Introduction to Macroeconomics Practice Questions
Course Introduction
Introduction to Macroeconomics provides students with a foundational understanding of how entire economies operate at the national and global levels. The course examines key concepts such as gross domestic product (GDP), inflation, unemployment, and economic growth, exploring how these indicators are measured and interpreted. Students will learn about the roles of government fiscal and monetary policy, the functioning of financial institutions, and the dynamics of international trade. Emphasis is placed on using economic models to analyze real-world problems and develop critical thinking skills regarding contemporary economic issues and policy decisions.
Recommended Textbook
Economics 20th Edition Volume I and Volume II by Campbell R. McConnell
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Page 2
Chapter 1: Limits, Alternatives, and Choices
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210 Verified Questions
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Sample Questions
Q1) (Last Word)A caller to a radio talk show states that oil companies are "greedy price gougers." This is an example of:
A) loaded terminology.
B) the "after this,therefore because of this fallacy."
C) the fallacy of composition.
D) the economic perspective.
Answer: A
Q2) A production possibilities curve shows:
A) that resources are unlimited.
B) that people prefer one of the goods more than the other.
C) the maximum amounts of two goods that can be produced,assuming the full use of available resources.
D) combinations of capital and labor necessary to produce specific levels of output. Answer: C
Q3) Purposeful behavior implies that everyone will make identical choices.
A)True
B)False
Answer: False
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3
Chapter 2: The Market System and the Circular Flow
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Sample Questions
Q1) Which of the following is a distinguishing feature of a command system?
A) Private ownership of all capital.
B) Central planning.
C) Heavy reliance on markets.
D) Widespread dispersion of economic power.
Answer: B
Q2) Private property:
A) discourages cooperation because people don't want to part with what they own.
B) discourages innovation,as people are often afraid to risk losing their own property.
C) encourages owners to maintain or improve their property so as to preserve or enhance value.
D) does everything indicated by the other answers.
Answer: C
Q3) Continued losses in an industry will cause some firms to reduce output or eventually leave the industry.
A)True
B)False
Answer: True
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4
Chapter 3: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) If products C and D are close substitutes,an increase in the price of C will:
A) tend to cause the price of D to fall.
B) shift the demand curve of C to the left and the demand curve of D to the right.
C) shift the demand curve of D to the right.
D) shift the demand curves of both products to the right.
Answer: C
Q2) At the point where the demand and supply curves for a product intersect:
A) the selling price and the buying price need not be equal.
B) the market may,or may not,be in equilibrium.
C) either a shortage or a surplus of the product might exist,depending on the degree of competition.
D) the quantity that consumers want to purchase and the amount producers choose to sell are the same.
Answer: D
Q3) An increase in quantity supplied might be caused by an increase in production costs.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Market Failures: Public Goods and Externalities
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Sample Questions
Q1) Asymmetric information always results in adverse selection.
A)True
B)False
Q2) Some sellers of used cars provide warranties to buyers,with the aim of reassuring buyers that the car is of good quality.These warranties help reduce the chance of what occurring?
A) Negative externalities.
B) Adverse selection.
C) Spillover benefits.
D) Moral hazard.
Q3) If a good that generates positive externalities were produced and priced to take into account these spillover benefits,then its:
A) price and output would increase.
B) output would increase,but price would remain constant.
C) price would increase and output would decrease.
D) price would increase,but output would remain constant.
Q4) Along a supply curve,product price and producer surplus are inversely related.
A)True
B)False
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Chapter 5: Governments Role and Government Failure
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Sample Questions
Q1) Because of the force of law and bureaucratic structure,government accountability is less of a problem than in the private sector.
A)True
B)False
Q2) Which of the following would best explain why regulatory capture is a problem?
A) The regulations implemented tend to reduce the profitability of the regulated industry and reduce global competitiveness.
B) Regulatory capture unduly increases the size and power of government,increasing costs for taxpayers.
C) Individuals implementing the regulations lack expertise about the industry and therefore make poor regulatory choices.
D) The regulations implemented serve the private interests of the regulated industry,rather than addressing social interests such as consumer safety and environmental protection.
Q3) The government's ability to force people to do things can increase economic efficiency.
A)True
B)False
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Chapter 6: Elasticity
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Sample Questions
Q1) (Consider This)Which of the following best explains the significant increases in the equilibrium prices for higher education in the United States since the 1980s?
A) The demand for higher education is highly price inelastic and the supply has decreased substantially.
B) The demand for higher education is highly price elastic and the supply has decreased substantially.
C) The supply of higher education is highly price inelastic and demand has increased substantially.
D) The supply of higher education is highly price elastic and demand has increased substantially.
Q2) An income elasticity coefficient of -1.8 means the product is a normal good.
A)True
B)False
Q3) In which of the following cases will total revenue increase?
A) Price falls and demand is inelastic.
B) Price falls and supply is elastic.
C) Price rises and demand is inelastic.
D) Price rises and demand is elastic.
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Chapter 7: Utility Maximization
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Sample Questions
Q1) The consumer demand curve for a product is downsloping because marginal utility is constant when price declines.
A)True
B)False
Q2) The slope of a budget line reflects the:
A) elasticity of demand for the two products.
B) price ratio of the two products.
C) amount of the consumer's income.
D) utility ratio of the two products.
Q3) Which of the following statements is not correct?
A) A reduction in money income will shift the budget line to the right.
B) A reduction in money income accompanied by an increase in product prices will necessarily shift the budget line to the left.
C) An increase in product prices will shift the budget line to the left.
D) An increase in money income will shift the budget line to the right.
Q4) Any combination of goods lying outside of the budget line:
A) implies that the consumer is not spending all his income.
B) yields less utility than any point on the budget line.
C) yields less utility than any point inside the budget line.
D) is unattainable,given the consumer's income.
Page 9
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Chapter 8: Behavioral Economics
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Sample Questions
Q1) Behavioral economics demonstrates that the threat of rejection makes people less likely to engage in transactions.
A)True
B)False
Q2) Buck carefully plans out an early morning exercise routine to lose weight and get fit.When it's time to work out,however,Buck just "doesn't feel up to it" and decides to sleep in.Behavioral economics would say that Buck:
A) weighed the costs and benefits and made a rational economic decision to sleep in.
B) used System 1 of his brain to formulate his workout plan,but then gave in to System 2 when he chose to sleep in.
C) used System 2 of his brain to formulate his workout plan,but then gave in to System 1 when he chose to sleep in.
D) is fundamentally lazy and incapable of sticking to a workout plan.
Q3) Behavioral economists believe that while people try to make rational decisions,they are frequently subject to systematic errors.
A)True
B)False
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Chapter 9: Businesses and the Cost of Production
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Sample Questions
Q1) Answer the question on the basis of the following cost data: \[\begin{array} { c c c }
&&\text { Total } \\
\text { Output }&&\text { Cost }\\ \hline
0 & & \$ 24 \\
1 & & 33 \\
2 & & 41 \\
3 & & 48 \\
4 & & 54 \\
5 & & 61 \\
6 & & 69
\end{array}\] Refer to the data.The average total cost of producing 3 units of output is:
A) $14.
B) $12.
C) $13.50.
D) $16.
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Chapter 10: Pure Competition in the Short Run
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Sample Questions
Q1) A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing)output by equating:
A) price and average total cost.
B) price and average fixed cost.
C) marginal revenue and marginal cost.
D) price and marginal revenue.
Q2) The short-run supply curve slopes upward because producers must be compensated for rising marginal costs.
A)True
B)False
Q3) A purely competitive seller is:
A) both a "price maker" and a "price taker."
B) neither a "price maker" nor a "price taker."
C) a "price taker."
D) a "price maker."
Q4) Which of the following is not a characteristic of pure competition?
A) Price strategies by firms.
B) A standardized product.
C) No barriers to entry.
D) A larger number of sellers.
12
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Chapter 11: Pure Competition in the Long Run
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Sample Questions
Q1) Purely competitive industry X has constant costs and its product is an inferior good.The industry is currently in long-run equilibrium.The economy now goes into a recession and average incomes decline.The result will be:
A) an increase in output and in the price of the product.
B) an increase in output,but not in the price,of the product.
C) a decrease in the output,but not in the price,of the product.
D) a decrease in output and in the price of the product.
Q2) An increasing-cost industry is associated with:
A) a perfectly elastic long-run supply curve.
B) an upsloping long-run supply curve.
C) a perfectly inelastic long-run supply curve.
D) an upsloping long-run demand curve.
Q3) Entrepreneurs in purely competitive industries:
A) have no incentive to innovate because in the long run they will earn no economic profits.
B) innovate to lower operating costs and generate short-run economic profits.
C) utilize pricing strategies to generate short-run economic profits.
D) rarely try to innovate because of a lack of financial resources.
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Chapter 12: Pure Monopoly
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Sample Questions
Q1) The MR = MC rule:
A) applies only to pure competition.
B) applies only to pure monopoly.
C) does not apply to pure monopoly because price exceeds marginal revenue.
D) applies both to pure monopoly and pure competition.
Q2) A dilemma of regulation is that:
A) the regulated price that achieves allocative efficiency is also likely to result in persistent economic profits.
B) the regulated price that results in a "fair return" restricts output by more than would unregulated monopoly.
C) regulated pricing always conflicts with the "due process" provision of the Constitution.
D) the regulated price that achieves allocative efficiency is also likely to result in losses.
Q3) When a pure monopolist is producing its profit-maximizing output,price will:
A) be less than MR.
B) equal neither MC nor MR.
C) equal MR.
D) equal MC.
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Chapter 13: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) The monopolistically competitive seller's demand curve will become more elastic the:
A) more significant the barriers to entering the industry.
B) greater the degree of product differentiation.
C) larger the number of competitors.
D) smaller the number of competitors.
Q2) In the United States cartels are:
A) quite common in industries that produce nondurable goods.
B) in violation of the antitrust laws.
C) concentrated in monopolistically competitive industries.
D) encouraged by government policy so firms can achieve economies of scale.
Q3) The study of how people (or firms)behave in strategic situations is called:
A) cost-benefit analysis.
B) recursive analysis.
C) normative economics.
D) game theory.
Q4) Oligopolists use limit pricing to maximize short-run profits.
A)True
B)False
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Chapter 14: Technology RD and Efficiency
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Sample Questions
Q1) Assume that a firm's interest-rate cost-of-funds curve for R&D is perfectly elastic.Which of the following would decrease a firm's optimal R&D expenditures and,in equilibrium,increase the expected rate of return on the last dollar of R&D?
A) A rightward shift of the expected-rate-of-return curve.
B) An upward shift of the interest-rate cost-of-funds curve.
C) A leftward shift of the expected-rate-of-return curve.
D) A downward shift of the interest-rate cost-of-funds curve.
Q2) Suppose a firm anticipates that a particular R&D expenditure of $20 million will result in a new product and thus create a one-time added profit of $22 million a year later.The firm will:
A) not undertake the R&D expenditure if its interest-rate cost of borrowing is 8 percent.
B) undertake the R&D expenditure if its interest-rate cost of borrowing is 12 percent.
C) undertake the R&D expenditure if its interest-rate cost of borrowing is 20 percent.
D) undertake the R&D expenditure if its interest-rate cost of borrowing is 9 percent.
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Chapter 15: The Demand for Resources
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Sample Questions
Q1) The general rule for hiring any input (say,labor)in the profit-maximizing amount is MRC = MRP.This rule takes the special form W = MRP (where W is the wage rate)when the:
A) labor supply curve is upsloping.
B) supply of labor is inelastic.
C) firm is hiring labor under purely competitive conditions.
D) firm is hiring labor under imperfectly competitive conditions.
Q2) (Consider This)In the market for superstars:
A) earnings reflect pricing power rather than marginal revenue product.
B) small differences in talent get magnified into huge differences in pay.
C) entry and exit rarely occur.
D) product demand is typically highly elastic.
Q3) When the elasticity coefficient for resource demand is greater than one,resource demand is:
A) inelastic.
B) elastic.
C) unit-elastic.
D) perfectly inelastic.
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17
Chapter 16: Wage Determination
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Sample Questions
Q1) Which of the following is correct?
A) The nominal wage may fall,but the real wage can never decline.
B) The real wage may fall,but the nominal wage can never decline.
C) Both the nominal and the real wage must always rise.
D) The nominal and the real wage may both fall.
Q2) Who is the most likely to be a union member in the United States?
A) A female retail trade worker.
B) A male transportation worker.
C) An African-American manager.
D) A white agricultural worker.
Q3) Empirical studies suggest that the efficiency loss associated with the misallocation of labor caused by the union wage advantage is:
A) $6 billion per year.
B) about 2 percent of domestic output.
C) less than one-half of 1 percent of domestic output.
D) about 4 percent of domestic output.
Q4) Since the mid-1950s,union membership has declined as a percentage of employed wage and salary workers.
A)True
B)False
Page 18
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Chapter 17: Rent Interest and Profit
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Sample Questions
Q1) Effective usury laws cause:
A) a surplus in the market for loanable funds.
B) the quantity of loanable funds demanded to be brought into balance with the quantity supplied.
C) the quantity of loanable funds demanded to exceed the quantity supplied.
D) the quantity of loanable funds supplied to exceed the quantity demanded.
Q2) Effective usury laws:
A) subsidize lenders.
B) penalize those who borrow at the below-market interest rate.
C) improve efficiency in investing.
D) keep some low-income people from obtaining credit and loans.
Q3) Other things equal,interest rates are:
A) higher on large loans than on small loans.
B) higher on loans with tax-exempt interest payments.
C) lower on less risky loans than on riskier loans.
D) lower on short-term loans than on long-term loans.
Q4) Economic profits are the salaries received by the hired managers of business corporations.
A)True
B)False
Page 19
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Chapter 18: Natural Resource and Energy Economics
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Sample Questions
Q1) Over the past two decades,total and per capita water use in the United States have:
A) both increased.
B) leveled off and fallen,respectively.
C) fallen and leveled off,respectively.
D) increased and fallen,respectively.
Q2) (Last Word)According to Yale University's Environmental Performance Index (EPI):
A) countries with lower GDP per person tend to have healthier environments.
B) countries with higher GDP per person tend to have healthier environments.
C) there is no correlation between GDP per person and environmental quality.
D) growth in GDP per person initially improves environmental quality and then gradually reduces it.
Q3) The amount of land covered by forests is:
A) declining in all nations.
B) increasing in all nations.
C) increasing in places like the United States and Western Europe,while declining in countries in South and Central America.
D) declining in places like the United States and Western Europe,while increasing in countries in South and Central America.
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Page 20
Chapter 19: Public Finance: Expenditures and Taxes
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Sample Questions
Q1) Which of the following is an exhaustive governmental outlay?
A) A federal $5,000 subsidy check to an Illinois farmer.
B) A Temporary Assistance to Needy Families payment made by the state of New York.
C) A NASA payment to Boeing Corporation for space hardware.
D) A federal old age insurance payment to a retired coal miner.
Q2) One difference between sales and excise taxes is that:
A) sales taxes are only applied at the state level,while excise taxes are only applied at the federal level.
B) excise taxes apply to a wide range of products,while sales taxes apply only to a select list of products.
C) sales taxes are calculated as a percentage of the price paid,while excise taxes are levied on a per-unit basis.
D) excise taxes are calculated as a percentage of the price paid,while sales taxes are levied on a per-unit basis.
Q3) "Tax Freedom Day" in the United States typically occurs in mid-July.
A)True
B)False
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Chapter 20: Antitrust Policy and Regulation
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Sample Questions
Q1) Suppose that two firms in an industry with a Herfindahl index of 5,000 announce a merger.The U.S.Justice Department concludes the merger will boost the index to 5,500.The antitrust authorities will most likely:
A) ignore this merger because of the relatively small increase in the Herfindahl index.
B) allow the merger but watch the new firm carefully for future violations of the antitrust laws.
C) allow the merger if foreign entry to the industry is possible.
D) prevent the merger,contending that it violates the Clayton Act.
Q2) A conglomerate merger:
A) can extend the line of products sold,extend the territories in which products are sold,or combine totally unrelated products.
B) is defined as a merger involving two firms that previously had a buyer-seller relationship.
C) is defined as a merger involving two firms producing the same or similar products and selling them in the same geographical market.
D) is illegal,per se.
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Chapter 21: Agriculture: Economics and Policy
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Sample Questions
Q1) Which of the following arguments for farm subsidies is most closely associated with the parity concept?
A) Although farmers produce necessities for the rest of us,they receive low incomes that are declining in real terms,and should therefore receive price and income support.
B) Farmers sell their output in purely competitive markets but must buy inputs from imperfectly competitive firms.
C) Farmers cannot fully insure themselves against the risks unusual to farming,such as floods,droughts,and pests.
D) The "family farm" is an American institution that should be protected and nurtured.
Q2) The food-stamp program is designed to:
A) increase the supply of farm products.
B) decrease the supply of farm products.
C) increase the demand for farm products.
D) decrease the demand for farm products.
Q3) About 10 percent of the U.S.labor force is in agriculture.
A)True
B)False
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