Intermediate Macroeconomics
Test Bank
Course Introduction
Intermediate Macroeconomics delves into the analysis of aggregate economic phenomena, building on fundamental concepts to examine output, employment, inflation, interest rates, and economic growth in greater depth. The course explores the theoretical frameworks behind macroeconomic models, including both classical and Keynesian perspectives, and applies these models to real-world issues such as policy responses to business cycles, the role of government spending and taxation, and the impacts of international trade and capital flows. Through analytical tools and empirical case studies, students will develop a nuanced understanding of the mechanisms that drive national and global economies.
Recommended Textbook
Macroeconomics 4th Edition by Paul Krugman
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18 Chapters
5355 Verified Questions
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Page 2
Chapter 1: First Principles
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Sample Questions
Q1) If a market is in disequilibrium:
A)it will continue unless there is government intervention.
B)no individual will be better off doing something different.
C)there are opportunities for people to make themselves better off.
D)it must be because the government has intervened in the market, resulting in the market's failure to reach equilibrium.
Answer: C
Q2) Which of the following statements is FALSE?
A)Efficiency exists when an economy realizes the maximum possible gains from trade given the available resources.
B)If an economy is efficient, it is possible to make only a few people better off without reducing other individuals' economic welfare.
C)Economic efficiency exists when all opportunities to make people better off have been fully exploited.
D)Markets usually lead to efficiency.
Answer: B
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3
Chapter 2: Economic Models
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Sample Questions
Q1) (Figure: Production Possibility Frontier for Tealand) Look at the figure Production Possibility Frontier for Tealand. Tealand can produce at point E only if the government:
A)eliminates unemployment.
B)raises taxes.
C)permits more immigration.
D)increases the cost of production by decreasing the use of technology.
Answer: C
Q2) Of the following statements, which reflect(s) a normative view?
I. The United States should increase the minimum wage to $10 per hour.
II. There is a federal minimum wage in the United States.
III. The federal minimum wage in the United States is less than $10 per hour.
A)I, II, and III
B)None is normative.
C)I and II
D)I
Answer: D
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Chapter 3: Supply and Demand
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Sample Questions
Q1) If tortilla chips are a normal good, when there is an increase in income, equilibrium price _____ and equilibrium quantity _____.
A)decreases; increases.
B)decreases; decreases.
C)increases; increases.
D)increases; decreases.
Answer: C
Q2) The demand curve for videos has shifted to the right. What could have caused it?
A)a fall in the price of videos
B)an increase in the price of videos
C)an increase in the supply of videos
D)an increase in the incomes of buyers
Answer: D
Q3) If chicken and beef are substitutes, then a fall in the price of chicken will bring about:
A)an increase in the demand for beef.
B)a decrease in the demand for beef.
C)a decrease in the quantity demanded of beef.
D)no change in the demand for beef.
Answer: B
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Chapter 5: International Trade 5
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Sample Questions
Q1) If Japan levies tariffs on U.S. goods entering Japan, this will tend in the short run to _____ U.S. producers and _____ Japanese producers.
A)benefit; benefit
B)damage; benefit
C)benefit; damage
D)damage; damage
Q2) (Figure: The Production Possibility Frontiers for Jackson and Tahoe) Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. In autarky, Jackson produces and consumes 30 head of cattle and 80 bushels of wheat, while Tahoe produces and consumes 80 head of cattle and 60 bushels of wheat. If the two countries engage in international trade and specialize completely and if the price of 1 head of cattle equals the price of 2 bushels of wheat, world production of cattle will:
A)remain constant.
B)increase by 90 head.
C)increase by 120 head.
D)decrease by 30 head.
Q3) Economists claim that opening up a market to imports leads to an increase in total surplus but that trade makes winners and losers. How does this work?
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Chapter 6: Macroeconomics: the Big Picture
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Sample Questions
Q1) In recent times, the U.S. government has been trying to help the economy through one of the worst economic slumps ever. The policies used are based on _____ theory.
A)Keynesian
B)classical
C)supply-side
D)trickle-down
Q2) Fiscal and monetary policies:
A)have no role in macroeconomic policies.
B)have been used by the government for over 250 years.
C)are most effective in microeconomic settings.
D)are used to correct for short-term economic fluctuations.
Q3) The most painful consequence of a recession is:
A)rising unemployment.
B)increasing inflation.
C)increasing aggregate output.
D)higher interest rates.
Q4) Fiscal policy entails changes in the quantity of money or the interest rate.
A)True
B)False
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Chapter 7: Gdp and Cpi: Tracking the Macroeconomy
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Sample Questions
Q1) Households demand resources in the factor markets.
A)True
B)False
Q2) (Table: Calculating GDP) According to the information in the table Calculating GDP, what is GDP?
A)$47,475
B)$12,200
C)$21,485
D)$34,085
Q3) Steel manufactured to make a car is not counted in aggregate output, but the car that results is counted.
A)True
B)False
Q4) The circular-flow diagram is important because it shows that the flow of money into each market or sector of the economy is _____ the flow of money coming out of that sector.
A)greater than B)equal to C)less than D)unrelated to
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Chapter 8: Unemployment and Inflation
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Sample Questions
Q1) (Table: Population Data for Estill County) Look at the table Population Data for Estill County. If marginally attached workers are included in the labor force and in the unemployment rate, the unemployment rate in this economy is:
A)10.6%.
B)15.4%.
C)23.1%.
D)33.2%.
Q2) In periods of unexpected inflation:
A)borrowers benefit, since they repay their loans in dollars with lower real value.
B)lenders benefit, since they are repaid in dollars with a higher real value.
C)neither borrowers nor lenders are affected by the inflation rate, since their nominal interest rate stays the same.
D)lenders benefit, since the nominal interest rate does not change.
Q3) Unemployment is at its natural level if there is no:
A)unemployment.
B)frictional unemployment.
C)structural employment.
D)cyclical unemployment.
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Chapter 9: Long-Run Economic Growth
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Sample Questions
Q1) The convergence hypothesis:
A)apparently applies only to wealthy countries.
B)seems to hold only when other things such as education and infrastructure are held equal.
C)suggests that relatively poor countries will continue to be poor regardless of their level of saving.
D)states that countries' growth depends upon the amount of government intervention in the marketplace.
Q2) Today China is the fastest-growing major economy and it also:
A)spends a lower share of its GDP on investment goods than did other major economies.
B)spends a higher share of its GDP on investment goods than did other major economies.
C)spends more of its GDP on national defense than any other country except for North Korea.
D)was the first Asian country to join the European Union.
Q3) Long-run economic growth depends almost entirely on rising productivity.
A)True
B)False
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Chapter 10: Savings, Investment Spending, and the Financial System
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Sample Questions
Q1) (Table: Investment Spending, Private Spending, and Capital Inflows) Northlandia has a _____, while Southlandia has a _____.
A)balanced budget; budget deficit
B)budget deficit; balanced budget
C)budget surplus; balanced budget
D)balanced budget; balanced budget
Q2) A default occurs when:
A)the borrower repays a bond or loan before its maturity date.
B)a borrower fails to make payments as specified by the loan or bond contract.
C)an asset can't be converted to cash quickly with little or no loss of value.
D)transactions costs are minimized.
Q3) Financial markets:
A)increase transaction costs.
B)reduce diversification.
C)provide liquidity.
D)determine tax rates.
Q4) Financial markets eliminate transactions costs.
A)True
B)False
Q5) Compare stocks and bonds with respect to risk and return.
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Chapter 13: Fiscal Policy Appendix Taxes and the Multiplier
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Sample Questions
Q1) If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should _____ government purchases of goods and services by _____ .
A)increase; $25 billion
B)increase; $33 billion
C)increase; $100 billion
D)decrease; $100 billion
Q2) Which of the following is a government transfer?
A)wages paid to U.S. senators
B)purchases of tanks for the army
C)Social Security payments to retired auto workers
D)payments to contractors for repairs on interstate highways
Q3) A change in government transfers shifts the aggregate demand curve by _____ than a change in government spending for goods and services and has a _____ effect on real GDP.
A)more; smaller
B)more; larger
C)less; smaller
D)less; larger
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Chapter 14: Money, Banking, and the Federal Reserve System
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Sample Questions
Q1) (Scenario: Monetary Base and Money Supply) Look at the scenario Monetary Base and Money Supply. How much are required reserves?
A)$50 billion
B)$100 billion
C)$150 billion
D)$250 billion
Q2) Which of the following is (are) a tool(s) of monetary policy used by the Federal Reserve?
I. open market operations
II. government purchases of goods and services
A)I only
B)II only
C)I and II
D)neither I nor II
Q3) Between 1864 and 1913, American banking was dominated by:
A)a federally regulated system of national banks.
B)an unregulated system of state banks, each issuing its own currency.
C)the Federal Reserve System in Washington, D.C.
D)European banks that supplied coins and paper money for the U.S. economy.
Q4) Explain how an increase in the discount rate affects the economy.
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Chapter 15: Monetary Policy
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Sample Questions
Q1) Changes in the money supply have no long-run effects on the interest rate because when the price level changes, the demand for money changes to offset the short-run changes in the money supply.
A)True
B)False
Q2) In the short run changes in the money supply change interest rates but not real output and prices.
A)True
B)False
Q3) If the economy is at potential output and the Fed decreases the money supply so that actual output is less than potential output, eventually nominal wages will decrease.
A)True
B)False
Q4) The demand for money is higher in Japan than in the United States because:
A)Japanese banks pay interest on checking accounts.
B)most stores in Japan do not accept credit cards.
C)the ATMs are open all night.
D)the average price level is lower in Japan.
Q5) Why does a recession, all else equal, decrease the demand for money?
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Chapter 16: Inflation, Disinflation, and Deflation
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Sample Questions
Q1) (Figure: Classical Model of the Price Level) Look at the figure Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD<sub>1</sub> to AD<sub>2</sub>, according to this classical model, the equilibrium point will:
A)not change.
B)immediately move from E<sub>1</sub> to E<sub>2</sub>.
C)immediately move from E<sub>2</sub> to E<sub>1</sub>.
D)immediately move from E<sub>1</sub> to E<sub>3</sub>.
Q2) (Figure: Classical Model of the Price Level) Look at the figure Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD<sub>1</sub> to AD<sub>2</sub>, according to this classical model, the price level will:
A)not change.
B)increase from P<sub>1</sub> to P<sub>2</sub>.
C)increase from P<sub>1</sub> to P<sub>3</sub>.
D)decrease from P<sub>1</sub> to P<sub>2</sub>.
Q3) Why is the long-run Phillips curve believed to be vertical at the natural rate of unemployment, or NAIRU?
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15
Chapter 17: Crises and Consequences
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Sample Questions
Q1) Following the 2008 financial crisis:
A)both the United States and the European Union recovered very quickly, with output reaching its previous level by early 2009.
B)recovery in both the United States and the European Union was very slow.
C)the United States recovered very quickly, but recovery in the European Union was very slow.
D)the European Union recovered very quickly, but recovery in the United States was very slow.
Q2) The bill that Congress passed in 2010 to correct many of the problems that led to the 2008 financial crisis was called:
A)the Wall Street Reform and Consumer Protection Act.
B)the Sherman Anti-Trust Act.
C)the Glass-Steagall Act.
D)the Financial Institutions Modernization Act.
Q3) In debt overhang consumers' debt level is diminished and the value of their assets has increased.
A)True
B)False
Q4) Explain how shadow banks, which don't take deposits, can have bank runs.
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Chapter 18: Events and Ideas
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Sample Questions
Q1) A policy of expansionary austerity involves increasing government spending to increase private-sector confidence, leading to an increase in output and employment.
A)True
B)False
Q2) If real business cycle theory uses an upward-sloping aggregate _____ curve, aggregate _____ is _____.
A)demand; supply; relevant
B)demand; supply; irrelevant
C)supply; demand; irrelevant
D)supply; demand; relevant
Q3) Keynes argued that the surest way to bring the economy out of the Great Depression was to:
A)keep the economy in a liquidity trap until antitrust policy could be enforced.
B)use expansionary fiscal policy.
C)increase taxes and spend less.
D)leave the economy alone, and flexible wages and prices would eventually lead to increases in income and employment.
Q4) Why did the adoption of Keynesian economics come out of the Great Depression?
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Chapter 19: Open-Economy Macroeconomics
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Sample Questions
Q1) If the U.S. is in a recessionary gap, the appropriate policy is to _____ the money supply to _____ interest rates.
A)increase; increase
B)increase; decrease
C)decrease; increase D)decrease; decrease
Q2) The Danish krone is a fixed exchange rate currency. If Denmark intervenes in the foreign exchange market to change the krone from $0.18 to $0.15, the krone has:
A)depreciated.
B)been devalued.
C)appreciated.
D)been revalued.
Q3) (Scenario: Gizmovia) Look at the scenario Gizmovia. If Gizmovia uses foreign exchange controls, it should require licenses to _____ gizmos and _____ dollars.
A)buy; buy
B)buy; sell
C)sell; sell
D)sell; buy
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18
Chapter 20: Graphs in Economics
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Sample Questions
Q1) In looking at a chart of the positive relationship between police officers and crime, the mayor remarks that more police officers cause more crime. The mayor may be wrong because she did not consider:
A)the features of construction.
B)omitted variables.
C)reverse causality.
D)tangent lines.
Q2) A pie chart is used to depict information about:
A)the relative shares of categories of data.
B)the changes of a particular variable over time.
C)positive, not negative, relationships among variables.
D)the changes of a particular variable over time and positive relationships.
Q3) (Figure: Slope) Look at the figure Slope. In the graph, the slope of the line between points A and B is: A)+8.
B)-8.
C)-2. D)+2.
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Chapter 21: toward a Fuller Understanding of Present Value
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Sample Questions
Q1) You have recently graduated from high school and are debating whether to attend college or get a job. Assume that you can spend $50,000 today for tuition and receive your college degree in only one year. When you graduate, you will receive a job that pays you $100,000 immediately and $100,000 the following year. If you begin working immediately, you can earn $35,000 today and each of the next two years. If the annual interest rate is 10%, should you go to college?
Q2) You have won the lottery and have been given the choice of receiving $5 million today or $10 million after 10 years. Assume that the interest rate remains fixed at 10% per year for the entire 10-year period. You should choose:
A)$10 million after 10 years, since this is more than you would get if you invested $5 million for 10 years at an annual rate of interest of 10%.
B)$10 million after 10 years, since that is a larger amount than the present value of $5 million paid after 10 years.
C)$5 million today, since it would be worth more than $10 million after 10 years if the $5 million earned interest at the rate of 10% per year.
D)$10 million after 10 years, since it is the larger amount.
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