Course Introduction
Macroeconomic Analysis Study Guide
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Macroeconomic Analysis examines the fundamental principles and models that govern the functioning of whole economies. This course explores the determinants of national output, income, and employment, focusing on key variables such as inflation, unemployment, economic growth, and interest rates. Students will engage with classical and modern macroeconomic theories, analyze the impacts of fiscal and monetary policies, and study the roles played by institutions like central banks and governments. Through analytical tools and real-world case studies, the course equips students with the skills to interpret macroeconomic indicators and understand their relevance to policy formulation and economic stability.
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Macroeconomics 11th Edition by Michael Parkin
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Chapter 1: What Is Economics
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Q1) The variable measured on the y-axis increases whenever the variable measured on the x-axis increases.As a result,the relationship between the variables will
A) be negatively sloped.
B) have a slope of zero.
C) be a vertical line.
D) be none of the above.
Answer: D
Q2) In a graph,a line has a negative slope if
A) the line is vertical.
B) the line is horizontal.
C) the line rises from right to left.
D) the line rises from left to right.
Answer: C
Q3) Factors of production are grouped into four categories:
A) land, labor, capital, entrepreneurship
B) land, labor, capital, money
C) land, capital, money, entrepreneurship
D) labor, capital, money, entrepreneurship
Answer: A
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Chapter 2: The Economic Problem
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Q1) The above table shows production combinations on a country's production possibilities frontier.The opportunity cost of increasing the production of Y from 16 to 28 units is ________ units of good X per unit of good Y.
A) 12
B) 6
C) 3
D) There is no opportunity cost when moving from one point to another along a production possibilities frontier so none of the above answers is correct.
Answer: C
Q2) As a person consumes more of a good,the
A) marginal benefit increases.
B) marginal benefit decreases.
C) marginal benefit increases or decreases depending whether or not the economy is on the PPF.
D) price of the good falls.
Answer: B
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Page 4
Chapter 3: Demand and Supply
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Q1) Soft drinks and milk are substitutes for consumers.Draw a graph showing the effect of an increase in the price of milk on the demand for soft drinks.
Answer: 11ea5ba7_d8a0_6e72_b1f3_b17333227696_TB5273_00 The increase in the price of milk increases the demand for soft drinks,as illustrated in the figure above.
Q2) The above figures show the market for gasoline.Which figure shows the effect of motorists increasing the number of times they take the bus to work rather than driving their own cars?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
Answer: B
Q3) The statement that "demand increases" means that there is a
A) movement to the right along a demand curve.
B) movement to the left along a demand curve.
C) rightward shift of the demand curve.
D) leftward shift of the demand curve.
Answer: C
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Chapter 4: Measuring GDP and Economic Growth
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Q1) Using the information in the table above,calculate gross domestic product.
A) $118
B) $108
C) $86
D) $78
Q2) In 2013,Ozzie purchased a 2010 Ford Escort from his neighbor for his son,purchased a 2009 "one owner" Camry from Larchmont Toyota for his wife,bought a 2013 new Ford for himself,and sold his 2002 Dodge Caravan to his teenage nephew.Which,if any,of these transactions will be included in GDP in 2013?
A) all four transactions
B) all three purchases but not the sale
C) the purchase of the Ford and the Caravan
D) only the purchase of the Ford
Q3) Personal consumption expenditures include all of the following EXCEPT spending on A) consumer durable goods.
B) consumer nondurable goods.
C) consumer services.
D) new housing.
Q4) Define and discuss GDP.
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Chapter 5: Monitoring Jobs and Inflation
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Q1) Including marginally attached workers in the calculation of the unemployment rate would
A) increase the reported rate.
B) lower the reported rate.
C) not change the reported rate.
D) change the reported rate, but in an unpredictable manner.
Q2) Recessions and expansions affect most strongly which type of unemployment?
A) frictional unemployment
B) structural unemployment
C) cyclical unemployment
D) seasonal unemployment
Q3) Bill loses his job as a loan officer when the bank he works for is bought up by a larger financial institution.Bill has the skills necessary to find a new job,so as Bill searches for work he is best considered an example of
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) a discouraged worker.
Q4) What is potential GDP and what is the relationship between actual and potential real GDP?
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Chapter 6: Economic Growth
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Q1) Of the following Asian countries,which has the lowest level of real GDP per person?
A) China
B) Korea
C) Singapore
D) Hong Kong
Q2) If the population increases,then potential GDP ________ and employment ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Q3) Which of the following is consistent with classical growth theory?
A) Real GDP per person will increase because technological change induces investment.
B) Real GDP per person will never permanently increase.
C) Competition destroys innovation and decreases profit.
D) As real GDP increases, there will be a decrease in the rate of population growth.
Q4) What is the effect on real GDP per person if labor productivity increases?
Q5) How has U.S.real GDP per person changed over the last 100 years?
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Chapter 7: Finance, Saving, and Investment
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Q1) Which of the following will shift the supply of loanable funds curve leftward?
A) a decrease in the real interest rate
B) a decrease in real wealth
C) a decrease in disposable income
D) a decrease in expected future income
Q2) A increase in disposable income ________.
A) has no effect on the supply of loanable funds curve
B) shifts the supply of loanable funds curve rightward
C) shifts the supply of loanable funds curve leftward
D) results in movement up the supply of loanable funds curve
Q3) Use the information in the table above to calculate the value of government saving.
A) $15 million
B) -$5 million
C) $5 million
D) $45 million
Q4) How does an increase in the expected profit affect investment demand and the demand for loanable funds curve?
Q5) What is the approximate relationship among the real interest rate,the inflation rate,and the nominal interest rate?
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Chapter 8: Money, The Price Level, and Inflation
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Q1) M1 includes all the following items except ________.
A) checking deposits owned by individuals and businesses
B) traveler's checks
C) deposits in money market mutual funds
D) currency owned by individuals and businesses
Q2) "Because monetary policy must be approved by the president of the United States,the president is chair of the Federal Open Market Committee." Analyze the previous statement-is it correct or incorrect?
Q3) Are credit cards or debit cards money?
Explain your answer.
Q4) Use the figure above to answer this question.Suppose the economy is operating at point a.A move to ________ could be explained by ________.
A) point c; an increase in the use of credit cards
B) point b; an increase in real GDP
C) point b; an increase in the nominal interest rate
D) point e; an increase in U.S. exports
Q5) Suppose the quantity of money is greater than the quantity of money demanded.In the short run,what occurs to set the quantity of money equal to the quantity of money demanded?
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) With everything else the same,which of the following would increase the demand for U.S.dollars in the foreign exchange market?
I. a rise in the U.S.interest rate
II. a fall in interest rates in foreign countries
III. a rise in the expected future exchange rate
A) I only
B) I and II only
C) I and III only
D) I, II, and III
Q2) If the U.S.interest rate differential increases,then in the foreign exchange market the
A) quantity of U.S. dollars supplied increases.
B) supply of U.S. dollars decreases.
C) demand for U.S. dollars does not change.
D) supply of U.S. dollars increases.
Q3) The U.S.dollar will depreciate in value if
A) the demand curve for U.S. dollars shifts rightward.
B) the demand curve for U.S. dollars shifts leftward.
C) the supply curve of U.S. dollars shifts rightward.
D) Both answers B and C are correct.
Page 11
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) When an increase in aggregate demand exceeds the increase in aggregate supply,
A) real GDP decreases while nominal GDP increases.
B) the price level falls while real GDP increases.
C) nominal GDP decreases and real GDP decreases.
D) the economy will experience inflation as the price level rises.
Q2) Using the data in the above table,in the short-run macroeconomic equilibrium,the price level is ________ and the level of real GDP is ________.
A) 105; $10 trillion
B) 110; $10 trillion
C) 110; $11 trillion
D) 115; $10 trillion
Q3) According to the intertemporal substitution effect,when the price level increases,the interest rate
A) rises and the quantity of real GDP demanded increases.
B) rises and the quantity of real GDP demanded decreases.
C) falls and the quantity of real GDP demanded decreases.
D) is not affected.
Q4) What are fiscal and monetary policies?
Do they have an immediate effect on the AD curve or the SAS curve?
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Chapter 11: Expenditure Multipliers
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Q1) When disposable income is 0,consumption is $2000.Then
A) saving = $0.
B) saving = -$2000.
C) saving = $2000.
D) the MPC = 0.2.
Q2) After an increase in autonomous spending,in the long run,changes in the price level
A) will make the AE curve steeper.
B) will make the AE curve flatter.
C) will reduce the effect of the multiplier.
D) will not affect the multiplier.
Q3) With consumption expenditure on the vertical axis and disposable income on the horizontal axis,the consumption function intersects the 45-degree line at $8 trillion.This result indicates that
A) autonomous consumption spending is $8 trillion.
B) consumption spending is $8 trillion when disposable income is $8 trillion.
C) consumption spending is less than $8 trillion because taxes must be paid.
D) consumption spending is more than $8 trillion because taxes have been paid.
Q4) What is unplanned investment?
How does it occur?
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Chapter 12: Inflation, Jobs, and the Business Cycle
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Q1) New Keynesian economists believe that ________ is influenced by ________.
A) yesterday's money wage rate; today's rational expectations of the money wage
B) today's money wage rate; yesterday's rational expectations of the price level
C) yesterday's rational expectations of the price level; today's money wage rate
D) today's money wage rate; today's rational expectations of the price level
Q2) If the economy is initially at potential GDP and people correctly anticipate an increase in inflation so that their money wage rate adjusts immediately,then
A) only real GDP increases with no change in the price level.
B) only the price level rises with no change in real GDP.
C) both the price level and real GDP increase.
D) neither the price level nor real GDP increase.
Q3) The factor leading to business cycles in the Keynesian model is ________.
A) changes in business confidence
B) a speed up in money growth
C) unanticipated changes in aggregate demand
D) unanticipated changes in aggregate supply
Q4) Distinguish between the short-run and long-run Phillips curves.
Q5) The Phillips curve describes the relationship between real GDP and inflation.
A)True
B)False
Page 14
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Chapter 13: Fiscal Policy
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Q1) Does the figure above illustrate a recessionary or an inflationary gap?
What do potential GDP and real GDP equal?
What is an appropriate fiscal policy to restore real GDP to potential real GDP?
Q2) What is the amount of the surplus or deficit incurred in year 2 by the government shown in the above table?
A) $0
B) $5 billion surplus
C) $5 billion deficit
D) $250 billion surplus
Q3) The aggregate demand curve is shifted rightward by
A) an increase in tax rates.
B) a decrease in government expenditure.
C) an increase in the federal budget surplus.
D) an increase in government expenditure.
Q4) Discretionary policy requires an act of Congress.
A)True
B)False
Q5) What is the difference between discretionary fiscal policy and automatic fiscal policy?
Page 15
Q6) How does a tax on labor income affect potential GDP?
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Chapter 14: Monetary Policy
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Q1) The Fed targets the 30-year bond rate as its monetary policy instrument.
A)True
B)False
Q2) The monetary policy instrument the Federal Reserve choose to use is the
A) quantity of money.
B) exchange rate.
C) federal funds rate.
D) required reserves rate.
Q3) The ripple effects that occur when the Fed changes the federal funds rate include ________.
A) a decrease in consumption and investment
B) an increase in net exports
C) a decrease in interest rates
D) an increase in short-run aggregate supply
Q4) If the Fed wants to fight inflation,it will ________ the federal funds rate,which in the short run shifts the ________.
A) lower; AD curve rightward
B) lower; AD curve leftward
C) raise; AD curve rightward
D) raise; AD curve leftward
Page 16
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Chapter 15: International Trade Policy
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Q1) In 2013 the United States reduced the tariff on ethanol.The winners from the tariff reduction are
A) U.S. producers and the U.S. government.
B) U.S. producers only.
C) U.S. consumers only.
D) U.S. consumers, U.S. producers, and the U.S. government.
Q2) In poorer countries,free trade ________ the demand for labor in these countries and ________ the wages paid in these countries. A) decreases; lowers B) decreases; raises C) increases; lowers D) increases; raises
Q3) Explain the effects of a quota.
Q4) The United States has a comparative advantage in producing cotton if the U.S.price of cotton before international trade is ________ the world price A) less than B) equal to C) greater than D) not comparable to
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Chapter 16: Introduction
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Q1) Country X devoted 70 percent of its resources to consumption,while Country Y devoted 80 percent to consumption.Other things being equal,you can predict that
A) Country X's opportunity cost of economic growth is lower than Country Y's.
B) Country Y's rate of capital accumulation is higher than Country X's
C) Country Y's economy will grow faster than Country X's.
D) Country X's economy will grow faster than Country Y's.
Q2) Which of the following increases the demand for chicken?
A) an increase in the price of the grain used to feed chickens
B) an increase in the number of chicken farmers
C) an increase in the price of beef, a substitute for chicken
D) a fall in the price of chicken
Q3) If OPEC cuts oil production,then the
A) demand for gasoline will decrease.
B) price of gasoline will fall.
C) demand for gasoline will increase.
D) supply of gasoline will decrease.
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Chapter 17: Monitoring Macroeconomic Performance
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Q1) Comparing the unemployment rate and the business cycle we see that
A) the unemployment rate generally increases during expansions and generally decreases during recessions.
B) there is virtually no relationship between the business cycle and the unemployment rate.
C) the unemployment rate eventually falls during expansions and rises during recessions.
D) higher unemployment rates are the cause of most business cycles.
Q2) The labor force is defined as
A) all people aged 16 and over and not institutionalized.
B) the entire population.
C) those people employed and unemployed.
D) only those people with jobs.
Q3) The accumulated loss of output that results from a slowdown in the growth rate of GDP per person is called the
A) Keynesian gap.
B) Okun gap.
C) Lucas wedge.
D) unemployment wedge.
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Chapter 18: Macroeconomic Trends
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Q1) If productivity constantly increases,then the real wage rate ________ and employment ________.
A) constantly rises; constantly increases
B) does not change; constantly decreases
C) constantly decreases; does not change
D) constantly rises; does not change
Q2) An increase in the population will ________ potential GDP,________ employment,and ________ the real wage.
A) decrease; increase; raise
B) increase; increase; raise
C) increase; decrease; lower
D) increase; increase; lower
Q3) The velocity of circulation is
A) equal to the price level multiplied by real GDP.
B) the same as the aggregate demand curve.
C) the average number of times a dollar bill is used in a year to buy the goods and services in GDP.
D) increased when the Fed lowers the required reserve ratio.
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Chapter 19: Macroeconomic Fluctuations
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Q1) The order for the chain of events for the Keynesian model is for a change in ________ to lead to a change in ________,which is then multiplied resulting in a change in ________.
A) investment; animal spirits; the price level
B) business confidence; investment; real GDP
C) the Fed's intermediate targets; the Fed's goals; real GDP
D) real GDP; income; consumption
Q2) A recessionary gap occurs when
A) the short-run aggregate supply curve shifts rightward.
B) real GDP is less than potential GDP.
C) the economy is at its long-run equilibrium.
D) government interferes with the economy.
Q3) If the Fed increases the quantity of money,________ economists believe that the
A) Keynesian; aggregate supply curve shifts rightward
B) Keynesian; structural deficit increases
C) monetarist; cyclical deficit increases
D) monetarist; aggregate demand curve shifts rightward
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Chapter 20: Macroeconomic Policy
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Q1) A fiscal action that is triggered by the state of the economy is called A) monetarist policy.
B) the tax wedge.
C) automatic fiscal policy.
D) the multiplier.
Q2) An example of a fiscal policy designed to decrease real GDP is A) a cut in taxes.
B) an increase in taxes.
C) an increase in government expenditure.
D) None of the above answers is correct.
Q3) When the Fed enacts monetary policy,in the short run it changes A) the AD curve.
B) the SAS curve.
C) both the AD and SAS curves.
D) potential GDP.
Q4) An example of a fiscal policy designed to increase real GDP is A) a cut in taxes.
B) an increase in taxes.
C) a decrease in government expenditure.
D) None of the above answers is correct.
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