Intermediate Macroeconomics
Textbook Exam Questions
Course Introduction
Intermediate Macroeconomics delves into the theoretical frameworks and empirical tools used to analyze the overall performance of national economies. Emphasizing the determination of output, employment, inflation, and economic growth, the course builds on basic macroeconomic principles and introduces students to key models such as the IS-LM, AD-AS, and Solow growth models. Topics include consumption and investment behavior, the role of monetary and fiscal policy, financial markets, and open-economy macroeconomics. By integrating real-world case studies and data analysis, students develop the skills necessary to critically assess economic policies and interpret macroeconomic trends.
Recommended Textbook
Macroeconomics 12th Edition by Roger A. Arnold
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Chapter 1: What Economics Is About
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Sample Questions
Q1) Variables X and Y are independent of each other.If we plot X on the horizontal axis and Y on the vertical axis,the line that connects combinations of X and Y in a two-variable diagram is
A)parallel to the horizontal axis.
B)downward-sloping (left to right).
C)parallel to the vertical axis.
D)upward-sloping (left to right).
E)a or c
Answer: E
Q2) The opportunity cost of attending college is
A)the money one spends on college tuition,books,and so forth.
B)the highest valued alternative one forfeits to attend college.
C)the least valued alternative one forfeits to attend college.
D)equal to the salary one will earn when one graduates from college.
Answer: B
Q3) According to economists,money is a resource.
A)True
B)False
Answer: False
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Chapter 2: Production Possibilities Frontier Framework
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Q1) In an eight-hour day,Andy can produce either 24 loaves of bread or 8 pounds of butter.In an eight-hour day,John can produce either 8 loaves of bread or 8 pounds of butter.The opportunity cost of producing 1 pound of butter is
A)1/3 hour for Andy and 1 hour for John.
B)1 hour for Andy and 1 hour for John.
C)3 loaves of bread for Andy and 1 loaf of bread for John.
D)1/3 loaves of bread for Andy and 1 loaf of bread for John.
E)none of the above
Answer: C
Q2) Refer to Exhibit 2-6.Which graph best depicts the consequence of a large-scale natural disaster?
A)(1)
B)(2)
C)(3)
D)(4)
E)none of the above
Answer: B
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Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) Explain why the price of a good tends to fall when there is a surplus of the good.Give a hypothetical numerical example to help support your answer.
Answer: Surpluses always occur at prices that are above the equilibrium price.When there is a surplus of a good,the quantity supplied of the good exceeds the quantity demanded.Sellers will find that they are unable to sell as many units at that price as they had hoped to sell,and they will find that inventories have risen above the level intended for demand changes.As a result,some sellers will cut back on production,some will lower the price of the good,and others will do both.This will lead to an overall decrease in both the price and output of the good until equilibrium is reached.Examples will vary.
Q2) Resource X is necessary to the production of good Y.If the price of resource X falls,
A)the supply curve of Y shifts leftward.
B)the supply curve of Y shifts rightward.
C)the supply curve of Y is unaffected.
D)there is a movement down the supply curve of Y.
E)there is a movement up the supply curve of Y.
Answer: B
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Chapter 4: Prices: Free, controlled, and Relative
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Sample Questions
Q1) 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 size of the total surplus at P<sub>F</sub>?
A)area 1 + 2 + 3
B)area 1 + 2 + 3 + 4
C)area 1 + 2 + 3 + 4 + 5
D)area 1 + 2 + 3 + 4 + 5 + 6
Q2) If the absolute price of a computer is $500 and the relative price of a dining room table is 3 computers,it follows that the absolute price of a dining room table is
A)$167.
B)$750.
C)$3,000.
D)$30,000.
E)none of the above
Q3) A deadweight loss is the loss to society of not producing the supply-and-demand determined level of output.
A)True
B)False
Q4) List and describe the two major jobs performed by price.
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Chapter 5: Supply,demand,and Price: Applications
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Q1) The NCAA rule governing the limits on the amount of a scholarship a college can offer an athlete is an effective price floor.
A)True
B)False
Q2) Refer to Exhibit 5-3 which shows the demand and supply of a college athlete.Suppose that NCAA rules limit the amount that the college can pay this athlete,such that their payment can not exceed the cost of attending the college (currently $8,000).The impact of this ruling would be a loss of income to the athlete of __________ and an equal gain in consumers' surplus to the college represented by
A)$2,000;area 2
B)$8,000;area 3
C)$10,000;area 2 + 3
D)$2,000;area 1 + 2
Q3) High demand for a product does not necessarily mean a high quantity demanded for that product if the price is high enough.
A)True
B)False
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Chapter 6: Macroeconomic Measurements, part I: Prices and Unemployment
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Q1) Discouraged workers are not counted as unemployed because they are working. A)True
B)False
Q2) The cyclical unemployment rate is defined as the __________ unemployment rates.
A)sum of the structural and the frictional
B)difference between the structural and the frictional C)difference between the existing (actual)and the natural D)sum of the natural and the frictional
Q3) If the unemployment rate drops,then it necessarily follows that some of the people who were once unemployed are now employed.
A)True
B)False
Q4) 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
Q5) Describe what the term "full employment" means to an economist.
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Chapter 7: Macroeconomic Measurements, part II: GDP and
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Sample Questions
Q1) When computing national income,which of the following is included in compensation of employees?
A)wages and salaries paid to employees
B)employers' contributions to Social Security and employee benefit plans
C)the monetary value of fringe benefits,tips,and paid vacations
D)all of the above
Q2) National income equals
A)wages + salaries + corporate profits + net income.
B)compensation of employees + proprietors' income + corporate profits + rental income + net interest.
C)compensation of employees + proprietors' income + indirect business taxes + rental income + net interest.
D)the monetary value of fringe benefits + tips + wages + profits + salaries.
E)none of the above
Q3) Net interest is the interest paid out by US households and government minus the interest income they received.
A)True
B)False
Q4) Explain why GDP figures do not necessarily measure happiness or well-being.
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Chapter 8: Aggregate Demand and Aggregate Supply
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Q1) The real balance effect works through a change in the value of A)monetary assets in response to changes in the unemployment rate.
B)nonmonetary assets in response to changes in the unemployment rate.
C)monetary assets in response to changes in the price level.
D)nonmonetary assets in response to changes in the price level.
Q2) In a two-country world,a decrease in foreign input prices,ceteris paribus,
A)shifts the SRAS curve leftward,causing the price level to increase.
B)shifts the SRAS curve leftward,causing the price level to decrease.
C)shifts the SRAS curve rightward,causing the price level to increase. D)shifts the SRAS curve rightward,causing the price level to decrease.
E)does not affect the SRAS curve or the price level.
Q3) If foreign real national income rises,the U.S.____________ curve shifts _____________.When labor productivity increases the _____________ curve shifts _______________.If both of these situations occur simultaneously,the combined result would be a(n)______________ the price level and a(n)__________________ Real GDP in the United States.
A)AD;leftward;SRAS;rightward;decrease in;indeterminant impact on B)AD;rightward;SRAS;leftward;increase in;indeterminant impact on C)SRAS;leftward;SRAS rightward;indeterminant impact on;indeterminat impact on D)AD;rightward;SRAS;rightward;indeterminant impact on;increase in
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Chapter 9: Classical Macroeconomics and the
Self-Regulating
Economy
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Q1) If the economy is producing Natural Real GDP,then the
A)current unemployment rate is greater than the natural unemployment rate.
B)current unemployment rate is less than the natural unemployment rate.
C)economy is at full employment.
D)economy is operating at the natural unemployment rate.
E)c and d
Q2) A necessary condition for a money economy to be self-regulating is that
A)wages must be flexible in an upward direction,but not in a downward direction.
B)the economy must always be operating on its institutional production possibilities frontier.
C)wages must be flexible in a downward direction,but not in an upward direction.
D)interest rates must be flexible in the credit market.
E)none of the above
Q3) According to Say's law,there can be
A)neither a general overproduction nor a general underproduction of goods.
B)a general overproduction but not a general underproduction of goods.
C)a general underproduction but not a general overproduction of goods.
D)both a general overproduction and a general underproduction of goods.
Q4) 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) What is the general format of the consumption function? Explain what each term means and use the consumption function to explain the three different ways that consumption can increase.
Q2) Autonomous consumption is
A)the change in consumption that results as a person's (or nation's)income increases or decreases.
B)that portion of total consumption that is dependent upon the level of income.
C)the steady increase in the consumption of goods and services that automatically occurs as a person grows from a child to an adult.
D)that portion of total consumption that is independent of the level of income.
Q3) John Maynard Keynes was the son of
A)one of the first female students to attend Cambridge University.
B)Russian ballerina Lydia Lopokova.
C)the mayor of London.
D)an eminent economist.
E)a and d
Q4) Explain the process by which an initial change in autonomous spending can lead to an even greater change in total spending.
Q5) Describe Keynes' criticism of Say's law in a money economy.
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Chapter 11: Fiscal Policy and the Federal Budget
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Sample Questions
Q1) Some economists believe that higher marginal income tax rates __________ the incentive to work and thus shift the __________.
A)increase;AD curve to the right
B)increase;SRAS curve to the right
C)increase;SRAS curve to the left
D)decrease;AD curve to the left
E)decrease;SRAS curve to the left
Q2) Which of the following illustrates the wait-and-see lag?
A)Policymakers believe an economic downturn has occurred,but they decide not to take action until they are sure.
B)Policymakers are in the process of proposing policy measures to deal with the current economic slowdown.
C)Policymakers first learn of the recession when it is five months old.
D)Policymakers implement policy X,but it will be a few months before it starts working.
E)Policymakers agree to policy X,but it will be at least two months before the policy is implemented.
Q3) Explain how tax cuts can impact both aggregate demand and aggregate supply.Give an example of each.
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Chapter 12: Money,banking,and the Financial System
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Sample Questions
Q1) To a bank,reserves are classified as A)an asset.
B)a liability.
C)equity
D)a liability or an asset
Q2) When economists say that banks must hold a percentage of their total deposits in reserve form,what does this mean?
A)It means that banks must hold a fraction of their customers' deposits either as bank deposits at the Federal Reserve,or as vault cash,or both.
B)It means that banks reserve the right to turn away customers a certain percentage of the time.
C)It means that the fraction of vault cash a bank has cannot be greater than the fraction of bank deposits (it has)at the Federal Reserve.
D)Essentially,it means that total reserves are greater than required reserves.
E)none of the above
Q3) To an economist,the terms "money" and "wealth" are synonyms.
A)True
B)False
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Chapter 13: The Federal Reserve System
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Sample Questions
Q1) When the federal government incurs a budget deficit,it will
A)mint more coins and spend them.
B)create money out of thin air.
C)impose a special tax on all income earners.
D)borrow money from the Federal Reserve System by issuing securities.
E)borrow money from the public by issuing government securities.
Q2) Which of the following is not a responsibility of the Fed?
A)supervising member banks
B)serving as the lender of last resort
C)determining the level of government spending
D)providing check-clearing services
E)supplying the economy with Federal Reserve Notes
Q3) When the Federal Open Market Committee (FOMC)votes on policy,it does so in the following order: the chair votes first,the vice chair votes second,and the remaining FOMC members vote based on their seniority at the Fed.
A)True
B)False
Q4) Use the simple deposit multiplier to help show why the money supply increases when the Fed lowers the required reserve ratio (r).
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Chapter 14: Money and the Economy
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Q1) The expectations effect is the
A)increase in the interest rate brought on by an expected increase in Real GDP.
B)increase in the interest rate due to a higher expected inflation rate.
C)decrease in the interest rate due to an expected increase in the supply of loanable funds.
D)idea that people form their expectations of inflation by considering all available information about past,present,and future inflation.
E)idea that people form their expectations of inflation by considering only information about past inflation experience.
Q2) If the Fed increases its open market purchases of government securities,it exerts a downward pressure on the interest rate.Such a phenomenon is usually referred to as the ___________________ effect.
A)income
B)substitution
C)open market
D)liquidity
E)expectations
Q3) Describe the expectations (or Fisher)effect.
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Chapter 15: Monetary Policy
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Q1) As the interest rate __________,the opportunity cost of holding money __________ and individuals choose to hold __________ money.
A)increases;increases;more B)increases;decreases;more C)increases;decreases;less D)decreases;increases;more E)decreases;decreases;more
Q2) Changes in the money market have an impact upon the bond market.
A)True
B)False
Q3) To eliminate a recessionary gap the Fed typically uses __________ monetary policy,and to eliminate an inflationary gap the Fed typically uses __________ monetary policy.
A)expansionary;expansionary
B)expansionary;contractionary
C)contractionary;contractionary
D)contractionary;expansionary
Q4) The supply curve of bonds is graphed as a vertical line.
A)True
B)False
Page 17
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Chapter 16: Expectations Theory and the Economy
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Q1) As long as some people anticipate policy,the economic consequences may be the same as if all persons do so.
A)True
B)False
Q2) Refer to Exhibit 16-1.Suppose the economy is currently at point B on the short-run Phillips curve,SRPC<sub>1</sub>.What could get the economy to move to point C on SRPC<sub>2</sub>?
A)The realization on the part of workers that their currently held expected inflation rate is too high;they revise it upward,thus shifting the short-run aggregate supply curve rightward.
B)The realization on the part of workers that their currently held expected inflation rate is too high;they revise it downward,thus shifting the short-run aggregate supply curve rightward.
C)The realization on the part of workers that their currently held expected inflation rate is too low;they revise it upward,thus shifting the short-run aggregate supply curve leftward.
D)The realization on the part of workers that their currently held expected inflation rate is too low;they revise it downward,thus shifting the short-run aggregate supply curve rightward.
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Chapter 17: Economic Growth: Resources, technology, ideas, and Institutions
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Q1) The Real GDP of country X doubled in 10 years.It follows that
A)the per-capita Real GDP doubled during this time,too.
B)the per-capita Real GDP remained stable during this time.
C)the per-capita Real GDP fell during this time.
D)disposable income also doubled during this time.
E)none of the above
Q2) According to new growth theory,technological advances can be promoted A)from within the economy.
B)if only the right fiscal and monetary policies are in place.
C)in a few rare cases.
D)through industrial policy.
E)none of the above
Q3) 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
Q4) The term economic growth can be used in reference to absolute real economic growth or to per- capita real economic growth.
A)True
B)False
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Chapter 18: The Financial Crisis of 2007-2009
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Q1) During a time of rising asset values,a bank can increase its returns by engaging in regulatory capital arbitrage.
A)True
B)False
Q2) According to economist John Taylor,the Fed set its federal funds rate target too high during the period 2002-early 2006,which contributed to the financial crisis of 2007-2009.
A)True
B)False
Q3) According to John Taylor,during the period 2002-early 2006 the Fed set its federal funds rate target _____________ the rate that would have existed had the Fed set its target using the Taylor rule.
A)below
B)above
C)equal to
D)sometimes below and sometimes above
Q4) A bank is solvent as long as its liabilities are greater than its assets.
A)True
B)False
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Chapter 19: Debates in Macroeconomics Over the Role and Effects
of Government
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Q1) Which of the following statements about a political campaign is false?
A)Candidates often label their opponents as either "too far right" or "too far left."
B)Candidates often call themselves "middle-of-the-roaders" rather than "right-wingers" or "left-wingers."
C)Candidates often tend to talk about ends rather than means.
D)Candidates often tend to talk in specific terms rather than general terms about what needs to be done.
Q2) Special interest groups
A)often gain from public policies that may not be in accord with the interests of the general public.
B)never gain from public policies that are not in accord with the interests of the general public.
C)always gain from public policies that are not in accord with the interests of the general public.
D)never lobby for public policies that are not in accord with the interests of the general public.
E)always lobby for public policies that are not in accord with the interests of the general public.
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Chapter 20: Public Choice and Special-Interest-Group
Politics
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Q1) The ______________ the gap between the tuition a college student pays and the equilibrium tuition for that college,the _____________ likely the student's instructors will be on time and attentive during their office hours.
A)larger;less B)smaller;more
C)larger;more D)smaller;less
E)a and b
Q2) For economic imperialists,economics is more of a method of analysis than a specific field of study.
A)True
B)False
Q3) Which of the following statements is true?
A)The motivation to try to explain something is at the heart of building a theory.
B)If a theory makes people uncomfortable then it should be discarded or ignored.
C)In order for a theory to be valid it must be a perfect description of reality.
D)Building a theory and evaluating a theory are the same thing.
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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) Tariffs raise the price of imported goods,but quotas rarely do.
A)True
B)False
Q2) It is necessary for government officials to analyze cost data to determine what their country should specialize in producing.
A)True
B)False
Q3) Countries that engage in specialization and trade can consume at a level beyond their production possibilities frontier.
A)True
B)False
Q4) The answer is: "A tax on imports." What is the question?
A)What is comparative advantage?
B)What is a quota?
C)What is a tariff?
D)What reduces consumers' surplus?
E)c and d
Q5) Describe who benefits and who loses from tariffs and from quotas.What is the major difference between the effects of a quota and the effects of a tariff?
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Chapter 22: International Trade
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Q1) As the dollar price of the Mexican peso falls,the __________ Mexican goods will be for Americans to purchase and the __________ Mexican goods Americans will buy;thus __________ pesos will be demanded.
A)less expensive;more,more
B)more expensive;fewer,fewer
C)more expensive;more,fewer
D)less expensive;more,fewer
E)none of the above
Q2) You go on vacation to Mexico and take $1,000 with you.During your time in Mexico,the peso appreciates in value relative to the dollar.It follows that
A)you will be able to buy more goods and services in Mexico after the peso appreciates.
B)you will be able to buy fewer goods and services in Mexico after the peso appreciates.
C)the purchasing power parity theory is incorrect.
D)Mexican workers,paid in pesos,will be able to buy fewer goods and services in Mexico after the peso appreciates.
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Chapter 23: International Finance
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Q1) Suppose the dollar depreciates in the foreign exchange markets.What is the impact on U.S.Real GDP?
A)It must rise because dollar depreciation shifts the U.S.AD curve rightward.
B)It must fall because dollar depreciation shifts the U.S.SRAS curve leftward.
C)It remains constant since dollar depreciation does not shift either the U.S.AD curve or the U.S.SRAS curve.
D)It may rise,fall,or remain constant depending upon whether the U.S.AD curve shifts rightward by more,less,or an amount equal to the leftward shift of the U.S.SRAS curve.
Q2) An appreciation of the dollar in the foreign exchange market raises United States Real GDP when the _____________ shift of the SRAS curve exceeds the __________ shift of the AD curve.
A)rightward;rightward
B)rightward;leftward
C)leftward;rightward
D)leftward;leftward
Q3) Describe the impact of contractionary fiscal policy (such as a decrease in government spending)upon Real GDP in both a closed economy and an open economy.In which type of economy would the change in Real GDP be greater?
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Chapter 24: Globalization and International Impacts on the Economy
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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) In the case of a positive externality,in order to achieve efficiency the government must set the _________________ equal to the marginal
A)tax;external costs
B)tax;external benefits
C)subsidy;external costs
D)subsidy;external benefits
E)subsidy;private costs
Q3) In making the case against government,discuss the two main points about special interest groups.
Page 26
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Chapter 25: The Economic Case for and Against
Government: Five Topics Considered
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Q1) The major components of a bond include all of the following except its A)maturity date.
B)face value.
C)price.
D)coupon rate.
Q2) You turn to the Treasury bond market page of a newspaper and look under the column headed "Bid" and see that it says,"125:8" this indicates that
A)the price that the buyer is willing to pay for this bond is $125.08.
B)the price that the buyer is willing to pay for this bond is $1,252.50.
C)the price that the seller is willing to sell this bond for is $125.80.
D)the price that the seller is willing to sell this bond for is $125.08.
Q3) The yield on a bond is the
A)annual coupon payment divided by the price paid for the bond.
B)coupon rate divided by the price paid for the bond.
C)annual coupon payment divided by the face value of the bond.
D)same as the interest rate on the bond.
E)a and d
Q4) Explain the differences between a corporate bond,a municipal bond,and a Treasury bond.Which of these would be the least risky investment,and why?
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Chapter 26: Stocks, bonds, futures, and Options
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Sample Questions
Q1) In agriculture during much of the 20th century,supply grew more than demand.Which two farm problems are these?
A)the high-productivity problem and the income elasticity problem
B)the low-productivity problem and the income inelasticity problem
C)the high-productivity problem and the income inelasticity problem
D)the low-productivity problem and the income elasticity problem
E)none of the above
Q2) In 2014,the federal government disbanded the practices of fixed direct payments and countercyclical payments to farmers.
A)True
B)False
Q3) Which of the following is not an effect of an agricultural price support?
A)a surplus
B)fewer exchanges
C)higher prices paid by consumers
D)government purchase and storage of surplus
E)higher-quality products
Q4) Explain how nonrecourse loans operate and how they help to support crop prices.
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