Macroeconomic Theory Exam Preparation Guide
Course Introduction
Macroeconomic Theory examines the behavior and performance of an economy as a whole, exploring aggregate indicators such as GDP, inflation, unemployment, and interest rates. The course delves into the fundamental models that economists use to analyze the economy-wide phenomena, such as the Classical, Keynesian, and Monetarist frameworks. Students will study how economic policy, fiscal and monetary interventions, and external factors impact national and global economic stability and growth. Through theoretical analysis and real-world applications, the course equips students with the skills to critically assess macroeconomic issues and policy debates.
Recommended Textbook
Macroeconomics Principles and Applications 6th Edition by Robert E. Hall
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17 Chapters
2744 Verified Questions
2744 Flashcards
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Chapter 1: What is Economics?
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172 Verified Questions
172 Flashcards
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Sample Questions
Q1) A critical assumption made by all economic models is that
A) few economic decision makers face constraints under capitalism
B) few economic decision makers face constraints under communism
C) every economic decision maker,except the extremely wealthy,faces constraints
D) every economic decision maker,except the federal government,faces constraints
E) every economic decision maker faces constraints under every economic system
Answer: E
Q2) Which of the following explains why individuals must make choices?
A) competition among firms
B) scarcity of resources
C) inflation
D) changes in the money supply
E) conflict between positive and normative economic statements
Answer: B
Q3) Macroeconomics focuses on the economy as a whole.
A)True
B)False
Answer: True
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Chapter 2: Scarcity, Choice, and Economic Systems
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141 Flashcards
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Sample Questions
Q1) Assume that U.S.agricultural land is used either to raise cotton for clothing or to grow wheat.Curve FG in Figure 2-8 represents the current production possibilities frontier for cotton and wheat.What could cause the production possibilities frontier to shift from FG to FH?
A) a change in government subsidies that favors wheat production over cotton production
B) development of a new fertilizer that improves production of wheat,but has no impact on cotton production
C) development of a new fertilizer that improves production of cotton,but has no impact on wheat production
D) newly reclaimed swampland that is equally suited to growing either crop
E) newly reclaimed swampland that can be used to grow either crop,but is better suited to growing wheat
Answer: B
Q2) The production possibilities frontier is useful for demonstrating both scarcity and productive inefficiency.
A)True
B)False
Answer: True
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4
Chapter 3: Supply and Demand
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178 Flashcards
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Sample Questions
Q1) Which of the following would lead to a change in both the quantity of a good buyers wish to purchase and in the quantity sellers wish to sell?
A) a change in the price of a substitute good
B) a change in buyers' incomes
C) a change in the price of a key input
D) a technological improvement
E) a change in the expected future price of the good
Answer: E
Q2) Of the following,which could cause the demand curve for personal computers to shift to the left?
A) a decrease in the price of personal computers
B) an increase in the price of computer software
C) a decrease in the price of computer software
D) an increase in wealth (assuming personal computers are a normal good)
E) expectations of an increase in the price of personal computers in the future
Answer: B
Q3) Both the supply and demand curves can shift due to changes in income.
A)True
B)False
Answer: False
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Chapter 4: Working With Supply and Demand
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53 Flashcards
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Sample Questions
Q1) Price ceilings are primarily targeted to help __________,while price floors generally benefit __________.
A) producers;no one
B) increase tax revenue for governments;producers
C) increase tax revenue for governments;consumers
D) producers;consumers
E) consumers;producers
Q2) If an excise tax is imposed on steak,
A) the government's tax revenue will decrease
B) the government's tax revenue will increase
C) the amount of steak produced and sold will increase
D) the market price of steak will decrease
E) the market price will rise but the market quantity will be unaffected
Q3) Both a price floor and a price ceiling will reduce that amount of a good that is traded in the market.
A)True
B)False
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Chapter 5: What Macroeconomics Tries to Explain
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106 Flashcards
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Sample Questions
Q1) The term laissez faire can be translated
A) "leave it alone"
B) "make it equitable (fair)"
C) "take an active role"
D) "markets work"
E) "free of problems"
Q2) Macroeconomics studies the behavior of aggregates while microeconomics studies the behavior of individual decision-making units.
A)True
B)False
Q3) In only one of the following situations is a nation's standard of living certain to increase.Which one?
A) Real GDP rises faster than population.
B) Real GDP rises faster than the price level.
C) Real GDP rises.
D) Real GDP rises faster than the number of people employed.
E) Real GDP rises faster than the number of people unemployed.
Q4) The inflation rate in the United States has always been positive.
A)True
B)False
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Chapter 6: Production, Income, and Employment
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227 Flashcards
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Sample Questions
Q1) Goodyear produces tires for automobiles,50,000 in all.Suppose 40,000 go on new cars and are sold as part of each car,while the other 10,000 are produced as replacement tires and are sold individually.How many tires would be counted in current GDP?
A) 50,000,because everything produced is counted
B) 40,000 because only the ones on new cars are counted
C) 10,000 because 40,000 will be counted in the value of the new cars
D) 0 because they are all intermediate goods
E) 10,000 because they are the only "final" goods and services in the total
Q2) The income and expenditure approaches to calculating GDP will produce the same result because for every dollars worth of output that is produced a dollars worth of income will be generated as income for the owners of the factors of production used to produce the output.
A)True
B)False
Q3) Inventories - goods produced but not sold - are included in GDP because we want to measure total production,not just what is purchased
A)True
B)False
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Page 8
Chapter 7: The Price Level and Inflation
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164 Verified Questions
164 Flashcards
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Sample Questions
Q1) A labor union anticipates a 7 percent inflation rate in each of the next three years.It wants to obtain a 3 percent increase in real wages in each of those three years.To obtain this goal,the requisite nominal wage hike it should negotiate is
A) 7 percent each year
B) 3 percent each year
C) 10 percent each year
D) 10 percent the first year and 3 percent each year thereafter
E) 21 percent the first year and 3 percent each year thereafter
Q2) The Consumer Price Index (CPI)is a weighted average of all the prices paid by households for goods and services.
A)True
B)False
Q3) If the CPI was 101.7 in 2006 and 101.5 in 2007,it can be concluded that
A) 2001 was the base year
B) all goods were more expensive in 2007 than in 2006
C) all goods were less expensive in 2007 than in 2006
D) all goods were less expensive in 2006 than in 2007
E) the price level fell from 2006 to 2007
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9
Chapter 8:The Classical Long run Model
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195 Flashcards
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Sample Questions
Q1) Diminishing returns to labor occur for two primary reasons: 1)as we keep adding new workers,it becomes increasingly difficult to obtain productivity gains through additional specialization;and 2)each additional worker we add has less land and capital to work with.
A)True
B)False
Q2) What is the full-employment output level?
A) The output level that results when the loanable funds market clears
B) The output level that results when the returns to labor are zero
C) The output level that results when factories are completely full
D) The output level that results when the labor market clears
E) The output level that would occur if the output level was positive.
Q3) Which of the following is a leakage in an open economy?
A) Planned investment
B) Imports
C) Exports
D) Government purchases
E) Money
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Chapter 9: Economic Growth and Rising Living Standards
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185 Verified Questions
185 Flashcards
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Sample Questions
Q1) Which combination of government policies would be most likely increase labor demand?
A) Increasing subsidies to education and increasing subsidies to businesses for hiring new employees
B) Reducing income tax rates and cutting transfer payments to the needy
C) Raising income tax rates and cutting transfer payments to the needy
D) Reducing subsidies to education and increasing subsidies to businesses for hiring new employees
E) Increasing subsidies to education and reducing subsidies to businesses for hiring new employees
Q2) Growth in employment occurs only because of increases in labor demand due to government hiring.
A)True
B)False
Q3) Reducing the government's budget deficit will certainly increase economic growth.
A)True B)False
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11
Chapter 10: Economic Fluctuations
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85 Flashcards
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Sample Questions
Q1) A weakness in the classical economic claim that a recession is caused by a decrease in labor demand curve is
A) that labor demand never changes
B) that labor demand increases during a recession
C) that labor supply decreases during a recession
D) the confusion between a shift of the labor demand curve and a movement along that curve
E) the impossibility in the classical model of total spending ever being deficient
Q2) The classical assumption that labor markets clear makes it difficult for that model to explain recessions.
A)True
B)False
Q3) When GDP is rising,the economy is experiencing
A) a contraction
B) a recession
C) a financial crisis
D) an expansion
E) equilibrium
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12
Chapter 11: The Short-run Macro Model
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210 Verified Questions
210 Flashcards
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Sample Questions
Q1) The consumption function shows the relationship between real consumption spending and
A) real wealth
B) the interest rate
C) expectations
D) real disposable income
E) debt
Q2) Which of the following solutions to recessions came from the short-run macro model?
A) A non-interventionist wait and see solution
B) Increasing taxes
C) Decreasing the federal deficit to jump-start the economy
D) Increasing government spending to jump-start the economy
E) None of the above
Q3) The consumption function shows
A) the relationship between consumption and saving
B) the relationship between consumption and real disposable income
C) the relationship between consumption and real income
D) the relationship between consumption and nominal income
E) the relationship between total consumption and consumption for durable goods.
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Chapter 12: Fiscal Policy
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Countercyclical fiscal policy refers to
A) any fiscal policy that cycles between budget surpluses and budget deficits
B) the use of taxes and government spending to keep the economy close to potential GDP in the short run
C) any fiscal policy that is employed during a business cycle
D) the use of open market purchases of bonds to keep the economy close to potential GDP in the short run
E) the use of changes in tax rates to keep the economy at potential output in the long run.
Q2) Looking at their ratio of debt to GDP,which following five countries should be expected to face serious economic trouble in the future?
A) Fredonia: 40 percent
B) Syldavia: 70 percent
C) Borduria: 120 percent
D) Ruritania: 20 percent
E) Dystopia: 100 percent.
Q3) When positive spending shocks occur,transfer payments automatically fall.
A)True
B)False
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Page 14
Chapter 13: Money, Banks, and the Federal Reserve
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255 Verified Questions
255 Flashcards
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Sample Questions
Q1) When the Federal Reserve buys new government bonds,it is borrowing from the government.
A)True
B)False
Q2) Financial intermediaries
A) harm both borrowers and lenders because they pay lenders a lower rate of interest than they charge to borrowers
B) specialize in assembling loanable funds from households and firms,and channeling those funds to other households,firms,and government agencies
C) are all depository institutions
D) increase the risk of lending and borrowing because a financial intermediary has nothing to lose from such transactions
E) reduce efficiency because they add an extra step to many financial transactions
Q3) The formula for determining changes in demand deposits is the reciprocal of the required reserve ratio (i.e. ,1/RRR)multiplied by the change in reserves.
A)True
B)False
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Chapter 14: The Money Market and Monetary Policy
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176 Verified Questions
176 Flashcards
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Sample Questions
Q1) On a short-run macro model diagram,the impact of a decrease in government purchases (G)is illustrated by
A) a downward shift of the aggregate expenditure line by the full amount of the change in G
B) an upward shift of the aggregate expenditure line followed by an equal downward shift of that line
C) a leftward shift of the money supply curve
D) a downward shift of the aggregate expenditure line by an amount less than the change in G
E) the increase in real income
Q2) In the short-run macro model,a decrease in the money supply will
A) lower the interest rate,increase spending,and increase GDP
B) lower the interest rate,reduce spending,and lower GDP
C) raise the interest rate,increase spending,and increase GDP
D) raise the interest rate,reduce spending,and lower GDP
E) raise the interest rate,reduce spending,and increase GDP
Q3) A decrease in the interest rate reduces the opportunity cost of holding money.
A)True
B)False
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Page 16
Chapter 15: Aggregate Demand and Aggregate Supply
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185 Flashcards
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Sample Questions
Q1) The long-run aggregate supply curve
A) is vertical
B) is upward sloping
C) is downward sloping
D) is horizontal
E) can have a variety of shapes depending on fiscal policy
Q2) Since most firms use a stable markup,prices will remain stable over long periods of time.
A)True
B)False
Q3) A demand shock
A) is any event that causes the aggregate demand curve to shift
B) is usually caused by a change in the price level
C) is usually caused by a change in real GDP
D) can be traced back to a shift in the economy's production possibilities frontier
E) is generally a good thing for the economy
Q4) A positive supply shock causes stagflation in the short run.
A)True
B)False
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Chapter 16: Inflation and Monetary Policy
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141 Flashcards
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Sample Questions
Q1) If the Fed responds to an increase in government spending with the goal of stable prices and output,which of the following would be the result?
A) A larger multiplier effect than normal
B) Partial crowding out
C) An increase in consumption and investment spending
D) No crowding out
E) Complete crowding out.
Q2) Which of the following are equivalent terms?
A) The absence of structural unemployment and the absence of cyclical unemployment
B) Normal employment and the absence of structural unemployment
C) Full employment and the absence of cyclical unemployment
D) Normal employment and the absence of frictional unemployment
E) Null employment and the absence of frictional unemployment.
Q3) The Fed's objectives have remained the same since its inception.
A)True
B)False
Q4) For the Fed,price stability means a low and stable rate of inflation.
A)True
B)False
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Chapter 17: Exchange Rates and Macroeconomic Policy
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156 Verified Questions
156 Flashcards
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Sample Questions
Q1) If Mexico's GDP drops,which of the following will happen in the market for pesos?
A) A rightward shift of the supply curve,a depreciation of the peso,and a larger number of pesos traded
B) A rightward shift of the demand curve,a depreciation of the peso,and a smaller number of pesos traded
C) A rightward shift of the demand curve,an appreciation of the peso,and a larger number of pesos traded
D) A leftward shift of the demand curve,a depreciation of the peso,and a smaller number of pesos traded
E) A leftward shift of the supply curve,an appreciation of the peso,and a smaller number of pesos traded.
Q2) The foreign exchange rate is controlled by the Federal Reserve.
A)True
B)False
Q3) In the long run,if the inflation rate is positive,a currency depreciates to maintain purchasing power parity.
A)True
B)False
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