Intermediate Macroeconomics
Study Guide Questions
Course Introduction
Intermediate Macroeconomics builds upon foundational economic principles to analyze the behavior of economies at the aggregate level. The course explores key macroeconomic theories, models, and policy debates concerning national income determination, economic growth, unemployment, inflation, and the roles of monetary and fiscal policy. Emphasis is placed on dynamic modeling, including the IS-LM and AD-AS frameworks, and examining the impacts of external shocks and policy interventions on economic stability and growth. Through real-world applications and empirical analysis, students develop a deeper understanding of both the short-run and long-run forces shaping economic outcomes and the complexities faced by policymakers in open and closed economies.
Recommended Textbook
Macroeconomics 10th Edition by William Boyes
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Chapter 1: The Wealth of Nations: Ownership and Economic
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Q1) If an economy is producing at a point on the production possibilities curve it represents:
A) full employment of existing resources.
B) the gains from trade that an economy can enjoy.
C) the maximum amount of two goods that can be produced with existing resources.
D) decreasing opportunity costs of producing both goods.
E) overutilization of existing resources.
Answer: A
Q2) Labor resources include:
A) skilled workers but not unskilled workers.
B) unskilled workers but not skilled workers.
C) a robot.
D) education and training of workers.
E) coffee breaks.
Answer: D
Q3) Scarcity is a concept that implies that choices must be made.
A)True
B)False
Answer: True
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Chapter 2: Scarcity and Opportunity Costs
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Q1) Which of the following actions is most likely to cause a rightward shift in a production possibilities curve [PPC]?
A) Shifting from the production of one product to the production of another product
B) Shifting all resources to the production of one product
C) Employing idle resources
D) Using fewer resources in production
E) Increasing the technological know-how used in production
Answer: E
Q2) A point outside the production possibilities curve [PPC]:
A) represents inefficient use of resources.
B) represents the prevalence of unemployment.
C) is attainable if all resources are used efficiently.
D) represents more resources than are currently available.
E) will never be attainable, even if the quantity of resources increases.
Answer: D
Q3) Economic growth can be illustrated by an outward shift of the PPC.
A)True
B)False
Answer: True
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Chapter 3: The Market and Price System
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Q1) Other things remaining unchanged, which of the following is most likely to cause an increase in the demand for personal computers?
A) A reduction in the price of personal computers
B) An increase in the supply of personal computers
C) An increase in the cost of computer printing ink
D) An increase in the number of computer manufacturers
E) A requirement by universities that all students buy personal computers
Answer: E
Q2) In the market for eggs, a removal of the price ceiling on eggs results in:
A) an increase in the demand for eggs.
B) farmers supplying more eggs to the market.
C) consumers demanding a larger quantity of eggs.
D) farmers supplying less eggs to the market.
E) consumers demanding a smaller quantity of eggs.
Answer: B
Q3) Inferior goods are low quality goods that people prefer to buy less of.
A)True
B)False
Answer: False
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Page 5
Chapter 4: The Aggregate Economy
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Q1) Which of the following is a defining feature of a multinational firm?
A) It exports goods and services to foreign nations.
B) It develops joint ventures with foreign firms.
C) It owns and operates production facilities in more than one country.
D) It employs agents in various countries to sell their products abroad.
E) It holds patents on its products and services.
Q2) National economic policies are usually set by the local government in the U.S., making it the focus of economic discussions.
A)True
B)False
Q3) According to the World Bank, the high-income oil-exporting nations like Libya, Saudi Arabia, Kuwait, and the United Arab Emirates:
A) are considered to be still-developing countries.
B) are the major trade partners of the U.S.
C) are considered as underdeveloped economies.
D) have highly interdependent economies.
E) are considered highly-developed countries.
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Chapter 5: National Income Accounting
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Sample Questions
Q1) Consider a small country producing only two commodities (coffee beans and corn). Following are the price and output of these two commodities in the year 2008: Assuming that the output of these two commodities remains constant, while the price of each rises by 10 percent in 2009, compute the value of real GDP in 2009.
Price Quantity
$12
500 lbs. of coffee beans
$6
600 bushels of corn
A) $12,000
B) $10,560
C) $9,600
D) $8,400
E) $6,560
Q2) Gross national product in terms of the income method is equal to national income plus indirect business taxes minus the capital consumption allowance.
A)True
B)False
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Chapter 6: An Introduction to the Foreign Exchapterange
Market and the Balance of Payments
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Q1) Which of the following will increase the demand for U.S. products in the international market?
A) An increase in the average price level in the U.S.
B) A depreciation of foreign currency
C) A depreciation of the U.S. dollar
D) A tariff imposed by the U.S. on imported goods
E) A rise in the domestic demand for goods and services
Q2) Currency and bank deposits that are denominated in foreign money are called:
A) traveler's checks.
B) international funds.
C) foreign exchange.
D) foreign remittances.
E) international bonds.
Q3) Suppose you are a U.S. importer purchasing coffee from Guatemala at a dollar price of $10,000. If the bank charges $0.12 per quetzal, you would have to buy 120,000 quetzals to settle the account with the Guatemalan exporter.
A)True
B)False
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Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) Refer to Table 7.1. If a bicycle used to cost $90 in 1990, what did it cost in 2003 based on the inflation rate (rounded to the first decimal place)?
A) $115.7
B) $118.1
C) $101.6
D) $130.5
E) $79.8
Q2) Which of the following monthly data series is closely observed by the Business Cycle Dating Committee of the NBER?
A) Real personal income less transfer payments
B) Wholesale prices of goods
C) Real GDP
D) Total unemployment
E) Real interest rates
Q3) The natural rate of unemployment is always more than the actual rate of unemployment because it excludes frictional and seasonal unemployment rates.
A)True
B)False
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Chapter 8: Macroeconomic Equilibrium: Aggregate
Demand and Supply
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Sample Questions
Q1) The change in aggregate expenditures resulting from a movement in the domestic price level, which in turn changes the price of domestic goods in relation to foreign goods, is known as the:
A) international trade effect.
B) multilateral equilibrium condition.
C) international exchange rate effect.
D) magnified international pricing effect.
E) international deficit effect.
Q2) Refer to Figure 8.2. Suppose major oil-exporting countries restrict oil output, thus increasing the price of oil. In the figure this would be represented by:
A) a movement from A to C.
B) a movement from A to B to C.
C) a movement from B to C.
D) a movement from B to A.
E) a movement from C to A.
Q3) The aggregate supply curve shows the negative relationship between general price level and real GDP.
A)True
B)False
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Chapter 9: Aggregate Expenditures
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Q1) The sum of money spent by a person to purchase a new home is considered as a part of investment spending.
A)True
B)False
Q2) Planned investment is inversely related to the interest rate because the higher the interest rate, the higher the rate of return on investment projects.
A)True
B)False
Q3) Which of the following variables is a flow concept?
A) Gross domestic product
B) Assets
C) Wealth
D) Money supply
E) Saving
Q4) Consumption, saving, and wealth all represent stock concepts because they are measured over a period of time.
A)True
B)False
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Chapter 10: Income and Expenditures Equilibrium
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Q1) Refer to Table 10.1. What is the equilibrium level of real GDP in year 1?
A) $940
B) $1,040
C) $1,100
D) $1,050
E) $920
Q2) In Figure 10.6, if 0L is the potential level of real GDP, then KL represents:
A) excess GDP.
B) real GDP.
C) the multiplier effect.
D) the GDP gap.
E) the recessionary gap.
Q3) Consider the economy described in Table 10.2. What is the equilibrium level of real GDP?
A) $935
B) $2,100
C) $3,320
D) $4,800
E) $5,230
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Page 12
Chapter 11: Fiscal Policy
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Sample Questions
Q1) A balanced budget would not affect income because an increase in government spending is exactly matched by an increase in taxes.
A)True
B)False
Q2) When the government uses taxes and spending to affect national economy, it is engaging in:
A) fiscal policy.
B) monetary policy.
C) interest rate policy.
D) trade policy.
E) exchange rate policy.
Q3) If Joe earns $80,000 per year and pays $20,000 in taxes, while Moe earns $100,000 and pays $22,000 in taxes, their tax system would best be described as:
A) progressive.
B) proportional.
C) regressive.
D) discretionary.
E) lump-sum.
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Chapter 12: Money and Banking
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Q1) The euro is a composite currency; its value is an average of the changing values of several national currencies.
A)True
B)False
Q2) An increase in the amount of excess reserves held by a bank helps to increase the economy's money supply.
A)True
B)False
Q3) Which of the following is the most popular instrument for financing Islamic investments?
A) Murabaha
B) Mortgage
C) Microfinance
D) Riba
E) Mudaraba
Q4) The use of money as a medium of exchange requires a double coincidence of want.
A)True
B)False
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Chapter 13: Monetary Policy
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Sample Questions
Q1) Refer to Figure 13.3. Starting from the equilibrium illustrated in the graphs, if the Federal Reserve purchases government bonds in the open market, then:
A) investment spending will decline.
B) bond prices will decline.
C) equilibrium real GDP will fall.
D) interest rates will fall.
E) money demand will decline.
Q2) If a percentage decrease in money supply is followed by a proportional percentage decrease in prices and output, this means that:
A) the velocity of money is constant.
B) the economy is in a recession.
C) the velocity of money has fallen.
D) real GDP is constant.
E) the economy is not at maximum capacity
Q3) The monetary policy decisions made by the Federal Reserve must be approved by the Congress before they are enacted.
A)True
B)False
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Chapter 14: Macroeconomic Policy: Tradeoffs, Expectations,
Credibility, and Sources of Business Cycles
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Q1) The reservation wage is the minimum wage rate that an unemployed worker must receive before employment is accepted.
A)True
B)False
Q2) Refer to Figure 14.1. Movement from point A to point C is equivalent to:
A) an upward movement along the long-run Phillips curve.
B) an outward shift of the short-run Phillips curve.
C) an upward movement along the short-run Phillips curve.
D) an inward shift of the long-run Phillips curve.
E) a downward movement along the long-run Phillips curve.
Q3) If workers realize that an increase in nominal wage rates does not necessarily constitute a rise in real wages, then we would expect:
A) an increase in employment.
B) a decrease in employment.
C) a downward movement along the Philips curve.
D) a rightward shift of the Phillips curve.
E) a leftward shift of the Phillips curve.
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Chapter 15: Macroeconomic Viewpoints: New Keynesian,
Monetarist, and New Classical
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Q1) Monetarists believe that in the short run:
A) the natural rate of unemployment cannot be changed.
B) expansionary monetary policy is ineffective in raising real GDP.
C) a change in the money supply is fully reflected in a change in the interest level.
D) contractionary monetary policy will decrease unemployment.
E) there is a tradeoff between unemployment and inflation.
Q2) Monetarists believe that discretionary monetary policy, and not discretionary fiscal policy, should be used to correct disequilibrium.
A)True
B)False
Q3) New classical economists contend that both the short-run and long-run aggregate supply curves are vertical.
A)True
B)False
Q4) Monetarists argue that government actions, particularly monetary policy, worsens the negative aspects of the business cycle.
A)True
B)False
17
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Chapter 16: Economic Growth
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Q1) Technological advancement implies:
A) the increase in the quantity of inputs needed to produce a given quantity of output.
B) the reduction in the quantity of inputs needed to produce a given quantity of output.
C) the reduction in the productivity of a sector of the economy that has become obsolete.
D) an increase in the labor to capital ratio in any production process.
E) the growth in the natural resource endowment.
Q2) Growth in total factor productivity equals the _____.
A) sum of resource growth and economic growth
B) ratio of total output to total input
C) ratio of total input to total output
D) percentage change in per capita real GDP
E) percentage change in output minus the percentage change in resources
Q3) Economic growth measured in terms of an increase in per capita real GDP is not a good measure of the distribution of income in a nation.
A)True
B)False
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Chapter 17: Development Economics
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Q1) Poverty is usually defined by economists in relative terms.
A)True
B)False
Q2) Generally, there is a strong positive correlation between per capita GNP and other measures of human development.
A)True
B)False
Q3) Which of the following can be categorized as multilateral aid?
A) The U.S. providing funds to Haiti
B) World Bank providing financial assistance in the form of flood relief funds to Brazil
C) Pakistan requesting financial assistance for earthquake relief from the developed world
D) France promising funds to the Philippines against duty-free imports of French products
E) USAID relieving Nepal of the outstanding debt the latter owes to the organization
Q4) Higher per capita GNP always means higher quality of life.
A)True
B)False
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Chapter 18: Globalization
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Q1) Supporters of globalization argue that multinational firms pay higher wages than local firms, and provide greater benefits for workers than existed in the country prior to globalization.
A)True
B)False
Q2) The phrase "race to the bottom" refers to the situation in which globalization results in countries competing for international investment by imposing low or no environmental regulations or labor standards.
A)True
B)False
Q3) According to evidence from around the world, the real losers in globalization of the world economy are:
A) non-government organizations.
B) environmental activists.
C) skilled laborers in the globalizing nations.
D) countries that have not participated in the globalization process.
E) the poorest people in the globalized developing countries.
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Page 20
Chapter 19: World Trade Equilibrium
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Q1) The theory that explains the shift of color TV sets production from the United States to Japan and Taiwan is called the _____ theory.
A) productivity difference
B) factor abundance
C) product life cycle
D) preference
E) human skills
Q2) The oldest theory of comparative advantage is based on:
A) factor abundance.
B) productivity differences.
C) product life cycles.
D) preferences.
E) human skills.
Q3) We benefit from trade if we are able to obtain a good from a foreign country by giving up more of other goods than we would have to give up to obtain the good at home.
A)True
B)False
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Chapter 20: International Trade Restrictions
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Q1) One important unintended consequence of the Smoot-Hawley Tariff Act was to:
A) lessen the severity of the Great Depression by increasing exports.
B) provide the federal government with an effective tool for exercising monetary policy.
C) increase the efficiency of domestic automobile production.
D) increase the severity of the Great Depression by causing other countries to retaliate, and thus leading to a decline in exports.
E) increase the U.S. government budget deficit by $15 million.
Q2) In Figure 20.3, if the world price per gallon is $8, then without quotas:
A) 50 gallons of corn syrup will be imported.
B) 35 gallons of corn syrup will be imported.
C) 30 gallons of corn syrup will be imported.
D) 20 gallons of corn syrup will be imported.
E) 45 gallons of corn syrup will be imported.
Q3) When production does not proceed on the basis of comparative advantage, resources are expended on their most efficient uses.
A)True
B)False
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Chapter 21: Exchapterange Rates and Financial Links
Between Countries
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Q1) Assume that a country's government influences the exchange rate through active central bank intervention, with no pre-announced path. This policy is known as a(n):
A) floating exchange-rate policy.
B) managed floating exchange-rate policy.
C) fixed exchange-rate policy.
D) crawling-peg exchange-rate policy.
E) interventionist exchange-rate policy.
Q2) Assume that you have just returned to the United States from a summer vacation in Russia, where you exchanged American dollars for Russian rubles. Your economic actions can be said to have:
A) increased the supply of American dollars in Russia.
B) decreased the supply of Russian rubles in America.
C) decreased the supply of American dollars in Russia.
D) increased the demand for American dollars in America.
E) increased the supply of Russian rubles in Russia.
Q3) Fixed exchange rates allow countries to formulate their economic policies independently of other nations.
A)True
B)False
Page 23
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