Applied Macroeconomics
Final Exam Questions
Course Introduction
Applied Macroeconomics focuses on the practical application of macroeconomic theories and models to real-world economic issues and policy problems. The course covers topics such as national income determination, monetary and fiscal policy, inflation, unemployment, economic growth, and international macroeconomic relations. Students learn to use macroeconomic data and forecasting techniques to analyze economic trends and outcomes, evaluate the effects of government policies, and understand the dynamics of business cycles. Emphasis is placed on case studies, data interpretation, and critical policy analysis to equip students with the tools necessary to address current economic challenges at the national and global levels.
Recommended Textbook
Macroeconomics 10th Edition by William Boyes
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21 Chapters
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Chapter 1: The Wealth of Nations: Ownership and Economic
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Sample Questions
Q1) Which of the following is a result of scarcity?
A) Costs are incurred in making choices.
B) We attempt to utilize our resources as efficiently as possible.
C) We must make choices between production possibilities.
D) We are unable to produce all we would like to produce.
E) All of these.
Answer: E
Q2) Choices need to be made because of all of the following, except limited _____.
A) resources
B) income
C) wants
D) time
E) availability of goods
Answer: C
Q3) Specialization according to comparative advantage, followed by trade, allows everyone to acquire more of the goods they want.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Scarcity and Opportunity Costs
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Q1) Bob and Bill can make 16 toys each if they devote 8 working hours in a day. Further, Bob can repair 4 cars and Bill can repair 2 cars, if they devote 8 working hours in a day. What is the opportunity cost of repairing one car to Bob?
A) 10 toys
B) 8 toys
C) 16 toys
D) 12 toys
E) 4 toys
Answer: E
Q2) Economic growth can be illustrated by an outward shift of the PPC.
A)True
B)False
Answer: True
Q3) A nation's production possibilities curve [PPC] will shift outward if its workers receive better training.
A)True
B)False
Answer: True
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Chapter 3: The Market and Price System
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Sample Questions
Q1) Refer to Figure 3.2. Which of the following panels represents the equilibrium situation in the bicycle market, if there were an increase in the price of metal used in the production of bicycles?
A) Panel A
B) Panel B
C) Panel C
D) Panel D
E) Panel E
Answer: C
Q2) A sharp increase in gasoline prices will cause the supply curve for trucking services to shift to the right.
A)True
B)False
Answer: False
Q3) A price floor is the minimum price that consumers have to pay for a particular product.
A)True
B)False
Answer: True
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Chapter 4: The Aggregate Economy
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Sample Questions
Q1) Which of the following flows from the government to the households?
A) Goods and services
B) Resources of production
C) Taxes
D) Government services
E) Loans
Q2) According to Scenario 4-1, country C has net exports of:
A) zero.
B) $13 million.
C) $6 million.
D) $13 million.
E) $6 million.
Q3) According to Scenario 4-1, country A has net exports of:
A) $18 million.
B) $8 million.
C) $13 million.
D) $9 million.
E) $6 million.
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Chapter 5: National Income Accounting
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Sample Questions
Q1) Which of the following is not included in national income?
A) Corporate profits
B) Interest earnings
C) Capital consumption allowance
D) Rental income
E) Stockbroker commissions
Q2) Productive activity in the underground economy:
A) results in an overstatement of actual income and production in the national accounting system.
B) consists of unrecorded cash transactions.
C) is estimated and included in the national income accounting system.
D) poses no problem for the measurement of gross domestic product.
E) does not affect GDP but is included in the value-added computations.
Q3) The income that is available to individuals for consumption or investment is called disposable income.
A)True B)False
Q4) Depreciation must be subtracted from the calculation of gross domestic product.
A)True
B)False
Page 7
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Chapter 6: An Introduction to the Foreign Exchapterange
Market and the Balance of Payments
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Sample Questions
Q1) The statistical discrepancy account:
A) accounts for services.
B) accounts for gifts to foreigners.
C) is included to ensure a balance between debits and credits in the capital account.
D) estimates transactions that were omitted from the official reporting process.
E) causes the net balance in the balance of payments to be negative.
Q2) Which of the following is true of a net debtor nation?
A) It experiences a trade surplus for five consecutive years.
B) It experiences a trade deficit for five consecutive years.
C) It owes more to the rest of the world than it is owed.
D) It owes less to the rest of the world than it is owed.
E) It experiences persistent current account surplus.
Q3) When imports of goods exceed exports of goods, the financial account shows a deficit.
A)True
B)False
Q4) The euro is the common currency of all European countries.
A)True
B)False
Page 8
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Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) Which of the following signals the start of a new expansion?
A) A boom period
B) A peak
C) An inflation
D) A contraction
E) A trough
Q2) Refer to Figure 7.3. Which of the following explains the shift in the supply curve from S to S ?
A) Decreases in oil supplies as experienced in the 1970s
B) Wage concessions by union members
C) Businesses reducing their profit margins
D) Discoveries of natural gas
E) Increased foreign demand for domestic products
Q3) Which of the following is not a coincident indicator of the business cycle?
A) Unemployment claims
B) Payroll employment
C) Industrial production
D) Personal income
E) Manufacturing and trade sales
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Page 9
Chapter 8: Macroeconomic Equilibrium: Aggregate
Demand and Supply
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Sample Questions
Q1) Increased household spending reduces aggregate expenditures.
A)True
B)False
Q2) Refer to Figure 8.2. A movement from equilibrium point A to equilibrium point B would be the result of a(n):
A) increase in consumer confidence and a decrease in productivity.
B) technological advances and domestic price decreases.
C) decrease in productivity and a decrease in government spending.
D) increase in production costs and greater consumer confidence.
E) decrease in domestic prices and decrease in direct taxes.
Q3) Refer to Figure 8.3. If AS and AD represent the initial aggregate demand and supply in the economy, the long-run equilibrium real GDP will be _____ billion.
A) $100
B) $200
C) $300
D) $400
E) $500
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Chapter 9: Aggregate Expenditures
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Sample Questions
Q1) When capacity utilization rate is high:
A) the price level is likely to go up.
B) consumption is likely to go down.
C) investment is likely to increase.
D) the rate of interest is likely to decrease.
E) aggregate supply of goods is likely to remain constant.
Q2) Other things equal, a marginal propensity to import of 0.8 implies that a $100 million increase in domestic income will lead to an $80 million decrease in net exports.
A)True
B)False
Q3) The part of the disposable income that is not consumed by households is:
A) given away in the form of taxes.
B) given away as charity.
C) saved.
D) deducted as a depreciation cost.
E) spent on imports.
Q4) Investment is considered to be negatively correlated with current real GDP.
A)True
B)False
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Chapter 10: Income and Expenditures Equilibrium
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Sample Questions
Q1) Refer to Figure 10.2. Suppose that I+G+EX equals $20 and the economy is in equilibrium. What is the amount of saving when T = $0 and M = $5 at the equilibrium level?
A) $0
B) $10
C) $15
D) $20
E) $25
Q2) If aggregate expenditures are less than real GDP, then:
A) both inventories and real GDP will decline.
B) inventories will decline but real GDP will increase.
C) inventories will increase and real GDP will decline.
D) both inventories and real GDP will increase.
E) inventories will increase but real GDP will remain unchanged.
Q3) Refer to Scenario 10.2. What is the marginal propensity to save of this economy?
A) 0.2
B) 0.3
C) 0.7
D) 0.9
E) 0.6
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) Which of the following can be categorized under fiscal policy?
A) Increase in money supply
B) Decrease in money supply
C) Increase in federal funds rate
D) Decrease in reserve requirement
E) Increase in tax rates
Q2) If aggregate demand intersects aggregate supply in the horizontal range of the aggregate supply curve, then, other things equal, an increase in government spending will:
A) raise real GDP by the amount indicated by the government spending multiplier and leave the price level unchanged.
B) lower real GDP by an amount equal to the increased spending and reduce inflation.
C) raise the price level and leave real GDP unchanged.
D) raise both real GDP and the price level by a multiple of the initial spending increase.
E) have no effect on real GDP or the price level, because all private investment will be crowded out.
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Chapter 12: Money and Banking
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Sample Questions
Q1) Commodity money is money that:
A) has no value as a commodity.
B) is not backed by gold or silver and is not a legal tender.
C) may go out of circulation with an increase in its intrinsic value.
D) always has a face value greater than the intrinsic value.
E) is solely used in barter exchanges.
Q2) Refer to Table 12.3. If the reserve requirement changed to 8 percent, then total deposits in the economy would be equal to:
A) $125,000.
B) $160,000.
C) $77,500.
D) $80,000.
E) $75,000.
Q3) Outstanding U.S. dollar-denominated travelers' checks issued by non-bank institutions are not counted as part of the M1 money supply.
A)True
B)False
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Chapter 13: Monetary Policy
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Sample Questions
Q1) Which of the following will be observed if the Fed raises the reserve requirement?
A) The deposit expansion multiplier will fall
B) The discount rate will decline
C) The interest rate ceilings will fall
D) Excess reserves will increase
E) Money supply will increase
Q2) All the following affect short-run operating targets of the FOMC, except:
A) the federal funds rate.
B) the rate of inflation.
C) the budget deficit.
D) the foreign exchange rate.
E) the growth of real GDP.
Q3) The velocity of circulation of money is the ratio of the real gross domestic product to the money supply.
A)True
B)False
Q4) The Federal Reserve (Fed) was created by the Congress as an independent agency.
A)True
B)False
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Chapter 14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility,
and Sources of Business Cycles
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Sample Questions
Q1) Assume that an unemployed person expects inflation to be 4.5 percent. In reality, inflation turns out to be 2.9 percent. If wage expectations lag behind actual price changes:
A) job offers below the reservation wage will decline, and the unemployment rate will rise.
B) job offers above the reservation wage will rise, and the unemployment rate will fall. C) job offers above the reservation wage will decline, and the unemployment rate will rise.
D) job offers above the reservation wage will decline, and the unemployment rate will fall.
E) job offers below the reservation wage will increase, and the unemployment rate will fall.
Q2) Government spending can be financed by all of the following, except:
A) personal income taxes.
B) investment spending.
C) government borrowing.
D) money creation.
E) excise taxes.
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Chapter 15: Macroeconomic Viewpoints: New Keynesian,
Monetarist, and New Classical
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Q1) Which of the following schools of thought believes that the major source of the macroeconomic problems are the disequilibria in the private labor and goods market?
A) Keynesians and new Keynesians
B) Only monetarists
C) Only new classical economists
D) Monetarists and new classical economists
E) Monetarists and Keynesians
Q2) According to the monetarists, government intervention can stabilize the economy and minimize the effect of business cycles.
A)True
B)False
Q3) According to the traditional classical school of thought, aggregate supply is vertical both in the short run and in the long run.
A)True
B)False
Q4) New classical economists believe that wages are inflexible.
A)True
B)False
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Chapter 16: Economic Growth
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Q1) Suppose that an economy grows by 6 percent, total factor productivity grows by 4 percent, and the capital stock increases by 2 percent. If labor and capital are the only inputs used in production, and capital contributes 25 percent to GDP, then the labor force has risen by _____.
A) 1.5%
B) 2%
C) 4%
D) 6%
E) 8%
Q2) Contrary to popular belief, U.S. productivity growth did not actually improve in the mid 1990s despite the massive growth in technological innovation.
A)True
B)False
Q3) If real GDP in Sweden was SEK 822 billion at the end of 1993 and SEK 950 billion at the end of 1994, we can say that the Swedish economy grew at an annual rate of 7% in 1994.
A)True
B)False
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Chapter 17: Development Economics
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Sample Questions
Q1) Which of the following statements is true?
A) Multinational firms tend to reduce the flow of technology between countries.
B) Most foreign direct investment is found in labor-intensive industries.
C) Multinationals do not always help to reduce the trade deficit of the host country.
D) Foreign firms contribute to a significant increase in the host country's unemployment rate.
E) Foreign direct investment reduces the stock of capital of the domestic country.
Q2) The replacement of foreign manufactured goods by domestically manufactured goods is called _____.
A) import swap
B) export substitution
C) primary production
D) import substitution
E) trade protectionism
Q3) A quality-of-life index measures absolute poverty levels.
A)True
B)False
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Chapter 18: Globalization
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Sample Questions
Q1) An overall decline in communication and transportation costs have facilitated global interactions in the twentieth and the twenty first century.
A)True
B)False
Q2) Countries in which one would see a spread of ideas, information, images, and people would be categorized under _____ globalization.
A) economic
B) social
C) ethical
D) cultural
E) political
Q3) Globalization does not reward countries that follow good economic policies with greater access to the savings of the rest of the world to help finance growth and development.
A)True
B)False
Q4) In the last two decades, income inequality has increased in China.
A)True
B)False
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Chapter 19: World Trade Equilibrium
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Sample Questions
Q1) According to Figure 20.2, the international equilibrium price of corn is:
A) $2.
B) $4.
C) $6.
D) $8.
E) $10.
Q2) According to Table 20.2, Philippines has an:
A) absolute advantage in the production of both food and computers.
B) absolute advantage in the production of only food.
C) absolute advantage in the production of only computers.
D) absolute disadvantage in the production of only food.
E) absolute disadvantage in the production of both food and computers.
Q3) The principle of comparative advantage states that a country should specialize in the production of those goods that have the highest opportunity costs.
A)True
B)False
Q4) Trade between industrial countries account for the majority of international trade.
A)True
B)False
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Chapter 20: International Trade Restrictions
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Sample Questions
Q1) Suppose the production of helicopters is an industry characterized by increasing returns to scale and an Argentine firm, Cicare, is the only player in this market. The firm caters to the global market and earns a profit of $10 million. Flettner, a German firm has been considering entering this market for a while, but it is aware that its entry will cause each firm to lose about $4 million. Although a government subsidy allows Flettner to enter the helicopter market, the company is unable to reap profits in the long run. Which of the following could have led to this outcome?
A) Flettner experienced high production costs due to inadequate supply of inputs.
B) New firms had entered the helicopter industry.
C) The German government ran a balance of payment deficit.
D) The Argentine government retaliated by subsidizing Cicare.
E) There was very low investment in research and development in this industry.
Q2) Subsidies are payments made by the government of a country to:
A) foreign firms to encourage imports.
B) foreign firms to encourage domestic exports.
C) domestic firms to encourage exports.
D) domestic firms to encourage imports.
E) domestic firms to ensure domestic consumption of their goods.
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Page 22
Chapter 21: Exchapterange Rates and Financial Links
Between Countries
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Sample Questions
Q1) The annual membership fees of the 185 member countries of the IMF are called:
A) annuities.
B) quotas.
C) vetos.
D) conditionalities.
E) petrodollars.
Q2) Assume that a Chrysler automobile sells for $15,000 in the United States and that the exchange rate is $1 = 1.3. For purchasing power parity to hold, the same car should sell in Germany for:
A) 15,000.
B) 11,538.
C) 19,500.
D) 1,538.
E) 15,500.
Q3) Suppose the yen value of a $100,000 wheat import contract rises from ¥12,000,000 to ¥13,000,000 between the contract and the payment date. This implies that the yen value of 1 dollar has declined so that, other things equal, we can expect an increase in Japanese demand for U.S. goods.
A)True
B)False
Page 23
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