EC250 MIDTERM 1 EXAM 2025/2026
QUESTIONS AND ANSWERS 100% PASS
What is the key macroeconomic issue of the short run and what is the key macroeconomic
issue of the long run? - ANS In 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? - ANS Long-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. -
ANS The 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? -
ANS Spending 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.
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
,How are the labour force and the unemployment rate calculated? - ANS The 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? - ANS The 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. - ANS A financial crisis involves a significant
disruption in the flow of funds from lenders to borrowers.
What is monetary policy? - ANS Monetary 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? - ANS Fiscal 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. - ANS Economists 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? - ANS 1. 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.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, 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. - ANS First, 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? -
ANS An 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.
Explain the difference between correlation and causation. - ANS Correlation refers to two or
more events happening at the same time. Causation refers to one event being caused by
another event.
What is the difference between positive analysis and normative analysis? - ANS Positive
analysis is concerned with what is, and normative analysis is concerned with what ought to be.
Explain how the "euro crisis" could potentially affect Canadian exports. - ANS Canadian
exports could suffer as European consumers reduce spending. However, with only 10% of
Canadian exports going to the Eurozone, the effect would be relatively small. Some economists
also believe Europe's debt crisis has led to a lack of confidence among business leaders in
Canada and the United States. This lack of confidence has resulted in reduced exports to the
U.S., Canada's largest trading partner.
Explain which of the following goods and services are included and which are not included in
Canada's GDP:
a. Jacinda buys termite spray at her local Home Depot.
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
QUESTIONS AND ANSWERS 100% PASS
What is the key macroeconomic issue of the short run and what is the key macroeconomic
issue of the long run? - ANS In 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? - ANS Long-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. -
ANS The 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? -
ANS Spending 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.
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
,How are the labour force and the unemployment rate calculated? - ANS The 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? - ANS The 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. - ANS A financial crisis involves a significant
disruption in the flow of funds from lenders to borrowers.
What is monetary policy? - ANS Monetary 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? - ANS Fiscal 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. - ANS Economists 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? - ANS 1. 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.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, 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. - ANS First, 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? -
ANS An 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.
Explain the difference between correlation and causation. - ANS Correlation refers to two or
more events happening at the same time. Causation refers to one event being caused by
another event.
What is the difference between positive analysis and normative analysis? - ANS Positive
analysis is concerned with what is, and normative analysis is concerned with what ought to be.
Explain how the "euro crisis" could potentially affect Canadian exports. - ANS Canadian
exports could suffer as European consumers reduce spending. However, with only 10% of
Canadian exports going to the Eurozone, the effect would be relatively small. Some economists
also believe Europe's debt crisis has led to a lack of confidence among business leaders in
Canada and the United States. This lack of confidence has resulted in reduced exports to the
U.S., Canada's largest trading partner.
Explain which of the following goods and services are included and which are not included in
Canada's GDP:
a. Jacinda buys termite spray at her local Home Depot.
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
