to government budgets
D. Change that involves taxes and spending
Rationale: "Marginal" means "edge." Rational decision-making often involves
comparing the additional benefits of a small change against the additional costs .
8. Adam Smith's "invisible hand" metaphor describes how:
A. Government intervention always improves market outcomes
B. Free markets guide self-interested buyers and sellers to produce socially optimal
outcomes
, C. Central planning is necessary for economic efficiency
D. Markets always fail without regulation
Rationale: The invisible hand concept describes how free markets guide self-interested
buyers and sellers to produce outcomes that are often socially optimal, such as
producing goods consumers want at lower prices .
9. The property of society getting the most it can from its scarce resources is
called:
A. Equity
B. Efficiency
C. Productivity
D. Opportunity cost
Rationale: Efficiency means society gets the maximum benefits from its scarce
resources, while equity refers to distributing economic prosperity fairly among members
of society .
10. Which of the following is NOT one of the Ten Principles of Economics?
A. People face trade-offs
B. Markets are usually a good way to organize economic activity
C. Governments should own all major industries
D. Prices rise when the government prints too much money
Rationale: The Ten Principles include how people make decisions, how people interact,
and how the economy as a whole works. Government ownership of industries is not one
of the principles .
Chapter 2: Thinking Like an Economist
11. When economists use the scientific method, they:
A. Rely solely on laboratory experiments
B. Use theories to observe phenomena and data to test theories
C. Avoid making assumptions
D. Focus only on normative statements
