Macroeconomic Policy Review Questions
Course Introduction
Macroeconomic Policy explores the tools and frameworks governments and central banks use to influence a country's overall economic performance. This course examines fiscal policy (government spending and taxation), monetary policy (central bank actions), and their effects on national income, employment, inflation, and economic growth. Topics include policy objectives, constraints, and trade-offs; the roles of institutions like the Federal Reserve and the Treasury; and real-world policy responses to economic fluctuations, crises, and long-term growth challenges. Students will analyze contemporary issues and debates using theoretical models and empirical data, preparing them to assess the impact of macroeconomic policy decisions on economies and societies.
Recommended Textbook
Macroeconomics 12th Edition by Michael Parkin
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Chapter 1: What Is Economics?
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Sample Questions
Q1) "The rich should pay higher income tax rates than the poor" is an example of a
A) normative statement.
B) positive statement.
C) descriptive statement.
D) theoretical statement.
Answer: A
Q2) In the table above, Y is measured along the y-axis and X along the x-axis. The slope between points e and f is
A) -25.
B) 4.
C) 0.25.
D) -0.25.
Answer: D
Q3) Overtime worked by a JCPenney associate is considered ________ and earns ________.
A) labor; wages
B) entrepreneurship; profit
C) human capital; interest
D) labor; profit
Answer: A
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Chapter 2: The Economic Problem
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Sample Questions
Q1) Are all points inside the production possibilities frontier unattainable?
Answer: No, all points within the production possibilities frontier are attainable, though there are unemployed or misallocated resources at these points.
Q2) Tom takes 20 minutes to cook an egg and 5 minutes to make a sandwich. Jerry takes 15 minutes to cook an egg and 3 minutes to make a sandwich. If Tom and Jerry trade
A) Tom will benefit and Jerry will not.
B) Jerry will benefit and Tom will not.
C) both will benefit.
D) none of them will benefit.
Answer: C
Q3) In one week Alice can produce 5 pairs of shoes or 4 bookshelves while Roger can produce 10 pairs of shoes or 6 bookshelves. Alice should specialize in the production of A) shoes.
B) bookshelves.
C) either shoes or bookshelves.
D) neither shoes nor bookshelves.
Answer: B
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Chapter 3: Demand and Supply
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Sample Questions
Q1) Which of the following always lowers the equilibrium price?
A) an increase in both demand and supply
B) a decrease in both demand and supply
C) an increase in demand combined with a decrease in supply
D) a decrease in demand combined with an increase in supply
Answer: D
Q2) Which of the following leads to a movement along the supply curve for shredded wheat but does not shift the supply curve for shredded wheat?
A) a fall in the price of shredded wheat
B) an increase in the cost of machinery used to shred wheat
C) perfect weather conditions that resulted in a large wheat crop
D) a decrease in the number of shredded wheat producers
Answer: A
Q3) In the above figure, what is the minimum supply price for the fourth gallon of ice cream?
A) $2.00
B) $3.00
C) $4.00
D) $5.00
Answer: D
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Chapter 4: Measuring GDP and Economic Growth
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Sample Questions
Q1) Double counting (counting the same thing twice)in GDP accounting is avoided by not including
A) net exports.
B) intermediate goods.
C) illegal activities.
D) depreciation.
Q2) Which of the following is TRUE regarding business cycles?
I.Cycles are predictable.
II.In each cycle, a peak follows an expansion.
III.Potential GDP fluctuates around real GDP.
A) I and II
B) I and III
C) II and III
D) II only
Q3) A loaf of bread purchased by one of your instructors would be best described as A) an intermediate good.
B) a financial asset.
C) a used good.
D) a final good.
Q4) Define and discuss GDP.
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Chapter 5: Monitoring Jobs and Inflation
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Sample Questions
Q1) Full-time students and prisoners are ________.
A) not in the labor force
B) in the labor force
C) counted as discouraged workers
D) counted as unemployed
Q2) If the economy enters a recession
A) frictional unemployment increases.
B) structural unemployment decreases.
C) cyclical unemployment increases.
D) the number of workers on layoff decreases.
Q3) Based on the following data for the country of Tiny Town, the employment-to-population ratio equals ________ multiplied by 100.
Population = 200
Working age population = 100
Labor Force = 90
Number of employed persons = 75
A) 90/100.
B) 75/200
C) 90/200.
D) 75/100.
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Chapter 6: Economic Growth
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Sample Questions
Q1) The labor demand curve slopes downward because
A) the firm maximizes profits by hiring more labor when the real wage rate rises.
B) workers supply more hours of work when the real wage rate rises.
C) the firm maximizes profits by hiring more labor when the real wage rate falls.
D) workers supply fewer hours of work when the real wage rate rises.
Q2) What is the main difference between classical economists' ideas about economic growth versus what modern evidence suggests?
Q3) The aggregate production function is graphed as
A) a downward sloping curve.
B) an upward sloping straight line.
C) an upward sloping line that becomes flatter as the quantity of labor increases.
D) an upward sloping line that becomes steeper as the quantity of labor increases.
Q4) How does the new growth theory explain economic growth?
Q5) The higher the real wage rate, the higher the labor force participation rate.
A)True B)False
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Chapter 7: Finance, Saving, and Investment
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Sample Questions
Q1) At the beginning of the year, your wealth is $10,000. During the year, you have an income of $80,000 and you spend $90,000 on consumption. You pay no taxes. Your wealth at the end of the year is
A) $20,000.00.
B) $0.
C) $90,000.00.
D) $100,000.00.
Q2) The term "capital," as used in macroeconomics, refers to A) the plant, equipment, buildings, and inventories of raw materials and semi-finished goods.
B) financial wealth.
C) the sum of investment and government purchases of goods.
D) investment.
Q3) If disposable income increases, people will decide to ________ saving, the supply of loanable funds will ________ and the real interest rate will ________.
A) increase; decrease; rise
B) decrease; decrease; rise
C) increase; increase; fall
D) decrease; increase; fall
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Chapter 8: Money, the Price Level, and Inflation
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Sample Questions
Q1) If M = $100, Y = $500 and P = $2, then V is equal to
A) 0.10
B) 1.
C) 10.
D) 50.
Q2) The Chairman of the Fed is appointed by ________.
A) the Board of Governors of the Federal Reserve System
B) the President of the United States
C) Congress
D) the U.S. Senate
Q3) Which of the following functions are performed by depository institutions?
I.They make long-term loans using short-term deposits, thereby creating liquidity.
II.They efficiently gather funds from a large base of depositors.
III.They concentrate risk.
A) I only
B) II only
C) III only
D) I and II
Q4) Explain the process by which the banking system creates money.
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Chapter 9: The Exchange Rate and the Balance of Payments
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Sample Questions
Q1) Suppose that the price of an identical sport-utility vehicle is $32,000 in U.S. dollars in the United States and $32,000 in Canadian dollars in Canada. Suppose in addition that the exchange rate between Canada and the United States is one Canadian dollar equals $0.75 U.S. dollar. Does purchasing power parity hold for SUVs between the United States and Canada?
A) Yes, because SUVs have the same price in each local currency.
B) No, because SUVs are more expensive in Canada than the United States.
C) No, because SUVs are more expensive in the United States than in Canada.
D) Without knowing interest rates, we can't say.
Q2) If the exchange rate between the dollar and Japanese yen is below the equilibrium exchange rate, there will be a ________ of dollars, and the exchange rate will
A) surplus; fall to the equilibrium level
B) shortage; change only when the supply curve shifts leftward
C) shortage; rise to the equilibrium level
D) surplus; rise to the equilibrium level
Q3) A country's balance of payment accounts include its government budget deficit or surplus.
A)True
B)False
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Chapter 10: Aggregate Supply and Aggregate Demand
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Sample Questions
Q1) Which of the following events will increase short-run aggregate supply?
A) an advance in technology
B) an increase in resource prices
C) an increase in the natural unemployment rate
D) an increase in foreign income
Q2) A fall in the money wage rate shifts
A) both the SAS and LAS curves rightward.
B) both the SAS and LAS curves leftward.
C) the SAS curve rightward but leaves the LAS curve unchanged.
D) the LAS curve rightward but leaves the SAS curve unchanged.
Q3) The data in the above table indicate that when the price level is 120
A) inventories fall and the price level rises.
B) the economy is in a long-run macroeconomic equilibrium.
C) inventories rise and the price level falls.
D) the unemployment rate is at its equilibrium level.
Q4) The intertemporal substitution effect of the price level on aggregate demand
A) is the same as the real wealth effect.
B) is one reason that the aggregate demand curve has a negative slope.
C) explains why aggregate demand increases when the amount of money increases.
D) is one reason that the aggregate demand curve has a positive slope.
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Chapter 11: Expenditure Multipliers
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Sample Questions
Q1) Based upon the above table, if disposable income is $400 billion, saving equals A) -$50 billion.
B) $0 billion.
C) $50 billion.
D) $100 billion.
Q2) If the marginal propensity to save is 0.6, then the marginal propensity to consume is A) 0.6.
B) 0.4.
C) 1.0.
D) More information is needed in order to calculate the correct answer.
Q3) In the above figure, autonomous expenditure along AE? equals A) $3 trillion.
B) $6 trillion.
C) $12 trillion.
D) an amount not given in the above answers.
Q4) What is the marginal propensity to consume? Why it is an important concept?
Q5) List the components of aggregate expenditure and describe how each of them change as real GDP increases.
Q6) What is the mathematical formula for the multiplier? Why is there a multiplier?
Page 13
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Chapter 12: The Business Cycle, Inflation, and Deflation
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Sample Questions
Q1) The short-run Phillips curve intersects the long-run Phillips curve at the A) natural interest rate.
B) nominal interest rate.
C) natural inflation rate.
D) expected inflation rate.
Q2) A rise in the price level because of an increase in the price of oil
A) definitely triggers a cost-push inflation.
B) definitely triggers a demand-pull inflation.
C) might trigger a cost-push inflation.
D) might trigger a demand-pull inflation.
Q3) Real business cycle economists claim that the intertemporal substitution effect
A) plays a small role in the labor market.
B) depends on the real interest rate.
C) plays a large role in the economy only during expansions.
D) has unpredictable effects on the economy.
Q4) Increases in the prices of raw materials can create cost-push inflation.
A)True
B)False
Q5) "The long-run Phillips curve is vertical at the expected inflation rate." Is the previous statement correct or incorrect?
Page 14
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Chapter 13: Fiscal Policy
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Sample Questions
Q1) Unemployment insurance are payments made to unemployed workers. Typically workers are paid for no more than 26 weeks. In December 2012, the federal government passed legislation that would extend the payments to a maximum of 73 weeks. This extension is an example of
A) automatic fiscal policy.
B) discretionary fiscal policy.
C) non-needs spending.
D) contractionary fiscal policy.
Q2) If the federal government's tax revenues are greater than its outlays, then the federal budget has a
A) deficit.
B) surplus.
C) transfer payment.
D) balanced budget.
Q3) During an expansion, tax revenues ________, while during a recession, tax revenues ________.
A) decrease; increase
B) increase; decrease
C) remain stable; decrease
D) fail to cover expenditures; fail to match transfer payments
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Chapter 14: Monetary Policy
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Sample
Questions
Q1) Explain how the Fed's response to a recession works its way through the economy to ultimately affecting real GDP and the price level.
Q2) If the Fed wanted to stimulate the economy to limit the effects of a recessionary gap, then it should ________ the federal funds rate in order to ________ the real interest rate and thereby ________ investment.
A) lower; lower; increase
B) lower; raise; increase
C) raise; raise; decrease
D) lower; lower; decrease
Q3) A positive output gap is an inflationary gap.
A)True
B)False
Q4) The federal funds rate is the interest rate
A) banks charge each other on overnight loans.
B) on the 3-month Treasury bill.
C) on the 30-year treasury bond.
D) that the Fed charges commercial banks on loans.
Q5) Explain the ripple effects of a sale of securities in an open market operation.
Q6) Why does the Fed pursue price stability as its ultimate goal?
Page 16
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Chapter 15: International Trade Policy
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Sample Questions
Q1) Consider a market that, with no international trade, is initially in equilibrium with quantity demanded equal to quantity supplied at a price of $20. If the world price of the good is $10 and the country opens up to international trade then in this market
A) imports will increase, price will fall, and quantity supplied will fall.
B) exports will increase, price will be unchanged, and quantity supplied will increase.
C) imports will increase, price will decrease, and the supply curve will shift to the left.
D) quantity demanded will decrease, quantity supplied will decrease, and price will decrease.
Q2) A tariff imposed by the United States on Japanese cars ________ the price of cars in the United States and ________ the quantity of Japanese cars imported into the United States.
A) raises; increases
B) raises; decreases
C) lowers; increases
D) lowers; decreases
Q3) Explain the effects of a quota.
Q4) Give a brief description of the history of tariffs in the U.S.
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