Macroeconomic Policy Practice Exam
Course Introduction
Macroeconomic Policy examines the tools and strategies that governments and central banks use to influence a nations economic performance at the aggregate level. The course covers foundational concepts such as fiscal policy, monetary policy, and exchange rate management, alongside their impact on growth, inflation, unemployment, and economic stability. Students will analyze policy objectives, the transmission mechanisms of macroeconomic tools, and the challenges faced in implementation, with a focus on current international and domestic policy issues. Case studies and empirical analysis are integrated to provide practical insight into the formulation and outcomes of macroeconomic policies in different economic contexts.
Recommended Textbook
CoreMacroeconomics 3rd Edition by Eric Chiang
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Chapter 1: Exploring Economics
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Sample Questions
Q1) Titles,labels for axes,and a statement of how the data are measured help with the interpretation of graphs.
A)True
B)False
Answer: True
Q2) The concept of scarcity:
A) exists in all societies.
B) affects only greedy people.
C) is the cause of poverty.
D) used to be a problem,but is not an issue for modern industrial nations.
Answer: A
Q3) Complex models are always better than simple ones.
A)True
B)False
Answer: False
Q4) Is understanding recessions a microeconomic or a macroeconomic issue? Explain.
Answer: Macroeconomic;it is a national issue.
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Chapter 2: Production, Economic Growth, and Trade
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Sample Questions
Q1) If you accept a job in Seattle as a financial analyst,you must give up the chance to accept a similar job in Australia.Giving up the job in Australia is your:
A) allocative cost.
B) opportunity cost.
C) production cost.
D) cost factor.
Answer: B
Q2) When society produces the mix of goods and services that are most desired and produces them at the lowest cost possible:
A) production efficiency is achieved.
B) allocative efficiency is achieved.
C) production and allocative efficiency are achieved.
D) inefficiency occurs.
Answer: C
Q3) The choice to attend a free college lecture involves no opportunity cost.
A)True
B)False
Answer: False
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Chapter 3: Supply and Demand
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Sample Questions
Q1) When the price of a good changes in a market:
A) both quantity demanded and quantity supplied change for the good.
B) demand for the good changes.
C) both demand for and supply of the good change.
D) both the demand curve and the supply curve for the good shift.
Answer: A
Q2) Using supply/demand analysis,explain the reason that the increased production of ethanol (a gasoline additive made from corn)is raising the price of tortillas (a type of bread made from corn).What effect would this price rise have on poor people?
Answer: Corn can be used in making many different products,such as corn syrup,livestock feed,and grain alcohol.As more corn is diverted to make ethanol,the supply of corn available for other uses declines.Hence,the market price of other products made of corn rises,thereby increasing the cost of food for poor people whose diet depends on corn products.
Q3) What are the five determinants of demand?
Answer: (1)tastes and preferences, (2)income, (3)prices of related goods, (4)the number of buyers,and (5)expectations regarding future prices,income,and product availability.
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Chapter 4: Markets and Government
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Sample Questions
Q1) (Figure: Determining Surplus and Loss)In the graph,how much is producer surplus at a price of $12?
A) $30
B) $90
C) $170
D) $300
Q2) Total surplus is calculated as:
A) consumer surplus plus market efficiency.
B) producer surplus plus deadweight loss.
C) consumer surplus plus deadweight loss.
D) producer surplus plus consumer surplus.
Q3) (Figure: Determining Surplus and Loss)Consider the graph.If the price is raised from $8 to $12:
A) $80 is transferred from producers to consumers.
B) $80 is transferred from consumers to producers.
C) $140 is transferred from producers to consumers.
D) $140 is transferred from consumers to producers.
Q4) Market failure occurs only when a market completely stops conducting business.
A)True
B)False
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Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) A major appliance is an example of a nondurable good.
A)True
B)False
Q2) A simple circular flow diagram shows that the factors of production are:
A) owned by the government.
B) purchased by households.
C) purchased by businesses.
D) traded in the market for goods and services.
Q3) The sum of all income,including wages,salaries and benefits,profits,rental income,and interest,is called:
A) labor income.
B) gross domestic income.
C) national income.
D) pretax income.
Q4) What event was a major influence on the development of macroeconomics?
A) the Great Depression
B) the Employment Act of 1946
C) the establishment of the Federal Reserve System in the United States
D) the U.S.entry into World War II
Q5) Describe the major components of national income.
Page 7
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Chapter 6: Measuring Inflation and Unemployment
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Sample Questions
Q1) Which of the following pairs is NOT synonymous?
A) nonaccelerating inflation rate of unemployment and full employment
B) full employment and natural rate of unemployment
C) cyclical unemployment and full employment
D) natural rate of unemployment and nonaccelerating inflation rate of unemployment
Q2) Wages that are higher than equilibrium can lead to:
A) unemployment.
B) overemployment.
C) a labor shortage.
D) a downward wage-price spiral.
Q3) Structural unemployment can be reduced by retraining workers for new industries.
A)True
B)False
Q4) GDP is $10 trillion in 2001.The GDP deflator is 100 in 2000 and is 110 in 2001.What is real GDP?
A) $10 trillion
B) $11.1 trillion
C) $9.09 trillion
D) $110 trillion
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Chapter 7: Economic Growth
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Sample Questions
Q1) Developing countries can achieve higher productivity per unit of capital because they can use technologies developed by other countries.This is known as the:
A) increasing returns to capital effect.
B) copycat effect.
C) catch-up effect.
D) productivity effect.
Q2) What are the advantages of a stable financial system?
Q3) One of the reasons that property rights are important for economic development is that without legal ownership:
A) loans are very difficult to obtain.
B) consumption will be lowered.
C) money cannot be passed along to heirs.
D) no one will plant flower gardens.
Q4) The government sector is the single largest consumer of goods and services in the United States.
A)True
B)False
Q5) Explain why real GDP per capita is a good indicator of how an economy grows over time.
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Chapter 8: Aggregate Expenditures
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Sample Questions
Q1) If income grows from $3,000 per month to $3,500 per month and savings rise from $200 per month to $400 per month,what is the marginal propensity to save?
A) 1.25
B) 0.8
C) 2.5
D) 0.4
Q2) The slope of the saving schedule is:
A) the marginal propensity to consume.
B) 1 minus the marginal propensity to consume.
C) the average propensity to consume.
D) the average propensity to save.
Q3) If the marginal propensity to save is 0.2,how much is the spending multiplier?
A) 0.8
B) 1.25
C) 5
D) 8
Q4) The multiplier effect is a domino effect as income goes from person to person.Explain.
Q5) Where does equilibrium occur in the simple Keynesian model?
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Chapter 9: Aggregate Demand and Supply
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Sample Questions
Q1) Demand-pull inflation scenarios took place in the:
A) 1960s for the United States and from 1985 to 1995 for Japan.
B) 1930s for the United States and from 1985 to 1995 for Japan.
C) 1960s for the United States and in the 1930s for Japan.
D) 1930s for both the United States and Japan.
Q2) Which of the following factors is NOT a component of aggregate demand?
A) consumption
B) investment
C) income
D) net exports
Q3) An increase in net export spending will result in a(n):
A) increase in aggregate demand.
B) increase in aggregate supply.
C) decrease in aggregate supply.
D) decrease in aggregate demand.
Q4) The collapse of housing prices in 2006-2011 caused aggregate demand to fall when homeowners increased their savings to offset the drop in the value of their homes.
A)True
B)False
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Chapter 10: Fiscal Policy and Debt
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Sample Questions
Q1) Describe the role of the Federal Reserve in financing debt and deficits.Include in your explanation an analysis of the government's budget constraint.
Q2) Which of the following program(s)is (are)most likely to have a large generational imbalance?
A) road or dam building
B) agricultural price supports
C) Medicare
D) All of the answers are correct.
Q3) Gross public debt minus public debt held by the public equals debt held by governmental agencies.
A)True
B)False
Q4) A problem with supply-side fiscal policies is that they:
A) don't work.
B) take longer to work than demand-side fiscal policies.
C) only increase inflation.
D) only decrease inflation.
Q5) What are the tradeoffs and consequences of the government using expansionary and contractionary fiscal policies?
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Chapter 11: Saving, Investment, and the Financial System
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Sample Questions
Q1) Establishment of new government regulations that reduce corruption and instill confidence in firms and entrepreneurs tends to lead to higher interest rates.
A)True
B)False
Q2) Which one of the following will cause the demand for loanable funds curve to shift leftward?
A) an improvement in firms' expectations about the economy
B) an increase in demand for new homes
C) an end to a program that provides investment tax credits
D) an increase in the government deficit
Q3) All of the following are included in the definition of M2 EXCEPT: A) coins.
B) large time deposits.
C) savings deposits.
D) demand deposits.
Q4) List the roles of financial institutions in facilitating the flow of funds to the economy.
Q5) List the factors that shift the demand curve for loanable funds.
Q6) Explain why households supply loanable funds to the market.
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Chapter 12: Money Creation and the Federal Reserve
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Sample Questions
Q1) If a bank does not have enough funds in reserve,it can borrow through either the federal funds market or the discount window.
A)True
B)False
Q2) Open market operations involve the purchase and sale of:
A) government securities.
B) corporate bonds.
C) municipal bonds.
D) utility bonds.
Q3) During a recessionary period,the Federal Reserve should increase the discount rate. A)True
B)False
Q4) The money multiplier is:
A) interest payment divided by yield.
B) yield divided by interest payment.
C) 1/1 - MPS.
D) 1 divided by reserve requirement.
Q5) What are leakages in the context of money creation? What effect do they have on the money multiplier?
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Chapter 13: Monetary Policy
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Sample Questions
Q1) By December 2008,the Federal Reserve had essentially lowered the federal funds target to zero.
A)True
B)False
Q2) Monetary policy is LEAST effective in maintaining low inflation and high GDP when:
A) there has been a supply shock.
B) there has been a demand shock.
C) the government is running a deficit.
D) consumers do not want to save.
Q3) A lower interest rate increases consumption,investment,and __________,which ___________ aggregate demand.
A) imports;increases
B) imports;decreases
C) exports;increases
D) exports;decreases
Q4) Describe the controversy over whether the Fed should have discretion or be governed by simple monetary rules.Support your response with examples.
Q5) What would the Federal Reserve likely do to combat unemployment?
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Chapter 14: Macroeconomic Policy: Challenges in a Global Economy
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Sample Questions
Q1) In the augmented model of the Phillips curve,which of the following factors does NOT affect inflation?
A) productivity growth
B) inflationary expectations
C) trade balance
D) initial location of the short-run Phillips curve
Q2) One implication of the long-run Phillips curve is that:
A) economic policies to keep the unemployment rate below its natural rate will lead to accelerating inflation.
B) in the long run,the government can accurately estimate the natural rate of unemployment.
C) in the long run,the curve becomes upward sloping.
D) the natural rate of unemployment must be lowered to zero.
Q3) Adjustable-rate mortgages usually have interest rates lower than market rates during the first year.
A)True
B)False
Q4) Explain how recent increases in productivity drive jobless recoveries.
Q5) Explain how changing employment practices drive jobless recoveries.
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Chapter 15: International Trade
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Sample
Questions
Q1) As tariffs have been lowered throughout the world,trade has _____________,leading to __________ standards of living around the world.
A) expanded;lower
B) expanded;higher
C) fallen;lower
D) fallen;higher
Q2) Very few trade agreements have clauses that permit countries to enforce measures "necessary to protect human,animal or plant life,or health."
A)True
B)False
Q3) Other things constant,if exports rise while imports fall,then:
A) the trade deficit rises.
B) the trade deficit as a percent of GDP rises.
C) the trade deficit as a percent of GDP falls.
D) tariffs must be increased.
Q4) A country has a comparative advantage in producing a good when it can produce more of that good than another country.
A)True
B)False
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Chapter 16: Open Economy Macroeconomic
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Sample Questions
Q1) One way to increase aggregate demand in the long run is to appreciate the currency.
A)True
B)False
Q2) The real exchange rate between the currencies of two countries takes into account the price levels of both countries.
A)True
B)False
Q3) Under a gold standard,if a country's exports exceeded its imports:
A) its gold stocks were reduced.
B) prices and wages in the country fell.
C) its expenditures increased,but its output fell.
D) gold flowed into the country.
Q4) Describe the difference between nominal and real exchange rates.Include relevant equation(s)in your response.
Q5) The United States had a _____ account _____ of about $450 billion in 2012.
A) current;deficit
B) current;surplus
C) capital;deficit
D) trade;surplus
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