Intermediate Macroeconomics
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Course Introduction
Intermediate Macroeconomics builds upon foundational economic principles to analyze aggregate economic activity, focusing on the behavior of output, employment, inflation, and economic growth. The course delves into theoretical models such as the IS-LM framework, the AD-AS model, and introduces open economy dynamics, exploring how monetary and fiscal policies influence macroeconomic stability. Students will also examine key issues like business cycles, unemployment, long-term growth, and the effects of globalization on national economies, developing the analytical skills necessary to interpret real-world economic events and policy debates.
Recommended Textbook Economics Today The Macro View 18th Edition by Roger
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Page 2
LeRoy Miller
Chapter 1: The Nature of Economics
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Q1) What assumption about human motivation is made in economics? Explain.
Answer: Economists assume that people act as if motivated by self-interest. People respond predictably to opportunities for gain. That is, people look out for their own self-interest and do so in a rational manner.
Q2) A good economic model
A)cannot be refuted.
B)describes the real world completely and in detail.
C)captures the essential relationships of the problem under consideration.
D)captures all relationships about the problem under consideration.
Answer: C
Q3) Microeconomics is the study of
A)the behavior of the economy as a whole.
B)how rising prices affect the level of employment in the economy.
C)how individuals and firms make decisions.
D)the effect that money has in the economic system.
Answer: C
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Chapter 2: Scarcity and the World of Trade-Offs
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Q1) Explain: "The law of increasing additional cost is an inevitable phenomenon in economics."
Answer: Economic resources are seldom suitable for all types of production. Hence, when society demands more of a particular good or service, an increase in the demand for the resources most adaptable to its production will rise; as more of the good is produced, eventually less efficient inputs will be pressed into production. It is the utilization of these less efficient inputs that gives rise to higher societal cost of production.
Q2) Using the above table but now the bakery bakes 30 pizzas and 240 loaves of bread (alternative
A)2.5 loaves of bread
B)2 loaves of bread B, moving from alternative B to alternative D, what is the opportunity cost of one pizza pie?
C)0.5 loaf of bread
D)150 loaves of bread
Answer: B
Q3) Briefly explain why people make choices.
Answer: People make choices because of scarcity. Scarcity exists because resources are insufficient to satisfy people's every desire.
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Chapter 3: Demand and Supply
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Sample Questions
Q1) The relationship between quantity supplied and the price of output is such that
A)an increase in quantity will automatically lead to a reduction in price.
B)an increase in price will lead to an increase in quantity supplied.
C)an increase in price will produce an inward shift in the supply curve.
D)quantity will decrease as the number of firms increases.
Answer: B
Q2) If goods X and Y are substitute goods, then an increase in the price of Y, other things being equal,
A)results in a decrease in the amounts of both X and Y consumed.
B)decreases the quantity demanded of Y, but has no effect on the amount of X consumed.
C)results in a decrease in the quantity of Y consumed, but increases the demand for X.
D)has no real effect on the quantity demanded of good Y, but increases the demand for X.
Answer: C
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Chapter 4: Extensions of Demand and Supply Analysis
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Sample Questions
Q1) There has recently been an increase in the price of dairy products used in the production of ice cream. High temperatures have also induced people to consume more ice cream. In the market for ice cream, the effects these changes will have on equilibrium price and quantity are
A)price will increase, and quantity will decrease.
B)price will increase, and the effect on quantity is indeterminate.
C)price will decrease, and quantity will increase.
D)price will decrease, and the effect on quantity is indeterminate.
Q2) If the demand for a product remains the same and the supply falls,
A)the market clearing price will fall and the equilibrium quantity will rise.
B)the market clearing price will rise and the equilibrium quantity will fall.
C)both the market clearing price and the equilibrium quantity will fall.
D)both the market clearing price and the equilibrium quantity will rise.
Q3) A market in which a price-controlled good is sold at an illegally high price is known as
A)a flooring market.
B)a ceiling market.
C)a black market.
D)a supermarket.
Q4) What are the terms of exchange and how are these terms related to the price?
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Chapter 5: Public Spending and Public Choice
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Q1) A price system is considered to be efficient when
A)it fails to have the goods that consumers want.
B)an underground market develops.
C)all resources are allocated to the highest-valued uses.
D)firms produce more than what consumers want.
Q2) A fundamental reason that governments provide public goods is that
A)those goods are subject to the free-rider problem.
B)negative externalities are part of the production process of those goods.
C)public goods are merit goods.
D)those goods are perfectly divisible.
Q3) Which event was most important in promoting the belief that the U.S. government should work to ensure economy-wide stability?
A)World War II
B)the Civil Rights Movement
C)the California Gold Rush
D)the Great Depression
Q4) Explain why public goods can be classified as market failure?
Explain what problem arises when public goods are produced?
Q5) According to the textbook, what are the two key political functions of government in a market economy?
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Chapter 6: Funding the Public Sector
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Q1) An example of ad valorem taxation is
A)a luxury tax.
B)the corporate profit tax.
C)the personal income tax.
D)the Social Security tax.
Q2) The marginal tax rate is
A)the sum of all individual tax rates.
B)the total taxes paid as a percentage of total income.
C)the average tax rate paid by both individuals and corporations.
D)the increase in taxes as a percentage of the increase in income.
Q3) The tax that brings in the most revenue in the United States is the
A)capital gains tax.
B)corporate income tax.
C)Social Security tax.
D)personal income tax.
Q4) The tax base is
A)the minimum amount of tax revenue that government must collect each year.
B)the maximum amount of tax revenue that government must collect each year.
C)the sum of all incomes earned in the United States.
D)the value of all goods, services, incomes, or wealth subject to taxation.
Page 8
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Chapter 7: The Macroeconomy: Unemployment, Inflation, and Deflation
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Q1) A period of time in which the overall pace of business activity is rising is known as A)inflation.
B)deflation.
C)an expansion.
D)a contraction.
Q2) Who is likely to be helped by unanticipated inflation?
A)lenders
B)borrowers
C)all consumers
D)all producers
Q3) For the CPI. the value of the index in the base year
A)always equals 100.
B)depends upon price and quantity that are constantly changing.
C)is always greater than 100.
D)depends upon what prices did the year before.
Q4) Describe the major types of unemployment.
Q5) In what ways is the consumer price index flawed?
Q6) How is inflation related to interest rates?
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Q7) How are inflation and the purchasing power of money related?
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Chapter 8: Global Economic Growth and Development
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Q1) Labor productivity increases when
A)the average number of hours people work goes up.
B)the unemployment rate decreases.
C)the average output produced per worker during a specified time period increases.
D)the average output produced per worker during a specified time period decreases.
Q2) Which of the following is an important factor affecting economic growth?
A)the rate of saving
B)exchange rates
C)the rate of interest
D)the level of prices
Q3) All of the following are factors that raise economic development EXCEPT
A)establishing a legal system.
B)an educated work force.
C)reducing trade barriers.
D)government control of the country's resources.
Q4) Why are economic growth and saving related?
Q5) Explain how the "new growth theory" treats technology differently from the way economists used to treat technology.
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Chapter 9: Real GDP and the Price Level in the Long Run
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Sample Questions
Q1) An increase in the money supply will cause which of the following to occur?
A)a rightward shift of the aggregate supply curve
B)a leftward shift of the aggregate demand curve
C)a leftward shift of the aggregate supply curve
D)a rightward shift of the aggregate demand curve
Q2) How can a country experience economic growth and stable prices?
Q3) Which of the following would cause aggregate demand to decrease?
A)The government increases taxes on both business and personal income.
B)A drop in the foreign exchange value of the dollar
C)The Fed increases the amount of money in circulation.
D)Businesses and households believe that the economy is headed for good times, so they begin to feel increased security about their jobs.
Q4) If the dollar appreciates and foreign goods become less expensive, the total planned expenditures on domestic goods and services will
A)fall due to the open economy effect.
B)fall due to the interest rate effect.
C)increase due to the open economy effect.
D)increase due to the interest rate effect.
Q5) What are three causes of supply-side inflation?
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Chapter 10: Classical and Keynesian Macro Analyses
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Q1) A temporary embargo on oil from the Middle East going in to the United States would
A)shift both the short-run and long-run aggregate supply curves to the left.
B)shift only the long-run aggregate supply curve to the left.
C)shift the long-run aggregate supply curve to the right.
D)shift only the short-run aggregate supply curve to the left.
Q2) Q: How many economists does it take to screw in a light bulb?
A: None. If the light bulb really needed changing, market forces would have already caused it to happen.
This joke represents the view of
A)classical economists.
B)Keynesian economists.
C)economists who conclude that money illusion is widespread.
D)economists who conclude that wages and prices are inflexible.
Q3) According to classical economists,
A)Say's law is not valid.
B)unemployment will not be a serious problem in a market economy.
C)wage levels are always "sticky."
D)demand stimulus is needed to produce full employment.
Q4) What is Say's law and what does it mean?
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Chapter 11: Consumption, Real GDP, and the Multiplier
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Q1) In the above figure, if real GDP is $1 trillion, there is A)dissaving.
B)positive saving.
C)negative investment.
D)negative consumption.
Q2) Refer to the above figure. Dissaving occurs,
A) only at point A.
B)to the left of point B.
C)only at point B.
D)to the right of point B.
Q3) In the Keynesian model, whenever planned saving exceeds planned investment
A)there will be unplanned inventory accumulation.
B)there will be unplanned inventory depletion.
C)real GDP will not be influenced.
D)the interest rate will remain unchanged.
Q4) Consumption expenditures include all of the following EXCEPT
A)buying a pizza.
B)going to a concert.
C)having your house cleaned by Klean Maids.
D)purchasing a share of stock.
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Chapter 12: Fiscal Policy
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Q1) How might fiscal policy be used to correct an inflationary gap?
A)The exchange rate would be adjusted to encourage imports.
B)The exchange rate would be adjusted to discourage imports.
C)The interest rate would be adjusted to encourage saving.
D)Taxes would be increased to reduce aggregate demand.
Q2) Which of the following would shift the aggregate demand curve to the right?
A)an increase in government spending
B)an increase in taxes
C)an increase in interest rates
D)an increase in input prices
Q3) Because of crowding out
A)expansionary fiscal policy during a recession must involve a tax increase.
B)expansionary fiscal policy during a recession is reinforced by private investment spending.
C)the effect of expansionary fiscal policy is partially offset by the decline in investment spending caused by higher interest rates.
D)expansionary fiscal policy is completely achieved even with a decline in investment spending.
Q4) Explain the Ricardian equivalence theorem.
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Chapter 13: Deficit Spending and the Public Debt
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Q1) In the long run, higher government budget deficits will
A)lead to a redistribution of real GDP from privately produced goods and services to government produced goods and services.
B)lead to a redistribution of real GDP from government produced goods and services to privately produced goods and services.
C)cause the price level to go down on government goods but not on private goods.
D)lead to a reduction in the amount of goods and services produced by the government and private sector.
Q2) Explain how deficit spending could be a burden to future generations.
Q3) Government spending that changes automatically without action by Congress is
A)a noncontrollable expenditure.
B)national defense.
C)payments to contractors for routing services performed.
D)discretionary payments.
Q4) Stocks change ________ whereas flows relate to ________.
A)within a given period of time; changes between points in time
B)only at the end of each year; amounts at a given point in time
C)between points in time; changes within a given time period
D)and that causes flows to change; changes that have no impact on stocks
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Chapter 14: Money Banking and Central Banking
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Q1) The liquidity of money refers to
A)the amount of gold it is backed by.
B)the standard of deferred payments and how quickly those payments can be made.
C)how quickly it can be disposed of without high transaction costs.
D)asymmetric information.
Q2) Which of the following statements does NOT describe a function of money?
A)a store of value
B)a hedge against inflation
C)a standard of deferred payment
D)a unit of accounting
Q3) A system in which depository institutions hold reserves that are less than the amount of total deposits is called
A)fiat money banking.
B)fractional reserve banking.
C)central banking system.
D)required reserve banking.
Q4) What is a fiduciary monetary system?
Q5) Why is money as a medium of exchange important in an economy?
Q6) In the United States, who determines monetary policy? What is the major tool used to determine monetary policy?
Page 16
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Chapter 15: Domestic and International Dimensions of Monetary Policy
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Q1) Refer to the above figure. Which panels could represent the situation if the Fed had engaged in open market operations?
A)Panels A and B
B)Panels A and C
C)Panels B and C
D)Panels C and D
Q2) The transactions demand for money is the demand to hold money to
A)make regular, expected purchases.
B)meet unplanned expenditures.
C)store one's wealth.
D)purchase bonds when interest rates increase.
Q3) The Taylor rule implies that the Fed should set the federal funds target based on which of the following?
A)an estimated long-run real interest rate
B)the current deviation of the actual inflation rate from the Fed's inflation objective
C)the proportionate gap between actual real GDP and a measure of potential real GDP
D)all of the above
Q4) What are three reasons people want to hold money balances?
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Chapter 16: Stabilization in an Integrated World Economy
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Q1) The rational expectations hypothesis is based on all the following assumptions EXCEPT
A)use of judgment about effects of future policy actions.
B)use of knowledge of effects of past policy actions.
C)understanding of how the economy operates.
D)understanding that prices are sticky.
Q2) An unexpected increase in aggregate demand
A)causes the price level to fall and the unemployment rate to rise.
B)causes the price level to fall and the unemployment rate to fall.
C)causes the price level to rise and the unemployment rate to rise.
D)causes the price level to rise and the unemployment rate to fall.
Q3) Unemployment that deviates from the natural rate of unemployment is referred to as
A)frictional unemployment.
B)cyclical unemployment.
C)seasonal unemployment.
D)structural unemployment.
Q4) Describe and explain the policy irrelevance proposition.
Q5) What is the Phillips curve?
What does the Phillips curve suggest about optimal policy?
Page 18
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Chapter 17: Policies and Prospects for Global Economic Growth
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Q1) Why are international investors who have invested in developing nations favoring foreign direct investment and portfolio investment over loans?
A)The process of making loans is usually more difficult for investors to do than foreign direct and portfolio investment.
B)The interest rate charged on the loans is usually lower than what can be earned in the U.S.
C)It is illegal for banks to make loans to foreign firms.
D)Investors have an aversion to owning dead capital and want to make sure that the resources they own do not become dead capital.
Q2) A rapid withdrawal of foreign investments and loans from a nation is
A)dead capital.
B)an international financial crisis.
C)foreign direct capital.
D)portfolio investment.
Q3) What is the mission of the World Bank?
Q4) Discuss why the World Bank has been criticized for making loans to nations that can attract private funds.
Q5) Define what dead capital is and why economists are concerned with its existence.
Page 19
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Chapter 18: Comparative Advantage and the Open Economy
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Q1) Given two economic systems, A and B, if economy A has a comparative advantage in the production of widgets, then
A)the inputs necessary to produce widgets in economy A cost less than in economy B.
B)economy A must give up less of all other goods to produce widgets than economy B.
C)economy A is less efficient in the production of some goods than economy B.
D)economy A would not benefit from the specialization of production.
Q2) Benefits of free trade include all of the following EXCEPT
A)increased world production.
B)higher standards of living.
C)transmission of new ideas.
D)increased international mobility of labor.
Q3) A government-imposed restriction on the quantity of a good that can be imported is A)an embargo.
B)a protective tariff.
C)a quota.
D)a health restriction.
Q4) What is GATT and what happened to tariff rates as a result of GATT?
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Chapter 19: Exchange Rates and the Balance of Payments
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Q1) An increase in a country's rate of inflation is apt to A)reduce its imports and improve its trade balance.
B)lower its nominal rate of interest and encourage an inflow of capital.
C)worsen its balance of trade and balance of payments.
D)decrease demand for the country's currency.
Q2) Any transaction that leads to a payment by a country's residents or government is a(n)
A)debt.
B)asset.
C)deficit item.
D)surplus item.
Q3) In the balance of payments, all of the following are deficit items EXCEPT A)imports of merchandise.
B)funds placed in foreign depository institutions.
C)sales of dollars to foreigners.
D)tourism expenditures abroad.
Q4) What brought about the end of the Bretton Woods Agreement?
Q5) "When the balance of payments sums to zero is the only situation in which there is an equilibrium." Do you agree or disagree? Why?
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