Economic Policy Exam Review
Course Introduction
Economic Policy examines the principles, tools, and outcomes of government actions aimed at influencing a nations economic performance. This course explores the formulation, implementation, and impact of policies relating to growth, inflation, unemployment, taxation, government spending, trade, and monetary control. Students will analyze contemporary economic issues, evaluate policy responses, and consider the roles of various institutions, such as central banks and international organizations. By integrating theory with real-world examples, this course prepares students to critically assess policy choices and understand their effects on both domestic and global economies.
Recommended Textbook
Macroeconomics 4th Edition by Glenn
P. Hubbard
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19 Chapters
2659 Verified Questions
2659 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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146 Verified Questions
146 Flashcards
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Sample Questions
Q1) The cost incurred from the production of an additional unit of a product
A) is a marginal cost to the firm.
B) is called a loss.
C) is called opportunity cost.
D) must be zero for a firm to be efficient.
Answer: A
Q2) Refer to Figure 1-3.Calculate the area of the trapezoid X.
A) $361
B) $450
C) $1,020
D) $1,140
Answer: C
Q3) The government makes all economic decisions in a centrally planned economy.
A)True
B)False
Answer: True
Q4) What is a household? How do households interact with firms in a market?
Answer: A household consists of all persons occupying a home.Households supply factors of production used by firms to produce goods and services.Households also demand goods and services produced by firms.
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Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) If the best lawyer in town is also the best at operating a word processor,then according to economic reasoning,this person should
A) split her time evenly between being a lawyer and a word processor.
B) specialize in being a lawyer because its opportunity cost is lower.
C) should pursue the activity she enjoys more.
D) specialize in being a word processor because it is more capital-intensive.
Answer: B
Q2) Refer to Figure 2-4. A movement from ________ could occur because of an influx of immigrant labor.
A) X to W
B) X to Y
C) W to V
D) W to X
Answer: B
Q3) In a production possibilities frontier model,a point inside the frontier is
A) allocatively efficient.
B) productively efficient
C) allocatively inefficient.
D) productively inefficient.
Answer: D
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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147 Verified Questions
147 Flashcards
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Sample Questions
Q1) The price of lobster is typically lower in the summer than in the spring. Which of the following explanations for this difference is given in the textbook?
A) Hot, humid weather usually reduces the demand for lobster.
B) People who usually eat lobster in other seasons substitute less expensive fish when they go on vacation; this drives down the demand for lobster.
C) The supply of lobster is greater in the summer than in the spring.
D) Import restrictions are eased in the summer; as more lobsters are imported the price of lobster falls.
Answer: C
Q2) A change in which variable will change the market demand for a product?
A) the price of the product
B) expected future prices
C) the number of firms in the market
D) the quantity supplied of the product
Answer: B
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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138 Verified Questions
138 Flashcards
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Sample Questions
Q1) Refer to Figure 4-9.As a result of the tax,is there a loss in producer surplus?
A) Yes, because producers are not selling as many units now.
B) No, because the consumer pays the tax.
C) No, because the market reaches a new equilibrium
D) No, because producers are able to raise the price to cover their tax burden.
Q2) In a competitive market the ________ curve shows the marginal benefit received by consumers and the ________ curve shows the marginal cost to producers.
A) demand; supply
B) supply; demand
C) demand; market demand
D) supply; market supply
Q3) Refer to Figure 4-3. What area represents producer surplus at P ?
A) A + B + D
B) B + D
C) B + D + G
D) B + C + D + E
Q4) What is consumer surplus? Why would policy makers be interested in consumer surplus?
Q5) 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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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) In 2011,the average life expectancy at birth in the United Kingdom and other high-income countries was around ________ years.
A) 60
B) 70
C) 80
D) 90
Q2) Adverse selection will occur in a market as a result of
A) asymmetric information.
B) moral hazard.
C) the sale of "lemons."
D) rational ignorance.
Q3) Which of the following is not part of the "regulation of health insurance" provision of the Patient Protection and Affordable Care Act (PPACA)?
A) Individuals with pre-existing medical conditions will be able to acquire health insurance.
B) All policies must provide coverage for dependant children up to age 26.
C) Lifetime dollar maximums on coverage will be prohibited.
D) Limits on the size of deductibles and on waiting periods before coverage takes effect will be eliminated.
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Page 7
Chapter 6: Firms, the Stock Market, and Corporate Governance
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141 Flashcards
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Sample Questions
Q1) If a corporation goes bankrupt,bondholders have ________ on the firm's assets.
A) no claim
B) third claim, after the IRS and stockholders,
C) second claim, after stockholders,
D) first claim
Q2) Mortgages issued to borrowers who fail to document that their incomes are high enough to afford their mortgage payments are known as ________ mortgages.
A) subprime
B) Alt-A
C) gray market
D) reciprocal
Q3) Who controls a sole proprietorship?
A) owner
B) stockholders
C) bondholders
D) employees
Q4) Corporate managers and shareholders always have the same goals.
A)True
B)False
Q5) What is corporate governance?
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Chapter 7: Comparative Advantage and the Gains From International Trade
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) Free trade refers to trade between countries
A) that is without shipping costs.
B) that is licensed by both governments.
C) that is without restrictions.
D) of products which are free to low-income consumers.
Q2) Refer to Figure 9-2.The loss in domestic consumer surplus as a result of the tariff is equal to
A) $5 million.
B) $19.875 million.
C) $24.875 million.
D) $31.125 million.
Q3) Refer to Figure 9-2.The increase in domestic producer surplus as a result of the tariff is equal to
A) $11.25 million.
B) $18 million.
C) $32.5 million.
D) $45 million.
Q4) What are three primary reasons for the growth of international trade over the past 50 years?
Q5) What are terms of trade?
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Chapter 8: Gdp: Measuring Total Production and Income
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134 Flashcards
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Sample Questions
Q1) Between 2011 and 2012,if an economy's exports rise by $8 billion and its imports fall by $8 billion,by how much will GDP change between the two years,all else equal?
A) Net exports will increase GDP by $8 billion.
B) The increase in exports is offset by the decrease in imports, so there is no change in net exports and no effect on GDP.
C) Net exports will increase GDP by $16 billion.
D) Net exports will decrease GDP by $8 billion.
Q2) Through the mid-1980s,consumption in the United States was ________ of GDP,and by the early 2000s,consumption was ________ of GDP.
A) greater than 90 percent; less than 60 percent
B) less than 50 percent; greater than 75 percent
C) approximately 80 percent; less than 55 percent
D) less than 65 percent; approximately 70 percent
Q3) What is the underground economy and how could it hurt an economy? How does it hurt developing economies?
Q4) Explain the difference between Gross Domestic Product and Gross National Product.Give an example of each.
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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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) By offering training to workers whose firms laid them off because of competition from foreign firms,the federal government is attempting to reduce
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) seasonal unemployment.
E) unnatural unemployment.
Q2) The natural rate of unemployment consists of frictional unemployment plus cyclical unemployment.
A)True
B)False
Q3) When the price of gasoline rises,some consumers begin riding their bikes more frequently or riding the bus instead of driving their cars.The fact that the CPI does not fully account for such changes in consumer behavior is called
A) outlet bias.
B) increase in quality bias.
C) substitution bias.
D) discrimination bias.
Q4) Explain how the CPI is constructed.
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Chapter 10: Economic Growth, the Financial System, and Business Cycles
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) ________ are financial securities that represent partial ownership of a firm.
A) Stocks
B) Bonds
C) Treasury bills
D) Certificates of deposit
Q2) Carefully define the two categories of saving in the economy.
Q3) In 2003,Congress passed a tax cut that included a reduction in the marginal tax rate on stock dividends.This essentially increased the after-tax rate of return on stocks that offer dividends.Using the loanable funds market,describe what will happen to saving,investment,economic growth,the real interest rate,and the quantity of loanable funds exchanged.
Q4) All else equal,the rising demand for air travel in 2011 would cause the demand curve for air travel to shift to the ________,resulting in ________ ticket prices and a ________ quantity of tickets supplied.
A) right; lower; higher
B) left; lower; lower
C) right; higher; higher
D) left; higher; lower
Page 12
Q5) Explain why the demand curve for loanable funds has a negative slope.
Q6) Outline the various actions the government sector could take to promote growth.
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Chapter 11: Long-Run Economic Growth: Sources and Policies
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141 Flashcards
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Sample Questions
Q1) The United States
A) currently is one of the most corrupt countries.
B) has never had a significant problem with corruption.
C) had a significant problem with corruption in the 1930s.
D) currently ranks among the least corrupt countries.
Q2) Which of the following accurately describes the impact of the rule of law on a country's economic growth rate?
A) Countries with a strong rule of law have faster economic growth.
B) Countries with a weak rule of law have faster economic growth.
C) Countries that enforce property rights through lawsuits have slower economic growth.
D) Countries where favoritism and bribery are common have stronger rates of growth.
Q3) Refer to Figure 22-2.Suppose the economy gains more capital per hour worked and experiences technological change.This is shown in the figure above by the movement
A) E to B to D.
B) A to B to C.
C) A to E.
D) A to D.
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Chapter 12: Aggregate Expenditure and Output in the Short Run
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154 Verified Questions
154 Flashcards
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Sample Questions
Q1) Given the equations for C,I,G,and NX below,what is the equilibrium level of GDP?
C = 1,000 + 0.8Y
I = 1,500
G=1,250
NX = 100
A) $3,080
B) $3,850
C) $6,930
D) $19,250
Q2) The marginal propensity to consume is defined as
A) consumption divided by disposable income.
B) disposable income divided by consumption.
C) the change in consumption divided by the change in disposable income.
D) the change in disposable income divided by the change in consumption.
Q3) Investment spending will decrease when
A) the interest rate falls.
B) the corporate income tax decreases.
C) business cash flow decreases.
D) firms become more optimistic about earning future profits.
Q4) What are the four categories of aggregate expenditure?
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Chapter 13: Aggregate Demand and Aggregate Supply Analysis
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) Refer to Figure 24-1.Ceteris paribus,a decrease in households' expectations of their future income would be represented by a movement from
A) AD to AD .
B) AD to AD .
C) point A to point B.
D) point B to point A.
Q2) Workers and firms both expect that prices will be 3% higher next year than they are this year. As a result,
A) workers will be willing to take lower wages next year.
B) the purchasing power of wages will rise if wages increase by 3%.
C) the short-run aggregate supply curve will shift to the left as wages increase.
D) aggregate demand will increase by 3%
Q3) Refer to Figure 24-2.Ceteris paribus,a decrease in productivity would be represented by a movement from
A) SRAS to SRAS .
B) SRAS to SRAS .
C) point A to point B.
D) point B to point A.
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Chapter 14: Money, banks, and the Federal Reserve System
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146 Flashcards
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Sample Questions
Q1) The Fed was founded in 1913 to serve as lender of last resort to bankers during bank runs and panics.
A)True
B)False
Q2) Hyperinflation is caused by
A) a constant increase in the money supply.
B) a high rate of growth in the money supply.
C) Real GDP growing more rapidly than the money supply.
D) the money supply growing more slowly than GDP.
Q3) ________ sell shares to investors and use the money to buy short-term securities.
A) Mortgage-backed securities dealers
B) Hedge funds
C) Money market mutual funds
D) Shadow banks
Q4) Commodity money is a good
A) used as money that has no secondary use.
B) that is designated as money by law.
C) used as money that also has value independent of its use as money.
D) used as money that has no intrinsic value.
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Chapter 15: Monetary Policy
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137 Flashcards
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Sample Questions
Q1) Although the Federal Reserve had traditionally made discount loans only to ________,in response to to the financial crisis in 2008 the Fed made primary dealers eligible for discount loans as well.
A) commercial banks
B) government agencies
C) investment banks
D) mortgage lenders
Q2) The Taylor rule predicted a federal funds rate which was ________ that set when Paul Volcker was chairman of the Fed,and a rate which was ________ that set when Arthur Burns chaired the Fed. A) greater than; equal to B) greater than; less than C) less than; equal to D) less than; greater than
Q3) Give an example of a monetary policy target.Explain why the Fed uses policy targets.
Q4) What actions should the Fed take if it believes the economy is about to experience a high rate of inflation?
Q5) What problems can high inflation rates cause for the economy?
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Chapter 16: Fiscal Policy
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Sample Questions
Q1) Refer to Figure 27-7.In the graph above,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the Congress and the president use to move the economy to point C?
A) increase income taxes
B) increase government spending
C) buy Treasury bills
D) decrease the discount rate
Q2) A law requiring the government to balance its budget in each year would serve as an automatic destabilizer.
A)True
B)False
Q3) How does expansionary monetary policy increase spending in the economy compared to how expansionary fiscal policy increases spending in the economy?
Q4) In an open economy,the government purchases multiplier will be larger the
A) smaller the marginal propensity to import.
B) smaller the marginal income tax rate.
C) larger the marginal propensity to consume.
D) All of the above are correct.
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19
Chapter 17: Inflation, unemployment, and Federal Reserve Policy
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Sample Questions
Q1) Why is the credibility of the Fed's policy announcements particularly important?
Q2) In a graph of unemployment rates (on the horizontal axis)versus inflation rates (on the vertical axis),the short-run Phillips Curve is
A) downward sloping.
B) horizontal.
C) vertical.
D) upward sloping.
Q3) Disinflation refers to
A) a decrease in the price level.
B) a rapid increase in the price level.
C) a reduction in the rate of inflation.
D) an increase in the rate of inflation.
Q4) If changes in inflation are higher than expected,
A) the short-run Phillips curve will be positively sloped, but not vertical.
B) the short-run Phillips curve will be negatively sloped.
C) the short-run Phillips curve will be vertical.
D) the long-run Phillips curve will be negative sloped.
Q5) An increase in expected inflation will shift the short-run Phillips Curve.
A)True
B)False
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Chapter 18: Macroeconomics in an Open Economy
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Sample Questions
Q1) A decision by foreign central banks to sell their holdings of U.S.Treasury bonds will
A) lower bond prices and interest rates in the United States.
B) increase bond prices and interest rates in the United States.
C) increase bond prices and lower interest rates in the United States.
D) lower bond prices and increase interest rates in the United States.
Q2) If there is currently a shortage of dollars,which of the following would you expect to see in the foreign exchange market?
A) The dollar will appreciate.
B) The dollar will depreciate.
C) There will be an increase in the demand for dollars.
D) There will be an increase in the supply of dollars.
Q3) A decrease in capital outflows from the United States will
A) decrease the balance on the financial account.
B) increase the balance on the financial account.
C) increase the balance on the capital account.
D) decrease the balance on the current account.
Q4) Explain and show graphically the effect of a decrease in U.S.budget deficits that decrease U.S.interest rates on the demand and supply of U.S.dollars for euros.
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Chapter 19: The International Financial System
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Sample Questions
Q1) Refer to Table 30-1.Fill in the missing values in the above table.Assume the Big Mac is selling for $4.07 in the United States.Explain whether the U.S.dollar is overvalued or undervalued relative to each of the other currencies and predict what will happen in the future to each exchange rate.
Q2) Firms in Thailand that had ________ while the baht was pegged to the dollar faced interest payments that were higher than they had planned once the Thai government abandoned the peg because the baht had been pegged ________ the equilibrium exchange rate for the baht.
A) borrowed dollars; above
B) borrowed baht; above
C) borrowed dollars; below D) borrowed baht; below
Q3) U.S.dollars can currently be exchanged for gold by foreign central banks,but not by U.S.citizens.
A)True
B)False
Q4) What is the connection between the gold held at the Fort Knox Bullion Depository in Kentucky and the U.S.money supply?
Q5) What does it mean when one currency is "pegged" against another currency?
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