Introductory Macroeconomics
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Course Introduction
Introductory Macroeconomics provides a foundational understanding of the economy as a whole, focusing on aggregate measures such as national income, output, employment, inflation, and economic growth. The course explores the structure and functioning of modern economic systems, the role of government policy in influencing economic activity, and the causes and consequences of macroeconomic fluctuations. Students will learn key concepts such as gross domestic product (GDP), fiscal and monetary policy, business cycles, and international trade, equipping them with analytical tools to examine contemporary economic issues and policy debates.
Recommended Textbook Macroeconomics 5th Edition by R.
Glenn Hubbard
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19 Chapters
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Tabitha shares a flea market booth with her sister.Her share of the rent is $150 per month.She is considering moving to her own,larger booth which she will not have to share with anyone.The larger booth rents for $450 per month.Recently,you ran into Tabitha in the grocery store and she tells you that she has rented the larger booth.Tabitha is as rational as any other person.As an economics major,you rightly conclude that
A)Tabitha did not have a choice; her sister was overcharging her.
B)Tabitha figures that the additional benefit of having her own booth (as opposed to sharing)is at least $300.
C)Tabitha figures that the benefit of having her own booth (as opposed to sharing)is at least $450.
D)the cost of having one's own booth outweighs the benefits.
Answer: B
Q2) In the market for factors of production,households earn income by supplying factors of production to firms.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Trade-Offs,comparative Advantage,and the Market System
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Q1) Define the term "property rights." Explain why the lack of well defined and enforceable property rights is detrimental to the smooth functioning of a market system.
Answer: The term "property rights" refers to the rights that individuals or firms have to the exclusive use of their resources,within the confines of the law.Well defined and enforceable property rights provide the incentive for people and firms to invest resources and undertake risks.This encourages the production of a wide range of goods and services.Without property rights and the means to enforce these rights,no person would want to undertake such a risk.
Q2) Refer to Table 2-1.Assume Dina's Diner only produces sliders and hot wings.A combination of 40 sliders and 50 hot wings would appear
A)along Dina's production possibilities frontier.
B)inside Dina's production possibilities frontier.
C)outside Dina's production possibilities frontier.
D)at the vertical intercept of Dina's production possibilities frontier.
Answer: A
Q3) List the four broad categories of factors of production.
Answer: labor,capital,natural resources,and entrepreneurship
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Page 4
Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Refer to Table 3-1.The table above shows the demand schedules for Kona coffee of two individuals (Luke and Ravi)and the rest of the market.If the price of Kona coffee rises from $4 to $5,the market quantity demanded would
A)decrease by 35 lb.
B)increase by 115 lb.
C)increase by 35 lb.
D)decrease by 115 lb.
Answer: A
Q2) If consumers believe the price of hybrid vehicles will decrease in the future,this will cause the demand for hybrid vehicles to decrease now.
A)True
B)False
Answer: True
Q3) A change in quantity supplied is represented by a movement along the supply curve.
A)True
B)False
Answer: True
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) In a competitive market equilibrium the ________ equals the ________ of the last unit sold.
A)total profit; marginal benefit
B)total cost; marginal cost
C)profit; selling price
D)marginal benefit; marginal cost
Q2) Increases in the minimum wage are intended to raise the incomes of low-income workers.Many economists favor a different policy to achieve this goal,a policy that avoids the deadweight losses that result from the minimum wage.What is this policy?
A)distribution of food stamps to low-income consumers
B)distribution of vouchers that can be used for rent or mortgage payments
C)the Alternative Minimum Tax
D)the earned income tax credit
Q3) Refer to Figure 4-1.If the market price is $3.00,what is the consumer surplus on the first ice cream cone?
A)$0.50
B)$1.00
C)$5.50
D)$9.00
Page 6
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Chapter 5: The Economics of Health Care
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Q1) Of the following high-income countries,which has the highest female life expectancy at age 65?
A)Canada
B)Japan
C)the United Kingdom
D)the United States
Q2) What is the term that describes a situation in which one party to an economic transaction has less information than the other party?
A)inefficient market hypothesis
B)asymmetric information
C)unequal market structure
D)monopsony
Q3) In 1960,out-of-pocket spending on health care in the United States was
A)2.2 percent.
B)6 percent.
C)48 percent.
D)64 percent.
Q4) Briefly describe changes in life expectancy,average height,and infant mortality in the United States since 1850.
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Chapter 6: Firms,the Stock Market,and Corporate Governance
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Q1) What is the Congressional act,enacted in 1933 and repealed in 1999,which prevented financial firms from being both commercial banks and investment banks?
A)the Sarbanes-Oxley Act
B)the Glass-Steagall Act
C)the Taft-Hartley Act
D)the Cellar-Kefauver Act
Q2) Before its IPO,Facebook was an example of a private firm.As a private firm,Facebook was
A)not subject to government regulations and taxation.
B)run by stockholders and a board of directors.
C)run by its founder,Mark Zuckerberg.
D)not legally allowed to raise funds through venture capital firms.
Q3) A normal rate of return refers to the ________ that investors must earn on the funds they invest in a firm,expressed as a percentage of the amount invested.
A)minimum amount
B)maximum amount
C)total amount
D)profit
Q4) How does a firm raise external funds through direct finance?
Page 8
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Chapter 7: Comparative Advantage and the Gains From International Trade
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Q1) Over the past several decades there has been a rapid growth in international trade.This growth has been due to all except one of the following factors.Which factor has not contributed to the growth of international trade?
A)the spread of reliable communications
B)a change in the tariffs charged on many goods
C)a reduction in shipping costs
D)favorable changes in government policies
Q2) If Finland has an absolute advantage in the production of two goods compared to Latvia,Finland can still benefit from trade with Latvia.
A)True
B)False
Q3) ________ is the ability to produce more of a good or service than competitors when using the same amount of resources.
A)Absolute advantage
B)Comparative advantage
C)Trade superiority
D)Trade autarky
Q4) What was the GATT,why was it established,and why and with what was it replaced?
Q5) What are terms of trade?
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Chapter 8: GDP: Measuring Total Production and Income
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Q1) If an American firm opens a production facility in India,the total value of the production will be included in the
A)gross domestic product of the United States.
B)national income of the United States.
C)gross domestic product of India.
D)national income of India.
Q2) Transfer payments are subtracted from national income to get to personal income.
A)True
B)False
Q3) To calculate GDP by the expenditure method,one must add A)wages,rents,interest,and profits.
B)consumption spending,investment spending,government spending and net exports.
C)consumption spending,investment spending,government spending and exports.
D)labor,natural resources,entrepreneurship,and capital.
Q4) Refer to Table 8-18.What is nominal GDP in 2013 when 2008 is the base year?
A)$28,885
B)$11,790
C)$11,200
D)$10,275
Q5) Why do we subtract import spending from total expenditures?
Page 10
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Chapter 9: Unemployment and Inflation
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Sample Questions
Q1) Why does the substitution bias cause the consumer price index to overstate inflation and the cost of living? Why does the increase in quality bias cause the consumer price index to overstate inflation and the cost of living?
Q2) The consumer price index implicitly assumes that the demand curve for each good and service in the representative market basket is
A)positively sloped.
B)negatively sloped.
C)vertical.
D)horizontal.
Q3) Suppose you borrow $1,000 at an interest rate of 12 percent.If the expected real interest rate is 5 percent,then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation
A)equal to 0 percent.
B)greater than 7 percent.
C)equal to 7 percent.
D)less than 7 percent.
Q4) Refer to the Article Summary.Explain how the labor force declining by 300,000 people could have led to the decrease in the unemployment rate.
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Page 11
Chapter 10: Economic Growth, the Financial System, and Business Cycles
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Sample Questions
Q1) Which one of the following is not considered a financial intermediary?
A)a bank
B)a pension fund
C)an insurance company
D)a credit counselor
Q2) Explain why a centrally-planned economy might not grow as rapidly as a market economy.
Q3) If consumers decide to be more frugal and save more out of their income,then this will cause
A)a shift in the supply curve for loanable funds to the right.
B)a shift in the supply curve for loanable funds to the left.
C)a movement to the right along the supply curve for loanable funds.
D)a movement to the left along the supply curve for loanable funds.
Q4) Market economies tend to grow more quickly than centrally-planned economies.
A)True
B)False
Q5) How does a decrease in the tax rate on income earned on saving affect saving,investment,the interest rate,and economic growth?
Q6) How are unemployment,inflation,and the business cycle related?
Q7) Outline the various actions the government sector could take to promote growth. Page 12
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Chapter 11: Long-Run Economic Growth: Sources and Policies
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Q1) Political stability is not a prerequisite to economic growth.
A)True
B)False
Q2) By offering less generous unemployment insurance programs,the United States can expect
A)citizens to pay more in taxes than citizens pay in Europe.
B)workers to be slow in gaining new skills in response to fluctuations in the labor market.
C)shorter periods of unemployment for their workers.
D)longer periods of unemployment for their workers.
Q3) Explain three reasons why the productivity slowdown of 1974-1995 occurred.
Q4) An economy that grows too slowly fails to raise living standards.
A)True
B)False
Q5) When firms benefit from the results of research and development they didn't pay for,we say firms
A)are litigious.
B)free ride.
C)invest in knowledge capital.
D)maintain a level playing field.
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Chapter 12: Aggregate Expenditure and Output in the Short Run
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Sample Questions
Q1) An increase in the price level in the United States will reduce imports and increase exports.
A)True
B)False
Q2) What are the four categories of aggregate expenditure?
Q3) Given the equations for C,I,G,and NX below,what is the marginal propensity to consume? C = 2,000 + 0.9Y
I = 2,500
G = 3,000
NX = 400
A)-0.1
B)0.1
C)0.9
D)2000
Q4) If the MPC is 0.95,then a $10 million increase in disposable income will
A)increase consumption by $200 million.
B)increase consumption by $9.5 million.
C)decrease consumption by $105 million
D)increase consumption by $950 million.
Q5) What is the main reason for changes in GDP in the short run?
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Chapter 13: Aggregate Demand and Aggregate Supply Analysis
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Q1) Short-run macroeconomic equilibrium occurs when
A)aggregate demand and short-run aggregate supply intersect.
B)the equilibrium lies on the long-run aggregate supply curve.
C)structural and frictional unemployment equal zero.
D)A and B
Q2) The ________ shows the relationship between the price level and quantity of real GDP demanded.
A)consumer price index
B)aggregate expenditure line
C)45-degree line
D)aggregate demand curve
Q3) In the dynamic aggregated demand and aggregate supply model,if AD shifts faster than AS,
A)inflation occurs.
B)deflation occurs.
C)stagflation occurs.
D)disinflation occurs.
Q4) In September of 2007,the Federal Reserve Board Open Market Committee voted to lower interest rates for the first time that year.Explain how lower interest rates affect the aggregate demand curve.
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Chapter 14: Money, banks, and the Federal Reserve System
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Sample Questions
Q1) Fiat money is generally issued by
A)private banks.
B)central banks.
C)brokerage firms.
D)major multinational corporations.
Q2) To decrease the money supply,the Federal Reserve could
A)lower the discount rate.
B)raise income taxes.
C)lower the required reserve ratio.
D)conduct an open market sale of Treasury securities.
E)raise transfer payments.
Q3) Fiat money has
A)little to no intrinsic value but is backed by the quantity of gold held by the central bank.
B)little to no intrinsic value and is authorized by the central bank or governmental body.
C)value,because it can be redeemed for gold by the central bank.
D)a great intrinsic value that is independent of its use as money.
Q4) What are the implications of the quantity theory of money for monetary policy and price stability?
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Chapter 15: Monetary Policy
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Q1) The Federal Reserve cannot target both the money supply and the interest rate because it does not control
A)bank reserves.
B)money demand.
C)the discount rate.
D)open market operations.
Q2) Why doesn't the Fed have both a money supply target and an interest rate target?
A)Short-term interest rates do not respond to changes in the money supply,which the Fed can control.
B)The Fed does not control money demand.
C)The Fed cannot offset the impact of changes in cash management by the public or changes in lending policies of commercial banks on the money supply.
D)Only the level of interest rates matters when we consider rates of growth in real GDP,employment,and rates of price inflation.
Q3) In the Taylor rule,does the target for the federal funds rate respond differently for a recession caused by a decrease in aggregate demand and for a recession caused by a decrease in short-run aggregate supply? Explain whether there is or is not a difference in how the target for the federal funds rate changes.
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Chapter 16: Fiscal Policy
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Sample Questions
Q1) Included in government expenditures are government purchases and transfer payments.
A)True B)False
Q2) A tax rebate,like the one issued in 2008,is likely to ________ consumption spending ________ than would a permanent tax cut.
A)increase; more B)increase; less C)decrease; more D)decrease; less
Q3) Tax reduction and simplification should ________ long-run aggregate supply and ________ aggregate demand.
A)increase; increase B)increase; decrease C)decrease; increase D)decrease; decrease
Q4) Why will there be less crowding out of private spending by government spending the less sensitive consumption,investment,and net exports are to changes in interest rates?
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Chapter 17: Inflation, unemployment, and Federal Reserve Policy
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Sample Questions
Q1) Use the following information to draw a graph showing the short-run and long-run Phillips curves,and be sure your graph shows the point where the short-run and long-run Phillips curves intersect.
Natural rate of unemployment = 4 percent
Current rate of unemployment = 5 percent
Expected inflation rate = 3 percent
Current inflation rate = 2 percent
Q2) Refer to Figure 17-9.Fed Chairman Paul Volcker's response to high inflation of the late 1970s is depicted in the figure above as a movement from
A)A to D to C.
B)C to B to A.
C)C to D to A.
D)C to E to B.
E)A to B to C.
Q3) Which of the following would be the source of a "real" business cycle?
A)changes in technology
B)anticipated expansionary monetary policy
C)unanticipated expansionary monetary policy
D)unanticipated contractionary monetary policy
Page 20
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Chapter 18: Macroeconomics in an Open Economy
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Q1) If the government finances an increase in government purchases with an increase in taxes,which of the following would you expect to see?
A)an increase in the exchange rate
B)a decrease in the interest rate
C)a decrease in aggregate demand
D)an increase in net exports
Q2) How would a decrease in the U.S.budget deficit affect the exchange rate in the market for dollars?
A)The exchange rate will increase.
B)The exchange rate will decrease.
C)The exchange rate will not be affected by a change in the budget deficit.
D)The impact of the decrease in the budget deficit on the exchange rate cannot be predicted.
Q3) Explain why economies with financial account surpluses usually have current account deficits.
Q4) A rise in the dollar price of the Chinese yuan signals an appreciation of the yuan and a depreciation of the dollar.
A)True
B)False
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Chapter 19: The International Financial System
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Q1) If speculators believe a currency is undervalued,their trades in international exchange markets will
A)increase the surplus of the currency at the existing fixed exchange rate.
B)decrease the surplus of the currency at the existing fixed exchange rate.
C)decrease the shortage of the currency at the existing fixed exchange rate.
D)increase the shortage of the currency at the existing fixed exchange rate.
Q2) When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely,they began to sell off their investments in Thailand and exchange the baht they received for dollars.This reduction in investment by foreigners is termed
A)foreign direct investment.
B)capital flight.
C)capital inflow.
D)stabilizing capitalization.
Q3) By the late 1950s,dollars held by foreign central banks exceeded the official dollar value of U.S.gold reserves.
A)True
B)False
Q4) Explain why international capital markets have expanded since the 1980s.
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