Intermediate Macroeconomics
Study Guide Questions
Course Introduction
Intermediate Macroeconomics builds upon basic economic principles to provide a deeper understanding of the factors that influence national income, employment, inflation, and economic growth. This course explores key models that explain short- and long-run fluctuations in the economy, including the IS-LM model, the Aggregate Demand-Aggregate Supply (AD-AS) framework, and the Solow Growth Model. Students will analyze the effects of fiscal and monetary policy, study the role of expectations in shaping economic outcomes, and examine open economy macroeconomics. Through theoretical analysis and real-world applications, the course equips students with tools to critically evaluate macroeconomic issues and policy debates.
Recommended Textbook
Macroeconomics A Contemporary Introduction 9th Edition by William A. McEachern
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3954 Verified Questions
3954 Flashcards
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Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) Economists believe that
A)people who choose to promote the interests of others cannot be acting rationally in their own self-interest
B)people show concern only for those whom they know personally
C)charitable donations would disappear if tax deductions for charitable giving were eliminated
D)the notion of self-interest rules out concern for others
E)concern for the welfare of others is consistent with the concept of self-interest
Answer: E
Q2) Scarcity
A)exists because people have wants that are unlimited relative to the availability of resources to satisfy those wants
B)applies when a resource is not freely available
C)means that each society and each individual must make choices
D)exists in all societies
E)all of the above are true
Answer: E
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Chapter 2: Economic Tools and Economics Systems
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Sample Questions
Q1) On a straight-line production possibilities frontier, which of the following is true?
A)The problem of scarcity does not exist.
B)Resources are imperfect substitutes.
C)Opportunity costs are constant.
D)Technology is rapidly expanding.
E)Some resources are not being used efficiently.
Answer: C
Q2) Society's production possibilities frontier
A)helps explain the immense complexity of the real economy
B)demonstrates that, although resources are scarce for individuals, there is no problem of scarcity for society as a whole
C)is based on unrealistic assumptions and therefore has no value as an economic tool
D)is based on simplifying assumptions, but is still useful for illustrating scarcity, opportunity cost, and economic growth
E)is based on the assumption that technology is constantly changing
Answer: D
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4
Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Sole proprietorships produce more goods and services than does any other form of business organization.
A)True
B)False
Answer: False
Q2) You are more likely to hire a plumber to repair a leaky drain pipe
A)as the tax rate on your earned income rises
B)if you already own the specialized tools required to complete the plumbing repair work
C)following an increase in the opportunity cost of your time
D)the more knowledge and experience in plumbing repair work that you possess
E)as the transaction cost of entering into a plumbing contract increases due to government regulations
Answer: C
Q3) In recent years defense expenditures has fallen as a share of federal government outlays.
A)True
B)False
Answer: True
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5
Chapter 4: Demand Supply and Markets
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Sample Questions
Q1) If the demand for bicycles increases,
A)the quantity demanded decreases
B)equilibrium price increases and equilibrium quantity decreases
C)equilibrium price decreases and equilibrium quantity increases
D)quantity supplied increases
E)quantity supplied decreases
Q2) The most important characteristic of the equilibrium price is that it
A)guarantees that producers earn profit
B)clears the market, leaving neither a surplus nor a shortage
C)maximizes the quantity demanded
D)minimizes the quantity demanded
E)guarantees that all buyers who desire the product will get it
Q3) A surplus of shoes will cause
A)a decrease in the supply of shoes
B)a decrease in the demand for shoes
C)both a decrease in the supply of shoes and an increase in the demand for shoes
D)a decrease in the price of shoes, through a shift of either the supply curve or the demand curve
E)a decrease in the price of shoes
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Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) Which of the following events did not occur in the 1970s?
A)the U.S. inflation rate soared above 5 percent annually
B)crop failures in major grain-producing countries
C)substantial oil price increases
D)growing confidence that Keynesian policies could stabilize the economy
E)stagflation
Q2) If business leaders become optimistic about future sales and profits, they will __________ spending on plant and equipment, which __________ employment and income and, therefore, their expectations are __________.
A)increase; increases; fulfilled
B)increase; increases; not met
C)increase; decreases; fulfilled
D)decrease; decreases; fulfilled
E)decrease; increases; not met
Q3) Refer to Exhibit 5-2. Which line or point represents the price level?
A)line a
B)line b
C)line c
D)line d
E)point e
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Chapter 6: Tracking the Us Economy
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Sample Questions
Q1) Which of the following would increase GDP?
A)More people walk to work rather than drive cars.
B)Consumers in rural areas switch from buying home heating oil to burning wood they collect on their own land.
C)Farm families grow more for themselves than for the market.
D)Neither the price nor the quantity of television sets changes, but the quality of sets improves.
E)The amount spent on vacuum cleaners does not change, but quality decreases so much that more is spent on their repair.
Q2) Which of the following would not increase U.S. GDP?
A)increased demand in Costa Rica for California-made personal computers
B)increased demand in Alabama for California-made personal computers
C)increased production of computers in California, but no increase in the number sold
D)increased shipments of computers from the U.S. to Canada
E)increased shipments of Ghanian cocoa to the United States on Greek vessels
Q3) Nominal GDP is a better measure of the growth in production than real GDP is.
A)True
B)False
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Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) Inflation
A)always reduces real income
B)never reduces real income
C)reduces the real income of workers when wages increase more than prices do
D)reduces the real income of workers when wages increase less than prices do
E)increases the real income of workers only when wages increase less than prices do
Q2) If people suddenly become more willing to lend money, what happens to the equilibrium rate of interest?
A)An increase in demand for loanable funds will increase the interest rate.
B)An increase in the supply of loanable funds will increase the interest rate.
C)An increase in the supply of loanable funds will decrease the interest rate.
D)An increase in demand for loanable funds will decrease the interest rate.
E)A simultaneous increase in both the supply of and demand for loanable funds makes it impossible to predict what will happen to the rate of interest.
Q3) The unemployment rate for blacks in the United States is higher than that for whites.
A)True
B)False
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Chapter 8: Productivity and Growth
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Sample Questions
Q1) The term industrial policy refers to
A)the policy industries develop to promote growth
B)industry policy related to marketing strategies
C)the illegal activity that firms sometimes engage in to reduce competition
D)government policy arrived at enhancing our competitiveness with foreign industry
Q2) One impediment to the convergence of world economies is the vast differences in human capital.
A)True
B)False
Q3) The shape of the per-worker production function in Exhibit 8-1 illustrates the law of increasing marginal returns to capital.
A)True
B)False
Q4) The process of adding more capital per worker is known as "capital deepening."
A)True
B)False
Q5) Per capita GDP in the United States has declined since 1950.
A)True
B)False
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Chapter 9: Aggregate Expenditure
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Sample Questions
Q1) Which of the following is true of the relationship between disposable income and consumption?
A)Disposable income and consumption are both dependent variables.
B)Disposable income and consumption are both independent variables.
C)Disposable income is the dependent variable and consumption is the independent variable.
D)Consumption is the dependent variable and disposable income is the independent variable.
E)Neither is dependent nor independent since they are related by the equation DI = C + S.
Q2) Which is true of disposable income?
A)it excludes transfer payments
B)the portion of income is used solely for consumption
C)it is that part of aggregate income that is taken in taxes by government
D)all of disposable income contributes directly to aggregate expenditure
E)disposable income equals consumption expenditures plus saving
Q3) A decline in the interest rate, other things constant, shifts the investment function downward.
A)True
B)False
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Chapter 10: Aggregate Expenditure and Aggregate Demand
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Sample Questions
Q1) In the income-expenditure framework, if planned aggregate expenditures are less than real GDP,
A)then saving must be larger than consumption
B)the price level will increase
C)inventories will increase
D)inventories will decrease
E)consumption will decrease
Q2) If investment increases by $100 and, as a result, GDP ultimately increases by $200, the multiplier equals
A)1
Q3) In Exhibit 10-1, the marginal propensity to consume equals
A)5/6
B)4/5
C)3/4
D)1/2
E)2/3
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Chapter 11: Aggregate Supply
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Sample Questions
Q1) As a contractionary gap is closed in the long run,
A)the inflation rate increases and unemployment decreases
B)output increases and the price level decreases
C)both output and the price level increase
D)both output and the price level decrease
E)the inflation rate decreases and unemployment increases
Q2) An expansionary gap is equal to
A)real GDP minus nominal GDP
B)nominal GDP minus real GDP
C)actual short-run output minus potential output
D)this period's nominal GDP minus last period's nominal GDP
E)this period's real GDP minus last period's real GDP
Q3) The capital stock increases
A)whenever money in circulation is decreased
B)whenever gross investment is positive
C)whenever gross investment is negative
D)only if net investment is positive
E)whenever gross investment is zero
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Chapter 12: Fiscal Policy
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Sample Questions
Q1) If fiscal policy is used to close an expansionary gap, the
A)SRAS curve shifts leftward and the price level falls
B)SRAS curve shifts rightward and the price level increases
C)SRAS curve shifts rightward and the price level falls
D)AD curve shifts leftward and the price level decreases
E)AD curve shifts rightward and the price level decreases
Q2) Discretionary fiscal policy is an extremely precise tool of macroeconomic stabilization.
A)True
B)False
Q3) Which of the following does not limit the effectiveness of discretionary fiscal policy?
A)the difficulty of estimating the natural rate of unemployment
B)time lags involved in enacting appropriate legislation
C)the difficulty of getting an accurate measure of the rate of inflation
D)time lags involved in recognizing the need for fiscal policy
E)the tendency for people to distinguish between temporary and permanent changes in their income
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14
Chapter 13: Federal Budgets and Public Policy
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Sample Questions
Q1) The U.S. government's fiscal year covers from
A)January through December
B)April of one year through March of the next year
C)June of one year through May of the next year
D)September of one year through August of the next year
E)October of one year through September of the next year
Q2) In the United States since the Great Depression, the federal government has
A)run budget deficits only in periods of recession
B)run a budget deficit in almost every year
C)practiced a policy of annually balancing the budget
D)run budget deficits only in wartime
E)run a surplus in most years
Q3) The federal government spends more for national defense than for anything else. A)True
B)False
Q4) Government purchases of goods and services are not included in the government budget deficit but are included in the government purchases component of GDP.
A)True
B)False
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Chapter 14: Money and the Financial System
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Sample Questions
Q1) As the number of goods and services increases, barter becomes
A)easier because the chance of there being a double coincidence of wants increases
B)harder because the chance of there being a double coincidence of wants increases
C)easier because the chance of there being a double coincidence of wants decreases
D)harder because the chance of there being a double coincidence of wants decreases
E)easier because people have more choice
Q2) Some financial institutions are classified as depository institutions based on A)the way they acquire funds
B)the number of customers they have
C)the number of loans they make
D)the size of the loans they make
E)the amount of reserves they hold
Q3) Banks earn a profit by making loans.
A)True
B)False
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Chapter 15: Banking and the Money Supply
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Sample Questions
Q1) The chance of encountering fake U.S. currency abroad is only about
A)1 in 10
B)1 in 100
C)1 in 1,000
D)1 in 10,000
E)1 in 1,000,000
Q2) Which of the following is not legal tender in the United States?
A)a $2 bill
B)a fifty-cent piece
C)a $100 bill
D)a $5 Federal Reserve Note
E)a check
Q3) On a bank's balance sheet,
A)assets are always less than liabilities
B)assets equal liabilities plus net worth
C)assets equal liabilities minus net worth
D)liabilities equal assets plus net worth
E)assets are always larger than liabilities plus net worth
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17
Chapter 25: The Algebra of Income and Expenditure
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Sample Questions
Q1) If Y = C + I + G + (X - M) and Y = $190, C = $100, I = $50 and G = $50 then, in equilibrium, X - M must equal
A)-$20
B)-$10
C)$10
D)$20
E)$50
Q2) In the consumption function: C = a + b(Y - NT), the term b represents the A)intercept of the consumption function
B)level of taxation
C)level of net taxation
D)level of income
E)marginal propensity to consume
Q3) If the marginal propensity to import increases, the spending multiplier increases. A)True
B)False
Q4) Investment is the only autonomous spending component in aggregate expenditure.
A)True
B)False
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Chapter 16: Monetary Theory and Policy
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Sample Questions
Q1) International evidence indicates that
A)money supply growth and inflation are positively related only in countries suffering from hyperinflation
B)money supply growth and inflation are inversely related only in countries suffering from hyperinflation
C)there is a positive relationship between money supply growth rates and inflation rates
D)there is a negative relationship between money supply growth rates and inflation rates
E)money supply growth and inflation are related only in countries that are not suffering from hyperinflation
Q2) The equation of exchange is
A)quantity supplied equals quantity demanded
B)quantity bought equals quantity sold
C)M * V = P * Y
D)C* I + G = Y
E)input equals output
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19
Chapter 17: Macro Policy Debate: Active or Passive
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Sample Questions
Q1) One often-cited rationale for a fixed-growth-rate monetary policy is that
A)it is too expensive to pay a staff to continually make adjustments in policy
B)although it's possible to determine what's happening in the economy, it's not possible to determine what to do about it
C)it is not possible to determine with any certainty what's happening in the economy, so it's easy to make a mistake with active policy
D)we know that the economy is increasing at a fixed rate year after year, so a fixed rate of growth in the money supply is justified
E)then the Federal Reserve would be superfluous and we could eliminate one large bureaucracy
Q2) One of the reasons fiscal and monetary policy can stimulate output and employment in the short run is that nominal wages increase faster than the price level.
A)True B)False
Q3) An economy that self-corrects an expansionary gap will experience stagflation. A)True B)False
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Page 20
Chapter 26: The Algebra of Demand-Side Equilibrium
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Sample Questions
Q1) If the MPC equals the 2/3, then the net tax multiplier equals A)-2
B)-1/2
C)-3
D)-2/3
E)-1/3
Q2) The balanced budget multiplier is always negative.
A)True
B)False
Q3) If the MPC is equal to .75 and net taxes, government spending, investment and net exports are all autonomous, then the net tax multiplier is equal to:
A)0
B)-1
C)-2
D)-3
E)-4
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21
Chapter 18: International Trade
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Sample Questions
Q1) A tariff is
A)a tax on financial transactions
B)a tax on either imports or exports
C)the result of a treaty
D)a penalty imposed on importers of capital
E)an agreement between countries to limit trade
Q2) Which pair of groups benefits from an import quota when quota rights are given away without charge?
A)domestic and foreign producers
B)domestic producers and foreign consumers
C)domestic government and foreign consumers
D)domestic government and producers
E)foreign consumers and producers
Q3) International trade equalizes the opportunity cost of producing any good around the world.
A)True
B)False
Q4) Japan is generally considered an economy closed to foreign trade.
A)True
B)False
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Chapter 19: International Finance
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Sample Questions
Q1) When the international financial system operated under the gold standard,
A)the currencies of most countries were convertible into gold
B)all international transactions were financed with gold
C)the price of gold was determined by the supply and demand for foreign exchange
D)the quantity of money demanded was always the same
E)there was very little inflation
Q2) Under a flexible exchange rate system, which one of the following would not directly affect the exchange rate?
A)a change in income
B)the relative inflation rates in two countries
C)the salary of the president of the United States
D)a change in capital flows
E)a change in the level of exports or imports
Q3) If interest rates fall in country A, other things constant,
A)demand for that country's currency will fall and the currency will depreciate
B)demand for that country's currency will fall and the currency will appreciate
C)demand for that country's currency will rise and the currency will depreciate
D)demand for that country's currency will rise and the currency will appreciate
E)people in country B will pull money out of country A
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Page 23
Chapter 20: Economic Development
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Sample Questions
Q1) If the country of Zorg has a birth rate of greater than 2.2 births per woman, it is likely that Zorg is an industrial market country.
A)True
B)False
Q2) Which of the following is not a country that has more people over the age of 65 than under the age of 15?
A)Italy
B)Japan
C)Burundi
D)Germany
E)Portugal
Q3) Using the intensity of night lights J. Vernon Henderson and his colleagues found that which of the following countries might be experiencing more growth than economic data reveal.
A)Myanmar
B)Poland
C)Hungary
D)Congo
E)Ukraine
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Page 24
Chapter 21: National Income Accounts
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Sample Questions
Q1) In Exhibit 6-5, Gross private domestic investment is equal to
A)$30 billion
B)$40 billion
C)$60 billion
D)$70 billion
E)$80 billion
Q2) Disposable income is commonly referred to as take home pay.
A)True
B)False
Q3) What accounts for the difference between GDP and NDP?
A)inventory changes
B)depreciation
C)undistributed corporate profits
D)transfer payments
E)business taxes
Q4) In Exhibit 6-4, National Income equals
A)$375 billion
B)$420 billion
C)$365 billion
D)$385 billion
Page 25
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Chapter 22:Understanding Graphs
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Sample Questions
Q1) The slope of a U-shaped curve is infinity at the bottom of the U.
A)True
B)False
Q2) In Exhibit 1-1, point c represents
A)x = 30, y = 60
B)x = 60, y = 30
C)c = 90
D)x + y = 60
E)x + y = 30
Q3) The slope of a steep upward-sloping line is a smaller value than the slope of a nearly flat upward-sloping line.
A)True
B)False
Q4) The slope of a line
A)can only be calculated for straight lines
B)varies at different points along a straight line
C)indicates whether or not there is a causal relationship between variables
D)is independent of the units of measurement used
E)indicates how much the vertical variable changes for a given change in the horizontal variable
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Chapter 23:Variable Net Exports
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Sample Questions
Q1) An increase in U.S. consumers' incomes will decrease U.S. exports.
A)True
B)False
Q2) As U.S. income rises, U.S. imports will rise.
A)True
B)False
Q3) An increase in the value of the U.S. dollar relative to other currencies will increase U.S. imports.
A)True
B)False
Q4) If imports increase as disposable income increases, economic growth will __________ net exports and contribute to a trade __________.
A)increase; deficit
B)increase; surplus
C)decrease; deficit
D)decrease; surplus
E)not affect; balance
Q5) U.S. economic growth does not contribute to a U.S. trade deficit.
A)True
B)False
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Chapter 24: Variable Net Exports Revisited
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Sample Questions
Q1) When variable net exports are added to the aggregate expenditure line, the resulting planned aggregate expenditure line becomes
A)steeper because net exports increase as real domestic income increases
B)flatter because net exports increase as real domestic income increases
C)steeper because net exports decrease as real domestic income increases
D)flatter because net exports decrease as real domestic income increases
E)flatter because imports decrease as real domestic income increases
Q2) What is the impact of net exports on the aggregate expenditure line?
A)They cause the line to shift upward in a parallel fashion.
B)They cause the line to shift downward in a parallel fashion.
C)They make the line steeper.
D)They make the line flatter.
E)They make the slope of the line equal 1.
Q3) When variable net exports are included in aggregate expenditures, the two leakages from the circular flow are
A)exports and saving
B)exports and consumption
C)exports and investment
D)imports and saving
E)imports and investment
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