CAEC Social Studies Preparation Course: Economics and economic systems

1. Question 1 of 19

   Which of these is part of a service industry?

   • ABanking
   • BMaking automobiles
   • CFishing
   • DMining potash
   Show answer

   Answer: A. Banking

   Service industries include banking, retail, health care, education, transportation and tourism. Fishing and mining are natural resources; making cars is manufacturing.

2. Question 2 of 19

   Which group of industries employs the most working Canadians?

   • ANatural resource industries
   • BManufacturing industries
   • CService industries
   • DFishing and forestry
   Show answer

   Answer: C. Service industries

   More than 75% of working Canadians have jobs in service industries.

3. Question 3 of 19

   Which country is Canada's largest trading partner?

   • AThe United Kingdom
   • BMexico
   • CChina
   • DThe United States
   Show answer

   Answer: D. The United States

   The United States is Canada's largest trading partner, and most Canadian exports go there.

4. Question 4 of 19

   Canada began free trade with the United States in 1988. In what year did Mexico join through the North American Free Trade Agreement (NAFTA)?

   • A1988
   • B1984
   • C2001
   • D1994
   Show answer

   Answer: D. 1994

   Free trade with the U.S. began in 1988, and Mexico joined in 1994 through NAFTA.

5. Question 5 of 19

   Every country has more wants than resources, so it must make choices. What is this problem called?

   • AInflation
   • BScarcity
   • CInterdependence
   • DRecession
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   Answer: B. Scarcity

   Scarcity means resources such as land, money, time and workers are limited, so people and governments must choose.

6. Question 6 of 19

   Maria has $60. She can buy a concert ticket or a winter coat, but not both. She buys the coat. What is her opportunity cost?

   • AThe concert ticket
   • B$60 in cash
   • CNothing, because she needed the coat
   • DThe coat
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   Answer: A. The concert ticket

   Opportunity cost is the next-best choice you give up when you make a decision.

7. Question 7 of 19

   A cold winter makes many people want to buy space heaters, but stores have the same number in stock. What will most likely happen to the price?

   • AIt will fall
   • BIt will rise
   • CIt will stay exactly the same
   • DStores will stop selling heaters
   Show answer

   Answer: B. It will rise

   When demand goes up and supply stays the same, prices tend to rise.

8. Question 8 of 19

   Prairie farmers have a record wheat harvest, but demand for wheat does not change. What will most likely happen to the price of wheat?

   • AIt will rise
   • BIt will fall
   • CIt will double
   • DThe government will set it at zero
   Show answer

   Answer: B. It will fall

   When supply goes up and demand stays the same, prices tend to fall.

9. Question 9 of 19

   Which best describes Canada's economy?

   • AThe government owns every business, decides what is made and sets every single price
   • BMostly private businesses and markets, with governments providing services and rules
   • CBusinesses make all decisions and governments play no role
   • DPeople only trade goods with no money involved
   Show answer

   Answer: B. Mostly private businesses and markets, with governments providing services and rules

   Canada has a market economy with a large role for government (often called a mixed economy). In a command economy the government decides what is made.

10. Question 10 of 19

    An Inuit family hunts caribou and fishes to feed itself and shares extra food with relatives. What kind of economic activity is this?

    • ATraditional or subsistence activity
    • BStock market trading
    • CA service industry
    • DManufacturing for export
    Show answer

    Answer: A. Traditional or subsistence activity

    Subsistence activity meets a family's or community's own needs. Hunting, fishing and trapping remain important in the North.

11. Question 11 of 19

    What is the main job of a bank in the economy?

    • ASetting the prices of groceries
    • BCollecting income tax from workers and businesses for the government
    • CHolding people's deposits and lending money with interest
    • DPrinting the country's money
    Show answer

    Answer: C. Holding people's deposits and lending money with interest

    Financial institutions connect savers and borrowers. The Bank of Canada, not ordinary banks, is the central bank.

12. Question 12 of 19

    What does the Consumer Price Index (CPI) measure?

    • AHow much money banks have in their vaults
    • BPrice changes for a fixed basket of goods and services
    • CThe total value of everything that a country exports in one year
    • DThe number of people who have jobs
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    Answer: B. Price changes for a fixed basket of goods and services

    Statistics Canada uses the CPI to track price changes experienced by Canadian consumers.

13. Question 13 of 19

    What inflation rate does the Bank of Canada aim for?

    • A10%, to make wages grow quickly
    • B5%, the midpoint of a 4% to 6% range
    • C2%, the midpoint of a 1% to 3% range
    • D0%, with no price increases at all
    Show answer

    Answer: C. 2%, the midpoint of a 1% to 3% range

    The Bank of Canada aims to keep inflation at the 2% midpoint of a 1–3% target range.

14. Question 14 of 19

    Inflation is rising too fast, so the Bank of Canada raises its policy interest rate. What is the most likely result?

    • ALoans cost more, so people and businesses spend less and inflation slows
    • BBanks stop paying any interest on savings
    • CLoans cost less, so people borrow and spend more, and prices rise even faster
    • DAll prices are frozen by law
    Show answer

    Answer: A. Loans cost more, so people and businesses spend less and inflation slows

    A higher policy rate makes borrowing more expensive, which cools spending and helps bring inflation down.

15. Question 15 of 19

    In a made-up example, a price index rises from 150 to 156 in one year. By what percent did prices rise?

    • A4%
    • B15.6%
    • C3.8%
    • D6%
    Show answer

    Answer: A. 4%

    (156 − 150) ÷ 150 = 0.04, which is 4%. Using 156 as the base gives about 3.8%, which is a common mistake.

16. Question 16 of 19

    Sam's wage rose by 2% this year, but prices rose by 4%. What happened to Sam's buying power?

    • AIt doubled
    • BIt went up
    • CIt stayed the same
    • DIt went down
    Show answer

    Answer: D. It went down

    When prices rise faster than wages, each dollar earned buys less, so buying power falls.

17. Question 17 of 19

    The table shows unemployment rates in four made-up regions. How many percentage points higher is the highest rate than the lowest?

    Region	Unemployment rate
    Region A	5.1%
    Region B	8.7%
    Region C	6.4%
    Region D	11.2%

    • A3.6
    • B6.1
    • C16.3
    • D4.8
    Show answer

    Answer: B. 6.1

    The highest rate is 11.2% (Region D) and the lowest is 5.1% (Region A): 11.2 − 5.1 = 6.1 percentage points.

18. Question 18 of 19

    The table compares two made-up regions. Which statement is supported by the data?

    Measure	Region X	Region Y
    Median household income	$92,000	$61,000
    Life expectancy	82 years	76 years
    Adults with high school diploma	91%	78%

    • ARegion X has higher incomes and better health results than Region Y
    • BRegion Y has a better quality of life than Region X on every measure
    • CBoth regions have the same life expectancy
    • DRegion X has more people than Region Y
    Show answer

    Answer: A. Region X has higher incomes and better health results than Region Y

    Region X has a higher median income, a longer life expectancy and more high school graduates. The table gives no population numbers.

19. Question 19 of 19

    A large drop in U.S. home building cuts demand for Canadian lumber. Which group in Canada is most likely to be hurt first?

    • AFishers in Nova Scotia
    • BForestry workers in British Columbia
    • CBank tellers in Toronto
    • DDiamond miners in the Northwest Territories
    Show answer

    Answer: B. Forestry workers in British Columbia

    This shows economic interdependence: most Canadian exports go to the U.S., and B.C. has the most valuable forestry industry in Canada.

Keyboard: 1–4 to answer, Enter for the next question.

The real test: 55% on each CAEC test