Foundations of Macroeconomics Pre-Test Questions
Course Introduction
Foundations of Macroeconomics offers an introduction to the fundamental concepts and tools used to analyze the performance of national economies. Covering topics such as gross domestic product (GDP), unemployment, inflation, economic growth, and government policies, the course provides students with a broad understanding of how economies function on a large scale. Through the study of aggregate demand and supply, fiscal and monetary policy, and global economic interactions, students learn to assess economic indicators and understand the impact of policy decisions on overall economic stability and growth.
Recommended Textbook
Macroeconomics 10th Edition by William Boyes
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Page 2
Chapter 1: The Wealth of Nations: Ownership and Economic
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Sample Questions
Q1) The basic economic problem is:
A) inflation.
B) unemployment.
C) poverty.
D) scarcity.
E) lack of money.
Answer: D
Q2) To say that there is a scarcity of gold means that:
A) gold prices will fall in the future.
B) there is not enough gold to satisfy people's demand for it at a zero price.
C) there are very few substitutes for gold.
D) gold is very expensive.
E) the demand for gold is changing.
Answer: B
Q3) Scarcity is a result of an unfair distribution of income.
A)True
B)False
Answer: False
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Chapter 2: Scarcity and Opportunity Costs
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Sample Questions
Q1) A point inside a nation's production possibilities curve can represent:
A) a recession.
B) an increase in population size.
C) an economic growth.
D) a technological advancement.
E) an improvement in living standards.
Answer: A
Q2) Which of the following is an assumption made while constructing a production possibilities frontier [PPF]?
A) Dynamic technological know-how
B) Flexible resource quality
C) Fixed resource quantity
D) Full and efficient use of resources
E) Flexible money supply
Answer: D
Q3) An economy's PPC illustrates the extent to which the economy consumes what it produces.
A)True
B)False
Answer: False
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Chapter 3: The Market and Price System
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Sample Questions
Q1) The demand schedule is a price list for a fixed basket of consumer goods following a particular format.
A)True
B)False
Answer: False
Q2) The amount of a product that people are willing and able to purchase at a specific price is referred to as the:
A) demand.
B) quantity demanded.
C) law of demand.
D) consumption function.
E) purchasing power.
Answer: B
Q3) The development of a low-cost synthetic fuel is expected to cause a decrease in the price of oil.
A)True
B)False
Answer: True
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Chapter 4: The Aggregate Economy
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Sample Questions
Q1) According to the World Bank, developing countries greatly outnumber industrial countries.
A)True
B)False
Q2) Since the U.S. is organized as a market economy, the government sector does not play any role in economic activity.
A)True
B)False
Q3) A surplus in a country's trade balance means that:
A) its net exports exceed transfer payments.
B) the country's currency is over-valued.
C) the value of its net exports is positive.
D) imports into the country exceed exports.
E) domestic savings exceeds domestic investment.
Q4) Which of the following is considered a financial intermediary?
A) The Federal Reserve
B) A bankruptcy court
C) The U.S. Department of Commerce
D) A credit union
E) A foreign exchange
Page 6
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Chapter 5: National Income Accounting
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Sample Questions
Q1) The circular flow diagram shows the flow of money and goods and services between households, firms, government, and foreign countries.
A)True
B)False
Q2) Other things remaining unchanged, a decline in imports is associated with an increase in gross domestic product.
A)True
B)False
Q3) The value added approach involves adding up the value of the final product and the value of intermediate goods used in the production process.
A)True
B)False
Q4) Refer to Table 5.7. Compute the price index for the base year.
A) 130
B) 30
C) 80
D) 100
E) 120
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Page 7
Chapter 6: An Introduction to the Foreign Exchapterange
Market and the Balance of Payments
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Sample Questions
Q1) The balance of payments is an accounting statement known as a:
A) trial balance.
B) depreciation account.
C) balance sheet.
D) trade account.
E) reconciliation statement.
Q2) Which of the following correctly describes a foreign exchange market?
A) A place where foreign goods are bought and sold in any country
B) A market in which foreign tourists can buy domestic goods
C) A global market in which people exchange one currency for another
D) A place where contracts to deliver agricultural products across countries are exchanged
E) A market where the central banks of different countries exchange government bonds
Q3) If a bank is selling Russian rubles (RUB) for $0.16, then the implied ruble price of the dollar is RUB 6.25.
A)True
B)False
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Page 8
Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) The Great Depression was the most severe recession experienced by the U.S. economy, during which national output had declined by 25 percent.
A)True
B)False
Q2) Refer to Scenario 7.1. According to the data provided, the official unemployment rate is:
A) 0.02 percent.
B) 2.0 percent.
C) 10 percent.
D) 3.6 percent
E) 33.7 percent..
Q3) If the nominal interest rate is less than the rate of inflation, the real interest rate:
A) will be less than zero.
B) will be equal to the nominal interest rate.
C) will equal zero.
D) will be greater than zero.
E) will be equal to the rate of inflation.
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Chapter 8: Macroeconomic Equilibrium: Aggregate
Demand and Supply
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Sample Questions
Q1) Government spending is set by the federal authorities in such a way that aggregate supply just equals aggregate spending.
A)True
B)False
Q2) Identify the correct statement.
A) As domestic income rises, imports rise and net exports fall.
B) As foreign income rises, net exports fall.
C) As domestic income falls, imports rise and net exports fall.
D) As domestic income rises, imports fall and net exports rise.
E) As foreign income falls, net exports rise.
Q3) If the aggregate supply curve is vertical, then shifts in aggregate demand will not change aggregate output.
A)True
B)False
Q4) Lower interest rates on business loans usually result in a(n):
A) decrease in aggregate demand.
B) decrease in aggregate supply.
C) decrease in investment spending.
D) increase in government spending.
E) increase in aggregate expenditures.
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Chapter 9: Aggregate Expenditures
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Sample Questions
Q1) Dissaving occurs when the consumption function lies below the 45-degree line.
A)True
B)False
Q2) Refer to Figure 9.3. If the marginal propensity to consume is equal to 0.3, then:
A) autonomous consumption would decrease.
B) the total amount of dissaving would increase.
C) consumption spending would equal disposable income at an income level greater than $400.
D) consumption spending would equal disposable income at an income level less than $400.
E) consumption spending would equal disposable income at the income level of $400.
Q3) Refer to Figure 9.3. When disposable income is $800, consumption spending must equal:
A) $200.
B) $700.
C) $600.
D) $800.
E) $400.
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11
Chapter 10: Income and Expenditures Equilibrium
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Sample Questions
Q1) The Keynesian aggregate expenditures model assumes that price level is constant.
A)True
B)False
Q2) A horizontal aggregate supply curve indicates that equilibrium real GDP is determined by aggregate supply.
A)True
B)False
Q3) Suppose equilibrium income in an economy decreases by $600 as a result of a change in government spending. If the multiplier is 3, what is the change in government spending?
A) Government spending will decrease by $1,800.
B) Government spending will decrease by $600.
C) Government spending will decrease by $200.
D) Government spending will increase by $400.
E) Government spending will increase by $1,200.
Q4) The recessionary gap is given by the difference between potential GDP and real GDP.
A)True
B)False
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Page 12
Chapter 11: Fiscal Policy
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Sample Questions
Q1) A value-added tax is a tax on consumption and not on personal income.
A)True
B)False
Q2) Governments in developing countries typically play a larger role in investment spending in their economies than do the governments of industrial countries.
A)True
B)False
Q3) 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
Q4) Assume that French budget deficits have raised the French prime interest rate relative to the U.S. T-bill rate. As a result, we would expect the U.S. dollar to depreciate and the U.S. net exports to rise.
A)True
B)False
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Chapter 12: Money and Banking
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Sample Questions
Q1) Calculate the dollar price of a German automobile worth 40,000 euros, if the dollar per euro exchange rate is 1.5.
A) $41,500
B) $26,700
C) $60,000
D) $50,000
E) $38,500
Q2) Which of the following is a transactions account?
A) Currency
B) Travelers' checks
C) A savings account
D) A credit card balance
E) A demand deposit
Q3) An asset is said to be illiquid when:
A) it lacks purchasing power.
B) it cannot act as a store of value.
C) it is an illegal tender.
D) it cannot be readily exchanged for goods.
E) it cannot be used to settle debts.
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Page 14
Chapter 13: Monetary Policy
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Sample Questions
Q1) During the Christmas holiday season, the Fed increases the supply of currency to:
A) ensure that checks are cleared quickly.
B) meet the demand for cash withdrawals from banks.
C) stabilize the value of the dollar against other currencies.
D) decrease the value of bonds.
E) control inflation.
Q2) If a bond pays 11.5 percent interest a year and a bank deposit pays 3.5 percent, the opportunity cost of holding the deposit is:
A) 11.5 percent.
B) 15 percent.
C) 8 percent.
D) 3.5 percent.
E) 13.5 percent.
Q3) Suppose that the nominal money supply equals $2 billion and nominal GDP is $16 billion. Then, according to the equation of exchange, the velocity of money equals 8.
A)True
B)False
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Chapter 14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility,
and Sources of Business Cycles
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Q1) Which of the following factors have not contributed to the "Great Moderation" of real GDP in the U.S. over the past 20 years?
A) Better inventory management
B) Better macroeconomic policy
C) Greater availability of financial products for lending and borrowing
D) Imposition of a ceiling on interest rates
E) Smaller real shocks
Q2) The long-run aggregate supply curve at potential national income is analogous to:
A) the short-run aggregate demand curve at potential national income.
B) the long-run Phillips curve at the natural rate of unemployment.
C) the long-run aggregate demand curve at each price level.
D) the short-run Phillips curve at the natural rate of unemployment.
E) the horizontal portion of the Phillips curve.
Q3) Monetary reform is a new monetary policy that includes:
A) the introduction of a new unit of currency.
B) a reduction in borrowing.
C) an increase in government spending.
D) the issuing of more currency.
E) an increase in taxes.
Page 16
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Chapter 15: Macroeconomic Viewpoints: New Keynesian,
Monetarist, and New Classical
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Q1) The new classical school holds that:
A) macroeconomic equilibrium is achieved only through active government intervention.
B) unemployment is only temporary, because the economy tends naturally toward equilibrium.
C) rigid prices and wages prevent the economy from achieving equilibrium.
D) macroeconomic equilibrium cannot occur as long as the aggregate supply curve is?vertical.
E) rational expectations result in involuntary unemployment and prolonged periods of macroeconomic disequilibrium.
Q2) Which of the following schools of thought stressed on a fixed-price model for macroeconomic equilibrium?
A) Traditional Keynesians
B) New Keynesians
C) Monetarists
D) Classical economists
E) New classical economists
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Chapter 16: Economic Growth
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Sample Questions
Q1) If the real GDP of a developed country doubles in 48 years, the average annual growth rate in real GDP must be _____.
A) 1.5%
B) 3.5%
C) 0.67%
D) 0.012%
E) 24%
Q2) By the late 1990s, the growth rate of total factor productivity in the United States
A) averaged about 1%
B) averaged between 3 and 4%
C) averaged between 6 and 8%
D) averaged between 10 and 15%
E) averaged above 20%
Q3) Economic growth is measured as:
A) the quarterly percentage change in nominal GDP.
B) total output per year divided by the inflation rate.
C) total nominal GDP at the end of each year.
D) the percentage change in population growth per year.
E) the annual percentage change in real GDP.
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Chapter 17: Development Economics
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Sample Questions
Q1) The predominant source of multilateral aid is:
A) the European Community.
B) the United Nations.
C) the Agency for International Development.
D) the World Bank.
E) the British government.
Q2) Which of the following is least likely to be included in a definition of basic human needs?
A) A minimal level of clothing
B) A minimal level of health care
C) A minimal level of savings
D) A minimal level of shelter
E) A minimal level of calorie intake
Q3) Generally speaking, the more competitive a country's markets are, the greater are the opportunities for corruption.
A)True
B)False
Q4) Foreign aid usually consists of funds loaned at high interest rates.
A)True
B)False
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Chapter 18: Globalization
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Sample Questions
Q1) Which of the following international organizations do globalization critics claim is serving the interests of large multinational corporations?
A) NATO
B) The World Bank
C) The Fed
D) The United Nations
E) The International Labor Organization
Q2) Which of the following is one of the most important causes for the recent increase in income inequality in China?
A) The introduction of free markets while imposing restrictions on internal migration
B) The introduction of regulations that do not allow families to have more than one child
C) Globalization
D) The increase in pollution as a result of industrialization
E) Tougher government controls on the banking system
Q3) In the last two decades, income inequality has increased in China.
A)True
B)False
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Page 20
Chapter 19: World Trade Equilibrium
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Sample Questions
Q1) We benefit from trade if we are able to obtain a good from a foreign country:
A) that has a very low domestic demand.
B) the production of which requires a steady supply of unskilled labor.
C) by giving up less of other goods than we would have to give up to obtain the good at home.
D) by giving up more of other goods than we would have to give up to obtain the good at home.
E) that has a substantial number of substitutes in the domestic market.
Q2) If Brazil can produce 5 shirts or 4 pounds of beef in a day, and Uruguay can produce 10 shirts or 2 pounds of beef in a day, then Brazil has a comparative advantage in the production of beef.
A)True
B)False
Q3) The export supply curve is the portion of the domestic supply curve below the no-trade equilibrium price.
A)True
B)False
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21
Chapter 20: International Trade Restrictions
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Q1) Since individual consumers do not know how much of the price they pay for a commodity is due to protection, consumers rarely lobby their political representatives to eliminate protection and reduce prices.
A)True
B)False
Q2) Nascent industries require adequate protection from foreign competition because:
A) they experience economies of scale.
B) they experience diseconomies of scale.
C) the quality of the products of such industries are comparatively inferior than the products of their foreign competitors.
D) they do not have adequate resources to undertake research and development.
E) their initial costs of production are considerably higher than the foreign firms.
Q3) In order to protect key industries, some countries impose taxes on their exports instead of imports, mainly because it is easier to collect taxes from the export industry.
A)True
B)False
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Chapter 21: Exchapterange Rates and Financial Links
Between Countries
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Sample Questions
Q1) Under the _____ arrangement, the exchange rate is adjusted periodically by small amounts at a fixed, pre-announced rate or in response to certain indicators.
A) currency board
B) crawling peg
C) reserve currency
D) conventional fixed peg
E) independent float
Q2) The World Bank was created to help finance economic development in poor countries.
A)True
B)False
Q3) A country on a gold standard was able to maintain people's confidence in the value of its currency by:
A) printing more and more paper money.
B) restricting international exchange of goods and services.
C) ensuring the convertibility of paper money into gold.
D) maintaining a fixed stock of foreign currencies.
E) ensuring balance of payment surplus.
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