Macroeconomic Principles
Test Bank
Course Introduction
Macroeconomic Principles provides an introduction to the fundamental concepts and theories that explain the overall functioning of an economy. The course explores topics such as national income determination, economic growth, unemployment, inflation, fiscal and monetary policy, and the role of governments and central banks. Students will learn how various economic indicators are measured and interpreted, and how policy decisions impact the broader economy. Through a combination of theoretical models and real-world applications, this course equips students with the analytical tools necessary to understand and evaluate economic trends and policy debates at the national and global levels.
Recommended Textbook
Foundations of Macroeconomics 5th Edition by Robin Bade
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Page 2
Chapter 1: Getting Started
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Sample Questions
Q1) When Delta decides to quit flying to Lithuania, it directly answers the ________ question.
A) what
B) why
C) for whom
D) how
E) when
Answer: A
Q2) On a graph showing the relationship between x and y, the ceteris paribus condition implies that
A) no other variables are related to x and y.
B) the value of x is held constant.
C) the value of y is held constant.
D) other variables not shown are held constant.
E) the value of x and the value of y are held constant.
Answer: D
Q3) Define marginal cost and marginal benefit.
Answer: Marginal cost is the opportunity cost of a one-unit increase in an activity.Marginal benefit is the benefit of a one-unit increase in an activity.
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Page 3
Chapter 2: The Usand Global Economies
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Sample Questions
Q1) Factors of production are the
A) goods that are bought by individuals and used to provide personal enjoyment.
B) goods that are bought by businesses to produce productive resources.
C) productive resources used to produce goods and services.
D) productive resources used by government to increase the productivity of consumption.
E) goods and services produced by the economy.
Answer: C
Q2) The functional distribution of income measures which of the following?
A) How federal tax revenues are related to the business function that employs taxpayers.
B) The distribution of earnings by the factors of production.
C) The proportion of income generated by the four types of expenditures on goods and services.
D) The distribution of income among households.
E) The distribution of income among nations.
Answer: B
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4
Chapter 3: The Economic Problem
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Sample Questions
Q1) In a production possibilities frontier diagram, the attainable production points are shown as
A) only the points on the production possibilities frontier.
B) only the points beyond the production possibilities frontier.
C) only the points inside the production possibilities frontier.
D) the points inside and the points on the production possibilities frontier.
E) any of the production points.
Answer: D
Q2) "When a person has an absolute advantage in producing a good, the person necessarily has a lower opportunity cost of producing it." Is this assertion true or false?
Answer: The assertion is incorrect.An absolute advantage is when a person can produce more of the good than someone else.A comparative advantage relies on a comparison of opportunity costs, so a person has a comparative advantage in producing a good if the person can produce the good at a lower opportunity cost.
Q3) Are all points inside the production possibilities frontier unattainable?
Answer: No, all points within the production possibilities frontier are attainable, though there are unemployed resources at these points.
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Chapter 4: Demand and Supply
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Sample Questions
Q1) Autoworkers negotiate a wage increase.How does this change affect the supply curve of cars?
A) It shifts the supply curve leftward.
B) It shifts the supply curve rightward.
C) It does not shift the supply curve or create a movement along it.
D) The supply curve will shift but there is not enough information to tell if the change shifts the supply curve rightward, leftward, or not at all.
E) It creates a movement downward along the supply curve.
Q2) Consider the market for wheat.If there is an improvement in harvesting technology,
A) the supply curve for wheat shifts rightward.
B) the demand curve for wheat shifts rightward.
C) there is a movement up along the demand curve.
D) the equilibrium price rises.
E) the demand curve for wheat shifts leftward.
Q3) The table above indicates how many thousands of containers of ice cream three different companies are willing to produce at different prices.Does this information reflect the law of supply?
Why or why not?
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Chapter 5: Gdp: a Measure of Total Production and Income
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Sample Questions
Q1) If we use GDP to measure our standard of living, then our procedure is A) inaccurate because our standard of living does not depend only on goods and services.
B) accurate because our standard of living depends solely on goods and services.
C) inaccurate because our standard of living has nothing to do with goods and services.
D) inaccurate because our standard of living only depends on used goods and services.
E) accurate only if we use nominal GDP rather than real GDP.
Q2) Everything else the same, if government expenditure increases by $400 billion and imports increase by $400 billion, then GDP
A) increases by $400 billion.
B) increases by $200 billion.
C) decreases by $400 billion.
D) does not change.
E) decreases by $200 billion.
Q3) Explain how the purchases of used goods and of financial assets affect GDP.
Q4) The purchase and sale of three types of legal items are not included in this year's GDP.What are these three items?
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Chapter 6: Jobs and Unemployment
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Sample Questions
Q1) Which of the following statements is true regarding part-time workers?
A) Part-time workers are divided those who voluntary choose part-time work and those who work part-time due to economic reasons.
B) The percentage of workers who are part time due to non-economic reasons rise significantly during recessions.
C) The percentage of workers who are part time due to economic reasons does not change much over the business cycle.
D) The percentage of workers who are part time due to non-economic reasons is about the same percentage as those who are voluntary reasons.
E) Part-time workers who are part-time for economic reasons are included in the unemployment rate, but part-time workers who are part time for noneconomic reasons are not included in the unemployment rate.
Q2) Tommy graduates from college and starts to look for a job.Tommy is
A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) seasonally unemployed.
E) not unemployed because he is looking for work.
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Page 8
Chapter 7: The Cpi and the Cost of Living
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Sample Questions
Q1) If the nominal wage is $30 in 2009 and the CPI is 202 in 2009, then the real wage in 1982-1984 dollars
A) cannot be calculated without the past year wage rate.
B) is $30.
C) is $14.85,
D) is $1.48.
E) is $29.00.
Q2) Suppose in 2009 the United States Congress passes a minimum wage law that increases the minimum wage (the lowest legal wage) to $7.25 per hour and has a provision that increases the minimum wage at the beginning of each year based on the CPI for the previous year.
a. If the CPI increases 3 percent for each of the next four years (so that the inflation rate is 3 percent for each of the next four years), find the minimum wage for 2010, 2011, and 2012.
b. If the CPI overstates inflation by 1 percentage point, calculate a revised minimum wage for each year 2010 to 2012 removing the CPI bias.
c. How much does the CPI bias affect the minimum wage in 2010, 2011, and 2012?
Q3) What are the three stages of constructing the CPI?
Q4) What is inflation and how is it measured using the Consumer Price Index?
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Chapter 8: Potential Gdp and the Natural Unemployment Rate
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Sample Questions
Q1) The smaller the extent of job rationing, the
A) lower potential GDP.
B) lower the unemployment rate.
C) lower the labor force participation rate.
D) higher the labor supply.
E) higher the real wage rate.
Q2) A firm hires labor up to the point where the
A) real wage rate equals the nominal wage rate.
B) additional hour of labor produces extra output that equals the real wage rate.
C) additional hour of labor produces extra output that equals the nominal wage rate.
D) firm can sell the extra output.
E) real wage rate exceeds the nominal wage rate.
Q3) A firm's demand for labor depends on the
A) nominal wage rate because it pays workers in dollars.
B) real wage rate, which equals the nominal wage divided by the price level.
C) real wage rate, which equals the nominal wage divided by the hours worked.
D) nominal wage rate, which equals the real wage divided by the price level.
E) supply of labor.
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Chapter 9: Economic Growth
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Sample Questions
Q1) Real GDP equals $12 trillion and aggregate hours equals 300 billion hours.What does labor productivity equal?
Q2) Labor force productivity has increased from $30 per hour to $32 per hour over the past year. This could result from
A) only an increase in real GDP.
B) an increase in real GDP with no change in the aggregate hours or an decrease in aggregate hours with no change in real GDP.
C) only a decrease in aggregate hours.
D) an increase in the labor force participation rate.
E) an increase in population.
Q3) The Rule of 70 states that the level of a variable will double in A) 70 years.
B) the number of years equal to the variable's annual rate of growth divided by 70.
C) the number of years equal to 70 divided by the variable's annual growth rate.
D) the number of years equal to the variable's annual growth rate minus 70.
E) the number of years equal to 70 multiplied by the variable's annual growth rate expressed as a decimal.
Q4) What are the sources of human capital?
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Page 11
Chapter 10: Finance, Saving, and Investment
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Sample Questions
Q1) Which of the following represents partial ownership of a firm?
A) stocks
B) bonds
C) short-term securities
D) loans
E) commodities
Q2) In the figure above, the SLF curve is the supply of loanable funds curve and the PSLF curve is the private supply of loanable funds curve.If there is no Ricardo-Barro effect, the figure shows a situation in which the government has a budget
A) surplus of $2 trillion.
B) deficit of $2 trillion.
C) surplus of $14 trillion.
D) deficit of $11 trillion.
E) surplus of $12 trillion.
Q3) Suppose a government tax cut increases disposable income.If there is no change in the government deficit or surplus, what effect would this tax cut have on the supply of loanable funds and the demand for loanable funds?
What will happen to the real interest rate?
Q4) What is the difference, if any, between physical capital and financial capital?
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Chapter 11: The Monetary System
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Sample Questions
Q1) The monetary multiplier is 3 and the change in the monetary base is $100,000.How much will the quantity of money increase?
A) $300,000
B) $200,000
C) $100,000
D) $70,000
E) $33,333
Q2) If the Fed sells $100 million of U.S.government securities, what happens to the quantity of money?
Q3) Money market mutual funds
A) are included in M2 but not M1.
B) are included in M1 but not M2.
C) are included in M1 and M2.
D) are the largest part of the monetary base.
E) None of the above are correct.
Q4) "To count as required reserves, the reserves must be on deposit at the bank's district Federal Reserve Bank." Is the previous statement correct or incorrect?
Q5) Are the members of the Board of Governors of the Federal Reserve System elected officials?
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Chapter 12: Money, Interest, and Inflation
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Sample Questions
Q1) The demand for money curve shows the relationship between the quantity of money demanded and
A) the nominal interest rate.
B) the real interest rate.
C) the inflation rate.
D) real GDP.
E) nominal GDP.
Q2) If the price level is 2, real GDP is $50 billion, and the quantity of money is $4 billion, then velocity is
A) 4.
B) 10.
C) 25.
D) 12.5.
E) 8.
Q3) What effect does an increase in the price level have on the demand for money and the demand for money curve?
Q4) "Inflation reduces the velocity of money because people reduce their money holdings." Is the previous statement correct or incorrect? Explain your answer.
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Chapter 13: Aggregate Supply and Aggregate Demand
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Sample Questions
Q1) A recession in the rest of the world means U.S.
A) aggregate supply decreases.
B) aggregate demand decreases.
C) potential GDP decreases.
D) exports increase.
E) potential GDP increases.
Q2) "An increase in Mexican income decreases aggregate demand in the United States." Is the preceding statement correct or incorrect?
Briefly explain your answer.
Q3) The aggregate supply curve slopes ________ because a ________ in the price level brings a ________ in the real wage rate.
A) upward; rise; rise
B) downward; fall; rise
C) upward; rise; fall
D) upward; fall; fall
E) downward; rise; rise
Q4) Explain how changes in foreign income can impact real GDP in a country.
Q5) What is a recessionary gap?
Can a recessionary gap arise from a decrease in aggregate demand?
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Chapter 14: Aggregate Expenditure Multiplier
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Sample Questions
Q1) The aggregate expenditure model predicts a business cycle expansion occurs when A) autonomous expenditure increases.
B) aggregate supply increases.
C) potential GDP increases.
D) induced expenditure decreases.
E) the aggregate planned expenditure curve shifts downward.
Q2) The idea of the multiplier is that a change in ________ expenditure changes real GDP, which then changes ________ expenditure. The change in total expenditure will be larger than the initial change in ________ expenditure.
A) induced; autonomous; induced
B) autonomous; induced; induced
C) induced; autonomous; autonomous
D) induced; induced; autonomous
E) autonomous; induced; autonomous
Q3) The table above gives data for the nation of Mosh.The MPC of the economy is A) indeterminate with the information provided.
B) 1.
C) .75.
D) .80.
E) .90.
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Chapter 15: The Short-Run Policy Tradeoff
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Sample Questions
Q1) The long-run Phillips curve applies when the economy is at full employment, so the long-run Phillips curve is ________.
A) vertical
B) horizontal
C) upward sloping
D) downward sloping
E) unnecessary
Q2) Along the short-run Phillips curve SRPC the expected inflation rate is
A) 3 percent.
B) 6 percent.
C) 7 percent.
D) an amount that can be determined from the figure, but none of the above answers are correct.
E) an amount that cannot be determined from the figure.
Q3) _______ is fixed when moving along the aggregate supply curve.
A) The money wage rate
B) The real wage rate
C) Employment
D) Real GDP
E) The price level
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Chapter 16: Fiscal Policy
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Sample Questions
Q1) The tax multiplier is the
A) magnification effect of a change in taxes on aggregate demand.
B) magnification effect of a change in taxes on the budget deficit.
C) magnification effect of a change in taxes on government expenditures.
D) magnification effect of a change in taxes on aggregate supply.
E) magnification effect of a change in taxes on the national debt.
Q2) Induced taxes are defined as taxes
A) we are forced to pay for services from the government.
B) that vary with real GDP.
C) that are avoided with the use of legal tax shelters.
D) enacted by Congress that explicitly state the amount to be paid.
E) that rise in recessions and fall in expansions.
Q3) Needs-tested spending is defined as
A) spending by Congress on its own perks of office.
B) taxes paid by those qualified by their income.
C) spending on programs for people qualified to receive benefits.
D) spending by the President on the White House.
E) spending that increases in expansions and decreases in recessions.
Q4) Describe the difference between discretionary and automatic fiscal policy.
Q5) Explain how a tax cut effects employment, labor productivity, and potential GDP.
Page 18
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Chapter 17: Monetary Policy
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Sample Questions
Q1) The change illustrated in the figure above can be the result of the Fed ________ government securities in the open market and will ultimately lead to ________ in aggregate demand.
A) selling; an increase B) buying; an increase. C) selling; a decrease. D) buying; an increase E) selling; no change
Q2) In an open market purchase, the Fed ________ government securities, which ________ bank reserves and ________ the federal funds rate. A) buys; increases; raises B) buys; decreases; raises C) sells; increases; lowers D) sells; decreases; lowers E) buys; increases; lowers
Q3) If the Fed wants to close a recessionary gap, should it buy or sell government securities? Why?
Q4) Distinguish between monetary policy instruments and goals.
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Chapter 18: International Trade Policy
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Sample Questions
Q1) The difference between a tariff and a quota is that the tariff revenue goes to the A) domestic consumer.
B) domestic producer.
C) domestic government.
D) holder of the quota license.
E) foreign government.
Q2) If the United States imposes a tariff on foreign chocolate, how are foreign producers of chocolate affected?
A) Their supply increases because they have to pay the tariff.
B) They export less to the United States.
C) They earn more profit because their chocolate sells for a higher price.
D) Their supply is unaffected because the quota must be met by U.S.producers.
E) The tariff has no effect on foreign producers because U.S.consumers must pay the higher price.
Q3) "Tariffs today in the United States are much higher than in the past." Is the previous statement correct or incorrect?
Q4) How does a tariff affect the domestic price of the import, the domestic consumption, the domestic production, and the quantity imported?
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Page 20
Chapter 19: International Finance
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Sample Questions
Q1) Purchasing power parity is defined as
A) a constant value for a currency.
B) an equal value of money across currencies.
C) a currency whose value falls.
D) a currency whose value rises.
E) an equal value of interest rates across currencies.
Q2) If the current account balance has a $70 million deficit and there was no change in official reserves during that year, then we know that
A) the balance of payments must register a $70 million surplus.
B) the capital account balance must have a $70 million surplus.
C) the official settlements account balance must have a $70 million surplus.
D) net transfers were -$70 million.
E) the capital account balance must have a $70 million deficit.
Q3) The table above gives data for the nation of Syldavia.The official settlements account has a
A) $40 billion deficit.
B) $30 billion deficit.
C) $40 billion surplus.
D) zero balance.
E) balance of $380 billion.
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