Applied Macroeconomics
Chapter Exam Questions
Course Introduction
Applied Macroeconomics explores the practical implementation of macroeconomic theories and models to analyze real-world economic phenomena and policy issues. The course covers topics such as economic growth, inflation, unemployment, fiscal and monetary policy, and international trade, emphasizing their applications to current events and public debates. Students will develop skills in interpreting macroeconomic data, constructing models, and evaluating the effectiveness of policy interventions, preparing them for advanced study or careers in economics, finance, and policymaking.
Recommended Textbook
Macroeconomics 4th Edition by Glenn P. Hubbard
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Cassie's Quilts alters,reconstructs and restores heirloom quilts.Cassie has just spent $800 purchasing,cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished.After having spent $800,Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively,she can sell the quilt "as is" now for $900. What is the marginal cost of completing the task?
A) $200
B) $500
C) $1,000
D) $1,000 plus the value of her time
Answer: A
Q2) One example of human capital is the amount of savings that you have.
A)True
B)False
Answer: False
Q3) What is a market economy?
Answer: A market economy is an economy in which the decisions of households and firms interacting in markets allocate economic resources.
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Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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Sample Questions
Q1) A production possibilities frontier with a ________ shape indicates increasing opportunity costs as more and more of one good is produced.
A) linear
B) bowed inward
C) bowed outward
D) perfectly horizontal
Answer: C
Q2) Refer to Figure 2-4. Consider the following events:
a.a reduction in the patent protection period to no more than 2 years
b.a war that destroys a substantial portion of a nation's capital stock
c.the lack of secure and enforceable property rights system
Which of the events listed above could cause a movement from W to V?
A) a only
B) a and b only
C) a and c only
D) b and c only
E) a, b, and c
Answer: C
Q3) List the four broad categories of factors of production.
Page 4
Answer: labor,capital,natural resources,and entrepreneurship
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for blu-ray discs. Which panel best describes what happens in this market if there is a substantial increase in the price of blu-ray players?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
Answer: C
Q2) Refer to Figure 3-1.An increase in the price of a complement would be represented by a movement from
A) A to B.
B) B to A.
C) D to D .
D) D to D .
Answer: D
Q3) What are the five most important variables that shift the market supply curve?
Answer: Prices of inputs; Technological change; Prices of substitutes in production; The number of firms in the market; Expected future prices
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) The additional benefit to a consumer from consuming one more unit of a good or service
A) is equal to consumer surplus.
B) is equal to the opportunity cost of consuming the good or service.
C) is equal to marginal benefit.
D) is equal to economic surplus.
Q2) You are given the following market data for Venus automobiles in Saturnia.
Demand: P = 35,000 - 0.5Q
Supply: P = 8,000 + 0.25Q
where P = Price and Q = Quantity.
a.Calculate the equilibrium price and quantity.
b.Calculate the consumer surplus in this market.
c.Calculate the producer surplus in this market.
Q3) Refer to Figure 4-5. What area represents the deadweight loss after the imposition of the ceiling?
A) G + H
B) J + H
C) C + E + J + H
D) C + E
Q4) What is deadweight loss? When is deadweight loss equal to zero?
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Chapter 5: The Economics of Health Care
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Sample Questions
Q1) By the year 2010,health care spending on Medicare,Medicaid,and other U.S.government programs as a percentage of GDP had reached a level of
A) 2.2 percent.
B) 5.5 percent.
C) 17.5 percent.
D) 21.5 percent.
Q2) Economists John Cogan,R.Glenn Hubbard,and Daniel Kessler have estimated that ________ the tax preference for employer-provided health insurance would reduce spending by people enrolled in these programs by 33 percent.
A) enacting
B) doubling
C) cutting in half
D) repealing
Q3) In most circumstances,employees pay taxes on the value of health insurance their employers provide them.
A)True
B)False
Q4) What is asymmetric information?
Q5) How do adverse selection and moral hazard affect the market for insurance?
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Chapter 6: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) Which of the following is not an advantage of starting a new business as a proprietorship?
A) The owner has complete control over the business.
B) A proprietorship has few government rules and regulations to comply with.
C) Business profits are only taxed once, not twice.
D) A proprietorship can easily attain additional funding.
Q2) What happens in the primary market?
A) primary inputs like electricity are sold
B) a corporate financial manager will resell previously issued shares of stock
C) newly issued claims are sold by the borrowing firm to the initial buyer
D) already issued claims are sold from one investor to another
Q3) One result of the financial meltdown of the late 2000s was that mortgage institutions ________ and ________ were brought under direct control of the government.
A) Fannie Mae; Freddie Mac
B) Glass Steagall; Sarbanes Oxley
C) Goldman Sachs; Morgan Stanley
D) Lehman Brothers; FDIC
Q4) How does a firm raise external funds through direct finance?
Q5) Define a sole proprietorship.
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Chapter 7: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) The United States would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas.
A)True
B)False
Q2) When Sophie,a French citizen,purchases a Dell computer in Paris that was produced in Texas,the purchase is
A) both a U.S. and an French import.
B) a U.S. import and an French export.
C) a U.S. export and an French import.
D) neither an export nor an import for either country.
Q3) Which of the following is common to both tariffs and quotas?
A) Tariffs and quotas are both used as a means to increase government revenue.
B) Tariffs and quotas both increase economic efficiency.
C) Tariffs and quotas are both designed to reduce foreign competition faced by domestic firms.
D) Tariffs and quotas are both examples of voluntary export restraints.
Q4) A quota is a numerical limit on the quantity of a good that can be imported.
A)True
B)False
Page 9
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Chapter 8: Gdp: Measuring Total Production and Income
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Sample Questions
Q1) Consumption spending is $4.5 billion,gross private domestic investment is $3 billion,and government expenditures are $2 billion.If GDP is $14 billion,which of the following could be true regarding exports and imports in the economy?
A) Exports are $4.5 billion, and imports are $2 billion.
B) Exports are $6 billion, and imports are $8.5 billion.
C) Exports are $9 billion, and imports are $6 billion.
D) Exports are $15 billion, and imports are $10.5 billion.
Q2) Total income in an economy is equal to
A) GDP minus net exports.
B) income minus taxes.
C) the sum of wages, interest, rent, and profit. D) firm revenues.
Q3) Why do we subtract import spending from total expenditures?
Q4) Gross domestic product is generally ________ national income.
A) greater than B) less than C) equal to D) unrelated to
Q5) Give two reasons why GDP does not reflect total production in an economy.
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Chapter 9: Unemployment and Inflation
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Sample Questions
Q1) Suppose 180,000 people are employed,20,000 people are unemployed,the working-age population is 250,000,and 50,000 people are out of the labor force.Calculate the unemployment rate.
Q2) Refer to Figure 20-1.Based on the graph of the labor market above,if a minimum wage of $8 per hour is imposed,which of the following will result?
A) The quantity of labor demanded by firms will rise.
B) The quantity of labor demanded by firms will fall.
C) The unemployment rate will fall.
D) Both A and C will occur.
Q3) If the CPI changes from 125 to 120 between 2010 and 2011,how did prices change between 2010 and 2011?
A) Prices increased by 5%.
B) Prices decreased by 5%
C) Prices increased by 25%.
D) Prices decreased by 4%.
Q4) Describe how a lender can lose during inflation if the inflation is unanticipated and the loan is a fixed-interest-rate loan.How would a variable-interest-rate loan (one that adjusts over the contract period)eliminate these loses?
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Chapter 10: Economic Growth, the Financial System, and Business Cycles
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Sample Questions
Q1) A financial intermediary's main function is to match ________ with excess funds to ________ with a shortage of funds.
A) savers; borrower
B) borrower; savers
C) governments; households
D) firms; insurance companies
Q2) Retained earnings are sufficient to finance a firm's rapid expansion in a high-growth economy.
A)True
B)False
Q3) Potential GDP is always greater than real GDP in an economy.
A)True
B)False
Q4) What is human capital?
A) a slang term for the underground labor market
B) manufactured goods that are used to produce other goods
C) accumulated knowledge and skills acquired by a worker
D) the manager or owner of a business
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Q5) What type of consumer goods are most affected by the business cycle: durable goods or nondurable goods? Why?
Chapter 11: Long-Run Economic Growth: Sources and Policies
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Sample Questions
Q1) Which of the following is an example of foreign direct investment?
A) You purchase a plane ticket to China on American Airlines.
B) American Airlines builds a hub in China.
C) You buy a plane that was made in China.
D) A stock broker from China sells you a Chinese government savings bond.
Q2) Because of the productivity slowdown in the United States from the mid-1970s through the mid-1990s,
A) real GDP per capita grew more rapidly.
B) real GDP per capita grew more slowly.
C) the standard of living did not change.
D) the standard of living increased in the United States.
Q3) Refer to Table 22-1.Based on the table above,which country has a higher standard of living and why?
A) Sweden has a higher standard of living because their GDP is higher.
B) Ireland has a higher standard of living because their GDP per capita is higher.
C) Sweden has a higher standard of living because their GDP per capita is higher.
D) Ireland has a higher standard of living because growth in GDP is greater in Ireland than in Sweden.
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Chapter 12: Aggregate Expenditure and Output in the Short Run
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Sample
Questions
Q1) What impact does a higher price level have on interest rates,wealth,and investment spending?
Q2) An increase in Social Security payments will
A) increase consumption spending.
B) increase investment spending.
C) increase government spending.
D) increase export spending.
Q3) An example of assets that are included in ________ would be stocks,bonds,and savings accounts.
A) household wealth
B) household income
C) planned investment
D) consumer purchases
Q4) An increase in the price level ________ real wealth,which causes consumption to ________.
A) lowers; increase
B) lowers; decrease
C) raises; increase
D) raises; decrease
Q5) What is the main reason for changes in GDP in the short run?
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Chapter 13: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) When the price level falls from 135 to 120,the aggregate level of GDP supplied falls from $140 billion to $125 billion. This ________ relationship represents the ________ relationship between GDP and the price level.
A) negative; short-run
B) positive; short-run
C) negative; long-run
D) positive; long-run
Q2) An increase in the price level causes a movement down the aggregate demand curve.
A)True
B)False
Q3) There has been a decrease in investment. As a result,real GDP will ________ in the short run,and ________ in the long run.
A) increase; increases further
B) increase; decrease to its initial value
C) decrease; decrease further
D) decrease; increase to its initial level
Q4) President Bush lowered income taxes for individuals in 2001. Explain how lower income taxes affect the aggregate demand curve.
15
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Chapter 14: Money, banks, and the Federal Reserve System
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Sample Questions
Q1) An economy without money would have no exchanges of goods and services.
A)True
B)False
Q2) Suppose you deposit $2,000 into Bank of America and that the required reserve ratio is 10 percent.How does this affect the bank's balance sheet?
A) Reserves rise by $200.
B) Required reserves rise by $2,000.
C) Deposits rise by $1,000.
D) Excess reserves rise by $1,800.
Q3) Which of the following is not a tool the Fed uses to manage the money supply?
A) open market operations
B) setting the discount rate.
C) expanding and contracting deposit insurance
D) setting reserve requirements for deposits in the banking system
Q4) Which of the following tools of monetary policy is used least often?
A) open market operations
B) setting the required reserve ratio
C) setting the discount rate
D) acting as a lender of last resort
Q5) How do open market operations work?
Page 16
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Chapter 15: Monetary Policy
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Sample Questions
Q1) Refer to Table 26-3.Consider the hypothetical information in the table above for potential real GDP,real GDP and the price level in 2014 and in 2015 if the Federal Reserve does not use monetary policy.If the Fed uses monetary policy successfully to keep real GDP at its potential level in 2015,which of the following will be higher than if the Fed had taken no action?
A) real GDP and the unemployment rate
B) real GDP and the inflation rate
C) real GDP and potential GDP
D) potential GDP and the inflation rate
Q2) A monetary growth rule means that
A) the Fed will lower interest rates if it thinks a recession is on the horizon.
B) the Fed will raise interest rates if it thinks the economy is growing faster than potential.
C) the money supply should grow at a constant rate.
D) the money supply should grow in response to economic conditions.
Q3) If the Fed pursues expansionary monetary policy,
A) aggregate demand will rise, and the price level will rise.
B) aggregate demand will fall, and the price level will fall.
C) aggregate demand will rise, and the price level will fall.
D) aggregate demand will fall, and the price level will rise.
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Chapter 16: Fiscal Policy
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Sample Questions
Q1) Government deficits tend to increase during
A) recessions and booms.
B) periods of war and recession.
C) periods of below- or above-average growth.
D) periods of increased financial uncertainty.
Q2) Crowding out will be greater
A) the less sensitive consumption spending is to changes in the interest rate.
B) the further equilibrium GDP is below potential GDP.
C) the more sensitive investment spending is to changes in the interest rate.
D) if the economy is in recession, rather than at full employment.
Q3) Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium. For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the president and the Congress to conduct contractionary fiscal policy. Briefly explain the condition of the economy and what the president and the Congress are attempting to do.
Q4) The larger the marginal propensity to import,the smaller the government purchases multiplier.
A)True
B)False
Page 18
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Chapter 17: Inflation, unemployment, and Federal Reserve Policy
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Q1) Refer to Figure 28-6.A typical long-run Phillips curve would have the appearance of a curve running through points
A) A and B.
B) A and C.
C) B and C.
D) A, B and C.
Q2) Refer to Figure 28-7. A(n)________ would be depicted as a movement from A to D to C .
A) supply shock, such as rising oil prices,
B) increase in aggregate demand
C) implementation of contractionary monetary policy
D) increase in short-run aggregate supply
Q3) If people assume that future rates of inflation will ________,they are said to have adaptive expectations.
A) be higher than inflation rates of the past
B) follow the pattern of inflation rates in the past
C) be lower than inflation rates of the past
D) not be related to inflation rates of the past
Q4) Why is the credibility of the Fed's policy announcements particularly important?
Q5) What does it mean to say that workers and firms have rational expectations?
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Chapter 18: Macroeconomics in an Open Economy
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Sample Questions
Q1) Currency traders expect the dollar to depreciate.What impact will this have on equilibrium in the foreign exchange market?
A) The dollar will appreciate, and the equilibrium quantity of dollars will decrease.
B) The dollar will depreciate, and the equilibrium quantity of dollars exchanged will decrease.
C) The dollar will appreciate, and the equilibrium quantity of dollars will increase.
D) The dollar will depreciate, and the change in the equilibrium quantity of dollars exchanged cannot be determined.
Q2) All else equal,a depreciation of the British pound relative to currencies such as the euro and the U.S.Dollar should ________ the current account balance in great Britain and therefore ________ the financial account balance in Great Britain.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Q3) What is the difference between net exports and the current account balance?
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Chapter 19: The International Financial System
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Q1) Under the Bretton Woods system,U.S.dollars were redeemable for ________ only if the dollars were presented by a foreign central bank?
A) silver
B) foreign currency
C) gold
D) U.S. Treasury bonds
Q2) During the Chinese experience with pegging the yuan to the dollar,the yuan was ________.As a result,there was a ________ of dollars on the market,and the Chinese government had to purchase dollars to maintain the peg.
A) overvalued; shortage
B) undervalued; surplus
C) overvalued; surplus
D) undervalued; shortage
Q3) Under a floating exchange rate,the exchange rate
A) will change whenever the price of gold changes.
B) is controlled by central bank intervention.
C) is determined by the interaction of supply of the currency and demand for the currency.
D) is pegged against the euro.
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