Introduction to Macroeconomics Exam Preparation Guide
Course Introduction
Introduction to Macroeconomics provides a broad overview of the fundamental concepts and principles that govern the functioning of entire economies. The course examines topics such as national income, gross domestic product (GDP), inflation, unemployment, monetary and fiscal policy, and international trade. Students will learn how economic indicators are measured, what they reveal about economic health, and how government policies can impact growth, stability, and living standards. Through real-world examples and critical analysis, the course aims to equip students with the tools to understand economic trends and their implications for society.
Recommended Textbook
Macroeconomics 2nd Edition by Daron Acemoglu
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Chapter 1: The Principles and Practice of Economics
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Q1) Which of the following is a feature of a good theory?
A) A good theory does not rely on data.
B) A good theory cannot be tested with data.
C) A good theory is free from approximations.
D) A good theory closely predicts actual behavior.
Answer: D
Q2) Which of the following is an example of a normative economic statement?
A) An increase in government expenditure will lead to an increase in well-being.
B) An increase in the money supply will lead to an increase in the inflation rate.
C) An increase in income is accompanied by an increase in savings.
D) An increase in income is accompanied by an increase in consumption.
Answer: A
Q3) Which of the following is a topic studied by macroeconomists?
A) The savings of a single household
B) The productivity of an agricultural farm
C) The total output of an economy
D) Price determination in a market
Answer: C
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Chapter 2: Economic Methods and Economic Questions
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Sample Questions
Q1) Facts,measurements,or statistics that describe the world are referred to as
A) data
B) models
C) hypothesis
D) empiricism
Answer: A
Q2) Which of the following is a property of a good economic question?
A) A good economic question can be answered.
B) A good economic question should always have a single solution.
C) A good economic question always addresses topics that are important to the whole society and not to an individual economic agent.
D) A good economic question should never incorporate elements from disciplines other than economics.
Answer: A
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Chapter 3: Optimization: Doing the Best You Can
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Q1) What is the Principle of Optimization at the Margin? Explain with an example.
Answer: The Principle of Optimization at the Margin states that an optimal alternative has the property that moving to it makes the decision maker better off,and moving away from it makes the decision maker worse off.For example,if an individual has to choose between alternative apartments,she will choose moving toward the apartment that lowers her total cost,and moving away from the apartment that increases her total cost.Such an apartment will be an optimal choice according to the Principle of Optimization at the Margin.
Q2) ________ uses the concept of marginal analysis to determine the optimum choice.
A) Empiricism
B) Optimization using total value
C) Before and after comparisons
D) Optimization using marginal analysis
Answer: D
Q3) Which of the following is NOT a step involved in optimization using total value?
A) Calculating the total net benefit of each alternative
B) Choosing the alternative with the highest net benefit
C) Converting all costs and benefits into a common value of measurement
D) Calculating the marginal consequences of moving between alternatives
Answer: D
Page 5
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Chapter 4: Demand, Supply, and Equilibrium
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Q1) Which of the following best describes the difference between a demand curve and a demand schedule?
A) A demand curve can be derived from a demand schedule, but a demand schedule cannot be derived from a demand curve.
B) A demand curve is a graphical representation of the relationship between the quantity of a good and its price, whereas a demand schedule is a tabular representation.
C) A demand curve shows the different quantities of a good demanded at different prices, whereas a demand schedule shows the different quantities of a good demanded at different incomes.
D) A demand curve shows the different quantities of a good demanded at different incomes, whereas a demand schedule shows the different quantities of a good demanded at different prices.
Q2) Differentiate between a change in demand and a change in quantity demanded.
Q3) If there is excess demand in a perfectly competitive market,does the government need to intervene to restore the equilibrium price and quantity? Why or why not?
Q4) With real-world examples,illustrate the various factors that can cause a shift in the demand curve of a commodity.
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Chapter 5: The Wealth of Nations: Defining and Measuring
Macroeconomic Aggregates
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Q1) Refer to the above table.What is nominal GDP for 2017?
A) $6,900
B) $7,400
C) $7,700
D) $7,900
Q2) Refer to the table above.What is the unemployment rate in Caddyville for 2013?
A) 5.5 percent
B) 6.5 percent
C) 7.2 percent
D) 7.7 percent
Q3) Which of the following forms the largest share of GDP in the United States when measured using the expenditure method?
A) Investment
B) Government expenditure
C) Consumption
D) Foreign expenditure on domestic goods
Q4) Explain the concept of an identity.
Q5) What does a circular flow diagram show?
Q7) Why are the values of inputs not included in the calculation of the GDP? Page 7
Q6) Explain the difference between the GDP deflator and the Consumer Price Index.
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Chapter 6: Aggregate Incomes
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Sample Questions
Q1) The value of a vacation home in Italy to its American owner will increase if the
A) euro to dollar exchange rate increases
B) income per capita in Italy increases
C) purchasing power parity (PPP) is relatively greater in the United States
D) PPP-adjusted income is relatively greater in Italy
Q2) Refer to the scenario above.The price of a basket of goods worth $1 in the United States is ________ in Country 1.
A) 5 karls
B) 20 karls
C) 25 karls
D) 50 karls
Q3) If the population of a country increases,GDP remaining constant,then its ________.
A) income per capita will remain unchanged
B) income per capita will decrease
C) trade deficit will decrease
D) gross national product will increase
Q4) What is Moore's Law?
Q5) What role does research and development (R&D)play in increasing productivity?
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Chapter 7: Economic Growth
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Sample Questions
Q1) Refer to the table above.Which country has the highest consumption rate?
A) Country A
B) Country B
C) Country C
D) Country D
Q2) Suppose that a nation's GDP per capita grows at a constant 4 percent per year.You graph the nation's GDP per capita on a graph with a linear time scale on the x-axis,and a proportional GDP per capita scale on the y-axis.What will the nation's GDP per capita look like on the graph?
A) A horizontal line
B) A straight upward-sloping line
C) A curve that is sloped upward, and increasing in slope
D) A curve that is sloped upward, and decreasing in slope
Q3) The minimum level of income per person that is generally necessary for the individual to obtain enough calories,shelter,and clothing to survive is referred to as the
A) safety level of income
B) minimum wage rate
C) survival wage rate
D) subsistence level of income
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Chapter 8: Why Isn't the Whole World Developed?
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Q1) Which of the following statements is true of the British colonies in Jamaica and Barbados?
A) The participation of the natives in politics was greatly limited.
B) The colonies were similar to the ones set up in North America.
C) The institutions set up in these colonies were mostly inclusive.
D) Production was based on well-defined property rights and private ownership of resources.
Q2) If an individual is indifferent about being an entrepreneur,her ________ her opportunity cost of entrepreneurship.
A) returns to entrepreneurship are likely to be equal to B) returns to entrepreneurship are likely to be greater than C) losses from entrepreneurship are likely to be equal to D) losses from entrepreneurship are likely to be greater than
Q3) What is the likely reason that the Industrial Revolution started in Britain and not somewhere else?
Q4) What are the two ways in which extractive institutions affect the number of entrepreneurs in a nation?
Q5) Explain the differences between inclusive and extractive economic institutions.
Q6) What is creative destruction? Define political creative destruction.
Page 11
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Chapter 9: Employment and Unemployment
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Q1) Which of the following is likely to shift the labor supply curve to the left,assuming all else equal?
A) A fall in the wage rate
B) A rise in the wage rate
C) A decrease in the maximum amount of unemployment benefits
D) A social change that discourages women from participating in the labor force
Q2) Which of the following people would be classified as being voluntarily unemployed?
A) Sally, who is not working because she wants to be at home with her kids.
B) Joey, who would be willing to work for $20 an hour but the market clearing wage rate is $15 an hour.
C) Jackie, who does not want to work, because she is traveling the world.
D) Tom, who married a rich widow so that he would not have to work at all.
Q3) Refer to the scenario above.What is the marginal productivity of labor of the fifth hour of labor?
A) 7 papers
B) 12 papers
C) 19 papers
D) 22 papers
Q4) How can technological innovations be a source of unemployment?
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Chapter 10: Credit Markets
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Q1) The theory of efficient markets suggests that ________.
A) interest rates and inflation rates are inversely related
B) systemically important financial institutions are more likely to fail
C) all movements in stock markets are based on rational appraisals of new information
D) long-term investments by banks are more profitable than short-term investments
Q2) A bank run occurs when ________.
A) a bank's assets exceed its liabilities
B) a bank sells its assets to its own stockholders
C) the central monetary authority regulates the functioning of banks
D) a bank experiences an extraordinarily large volume of withdrawals
Q3) Assuming all else equal,a rise in the rate of interest ________.
A) results in a fall in the cost of borrowing
B) results in a fall in the quantity of credit demanded
C) results in an increase in the number of potential debtors
D) results in a fall in the amount of interest accumulated on a loan
Q4) What does the slope of the credit supply curve imply? When do movements along a credit supply curve occur?
Q5) What are the three functions that banks perform as financial intermediaries?
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Chapter 11: The Monetary System
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Sample Questions
Q1) The quantity theory of money assumes a constant ratio of ________.
A) real GDP to nominal GDP
B) money supply to nominal GDP
C) money supply to real GDP
D) money demand to money supply
Q2) Suppose that the money supply increases by 20 percent.If there is no inflation,what does the quantity theory of money tell us must happen to real GDP?
A) It must increase by more than 20 percent.
B) It must increase by less than 20 percent.
C) It must increase by exactly 20 percent.
D) None of the above are correct.
Q3) In Swaziland,the nominal GDP growth rate is 5 percent and the inflation rate is 7 percent.The real GDP growth rate in Swaziland is approximately ________.
A) 2 percent
B) 2 percent
C) 12 percent
D) 35 percent
Q4) Why is the Fed referred to as the "lender of last resort"?
Q5) Is there any risk involved in using fiat money? How can it be minimized?
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Chapter 12: Short-Run Fluctuations
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Q1) On a graph with real GDP growth on the x-axis and the unemployment rate on the y-axis,you plot each year's values for the United States as a separate point.What does the overall trend in this graph look like?
A) An upward-sloping line
B) A vertical line
C) A horizontal line
D) A downward-sloping line
Q2) Predicting when an expansion will end is ________; predicting when a recession will end is ________.
A) difficult; difficult
B) difficult; easy
C) easy; difficult
D) easy; easy
Q3) Country X and Country Y are two neighboring countries that are experiencing a recession.The government of Country X reduced its expenditure during the recession,while Country Y's government increased the supply of money in the economy.Which of the two policies will help the economy recover from the recession?
Q4) Why did the fall in housing prices lead to bank failures in the United States during 2007-2009?
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Chapter 13: Countercyclical Macroeconomic Policy
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Q1) If the Fed wants to decrease the federal funds rate,it can ________.
A) increase the quantity of required reserves
B) decrease the quantity of required reserves
C) increase the quantity of excess reserves
D) decrease the quantity of excess reserves
Q2) The central bank of Baltonia decided to lower the interest rate that commercial banks use to make loans to one another when the growth rate of Baltonia's output fell.What will be the effect of this policy on Baltonia's economy?
Q3) Which of the following statements is true?
A) Countercyclical monetary policy stimulates an economy during a recession by shifting the labor demand curve to the left.
B) Countercyclical monetary policy stimulates an economy during a recession by shifting the labor demand curve to the right.
C) Countercyclical monetary policy stimulates an economy during a recession by shifting the labor supply curve to the left.
D) Countercyclical monetary policy stimulates an economy during a recession by shifting the labor supply curve to the right.
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Chapter 14: Macroeconomics and International Trade
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Q1) Autarkia imports oil and natural gas from and exports food grains to the rest of the world.Based on this information,we can conclude that Autarkia is a(n)________ economy.
A) open
B) closed
C) command
D) communist
Q2) Suppose a country's net exports equal $1.9 billion.Which of the following will happen if the volume of imports increases by $2 billion without any change in the volume of exports?
A) The country's net exports will equal $3.9 billion.
B) The country's net exports will equal $0.1 billion.
C) The country's net exports will become negative.
D) The country's net exports will equal zero.
Q3) Refer to the scenario above.John's opportunity cost of making a chair is ________.
A) 0.25 of a table
B) 1 table
C) 4 tables
D) 4.25 tables
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Chapter 15: Open Economy Macroeconomics
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Q1) Judging from the declining foreign exchange reserves,the Chinese authorities no longer undervalue the yuan.
A)True
B)False
Q2) Refer to the figure above.The net exports of the country are equal to zero
A) at the real exchange rate of R*
B) for all real exchange rates
C) for real exchange rates above R*
D) for real exchange rates below R*
Q3) What is the definition of the real exchange rate?
Q4) A currency union is a form of flexible exchange rate.
A)True
B)False
Q5) An undervalued domestic currency ________.
A) benefits all the economic agents in the country
B) harms all the economic agents in the country
C) makes imports less expensive for domestic consumers
D) makes imports more expensive for domestic consumers
Q6) Why is the eurozone called a currency union?
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