Understanding Economic Principles Flashcards
7 cards from real IFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Understanding Economic Principles flashcards as text
The Consumer Price Index (CPI) primarily measures:
Answer: The average price change of a fixed basket of goods and services purchased by households
The CPI tracks the average price change over time for a fixed basket of goods and services representative of typical household purchases.
Which of the following scenarios best illustrates the 'crowding out' effect in economics?
Answer: Increased government borrowing raises interest rates, reducing private sector investment
Crowding out occurs when government borrowing drives up interest rates, making it more expensive for private businesses to finance investment projects.
In macroeconomics, 'stagflation' refers to a period of:
Answer: Simultaneous high inflation and high unemployment with stagnant growth
Stagflation is the unusual combination of high inflation, high unemployment, and slow or negative economic growth, making it difficult to address with standard policy tools.
How do rising commodity prices in global markets typically affect the Canadian economy given Canada's resource-export profile?
Answer: They benefit Canada's terms of trade and tend to strengthen the Canadian dollar
As a major exporter of oil, natural gas, and other commodities, Canada benefits from higher global commodity prices through improved export revenues and a stronger currency.
What is the primary distinction between 'frictional' and 'structural' unemployment?
Answer: Frictional is short-term job-search unemployment; structural arises from permanent mismatches between skills and job requirements
Frictional unemployment is temporary and results from workers transitioning between jobs, while structural unemployment reflects a deeper mismatch between workers' skills and available positions.
In the context of central bank policy, what is 'quantitative easing' (QE)?
Answer: Purchasing financial assets to inject money into the economy when rates are near zero
QE involves a central bank purchasing assets such as government bonds to increase money supply and lower long-term interest rates when conventional rate cuts are insufficient.
Which of the following would most likely cause Canada's trade deficit to improve (i.e., decrease)?
Answer: Depreciation of the Canadian dollar making Canadian exports cheaper for foreigners
A weaker Canadian dollar lowers the price of Canadian goods for foreign buyers, boosting exports, while making imports more expensive domestically, reducing import volumes.