Foundations of Macroeconomics Question
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Course Introduction
Foundations of Macroeconomics is an introductory course that explores the fundamental principles and concepts underlying the study of aggregate economic activity. Students examine key topics such as national income accounting, economic growth, unemployment, inflation, and the interplay between fiscal and monetary policy. The course also covers the roles of government and central banks in managing economic fluctuations, the significance of international trade and finance, and the impact of macroeconomic policies on overall economic well-being. Emphasis is placed on developing analytical tools to understand real-world economic issues and interpret macroeconomic data, preparing students for more advanced studies in economics.
Recommended Textbook macroeconomics principles and policy 12th edition by william j. baumol
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Chapter 1: What Is Economics?
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Q1) Graphs are useful because of the way they
A) facilitate interpretation and analysis of data.
B) clarify interpretation and analysis of ideas.
C) permit a person to easily see relationships.
D) convey an idea that might otherwise take many words.
E) All of the above are correct.
Answer: E
Q2) As a student,one of the costs of sleeping in rather than going to class is likely to be a lower grade in the class.
A)True
B)False
Answer: True
Q3) Productivity growth is the main cause of rising living standards.
A)True
B)False
Answer: True
Q4) Two variables that systematically change together are correlated.
A)True
B)False
Answer: True
Page 3
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Chapter 2: The Economy: Myth and Reality
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Q1) Capitalism and free enterprise are common,and the United States
A) has just begun to move in that direction after years of central planning.
B) has gone further in that direction than almost any other country.
C) is becoming more "free," but is not as capitalistic as many others.
D) is considering a major change to "free up" its economy as many others have.
E) is leading the move toward greater central planning and control.
Answer: B
Q2) The total market value of capital assets in the United States is over $30 trillion dollars.
A)True
B)False
Answer: True
Q3) Economic progress is best measured by
A) the growth rate of prices over time.
B) the growth rate of GDP per capita
C) the amount of time it takes a worker to work to afford certain goods and services.
D) the growth rate in the population.
Answer: B
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Chapter 3: The Fundamental Economic Problem: Scarcity and Choice
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Q1) In Figure 3-2,a point such as A A) is preferable over B. B) is an efficient use of resources.
C) represents a misallocation of resources. D) is not obtainable.
Answer: B
Q2) The concept of "an invisible hand" led Adam Smith to believe that A) if each person looks out for himself or herself, then chaos will inevitably ensue.
B) pursuit of self-interest promotes economic well-being for society as a whole.
C) governmental rule actually results in greater good than is apparent at the time.
D) traditional religion is an appropriate guide for human behavior.
E) All of the above are correct.
Answer: B
Q3) Rational decision making must always be based on the concept of opportunity cost. A)True
B)False
Answer: True
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Chapter 4: Supply and Demand: An Initial Look
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Q1) At an equilibrium price,quantity demanded
A) exceeds quantity supplied.
B) equals quantity supplied.
C) is less than quantity supplied.
D) Any of the above is possible.
Q2) A supply schedule shows
A) the "market potential" for a product.
B) how much producers are willing and able to sell at different prices.
C) possible combinations of output under different conditions.
D) how much consumers would like to buy at different prices.
E) All of the above are correct.
Q3) Rent controls are most often designed to protect the investment made by apartment building owners.
A)True
B)False
Q4) Explain the effect of the following changes on equilibrium price and quantity of a commodity:
(a)increase in average incomes.
(b)increase in population.
Q5) List some of the problems that may arise when prices are controlled.
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Chapter 5: An Introduction to Macroeconomics
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Q1) The period from 1983 to 1990 was characterized by
A) decreasing budget deficits and increasing trade surpluses.
B) persistently high inflation.
C) below average rates of real GDP growth.
D) consistent growth of real GDP and decreasing rates of inflation.
Q2) In March 2011 many college students bet on the NCAA finals in dorm gambling pools.This is an example of
A) real vs. nominal GDP.
B) the assumed value of household production.
C) underground economic activity.
D) the implicit value of leisure time.
E) a "bad" versus a "good."
Q3) What are the two basic principles of aggregation?
Q4) The clearest sign of economic growth is a(n)
A) increase in nominal GDP.
B) increase in real GDP.
C) decrease in nominal GDP.
Q5) Macroeconomists pay little attention to the composition of aggregate output.
A)True
B)False
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Chapter 6: The Goals of Macroeconomic Policy
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Q1) Taxes on capital gains and interest decline as inflation rates increase.
A)True
B)False
Q2) Explain how the current U.S.tax system levies taxes on capital gains and earned interest.What does this mean for the costs of inflation?
Q3) The main cost that low inflation imposes on an economy is that low inflation
A) inevitably leads to high inflation.
B) distorts some economic decisions.
C) reduces real wages.
D) benefits lenders at the expense of borrowers.
Q4) Hyperinflations are usually made possible by
A) multinational corporations.
B) highly mobile international capital.
C) governments printing money rapidly.
D) higher and higher tax rates.
Q5) Someone who is out of work because they are between jobs is experiencing
A) frictional unemployment.
B) structural unemployment.
C) seasonal unemployment.
D) cyclical unemployment.
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Chapter 7: Economic Growth: Theory and Policy
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Q1) Poor countries often have difficulty investing in capital because A) development assistance is designed in increase consumer goods.
B) multinational corporations do not bring technological advances into poor countries.
C) the population is living at subsistence level and cannot afford to save.
D) they suffer from the cost disease of personal services.
Q2) The new growth theory would be most likely to lend support for increased government support for A) land acquisition.
B) natural resource development.
C) stricter environmental standards.
D) higher education.
Q3) Discuss that factors that help explain the rapid productivity growth in the United States after 1995.
Q4) Laws that assign owners the rights to use assets as they see fit are called A) human rights.
B) economic rights.
C) property rights.
D) government rights.
Q5) Describe the three pillars of productivity growth.
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Chapter 8: Aggregate Demand and the Powerful Consumer
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Q1) In Figure 8-2,which of the following moves can be explained by a decrease in the prices of stock on the NASDAQ?
A) A to B
B) A to C
C) A to D
D) A to E
Q2) The tax cuts of 2008 and 2009 were effective because consumers believed that they were temporary.
A)True
B)False
Q3) The marginal propensity to consume is calculated by dividing the change in consumer spending by the change in disposable income.
A)True
B)False
Q4) A decrease in disposable income causes a shift in the consumption function.
A)True
B)False
Q5) Explain why national income and domestic product must be equal.
Q6) Why is investment spending a highly volatile component?
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Chapter 9: Demand-Side Equilibrium: Unemployment or
Inflation?
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Q1) The recessionary gap is the
A) amount of unemployment compensation required during a recession.
B) budget deficit encountered during a recession.
C) amount of government spending needed to end a recession.
D) distance between the equilibrium level of output and the full employment level of output.
Q2) In comparison to the oversimplified formula for the multiplier,the real-world multiplier is
A) lower.
B) higher.
C) almost equal to it.
D) higher if taxes are included.
Q3) The expenditure schedule will shift upward when
A) net exports decrease.
B) net exports increase.
C) total imports increase.
D) total exports decrease.
Q4) What is a multiplier? How does the multiplier effect occur?
Q6) Define the terms recessionary gap and inflationary gap.Why do they occur? Page 11
Q5) Why do booms and recessions tend to be transmitted across national borders?
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Chapter 10: Bringing in the Supply Side: Unemployment and Inflation?
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Q1) A common error of business managers is to blame inflation on A) consumer spending.
B) rising wages.
C) rising prices.
D) rising interest rates.
E) rising unemployment.
Q2) To calculate a firm's per unit of output profit,it is necessary to subtract
A) price from cost per unit.
B) price from resource costs.
C) cost per unit from product price.
D) cost per unit from cost of resources.
Q3) For a given growth rate in aggregate supply,slower growth in aggregate demand will lead to lower inflation.
A)True
B)False
Q4) If money wages increase,the most likely result is a(n)
A) increase in aggregate supply.
B) decrease in aggregate supply.
C) steeper aggregate supply curve.
D) flatter aggregate supply curve.
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Chapter 11: Managing Aggregate Demand: Fiscal Policy
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Q1) How does an increase in taxes affect the expenditure schedule?
A) It causes movement to the left along the schedule.
B) It causes the schedule to shift upward.
C) It causes movement to the right along the schedule.
D) It causes the schedule to shift downward.
Q2) Transfer payments represent income that is not earned but received by individuals.
A)True
B)False
Q3) The use of spending and taxes by the government to influence aggregate demand is known as
A) monetary policy.
B) governmental policy.
C) administrative policy.
D) fiscal policy.
E) federal policy.
Q4) The fiscal policy planner's job is made easier because full-employment GDP can be accurately measured.
A)True B)False
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Chapter 12: Money and the Banking System
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Q1) A bank run involves a large inflow of money into commercial banks.
A)True
B)False
Q2) Nowadays,most observers believe that monetary policy
A) is less important than fiscal policy.
B) is more important than fiscal policy.
C) and fiscal policy are equally important.
D) and fiscal policy are both unimportant.
Q3) Barter is a system of
A) trade without the use of money.
B) trading one good for another.
C) the double coincidence of wants.
D) All of the above are correct.
Q4) The money multiplier yielded by the deposit creation formula assumes that
A) banks hold no excess reserves.
B) banks hold excess reserves.
C) recipients of loans take some of the proceeds in cash.
D) recipients of loans do not redeposit their funds in other banks.
Q5) What may limit the size of the money supply expansion to an amount less than indicated by the oversimplified deposit creation formula?
Page 15
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Chapter 13: Monetary Policy: Conventional and
Unconventional
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Q1) The central bank in the United States is known as the Federal Reserve System.
A)True
B)False
Q2) Open market operations generally involve the purchase and sales of
A) government securities.
B) stocks and bonds.
C) coins and currency.
D) Federal Reserve notes.
Q3) When the Fed buys a Treasury bill from the public,how does it usually pay for the T-bill?
A) by writing a check on a commercial bank account
B) by printing new Federal Reserve notes
C) by creating new reserves in bank accounts
D) by prepaying taxes into the Treasury's account
Q4) Members of the Board of Governors of the Fed are
A) elected to two-year terms by the Electoral College.
B) appointed by the president for four-year terms and confirmed by the Congress.
C) appointed by the president for 14-year terms and confirmed by the Senate.
D) appointed by the president for 14-year terms and confirmed by the Supreme Court.
Page 16
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Chapter 14: The Financial Crisis and the Great Recession
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Q1) The Federal Reserve helped J.P.Morgan purchased Bear Stearns by agreeing to purchase some unwanted Bear Stearns assets.
A)True
B)False
Q2) Which of the following was a lesson from the 2007-2009 financial crisis?
A) The financial system needed more leverage in order to operate.
B) The job of stabilizing the economy should be assigned exclusively to monetary policy.
C) Monetary policy is finished once the Fed reduces the federal funds rate to zero.
D) The business cycle still exists.
Q3) Expansionary monetary policy is essentially finished once the Fed reduces the federal funds rate to zero.
A)True
B)False
Q4) The 2009 fiscal stimulus bill represented approximately
A)5.5% of GDP and was designed to close the expansionary gap.
B)5.5% of GDP and was designed to close the recessionary gap.
C)7.8% of GDP and was designed to close the expansionary gap.
D)7.8% of GDP and was designed to close the recessionary gap.
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Chapter 15: The Debate over Monetary and Fiscal Policy
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Q1) In response to the Great Recession of 2007-2009,when did the Federal Reserve first cut the federal funds rate to zero?
A) December 2007
B) June 2008
C) December 2008
D) January 2010
Q2) In 2005-2006,the Fed increased interest rates in an attempt to halt inflation.What was the most likely effect of raising interest rates on velocity?
A) It will decrease.
B) It will increase.
C) It will remain constant.
D) Velocity is unrelated to saving accounts.
Q3) If the Fed's monetary policy causes a substantial decrease in interest rates,what is the most likely impact on velocity?
A) It will decrease.
B) It will increase.
C) It will remain constant.
D) Velocity is unrelated to interest rates.
Q4) How does government expenditure discourage some private investment?
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Chapter 16: Budget Deficits in the Short and Long Run
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Q1) The "crowding out" effect states that government spending pushes up interest rates and reduces private investment spending.
A)True
B)False
Q2) In contrast to Argentina in 2001,the United States debt is less of a burden because the U.S.debt is
A) an obligation to pay over a longer period of time.
B) owed entirely to U.S. citizens and banks.
C) an obligation to pay in domestic currency.
D) an obligation to pay in foreign currency.
Q3) Why might the Fed decide to monetize the deficit?
A) to keep inflation low
B) to reduce the structural deficit
C) to reduce the budget deficit
D) to keep interest rates low
Q4) In 2010,the debt-to-GDP ratio increased to roughly the same ratio as the 1990s.
A)True
B)False
Q5) Differentiate between "off-budget" deficit and the "on-budget" deficit.
Q6) Give some arguments for and against a balanced budget requirement.
Page 19
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Chapter 17: The Trade Off between Inflation and Unemployment
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Q1) Opponents of indexing fear that it will lead to a(n)
A) acceleration of inflation.
B) abrupt reduction of the money supply.
C) shortfall of tax revenues, and increased budget deficits.
D) unfair wealth transfer to debtors.
Q2) European governments accepted prolonged periods of unemployment in the 1990s in order to reduce inflation.
A)True
B)False
Q3) Most economists reject the theory of rational expectations because A) expectations adjust very quickly.
B) workers receive wage increases in advance of inflation.
C) the short-run aggregate supply curve is vertical.
D) labor contracts tend to embody past inflation rates.
Q4) Most economists and policy makers decided in 2007-2010 that reducing unemployment was the main national priority.
A)True
B)False
Page 20
Q5) What is the effect of supply-side inflation on the short-run Phillips curve?
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Chapter 18: International Trade and Comparative Advantage
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Q1) A tariff is a tax on imports imposed by the country that is importing the goods.
A)True
B)False
Q2) What would be the output combination for two products A and B on the production possibility frontier,if a country uses its entire resources for producing A?
A) A - Maximum; B - Zero
B) A- Maximum, B - Maximum
C) A - Zero, B - Maximum
D) A - Zero, B - Minimum
Q3) A country has a comparative advantage over another in the production of gadgets if it can produce
A) more gadgets than can the other country.
B) more gadgets than can any other country.
C) gadgets more efficiently than it can produce any other good.
D) gadgets at lower opportunity cost than can the other country.
Q4) Many countries impose tariffs or quotas to protect the domestic industry from competition.
A)True
B)False
21
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Chapter 19: The International Monetary System: Order or Disorder?
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Q1) The current role of the International Monetary Fund is one of A) supervising a system of fixed exchange rates.
B) providing assistance to countries with currency or debt problems. C) setting exchange rates based on a gold exchange standard. D) acting as a lender of last resort to central banks.
Q2) If the price of the dollar changes from 100 Japanese yen to 120 Japanese yen,the dollar has depreciated.
A)True
B)False
Q3) Of the graphs in Figure 19-3,where the dotted line shows the actual exchange rate,which one shows a country with an overvalued currency and a balance of trade deficit?
A) 1
B) 2
C) 3
D) 4
Q4) There are at least three exchange rates between every pair of national currencies.
A)True
B)False
22
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Chapter 20: Exchange Rates and the Macroeconomy
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Q1) Compare the effectiveness of monetary policy in an open economy with mobile international capital to monetary policy in a closed economy.Why is it different? Use an appropriate diagram to illustrate your answer.
Q2) International capital flows strengthen
A) monetary policy and have no effect on fiscal policy.
B) monetary policy but weaken fiscal policy.
C) monetary and fiscal policy.
D) fiscal policy but weaken monetary policy.
Q3) International capital flows in an open economy have the effect of
A) reducing the power of monetary policy.
B) increasing the power of monetary policy.
C) increasing the power of monetary policy in an expansion and reducing it in a contraction.
D) reducing the power of monetary policy in an expansion and increasing it in a contraction.
Q4) A currency depreciation is usually inflationary.
A)True
B)False
Q5) Explain how exchange rate changes affect aggregate demand.
Q6) Discuss the opposing points of view on U.S.trade deficit.
Page 23
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