Economics Exam Bank
Course Introduction
Economics is the study of how individuals, businesses, governments, and societies allocate scarce resources to satisfy unlimited wants. This course introduces fundamental economic concepts, including supply and demand, market structures, opportunity cost, and the role of incentives. Students will explore both microeconomics, focusing on the behavior of consumers and firms, and macroeconomics, examining economy-wide phenomena such as inflation, unemployment, and economic growth. The course also addresses international trade, financial systems, and the impact of governmental policies on economic outcomes, providing a solid foundation for understanding real-world economic issues and decision-making processes.
Recommended Textbook
Macroeconomics 8th Edition by Andrew Abel
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Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) In analyzing macroeconomic data during the past year,you have discovered that average labor productivity fell,but total output increased.What was most likely to have caused this?
A)There is nothing unusual in this outcome because this is what normally occurs.
B)The capital/output ratio probably rose.
C)There was an increase in labor input.
D)Unemployment probably increased.
Answer: C
Q2) Why were the U.S.government budget deficits of the 1980s and early 1990s so unusual from a historical point of view?
A)It was the first time the U.S.government had ever run deficits.
B)In the past,deficits were usually that large only in wartime.
C)It was the first time that deficits were accompanied by very high rates of inflation.
D)It was the first time that deficits diverted funds from other productive uses,such as investment in modern equipment.
Answer: B
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Chapter 2: The Measurement and Structure of the National Economy
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Sample Questions
Q1) If the price index was 100 in 2000 and 120 in 2010,and nominal GDP was $360 billion in 2000 and $480 billion in 2010,then the value of 2010 GDP in terms of 2000 dollars would be
A)$300 billion.
B)$384 billion.
C)$400 billion.
D)$424 billion.
Answer: C
Q2) Pete the Pizza Man produced $87,000 worth of pizzas in the past year.He paid $39,000 to employees,paid $11,000 for vegetables and other ingredients,and paid $5,000 in taxes.He began the year with ingredient inventories valued at $1,000,and ended the year with inventories valued at $2,000.What was Pete's (and his employees')total contribution to GDP this year?
Answer: $87,000 - $11,000 paid for intermediate goods + $1,000 change in inventories = $77,000.
Q3) How are net exports,net factor payments from abroad,and the current account balance related?
Answer: NX + NFP = CA.
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Chapter 3: Productivity, Output, and Employment
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Sample Questions
Q1) The ________ is the number of unemployed divided by the labor force and the ________ is the number of employed divided by the adult population.
A)unemployment rate; employment rate
B)unemployment rate; employment ratio
C)unemployment ratio; participation rate
D)discouraged worker ratio; employment rate
Answer: B
Q2) The labor force participation rate is the percentage of the adult population that is A)employed.
B)willing to work but unable to find jobs.
C)unemployed.
D)working or actively looking for work.
Answer: D
Q3) Because of diminishing marginal productivity
A)the labor supply curve is not vertical.
B)nominal wages are sticky in a downward direction.
C)the labor demand curve is negatively sloped.
D)households save only a small share of their income.
Answer: C
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Chapter 4: Consumption, Saving, and Investment
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Sample Questions
Q1) With no inflation and a nominal interest rate (i)of .03,a person can trade off one unit of current consumption for ________ units of future consumption.
A)0)97
B)1)03
C).03
D)-.03
Q2) A curve that connects all the consumption combinations that yield the same level of utility is known as
A)an isoquant.
B)a yield curve.
C)a budget line.
D)an indifference curve.
Q3) A technological improvement will
A)increase the desired capital stock.
B)decrease the desired capital stock.
C)have no effect on the desired capital stock.
D)have the same effect on the desired capital stock as an increase in corporate taxes.
Q4) What is the marginal propensity to consume,and why is it always less than one?
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Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) Consider a small open economy with desired national saving of Sd = 1000 + 1000rw and desired investment of Id = 1000 - 500rw.
Calculate national saving,investment,and the current account balance in equilibrium when the real world interest rate is
(a)rw = 0.025.
(b)rw = 0.05.
(c)rw = 0.0.
Q2) Suppose output is $35 billion,government purchases are $10 billion,desired consumption is $15 billion,and desired investment is $6 billion.Absorption is equal to
A)$25 billion.
B)$31 billion.
C)$35 billion.
D)$39 billion.
Q3) Total spending by domestic residents,businesses,and governments is called A)investment.
B)net domestic purchases.
C)absorption.
D)GDP.
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Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) An increase in population growth will lead to a ________ in the steady-state capital-labor ratio and a ________ in output per worker.
A)fall; fall
B)fall; rise
C)rise; rise
D)rise; fall
Q2) Labor productivity increased so much in the second half of the 1990s because of A)improved information and communications technologies.
B)higher levels of educational attainment by workers.
C)cheaper foreign imports used in production.
D)increased foreign competition.
Q3) If capital and labor each grow 5% in a year,the elasticities of output with respect to capital and labor sum to one,and productivity grows 2% in the year,by how much does output grow during the year?
A)2%
B)3%
C)5%
D)7%
Q4) What types of government policies can increase long-run living standards?
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Chapter 7: The Asset Market, Money, and Prices
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Q1) Define asset market equilibrium and state the asset market equilibrium condition.
Q2) M2 does not include
A)Treasury bonds.
B)passbook savings accounts.
C)small-denomination time deposits.
D)M1.
Q3) If real money demand doubles while the nominal money supply is unchanged,what happens to the price level?
A)The price level increases by a factor of four.
B)The price level doubles.
C)The price level is unchanged.
D)The price level falls by one-half.
Q4) Give five examples of factors that could reduce the demand for money.
Q5) People's best guesses about returns on assets are called
A)expected returns.
B)liquidity.
C)risk.
D)the term structure of returns.
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Chapter 8: Business Cycles
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Q1) The AD,SRAS,and LRAS curves each show a relationship between which two economic variables?
A)The aggregate price level and output
B)The aggregate price level and the interest rate
C)Output and unemployment
D)Output and the interest rate
Q2) When plotted with the aggregate price level on the vertical axis and output on the horizontal axis,which of the following curves slopes downward?
A)SRAS
B)AD
C)LRAS
D)None of the above
Q3) The Great Recession began in ________ and ended in ________.
A)December 2007; June 2009
B)December 2007; December 2011
C)October 2008; June 2009
D)October 2008; December 2011
Q4) Suppose labor supply declined.Would this affect the aggregate demand curve or the aggregate supply curve? What would be the effect on output and the price level?
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Chapter 9: The IS-LM/AD-AS Model
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Q1) An increase in the effective tax rate on capital would cause the IS curve to ________ and the LM curve to ________.
A)shift down and to the left; be unchanged
B)shift down and to the left; shift up and to the left
C)shift up and to the right; be unchanged
D)shift up and to the right; shift up and to the left
Q2) Suppose the Federal Reserve's short-run response to any change in the economy is to change the money supply to maintain the existing real interest rate.What would happen to money supply if there were a reduction in government purchases? Given the Fed's policy,what would happen in the very short run (before general equilibrium is restored)to output and the real interest rate? What must happen to the LM curve and the price level to restore general equilibrium?
Q3) The aggregate demand curve shows the combinations of output and the price level that put the economy on
A)the FE line and the IS curve.
B)the FE line,the IS curve,and the LM curve.
C)the IS curve.
D)the IS curve and the LM curve.
Q4) Describe what happens to the FE line if government purchases increase.
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Chapter 10: Classical Business Cycle Analysis
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Sample Questions
Q1) Which of the following is not a primary cause of business cycle fluctuations,according to real business cycle theory?
A)A change in the production function
B)A change in the size of the labor force
C)A change in the money supply
D)A change in the real quantity of government purchases
Q2) Why doesn't stabilization policy work,according to economists using the misperceptions theory?
Q3) Davis and Haltiwanger showed that ________ churning of jobs occurs and that this churning reflects closing of old plants and opening of new ones ________.
A)little; in different industries
B)little; within the same industry
C)much; within the same industry
D)much; in different industries
Q4) A temporary adverse productivity shock would
A)shift the labor supply curve upward.
B)decrease the level of employment.
C)decrease future income.
D)decrease the expected future marginal product of capital.
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Chapter 11: Keynesianism: The Macroeconomics of Wage and Price Rigidity
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Q1) Describe how each of the following changes would affect the equilibrium in the labor market in terms of the level of the real wage and quantity of employment in equilibrium: (a)Increased immigration leads to higher labor supply at each real wage (b)The effort curve makes a parallel shift upward (c)Labor productivity increases (that is,the marginal product of labor increases at each level of employment).
Q2) In the Keynesian model,which curve is vertical?
A)LRAS
B)SRAS
C)AD
D)NS
Q3) Do the real effects of aggregate demand shocks differ in the short run and long run in the Keynesian sticky-price model from the effects of these shocks in the classical model of perfectly flexible prices? Briefly explain.
Q4) Describe the empirical research on the stickiness of prices.Given some doubt on how sticky prices are,why is it nevertheless useful for the Keynesian model to assume that prices are sticky,especially when analyzing monetary policy?
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Chapter 12: Unemployment and Inflation
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Q1) The sacrifice ratio is
A)the amount of output lost when the inflation rate is reduced by one percentage point.
B)the percentage reduction in inflation when output falls one percentage point below potential.
C)the percentage change in employment when output declines by one percentage point.
D)the number of percentage points that the unemployment rate rises when output declines by one percentage point.
Q2) The Lucas critique is an objection to the assumption that
A)inflation is always and everywhere a monetary phenomenon.
B)there is a negative relationship between inflation and unemployment.
C)historical relationships between macroeconomic variables will continue to hold after new policies are in place.
D)people form expectations rationally.
Q3) State and briefly explain whether or not the empirical evidence generally supports the belief that there is a fixed trade-off between unemployment and inflation,such that monetary policymakers can achieve the combination they prefer.
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Chapter 13: Exchange Rates,Business Cycles,and
Macroeconomic Policy in the Open Economy
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Q1) Compared with a system of fixed exchange rates,currency unions are beneficial because they
A)restrict what countries can do with fiscal policy.
B)allow exchange rates to float.
C)allow every country to have an independent monetary policy.
D)eliminate the possibility of speculative attacks.
Q2) An increase in domestic output would cause a ________ in net exports and a ________ in the exchange rate.
A)rise; rise
B)rise; fall
C)fall; rise
D)fall; fall
Q3) Three-wheel cars made in North Edsel are sold for 5000 pounds.Four-wheel cars made in South Edsel are sold for 10,000 marks.The real exchange rate between North and South Edsel is four three-wheel cars for three four-wheel cars.The nominal exchange rate between the two countries is
A)0)50 marks/pound.
B)0)66 marks/pound.
C)1)50 marks/pound.
D)2)00 marks/pound.
Page 15
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Chapter 14: Monetary Policy and the Federal Reserve System
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Q1) In the Keynesian model,suppose the Fed sets a target for the money supply.If the IS curve shifts to the left,and the Fed wants to keep output unchanged,what should the Fed do?
A)Reduce taxes.
B)Reduce the money supply.
C)Increase taxes.
D)Increase the money supply.
Q2) Was the money multiplier stable during the Great Recession? Why would an unstable money multiplier pose a problem for monetary policy?
Q3) Monetarists argued that the Fed wasn't serious about adhering to a money-growth target because
A)it was unable to reduce inflation at all.
B)it tried to target three different monetary aggregates simultaneously.
C)the sacrifice ratio remained too high.
D)it gave too much weight to movements in exchange rates.
Q4) Describe,in general terms,the strategy of monetary policy,explaining how monetary-policy tools are used to achieve the goals of monetary policy.What intermediate stages are important in going from tools to goals? What are the links between the different stages? How does the Federal Reserve use this strategy today?
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Chapter 15: Government Spending and Its Financing
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Q1) What are the main reasons (give at least three)that Ricardian equivalence might not hold?
Q2) Seignorage is the revenue a government raises by A)taxation.
B)printing money.
C)borrowing money.
D)charging fees for services.
Q3) How is real seignorage revenue related to inflation? How does the quantity of real seignorage revenue change as inflation rises from zero to a positive level,to still higher levels?
Q4) Provisions in the budget that cause government spending to rise or taxes to fall without legislation when GDP falls are known as A)primary deficit enhancers.
B)expansionary fiscal stimulus.
C)non-political fiscal policy.
D)automatic stabilizers.
Q5) Who bears the burden of the government debt? Explain why.Under what circumstances is there no burden to be borne?
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