Intermediate Macroeconomics
Textbook Exam Questions
Course Introduction
Intermediate Macroeconomics builds upon foundational economic principles to examine the behavior of the overall economy, focusing on aggregate output, employment, inflation, and economic growth. The course delves into the development and application of key macroeconomic models, such as the IS-LM and AD-AS frameworks, to analyze fiscal and monetary policy impacts. Students explore the determinants of consumption, investment, and government spending, as well as open economy interactions, business cycles, and the role of expectations in economic outcomes. Emphasis is placed on real-world application, empirical analysis, and current macroeconomic challenges facing national and global economies.
Recommended Textbook
Principles of Macroeconomics 6th Edition by N. Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) If the price of visiting a doctor were fixed below the current price, then we would expect
A)an increase in the number of visits people want to make and an increase in the number of visits health care providers want to provide.
B)an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.
C)a decrease in the number of visits people want to make and an increase in the number of visits health care providers want to provide.
D)a decrease in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.
Answer: B
Q2) The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Thinking Like an Economist
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Q1) A statement describing how the world should be
A)is a normative statement.
B)is a positive statement.
C)would only be made by an economist speaking as a scientist.
D)would only be made by an economist employed by the government.
Answer: A
Q2) In the simple circular-flow diagram, the participants in the economy are
A)firms and government.
B)households and firms.
C)households and government.
D)households, firms, and government.
Answer: B
Q3) In the circular-flow diagram,
A)firms are buyers in the markets for goods and services.
B)households are sellers in the markets for the factors of production.
C)firms are sellers in the markets for factors of production and in the markets for goods and services.
D)dollars that are spent on goods and services flow directly from firms to households.
Answer: B
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Page 4
Chapter 3: Interdependence and the Gains From Trade
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Q1) Zora can produce 4 quilts in a week and she can produce 1 corporate website in a week. Lou can produce 9 quilts in a week and he can produce 2 corporate websites in a week. Zora has the comparative advantage in quilts and the absolute advantage in neither good, while Lou has the comparative advantage in corporate websites and the absolute advantage in both goods.
A)True
B)False
Answer: False
Q2) Comparative advantage is related most closely to which of the following?
A)output per hour
B)opportunity cost
C)efficiency
D)bargaining strength in international trade Answer: B
Q3) Refer to Figure 3-5. Merve should specialize in the production of A)purses. B)wallets.
C)both goods.
D)neither good. Answer: B
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Chapter 4: The Market Forces of Supply and Demand
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Q1) If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos falls?
A)Both the equilibrium price and quantity would increase.
B)Both the equilibrium price and quantity would decrease.
C)The equilibrium price would increase, and the equilibrium quantity would decrease.
D)The equilibrium price would decrease, and the equilibrium quantity would increase.
Q2) When the price of a good is high, selling the good is profitable, and so the quantity supplied is large.
A)True
B)False
Q3) A movement along the demand curve might be caused by a change in A)income.
B)the prices of substitutes or complements.
C)expectations about future prices.
D)the price of the good or service that is being demanded.
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Chapter 5: Elasticity and Its Application
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Q1) At price of $1.25, a paper manufacturer is willing to supply 150 spiral notebooks per day. At a price of $1.50, the paper manufacturer is willing to supply 175 spiral notebooks per day. Using the midpoint method, the price elasticity of supply is about
A)1.18.
B)1.00.
C)0.85.
D)0.25.
Q2) Which of the following statements is not valid when the market supply curve is vertical?
A)Market quantity supplied does not change when the price changes.
B)Supply is perfectly inelastic.
C)An increase in market demand will increase the equilibrium quantity.
D)An increase in market demand will increase the equilibrium price.
Q3) Which of the following statements is not valid when supply is perfectly elastic?
A)The elasticity of supply approaches infinity.
B)The supply curve is horizontal.
C)Very small changes in price lead to very large changes in quantity supplied.
D)The time period under consideration is more likely a short period rather than a long period.
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Page 7
Chapter 6: Supply, Demand, and Government Policies
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Q1) Buyers of a good bear the larger share of the tax burden when the (i) Supply is more elastic than the demand for the product.(ii) Demand in more elastic than the supply for the product.(iii) Tax is placed on the sellers of the product.(iv) Tax is placed on the buyers of the product.
A)(i) only
B)(ii) only
C)(i) and (iii) only
D)(i) and (iv) only
Q2) The economy contains many labor markets for different types of workers. A)True
B)False
Q3) The price received by sellers in a market will decrease if the government
A)imposes a binding price floor in that market.
B)decreases a binding price ceiling in that market.
C)decreases a tax on the good sold in that market.
D)increases a binding price floor in that market.
Q4) Buyers and sellers rarely share the burden of a tax equally.
A)True
B)False
Page 8
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Q1) If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is $10.
A)True
B)False
Q2) Ronnie operates a lawn-care service. On each day, the cost of mowing the first lawn is $10, the cost of mowing the second lawn is $12, and the cost of mowing the third lawn is $15. His producer surplus on the first three lawns of the day is $53. If Ronnie charges all customers the same price for lawn mowing, that price is
A)$25.
B)$30.
C)$36.
D)$45.
Q3) Refer to Figure 7-10. If the equilibrium price is $200, what is the producer surplus?
A)$625
B)$3,750
C)$10,000
D)$20,000
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Chapter 8: Application: The Costs of Taxation
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Q1) A tax on a good
A)gives buyers an incentive to buy more of the good than they otherwise would buy.
B)gives sellers an incentive to produce less of the good than they otherwise would produce.
C)creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and sellers.
D)All of the above are correct.
Q2) Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. With the tax, the total surplus is
A)[x (P0-P5) x Q5] + [x (P5-0) x Q5].
B)[x (P0-P2) x Q2] +[(P2-P8) x Q2] + [x (P8-0) x Q2].
C)(P2-P8) x Q2.
D)x (P2-P8) x (Q5-Q2).
Q3) Taxes on labor tend to encourage second earners to stay at home rather than work in the labor force.
A)True
B)False
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Chapter 9: Application: International Trade
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Q1) Refer to Figure 9-1. With trade, total surplus in the Scotland wool market amounts to A)312.5.
B)367.0.
C)467.5.
D)495.0.
Q2) If a country allows free trade and its domestic price for a given good is lower than the world price, then it will import that good.
A)True
B)False
Q3) Refer to Scenario 9-1. If trade in peaches is allowed, the A)price paid by American consumers of peaches is unchanged relative to the no-trade situation.
B)total well-being of American producers of peaches is diminished relative to the no-trade situation.
C)total well-being of American consumers of peaches is enhanced relative to the no-trade situation.
D)total well-being of the United States is enhanced relative to the no-trade situation.
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Chapter 10: Measuring a Nations Income
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Q1) George lived in a home that was newly constructed in 2005 for which he paid $200,000. In 2008 he sold the house for $225,000. Which of the following statements is correct regarding the sale of the house?
A)The 2008 sale increased 2008 GDP by $225,000 and had no effect on 2005 GDP.
B)The 2008 sale increased 2008 GDP by $25,000 and had no effect on 2005 GDP.
C)The 2008 sale increased 2008 GDP by $225,000; furthermore, the 2008 sale caused 2005 GDP to be revised upward by $25,000.
D)The 2008 sale affected neither 2008 GDP nor 2005 GDP.
Q2) Sally purchases a classic 1964 car she saw for sale on someone's lawn. She then purchases some new parts and spends 120 hours refurbishing the car which she keeps. Which of the following is included in GDP?
A)the amount she paid to buy the car
B)the amount she paid to buy new parts
C)the value of her time repairing the car
D)All of the above are included.
Q3) Changes in inventory are included in the investment component of GDP.
A)True
B)False
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Chapter 11: Measuring the Cost of Living
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Q1) With respect to the consumer price index, the substitution bias arises because A)prices of goods and services do not change in the same proportion from year to year.
B)consumers are slow to adjust their buying patterns from year to year in response to price changes.
C)consumers are eager to buy new products as they are introduced, despite their lack of full information about the quality of those products until they buy and use them.
D)All of the above are correct.
Q2) The second largest category, by relative importance, in the CPI calculation is A)housing.
B)apparel.
C)transportation.
D)medical care.
Q3) The largest sector in the consumer price index market basket is food and beverage purchases.
A)True
B)False
Q4) Why does the GDP deflator give a different rate of inflation than the CPI?
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Chapter 12: Production and Growth
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Q1) In 2009, Modern Electronics, Inc. produced 60,000 calculators, employing 80 workers, each of whom worked 8 hours per day. In 2010, the same firm produced 76,500 calculators, employing 85 workers, each of whom worked 10 hours per day. Productivity at Modern Electronics
A)decreased by 4%
B)remained constant.
C)increased by 8.33%
D)increased by 27.50%
Q2) Assuming constant returns to scale, if two countries are otherwise the same, the one that is poorer grows faster.
A)True
B)False
Q3) Industrial machinery is an example of
A)a factor of production that in the past was an output from the production process.
B)technological knowledge.
C)a production function.
D)an item which always has the property called constant returns to scale.
Q4) Compare and contrast the population theories of Malthus and Kremer.
Q5) How do outward-oriented policies affect a nation's productivity?
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Chapter 13: Saving, Investment, and the Financial System
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Q1) If a firm's price-earnings ratio is relatively low, then it might be an indication that A)the demand for the stock is relatively high.
B)the supply of the stock is relatively low.
C)people expect the firm's earnings to rise.
D)people expect the firm's earnings to fall.
Q2) The length of time until a bond matures is called the A)perpetuity.
B)term.
C)maturity.
D)intermediation.
Q3) Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,
A)their consumption expenditures are being financed by someone else's saving.
B)their consumption expenditures are being financed by someone else's investment.
C)their investments are being financed by someone else's saving.
D)their saving is being financed by someone else's investment.
Q4) Draw and label a graph showing equilibrium in the market for loanable funds.
Q5) What are the basic differences between bonds and stocks?
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Chapter 14: The Basic Tools of Finance
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Q1) The present value of a payment of $500 to be made two years from today is greater if the interest rate is 7% than if it is 6%.
A)True
B)False
Q2) An increase in the interest rate causes a decrease in the future value of $1,000 that you have in a bank account today.
A)True
B)False
Q3) If you believe the stock market is informationally efficient, then it is a waste of time to engage in fundamental analysis.
A)True
B)False
Q4) If a stock or bond is risky
A)risk averse people may be willing to hold it as part of a diversified portfolio.
B)risk averse people may be willing to hold it if the expected return is high enough.
C)both A and B are correct.
D)risk averse people will not hold it.
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Chapter 15: Unemployment
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Q1) Economists at the Congressional Budget Office estimated that for 2009, the U.S. natural rate of unemployment was
A)2.5 percent.
B)3.0 percent.
C)5.0 percent.
D)6.5 percent.
Q2) When job search is the explanation for unemployment, workers are searching for the jobs that best suit their tastes and skills, but when the wage is above the equilibrium level, the quantity of labor supplied exceeds the quantity of labor demanded, and workers are unemployed because they are waiting for jobs to open up.
A)True
B)False
Q3) Which of the following is correct?
A)typically more than one third of the unemployed are new entrants into the job market.
B)most spells of unemployment are short.
C)most unemployment observed at any time is long term.
D)All of the above are correct.
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Chapter 16: The Monetary System
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Q1) The Fed can influence unemployment in
A)the short run and in the long run.
B)the short run, but not in the long run.
C)the long run, but not in the short run.
D)neither the short nor the long run.
Q2) Credit cards
A)defer payments.
B)are a store of value.
C)have led to wider use of currency.
D)are part of the money supply.
Q3) Which of the following is included in M2 but not in M1?
A)demand deposits
B)corporate bonds
C)large time deposits
D)money market mutual funds
Q4) Money
A)is more efficient than barter.
B)makes trades easier.
C)allows greater specialization.
D)All of the above are correct.
Page 18
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Chapter 17: Money Growth and Inflation
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Q1) According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also
A)either a rise in output or a rise in velocity.
B)either a rise in output or a fall in velocity.
C)either a fall in output or a rise in velocity.
D)either a fall in output or a fall in velocity.
Q2) Other things the same, a decrease in velocity means that
A)the rate at which money changes hands falls, so the price level rises.
B)the rate at which money changes hands falls, so the price level falls.
C)the rate at which money changes hands rises, so the price level rises.
D)the rate at which money changes hands rises, so the price level falls.
Q3) Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation
A)increases the real interest rate and the after-tax real rate of interest.
B)Increases the real interest rate and the after-tax real rate of interest
C)does not change the real interest rate but raises the after tax real rate of interest.
D)does not change the real interest rate but reduces the after-tax real rate of interest.
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Chapter 18: Open-Economy Macroeconomic Models
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Q1) The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times
A)U.S. prices minus foreign prices.
B)prices in the United States divided by foreign prices.
C)foreign prices divided by U.S. prices.
D)None of the above is correct.
Q2) In an open economy, gross domestic product equals $1,650 billion, government expenditure equals $250 billion, and savings equals $550 billion. What is consumption expenditure?
A)$250 billion
B)$300 billion
C)$550 billion
D)$850 billion
Q3) Which of the following does purchasing-power parity imply?
A)The purchasing power of the dollar is the same in the U.S. as in foreign countries.
B)The price of domestic goods relative to foreign goods cannot change.
C)The nominal exchange rate is the ratio of U.S. prices to foreign prices.
D)All of the above are correct.
Q4) How do the nominal exchange rate and the real exchange rate differ?
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Chapter 19: A Macroeconomic Theory of the Open Economy
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Q1) In the open-economy macroeconomic model, if net capital outflow increases then
A)the demand for dollars in the market for foreign-currency exchange shifts right.
B)the demand for dollars in the market for foreign-currency exchange shifts left.
C)the supply of dollars in the market for foreign-currency exchange shifts right.
D)the supply of dollars in the market for foreign-currency exchange shifts left.
Q2) If a government of a country with a zero trade balance increases its budget deficit, then the real exchange rate
A)appreciates and there is a trade surplus.
B)appreciates and there is a trade deficit.
C)depreciates and there is a trade surplus.
D)depreciates and there is a trade deficit.
Q3) If the real interest rate were above the equilibrium rate, there would be a shortage of loanable funds.
A)True
B)False
Q4) Why do higher real interest rates lead to lower net capital outflow?
Q5) What effect do protectionist policies have on the trade deficit?
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Chapter 20: Aggregate Demand and Aggregate Supply
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Q1) During recessions declines in investment account for about
A)1/6 of the decline in real GDP.
B)1/3 of the decline in real GDP.
C)1/2 of the decline in real GDP.
D)2/3 of the decline in real GDP.
Q2) The aggregate supply curve is upward sloping in
A)the short and long run.
B)neither the short nor long run.
C)the long run, but not the short run.
D)the short run, but not the long run.
Q3) A decrease in the expected price level shifts short-run aggregate supply to the A)right, and an increase in the actual price level shifts short-run aggregate supply to the right.
B)right, and an increase in the actual price level does not shift short-run aggregate supply.
C)left, and an increase in the actual price level shifts short-run aggregate supply to the left.
D)left, and an increase in the actual price level does not shift short-run aggregate supply.
Q4) Make a list of expenditures whose sum equals GDP.
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Chapter 21: The Influence of Monetary and Fiscal Policy on
Aggregate Demand
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Q1) Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,
A)firms may believe the relative price of their output has risen.
B)real wealth declines.
C)the interest rate increases.
D)the exchange rate increases.
Q2) According to liquidity preference theory, the money-supply curve is
A)upward sloping.
B)downward sloping.
C)vertical.
D)horizontal.
Q3) According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes
A)the interest rate to fall, so aggregate demand shifts right.
B)the interest rate to fall, so aggregate demand shifts left.
C)the interest rate to rise, so aggregate demand shifts right.
D)the interest rate to rise, so aggregate demand shifts left.
Q4) There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?
Page 23
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Chapter 22: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) In the long run, a decrease in the money supply growth rate
A)shifts the short-run Phillips curve left so inflation returns to its original rate.
B)shifts the short-run Phillips curve left so unemployment returns to its natural rate.
C)Both A and B are correct.
D)None of the above is correct.
Q2) A given short-run Phillips curve shows that an increase in the inflation rate will be accompanied by a lower unemployment rate in the short run.
A)True
B)False
Q3) The restrictive monetary policy followed by the Fed in the early 1980s
A)reduced both unemployment and inflation.
B)reduced inflation significantly, but at the cost of a severe recession.
C)reduced unemployment significantly, but at the cost of higher inflation.
D)raised both unemployment and inflation.
Q4) An adverse supply shock shifts the short-run Phillips curve to the left.
A)True
B)False
Q5) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
Page 24
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Chapter 23: Six Debates Over Macroeconomic Policy
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Q1) A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."
A)True
B)False
Q2) Which of the following are both correct?
A)Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect.
B)Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect.
C)Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect.
D)Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect.
Q3) The cost of inflation reduction is a large, permanent increase in unemployment.
A)True B)False
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