Macro and Microeconomics Review
Questions
Course Introduction
This course offers a comprehensive introduction to both macroeconomics and microeconomics, providing students with a foundational understanding of economic principles and theories. In the microeconomics section, learners explore how individuals and firms make decisions about allocating resources, how prices are determined in various market structures, and the role of government intervention. The macroeconomics portion focuses on the behavior of the economy as a whole, examining key concepts such as national income, inflation, unemployment, fiscal and monetary policies, and international trade. Throughout the course, students develop analytical skills to assess real-world economic issues and apply economic reasoning to everyday problems and policy debates.
Recommended Textbook
Essentials of Economics 4th Edition by R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) A restaurant sells a large soft drink at a fixed price of $1.79.What is the term used by economists to describe the money received from the sale of an additional large soft drink?
A) Marginal revenue
B) Gross earnings
C) Pure profit
D) Net benefit
Answer: A
Q2) Which of the following is not an example of an economic trade-off that a firm has to make?
A) Whether it is cheaper to produce with more machines or with more workers
B) Whether it is cheaper to outsource the production of a good or service
C) Whether or not consumers will buy its products
D) Whether it should produce more of its product
Answer: C
Q3) When voluntary exchange takes place,neither party gains from the exchange. A)True
B)False
Answer: False
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Chapter 2: Choices and Trade-Offs in the Market
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Sample Questions
Q1) What assumption is made by the production possibility frontier model?
A) Labour, capital, land, and natural resources are unlimited in quantity.
B) The economy produces only two products.
C) Any level of the two products that the economy produces is currently possible.
D) The level of technology is variable.
Answer: B
Q2) What is meant by the term 'opportunity cost'?
Answer: Opportunity cost is the highest-valued alternative that must be given up to engage in an activity.
Q3) If a brewery wants to raise funds to purchase a new fermenting tank,it would do so in what market?
A) Factor market
B) Output market
C) Product market
D) Alcoholic beverages market
Answer: A
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) Last year,The Pottery Palace supplied 8000 ceramic pots at $40 each.This year,the company supplied the same quantity of ceramic pots at $55 each.Based on this evidence,The Pottery Palace has experienced
A) a decrease in supply.
B) an increase in supply.
C) an increase in the quantity supplied.
D) a decrease in the quantity supplied.
Answer: A
Q2) What is the difference between a supply schedule and a supply curve?
Answer: A supply schedule is a table that shows the relationship between the price of a product and the quantity of the product supplied.A supply curve is a curve that shows the relationship between the price of a product and the quantity of the product supplied.
Q3) If you exhibit the endowment effect as a decision maker,then you are
A) deciding on the basis of sunk costs.
B) buying something you can't really afford because you expect to save in the future.
C) ignoring non-monetary opportunity costs.
D) consuming based on celebrity endorsements.
Answer: C
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Chapter 4: Elasticity: The Responsiveness of Demand and Supply
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Sample Questions
Q1) Suppose a 4 per cent increase in income results in a 2 per cent decrease in the quantity demanded of a good.Calculate the income elasticity of demand for the good and determine what type of good it is.
Q2) Inelastic supply occurs whenever the elasticity of supply value is ______.
A) negative and < 1
B) any positive number
C) positive and > 1
D) positive and < 1
Q3) The product below which comes closest to having a perfectly inelastic demand is
A) petrol
B) cholesterol medication in general
C) iPhones
D) bus rides
Q4) Necessities tend to have more inelastic demands than luxuries.
A)True
B)False
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Chapter 5: Economic Efficiency,government Price Setting and Taxes
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Sample Questions
Q1) Frieda is at her local florist to buy a dozen roses.She is willing to pay $75 for the roses,and buys them for $75.What is Frieda's consumer surplus from the purchase?
A) $150
B) $75
C) $37.50
D) $0
Q2) Refer to Table 5.3.The table above lists the marginal cost of cowboy hats by The Waco Kid,a firm that specialises in producing fancy dress costumes.If the price of cowboy hats decreases from $38 to $30,__________.
A) consumer surplus will rise by $6
B) the marginal cost of producing the third cowboy hat will fall to $30
C) producer surplus will fall from $22 to $6
D) producer surplus will rise from $8 to $24
Q3) If the market price is at equilibrium,the dead-weight loss is maximised.
A)True
B)False
Q4) The sum of consumer surplus and producer surplus is called economic surplus.
A)True
B)False
Page 7
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Chapter 6: Technology,production and Costs
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Sample Questions
Q1) Average fixed cost is equal to _________.
A) the amount of total cost that does not change as output changes in the short run
B) fixed cost divided by the quantity of output produced
C) fixed cost multiplied by the quantity of output produced
D) average total cost plus average variable cost
Q2) Refer to Figure 6.5.The vertical difference between curves F and G measures
A) average fixed costs
B) marginal costs
C) fixed costs
D) sunk costs
Q3) Jennifer Borts moves her office from the premises she rents at a local shopping centre to her home.As a result of this move ________.
A) Jennifer's explicit costs fall and her implicit costs rise
B) Jennifer's total costs fall
C) Jennifer's implicit costs fall
D) Jennifer's opportunity costs fall
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Chapter 7: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) In August 2008,Ethan Nicholas developed the iShoot application for the apple iPhone 3G,and within five months had earned $800 000 from this program.By May 2009,Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,
A) earning an economic profit in the long run is extremely easy.
B) earning an economic profit in the long run is extremely difficult.
C) it is impossible to earn an economic profit in either the short run or the long run.
D) economic profits are only earned in the long run.
Q2) If a firm shuts down in the short run,it will
A) break even.
B) declare bankruptcy.
C) suffer a loss equal to its variable costs.
D) suffer a loss equal to its fixed costs.
Q3) Under what conditions should a competitive firm shut down in the short run?
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Chapter 8: Monopoly Markets
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Sample Questions
Q1) Refer to Figure 8.2.If the firm's average total cost curve is ATC<sub>2</sub>,the firm will
A) suffer a loss.
B) break even.
C) make a profit.
D) face competition.
Q2) Identify four reasons for high entry barriers.Briefly explain each reason.
Q3) For which of the following firms is patent protection of vital importance?
A) Furniture producers
B) Software firms
C) Pharmaceutical firms
D) Auto makers
Q4) Network externalities refer to the situation where the usefulness of a product increases with the number of consumers who use it.
A)True
B)False
Page 10
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Chapter 9: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Natural resource cartels such as OPEC are inherently unstable because their members operate with excess capacity and have an incentive to cheat on their output quotas.
A)True
B)False
Q2) Refer to Table 9.3.If this firm continues to produce,what is likely to happen to the product's price in the long run?
A) It will fall.
B) It will increase.
C) It will remain constant.
D) It cannot be determined without information on its long-run demand curve.
Q3) What are the three characteristics of a game in game theory?
A) Rules, strategies, and payoffs
B) Rules, regulations, and payoffs
C) Winners, losers, and rules
D) Risks, rewards, and penalties
Q4) Firms in an oligopoly are said to be interdependent.What does this mean?
Chapter 10: The Markets for Labour and Other Factors of Production
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Sample Questions
Q1) Refer to Figure 10.3.In Panel A,at low wages (segment i)
A) the substitution effect outweighs the income effect.
B) the income effect outweighs the substitution effect.
C) the substitution effect offsets the income effect.
D) labour suppliers demand more leisure as wages increase.
Q2) Suppose a competitive firm is paying a wage of $12 an hour.Assume that labour is the only input.If hiring another worker would increase output by four units per hour,then to maximise profits the firm should
A) not change the number of workers it currently hires.
B) hire the extra worker.
C) lay off some workers.
D) There is not enough information to answer the question.
Q3) Serafina was earning $75 per hour and working 50 hours per week.Serafina's wage rose to $90 per hour,and as a result,she now works 60 hours per week.What can you conclude from this information about the income effect and the substitution effect of a wage change for Serafina?
Page 12
______
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Chapter 11: Government Intervention in the Market
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Sample Questions
Q1) Refer to Figure 11.4.What is the efficient output level?
A) Q<sub>d</sub>
B) Q<sub>b</sub>
C) Q<sub>a</sub>
D) Q<sub>b</sub> - Q<sub>d</sub>
Q2) The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called
A) enforcement costs.
B) implicit costs.
C) explicit costs.
D) transactions costs.
Q3) Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the cost of the acid rain,the government's action would
A) externalise the externality.
B) result in a marginal social benefit greater than the marginal cost of the electricity.
C) be an example of supply side economic policy.
D) internalise the externality.
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Chapter 12: Social Policy and Inequality
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Sample Questions
Q1) Refer to Figure 12.3.The figure above shows a demand curve and two supply curves,one more elastic than the other.Use Figure 12.3 to answer the following questions:
a.Suppose the government imposes an excise tax of $1.00 on every unit sold.Use the graph to illustrate the impact of this tax.
b.If the government imposes an excise tax of $1.00 on every unit sold,will the consumer pay more of the tax if the supply curve is S<sub>1</sub> or S<sub>2</sub>? Refer to the graphs in your answer.
c.If an excise tax of $1.00 on every unit sold is imposed,will the revenue collected by the government be greater if the supply curve is S<sub>1</sub> or S<sub>2</sub>?
d.If the government imposes an excise tax of $1.00 on every unit sold,will the deadweight loss be greater if the supply curve is S<sub>1</sub> or S<sub>2</sub>?
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Chapter 13: Gdp: Measuring Total Production, income and Economic Growth
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Sample Questions
Q1) Which of the following is true about 'new growth theory'?
A) It states that the rate of technological change is determined outside the working of the market system.
B) It does not adequately explain the factors that determine productivity.
C) It states that the rate of technological change is unaffected by economic incentives.
D) It states that the rate of technological change is caused by economic incentives.
Q2) If a Korean firm produces cars in the United States,that production should count toward
A) the USA's GNI.
B) Korea's GDP.
C) the USA's GDP.
D) It will not affect either the USA's GNI or the USA's GDP.
Q3) The GDP deflator is a measure of the price level which is calculated as nominal GDP divided by real GDP and multiplied by 100.
A)True
B)False
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Chapter 14: Unemployment and Inflation
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Sample Questions
Q1) During an economic boom,many employees are asked to work more overtime hours each week.As a result of this,
A) the unemployment rate increases.
B) the unemployment rate decreases.
C) the labour force participation rate increases.
D) neither the unemployment rate nor the labour force participation rate changes.
Q2) Unemployment in Australia is
A) significantly higher among older people than younger people.
B) one of the main causes of poverty.
C) not the cause of an increase in poverty as unemployed people receive unemployment benefits from the government.
D) equally distributed across all age groups in society.
Q3) In Australia in 2016,approximately how many people were in the labour force?
A) 6.3 million
B) 12 million
C) 18.3 million
D) 19.6 million
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) The long-run aggregate supply curve shows the relationship between the ________ and ________.
A) inflation rate; quantity of real GDP demanded
B) real interest rate; quantity of real GDP supplied
C) nominal interest rate; quantity of real GDP supplied
D) price level; quantity of real GDP supplied
Q2) In Figure 15.2,given the economy is at point A in year 1 and point B in year 2,what will happen to the unemployment rate in year 2?
A) It will rise.
B) It will fall.
C) It will remain constant.
D) There is not enough information to answer the question.
Q3) When the price level in Australia rises relative to the price level of other countries,ceteris paribus,________ will rise,________ will fall,and ________ will fall.
A) imports; exports; net exports
B) exports; imports; net exports
C) net exports; exports; imports
D) net exports; imports; exports
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Chapter 16: Money,banks and the Reserve Bank of Australia
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Sample Questions
Q1) A person's 'wealth'
A) is a measure of how much money the person has.
B) equals the value of the person's assets minus his or her liabilities.
C) is measured independently of his or her current and expected future income.
D) All of these options are correct.
Q2) In February 2016,the level of credit in Australia was approximately ________.
A) $2 667.6 billion
B) $49.8 billion
C) $141.8 billion
D) $445.1 billion
Q3) Banks can increase the money supply by
A) offering financial services, such as money market accounts.
B) printing additional currency notes.
C) paying interest to their depositors.
D) making loans that result in additional deposits.
Q4) Which of the following is an 'asset' of a bank?
A) Deposits
B) Short-term borrowing
C) Long-term debt
D) Loans
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Chapter 17: Monetary Policy
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Sample Questions
Q1) Refer to Table 17.1.Consider the hypothetical information in the table for potential GDP,real GDP and the price level in 2016 and in 2017 if the Reserve Bank of Australia does not use monetary policy.If the Reserve Bank of Australia wants to keep real GDP at its potential level in 2017,it should
A) buy government securities.
B) sell government securities.
C) increase interest rates.
D) increase income taxes.
Q2) The Reserve Bank of Australia can use expansionary monetary policy to lower interest rates to stimulate aggregate demand.
A)True
B)False
Q3) From an initial long-run macroeconomic equilibrium,if the Reserve Bank of Australia anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the RBA would most likely
A) increase income tax rates.
B) decrease income tax rates.
C) increase interest rates.
D) decrease interest rates.
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Chapter 18: Fiscal Policy
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Sample Questions
Q1) The structural budget deficit calculates the budget surplus or deficit if the economy was _________.
A) in recession
B) at potential GDP
C) producing above potential GDP
D) producing below potential GDP
Q2) Crowding out results in _________.
A) higher interest rates, a lower exchange rate, and lower net exports.
B) higher interest rates, a higher exchange rate, and lower net exports.
C) lower interest rates, a lower exchange rate, and lower net exports.
D) lower interest rates, a higher exchange rate, and lower net exports.
Q3) Assuming a fixed amount of taxes and a closed economy,calculate the value of the government purchases multiplier,the tax multiplier,and the balanced budget multiplier if the marginal propensity to consume equals 0.75.
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Chapter 19: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) What is absolute advantage?
A) The ability to produce more of a good or service than competitors when using the same amount of resources
B) The ability to produce higher quality goods compared to one's competitors
C) The ability to produce a good or service at a higher opportunity cost than one's competitors
D) The ability to produce more of a good or service than competitors that have more resources
Q2) If the opportunity cost of production for two goods is different between two countries,then __________.
A) trade cannot benefit either country
B) only one country can be made better off by trade
C) mutually beneficial trade is possible
D) trade will only benefit both countries if one can lower its opportunity costs
Q3) What is autarky?
Q4) In 2009,Australia accounted for what proportion of world merchandise trade?
A) 1 per cent
B) 12 per cent
C) 8 per cent
D) 5 per cent
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Chapter 20: Macroeconomics in an Open Economy
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Q1) The country's exchange rate system is a(n)_________ system when a country's exchange rate is allowed to vary within a particular target zone against the currencies of other countries.
A) floating rate
B) adjustable peg
C) pegged rate
D) managed floating rate
Q2) With a common currency such as the euro,
A) trade barriers between countries using the currency are increased.
B) individual countries using the currency are no longer able to run independent monetary policies.
C) the prices of goods across countries using the currency must always be the same, regardless of consumer preferences for goods across countries.
D) individual countries using the currency are no longer able to run independent fiscal policies.
Q3) If Australia's current account is in deficit,net foreign investment must be negative by the same amount.
A)True
B)False
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