Intermediate Macroeconomics
Chapter Exam Questions
Course Introduction
Intermediate Macroeconomics delves into the theoretical frameworks and analytical tools used to understand economy-wide phenomena such as growth, inflation, unemployment, and business cycles. Building on introductory macroeconomic concepts, this course explores aggregate demand and supply, fiscal and monetary policy, and the roles of expectations and financial markets in shaping economic outcomes. Students will engage with both classical and contemporary models to evaluate real-world macroeconomic issues and policy debates, developing critical skills to interpret data and assess the effectiveness of economic interventions in different contexts.
Recommended Textbook
Macroeconomics 12th Edition by Michael Parkin
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Page 2
Chapter 1: What Is Economics?
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Q1) Macroeconomics differs from microeconomics in that A) macroeconomics studies the decisions of individuals.
B) microeconomics looks at the economy as a whole.
C) macroeconomics studies the behavior of government while microeconomics looks at private corporations.
D) macroeconomics focuses on the national economy and the global economy.
Answer: D
Q2) The slope of the line shown in the above figure is
A) -1/3.
B) -5.
C) -1.
D) -3.
Answer: D
Q3) In the above figure, when income is zero, household expenditures equal A) 0.
B) $1000.
C) $4000.
D) $8000.
Answer: D
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Page 3
Chapter 2: The Economic Problem
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Q1) The fact that individual productive resources are NOT equally useful in all activities
A) implies that a production possibilities frontier will be bowed outward.
B) implies that gain from specialization and trade is unlikely.
C) follows from the law of demand.
D) implies a linear production possibilities frontier.
Answer: A
Q2) In the figure above, how can the economy represented by the production possibilities frontier move from point C to point F?
A) Increase the available amount of resources.
B) Increase the level of technology.
C) Redistribute the existing resources to produce more apples and fewer oranges.
D) First move to point B and then move to point F.
Answer: C
Q3) Points outside the production possibilities frontier illustrate production points that cannot be attained.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Demand and Supply
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Q1) Some sales managers are talking shop. Which of the following quotations refers to a movement along the demand curve?
A) "Since our competitors raised their prices our sales have doubled."
B) "It has been an unusually mild winter; our sales of wool scarves are down from last year."
C) "We decided to cut our prices, and the increase in our sales has been remarkable."
D) none of the above
Answer: C
Q2) Demands differ from wants because
A) demands are unlimited, whereas wants are limited by income.
B) wants require a plan to acquire a good but demands require no such plan.
C) wants imply a decision about which demands to satisfy, while demands involve no specific plan to acquire the good.
D) demands reflect a decision about which wants to satisfy and a plan to buy the good, while wants are unlimited and involve no specific plan to acquire the good.
Answer: D
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Chapter 4: Measuring GDP and Economic Growth
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Q1) Define and distinguish between final goods and intermediate goods.
Q2) The figure above shows the price of a DVD player from 2003 to 2007.
a)What type of graph is illustrated above?
b)What is the trend in the price of a DVD player?
Q3) Which, if any, of the following causes a country's reported GDP to be less than its total economic production?
A) the exclusion of household production
B) the exclusion of government transfers
C) the inclusion of government expenditures
D) None of the above cause reported GDP to be less than total production.
Q4) List and compare the four components of the expenditure approach to calculating GDP.
Q5) The low point of economic activity during a business cycle is called the A) trough.
B) recession.
C) peak.
D) failure.
Q6) Explain the relationship among the capital stock, gross investment, net investment, and depreciation.
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Q7) Explain how GDP is measured according to the expenditure and income approaches.
Chapter 5: Monitoring Jobs and Inflation
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Q1) The population of Tiny Town is 100 people and the labor force is made up of 75 people. If 5 of these people are unemployed, the unemployment rate is
A) 5/100 × 100.
B) 5/80 × 100.
C) 5/75 × 100.
D) There is not enough information provided to calculate the unemployment rate.
Q2) If the base year CPI basket costs $250 and next year the CPI basket costs $275, what is next year's CPI?
Q3) Suppose the population is 220 million people, the labor force is 150 million people, the number of people employed is 130 million and the working-age population is 175 million people. What is the unemployment rate?
A) 9.0 percent
B) 13.3 percent
C) 11.4 percent
D) 15.4 percent
Q4) What, if any, is the impact of the CPI bias on government spending?
Q5) How does the Current Population Survey determine if a person should be counted in the labor force?
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Chapter 6: Economic Growth
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Q1) According to the Economic Times (09/2012), Standard & Poor's forecast for India's GDP growth rate was cut by 1 percentage point to 5.5 percent as the entire Asia Pacific region feels the pressure of ongoing economic uncertainty. India has averaged 7 percent growth in GDP since 1997. Which of the following is TRUE?
A) India's PPF has been shifting rightward since 1997.
B) India's PPF has been shifting leftward since 1997.
C) India has been moving from a point within its PPF to points beyond its PPF.
D) India's PPF has not shifted since 1997.
Q2) The gaps between the United States and the Asian countries of Honk Kong, Singapore, Korea and China have been
A) decreasing
B) increasing
C) remaining fairly constant
D) there are no gaps between these Asian countries and the United States
Q3) Labor productivity is
A) real GDP per hour of labor times the hours of work.
B) real GDP per hour of labor times the number of people.
C) real GDP per hour of labor.
D) the rate of change in real GDP per hour of labor.
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Page 8
Chapter 7: Finance, Saving, and Investment
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Q1) In 2007, Singapore's government ran a budget surplus of $4.5 billion. The budget surplus ________ loanable funds and ________ the real interest rate.
A) increased the supply of; lowered
B) decreased the demand for; lowered
C) increased the supply of; raised
D) increased the demand for; raised
Q2) If the economy's capital stock increases over time
A) net investment is positive.
B) depreciation is less than zero.
C) depreciation exceeds gross investment.
D) gross investment equals depreciation.
Q3) In January, suppose that a share of stock in Meyer, Inc. had a price of $50 and that each share entitled its owner to $2 of Meyer, Inc.'s profit. During the year, the price of a share of Meyer's stock rose to $100. The interest rate paid on the share in January was ________ percent.
A) 2
B) 0.02
C) 4
D) 25
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Page 9
Chapter 8: Money, the Price Level, and Inflation
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Q1) What factors affect the demand for money?
Q2) Federal Reserve policy tools include all of the following EXCEPT
A) excess reserve ratios.
B) required reserve ratios.
C) last resort loans.
D) open market operations.
Q3) If the Fed buys $100 in securities from a commercial bank, the
A) Fed's assets will decrease.
B) quantity of money will decrease.
C) quantity of the bank's reserves will increase.
D) amount of the bank's reserves will not change.
Q4) Changing which of the following is a Federal Reserve monetary policy tool?
A) required reserve ratios
B) desired reserve ratios
C) excess reserve ratios.
D) gold and foreign reserve ratios
Q5) If a bank receives an additional deposit of $50,000 and the desired reserve ratio is 20 percent, what is the amount of new loans the bank can make?
Q6) Define the quantity theory of money and show how it is related to the equation of exchange.
Page 10
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) In the foreign exchange market, the supply curve for dollars slopes upwards because
A) as the exchange rate rises, imports become more expensive, and more dollars are supplied to pay for the imports.
B) as the exchange rate rises, imports become cheaper, and more dollars are supplied to pay for the increase in the quantity of imports.
C) as the exchange rate rises, more dollars are supplied since the profit from selling dollars falls.
D) supply curves always slope upwards.
Q2) How does the Fed intervene in the foreign exchange market and what the effects are of the Fed's actions?
Q3) The data in the table above are the U.S. balance of payments. What is the current account balance?
A) $0
B) $150 billion
C) -$100 billion
D) -$150 billion
Q4) What role can the Fed play in the foreign exchange market?
Q5) Give an example of currency depreciation and appreciation.
Page 11
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) Suppose the exchange rate falls from $1.20 Canadian per U.S. dollar to $1.10 Canadian per U.S. dollar. U.S. exports will ________, U.S. imports will ________, and U.S. aggregate demand will ________.
A) decrease; increase; decrease
B) decrease; increase; increase
C) increase; decrease; increase
D) increase; increase; increase
Q2) Along a short-run aggregate supply curve, a decrease in the price level means that
A) more output is produced as consumer demand increases.
B) less output is produced as firms decrease production.
C) more output is produced as firms increase production because wages fall more than the price level falls, making it profitable to hire more workers.
D) output does not change because firms do not change the quantity they produce.
Q3) The aggregate demand curve
A) has a negative slope.
B) has a positive slope.
C) is vertical.
D) is horizontal.
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Chapter 11: Expenditure Multipliers
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Q1) As disposable income increases, there is a ________ the saving function. A) leftward shift of the B) movement along C) rightward shift of D) change in the slope of
Q2) If the price level rises, the purchasing power of wealth
A) increases.
B) does not change.
C) decreases.
D) increases at first but in the long run decreases.
Q3) Which of the following statements is FALSE?
A) Disposable income - saving = consumption expenditure.
B) Consumption expenditure + saving = disposable income.
C) Saving = disposable income - consumption expenditure.
D) Consumption expenditure = saving - disposable income.
Q4) Suppose the MPC = 0.90 and there are no taxes or imports. What dos the multiplier equal? If the initial equilibrium aggregate expenditure is $12 trillion, what will be the effect on aggregate expenditure of a $100 billion increase in investment?
Q5) Does aggregate planned expenditure always equal real GDP?
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Chapter 12: The Business Cycle, Inflation, and Deflation
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Q1) According to the real business cycle theory, the immediate effects from a change in productivity include which of the following?
I.Investment demand changes.
II.Demand for labor changes.
III.Government expenditures change.
A) I
B) I and II
C) I and III
D) II and III
Q2) What is demand-pull inflation?
Q3) In the above figure, suppose that the economy is at point A. An expected increase in the inflation rate to 6 percent will result in a movement to point
A) A, that is, there is no movement.
B) B.
C) C.
D) D.
Q4) Increases in the prices of raw materials can create cost-push inflation.
A)True
B)False
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Chapter 13: Fiscal Policy
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Q1) Which of the following is the largest source of federal government revenue?
A) corporate income taxes
B) Social Security taxes
C) personal income taxes
D) borrowing
Q2) Prior to the Great Depression, the purpose of the federal budget was to ________.
A) stabilize the economy
B) finance the activities of the government
C) maintain low interest rates
D) decrease unemployment
Q3) In the above figure, which of the following policies could move the economy to potential GDP?
A) decreasing government expenditures and increasing taxes
B) decreasing taxes and not changing government expenditures
C) increasing government expenditures and decreasing taxes
D) None of the above answers is correct.
Q4) If employment exceeds full employment, what fiscal policy actions could eliminate the gap?
Q5) How does a tax on labor income affect potential GDP?
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Chapter 14: Monetary Policy
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Q1) In the short run, a decrease in the federal funds rate by the Fed
A) lowers the real interest rate, decreases investment, and shifts the AD curve rightward.
B) lowers the real interest rate, increases investment, and shifts the AD curve leftward.
C) raises the real interest rate, decreases investment, and shifts the AD curve rightward.
D) None of the above answers is correct.
Q2) When the Fed lowers the federal funds rate, it increases reserves and increases the quantity of deposits and loans created.
A)True
B)False
Q3) According to the AS/AD model, in the short run an increase in the federal funds rate will
A) decrease the price level and decrease real GDP.
B) increase the price level and decrease real GDP.
C) decrease the price level but leave real GDP unchanged.
D) decrease real GDP but leave the price level unchanged.
Q4) Why does the Fed pursue price stability as its ultimate goal?
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Chapter 15: International Trade Policy
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Q1) How does a tariff affect the government's revenue? How does a quota affect the government's revenue?
Q2) Consider a market that sells some of its goods as exports. Who does NOT benefit?
A) domestic consumers
B) domestic producers
C) workers in the industry
D) foreign consumers
Q3) The idea of dynamic (i.e. changing)comparative advantage is the basis for which of the following arguments for protection from foreign competition?
A) the cheap foreign labor argument
B) the infant-industry argument
C) the dumping argument
D) the saves jobs argument
Q4) Dumping occurs when a foreign firm ________.
A) pollutes international waters
B) disposes of waste material internationally
C) sells inferior output to foreigners
D) sells its exports at a lower price than its cost of production
Q5) Give a brief description of the history of tariffs in the U.S.
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