Introduction to Macroeconomics
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Course Introduction
Introduction to Macroeconomics provides students with a foundational understanding of the economy as a whole. The course examines key concepts such as gross domestic product (GDP), inflation, unemployment, and economic growth, alongside the roles of government fiscal and monetary policies. Students will explore how national and global economic factors interact, analyze aggregate supply and demand, and gain insight into contemporary economic issues. Through real-world examples and critical thinking exercises, this course equips students to interpret macroeconomic trends and their impact on businesses, governments, and societies.
Recommended Textbook
Macroeconomics 11th Edition by Michael Parkin
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Page 2
Chapter 1: What Is Economics
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Sample Questions
Q1) What does the slope of a straight line equal?
How is the slope of a curved line calculated at a point on the curve?
Answer: The slope of a straight line is calculated between two points on the line.Between the two points on the line,the slope equals the change in the value of the variable measured on the vertical axis (the y-axis) divided by the change in the value of the variable measured on the horizontal axis (the x-axis).The slope of a curved line calculated at a point on the curve is equal to the slope of a tangent straight line.At that point on the curved line,draw a straight line that touches the curved line at only that point.Then,calculate the slope of the straight line.The slope of the curved line at that point equals the slope of the straight line.
Q2) All economic questions arise because we
A) want more than we can get.
B) want more than we need.
C) have an abundance of resources.
D) have limited wants that need to be satisfied.
Answer: A
Q3) In the figure above,what can you deduce about the slope of the curve?
Answer: The slope is positive and increasing in size as we move rightward along the curve.
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Page 3
Chapter 2: The Economic Problem
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Q1) The marginal benefit of a good or service
A) increases as more is consumed.
B) decreases as more is consumed
C) remains constant as more is consumed.
D) decreases as less is consumed
Answer: B
Q2) The table above shows the marginal benefit from pizza and the marginal cost of pizza in cans of soda forgone.If ________ pizzas are produced,the quantity of soda that people are willing to give up to get an additional pizza is more than the quantity of soda that they must give up to get that additional pizza.
A) any quantity other than 40
B) 40
C) more than 40
D) fewer than 40
Answer: D
Q3) In the United States,the government coordinates most of the economic activity.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Demand and Supply
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Sample Questions
Q1) Each point on the demand curve reflects
A) all the wants of a given household.
B) the highest price consumers are willing and able to pay for that particular unit of a good.
C) the highest price sellers will accept for all units they are producing.
D) the lowest-cost technology available to produce a good.
Answer: B
Q2) There are 72,922 seats in Lambeau Field where the Green Bay Packers play football. The Packers have sold out their season tickets since 1960. There are about 80,000 people on the waiting list to buy season tickets in 2010. If the Packers raised ticket prices,the
A) demand for Packers tickets decreases.
B) demand curve for Packers tickets shifts leftward.
C) demand curve for Packers tickets shifts rightward.
D) the quantity demanded of Packers tickets decreases.
Answer: D
Q3) When does a shortage occur?
Answer: A shortage occurs when the price is below the equilibrium price.When the price is less than the equilibrium price,the quantity demanded is greater than the quantity supplied.
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Page 5
Chapter 4: Measuring GDP and Economic Growth
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Q1) What we produce during our working time is ________ as part of GDP and the enjoyment we gain from our leisure time is ________ as part of GDP.
A) included; not included
B) included; included
C) not included; included
D) not included; not included
Q2) What are the categories of total expenditure?
Q3) Goods that are produced this year,stored in inventories,and then sold to consumers next year
A) count in this year's GDP.
B) count in next year's GDP.
C) count in both this year's and next year's GDP.
D) are not counted as a part of GDP.
Q4) Real GDP can be criticized as a measure of economic welfare because it
A) does not include the value of products produced in the household.
B) does not take account of the degradation of environmental quality.
C) does not include leisure time available to a society.
D) All of the above answers are correct.
Q5) Why does real GDP have limitations in determining economic welfare?
Q6) How are changes in inventory treated in GDP?
Page 6
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Chapter 5: Monitoring Jobs and Inflation
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Q1) The unemployment rate equals
A) (the number of unemployed workers)/(the number of employed + unemployed workers) × 100.
B) (the number of unemployed workers)/(the civilian population) × 100.
C) (the number of unemployed workers)/(the U.S. population older than 16 years of age) × 100.
D) (the number of unemployed + employed workers)/(U.S. population older than 16 years of age) × 100.
Q2) If the population is 300 million,with 70 million under the age of 16 and institutionalized,another 70 million not in the labor force,10 million unemployed and 150 million employed,the unemployment rate is
A) 23.3 percent.
B) 6.7 percent.
C) 6.25 percent.
D) 26.7 percent.
Q3) The unemployment rate measures the percentage of people in the labor force who can't find a job.
A)True
B)False
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Page 7
Chapter 6: Economic Growth
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Q1) Classical economists believed that
A) real GDP per person would rise above its subsistence level in the long run.
B) real GDP per person would never rise above its subsistence level in the long run.
C) the demand for labor increases when the population increases.
D) population growth decreases as real GDP per person rises.
Q2) A key feature of the new growth theory is the assumption of
A) diminishing returns to labor.
B) diminishing returns to knowledge.
C) no diminishing returns to knowledge.
D) no diminishing returns to labor.
Q3) If real GDP is $11,750 billion and aggregate hours are 175 billion,labor productivity equals
A) $23.50 per hour.
B) $52 per hour.
C) $67 per hour.
D) $235 per hour.
Q4) What is the role of profits in the neoclassical growth theory versus the new growth theory?
Q5) What are the basic arguments of the classical growth theory?
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Chapter 7: Finance, Saving, and Investment
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Q1) If the government's budget deficit increases and the Ricardo-Barro effect does not apply,
A) the real interest rate rises.
B) investment increases
C) investment decreases
D) Both answers A and C are correct.
Q2) If the economy's capital stock decreases over time,
A) net investment is positive.
B) depreciation is less than zero.
C) depreciation exceeds gross investment.
D) gross investment equals net investment.
Q3) Technological progress that increases the expected profit shifts the demand for loanable funds curve
A) leftward and reduces the real interest rate.
B) rightward and increases the real interest rate.
C) rightward and reduces the real interest rate.
D) leftward and increases the real interest rate.
Q4) What is the influence of the expected profit and the real interest rate on the amount of investment firms make?
Q5) How does the real interest affect households' decisions about saving?
Page 9
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Chapter 8: Money, The Price Level, and Inflation
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Q1) The initial impact of the Fed's open market sale of government securities to banks is A) an increase in the quantity of money by some multiple of the dollar volume of the sale.
B) an increase in bank deposits at the Fed.
C) a decrease in the quantity of money by some multiple of the dollar volume of the sale.
D) a decrease of the banking system's reserve deposits at the Fed.
Q2) In the figure above,an increase in the monetary base would create a change such as a
A) movement from point a to point b along the supply of money curve MS .
B) movement from point b to point a along the supply of money curve MS .
C) shift from the supply of money curve MS to the supply of money curve MS .
D) shift from the supply of money curve MS to the supply of money curve MS .
Q3) Barter is
A) another type of money.
B) printing too much money.
C) the exchange of goods and services directly for other goods and services.
D) the exchange of goods and services for any type of money.
Q4) Define money and list its functions.
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) Suppose U.S.net exports are -$400 billion and the U.S.government sector surplus is $200 billion.Then in the private sector,saving minus investment equals
A) -$600 billion.
B) -$200 billion.
C) +$600 billion.
D) +$200 billion.
Q2) Assume that there is an increased demand in the United States for European wines.If all other factors are held constant,this change will result in
A) an increase in the exchange rate for euros.
B) an appreciation of the dollar.
C) a movement along the demand curve for euros.
D) a decrease in the value of the euro.
Q3) In the above table,the government sector balance is a ________ and net exports is a ________.
A) surplus of $100 billion; deficit of $200 billion
B) deficit of $100 billion; surplus of $200 billion
C) surplus of $100 billion; surplus of $200 billion
D) deficit of $100 billion; deficit of $200 billion
Q4) What is purchasing power parity?
Page 11
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) With an increase in the capital stock,the short-run aggregate supply curve
A) remains as it is.
B) shifts rightward.
C) shifts leftward.
D) becomes steeper.
Q2) Starting at full employment,a business cycle can be described by the following sequence: ________ equilibrium,________ equilibrium,________ equilibrium.
A) full-employment; below full-employment; above full-employment
B) below full-employment; full-employment; above full-employment
C) above full-employment; below full-employment; full-employment
D) below full-employment; full-employment; below full-employment
Q3) For movements along the short-run aggregate supply curve,
A) the money wage rate is constant.
B) the real wage rate changes.
C) potential GDP remains constant.
D) All of the above are correct.
Q4) Give examples of factors that decrease short-run aggregate supply.Which way does the SAS curve shift?
Q5) How does the aggregate demand curve reflect an increase in aggregate demand?
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Chapter 11: Expenditure Multipliers
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Sample Questions
Q1) In the above figure,at a disposable income level of $2 trillion,saving equals
A) disposable income.
B) zero.
C) $4 trillion.
D) consumption expenditures.
Q2) In the above figure,if real GDP is greater than $12 trillion,inventories will be
A) below target levels so firms increase production.
B) below target levels so firms decrease production.
C) above target levels so firms increase production.
D) above target levels so firms decrease production.
Q3) The graph of the consumption function has consumption expenditure on the vertical axis and
A) the interest rate on the horizontal axis.
B) time on the horizontal axis.
C) disposable income on the horizontal axis.
D) the Consumer Price Index on the horizontal axis.
Q4) When disposal income is $5.0 trillion,consumption expenditure is $4.5 trillion.When disposal income is $6.0 trillion,consumption expenditure is $5.0 trillion.What is the marginal propensity to consume?
Q5) What is the relationship between the MPC and the slope of the AE curve?
Page 13
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Chapter 12: Inflation, Jobs, and the Business Cycle
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Q1) In the above figure,suppose the economy has moved from point A to point C.According to the monetarist theory of the business cycle,what could have caused this movement?
A) an increase in the money wage rate
B) an increase in the growth rate of the quantity of money
C) a decrease in the growth rate of the quantity of money
D) an increase in uncertainty
Q2) According to the real business cycle theory,the immediate effects from a change in productivity include which of the following?
I. Investment demand changes.
II. Demand for labor changes.
III. Government expenditures change.
A) I
B) I and II
C) I and III
D) II and III
Q3) Define and describe the short-run Phillips curve.
Q4) The long-run Phillips curve is vertical at the natural unemployment rate.
A)True
B)False
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Chapter 13: Fiscal Policy
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Sample Questions
Q1) The difference between automatic fiscal policy and discretionary fiscal policy is that A) Congress initiates automatic fiscal policy.
B) the President has nothing to do with discretionary fiscal policy.
C) Congress must pass laws implementing discretionary fiscal policy.
D) the President initiates discretionary fiscal policy.
Q2) The Employment Act of 1946 made it the responsibility of the federal government to A) balance its budget because that policy would create the maximum level of employment.
B) promote maximum employment.
C) provide full employment and a stable balance of payments.
D) improve the distribution of income.
Q3) The figure above shows tax revenues and government expenditures in the economy of Meadowlake.Potential GDP is $13 trillion.If real GDP is $13 trillion,then the government has a ________.
A) cyclical surplus
B) structural surplus
C) balanced budget
D) cyclical deficit
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15
Chapter 14: Monetary Policy
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Q1) When the Fed lowers the federal funds rate,the U.S.dollar ________ on the foreign exchange market and ________.
A) depreciates; aggregate demand decreases
B) appreciates; aggregate demand decreases
C) depreciates; the increase in imports is greater than the increase in exports
D) depreciates; aggregate demand increases
Q2) According to the AS/AD model,in the short run an increase in the federal funds rate will
A) decrease the price level and decrease real GDP.
B) increase the price level and decrease real GDP.
C) decrease the price level but leave real GDP unchanged.
D) decrease real GDP but leave the price level unchanged.
Q3) Which of the following is NOT a short-run effect of a decrease in the federal funds rate?
A) Aggregate demand increases.
B) Net exports increase.
C) Aggregate supply increases.
D) Inflation rate increases.
Q4) Describe how open market operations change the quantity of money.
Q5) Explain the ripple effects of a sale of securities in an open market operation.
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Chapter 15: International Trade Policy
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Sample Questions
Q1) Of the groups listed below,which is most likely to lobby for protection?
A) workers in the import industry
B) workers in the export industry
C) consumers in the import industry
D) producers in the export industry
Q2) In 2006,European Union tariff on imported bananas from Latin America was 176 a ton. Suppose 2.5 million tons of bananas were imported in 2006 but then the tariff decreased to 152 a ton in 2007 and as a result,3 million tons were imported in 2007. What is the change in tariff revenue between 2006 and 2007?
A) 1,000,000
B) 440,000,000
C) 445,000,000
D) - 1,000,000
Q3) In the figure above,with the tariff the United States imports ________ million shirts per year.
A) 24
B) 8
C) 32
D) 16
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Page 17
Chapter 16: Introduction
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Q1) Country X devoted 70 percent of its resources to consumption,while Country Y devoted 80 percent to consumption.Other things being equal,you can predict that
A) Country X's opportunity cost of economic growth is lower than Country Y's.
B) Country Y's rate of capital accumulation is higher than Country X's
C) Country Y's economy will grow faster than Country X's.
D) Country X's economy will grow faster than Country Y's.
Q2) All economic questions arise because A) of scarcity.
B) production possibilities are unlimited.
C) our wants are limited.
D) people are irrational.
Q3) Lizzie takes 20 seconds to stuff an envelope and 10 seconds to seal it.Arnold takes 15 seconds to stuff an envelope and 5 seconds to seal it.Lizzie has a comparative advantage in ________ and Arnold has a comparative advantage in ________.
A) sealing envelopes; stuffing them
B) stuffing envelopes; sealing them
C) neither of these activities; both activities
D) both activities; neither of these activities
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Chapter 17: Monitoring Macroeconomic Performance
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Sample Questions
Q1) At full employment,
A) real GDP equals potential GDP.
B) the unemployment rate is zero.
C) real GDP is above potential GDP.
D) the business cycle is at its peak.
Q2) The difference between nominal GDP and real GDP is that real GDP eliminates the effects from
A) depreciation.
B) inflation.
C) the unemployment rate.
D) changes in productivity.
Q3) A significant decline in activity spread across the economy,lasting more than a few months is called
A) a recession.
B) an expansion.
C) a peak.
D) inflation.
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Page 19
Chapter 18: Macroeconomic Trends
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Sample Questions
Q1) If the U.S.interest rate differential ________,the demand for dollars ________ and the U.S.exchange rate ________.
A) increases; increase; appreciates
B) decreases; increase; appreciates
C) increases; decrease; depreciates D) decreases; decreases; appreciates
Q2) According to the quantity theory of money,
A) the only way the Fed can change the quantity of money without affecting the velocity of circulation is by using open market operations.
B) a change in the discount rate changes real GDP.
C) a decrease in the quantity of money will decrease the velocity of circulation. D) a decrease in the quantity of money will decrease the price level.
Q3) If productivity constantly increases,then the real wage rate ________ and employment ________.
A) constantly rises; constantly increases
B) does not change; constantly decreases
C) constantly decreases; does not change
D) constantly rises; does not change
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Chapter 19: Macroeconomic Fluctuations
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Q1) The presence of imports ________ the size of the ________.
A) increases; government budget deficit
B) increases; multiplier
C) decreases; multiplier
D) decreases; government budget deficit
Q2) The multiplier effect
A) is nonexistent in the Keynesian model.
B) has no effect if the cyclical deficit is positive.
C) magnifies small changes in spending into larger changes in output and income.
D) increases the MPC.
Q3) The Keynesian aggregate expenditure model best describes the economy in the ________ run when prices are ________.
A) long; fixed
B) short; variable
C) long; variable
D) short; fixed
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21
Chapter 20: Macroeconomic Policy
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Q1) If we compare the United States to France,we see that potential GDP per person in France is ________ than that in the United States because the French ________ is greater than that in the United States.
A) greater; tax wedge
B) less; structural deficit
C) less; tax wedge
D) less; MPC
Q2) If the Fed makes an open market ________ of government securities,the federal funds rate ________ and the immediate impact is to shift the aggregate ________ curve.
A) purchase; falls; demand
B) sale; falls; demand
C) sale; rises; supply
D) purchase; rises; supply
Q3) A decrease in government expenditures on goods and services is an example of ________.
A) a fiscal policy designed to increase real GDP
B) decreasing needs-tested spending programs
C) increasing induced taxes
D) a fiscal policy designed to decrease real GDP
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