Introduction to Macroeconomics Test
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Course Introduction
Introduction to Macroeconomics provides a comprehensive overview of the fundamental principles that govern the behavior of economies at the national and global levels. Students will explore topics such as national income, inflation, unemployment, fiscal and monetary policy, economic growth, and international trade. The course emphasizes how aggregate economic indicators are measured, how government policies influence the economy, and how different economic models help explain macroeconomic phenomena. By the end of the course, students will develop the analytical tools necessary to evaluate current economic events and policy decisions affecting society as a whole.
Recommended Textbook
Macroeconomics 4th Edition by Paul Krugman
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Page 2
Chapter 1: First Principles
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Sample Questions
Q1) Who wrote The Wealth of Nations, a book that many credit with establishing economics as a discipline?
A)Karl Marx
B)David Ricardo
C)Adam Smith
D)John Maynard Keynes
Answer: C
Q2) You notice that when a new yoga class is offered at the student recreation center at a highly desirable time, some students from the other yoga classes go to the new class instead. This statement best represents this economic concept:
A)Resources are scarce.
B)The real cost of something is what you must give up to get it.
C)People usually exploit opportunities to make themselves better off.
D)Marginal analysis.
Answer: C
Q3) Trade allows people to get more of what they want.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Economic Models
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Sample Questions
Q1) In movement along a production possibility frontier, the opportunity cost to society of getting more of one good:
A)is always constant.
B)is measured in dollar terms.
C)is measured by the amount of the other good that must be given up.
D)usually decreases.
Answer: C
Q2) Technological improvements will:
A)leave the production possibility frontier unchanged.
B)shift the production possibility frontier inward.
C)shift the production possibility frontier outward.
D)necessarily lead to increased unemployment.
Answer: C
Q3) Suppose residents of Montana operate on their production possibility frontier, and they want to increase production of both wheat and fly-fishing rods. According to the production possibility frontier, this cannot happen without new resources or technological improvement.
A)True
B)False
Answer: True
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Chapter 3: Supply and Demand
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Sample Questions
Q1) Good X and good Y are related goods. Holding everything else constant, if the price of X decreases and the demand for Y increases, X and Y are probably:
A)complements.
B)substitutes.
C)inferior.
D)normal.
Answer: A
Q2) _____ manifests when the price of a good increases and the quantity demanded decreases
A)Efficiency
B)The law of demand
C)The supply schedule
D)The production possibilities frontier
Answer: B
Q3) Which of the following will raise the price of milk?
A)a shift to the right of the supply curve for milk
B)a shift to the right of the demand curve for milk
C)an increase in the number of milk suppliers
D)a decrease in the number of milk buyers
Answer: B
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Chapter 5: International Trade 5
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Sample Questions
Q1) (Figure: The Production Possibility Frontiers for Jackson and Tahoe) Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. In autarky, Jackson produces and consumes 30 head of cattle and 80 bushels of wheat, while Tahoe produces and consumes 80 head of cattle and 60 bushels of wheat. If both nations specialize completely in the good of their comparative advantage and Jackson exports 120 bushels of wheat to Tahoe in exchange for 60 head of cattle, then the new consumption point for Jackson after trade is _____ bushels of wheat and _____ head of cattle.
A)120; 30
B)120; 60
C)80; 60
D)200; 100
Q2) The United States can produce 30 computers for every car it produces, and Japan can produce 15 computers for every car it produces. Based on this information, which of the following statements is INCORRECT?
A)The United States should specialize in computer production.
B)Japan has the comparative advantage in car production.
C)There will be gains from trade if the United States exports computers to Japan.
D)Japan has an absolute advantage in car production.
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Chapter 6: Macroeconomics: the Big Picture
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Sample Questions
Q1) If the value of a country's exports is greater than the value of its imports, it is:
A)running a trade surplus.
B)running a trade deficit.
C)in an economic contraction.
D)likely to find its investment spending greater than its level of saving.
Q2) The relation between a country's level of saving and investment:
A)affects its trade balances.
B)does not affect an open economy.
C)has often been used to correct a trade deficit but not a trade surplus.
D)pertains to trade surpluses only.
Q3) The alternation between recessions and expansions is known as the:
A)unemployment rate.
B)long-run economic growth.
C)business cycle.
D)macroeconomy.
Q4) Suppose the business cycle is expanding. Predict how the economic indicators of real gross domestic product, the unemployment rate, and the inflation rate are moving.
Q5) What are Keynesian policies?
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Chapter 7: Gdp and Cpi: Tracking the Macroeconomy
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Sample Questions
Q1) Households demand goods and services in the product markets.
A)True
B)False
Q2) The value, at current market prices, of the final goods and services produced during a particular period is:
A)disposable personal product.
B)gross foreign factor output.
C)gross personal product.
D)gross domestic product.
Q3) If during 2011 the Republic of Sildavia recorded a value added of $78 billion, wages of $40 billion, profits of $8 billion, and total sales of $90 billion, the value of intermediate goods purchased during 2011 in Sildavia was:
A)$42 billion.
B)$30 billion.
C)$12 billion.
D)$4 billion.
Q4) Chain linking is a method used to measure the change in real GDP.
A)True
B)False
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Chapter 8: Unemployment and Inflation
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Sample Questions
Q1) The natural level of unemployment contains no_____ unemployment.
A)minority
B)structural
C)frictional
D)cyclical
Q2) Firms pay an efficiency wage because:
A)it reduces the risk of losing the best workers.
B)it is required by law.
C)they don't have to offer health insurance if they pay efficiency wages.
D)it reduces the employee's income tax liability.
Q3) The real rate of interest is the nominal rate of interest times the inflation rate.
A)True
B)False
Q4) (Scenario: The Employment Rate) Look at the scenario The Employment Rate. The labor force participation rate is:
A)30%.
B)50%.
C)70%.
D)80%.
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Chapter 9: Long-Run Economic Growth
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Sample Questions
Q1) Because of diminishing returns to capital, doubling the amount of physical capital available for one worker to use will _____ output by _____ a factor of two.
A)decrease; less than B)increase; less than C)increase; exactly D)increase; more than
Q2) Which of the following accurately describes what is happening along a typical aggregate production function?
A)At some point, increasing the amount of physical capital per worker will reduce productivity.
B)Increases in physical capital per worker will always bring about an increase in productivity that is worth the cost of the additional physical capital.
C)Because of diminishing returns, increasing the amount of physical capital per worker will eventually bring smaller and smaller increases in productivity.
D)Adding workers results in real GDP per worker rising at an increasing rate throughout the function.
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Chapter 10: Savings, Investment Spending, and the Financial System
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Sample Questions
Q1) (Scenario: Closed Economy S = I) Look at the scenario Closed Economy S = I. What is the government budget balance?
A)a surplus of $1.5 trillion
B)a deficit of $1.5 trillion
C)a surplus of $0.5 trillion
D)a deficit of $0.5 trillion
Q2) In financial markets:
A)households sell liabilities.
B)wealth is transformed into savings.
C)households purchase financial assets.
D)physical assets change hands.
Q3) A decrease in the demand for loanable funds would most likely be caused by a(n):
A)decrease in the market interest rate.
B)decrease in corporate income tax rates.
C)increase in expected business opportunities.
D)decrease in expected business opportunities.
Q4) When households invest their wealth in financial markets, they purchase financial assets.
A)True B)False
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Chapter 13: Fiscal Policy Appendix Taxes and the Multiplier
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Sample Questions
Q1) A fiscal year for the federal government runs from January 1 to December 31.
A)True
B)False
Q2) Most economists oppose a constitutional amendment requiring the federal budget to be balanced annually.
A)True
B)False
Q3) In 1999 many European countries signed a stability pact in which they agreed to limit their actual budget deficits to less than 3% of their country's GDP.
A)True
B)False
Q4) (Figure: Fiscal Policy I) Look at the figure Fiscal Policy I. Suppose that this economy is in equilibrium at E<sub>1</sub>. If there is a decrease in taxes, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.
A)AD<sub>2;</sub> left; increase; decrease
B)AD<sub>2;</sub> left; decrease; decrease
C)AD<sub>1;</sub> right; increase; increase
D)AD<sub>1;</sub> right; decrease; increase
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Page 12
Chapter 14: Money, Banking, and the Federal Reserve System
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Sample Questions
Q1) Fiat money is:
A)the same as commodity money.
B)money backed by a government's decree that it be accepted as a means of payment.
C)money backed by gold or silver.
D)used in barter exchanges.
Q2) The financial crisis of 2008 in the United States required:
A)the Fed to solve the problem independent of government assistance.
B)more government involvement and funding for troubled industries.
C)tighter supervision by the Federal Reserve Bank of New York.
D)the Treasury to solve the problems independently, since the Fed was unwilling to help.
Q3) The bank runs in 1930, 1931, and 1933 were caused primarily by:
A)sharp decreases in farm commodity prices.
B)excessive speculation in real estate.
C)high energy prices.
D)the failure of the Knickerbocker Trust.
Q4) Using gold as an example, what is the difference between commodity money and commodity-backed money?
Q5) Explain the role of the housing market in the 2008 financial crisis.
Page 13
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Chapter 15: Monetary Policy
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Sample Questions
Q1) The Taylor rule:
A)provides guidance for setting a federal funds rate target.
B)says that interest rates often should be negative.
C)provides guidance on timing of monetary policy with fiscal policy.
D)refers to a discretionary fiscal policy rule.
Q2) To decrease interest rates, the Fed should increase the money supply.
A)True
B)False
Q3) An increase in the money supply _____ the interest rate in the short run but _____ the interest rate in the long run.
A)lowers; does not affect
B)raises; lowers
C)does not affect; raises D)does not affect; lowers
Q4) In the short run changes in the money supply change interest rates but not real output and prices.
A)True B)False
Q5) What is the goal of expansionary monetary policy, and how does it work in the short run?
14
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Chapter 16: Inflation, Disinflation, and Deflation
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Sample Questions
Q1) In a liquidity trap:
A)using expansionary monetary policy is not effective because the real interest rate is negative.
B)aggregate demand falls because consumers do not have enough liquidity to consume.
C)using expansionary monetary policy is not effective because the nominal interest rate is irreducible.
D)lenders are trapped by large loans with declining rates of return.
Q2) In the classical model, it is thought that the long-run:
A)and short-run aggregate supply curves are both upward sloping.
B)aggregate supply curve is vertical and the short-run aggregate supply curve is upward sloping.
C)and short-run aggregate supply curves are both vertical.
D)aggregate supply curve is upward sloping and the short-run aggregate supply curve is vertical.
Q3) Zimbabwe's economic instability was caused primarily by:
A)its joining the Coalition of the Willing in the Iraq war.
B)its attempts to join the European Union.
C)the government's seizure of the country's farms, which disrupted production.
D)its high tariffs on imported goods.
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Chapter 17: Crises and Consequences
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Sample Questions
Q1) The banking crises in Finland, Sweden, and Japan in the early 1990s were caused by numerous bank runs in each country.
A)True
B)False
Q2) Maturity transformation must always begin with the financial institution accepting deposits.
A)True
B)False
Q3) Explain the two main causes of banking crises.
Q4) Shadow banks are not subject to runs.
A)True
B)False
Q5) The main purpose of the Federal Reserve, which was established in 1913, was to put an end to the bank crises that occurred during the national banking era.
A)True
B)False
Q6) The advantage of holding money as an asset is that it is perfectly liquid.
A)True
B)False
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Chapter 18: Events and Ideas
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Sample Questions
Q1) If crowding out occurs:
A)increases in consumption are offset by decreases in government spending.
B)increases in the money supply are offset by dollar outflows in foreign trade.
C)increases in government spending cause higher interest rates and decreased investment spending.
D)decreases in government spending cause lower interest rates and decreased investment spending.
Q2) The classical school of economics:
A)emphasizes the short run.
B)emphasizes the flexibility of wages and prices.
C)has a problem with potential output, since potential output cannot be achieved without active policy.
D)advocates the use of discretionary fiscal policy.
Q3) Classical macroeconomists believed that monetary policy should be used to fight recessions.
A)True B)False
Q4) Classical economists focused on short-run effects of monetary policy.
A)True
B)False
Page 17
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Chapter 19: Open-Economy Macroeconomics
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Sample Questions
Q1) If the exchange rate is initially $1 = 12.95 pesos but changes to $1 = 15 pesos, then the dollar has _____ and the price in Mexico of a $10,000 U.S.-built Harley Davidson motorcycle has _____.
A)depreciated; decreased B)depreciated; increased C)appreciated; increased D)appreciated; decreased
Q2) Suppose a nation has a trade deficit on goods and services in the current account. Does this imply that the total balance of the current account is a deficit?
Q3) (Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the quantity of loanable funds demanded by British borrowers is _____ the quantity of loanable funds supplied by British lenders.
A)greater than B)less than C)equal to D)not related to
Q4) Explain the impact of an expansionary monetary policy in the United States, where exchange rates are floating.
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Chapter 20: Graphs in Economics
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Sample Questions
Q1) (Table: Price, Quantity Demanded, and Quantity Supplied) Look at the table Price, Quantity Demanded, and Quantity Supplied. A straight line represents the relation between:
A)price and quantity demanded.
B)price and quantity supplied.
C)price and quantity demanded minus quantity supplied.
D)quantity demanded and quantity supplied.
Q2) Your boss asks you to graph company profits for the past 10 years. The best way to show this information is with:
A)a scatter diagram.
B)a pie chart.
C)a time-series graph.
D)an independent graph.
Q3) (Figure: Slope) Look at the figure Slope. This graph depicts ______ relation between X and Y.
A)a positive
B)a negative
C)an independent
D)no
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Page 19
Chapter 21: toward a Fuller Understanding of Present Value
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Sample Questions
Q1) (Table: Present Value of Projects A, B, C, and D) Look at the table Present Value of Projects A, B, C, and D. If the annual interest rate is 2%, which project do you choose?
A)A
B)B
C)C
D)D
Q2) A soft-drink bottling firm is thinking of opening a new distribution center. The center will cost $2.5 million to build today, and it will generate profits of $1 million one year from now, two years from now, and three years from now. The firm should build the distribution center if the interest rate is 9% or lower.
A)True
B)False
Q3) The _____ the period, the _____ is the present value of a given future payment, all other things held constant.
A)longer; less B)shorter; less C)longer; more D)shorter; the more uncertain
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