Intermediate Macroeconomics
Study Guide Questions
Course Introduction
Intermediate Macroeconomics builds on foundational principles to provide a deeper understanding of the determinants of national income, economic growth, unemployment, and inflation. The course explores key theoretical models, such as the IS-LM framework, AD-AS model, and theories of consumption and investment, while analyzing the role of fiscal and monetary policy in macroeconomic stabilization. Emphasis is placed on both short-run economic fluctuations and long-run growth, with real-world applications and empirical analysis to help students critically assess policy debates and macroeconomic trends in contemporary economies.
Recommended Textbook Macroeconomics 12th Edition by Roger
A. Arnold
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26 Chapters
3323 Verified Questions
3323 Flashcards
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Page 2
Chapter 1: What Economics Is About
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Sample Questions
Q1) Elite colleges and universities use standardized test scores (such as SAT and ACT scores)and high school grades as
A)a means to raise student utility.
B)a means to turn a university education from a "good" to a "bad."
C)rationing devices.
D)none of the above
Answer: C
Q2) According to economists,money is a resource.
A)True
B)False
Answer: False
Q3) Which of the following statements uses the term ceteris paribus correctly?
A)In economics,there are numerous theories,ceteris paribus.
B)New York City is a major American city,ceteris paribus.
C)The price of pineapples is low in Hawaii,ceteris paribus.
D)The more ice cream you eat,the more weight you will gain,ceteris paribus.
E)none of the above
Answer: D
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Chapter 2: Production Possibilities Frontier Framework
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Sample Questions
Q1) Refer to Exhibit 2-6.Which graph depicts society's choice to produce more of good X and less of good Y?
A)(1)
B)(2)
C)(3)
D)(4)
E)none of the above
Answer: E
Q2) A PPF is more likely to be a downward-sloping curve that is bowed outward than a downward-sloping straight line because most resources are A)better suited for the production of some goods than others.
B)used efficiently.
C)relatively cheap at low levels of output.
D)used to produce consumption goods.
Answer: A
Q3) A decrease in unemployment causes the PPF to shift outward (to the right).
A)True
B)False
Answer: False
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Page 4
Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) In moving along a demand curve for good X,which of the following is NOT held constant?
A)the prices of substitute goods for good X
B)the prices of complementary goods for good X
C)incomes of consumers of good X
D)the price of good X
Answer: D
Q2) In the supply-and-demand diagram of the market for peanut butter,the equilibrium point has moved up and to the right.What could have caused this?
A)a fall in the price of peanuts
B)a rise in the price of peanuts
C)a rise in income,assuming that peanut butter is an inferior good
D)a shift in preferences toward peanut butter
E)none of the above
Answer: D
Q3) When the price of Toyota Corollas rises,ceteris paribus,the demand for Corollas falls.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Prices: Free, controlled, and Relative
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Sample Questions
Q1) If the relative price of one unit of good X is 5 units of good Y,then it follows that the absolute price of good X can be __________ and the absolute price of good Y can be
A)$20,000;$10,000
B)$40,000;$8,000
C)$30,000;$5,0000
D)$5,000;$40,000
E)a and c
Q2) It is possible for the absolute price of a good to rise at the same time that the good's relative price is falling.
A)True
B)False
Q3) Refer to Exhibit 4-8.Suppose that wheat producers lobby the government for a price floor and receive one.This price floor is set at P<sub>F</sub>.What is the change in the total surplus at the price floor,compared to at the equilibrium price?
A)There was a gain in total surplus equal to (area 1 + 2 + 3)
B)There was a gain in total surplus equal to (area 1 + 2 + 3 + 4 + 5)
C)There was a loss in total surplus equal to (area 4 + 5)
D)There was a loss in total surplus equal to (area 4 + 5 + 6 )
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Page 6
Chapter 5: Supply,demand,and Price: Applications
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Q1) When the government enacts policies that lead to lower mortgage lending standards and lower interest rates,their actions can indirectly lead to higher home prices.
A)True
B)False
Q2) The space on the freeway is fixed at any instant of time.A supply curve that shows this is
A)perfectly horizontal.
B)upward sloping.
C)downward sloping.
D)perfectly vertical.
Q3) If more people join carpools and travel to work together
A)the demand curve for freeway space shifts leftward.
B)the supply curve for freeway space shifts rightward.
C)the supply curve for freeway space shifts leftward.
D)a and b
E)none of the above
Q4) Explain in detail how the legalization of marijuana would be expected to impact the supply,demand,equilibrium price and quantity for marijuana.
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Chapter 6: Macroeconomic Measurements, part I: Prices and Unemployment
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Sample Questions
Q1) If the CPI is 220 and nominal income is $37,000,approximately what does real income equal?
A)$81,400
B)$16,818
C)$76,500
D)$44,118
Q2) Suppose that 1983 is the base year for the Consumer Price Index (CPI)and in 2015 the CPI was 226.What does this "226" mean?
A)What cost $100 in 1983 on average cost 226 times as much in 2015.
B)What cost $100 in 1983 on average cost $226 more in 2015.
C)What cost $100 in 1983 on average cost 100/226 (or 0.44)times as much in 2015 (that is,it will cost $22 in 2015).
D)What cost $100 in 1983 on average cost $126 more in 2015.
Q3) A worker is underemployed if she is working at a job for which her skills far exceed the requirements for the job.
A)True
B)False
Q4) Describe what the term "full employment" means to an economist.
Page 8
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Sample Questions
Q1) Investment equals inventory investment added to
A)business purchases of new capital goods.
B)purchases of new residential housing.
C)fixed investment.
D)business purchases of new capital goods and purchases of new residential housing.
E)either c or d
Q2) You have data for compensation of employees,proprietors' income,rental income,and net interest.Can you compute national income?
A)Yes,all of the components of national income are given.
B)No,since data on indirect business taxes are missing.
C)No,since data on corporate profits is missing.
D)No,since data on the capital consumption allowance is missing.
E)No,since net interest has not been adjusted for profits.
Q3) Corporate profits is the largest category of national income.
A)True
B)False
Q4) Disposable income equals national income minus personal taxes.
A)True
B)False
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Chapter 8: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) A short-run aggregate supply curve shows the A)amount of a particular good producers are willing and able to buy at a particular price,ceteris paribus.
B)real output (Real GDP)producers are willing and able to sell at different price levels,ceteris paribus.
C)real output (Real GDP)people are willing and able to buy and to sell at different price levels,ceteris paribus.
D)real output (Real GDP)people are willing and able to buy at different price levels,ceteris paribus.
Q2) A falling interest rate affects the demand for consumer __________ and shifts the AD curve to the __________.
A)nondurables;right
B)nondurables;left
C)durables;right
D)durables;left
Q3) As interest rates drop,households tend to borrow more and businesses tend to borrow less.
A)True
B)False
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Page 10
Chapter 9: Classical Macroeconomics and the
Self-Regulating
Economy
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Sample Questions
Q1) If Real GDP is greater than Natural Real GDP,the economy is in a(n)
A)frictional gap.
B)structural gap.
C)recessionary gap.
D)inflationary gap.
Q2) Suppose the economy's short-run equilibrium level is at a point to the left of Natural Real GDP.Which of the following statements is true?
A)The economy is in an inflationary gap.
B)The economy is in a recessionary gap.
C)The economy is in long-run equilibrium.
D)This situation is actually impossible.
Q3) In order for Say's law to hold in a money economy,
A)there must be more than four goods.
B)funds saved must give rise to an equal amount of funds earned.
C)funds saved must give rise to an equal amount of funds invested.
D)none of the above
Q4) If the economy is self-regulating,explain the correct sequence of events that occurs once the economy is in a recessionary gap to move the economy to long-run equilibrium.
Q5) Explain the policy implications of the classical economists' beliefs.
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Chapter 10: Keynesian Macroeconomics and Economic
Instability: a Critique of the Self-Regulating Economy
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Sample Questions
Q1) When the MPC = 0.80,the multiplier is A)5.00.
B)0.25.
C)4.00.
D)7.50.
Q2) When total production is greater than total expenditures, A)the economy is in disequilibrium.
B)there are increases in inventory.
C)total output will decrease.
D)all of the above
Q3) If consumption is $1,230 when disposable income is $1,420,and consumption is $1,400 when disposable income is $1,620,then the marginal propensity to consume (MPC)is A)1.15.
B)0.15.
C)6.67.
D)0.85.
Q4) What type of relationship exists between the marginal propensity to consume (MPC)and the multiplier? Explain why this relationship exists,giving a hypothetical numerical example to help support your answer.
Page 12
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Chapter 11: Fiscal Policy and the Federal Budget
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Sample Questions
Q1) Suppose the economy is at a point below its physical production possibilities frontier but above its institutional production possibilities frontier.In response to this situation,Keynesian economists may propose that government enact __________ fiscal policy to correct this __________ gap by __________ government expenditures.
A)expansionary;inflationary;increasing B)contractionary;inflationary;decreasing C)expansionary;recessionary;increasing D)contractionary;recessionary;decreasing E)contractionary;inflationary;increasing
Q2) Suppose government spending rises by $120 billion.It follows that if private expenditures
A)rise by $120 billion,complete crowding out exists.
B)fall by $100 billion,incomplete crowding out exists.
C)remain unchanged,complete crowding out exists.
D)rise by more than $120 billion,complete crowding out exists. E)b and c
Q3) Describe the fiscal policy remedies that a Keynesian economist might prescribe to close a recessionary gap.How might the issue of crowding out impact the effectiveness of these policies?
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Chapter 12: Money,banking,and the Financial System
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Sample Questions
Q1) Which of the following is not included in M1?
A)retail money market mutual funds
B)checkable deposits
C)traveler's checks
D)all of the above
Q2) The potential buyer of a house has less information about the house than the seller of the house.This is a case of
A)externality information.
B)free ridership.
C)asymmetric information.
D)biased information.
E)a public good not being a private good.
Q3) According to the textbook,in the book version of The Wonderful Wizard of Oz,Dorothy's slippers are
A)gold.
B)silver.
C)ruby.
D)paper.
Q4) Describe the differences between M1 and M2.
Q5) List and describe the three functions of money.
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Chapter 13: The Federal Reserve System
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Sample Questions
Q1) What is the name and make-up of the policymaking group that has the authority to conduct open market operations? Describe how the use of open market operations helps to increase or decrease the money supply.
Q2) When the Fed sells government securities to a bank,the securities will be A)an asset for the bank. B)a liability for the bank.
C)both an asset and a liability for the bank.
D)neither an asset nor a liability for the bank.
Q3) If reserves increase by $4 million and the required reserve ratio is 8%,what is the resulting change in checkable deposits (or the money supply),assuming that there are no cash leakages and that banks hold zero excess reserves?
A)$3.2 million
B)$3.7 million
C)$5 million
D)$50 million
Q4) List and describe five of the eight major functions or responsibilities of the Fed.
Q5) Summarize the history of how the Federal Reserve came to have twelve districts.
Q6) Explain the major differences between the Federal Reserve and the U.S.Treasury.
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Chapter 14: Money and the Economy
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Sample Questions
Q1) Describe the difference between the simple quantity theory of money and the equation of exchange.
Q2) If Real GDP is $8,000,the money supply is $4,000,and the price level is 3,then velocity is
A)2.00.
B)3.33.
C)6.00.
D)7.50.
E)none of the above
Q3) According to the simple quantity theory of money in the AD-AS framework,when the money supply increases,the result is __________ in Real GDP and __________ in the price level.
A)no change;no change
B)a rise;no change
C)no change;a rise
D)a rise;a fall
E)a fall;a rise
Q4) Explain in detail how the California gold rush contributed to rising prices in the early 1850's.
Q5) Describe the expectations (or Fisher)effect.
Page 16
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Chapter 15: Monetary Policy
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Sample Questions
Q1) According to the monetarist transmission mechanism,a decrease in the supply of money will result in
A)individuals initially holding excess bonds.
B)individuals initially holding excess money.
C)a leftward shift in the aggregate demand curve.
D)a and c
Q2) Monetary policy refers to
A)actions taken by banks and other financial institutions regarding their approaches to lending,account management,etc.
B)changes in the money supply to achieve particular economic goals.
C)changes in government expenditures and taxation to achieve particular economic goals.
D)the change in private expenditures that occurs as a consequence of changes in the money supply.
Q3) The quantity demanded of money decreases as the supply of money increases.
A)True
B)False
Q4) Describe the monetary policy known as inflation targeting.What are the three major issues that surround this practice?
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Chapter 16: Expectations Theory and the Economy
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Q1) According to real business cycle theorists,if the long-run aggregate supply (LRAS)curve shifts to the left,Real GDP __________,the price level __________,the demand for labor __________,money wages __________,real wages __________,and workers choose to work __________.
A)falls;falls;rises;fall;fall;less B)falls;rises;rises;fall;rise;more C)falls;rises;falls;fall;fall;less D)rises;rises;falls;fall;rise;more E)rises;falls;rises;fall;fall;more
Q2) Suppose that the government implements expansionary fiscal policy that raises aggregate demand,but individuals incorrectly anticipate the policy measure (bias upward).According to new classical theory,in the short run the price level would ____________ and Real GDP would ______________.In the long run,new classical theory would predict that the price level would ______________ compared to its original long-run equilibrium level and that Real GDP would _____________.
A)rise;decline;rise;remain unchanged B)fall;rise;rise;remain unchanged C)rise;decline;remain unchanged;rise D)fall;rise;remain unchanged;rise
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Chapter 17: Economic Growth: Resources, technology, ideas, and Institutions
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Q1) When a production function is graphed with Real GDP on the vertical axis and labor on the horizontal axis,a rise in labor ________________________which shifts the LRAS curve ____________ resulting in ______________________.
A)shifts the production function up;rightward;economic growth
B)shifts the production function down;leftward;a shrinking economy
C)moves us up along a given production function;rightward;economic growth
D)moves us down along a given production function;leftward;a shrinking economy
Q2) If the annual growth rate in Real GDP is 2 percent,then it will take 50 years for the economy to double in size.
A)True
B)False
Q3) In the production function Real GDP = T (L,K,NR,H),the T represents the _____________ coefficient,the L represents ________________,the K represents _______________,the NR represents natural resources,and the H represents
A)tax;labor;capital;humanity
B)technology;labor;knowledge;humanity
C)technology;labor;capital;human capital
D)trade;labor;knowledge;human capital
Page 19
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Chapter 18: The Financial Crisis of 2007-2009
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Q1) In the early 2000s,Fannie Mae and Freddie Mac came under political pressure to buy nontraditional loans.
A)True
B)False
Q2) Securitization is the process by which financial institutions
A)pool together a group of loans and then issue securities backed by the pool.
B)determine the composition of their assets that will yield the optimal amount of security for their financial health.
C)borrow funds from the Federal Reserve and then use those funds to make loans to their customers.
D)determine sub-prime mortgage rates.
Q3) In the early 2000s,banks lowered lending standards to comply with the Community Reinvestment Act.
A)True
B)False
Q4) During a time of rising asset values,a bank can increase its returns by engaging in regulatory capital arbitrage.
A)True
B)False
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Chapter 19: Debates in Macroeconomics Over the Role and Effects
of Government
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Sample Questions
Q1) Refer to Exhibit 32-4.Suppose that producers of this good engage in rent seeking which results in the government imposing a price floor of P<sub>2</sub>.The loss of consumers' surplus that occurs due to the price floor is
A)B + C
B)A + B + C + D + E
C)A + B + C
D)C + E
E)A
Q2) If it is assumed that people vote for the candidate who comes closer to matching their own views,then
A)candidates will label themselves as right-wingers.
B)candidates will label themselves as left-wingers.
C)candidates will label their opponents as middle-of-the-roaders.
D)candidates will discuss the means to accomplishing ends.
E)a candidate who is trailing in the polls will modify his or her position to become more like his or her opponent.
Q3) Public choice deals exclusively with business decisions.
A)True
B)False
Page 21
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Chapter 20: Public Choice and Special-Interest-Group
Politics
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Sample Questions
Q1) To an economist,it is preferable to A)assume that all criminals are rational.
B)assume that all criminals are irrational.
C)build a theory based on a rational criminal and then check the evidence.
D)a or b
Q2) One theory discussed in the textbook is that there is a direct relationship between the opportunity cost of having children and the number of children a woman will have.
A)True
B)False
Q3) "The theory's predictions are consistent with what I believe,so now I have good reason to believe what the theory says." This statement is likely to have been made by a person who believes that
A)theories should be tested by gathering and analyzing data.
B)theories are descriptive of reality.
C)theories should be falsifiable or refutable.
D)b and c
E)none of the above
Q4) Identify and describe each step of the five-step process outlined in the textbook for building and testing theories.
Page 22
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Chapter 21: Building Theories to Explain Everyday Life: From
Observations to Questions to Theories to Predictions
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Q1) Refer to Exhibit 34-6.The opportunity cost of 1 unit of wine in terms of units of cheese is __________ for country B.
A)15
B)10
C)5
D)1
Q2) Countries that engage in specialization and trade can consume at a level beyond their production possibilities frontier.
A)True
B)False
Q3) If a U.S.company operates within a competitive environment and chooses to offshore part of its production process,the resulting change in the firm's costs should shift the ______________ curve for its product ___________________,thus _____________ the price of the product being produced.
A)supply;leftward;lowering
B)supply;rightward;raising
C)demand rightward;raising
D)supply;rightward;lowering
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Chapter 22: International Trade
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Q1) The concept of an optimal currency area arose from the debate over whether fixed or flexible exchange rates are better.
A)True
B)False
Q2) Research by economists Bloom,Draca,and Van Reenen revealed that imports from China were associated with not only lower consumer goods prices,but also a ______________ cost of inputs for domestic firms,a(n)______________ in the variety of products those domestic firms sold,and a(n)_______________ in U.S.productivity.
A)lower;increase;increase
B)higher;decrease;increase
C)lower;increase;decrease
D)higher;increase;decrease
E)lower;decrease;decrease
Q3) The U.S.real interest rate rises relative to Japan's.As a result,
A)the yen will depreciate and the dollar will appreciate.
B)the yen will appreciate and the dollar will depreciate.
C)both the dollar and the yen will depreciate.
D)both the dollar and the yen will appreciate.
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Chapter 23: International Finance
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Q1) Can a change in the Japanese price level cause the United States to move downward along its J-curve?
A)Yes,if the Japanese price level falls and the United States does not buy more Japanese goods.
B)Yes,if the Japanese price level falls and the United States buys more Japanese goods.
C)Yes,if the Japanese price level rises and the United States does not buy significantly fewer Japanese goods.
D)No,a change in relative price levels cannot initiate the J-curve phenomenon.
Q2) In the short run following a depreciation of the dollar,the United States may move downward along the J-curve since it is likely that the United States
A)spends more dollars on imports.
B)spends fewer dollars on imports.
C)sells an increased dollar amount of exports.
D)sells a reduced dollar amount of exports.
Q3) The average tariff rate in the US today is about 40 percent,but it was only 1.6 percent in 1946.
A)True
B)False
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Chapter 24: Globalization and International Impacts on the Economy
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Sample Questions
Q1) Suppose health-care reform X makes it unlawful for insurance companies to deny insurance to persons with a preexisting disease.One unintended effect of this reform is that some people
A)will buy more health insurance than they would have without reform X.
B)may wait until they have a particular disease before they buy health insurance.
C)will try to work longer hours,to earn more income,to pay for increasing health insurance premiums.
D)a and c
E)none of the above
Q2) When a negative externality exists,_______________________ and thus
_______________ intervention may be needed to achieve efficiency.
A)external costs are necessarily greater than private costs;government
B)social costs equal private costs;no government
C)social costs are less than private costs;government
D)social costs are greater than private costs;government
E)none of the above
Q3) In making the case against government,discuss the two main points about special interest groups.
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Chapter 25: The Economic Case for and Against
Government: Five Topics Considered
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Q1) An IOU that promises to pay a certain amount at maturity,and also to pay periodic fixed amounts until that date,is called a(n)
A)stock.
B)equity.
C)bond.
D)futures contract.
Q2) The longer you hold stocks in the stock market,the more likely you will earn a positive return,ceteris paribus.
A)True
B)False
Q3) You turn to the bond market page of a newspaper and look under the column headed "Net Chg" and see that it says,"-1/4" this indicates that
A)the closing price for the bond on this particular day was $2.50 lower than on the previous day.
B)the closing price for the bond on this particular day is $0.25 lower than on the previous day.
C)the yield for the bond has fallen by 0.25% compared to the previous day.
D)the yield for the bond has fallen by 0.25% compared to exactly one year ago.
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Chapter 26: Stocks, bonds, futures, and Options
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Q1) A shift of the supply curve for farm products to the right in a price inelastic region of the demand curve for farm products
A)reduces price and total revenue.
B)increases price and reduces total revenue.
C)reduces price and increases total revenue.
D)increases prices and total revenue.
Q2) Explain how nonrecourse loans operate and how they help to support crop prices.
Q3) A potato farmer who signs a futures contract is
A)speculating on the future price of potatoes,hoping it will be higher.
B)speculating on the future price of potatoes,hoping it will be lower.
C)eliminating his exposure to risk from a falling potato price.
D)trying to influence the price of potatoes to rise.
Q4) Refer to Exhibit 39-1.Given the target price of P<sub>T</sub>,the deficiency payment per unit is
A)P<sub>T</sub> - P<sub>2</sub>.
B)P<sub>T</sub> + P<sub>1</sub>.
C)P<sub>T</sub> - P<sub>2</sub>
D)P<sub>T</sub> - P<sub>1</sub>.
To view all questions and flashcards with answers, click on the resource link above. Page 28