Introduction to Macroeconomics Exam Bank
Course Introduction
Introduction to Macroeconomics explores the fundamental principles governing the overall functioning of economies on a national and global scale. The course covers essential topics such as aggregate supply and demand, national income determination, economic growth, unemployment, inflation, monetary and fiscal policy, and the role of government and central banking. Students will analyze how economic indicators are used to assess economic health and examine real-world policy debates surrounding economic stability and growth. By the end of the course, students will have a solid understanding of macroeconomic concepts and models, enabling them to critically evaluate economic issues and policy decisions.
Recommended Textbook
The Macro Economy Today 13th Edition by Bradley Schiller Cynthia Hill
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Chapter 1: Economics: The Core Issues
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Q1) Which of the following will cause the production possibilities curve to shift inward?
A)An increase in the working-age population.
B)A decrease in the size of the labor force.
C)A technological advance.
D)An increase in knowledge.
Answer: B
Q2) The essential feature of the market mechanism is the price signal.
Prices guide buyers and sellers to achieve an optimal allocation of resources.
A)True
B)False
Answer: True
Q3) Explain why an economist would say,"There is no such thing as a free lunch."
Answer: All resources are scarce.Any time a scarce resource is used in one way,the opportunity to use the resource in other ways is given up.The resources used to produce a "free lunch" could have been used to produce other goods or services,so an opportunity cost is incurred.
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Chapter 2: The Us Economy: A Global View
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Q1) Those who are interested in assessing the relative standard of living of different countries over a given time period are most likely to look at A)GDP.
B)Percentage change in GDP.
C)Population.
D)Per capita GDP.
Answer: D
Q2) Which of the following will increase the level of human capital in an economy?
A)An increase in land mass.
B)An increase in literacy rates.
C)An increase in factory capacity.
D)A decrease in the population.
Answer: B
Q3) Income inequalities are greatest in
A)Highly developed countries.
B)Poor countries.
C)Rich countries.
D)Countries with many factors of production.
Answer: B
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Chapter 3: Supply and Demand
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Q1) An In The News article in the text titled "People Would Donate Kidneys for Payment" stated that 6,475 people were waiting for a kidney transplant.Which of the following statements is not true?
A)A price ceiling of zero is effectively a prohibition against selling organs.
B)Allowing the sale of kidneys at a price greater than zero would increase the number of available kidneys.
C)Allowing the sale of kidneys at a price greater than zero would not increase the number of available kidneys.
D)The debate over the free market for human organ sales is highly volatile.
Answer: C
Q2) Price ceilings are intended to address the problem of A)Inefficiency in production.
B)Inequity in the distribution of goods and services.
C)Business bankruptcies.
D)Shortages.
Answer: B
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Chapter 4: The Role of Government
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Q1) An In the News article titled "Perpetuating Poverty: Lotteries Prey on the Poor" reports that poor people spend a larger percentage of their income on government-promoted gambling than do rich people.On the basis of this information,we can conclude that lotteries function as
A)An income tax.
B)A progressive tax.
C)A property tax.
D)A regressive tax.
Q2) Government intervention that fails to improve economic outcomes is known as market failure.
Government intervention that fails to improve economic outcomes is known as government failure.
A)True
B)False
Q3) The largest source of federal revenue is the corporate income tax.
The largest source of federal revenue is the individual income tax.
A)True
B)False
Q4) Explain why government-funded college education can be considered a role of the government.
Page 6
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Chapter 5: National Income Accounting
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Q1) When calculating GDP,consumption makes up approximately
A)One-fifth of total output.
B)One-half of total output.
C)Two-thirds of total output.
D)One-third of total output.
Q2) In the U.S.GDP,imports
A)Include smuggled goods.
B)Include black-market goods.
C)Are the total of U.S.goods sent abroad.
D)Are goods purchased from foreign sources.
Q3) Which of the following is treated differently in computations of GNP as compared with GDP?
A)Sales in the underground economy.
B)Goods produced by U.S.firms located in foreign countries.
C)Intermediate goods.
D)The value of services performed by housewives.
Q4) Which is better for making comparisons over time,nominal GDP or real GDP,and why?
Q5) What are transfer payments,and how do they make their way into the GDP calculation?
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Chapter 6: Unemployment
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Q1) Someone 18 years old who is not employed and is not actively seeking work is considered
A)Not in the labor force.
B)In the labor force.
C)Employed.
D)UnemployeD.Those not in the labor force include anyone who is not working and not actively seeking work,such as retired people,homemakers,and many students.
Q2) According to Okun's Law,how does a 2 percent increase in unemployment affect the economy?
Q3) Which of the following groups could increase in size and cause a significantly higher unemployment rate?
A)Discouraged workers.
B)Underemployed workers.
C)Phantom unemployed.
D)Children under the age of 16.
Q4) People who get discouraged and no longer seek work are counted as unemployed. These individuals would be classified as discouraged workers.
A)True
B)False
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Chapter 7: Inflation
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Q1) A decrease in the average level of prices of goods and services is A)Deflation.
B)Recession.
C)Depression.
D)Inflation.
Q2) For the CPI,the market basket is expressed in terms of what the goods cost in A)1929.
B)2000.
C)The base period.
D)The optimal perioD.A base year is used as a frame of reference for the price level.
Q3) All of the following statements about inflation in the United States are correct except A)Since the Great Depression,average prices have risen almost every year.
B)The inflation rate was 13.5 percent in 1980.
C)Prior to World War II,the United States experienced periods of both deflation and inflation.
D)Inflation was at its worst during the Great Depression.
Q4) Is everyone worse off because of inflation? Why or why not?
Q5) What is the difference between demand-pull inflation and cost-push inflation?
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Chapter 8: The Business Cycle
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Q1) From the supply-side perspective,the economy may fail to reach full employment because of
A)Production incentives.
B)Declining costs.
C)Lack of government regulation.
D)Taxes that are too high.
Q2) Which of the following would result if the price level were below the equilibrium level?
A)Aggregate demand would increase.
B)Aggregate supply would decrease.
C)Consumers would bid prices up by competing for goods currently in shortage.
D)Shortages would force sellers to lower prices in order to increase aggregate quantity demandeD.Shortages would develop across the economy,which would cause prices to rise and thus encourage more production.
Q3) Individual employment and training programs are levers most likely to be advocated by
A)Classical economists.
B)Monetarists.
C)Keynesians.
D)Supply-side economists.
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Chapter 9: Aggregate Demand
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Q1) If we assume that government expenditure,investment,and net exports are not affected by income,the slope of the consumption function equals A)APC.
B)The change in income divided by the change in consumption.
C)The slope of the aggregate expenditure curve. D)APS.
Q2) If there is an inflationary gap,then a 45-degree line exceeds the aggregate expenditure curve at the full-employment level of income.
The 45-degree line exceeds the aggregate expenditure when there is a recessionary gap and spending would be insufficient to purchase all output.
A)True
B)False
Q3) Federal government spending has a countercyclical impact that helps to stabilize the economy.
Automatic stabilizers such as transfer payments will rise during a recession,preventing a large drop in consumption.
A)True
B)False
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Chapter 10: Self-Adjustment or Instability
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Q1) Desired saving equals desired investment in an economy with no government and no foreign trade
A)At the full-employment level of income.
B)At the income where desired investment equals output.
C)By definition.
D)At the equilibrium level of income.
Q2) If the marginal propensity to consume is 0.75,then the multiplier equals
A)1/(1 - 0.25).
B)1/0.75.
C)1/(1 - 0.75).
D)0.75.
Q3) Which of the following is a leakage?
A)Imports.
B)Investment.
C)Government spending.
D)Aggregate demanD.Spending on imports is not a part of aggregate demand because it is not spent on domestic goods.
Q4) If consumers increase saving during a recession,what will this do and why?
Q5) How does an inflationary gap occur?
Q6) What are leakages,and how do they affect the economy?
Page 12
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Chapter 11: Fiscal Policy
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Q1) From a Keynesian perspective,the way out of a recession includes an increase in government spending,a tax cut,or an increase in transfer payments.
The fiscal policies available to the federal government for increasing aggregate demand are to increase government spending,decrease taxes,or increase transfer payments.
A)True
B)False
Q2) Keynesians would recommend
A)Higher taxes when there is excess aggregate demand.
B)Lower government expenditures when there is a shortfall in aggregate demand.
C)Reliance on the market rather than the government for adjustment when an undesirable level of aggregate demand occurs.
D)Lower taxes when there is excess aggregate demanD.Increasing taxes will decrease aggregate demand,bringing demand in line with full employment.
Q3) How does the slope of the AS curve affect the closure of the GDP gap?
Q4) How can a tax cut increase investment,and what is the impact on the economy?
Q5) Why is the tax cut multiplier different from the purchases multiplier?
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Chapter 12: Deficits and Debt
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Q1) The fiscal year for the federal government begins on
A)January 1.
B)The first Monday in January.
C)November 1.
D)October 1.
Q2) If the economy is in a recession,
A)It is operating inside the production possibilities curve,and the opportunity cost of deficit spending is zero.
B)Deficit spending will not increase the size of the debt because interest rates will be falling.
C)The economy suffers from structural unemployment,which can be alleviated by debt refinancing.
D)Larger deficits will decrease the national debt.
Q3) Selling bonds to finance new government debt leads to an opportunity cost that is A)Less than when government debt is financed with taxes.
B)Greater than when government debt is financed with taxes.
C)The same as financing government debt with taxes.
D)Dependent on who buys the bonds.
Q4) How do rising interest rates cause crowding out?
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Chapter 13: Money and Banks
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Q1) Money is anything that
A)Can be used to barter.
B)A government declares to have value.
C)Has value.
D)Is generally accepted as a medium of exchange.
Q2) Currency in circulation is included in A)M1 only.
B)M2 only.
C)Both M1 and M2.
D)None of the choices are correct.
Q3) The term fractional reserves refers to
A)The fact that reserves are split among many banks.
B)Reserves being a small fraction of total transactions account balances.
C)The ratio of required reserves to total loans.
D)The ratio of excess reserves to total loans.
Q4) Transactions account balances are included in A)M1 only.
B)M2 only.
C)Both M1 and M2.
D)None of the choices are correct.
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Chapter 14: The Federal Reserve System
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Q1) The current chairman of the Federal Reserve is
A)Alan Greenspan.
B)George W.Bush.
C)Ben Bernanke.
D)Nancy Pelosi.
Q2) Which of the following is true about an increase in the discount rate?
A)It reduces the cost of reserves borrowed from the Federal Reserve.
B)It signals the Federal Reserve's desire to restrain money growth.
C)It signals the Federal Reserve's desire to support credit creation.
D)It signals the Federal Reserve's eagerness to lend additional reserves.
Q3) The Federal Open Market Committee impacts the economy through open market operations.
Open market operations allow the Fed to alter the reserves in the banking system,thereby increasing or decreasing credit.
A)True
B)False
Q4) Why do banks typically maintain a low level of excess reserves?
Q5) How does the reserve requirement impact the banking system as a monetary policy tool,and is it used frequently?
Page 16
Q6) Is the Federal Reserve insulated from political pressures in any way? Explain.
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Chapter 15: Monetary Policy
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Q1) The effectiveness of monetary policy is increased
A)In the liquidity trap.
B)When investment demand becomes more responsive to changes in the interest rate.
C)If the velocity of money is constant.
D)If the money demand curve is elastic.
Q2) Currency held by the public,balances in transactions accounts,plus balances in most savings accounts and money market mutual funds are the A)Money demand.
B)Federal funds.
C)Money supply (M1).
D)Money supply (M2).
Q3) If a lender desires to earn a real return of 3 percent on a loan and the anticipated rate of inflation is 2 percent,the lender should charge a
A)Real interest rate of 5 percent.
B)Nominal interest rate of 5 percent.
C)Real interest rate of 6 percent.
D)Nominal interest rate of 3 percent.
Q4) Name and explain the three reasons for holding money balances.
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Chapter 16: Supply-Side Policy: Short-Run Options
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Q1) A World View article titled "Economic Hit from Japan Quake Seen Up to $200 Billion" implies that the most likely impact from power shortages from this destruction would be
A)An increase in GDP.
B)A leftward shift of aggregate supply.
C)A decrease in inflation.
D)A rightward movement down the Phillips curve.
Q2) According to the hybrid,or consensus,view of aggregate supply,the chance for an aggregate demand increase to cause inflation accelerates as
A)The economy moves away from full employment.
B)Unemployment increases.
C)The slope of aggregate supply becomes flatter.
D)The economy moves toward capacity.
Q3) A reduction in tariffs and quotas on imported goods shifts the A)AD curve to the left.
B)AS curve to the left.
C)AS curve to the right.
D)None of the choices are correct.
Q4) What is the outcome of demand-side policies when aggregate supply is upward-sloping?
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Chapter 17: Growth and Productivity: Long-Run Possibilities
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Q1) If the real GDP in Afghanistan grew at an annual rate of 1.5 percent and the country's population grew at an annual rate of 2.5 percent,how long would it take for GDP per capita to double?
A)Approximately 36 years.
B)Approximately 14 years.
C)Approximately 72 years because real GDP is growing at a very low rate.
D)It will never double because population is increasing more rapidly than real GDP.
Q2) Growth in GDP per capita will be achieved when
A)Labor demand decreases substantially while labor supply increases slightly.
B)GDP grows faster than the population.
C)Investment is equal to saving.
D)The government allows tax credits for companies who invest in research and development.
Q3) The pace of economic growth in a capitalist economy is determined by
A)Market forces and government policy.
B)Market forces only.
C)Government policy only.
D)Neither market forces nor government policy.
Q4) What is the most common measure of productivity? How is it calculated?
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Chapter 18: Theory Versus Reality
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Q1) Fiscal and monetary policy can be used to change the price level but not output when the aggregate
A)Supply curve is horizontal.
B)Supply curve is vertical.
C)Supply curve is upward-sloping but not vertical.
D)Demand curve is vertical.
Q2) Fine-tuning involves the adoption of fixed policy rules regardless of the economic situation.
Fine-tuning involves the use of policy in response to changes in the economy to maintain full employment.
A)True
B)False
Q3) Which of the following supports the argument for hands-on policy?
A)Greater stability of the economy in the last 40 years.
B)The existence of the four obstacles to policy success.
C)The failure of discretionary policy.
D)The theory of rational expectations.
Q4) Describe how delays can prevent economic policy from being successful.
Q5) What actions would a modern Keynesian economist advocate to cure a recessionary gap?
Page 20
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Chapter 19: International Trade
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Q1) When one country can produce a given amount of a good using fewer inputs than any other country,
A)It has an absolute advantage in producing the good.
B)It has a comparative advantage in producing the good.
C)Specialization will definitely increase worldwide consumption possibilities.
D)Specialization will definitely increase worldwide production possibilities.
Q2) A World View titled "Export Ratios" examines the openness of trade for several countries based on the trade to GDP ratio.According to the excerpt,which country is the most open to trade?
A)Belgium.
B)Sweden.
C)The United States.
D)China.
Q3) If the United States raises tariffs on foreign goods,it may achieve
A)Higher U.S.exports.
B)Higher efficiency in domestic production.
C)Greater profitability of import-competing firms.
D)Higher production possibilities.
Q4) Describe the pressures that discourage trade.
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Chapter 20: International Finance
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Q1) In the current account,a deficit in the trade balance is necessarily offset by a surplus in the service balance.
In the current account,a deficit in the trade balance is necessarily offset by a surplus in the capital account.
A)True
B)False
Q2) When foreigners buy U.S.dollars because they are a more stable currency than the currencies in their countries,they are generating a
A)Demand for U.S.dollars and a demand for a foreign currency.
B)Supply of U.S.dollars and a supply of a foreign currency.
C)Demand for U.S.dollars and a supply of a foreign currency.
D)Supply of U.S.dollars and a demand for a foreign currency.
Q3) The trade balance for the United States equals
A)The difference between service exports and service imports.
B)The difference between the dollar value of exports and the dollar value of imports.
C)Exports plus imports.
D)The current account balance minus the capital account balance.
Q4) Explain the forces that can cause an exchange rate to change.
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Chapter 21: Global Poverty
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Q1) The U.N.'s Millennium Aid Goal is for nations to increase their foreign aid levels to 0.7 percent of donor country GDP.
Developed nations have set a goal of delivering more aid.The United Nations' Millennium Aid Goal is to raise foreign aid levels to 0.7 percent of donor country GDP.
A)True
B)False
Q2) Which of the following is not true concerning economic growth?
A)It is an increase in real GDP.
B)It can be sustained in the short run but not the long run.
C)It means that the production possibilities have expanded.
D)It's the result of more resources or better technology.
Q3) According to Rostow's five stages of development,which of the following is characteristic of Stage 5?
A)High per capita GDP attained and available to most people.
B)Dependence on subsistence agriculture.
C)Rapid industrialization.
D)Emergence of an entrepreneurial class.
Q4) What is microfinance,and how can it contribute to economic growth?
Q5) What is human capital,and what factors contribute to human capital development?
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