Introduction to Macroeconomics Review
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Course Introduction
Introduction to Macroeconomics explores the fundamental principles that govern the overall functioning of an economy. Students will examine broad economic indicators such as gross domestic product (GDP), inflation, unemployment, and interest rates, and how these variables interact in national and global contexts. The course provides an overview of fiscal and monetary policy tools employed by governments and central banks, analyses the roles of consumption, investment, and government spending, and investigates business cycles and economic growth. Emphasis is placed on understanding real-world economic issues and developing analytical skills to interpret economic data and policy decisions.
Recommended Textbook Principles of Macroeconomics 6th Edition by N.
Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) Inflation is the primary determinant of a country's living standards.
A)True
B)False
Answer: False
Q2) In the 1990s, inflation in the United States was
A)very close to zero.
B)about 3 percent per year.
C)about 6 percent per year.
D)commonly referred to as "public enemy number one."
Answer: B
Q3) When the government implements programs such as progressive income tax rates, which of the following is likely to occur?
A)equality is increased and efficiency is increased.
B)equality is increased and efficiency is decreased.
C)equality is decreased and efficiency is increased.
D)equality is decreased and efficiency is decreased.
Answer: B
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Chapter 2: Thinking Like an Economist
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Q1) Refer to Figure 2-17. Senator Smith observes the graph and concludes that people who earn higher incomes attend school for more years. Senator Jones observes the graph and concludes that people who attend school for more years earn higher incomes. Who is correct?
A)Senator Smith is correct.
B)Senator Jones is correct.
C)It is difficult to say which senator might be correct due to the reverse causality problem.
D)It is difficult to say which senator might be correct due to omitted variable bias.
Answer: C
Q2) Economists use some familiar terms in specialized ways
A)to make the subject sound more complex than it is.
B)because every respectable field of study has its own language.
C)to provide a new and useful way of thinking about the world.
D)because it was too difficult to come up with new terms.
Answer: C
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Chapter 3: Interdependence and the Gains From Trade
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Q1) Refer to Table 3-8. The opportunity cost of 1 parasol for Huang is A)1/3 plate.
B)1/2 plate.
C)3 plates.
D)6 plates.
Answer: A
Q2) Refer to Table 3-9. Which of the following points would not be on Jim's production possibilities frontier, based on a 40-hour week?
A)(0 computers set up, 60 computers tested)
B)(40 computers set up, 30 computers tested)
C)(60 computers set up, 12 computers tested)
D)(72 computers set up, 6 computers tested)
Answer: C
Q3) Refer to Table 3-1. For the rancher, the opportunity cost of 1 pound of meat is
A)0.4 pound of potatoes.
B)2.5 pounds of potatoes.
C)4 pounds of potatoes.
D)10 pounds of potatoes.
Answer: A
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Chapter 4: The Market Forces of Supply and Demand
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Q1) Recent forest fires in the western states are expected to cause the price of lumber to rise in the next six months. As a result, we can expect the supply of lumber to A)fall in six months but not now.
B)increase in six months when the price goes up.
C)fall now.
D)increase now to meet as much demand as possible.
Q2) A shortage is the same as an excess demand.
A)True
B)False
Q3) Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact discs if musicians accept lower royalties, compact disc players become cheaper, more firms start producing music compact discs, and music lovers experience an increase in income?
A)Price will fall, and the effect on quantity is ambiguous.
B)Price will rise, and the effect on quantity is ambiguous.
C)Quantity will fall, and the effect on price is ambiguous.
D)Quantity will rise, and the effect on price is ambiguous.
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Chapter 5: Elasticity and Its Application
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Q1) Refer to Table 5-5. Which of the three supply curves represents the least elastic supply?
A)supply curve A
B)supply curve B
C)supply curve C
D)There is no difference in the elasticity of the three supply curves.
Q2) Which of the following is likely to have the most price inelastic demand?
A)athletic shoes
B)running shoes
C)Nike running shoes
D)Nike Shox running shoes
Q3) Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method, the cross-price elasticity of demand is
A)-1.0, and X and Y are complements.
B)-1.0, and X and Y are substitutes.
C)1.0, and X and Y are complements.
D)1.0, and X and Y are substitutes.
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Chapter 6: Supply, Demand, and Government Policies
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Q1) A binding price floor (i) Causes a surplus.(ii) Causes a shortage.(iii)
Is set at a price above the equilibrium price.(iv) Is set at a price below the equilibrium price.
A)(i) only
B)(iii) only
C)(i) and (iii) only
D)(ii) and (iv) only
Q2) A minimum wage that is set below a market's equilibrium wage will result in an excess
A)demand for labor, that is, unemployment.
B)demand for labor, that is, a shortage of workers.
C)supply of labor, that is, unemployment.
D)None of the above is correct.
Q3) A tax on the buyers of sofas
A)increases the size of the sofa market.
B)decreases the size of the sofa market.
C)has no effect on the size of the sofa market.
D)may increase, decrease, or have no effect on the size of the sofa market.
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Sample Questions
Q1) Total surplus = Value to buyers - Costs to sellers.
A)True
B)False
Q2) Refer to Figure 7-2. When the price rises from P1 to P2, which of the following statements is not true?
A)The buyers who still buy the good are worse off because they now pay more.
B)Some buyers leave the market because they are not willing to buy the good at the higher price.
C)Buyers place a higher value on the good after the price increase.
D)Consumer surplus in the market falls.
Q3) Refer to Figure 7-19. The efficient price-quantity combination is
A)P1 and Q1.
B)P2 and Q2.
C)P3 and Q1.
D)P4 and 0.
Q4) Welfare economics is the study of the welfare system.
A)True
B)False
9
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Chapter 8: Application: The Costs of Taxation
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Sample Questions
Q1) Andre walks Julia's dog once a day for $50 per week. Julia values this service at $60 per week, while the opportunity cost of Andre's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the loss in total surplus?
A)$50
B)$30
C)$25
D)$0
Q2) When a tax is imposed on the sellers of a good, the
A)demand curve shifts downward by less than the amount of the tax.
B)demand curve shifts downward by the amount of the tax.
C)supply curve shifts upward by less than the amount of the tax.
D)supply curve shifts upward by the amount of the tax.
Q3) When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will
A)decrease tax revenue and decrease the deadweight loss.
B)decrease tax revenue and increase the deadweight loss.
C)increase tax revenue and decrease the deadweight loss.
D)increase tax revenue and increase the deadweight loss.
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Chapter 9: Application: International Trade
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Q1) Refer to Figure 9-6. The amount of deadweight loss caused by the tariff equals A)$100.
B)$200.
C)$400.
D)$500.
Q2) Refer to Figure 9-2. Without trade, producer surplus is A)$210.
B)$245.
C)$455.
D)$490.
Q3) Refer to Figure 9-9. Total surplus in this market after trade is A)A + B.
B)A + B + C.
C)A + B + C + D.
D)B + C + D.
Q4) If a country allows free trade and its domestic price for a given good is lower than the world price, then it will import that good.
A)True
B)False
Q5) How does an import quota differ from an equivalent tariff?
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Chapter 10: Measuring a Nations Income
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Q1) Bountiful Harvest Bakery buys $4.00 of flour from Grinkers' Mill and uses the flour to make bread sold to the public for $12.00. Taking these two transactions into account, what is the effect on GDP?
A)GDP increases by $4.00
B)GDP increases by $8.00
C)GDP increases by $12.00
D)GDP increases by $16.00
Q2) The GDP deflator can be used to take inflation out of nominal GDP.
A)True
B)False
Q3) Refer to Table 10-2. What were Crete's government purchases in 2010?
A)$1130
B)$1601
C)$1837
D)$2544
Q4) Which of the following is not included in U.S. GDP?
A)unpaid cleaning and maintenance of houses
B)services such as those provided by lawyers and hair stylists
C)the estimated rental value of owner-occupied housing
D)production of foreign citizens living in the United States
Page 12
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Chapter 11: Measuring the Cost of Living
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Q1) For some racquet sports, there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI is this situation most relevant?
A)substitution bias
B)introduction of new goods
C)unmeasured quality change
D)income bias
Q2) Refer to Scenario 11-4. The Charlieville salary in Wrexington dollars is
A)$24,000.00.
B)$26,666.67.
C)$60,000.00
D)$66,666.67.
Q3) The CPI is more commonly used as a gauge of inflation than the GDP deflator is because
A)the CPI is easier to measure.
B)the CPI is calculated more often than the GDP deflator is.
C)the CPI better reflects the goods and services bought by consumers.
D)the GDP deflator cannot be used to gauge inflation.
Q4) Why does the GDP deflator give a different rate of inflation than the CPI?
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Chapter 12: Production and Growth
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Questions
Q1) Dilbert's Incorporated produced 6,000,000 units of software in 2008. At the start of 2009 the pointy-haired boss raised employment from 10,000 total annual hours to 14,000 annual hours and production was 7,000,000 units. These number indicate that productivity
A)fell by about 16.7%.
B)stayed the same.
C)rose by about 16.7%.
D)rose by about 40%.
Q2) An increase in the saving rate permanently increases the growth rate of real GDP per person.
A)True
B)False
Q3) Gramp's Potato Chips produces 1280 bags of potato chips a day. Each employee at Gramp's works 8 hours. If the company's productivity is 20 bags per hour, how many people does Gramp's employ?
A)8
B)10
C)80
D)100
Q4) What is the difference between human capital and technology?
Page 14
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Chapter 13: Saving, Investment, and the Financial System
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Q1) If an economy is closed and if it has no government, then
A)national saving = 0.
B)national saving = private saving.
C)public saving = investment.
D)gross domestic product = consumption.
Q2) People who buy newly issued stock in a corporation such as Crate and Barrel provide
A)debt finance and so become part owners of Crate and Barrel.
B)debt finance and so become creditors of Crate and Barrel.
C)equity finance and so become part owners of Crate and Barrel.
D)equity finance and so become creditors of Crate and Barrel.
Q3) If the budget deficit increases then
A)saving and the interest rate rise
B)saving rises and the interest rate falls
C)saving falls and the interest rate rises
D)saving and the interest rate falls
Q4) The term loanable funds refers to all income that is not used for consumption or government expenditures.
A)True
B)False
Page 15
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Chapter 14: The Basic Tools of Finance
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Q1) Veronica deposited $1,000 into an account two years ago. The first year she earned 7 percent interest; the second year she earned 5 percent. How much money does Veronica have in her account today?
A)$1,133.31
B)$1,120.00
C)$1,123.50
D)None of the above are correct to the nearest cent.
Q2) Imagine that two years ago you inherited $20,000 and put it into an account paying a fixed 8 percent annual interest rate. How much money do you have in your account now?
A)$22,880.00
B)$23,200.00
C)$23,232.00
D)$23,328.00
Q3) Studies find that mutual fund managers who do well in one year are likely to do well the next year.
A)True
B)False
Q4) Discuss the statistical evidence concerning the efficient markets hypothesis.
Q5) List three different ways that a risk-averse person can reduce financial risk.
Page 16
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Chapter 15: Unemployment
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Q1) Refer to Table 15-4. What is the U-4 measure of labor underutilization?
A)6.5 percent
B)6.9 percent
C)7.0 percent
D)17.9 percent
Q2) The natural rate of unemployment is any type of unemployment that does not go away on its own even in the long run.
A)True
B)False
Q3) Refer to Table 15-2. What was Baltivia's labor-force participation rate in 2009?
A)55 percent
B)63 percent
C)66.9 percent
D)87.3 percent
Q4) Which of the following is an explanation for the existence of frictional unemployment?
A)efficiency wages
B)minimum-wage laws
C)unions
D)job search
Page 17
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Chapter 16: The Monetary System
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Q1) Refer to Scenario 16-1 . Suppose the Central Bank of Namdia purchases 25 million dias of Namdian Treasury Bonds from banks. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply of Namdia change?
A)200 million dias
B)150 million dias
C)100 million dias
D)None of the above is correct.
Q2) If an economy used gold as money, its money would be
A)commodity money, but not fiat money.
B)fiat money, but not commodity money.
C)both fiat and commodity money.
D)functioning as a store of value and as a unit of account, but not as a medium of exchange.
Q3) Most financial assets other than money function as
A)a medium of exchange, a unit of account, and a store of value.
B)a medium of exchange and a store of value, but not a unit of account.
C)a store of value and a unit of account, but not a mediuim of exchange.
D)a store of value, but not a unit of account nor a medium of exchange
Q4) What is the difference between money and wealth?
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Chapter 17: Money Growth and Inflation
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Q1) You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 40 percent. What is your after-tax real rate of interest?
A)1 percent
B)1.8 percent
C)2.2 percent
D)4.2 percent
Q2) The inflation tax
A)is an alternative to income taxes and government borrowing.
B)taxes most those who hold the most money.
C)is the revenue created when the government prints money.
D)All of the above are correct.
Q3) The classical theory of inflation
A)is also known as the quantity theory of money.
B)was developed by some of the earliest economic thinkers.
C)is used by most modern economists to explain the long-run determinants of the inflation rate.
D)All of the above are correct.
Q4) Inflation distorts relative prices. What does this mean and why does it impose a cost on society?
Page 19
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Chapter 18: Open-Economy Macroeconomic Models
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Q1) A country has a trade deficit. Which of the following must also be true?
A)net capital outflow is positive and domestic investment is larger than saving
B)net capital outflow is positive and saving is larger than domestic investment
C)net capital outflow is negative and domestic investment is larger than saving
D)net capital outflow is negative and saving is larger than domestic investment
Q2) If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be buying assets abroad.
A)True
B)False
Q3) If U.S. consumers decrease their demand for cellphones from Finland, then other things the same Finland's
A)exports and net exports fall.
B)exports fall and net exports rise.
C)imports and net exports fall.
D)imports fall and net exports rise.
Q4) Nominal exchange rates
A)vary little over time.
B)vary substantially over time.
C)appreciate over time for most countries.
D)depreciate over time for most countries.
Page 20
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Chapter 19: A Macroeconomic Theory of the Open Economy
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Q1) An increase in the budget deficit
A)raises net exports and domestic investment.
B)raises net exports and reduces domestic investment.
C)reduces net exports and raises domestic investment.
D)reduces net exports and domestic investment.
Q2) In 1995 House Speaker Newt Gingrich threatened to send the United States into default on its debt. During the day of this announcement, U.S. interest rates rose and the real exchange rate of the U.S. dollar depreciated. Which of these changes is consistent with the results of the open-economy macroeconomic model?
A)the increase in U.S. interest rates
B)the depreciation of the real exchange rate of the U.S. dollar
C)Both a and b are consistent.
D)Neither a nor b are consistent.
Q3) The slope of the supply of loanable funds is based on an increase in
A)only national saving when the interest rate rises.
B)both national saving and net capital outflow when the interest rate rises.
C)only national saving when the interest rate falls.
D)both national saving and net capital outflow when the interest rate falls.
Q4) What effect do protectionist policies have on the trade deficit?
Q5) Why do higher real interest rates lead to lower net capital outflow?
Page 21
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Chapter 20: Aggregate Demand and Aggregate Supply
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Q1) Other things the same, if the capital stock increases, then in the long run
A)both output and prices are higher.
B)output is higher and prices are lower.
C)output is lower and prices are higher.
D)both output and prices are lower.
Q2) Other things the same, as the price level rises, the real value of a dollar
A)rises, and interest rates rise.
B)rises, and interest rates fall.
C)falls, and interest rates rise.
D)falls, and interest rates fall.
Q3) During World War II government expenditures increased almost five-fold and output almost doubled.
A)True
B)False
Q4) If the central bank increased the money supply in response to a decrease in short-run aggregate supply, unemployment would return towards its natural rate, but prices would rise even more.
A)True
B)False
Q5) Make a list of expenditures whose sum equals GDP.
Page 22
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Chapter 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) The wealth effect helps explain the slope of the aggregate-demand curve. This effect is
A)relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth.
B)relatively important in the United States because consumption spending is a large part of GDP.
C)relatively unimportant in the United States because money holdings are a small part of consumer wealth.
D)relatively unimportant because it takes a large change in wealth to cause a significant change in interest rates.
Q2) In the long run, changes in the money supply affect A)prices.
B)output.
C)unemployment rates.
D)All of the above.
Q3) The theory of liquidity preference was developed by Irving Fisher. A)True B)False
Q4) What is the difference between monetary policy and fiscal policy?
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Chapter 22: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) A favorable supply shock
A)raises unemployment and the inflation rate.
B)raises unemployment and reduces the inflation rate.
C)reduces unemployment and raises the inflation rate.
D)reduces unemployment and the inflation rate.
Q2) A movement to the right along a given short-run Phillips curve could be caused by
A)an increase in the natural rate of unemployment or expansionary monetary policy.
B)expansionary monetary policy, but not an increase in the natural rate of unemployment.
C)an increase in the natural rate of unemployment or a contractionary monetary policy.
D)contractionary monetary policy, but not an increase in the natural rate of unemployment.
Q3) Just as the aggregate-supply curve slopes upward only in the short run, the trade-off between inflation and unemployment holds only in the short run.
A)True
B)False
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Chapter 23: Six Debates Over Macroeconomic Policy
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Q1) Explain how tax provisions to encourage private saving may reduce national saving.
Q2) The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy.
A)True
B)False
Q3) A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is
A)small and an increase in private saving tends to have a small impact on the capital stock.
B)small and an increase in private saving tends to have a large impact on the capital stock.
C)large and an increase in private saving tends to have a small impact on the capital stock.
D)large and an increase in private saving tends to have a large impact on the capital stock.
Q4) Explain the time inconsistency of monetary policy.
Q5) Why do many economists advocate a consumption tax rather than an income tax?
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