Intermediate Macroeconomics
Review Questions
Course Introduction
Intermediate Macroeconomics builds upon foundational economic principles to explore the behavior and performance of national economies in greater depth. The course covers key topics such as aggregate demand and supply, economic growth, unemployment, inflation, fiscal and monetary policies, and the role of government in stabilizing the economy. Students will analyze classical and contemporary macroeconomic models, assess the effects of policy interventions, and evaluate real-world economic issues using quantitative and theoretical tools. The course aims to develop critical thinking and analytical skills, preparing students for more advanced study in economics and for understanding complex macroeconomic phenomena in a globalized context.
Recommended Textbook
CoreMacroeconomics 3rd Edition by Eric Chiang
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Page 2
Chapter 1: Exploring Economics
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Sample Questions
Q1) (Figure: Graph Examples)Which graph is an example of a pie chart?
A) graph A
B) graph B
C) graph C
D) graph D
Answer: C
Q2) Production efficiency:
A) reflects how often economists make assumptions about important variables.
B) reflects how well resources are allocated.
C) reflects the fact that all labor is equally productive.
D) is an assumption used by economists that holds important variables constant.
Answer: B
Q3) When we analyze the relationship between inflation and the money supply,we assume that:
A) all other factors that affect the rate of inflation remain constant.
B) this relationship holds only in a democratic country.
C) this relationship reflects a nonlinear relationship.
D) the money supply is backed by gold alone.
Answer: A
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Page 3
Chapter 2: Production, Economic Growth, and Trade
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Sample Questions
Q1) The two basic determinants of economic growth are _________ and _________.
A) expanding resources;improving technologies
B) tariffs;trading with weaker countries
C) income taxes;human capital
D) government spending;labor productivity
Answer: A
Q2) (Figure: Bran Muffins and Corn Flakes PPF)The graph shows the possibilities frontier for a bakery that makes corn flakes and bran muffins.Which of the following is NOT correct?
A) The opportunity cost of increasing production of corn flakes from 200 to 300 pounds is 50 pounds of bran muffins.
B) Due to limited resources,there is a tradeoff between producing corn flakes and bran muffins.
C) The graph implies that resources well-suited for making corn flakes are not as well-suited for producing bran muffins.
D) The company faces decreasing opportunity costs.
Answer: D
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4
Chapter 3: Supply and Demand
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Sample Questions
Q1) One of the implications of the supply and demand model is that:
A) a rise in the price of a good always means that demand for it has increased.
B) supply shifts to the left whenever demand falls.
C) a market price below the equilibrium price will lead to a surplus.
D) government action is not necessary for a market to achieve equilibrium.
Answer: D
Q2) Explain the difference between a change in demand and a change in quantity demanded.Why might this distinction be important to a business manager?
Answer: A change in demand is a shift in the demand curve caused by a change in one or more of the determinants of demand (tastes,income,prices of related goods,number of buyers,expectations).It is a change in the location of the demand curve.A change in quantity demanded is caused by a change in price only and involves a movement to another price-quantity combination on the same demand curve.A manager wishing to increase sales has two tools available-either increase quantity demanded by lowering price or increase demand (say,by advertising).
Q3) Surpluses but not shortages can exist when a market is in equilibrium.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Markets and Government
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Sample Questions
Q1) Implementing a price ceiling can cause:
A) a shortage.
B) poverty.
C) a surplus.
D) scarcity.
Q2) (Figure: Determining Surplus and Loss)In the graph,a price of $12 would allow for an effective price floor.
A)True
B)False
Q3) Suppose the equilibrium price of a bunch of carrots is $1.The price floor instituted by the government is $1.50.
A) We would expect to see a surplus of carrots.
B) There would be a shortage of carrots.
C) Farmers would switch from growing carrots to growing potatoes.
D) The price floor would have no impact on the market because it is higher than equilibrium price.
Q4) If a price ceiling is set above the market price,it is ineffective.
A)True
B)False
Q5) What are the four major reasons why markets fail?
Page 6
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Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) The proprietors' income component of the income approach to calculating GDP must be adjusted by an allowance to account for depreciating equipment.
A)True
B)False
Q2) Gross private domestic investment is about 20% of GDP.
A)True
B)False
Q3) Using the simple circular flow model,explain why the sum of income earned in an economy equals the sum of spending in the economy.
Q4) Which equation summarizes the expenditures approach to measuring GDP?
A) Y = C + S
B) total spending = total income
C) GDP = C + I + G + (X - M)
D) GDP = net domestic product + depreciation
Q5) Because GDP excludes nonmarket transactions,the level of economic activity in a country is understated.
A)True
B)False
Q6) Describe the major components of national income.
Page 7
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Chapter 6: Measuring Inflation and Unemployment
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Sample Questions
Q1) Which of the following statements regarding the types of unemployment is TRUE?
A) Frictional unemployment is generally short-term,whereas structural unemployment is often long-term.
B) Cyclical unemployment is due to expansions in the business cycle.
C) Frictional unemployment is brought about by changes in technology.
D) Structural unemployment is the result of normal labor turnover.
Q2) From 1999 to 2002,the Japanese inflation rates were,respectively,-0.3%,-0.6%,-0.7%,and -0.7%.During this time,the Japanese economy underwent:
A) inflation.
B) hyperinflation.
C) a rise in its price level.
D) deflation.
Q3) Since the invention of automatic teller machines,many bank tellers have lost their job.This is an example of ______ unemployment.
A) structural
B) frictional
C) cyclical
D) statistical
Q4) What are escalator agreements and contracts?
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Chapter 7: Economic Growth
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Sample Questions
Q1) According to Joseph Schumpeter,what is the driving force behind business cycles?
A) waves of inventions
B) weather cycles
C) waves of innovations
D) consumer spending
Q2) A key characteristic of competitive markets is the ability of firms to open and close businesses without unnecessary restrictions or other burdens.
A)True
B)False
Q3) A politician in a developing country has vowed to double GDP per capita within eight years.What annual growth rate (approximately)would be necessary to attain this target?
_________ (Round to two decimal places. )Has this rate of growth been achieved by any developing country in the last 20 years? (Choose one: Yes/No)
Q4) To have long-term economic growth,the production function suggests:
A) keeping interest rates high to encourage saving.
B) increasing the availability of technology,capital,and labor.
C) increasing government oversight of business decisions.
D) redistributing income from the wealthy to the poor.
Q5) What are the factors that affect total factor productivity?
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Chapter 8: Aggregate Expenditures
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Sample Questions
Q1) From year to year,consumption fluctuates more than gross private domestic investment.
A)True
B)False
Q2) At equilibrium,when a tax is put in place,income falls more than the tax multiplied by the multiplier,since consumers pay for the tax in part by reducing their savings.
A)True
B)False
Q3) If income grows from $3,000 per month to $3,500 per month and savings rise from $200 per month to $400 per month,what is the marginal propensity to save?
A) 1.25
B) 0.8
C) 2.5
D) 0.4
Q4) When the costs of operating machinery rise,new investment will rise.
A)True
B)False
Q5) Where does equilibrium occur in the simple Keynesian model?
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Chapter 9: Aggregate Demand and Supply
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Sample Questions
Q1) ________ taxes and ________ interest rates in the United States,along with ___________ incomes in other countries,will shift the U.S.aggregate demand curve to the right.
A) Decreasing;rising;rising
B) Increasing;falling,rising
C) Decreasing;falling,rising
D) Decreasing;falling,falling
Q2) Cost-push inflation occurs when aggregate supply shifts to the right,causing the price level to increase along with rising unemployment.
A)True
B)False
Q3) Policymakers can increase output by enacting policies that expand government spending,consumption,investment,or net exports or reduce taxes.
A)True
B)False
Q4) Technological advances increase aggregate supply.
A)True
B)False
Q5) Why does the wealth effect not apply to assets such as houses or artwork?
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Chapter 10: Fiscal Policy and Debt
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Sample Questions
Q1) _____ are securities issued by the government with terms to maturity ranging from 1 to 10 years.
A) Treasury bills
B) Treasury notes
C) Treasury bonds
D) U.S.savings bonds
Q2) The interest paid on internally held debt:
A) is a real claim on our goods and services.
B) is roughly 20% of the federal budget.
C) is paid out to one group of Americans from the taxes collected from another group of Americans.
D) is a real burden on the U.S.economy.
Q3) One argument against using taxation to pay off the public debt is that it will redistribute wealth from richer bondholders to poorer people who do not own bonds.
A)True
B)False
Q4) Describe the tools that governments use to influence aggregate demand.
Q5) Define the concept of fiscal sustainability.How does it differ from the concept of the balanced budget?
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Chapter 11: Saving, Investment, and the Financial System
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Sample Questions
Q1) The medium of exchange function of money allows an economy to avoid the problem of:
A) lack of a double coincidence of wants.
B) unemployment.
C) loss of purchasing power during an inflation.
D) rising interest rates.
Q2) Financial institutions:
A) reduce information costs,set interest rates for bonds,and diversify assets.
B) reduce information costs,reduce transaction costs,and diversify assets.
C) pool funds from lenders,reduce transaction costs,and diversify assets.
D) reduce information costs,reduce transaction costs,and pool funds from lenders.
Q3) If a $1,000 bond is issued with a coupon rate of 11% and the market interest rate drops to 7%,the trading price of that bond will drop.
A)True
B)False
Q4) Blue-chip stocks are a higher-risk investment than U.S.Treasury securities.
A)True
B)False
Q5) Which pays more over the long run,bonds or stocks? Explain.
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Chapter 12: Money Creation and the Federal Reserve
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Sample Questions
Q1) How did the Federal Reserve System evolve in the United States?
Q2) Which of the following items is NOT one of the primary tools of the Fed?
A) reserve requirements
B) open market operations
C) tax rates
D) discount rate
Q3) The central bank of the United States is:
A) the Treasury.
B) the Congressional Budget Office.
C) the Internal Revenue Service.
D) the Federal Reserve System.
Q4) In 2007,the Fed reduced the stigma of borrowing from it by auctioning money for banks to borrow.
A)True
B)False
Q5) What is the structure of the Federal Reserve System in the United States?
Q6) What are leakages in the context of money creation? What effect do they have on the money multiplier?
Q7) Does the Fed lose the ability to help the economy when interest rates reach zero? Explain.
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Chapter 13: Monetary Policy
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Sample Questions
Q1) The Fed has been criticized for taking too long to recognize that the nation faced a financial crisis.
A)True
B)False
Q2) Use of restrictive monetary policy will increase excess reserves.
A)True
B)False
Q3) During the 2007-2008 financial crisis,both the Fed and the European Central Bank bought bad debt in order to stabilize banks.
A)True
B)False
Q4) Describe what happens when a demand shock reduces aggregate demand.What policy or policies could be enacted to counter this shock? Support your response with a graph.
Q5) In the long run,when the economy is at full employment,any change in money supply:
A) leads to a change in velocity only.
B) leads to a change in aggregate output only.
C) leads to a change in prices.
D) is brought about by a change in tax policy.
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Chapter 14: Macroeconomic Policy: Challenges in a Global Economy
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Sample Questions
Q1) Jane claims that the inflation rate next year will decrease because the Federal Reserve has announced an intention to increase the federal funds rate.Which theorist would be vindicated by this behavior?
A) Milton Friedman
B) Robert Lucas
C) John Maynard Keynes
D) Thorstein Veblen
Q2) The 2007-2009 recession was shallower than the previous two recessions,in 1990 and 2001.
A)True
B)False
Q3) Monetized debt is paid for by:
A) a decrease in the money supply.
B) an increase in U.S.Treasury securities outstanding.
C) an increase in the money supply.
D) a decrease in world demand for U.S.Treasuries.
Q4) Deflation is a problem because it requires more purchasing power to pay off debt.
A)True
B)False
Page 16
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Chapter 15: International Trade
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Sample Questions
Q1) When a tariff is imposed on a good,the price to consumers __________ and the amount imported ___________.
A) rises;rises
B) falls;falls
C) rises;falls
D) falls;rises
Q2) A government collects tax revenue when it imposes a quota.
A)True
B)False
Q3) Average tariff rates peaked in the United States:
A) during the Great Depression.
B) during World War I.
C) during World War II.
D) after the Vietnam War.
Q4) Both countries can gain from trade when each specializes in producing goods in which it has a comparative advantage.
A)True
B)False
Q5) Describe the terms of trade and how they are measured.
Q6) Explain how restricting imports will limit eventual exports.
Page 17
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Chapter 16: Open Economy Macroeconomic
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Sample Questions
Q1) If the United States spends $15 million to dig village wells in Malawi,then that $15 million is:
A) subtracted from the current account.
B) added to the current account.
C) subtracted from the capital account.
D) added to the capital account.
Q2) The capital account includes payments for imports and exports of goods and services.
A)True
B)False
Q3) If a U.S.firm borrows from an American bank and then converts that money to euros to exchange for French wine,it will be accounted for as:
A) a subtraction from the U.S.capital account.
B) an addition to the U.S.current account.
C) a subtraction from the U.S.current account.
D) an addition to the U.S.capital account.
Q4) Describe the effects of currency fluctuation on imports and exports.Give examples and draw a graph to support your discussion.
Q5) Explain why interest rate differentials sometimes persist between two countries.
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