Applied Macroeconomics
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Course Introduction
Applied Macroeconomics explores the practical application of macroeconomic theories and models to real-world economic issues and policy debates. The course examines key topics such as economic growth, unemployment, inflation, fiscal and monetary policy, and international trade through empirical analysis and case studies. Students learn how to interpret economic data, forecast macroeconomic trends, and assess the impact of government policies on the overall economy. Emphasis is placed on using quantitative tools and contemporary datasets to solve macroeconomic problems and to critically evaluate the effectiveness of policy interventions in different economic environments.
Recommended Textbook
Macroeconomics Principles Applications and Tools 8th Edition by OSullivan SheffrinPerez
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Chapter 1: Introduction: What Is Economics?
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Sample Questions
Q1) Jerome has a "C" average in his philosophy course and a "B" average in his economics course. He decides to study an extra hour for his philosophy exam. This is an example of A) thinking at the margin.
B) using assumptions to simplify. C) ceteris paribus.
D) caveat emptor.
Answer: A
Q2) If the variable on the vertical axis increases by 24 and the variable on the horizontal axis decreases by 3, the slope of the line is A) -24.
B) -8.
C) 3.
D) 72.
Answer: B
Q3) One of the key economic questions is "who consumes the products?"
A)True
B)False
Answer: True
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Chapter 2: The Key Principles of Economics
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Sample Questions
Q1) Refer to the table above. The farmer increased his total production of corn by 9 bushels per acre after applying
A) the first bag of fertilizer.
B) the second bag of fertilizer.
C) the third bag of fertilizer.
D) the fourth bag of fertilizer.
Answer: C
Q2) Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that Joe's marginal cost of staying open per hour is $24. How many hours should Joe stay open?
A) 3 hours
B) 4 hours
C) 5 hours
D) 6 hours
Answer: D
Q3) Explain the real-nominal principle.
Answer: The real-nominal principle explains that what matters to people is the real value of money or income-its purchasing power-and not the face value of money or income.
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Chapter 3: Exchange and Markets
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Sample Questions
Q1) Based on the data in Table 3.1
A) Jesse should specialize in painting kites and trade for snowboards.
B) Jesse should specialize in painting snowboards and trade for kites.
C) April should specialize in both goods.
D) Jesse should specialize in both goods.
Answer: A
Q2) Consider two individuals, Artie and Deena, who produce wind chimes and sun dials. Artie's and Deena's weekly productivity are shown in Table 3.4. Which of the following is true?
A) Artie has a comparative advantage in producing wind chimes but not sun dials.
B) Artie has a comparative advantage in producing sun dials but not wind chimes.
C) Artie has a comparative advantage in producing both goods.
D) Artie does not have a comparative advantage in producing either good.
Answer: D
Q3) What does it mean for a person or nation to have a comparative advantage in producing a product?
Answer: Having a comparative advantage means the person or nation has the ability to produce the product at a lower opportunity cost than another person or nation.
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Chapter 4: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) Explain what will happen to the equilibrium price and quantity of hybrid automobiles if there are technological advancements in the production of hybrid automobiles while at the same time consumer preference for hybrid automobiles increases.
Q2) Recall the Application. If consumer income in China increased and as a result the demand for pecans decreased, this would indicate that in China, pecans would be considered ________ goods.
A) normal
B) inferior
C) substitute
D) complementary
Q3) Figure 4.3 illustrates the demand for tacos. Assume that tacos and beer are complements. An increase in the price of beer would bring about a movement from A) point a to point b.
B) point c to point b.
C) D2 to D1.
D) D0 to D2.
Q4) Draw a graph to illustrate the effect of an increase in demand on the price and quantity in a market.
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Chapter 5: Measuring a Nation's Production and Income
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Sample Questions
Q1) What type of spending is the largest component of the GDP?
A) consumption
B) government purchases
C) net exports
D) investment
Q2) Based on the information in Scenario 1, real GDP grew by about ________ percent from 2011 to 2012.
A) 23
B) 31
C) 62
D) 162
Q3) According to this Application, some economists believe that the economy was slow to recover from the recession of 2007-2009 because this recession was brought on primarily by
A) a decrease in the demand for housing.
B) rapid inflation.
C) increasing oil prices.
D) a financial crisis.
Q4) Define transfer payments and explain why they are not included in the government purchases section of the GDP accounts.
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Chapter 6:Unemployment and Inflation
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Sample Questions
Q1) Suppose that a price index in Latvia was 120 in 2011 and 150 in 2012. The inflation rate between those two years was approximately
A) 8 percent.
B) 12.5 percent.
C) 25 percent.
D) 30 percent.
Q2) Social security payments automatically increase when the CPI goes up because of the
A) age of the recipient.
B) years receiving social security.
C) cost-of-living adjustments.
D) individual being married or unmarried.
Q3) Name two types of jobs most likely affected by "seasonal unemployment."
Q4) Unemployment insurance tends to lead to the unemployed worker spending less time unemployed.
A)True
B)False
Q5) How costly are biases in the CPI?
Q6) Could the advent of the Internet completely eliminate frictional unemployment?
Q7) What is frictional unemployment?
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Chapter 7:The Economy at Full Employment
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Sample Questions
Q1) An open economy refers to an economy with A) unrestricted immigration.
B) international trade.
C) no trade barriers.
D) no government intervention.
Q2) The marginal principle states that one should
A) increase the level of an activity if the marginal benefit exceeds its marginal cost.
B) decrease the level of an activity if the marginal cost exceeds the marginal benefit.
C) if possible pick the level at which the marginal benefit equals the marginal cost.
D) all of the above
Q3) The difference between exports and imports in GDP is called A) net imports.
B) net exports.
C) import tariffs.
D) gross imports.
Q4) Suppose the government cracks down on illegal immigration. How will this affect the demand and supply of labor.
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Chapter 8: Why Do Economies Grow?
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Sample Questions
Q1) According to this Application, the economic effects of increases in temperature seem to
A) be confined to poorer countries.
B) be confined to richer countries.
C) be equal across all countries.
D) be nonexistent in most countries.
Q2) Growth accounting refers to the method used to
A) identify the contribution of economic growth from increased capital, labor, and technological progress.
B) identify the costs of promises made by the government today but paid for by future generations.
C) measure the growth in the labor force.
D) measure growth in the capital stock.
Q3) According to this Application, Berg and Ostrey found that
A) levels of equality or inequality had no direct bearing on long periods of growth.
B) inequality promoted longer periods of growth than did equality.
C) when there was more equality, spells of growth within a country tended to last longer.
D) when there was more equality, any signs of growth were short-lived.
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Chapter 9: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) The relationship between the level of prices and total quantity of goods and services producers are willing to supply is represented by the
A) aggregate demand curve.
B) aggregate supply curve.
C) sticky price curve.
D) GDP multiplier.
Q2) For most firms, the biggest cost of doing business is wages.
A)True
B)False
Q3) Figure 9.1 shows three aggregate demand curves. A movement from curve AD0 to curve AD1 could be caused by a(n)
A) decrease in the money supply.
B) decrease in taxes.
C) decrease in the price level.
D) decrease in government spending.
Q4) The relationship between the level of income and investment spending is known as the consumption function.
A)True
B)False
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Chapter 10: Fiscal Policy
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Sample Questions
Q1) Automatic stabilizers
A) minimize fluctuations in the economy.
B) must be authorized by the President.
C) decrease taxes during expansions.
D) increase welfare payments during expansions.
Q2) Why do most economists believe that the Laffer argument does not apply to broad-based taxes?
Q3) The federal income tax on wages is the largest source of revenue for the federal government.
A)True
B)False
Q4) Changes in government purchases affect aggregate demand only indirectly through consumption spending.
A)True
B)False
Q5) Explain how a change in tax rates influences aggregate demand and aggregate supply.
Q6) What are the two basic reasons inside lags occur?
Q7) Name two actions that a government could take if it wants to implement an expansionary fiscal policy.
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Chapter 11: The Income-Expenditure Model
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Sample Questions
Q1) Refer to Table 11.1. If exports increase by 20 (X = 100), what is the new equilibrium level of output?
A) 1,825
B) 2,425
C) 7,300
D) 9,700
Q2) Refer to Figure 11.2. Suppose that Ca = 40, MPC = 0.8, I = 10. What is the value of consumption in equilibrium?
A) 32
B) 80
C) 240
D) 320
Q3) Explain the logic of the multiplier effect.
Q4) All else equal, if autonomous consumption ________, the value of the multiplier remains constant.
A) decreases
B) increases
C) remains constant
D) all of the above
Q5) What is the difference between income and wealth?
Page 13
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Chapter 12: Investment and Financial Markets
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Sample Questions
Q1) Refer to Table 12.1. The expected real rate of interest for Australia is
A) -1.4%.
B) 1.4%.
C) 6.9%.
D) cannot be determined from the information provided.
Q2) According to this Application, the volatility of energy prices can contribute to uncertainty in the economy. An increasingly uncertain future will tend to cause firms to A) delay their investment decisions.
B) wait for significant GDP growth before reducing investments.
C) rely on the government to make their investment decisions for them.
D) continue with a stable flow of investment spending so as not to get trapped by a downturning economy.
Q3) Which of the following is an example of an investment, as described in Chapter 12 of your textbook?
A) A firm builds a new plant.
B) A student attends college.
C) The government builds a dam to have a source of hydroelectric power.
D) all of the above
Q4) How do financial intermediaries reduce risk?
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Chapter 13: Money and the Banking System
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Sample Questions
Q1) Assuming all excess reserves are loaned out, currency holdings by the public are zero, and a reserve ratio of 25 percent, an initial deposit of $3,000 will lead to a total increase in deposits of A) $750.
B) $2,250.
C) $12,000.
D) $36,000.
Q2) If the reserve ratio is designated by "r," how much of a deposit can banks lend out?
A) 1 / r
B) (1 - r)
C) 1 / (1 - r)
D) r / (1 - r)
Q3) Which of the following appears in M2 and NOT M1?
A) currency
B) checking account balances
C) money market mutual funds
D) traveler's checks
Q4) List four of the Federal Reserve's key functions.
Q5) What are the four components of M1?
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Chapter 14: The Federal Reserve and Monetary Policy
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Sample Questions
Q1) Why might economic policies aimed at stabilization actually increase the magnitudes of economic fluctuations?
Q2) When the Fed increases the money supply, it leads to lower interest rates.
A)True
B)False
Q3) The demand for money that arises so that individuals or firms can make purchases on quick notice is called the
A) real demand for money.
B) transaction demand for money.
C) liquidity demand for money.
D) speculative demand for money.
Q4) When the Federal Reserve decreases the money supply, it generally does so by purchasing bonds.
A)True
B)False
Q5) If the Federal Reserve conducts an open market sale, the A) interest rate will not change.
B) interest rate will increase. C) interest rate will decrease.
D) money supply is increased.
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Chapter 15: Modern Macroeconomics: From the Short Run to
the Long Run
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Sample Questions
Q1) Refer to Figure 15.2. The unemployment rate is above the natural rate at point A) a.
B) b.
C) c.
D) d.
Q2) Investment is "crowded out" by an increase in government spending when
A) an increase in government spending causes output and prices to rise, which in turn causes interest rates to rise.
B) an increase in government spending causes output and prices to fall, which in turn causes interest rates to rise.
C) an increase in government spending causes output and prices to rise, which in turn causes interest rates to fall.
D) an increase in government spending causes output and prices to fall, which in turn causes interest rates to fall.
Q3) An increase in the price level causes an increase in money demand because A) people need less money to purchase the same level of goods and services.
B) people have unlimited wants.
C) people need more money to purchase the same level of goods and services.
D) changes in the price level have no effect on money demand.
Page 17
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Chapter 16: The Dynamics of Inflation and Unemployment
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Sample Questions
Q1) To stop hyperinflations, a nation must
A) increase the budget deficit.
B) decrease taxes.
C) increase spending.
D) eliminate the budget deficit.
Q2) Based on the quantity theory of money, hyperinflations are most likely caused by a rapid
A) increase in the growth of the money supply.
B) decrease in the price level.
C) increase in real GDP.
D) decrease in the money supply.
Q3) Name two ways or methods a government can employ to eliminate budget deficits.
Q4) What factors can shift the natural rate of unemployment?
Q5) Recall the Application. If the natural rate of unemployment has been underestimated and is actually higher than is commonly perceived, reducing the unemployment rate to the perceived natural rate will tend to
A) increase anticipated inflation.
B) decrease anticipated inflation
C) increase unanticipated inflation.
D) decrease unanticipated inflation.
18
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Chapter 17: Macroeconomic Policy Debates
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Sample Questions
Q1) A flat tax which does not allow for deductions or credits is essentially a tax on A) income.
B) consumption.
C) government expenditures.
D) education.
Q2) Some economists object to having the Fed concentrate solely on price stability because it would
A) free the Fed from political pressure.
B) lessen its credibility.
C) make stabilizing the economy more difficult.
D) privatize the Federal Reserve.
Q3) Capital gains are the profit earned from the sale of A) stocks.
B) bonds.
C) real estate.
D) all of the above.
Q4) Give an example of income in the United States that is taxed twice.
Q5) By NOT taxing capital gains separately from ordinary income, what would happen to the government's stream of revenue?
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Chapter 18: International Trade and Public Policy
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Sample Questions
Q1) A U.S. boycott against Mexican tuna caught in nets was
A) upheld by the WTO on the grounds that the use of nets to catch tuna also kills dolphins.
B) upheld by the WTO on the grounds that nations can impose any environmental standards on other nations.
C) not upheld by the WTO on the grounds that U.S. ships could still use nets to catch tuna.
D) not upheld by the WTO on the grounds that killing dolphins in tuna nets does not harm the United States directly.
Q2) The equilibrium price under an import quota is below the price that occurs with an import ban.
A)True
B)False
Q3) A possible reason to impose a protectionist policy such as a tariff is to
A) increase the welfare of domestic consumers.
B) slow domestic production.
C) aid other nations in developing their own industries.
D) protect domestic workers from foreign competition.
Q4) What is the current WTO policy regarding environmental standards and trade?
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Chapter 19: The World of International Finance
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Sample Questions
Q1) If the U.S. government enters the foreign exchange market and purchases dollars to maintain a specific exchange rate with the yen, the dollar will ________ and the yen will ________.
A) depreciate; depreciate
B) depreciate; appreciate
C) appreciate; depreciate
D) appreciate; appreciate
Q2) The net international investment position reflects the domestic holding of foreign assets minus foreign holdings of domestic assets.
A)True
B)False
Q3) Referring to Figure 19.2, the effect of an increase in U.S. prices is represented by a movement from point
A) c to b.
B) b to a.
C) d to a.
D) a to d.
Q4) What will happen to the exchange rate between the British pound and the U.S. dollar if British prices increase?
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