Applied Macroeconomics
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Course Introduction
Applied Macroeconomics focuses on the practical application of macroeconomic theories and models to real-world economic issues and policy debates. The course explores topics such as economic growth, inflation, unemployment, monetary and fiscal policy, and international trade, emphasizing the use of economic data and statistical tools to analyze and interpret macroeconomic trends. Students will learn how to assess the impact of government interventions, understand global economic fluctuations, and make informed predictions about economic outcomes based on empirical evidence. The course aims to develop the skills necessary to critically evaluate macroeconomic policies and their implications for businesses, governments, and society as a whole.
Recommended Textbook
Economics Today The Macro View 18th Edition by Roger LeRoy Miller
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Chapter 1: The Nature of Economics
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Q1) If the slope of a curve is 1/5, we know that
A)the relationship is linear, and the line moves from lower left to upper right.
B)the relationship is non-linear, and the line moves from lower left to upper right.
C)the relationship is linear, and the line moves from upper left to lower right.
D)the relationship is non-linear, and the line moves from upper left to lower right.
Answer: A
Q2) Economics can be described as the study of how people use ________ resources to satisfy ________ wants.
A)unlimited; unlimited
B)unlimited; limited
C)limited; unlimited
D)limited; limited
Answer: C
Q3) Explain what economists mean when they apply the rationality assumption.
Answer: The rationality assumption means that people do not intentionally make themselves worse off. It does not deal with the interior reasoning of a person or the psychology of a person. Instead, rationality applies to the way people actually behave in a world of scarcity.
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Chapter 2: Scarcity and the World of Trade-Offs
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Sample Questions
Q1) Some resources are better suited to produce certain goods than other resources. This fact leads to
A)a linear production possibilities curve.
B)inefficiency in the economy.
C)the law of increasing additional cost.
D)increases in technology.
Answer: C
Q2) Which of the following is TRUE about comparative advantage?
A)Comparative advantage explains trade among nations, but not within nations.
B)Comparative advantage explains trade within nations, but not among nations.
C)Comparative advantage explains trade within nations and among nations.
D)Comparative advantage has nothing to do with trade among nations; it only is concerned with specialization within a firm.
Answer: C
Q3) Economists define technology as
A)machines such as computers.
B)entrepreneurship.
C)absolute advantage.
D)society's knowledge concerning the production of goods.
Answer: D
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Chapter 3: Demand and Supply
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Sample Questions
Q1) Suppose that short skirts that were fashionable in the 1990s become unfashionable in the late 2000s. If other factors were held constant, then there would be
A)a rightward movement along the supply curve.
B)a rightward shift of the demand curve.
C)a leftward shift in the demand curve.
D)a leftward movement along the supply curve.
Answer: C
Q2) If the price of one good goes up and the demand of a related good goes down, the two goods are
A)complements.
B)substitutes.
C)inferior goods.
D)normal goods.
Answer: A
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Chapter 4: Extensions of Demand and Supply Analysis
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Sample Questions
Q1) If one day it was discovered that lime juice caused cancer, which of the following would likely result?
A)The supply curve for lime juice would shift to the right.
B)The supply curve for lime juice would shift to the left.
C)The demand curve for lime juice would shift to the right.
D)The demand curve for lime juice would shift to the left.
Q2) In a market system, which component conveys information about what is relatively scarce and what is relatively abundant?
A)the number of producers
B)the number of consumers
C)prices
D)the amount of government regulation
Q3) What are the terms of exchange and how are these terms related to the price?
Q4) When the government sets a price floor which is above the equilibrium price
A)a surplus will develop.
B)a shortage will develop.
C)the equilibrium price will be maintained.
D)a price ceiling will follow.
Q5) Explain how agricultural price supports work and what the effects of the supports are.
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Chapter 5: Public Spending and Public Choice
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Q1) Receiving a voucher for an apartment in a public housing project would be an example of a good that satisfies
A)the principle of rival consumption.
B)the definition of a public good.
C)the definition of a good with a positive externality.
D)the nonexclusion principle.
Q2) Public elementary and high school education in the United States is provided
A)as a free good.
B)as a subsidized good.
C)at the market clearing price.
D)in an amount less than the equilibrium quantity.
Q3) In the United States, the idea that the federal government should undertake actions to stabilize business activity
A)was established in the Declaration of Independence.
B)is a relatively new idea that developed in the years during and after the Great Depression.
C)has been around since the early 1700s.
D)developed during World War I.
Q4) What is the free-rider problem, and how is it related to public goods?
Q5) How does a government-sponsored good differ from a public good?
Page 7
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Chapter 6: Funding the Public Sector
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Sample Questions
Q1) Suppose the income tax rate is 0 percent on the first $10,000; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $20,000; and 40 percent on all income above $70,000. Family A has income of $100,000 while Family B has income of $40,000. The marginal tax rates faced by the two families are
A)40 percent on A and 10 percent on B.
B)40 percent on A and 20 percent on B.
C)30 percent on A and 20 percent on B.
D)30 percent on A and 30 percent on B.
Q2) For all employee earnings subject to Social Security taxes, what is the current Social Security tax rate for employees?
A)0.8%
B)2.9%
C)4.2%
D)6.2%
Q3) Explain how corporate profits are taxed twice.
Q4) A government is thinking about increasing the sales tax rate. Should it use static or dynamic tax analysis?
Explain why one approach is better than the other.
Q5) In what way is corporate income subject to double taxation?
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Chapter 7: The Macroeconomy: Unemployment, Inflation, and Deflation
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Sample Questions
Q1) If Tim works at home taking care of the household
A)he is part of the labor force.
B)he is not part of the labor force.
C)he is considered to be employed.
D)he is considered to be unemployed.
Q2) Typically during a recession
A)incomes fall, and unemployment falls.
B)incomes and unemployment rise.
C)incomes fall, and unemployment rises.
D)incomes increase, and unemployment falls.
Q3) Considering the data from the table shown above, assuming that the market basket cost of light bulbs and volleyballs in the base year was $4500, what would be the price index for the year 2015?
A)177.78
B)156.30
C)100.00
D)92.70
Q4) What is the business cycle? How "cyclical" is it?
What causes the business cycle?
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Chapter 8: Global Economic Growth and Development
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Sample Questions
Q1) One of the implications of new growth theory is that economic growth arises from
A)limits on international trade.
B)investments in knowledge.
C)financial safety nets for the poor, such as Medicaid.
D)reductions in the birth rate.
Q2) When the government grants an inventor a patent
A)he has the exclusive right to make, sell or use his invention for 5 years.
B)the patent holder has less incentive to invest in R&D because one successful invention removes the need to develop others.
C)the patent holder is guaranteed a profit on his invention.
D)the protection of a current invention would increase spending on R&D.
Q3) Which of the following is a benefit of economic growth?
A)reduction in illiteracy
B)reduction in poverty
C)improved health
D)all of the above
Q4) What is economic growth and why are growth rates so important?
Q5) Would one expect economic growth to be higher or lower in a country that had poorly defined property rights?
Why?
Page 10
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Chapter 9: Real GDP and the Price Level in the Long Run
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Sample Questions
Q1) The total of all planned production for the economy is
A)determined only by individuals and firms.
B)determined only by the government.
C)aggregate demand.
D)aggregate supply.
Q2) A rise in the price level has a direct effect on spending because
A)people like to spend more when prices are higher.
B)the real value of the money people have varies directly with the price level.
C)the real value of the money people have decreases and they can buy less with it.
D)a higher price gives people more money, and so the more goods and services they can buy.
Q3) What is the shape of the long-run aggregate supply curve? Why?
Q4) The full-employment level of GDP is A)endowments.
B)long-run aggregate demand.
C)long-run aggregate supply.
D)economic growth.
Q5) How can a country experience economic growth and stable prices?
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Chapter 10: Classical and Keynesian Macro Analyses
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Q1) The short-run aggregate supply curve is horizontal when A)prices are inflexible and the economy is at full employment.
B)there are unemployed resources and prices do not increase when aggregate demand increases.
C)there are unemployed resources and prices do not decrease when aggregate supply increases.
D)there are no unemployed resources and prices do not increase when aggregate demand or supply increases.
Q2) Leakages in the circular flow model are
A)caused by people not acting rational.
B)possible when unemployment exists.
C)reflected in the vertical long-run aggregate supply curve.
D)caused by people saving instead of spending.
Q3) Which of the following is NOT an assumption of the classical model?
A)Wages and prices are flexible.
B)Investment will lead to money illusion.
C)People are motivated by self-interest.
D)Pure competition exists.
Q4) Using a graph, show the effects of a weaker dollar on the economy. Explain.
Q5) What is Say's law and what does it mean?
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Chapter 11: Consumption, Real GDP, and the Multiplier
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Q1) If the MPC equals 0.75, then
A)for every $100 increase in consumption, real Gross Domestic Product (GDP)increases by $75.
B)consumption is always more than real Gross Domestic Product (GDP).
C)for every $100 increase in real Gross Domestic Product (GDP), saving increases by $75.
D)for every $100 increase in real Gross Domestic Product (GDP), saving increases by $25.
Q2) According to the above figure, autonomous consumption equals
A)$0.
B)$5,000.
C)$20,000.
D)-$5,000.
Q3) Refer to the above figure. At real GDP of $1 trillion, actual investment equals
A)planned investment of $1 trillion.
B)planned saving of $1 trillion.
C)actual saving of 0.
D)unanticipated inventory adjustments of $1 trillion.
Q4) Explain how the aggregate demand curve is related to the C + I + G + X curve.
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Chapter 12: Fiscal Policy
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Sample Questions
Q1) The government might engage in expansionary fiscal policy if it wanted to A)reduce the price level.
B)reduce real GDP.
C)shift the aggregate demand curve to the left.
D)reduce the level of unemployment.
Q2) When the government deliberately alters its level of spending and/or taxes in order to achieve specific national economic goals, it is exercising A)monetary policy.
B)discretionary fiscal policy.
C)a Ricardian policy.
D)a laissez-faire policy.
Q3) The Keynesian perspective on the effect of an increase in taxes is that this policy action
A)generates reductions in consumption and in saving.
B)generates reductions in consumption and an increase in saving to pay for the new taxes.
C)has no impact on consumption.
D)increases current consumption and reduces future consumption.
Q4) Explain how fiscal policy can correct a contractionary gap.
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Chapter 13: Deficit Spending and the Public Debt
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Q1) All of the following are possible explanations for the increase in U.S. government budget deficits as a percentage of GDP since the early 2001 EXCEPT
A)increases in tax revenues.
B)increases in payments for entitlements.
C)increases in government spending.
D)decreases in tax rates.
Q2) The amount of funds the Social Security system has loaned the federal government is
A)included in the net public debt.
B)added to the gross public debt to calculate the net public debt.
C)not included in the gross public debt.
D)excluded from the net public debt.
Q3) As a possible approach to eliminating the government budget deficit, increasing taxes for everyone would
A)mean only a small increase in taxes.
B)lead to an inflationary gap.
C)transfer more goods and services to the government sector.
D)lead to a large increase in taxes for every worker.
Q4) Explain how deficit spending could be a burden to future generations.
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Chapter 14: Money Banking and Central Banking
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Q1) Which of the following has been a problem faced by the FDIC in its provision of federal deposit insurance?
A)moral hazard arising from the tendency for the highest-risk banks to be those most interested in obtaining deposit insurance in the first place
B)adverse selection arising from the tendency for banks to take on more risk after they receive deposit insurance
C)moral hazard arising from the tendency for banks to take on more risk after they receive deposit insurance
D)a relatively low number of bank failures each year, which has reduced the need for deposit insurance
Q2) The essential difference between paper money and coins as forms of money is that A)the metallic content of coins makes them more acceptable as money.
B)paper money issued by the Federal Reserve Board is backed by gold while coins are not.
C)paper money serves as a unit of account while coins do not.
D)paper is paper and not metal. The metal is more durable.
Q3) What is a fiduciary monetary system?
Q4) What is money?
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Chapter 15: Domestic and International Dimensions of Monetary Policy
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Q1) An appreciation of the U.S. dollar occurs when
A)the international price of the dollar falls.
B)the international price of the dollar rises.
C)the U.S. demand for foreign currencies increases.
D)the supply of dollars in international markets increases.
Q2) According to Keynes, the effect on planned real investment spending resulting from the interest-rate impact of a decrease in the money supply
A)impacts the economy through the multiplier.
B)impacts the economy by reducing the value of the U.S. dollar.
C)impacts the economy by increasing the deficit.
D)does not impact the economy.
Q3) To change the rate of growth of the money supply, the Fed can do all but which one of the following?
A)Engage in open market operations.
B)Change the discount rate.
C)Shift the demand for money curve by changing the interest rate.
D)Change the required reserve ratio.
Q4) Describe and explain the relationship between the price of bonds and the interest rate.
Page 17
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Chapter 16: Stabilization in an Integrated World Economy
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Q1) According to the text, minimum-wage laws cause increases in
A)employment possibilities.
B)structural unemployment.
C)poverty.
D)productivity.
Q2) According to A.W. Phillips, an inverse relationship has existed between
A)unemployment and interest rates.
B)the rate of growth of the money supply and the unemployment rate.
C)the inflation rate and unemployment rate.
D)the inflation rate and the money supply.
Q3) When workers and employers correctly anticipate the rate of inflation
A)there will be no unemployment.
B)there will be only involuntary unemployment.
C)unemployment will be at the natural rate.
D)workers will underestimate the real wage.
Q4) There is greater support for active policymaking when
A)pure competition is widespread.
B)price flexibility is common.
C)wage flexibility is common.
D)none of the above.
18
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Chapter 17: Policies and Prospects for Global Economic Growth
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Q1) Where does the World Bank get its funds?
A)from selling internal reports to the public
B)from tariffs collected on goods traded internationally
C)from governments of the wealthiest nations and from private financial markets
D)from seizing dead capital in developing nations and selling it at auction
Q2) When government inefficiencies exist and government officials can be bribed, then A)dead capital will not exist.
B)the country will have positive economic growth.
C)a bribe will increase the cost of investing in capital.
D)property rights will be more secure since an official has been bribed to grant ownership to the business.
Q3) According to the text, population growth in many poor countries does not generally result in increased labor resources because
A)many people do not join the labor force.
B)most people are not productive in their work.
C)many people work two jobs.
D)most jobs are for middle-age workers.
Q4) What are the sources of private investments in foreign nations?
Q5) Explain the role of economic freedom in economic development.
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Chapter 18: Comparative Advantage and the Open Economy
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Sample Questions
Q1) A problem with the infant industry argument is that
A)it is too restrictive in targeting new industries to protect.
B)it does not protect the most important new industries in a country.
C)it is almost impossible to eliminate the tariff once the industry matures.
D)it allows infant industries to mature so that tariffs can be eliminated.
Q2) Refer to the above table. If opportunity costs are constant, the two countries will gain from trade at a rate of exchange of
A)0.1 computer for 1 bicycle.
B)5 computers for 1 bicycle.
C)1 computer for 1 bicycle.
D)8 bicycles for 1 computer.
Q3) A country will specialize in the good for which
A)it has absolute advantage.
B)it has moderate production costs.
C)it can produce at minimum average cost.
D)it has comparative advantage.
Q4) Discuss the relationship between world trade and world Gross Domestic Product (GDP)since the early 1950s.
Q5) Explain the infant industry argument.
Page 20
Q6) How can comparative advantage yield gains from trade?
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Chapter 19: Exchange Rates and the Balance of Payments
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Sample Questions
Q1) When there is political instability in another country, the United States can expect
A)an increase in the capital account balance due to an increase in the current account.
B)an increase in the capital account balance due to the movement of assets to the U.S.
C)a decrease in the balance of payments due to a decrease in special drawing rights.
D)a decrease in the balance of payments due to a decrease in the demand for goods and services.
Q2) Special Drawing Rights are
A)the reserve assets created by the International Monetary Fund for countries to use in settling international payment obligations.
B)the price of one nation's currency in term of the currency of another country.
C)a category of the balance of payments transactions that measures flows of real and financial assets.
D)a category of the balance of payments transactions that measures the exchange of merchandise, the exchange of services, and unilateral transfers.
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