Intermediate Macroeconomics
Textbook Exam Questions
Course Introduction
Intermediate Macroeconomics explores the theoretical foundations and real-world applications of aggregate economic activity. Building on introductory macroeconomic principles, this course delves into national income determination, economic growth, inflation, unemployment, monetary and fiscal policies, and fluctuations in the business cycle. Students will analyze key models such as the IS-LM, AD-AS, and Solow growth model, while critically examining current macroeconomic issues and policy debates. Through quantitative analysis and policy evaluation, the course equips students with a deeper understanding of how economies function on a national and global scale.
Recommended Textbook
Macroeconomics 5th Edition by R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Q1) The number of people who have gray hair is very high among residents living in Florida.A student concludes that living in Florida causes hair to turn gray.What is the flaw in this student's reasoning?
A)The student is drawing a false conclusion by making the mistake of omitting critical variables such as the age and gender of the residents.
B)The student is using an inadequate sample size.
C)The student is drawing a false conclusion; he is confusing cause and effect.
D)The student has failed to take into account other causes of gray hair.
Answer: C
Q2) Refer to Scenario 1-1.Had the firm not produced and sold the last 400 t-shirts,would its profit be higher or lower,and if so by how much?
A)Its profit will be $4,800 higher.
B)Its profit will be $800 higher.
C)Its profit will be $800 lower.
D)Its profit will be $4,000 lower.
Answer: B
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Chapter 2: Trade-Offs,comparative Advantage,and the Market
System
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Q1) Refer to Table 2-5.Does either Estonia or Finland have an absolute advantage and if so,in what product?
A)Finland has an absolute advantage in lumber.
B)Estonia has an absolute advantage in lumber.
C)Finland has an absolute advantage in both products.
D)Estonia has an absolute advantage in cell phones.
Answer: C
Q2) Refer to Table 2-6.What is Lucy's opportunity cost of making a tricycle?
A)3/4 of a wagon
B)3 wagons
C)1 1/3 tricycles
D)2 tricycles
Answer: A
Q3) An outward shift of a nation's production possibilities frontier can occur due to A)a reduction in unemployment.
B)a natural disaster like a hurricane or bad earthquake.
C)a change in the amounts of one good desired.
D)an increase in the labor force.
Answer: D
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) At a product's equilibrium price
A)anyone who needs the product will be able to buy the product,regardless of ability to pay.
B)the federal government will provide the product to anyone who cannot afford it.
C)not all sellers who are willing to accept the price will find buyers for their products.
D)any buyer who is willing and able to pay the price will find a seller for the product.
Answer: D
Q2) An increase in quantity supplied is represented by a rightward shift of the supply curve.
A)True
B)False Answer: False
Q3) It is possible for a market for a good to experience a surplus and a shortage at the same time.
A)True
B)False
Answer: False
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Q1) Rent control is an example of a price floor.
A)True
B)False
Q2) Refer to Figure 4-1.If the market price is $3.00,what is the consumer surplus on the first ice cream cone?
A)$0.50
B)$1.00
C)$5.50
D)$9.00
Q3) In order to be binding a price floor
A)must lie above the free market equilibrium price.
B)must lie below the free market equilibrium price.
C)must coincide with the free market equilibrium price.
D)must be high enough for firms to earn a profit.
Q4) Refer to Figure 4-9.How much of the tax is paid by producers?
A)$45
B)$8
C)$3
D)$2
6
Q5) What area on a supply and demand graph represents producer surplus?
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Chapter 5: The Economics of Health Care
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Q1) Of the following high-income countries,which has the highest male life expectancy at age 65?
A)Canada
B)Japan
C)the United Kingdom
D)the United States
Q2) Pricing insurance policies is made difficult because buyers have more information than sellers.This difficulty is an example of
A)moral hazard.
B)adverse selection.
C)asymmetric information.
D)the free rider problem.
Q3) Substantial co-payments are typically not required as a part of the health care system in
A)Canada and the United Kingdom.
B)Japan and Canada.
C)the United States and Japan.
D)Japan and the United Kingdom.
Q4) What is asymmetric information?
Q5) How do adverse selection and moral hazard affect the market for insurance?
Page 7
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Chapter 6: Firms,the Stock Market,and Corporate Governance
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Q1) In 2002,the Enron corporation was accused of falsifying information regarding liabilities on Enron's balance sheets,thereby
A)increasing Enron's assets on the balance sheet.
B)reducing Enron's profit on the balance sheet.
C)increasing Enron's net worth on the balance sheet.
D)reducing Enron's net income on the income statement.
Q2) How does the principal-agent problem extend to managers and employees?
Q3) Who hires the managers of a corporation?
A)the board of directors
B)stockholders
C)managers
D)employees
Q4) Members of management serving on the board of directors of a corporation are referred to as outside directors.
A)True
B)False
Q5) An increase in liabilities will reduce a firm's net worth.
A)True
B)False
Q6) What is a firm's balance sheet?
Page 8
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Chapter 7: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Refer to Figure 7-1.Under autarky,the producer surplus is area
A)S + V.
B)T + W+ X.
C)V.
D)S + T + V + W + X.
Q2) It is difficult to determine if foreign companies are selling their products for prices below their costs of production because
A)the true costs of production are difficult to calculate.
B)the firms have no legal obligation to reveal this information.
C)costs are calculated in the firms' local currencies.
D)domestic taxes increase the firms' costs but it is difficult to determine the incidence of these taxes.
Q3) The 1994 agreement that eliminated most tariffs among the United States,Canada,and Mexico is known as
A)the Pacific Trade Association.
B)Trade Without Borders.
C)NAFTA.
D)the Western Trade Union.
Q4) What was the GATT,why was it established,and why and with what was it replaced?
Page 10
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Chapter 8: GDP: Measuring Total Production and Income
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Sample Questions
Q1) Gross domestic product understates the total production of final goods and services because of the omission of A)the underground economy.
B)intermediate goods.
C)inflation.
D)exports.
Q2) When consumers are less confident about their jobs or incomes,they are more likely to
A)reduce purchases of durable goods than nondurable goods.
B)reduce purchases of nondurable goods and increase purchases of durable goods.
C)increase investment spending and decrease consumption spending.
D)increase consumption spending and decrease investment spending.
Q3) Investment spending includes spending on A)stocks.
B)food.
C)changes in business inventories.
D)transfer payments.
Q4) Why do we not count the value of intermediate goods and services in gross domestic product? Does the value of intermediate goods and services show up in gross domestic product? If so,how?
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Chapter 9: Unemployment and Inflation
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Sample Questions
Q1) An increase in cyclical unemployment will result in
A)an increase in the natural rate of unemployment.
B)an increase in the unemployment rate.
C)an increase in structural unemployment.
D)a decrease in frictional unemployment.
Q2) Refer to Table 9-21.The table above reports the consumer price index and the average U.S.retail price for unleaded regular gasoline for four different periods since 1976.Note that the gasoline prices are in cents per gallon. Calculate the real average retail price of unleaded regular gasoline in 1982-1984 dollars.In which period were gasoline prices the highest in real terms? Also,calculate the real average retail price of unleaded regular gasoline in 2011 dollars.
Q3) Refer to Table 9-1.The unemployment rate for this simple economy equals
A)(100/1,000)× 100.
B)(100/1,100)× 100.
C)(100/15,000)× 100.
D)(100/20,000)× 100.
Q4) The full-employment rate of unemployment is zero.
A)True
B)False
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Chapter 10: Economic Growth, the Financial System, and Business Cycles
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Q1) Because ________ in the government budget deficit increase the real interest rate,budget deficits can ________ firm investment.
A)increases; increase B)decreases; increase C)decreases; decrease D)increases; decrease
Q2) An increase in the demand for loanable funds will occur if there is
A)an increase in the real interest rate.
B)a decrease in the real interest rate.
C)an increase in expected profits from firm investment projects.
D)an increase in the nominal interest rate accompanied by an equal increase in inflation.
Q3) Which of the following is an example of human capital?
A)a computer
B)a factory building
C)a college education
D)a software program
Q4) Give three reasons why the U.S.economy is more stable since 1950.
Q6) Carefully define the two categories of saving in the economy. Page 13
Q5) Outline the various actions the government sector could take to promote growth.
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Chapter 11: Long-Run Economic Growth: Sources and Policies
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Sample Questions
Q1) Which of the following is an example of foreign portfolio investment?
A)the purchase of a U.S.stock by a U.S.citizen
B)the purchase of a U.S.Treasury bond by a German citizen
C)the purchase of a U.S.mutual fund by a U.S.citizen
D)the purchase of a Japanese factory by a Korean citizen
Q2) Refer to Figure 11-4.Using the per-worker production function in the figure above,the largest changes in an economy's standard of living would be achieved by a movement from
A)A to B to C.
B)E to B to D.
C)C to B to A.
D)D to B to E.
Q3) What features made England in the eighteenth century the place where the Industrial Revolution occurred?
Q4) Would you expect to see higher or lower growth rates for countries that start out with a relatively low level of real GDP per capita? Explain using the concept of "catch-up" and support your answer with a graph.
Q5) Is knowledge capital subject to the law of diminishing returns? Explain.
Q6) Explain three reasons why the productivity slowdown of 1974-1995 occurred.
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Chapter 12: Aggregate Expenditure and Output in the Short Run
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Q1) If the consumption function is defined as C = 5,500 + 0.9Y,what is the value of the multiplier?
A)0.1
B)0.9
C)9
D)10
Q2) Explain,in detail,how the adjustment to macroeconomic equilibrium occurs when spending is less than production.Be sure to discuss how inventories play a crucial role in the adjustment process.State what happens to GDP and employment during the adjustment process.
Q3) Autonomous expenditure times the multiplier equals
A)autonomous saving.
B)autonomous consumption.
C)equilibrium GDP.
D)planned autonomous investment.
Q4) Ceteris paribus,how does a recession in the United States affect U.S.net exports?
Q5) The larger the MPC,the smaller the value of the multiplier.
A)True
B)False
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Chapter 13: Aggregate Demand and Aggregate Supply Analysis
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Q1) All of the following are assumptions made by the dynamic model of aggregate demand and aggregate supply except
A)aggregate demand and potential real GDP decrease continuously.
B)the aggregate demand curve shifts to the right during most periods.
C)potential real GDP increases continuously.
D)the short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages.
Q2) Workers expect inflation to fall from 4% to 1% next year.As a result,this should
A)shift the short-run aggregate supply curve to the left.
B)shift the short-run aggregate supply curve to the right.
C)move the economy up along a stationary short-run aggregate supply curve.
D)move the economy down along a stationary short-run aggregate supply curve.
Q3) Why does the short-run aggregate supply curve slope upward?
Q4) The proponents of ________ and ________ think that the Federal Reserve should adopt a constant monetary growth rule.
A)new Keynesianism; the new classical model
B)the real business cycle model; Marxism
C)rational expectations; monetarism
D)the monetarist model; the Keynesian model
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Chapter 14: Money, banks, and the Federal Reserve System
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Sample Questions
Q1) The largest proportion of M1 is made up of A)currency.
B)checking account deposits.
C)traveler's checks.
D)savings account deposits.
E)time deposits.
Q2) If a person withdraws $500 from his/her savings account and puts it in his/her checking account,then M1 will ________ and M2 will ________.
A)increase; decrease
B)increase; not change
C)not change; increase
D)not change; decrease
E)not change; not change
Q3) The real-world money multiplier is greater than the simple money multiplier (1/RR).
A)True
B)False
Q4) In countries that have experienced hyperinflation,what role have large government budget deficits played in causing the very high inflation rates?
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Chapter 15: Monetary Policy
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Q1) A decrease in real GDP can
A)shift money demand to the right and decrease the interest rate.
B)shift money demand to the right and increase the interest rate.
C)shift money demand to the left and decrease the interest rate.
D)shift money demand to the left and increase the interest rate.
Q2) The Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is one of the ways the Fed responded?
A)The Fed banned investment banks from obtaining discount loans.
B)The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities.
C)The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves.
D)The Fed helped Citibank to acquire General Motors and Chrysler.
Q3) What actions should the Fed take if it believes the economy is about to fall into recession?
Q4) By the 2000s,investment banks had become significant participants in the secondary market for mortgages.
A)True
B)False
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Chapter 16: Fiscal Policy
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Q1) The problem typically during a recession is not that there is too little money,but too little spending.If the problem was too little money,what would be its cause? If the problem was too little spending,what could be its cause?
Q2) A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________. A)increase; rise; falls B)increase; fall; rises C)decrease; rise; falls D)decrease; fall; rises
Q3) To complement actions by the Fed to reduce inflation,Congress and the President can cut spending and/or raise taxes.
A)True
B)False
Q4) If Congress and the president pursue an expansionary fiscal policy at the same time as the Federal Reserve pursues an expansionary monetary policy,how might the expansionary monetary policy affect the extent of crowding out in the short run?
Q5) List the five categories of federal government expenditures.
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Chapter 17: Inflation, unemployment, and Federal Reserve Policy
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Q1) If firms and workers have rational expectations,including knowledge of the policy being used by the Federal Reserve,the short-run Phillips curve will be
A)negatively sloped.
B)positively sloped.
C)vertical.
D)flatter in the long run than it is in the short run.
Q2) Ceteris paribus,in the short run following a decrease in the rate of growth in Aggregate Demand,we would expect to see an increase in the rate of unemployment and a decrease in the rate of inflation.
A)True
B)False
Q3) When individuals use ________ about an economic variable to make a decision,expectations are rational.
A)only historical information
B)only information announced by the Fed
C)all available information
D)only information garnered in the private sector
Q4) Does the short-run Phillips curve have a positive or negative slope? Explain how this slope is derived.
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Chapter 18: Macroeconomics in an Open Economy
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Q1) The decline in the value of the yen after 2012 occurred as a result of the Japanese central bank,the Bank of Japan,following an expansionary monetary policy.Investors expected that the result would be lower nominal Japanese interest rates and a higher inflation rate.In response,investors ________,causing the value of the yen to decline against the dollar.
A)sold Japanese financial assets and bought U.S.financial assets
B)sold Japanese financial assets and sold U.S.financial assets
C)bought Japanese financial assets and sold U.S.financial assets
D)bought Japanese financial assets and bought U.S.financial assets
Q2) Refer to Figure 18-1.The French fall in love with California wines and triple their purchases of this beverage.Assuming all else remains constant,this would be represented as a movement from
A)B to A.
B)C to D.
C)B to C.
D)A to D.
E)A to B.
Q3) What is the difference between net exports and the current account balance?
Q4) Why is the balance of payments always zero?
Q5) Explain the relationship between net exports and net foreign investment.
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Chapter 19: The International Financial System
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Questions
Q1) A persistent shortage of yen at a given fixed exchange rate (in dollars per yen)is evidence that the yen is ________ versus the dollar.This shortage can be reduced or eliminated through a ________ of the yen.
A)undervalued; devaluation
B)undervalued; revaluation
C)overvalued; revaluation
D)overvalued; devaluation
Q2) If the GDP deflator in the United States is 114,and the GDP deflator in Ukraine is 142,which of the following changes would the theory of purchasing power parity predict? (The Ukrainian currency is the hryvnia.)
A)The demand for the dollar will rise since the dollar is undervalued.
B)The demand for the dollar will fall since the dollar is overvalued.
C)The supply of the dollar will fall since the dollar is undervalued.
D)No prediction regarding changes in the demand or supply of the dollar can be made without information on the exchange rate between the United States and Ukraine.
Q3) Why do countries peg their currencies,and what problems can result from pegging?
Q4) Describe the four determinants of exchange rates in the long run.
Q5) Why might a country raise interest rates in the face of an exchange rate crisis?
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