Applied Macroeconomics
Final Exam
Course Introduction
Applied Macroeconomics explores the practical application of macroeconomic theories and models to real-world economic issues and policy debates. The course covers topics such as national income determination, economic growth, inflation, unemployment, fiscal and monetary policy, and international trade and finance. Students will analyze contemporary economic data, evaluate the impact of government interventions, and use macroeconomic tools to interpret and forecast economic outcomes. Through empirical case studies and current events, the course emphasizes the development of analytical skills necessary for assessing economic policy and understanding complex global economic dynamics.
Recommended Textbook Principles of Macroeconomics 6th Edition by
N. Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) The ability of an individual to own and exercise control over scarce resources is called
A)market failure.
B)property rights.
C)externality.
D)market power.
Answer: B
Q2) If the wage for unskilled labor were fixed above the current wage, then we would expect
A)an increase in the number of unskilled jobs available.
B)a decrease in the number of unskilled jobs available.
C)a decrease in the number of workers wanting unskilled jobs.
D)None of the above is correct.
Answer: B
Q3) What you give up to obtain an item is called your
A)opportunity cost.
B)explicit cost.
C)monetary cost.
D)direct cost.
Answer: A
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Chapter 2: Thinking Like an Economist
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Q1) Alfonso has noticed that increases in unemployment insurance claims are associated with recessions, and therefore he advocates limits on unemployment insurance so as to prevent recessions. Mary has noticed that most drug addicts once attended schools, and therefore she advocates getting rid of schools so as to prevent drug addiction.
A)The reasoning of both Alfonso and Mary suffers from the omitted variable problem.
B)The reasoning of both Alfonso and Mary suffers from the reverse causality problem.
C)Alfonso's reasoning suffers from the reverse causality problem, and Mary's reasoning suffers from the omitted variable problem.
D)Mary's reasoning suffers from the reverse causality problem, and Alfonso's reasoning suffers from the omitted variable problem.
Answer: A
Q2) Economists believe that production possibilities frontiers rarely have a bowed shape. A)True
B)False
Answer: False
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4
Chapter 3: Interdependence and the Gains From Trade
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Q1) Refer to Figure 3-6. If the production possibilities frontiers shown are each for one day of work, then which of the following combinations of pies and tarts could Maxine and Daisy together not make in a given day?
A)2 pies and 25 tarts
B)10 pies and 22 tarts
C)12 pies and 15 tarts
D)15 pies and 16 tarts
Answer: B
Q2) Refer to Table 3-17 The US has a comparative advantage in the production of A)wine.
B)cheese.
C)both wine and cheese.
D)neither wine nor cheese.
Answer: B
Q3) Refer to Table 3-6. The opportunity cost of 1 mixer for Miguel is A)1/2 toaster.
B)1/2 hour of labor.
C)2 toasters.
D)8 hours of labor.
Answer: C
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Chapter 4: The Market Forces of Supply and Demand
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Q1) Refer to Figure 4-3. If these are the only two consumers in the market, then the market quantity demanded at a price of $10 is
A)0 units.
B)5 units.
C)8.33 units.
D)25 units.
Q2) Refer to Figure 4-21. Which of the following movements would illustrate the effect in the market for ballroom dancing lessons resulting from the introduction of a popular new television show called "Dancing with the Stars"?
A)Point A to Point B
B)Point C to Point B
C)Point C to Point D
D)Point A to Point D
Q3) If baked potatoes and sour cream are complements, then an increase in the price of sour cream decreases the demand for baked potatoes.
A)True
B)False
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Chapter 5: Elasticity and Its Application
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Q1) The supply of oil is likely to be
A)inelastic in both the short run and long run.
B)elastic in both the short run and long run.
C)elastic in the short run and inelastic in the long run.
D)inelastic in the short run and elastic in the long run.
Q2) Moving downward and to the right along a linear demand curve, we know that total revenue
A)first increases, then decreases.
B)first decreases, then increases.
C)always increases.
D)always decreases.
Q3) For a good that is a luxury, demand
A)tends to be inelastic.
B)tends to be elastic.
C)has unit elasticity.
D)cannot be represented by a demand curve in the usual way.
Q4) Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.
A)True
B)False
Page 7
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Chapter 6: Supply, Demand, and Government Policies
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Q1) A tax imposed on the sellers of a good will lower the
A)price paid by buyers and lower the equilibrium quantity.
B)price paid by buyers and raise the equilibrium quantity.
C)effective price received by sellers and lower the equilibrium quantity.
D)effective price received by sellers and raise the equilibrium quantity.
Q2) Binding price ceilings benefit consumers because they allow consumers to buy all the goods they demand at a lower price.
A)True
B)False
Q3) Who bears the majority of a tax burden depends on the relative elasticity of supply and demand.
A)True
B)False
Q4) Refer to Figure 6-6. Which of the following price ceilings would be binding in this market?
A)$8
B)$10
C)$12
D)$14
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Sample Questions
Q1) Each seller of a product is willing to sell as long as the price he or she can receive is greater than the opportunity cost of producing the product.
A)True
B)False
Q2) If the current allocation of resources in the market for wallpaper is efficient, then it must be the case that
A)producer surplus equals consumer surplus in the market for wallpaper.
B)the market for wallpaper is in equilibrium.
C)on the last unit of wallpaper that was produced and sold, the value to buyers exceeded the cost to sellers.
D)All of the above are correct.
Q3) Which of the following is not equal to total surplus?
A)consumer surplus - producer surplus
B)buyers' willingnesses to pay - sellers' costs
C)value to buyers - amount paid by buyers + amount received by sellers - cost to sellers
D)value to buyers - cost to sellers
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Chapter 8: Application: The Costs of Taxation
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Q1) In which of the following instances would the deadweight loss of the tax on cartons of cigarettes increase by a factor of 9?
A)The tax on cartons of cigarettes increases from $10 to $11.11.
B)The tax on cartons of cigarettes increases from $10 to $20.
C)The tax on cartons of cigarettes increases from $10 to $30.
D)The tax on cartons of cigarettes increases from $10 to $90.
Q2) Refer to Figure 8-8. After the tax goes into effect, producer surplus is the area
A)D+F+G+H+J.
B)D+F+G+H.
C)D+F+J.
D)J.
Q3) Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is doubled, the
A)base of the triangle that represents the deadweight loss doubles.
B)height of the triangle that represents the deadweight loss doubles.
C)deadweight loss of the tax quadruples.
D)All of the above are correct.
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Chapter 9: Application: International Trade
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Sample Questions
Q1) Refer to Figure 9-5. If this country allows free trade in wagons,
A)consumers will gain more than producers will lose.
B)producers will gain more than consumers will lose.
C)producers and consumers will both gain equally.
D)producers and consumers will both lose equally.
Q2) Refer to Figure 9-4. Which of the following statements is accurate?
A)Consumer surplus with trade is $3,200.
B)Producer surplus with trade is $375.
C)The gains from trade amount to $800.
D)The gains from trade are represented on the graph by the area bounded by the points (0, $12), (300, $12), (300, $7) and (0, $7).
Q3) Refer to Figure 9-8. The price corresponding to the horizontal dotted line on the graph represents the price of cars
A)after trade is allowed.
B)before trade is allowed.
C)that maximizes total surplus when trade is allowed.
D)that minimizes the well-being of domestic car producers when trade is allowed.
Q4) Characterize the two different approaches a nation can take to achieve free trade. Does one approach have an advantage over the other?
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Chapter 10: Measuring a Nations Income
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Q1) Much of macroeconomics attempts to explain
A)changes in the price of oil and gasoline.
B)long-run growth and short-run fluctuations in real GDP.
C)changes in the growth rate of state government spending.
D)changes in the prices and quantities of individual goods and services.
Q2) The local Chevrolet dealership has an increase in inventory of 25 newly produced cars in 2006. In 2007, it sells all 25 cars. Which of the following statements is correct?
A)The value of the cars in inventory will be counted as part of 2006 GDP, and the value of the cars sold in 2007 will not increase 2007 GDP.
B)The value of the cars in inventory will not affect 2006 GDP, and the value of the cars sold in 2007 will increase 2007 GDP.
C)The value of the cars in inventory will be counted as part of 2006 GDP, and the value of the cars sold in 2007 will increase 2007 GDP.
D)The value of the cars in inventory will not affect 2006 GDP, and the value of the cars sold in 2007 will not increase 2007 GDP.
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Chapter 11: Measuring the Cost of Living
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Sample Questions
Q1) Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.
A)True
B)False
Q2) The price of DVD players increases dramatically, causing a 1 percent increase in the CPI. The price increase will most likely cause the GDP deflator to increase by A)more than 1 percent.
B)less than 1 percent.
C)1 percent.
D)None of the above is correct; this particular price increase will not affect the GDP deflator.
Q3) By far the largest category of goods and services in the CPI basket is A)housing.
B)transportation.
C)education & communication.
D)food & beverages.
Q4) List the three major problems in using the CPI as a measure of the cost of living.
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Chapter 12: Production and Growth
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Q1) Which of the following is not correct?
A)Countries that have had higher output growth per person have typically done so without higher productivity growth.
B)A country's standard of living and its productivity are closely related.
C)Productivity refers to output produced per hour of work.
D)Increases in productivity can be used to increase output or leisure.
Q2) The dictator of Turan has recently begun to arbitrarily seize farms belonging to his political opponents, and he has given the farms to his friends. His friends don't know much about farming. The courts in Turan have ruled that the seizures are illegal, but the dictator has ignored the rulings. Other things equal, we would expect that the growth rate in Turan will
A)fall temporarily, but will return to where it was when the new owners learn how to farm.
B)increase because the total amount of human capital in the country will increase as the new owners learn how to farm.
C)fall and remain lower for a long time.
D)not be affected unless widespread civil disorder or civil war results.
Q3) How do outward-oriented policies affect a nation's productivity?
Q4) Why does a nation's standard of living depend on property rights?
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Page 14
Chapter 13: Saving, Investment, and the Financial System
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Q1) In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?
A)raise the demand for existing shares of the stock, causing the price to rise
B)decrease the demand for existing shares of the stock, causing the price to fall
C)raise the supply of the existing shares of stock, causing the price to rise
D)raise the supply of the existing shares of stock, causing the price to fall
Q2) Refer to Table 13-1. Which firm had the P/E ratio that was closest to the historically typical P/E ratio?
A)GenMills
B)Gillette
C)Graco
D)Hershey
Q3) Which of the following is correct?
A)Some bonds have terms as short as a few months.
B)Because they are so risky, junk bonds pay a low rate of interest.
C)Corporations buy bonds to raise funds.
D)All of the above are correct.
Q4) Draw and label a graph showing equilibrium in the market for loanable funds.
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Chapter 14: The Basic Tools of Finance
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Q1) Which of the following is not correct?
A)There is a greater reduction in risk by increasing the number of stocks in a portfolio from 1 to 10, than by increasing it from 100 to 120 stocks.
B)The historical rate of return on stocks has been about 5 percentage points higher than the historical rate of return on bonds.
C)Stock in an industry that is very sensitive to economic conditions is likely to have a higher average return than stock in an industry that is not so sensitive to economic conditions.
D)If you had information about a corporation that no one else had, you could earn a very high rate of return. This contradicts the efficient market hypothesis.
Q2) Which of the following changes would increase the present value of a future payment?
A)a decrease in the size of the payment
B)a decrease in the time until the payment is made
C)an increase in the interest rate
D)All of the above are correct.
Q3) Give an example of adverse selection and an example of moral hazard using homeowners insurance.
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Chapter 15: Unemployment
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Sample Questions
Q1) Efficiency wages, minimum-wage laws, and unions all
A)keep wages below the equilibrium level, causing a shortage of labor.
B)keep wages below the equilibrium level, causing a surplus of labor.
C)keep wages above the equilibrium level, causing a shortage of labor.
D)keep wages above the equilibrium level, causing a surplus of labor.
Q2) If all workers and all jobs were the same such that all workers were equally well suited for all jobs, then there would be no
A)cyclical unemployment.
B)frictional unemployment.
C)natural rate of unemployment.
D)structural unemployment.
Q3) The natural rate of unemployment is the desirable rate of unemployment for an economy.
A)True
B)False
Q4) Adults who were not working but who had jobs from which they were temporarily absent are included in the Bureau of Labor Statistics' "employed" category.
A)True
B)False
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Chapter 16: The Monetary System
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Q1) If the central bank in some country lowered the reserve requirement, then the money multiplier for that country
A)would increase.
B)would not change.
C)would decrease.
D)could do any of the above.
Q2) If the money multiplier decreased from 20 to 12.5, then
A)the Fed increased the reserve ratio from 5 percent to 8 percent.
B)the Fed increased the fed funds rate from 5 percent to 8 percent..
C)the Fed decreased the reserve ratio from 8 percent to 5 percent.
D)the Fed decreased the fed funds rate from 8 percent to 5 percent.
Q3) If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.
Q4) The Fed decreases reserves if it conducts open market
A)purchases or auctions term credit.
B)purchases but not if it auctions term credit
C)sales or auctions term credit
D)sales but not if it auctions term credit
Q5) Compare the Board of Governors and the Federal Open Market Committee.
Page 18
Q6) What is the difference between money and wealth?
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Chapter 17: Money Growth and Inflation
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Q1) Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns is
A)higher than she had expected, and the real value of the loan is higher than she had expected.
B)higher than she had expected, and the real value of the loan is lower than she had expected.
C)lower than she had expected, and the real value of the loan is higher than she had expected.
D)lower then she had expected, and the real value of the loan is lower than she had expected.
Q2) In the U.S., people are required to pay taxes on
A)nominal interest earnings, irrespective of their real interest earnings.
B)real interest earnings, irrespective of their nominal interest earnings.
C)real capital gains, irrespective of their nominal capital gains.
D)All of the above are correct.
Q3) List and define any two of the costs of high inflation.
Q4) Nominal GDP measures output of final goods and services in physical terms.
A)True
B)False
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Chapter 18: Open-Economy Macroeconomic Models
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Q1) The nominal exchange rate is the A)nominal interest rate in one country divided by the nominal interest rate in the other country.
B)the ratio of a foreign country's interest rate to the domestic interest rate.
C)rate at which a person can trade the currency of one country for another. D)the real exchange rate minus the inflation rate.
Q2) The law of one price states that
A)a good must sell at the price fixed by law.
B)a good must sell at the same price at all locations.
C)a good cannot sell for a price greater than the legal price ceiling. D)nominal exchange rates will not vary.
Q3) For an economy as a whole, net exports must equal minus one times net capital outflow.
A)True
B)False
Q4) Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.
A)True
B)False
Q5) What does purchasing-power parity imply about the real exchange rate?
Page 20
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Chapter 19: A Macroeconomic Theory of the Open Economy
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Q1) If the U.S. imposed an import quota on apples, then which of the following would rise?
A)the U.S. real exchange rate and U.S. net exports
B)the U.S. real exchange rate but not U.S. net exports
C)U.S. net exports but not the U.S. real exchange rate
D)neither the U.S. real exchange rate nor U.S. net exports
Q2) Capital flight raises a country's interest rate.
A)True
B)False
Q3) Capital flight increases a country's interest rate. This increase in the interest rate makes net capital outflow lower than it would be had the interest rate stayed the same.
A)True
B)False
Q4) If a government started with a budget deficit and moved to a surplus, domestic investment
A)and the real exchange rate would rise.
B)and the real exchange rate would fall.
C)would rise and the real exchange rate would fall.
D)would fall and the real exchange rate would rise.
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Chapter 20: Aggregate Demand and Aggregate Supply
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Q1) As the price level rises,
A)the exchange rate falls, so net exports fall.
B)the exchange rate falls, so net exports rise.
C)the exchange rate rises, so net exports fall.
D)the exchange rate rises, so net exports rise.
Q2) If the central bank increased the money supply in response to a decrease in short-run aggregate supply, unemployment would return towards its natural rate, but prices would rise even more.
A)True
B)False
Q3) Which of the following did not happen during the onset of the Great Depression?
A)The money supply fell as households took money out of bank deposits.
B)The Fed conducted expansionary monetary policy.
C)Stock prices fell about 90 percent.
D)Disruption of the banking system made it difficult for some firms to obtain funds for investment.
Q4) Make a list of things that would shift the aggregate demand curve to the right.
Q5) An increase in the money supply causes output to rise in the long run.
A)True
B)False
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Chapter 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) In response to the sharp decline in stock prices in October 1987, the Federal Reserve
A)increased interest rates, and the economy avoided a recession.
B)increased interest rates, but the economy was unable to avoid a recession.
C)decreased interest rates, and the economy avoided a recession.
D)decreased interest rates, but the economy was unable to avoid a recession.
Q2) Which among the following assets is the most liquid?
A)capital goods
B)stocks and bonds with a low risk
C)real estate
D)funds in a checking account
Q3) An increase in government purchases is likely to
A)decrease interest rates.
B)result in a net decrease in aggregate demand.
C)crowd out investment spending by business firms.
D)decrease money demand.
Q4) Stock prices often rise when the Fed raises interest rates.
A)True
B)False
Q5) What is the difference between monetary policy and fiscal policy?
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Chapter 22: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) Suppose the Federal Reserve pursues contractionary monetary policy. In the long run
A)both inflation and the unemployment rate are higher than they were prior to the change in policy.
B)inflation is higher and the unemployment rate is the same as it was prior to the change in policy.
C)inflation is lower and the unemployment rate is lower than it was prior to the change in policy.
D)inflation is lower and unemployment is the same as it was prior to the change in policy.
Q2) According to the Friedman-Phelps analysis, in the long run actual inflation equals expected inflation and unemployment is at its natural rate.
A)True
B)False
Q3) If policymakers increase aggregate demand, then in the short run the price level
A)falls and unemployment rises.
B)and unemployment fall.
C)and unemployment rise.
D)rises and unemployment falls.
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Chapter 23: Six Debates Over Macroeconomic Policy
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Q1) Which of the following is correct?
A)Well designed tax cuts can increase investment which fluctuates more than consumption over the business cycle.
B)Well designed tax cuts can increase investment but it fluctuates less than consumption over the business cycle.
C)Tax cuts have little effect on investment which fluctuate more than consumption over the business cycle.
D)Tax cuts have little effect on investment but it fluctuates less than consumption over the business cycle
Q2) If the budget deficit were reduced
A)interest rates and investment would increase.
B)interest rates would increase and investment would decrease.
C)interest rates and investment would decrease.
D)interest rates would decrease and investment would increase.
Q3) Is it possible that deficits do not burden future generations?
Q4) Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?
Q5) Explain the main arguments in favor of economic stabilization.
Q6) Describe three costs of inflation.
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