Macroeconomic Theory
Exam Questions
Course Introduction
Macroeconomic Theory explores the comprehensive functioning of economies at a large scale, focusing on aggregate variables such as national income, output, employment, inflation, and economic growth. The course examines the foundational models and analytical tools economists use to understand how economies expand, contract, and respond to policy interventions. Key topics include the Classical, Keynesian, and contemporary frameworks; fiscal and monetary policy dynamics; consumption and investment behavior; and the implications of exchange rates and international trade. By integrating theoretical concepts with real-world applications, students gain a deep insight into the forces shaping economic performance and the role of government and institutions in influencing macroeconomic outcomes.
Recommended Textbook
ECON MACRO 5th Edition by William A. McEachern
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19 Chapters
2883 Verified Questions
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Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) Someone who committed the association is causation fallacy might conclude that:
A)event B,which followed event A,was caused by the event A.
B)event B,which followed event A,was not necessarily caused by event A.
C)the simplest model is the best predictor.
D)what is true for the individual is also true for the group.
E)what is true for the individual is not necessarily true for the group.
Answer: A
Q2) All economic models must involve simplifications because:
A)economists would be unable to command high salaries if their models were so simple that anyone could understand them.
B)human behavior is very erratic and unpredictable.
C)reality is too complex to understand in its entirety,so we must reduce the complexity to a level that we can understand.
D)they always try to duplicate all possible information and cover all possible variables that might influence decision making.
E)we must rely on value judgments and ignore reality.
Answer: C
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Chapter 2: Economic Tools and Economic Systems
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Sample Questions
Q1) A rational decision maker engages in an activity if that activity is more attractive than the best alternative.
A)True
B)False
Answer: True
Q2) A university should not disband its football team since it has already paid for the stadium.
A)True
B)False
Answer: False
Q3) All of the following are evidences of specialization except:
A)a carpenter who builds an entire bedroom set without any help from others.
B)a restaurant that provides continental and oriental food in all its outlets.
C)the credits at the end of a movie.
D)professional mourners in Taiwan.
E)online sellers.
Answer: A
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Page 4
Chapter 3: Economic Decision Makers
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Sample Questions
Q1) A tariff is:
A)a tax on imports.
B)a legal limit on quantities of goods that can be imported.
C)a voluntary limit on quantities of goods that can be imported.
D)a quality restriction on imports.
E)a subsidy for exports.
Answer: A
Q2) Which of the following would not describe two-thirds of the for-profit businesses in the United States as measured by the sheer number of firms?
A)Small retail businesses
B)Small service operations
C)Part-time home-based businesses
D)Small farms
E)Multinational corporations
Answer: E
Q3) If left to market forces,activities that produce external benefits will be overproduced.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Demand, supply, and Markets
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Sample Questions
Q1) Which of the following is the best example of substitute goods?
A)Coffee and cream
B)Videotapes and VCRs
C)Money and biscuits
D)Tortillas and salsa
E)Powdered and liquid laundry detergent
Q2) Rent controls generally provide the tenants the most efficient housing choice in the long run and maximize economic welfare.
A)True
B)False
Q3) The income effect refers to the impact of a change in:
A)money income of consumers on the price of a good.
B)the relative price of a good on the demand for other goods.
C)the price of a good on a consumer's real income.
D)the price of a substitute good on a consumer's budget.
E)money income of consumers on the demand for a good.
Q4) If demand decreases,then quantity supplied will increase.
A)True
B)False
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Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) From 2009 to 2013,the price level in the U.S.has increased by 8.3 percent.This implies that the price index in 2012 was:
A)108.3.
B)183.
C)100.
D)98.3.
E)92.7.
Q2) Which of the following was true of the U.S.job market between 1929 and 2011?
A)The number of jobs created in the organized sector was less than that in the unorganized sector.
B)The number employed people increased by less than five percent.
C)The average education of workers increased over the years.
D)The productivity of workers declined over the years.
E)The growth in employment opportunities was slower compared to the growth in population.
Q3) The period between two successive peaks in a business cycle is called a contraction.
A)True
B)False
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Chapter 6: Tracking the Useconomy
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Sample Questions
Q1) Suppose a loaf of bread sold for $3.00 in 2008.The price of bread then increases to $3.60 in 2009.The price index for bread considering 2008 as the base year is _____.
A)1.20
B)83.33
C)120
D)100
E)20
Q2) The existence of the underground economy causes gross domestic product (GDP)statistics to _____.
A)understate the true volume of economic activity
B)overstate the aggregate price level in the economy
C)overstate the standard of living
D)overstate the profit of firms
E)understate government spending in an economy
Q3) If the price of a good increases compared to the base year,then the price level also increases.
A)True
B)False
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Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) An increase in the demand for loanable funds,other things constant,will increase the interest rate.
A)True
B)False
Q2) The view that union wage demands may be a source of inflation would be best associated with cost-push inflation.
A)True
B)False
Q3) In which of the following industries are workers least likely to suffer from cyclical unemployment?
A)Construction industry
B)Automobile manufacturing
C)Apparel industry
D)Education
E)Tourism
Q4) Anticipated inflation causes more problems in the economy than unanticipated inflation.
A)True B)False
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Chapter 8: Productivity and Growth
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Sample Questions
Q1) Gulmirah,a small underdeveloped country,has an adult population of 16.8 million,and the remaining 13.75 million of the population is below 18 years of age.The approximate output per capita of this country is $644.80.The GDP of Gulmirah is equal to approximately _____.
A)$8.87 billion
B)$10.08 billion
C)$20.30 billion
D)$13.22 billion
E)$19.70 billion
Q2) Which of the following would slow down productivity growth?
A)A change in the composition of the workforce so that more middle-aged people and fewer young people are working
B)A change in the composition of the workforce so that organizations hire more men who work steadily throughout the year than men who frequently enter and leave the workforce
C)The quality of education remaining unchanged
D)People starting to invest more in capital goods
E)Firms starting to cut down the size of their labor force
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Chapter 9: Aggregate Demand
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Sample Questions
Q1) In the income-expenditure model,if autonomous saving increases by $15 billion,_____.
A)the aggregate expenditure line shifts upward by $15 billion
B)planned investment increases by $15 billion
C)the aggregate expenditure line shifts downward by $15 billion
D)planned investment decreases by $15 billion
E)the equilibrium level of real GDP demanded decreases by $15 billion
Q2) The aggregate expenditure line shows total planned spending at each _____.
A)consumption level
B)investment level
C)income level,holding the price level constant
D)price level,holding the level of income constant
E)interest rate,holding the price level constant
Q3) The marginal propensity to consume is:
A)the relationship between a change in consumption and a change in income.
B)the relationship between a change in consumption and a change in saving.
C)the relationship between changes in consumption and changes in net wealth.
D)the ratio of income to consumption at any given level of income.
E)the ratio of total consumption to total saving.
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Page 11
Chapter 10: Aggregate Supply
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Sample Questions
Q1) In constructing the short-run aggregate supply curve,we define the short run as the period in which:
A)the price level is constant.
B)output is fixed.
C)profit is constant.
D)the costs of some resources are fixed.
E)the economic growth rate is less than 4 percent.
Q2) The nominal wage represents:
A)the wage measured in terms of the quantity of goods and services a worker can purchase with it.
B)the wage measured in terms of the dollar value of the goods and services a worker can purchase with it.
C)the real wage from which personal taxes has been deducted.
D)the standard of living of workers across time.
E)the change in real wage brought about by changes in aggregate supply.
Q3) Wage rates are typically flexible upward but "sticky" downward.
A)True
B)False
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) When spending by the federal government exceeds net taxes,_____.
A)the price level tends to fall
B)the money supply must fall
C)the aggregate demand curve shifts rightward
D)aggregate supply moves rightward
E)there is a federal budget surplus
Q2) All of the following are tools of fiscal policy except one.Which is the exception?
A)Taxes
B)Transfer payments
C)Interest rates
D)Government purchases of goods
E)Government purchases of services
Q3) When the government closes an expansionary gap with a change in government spending,the _____ in government spending leads to _____.
A)decrease; a decrease in both real GDP and the price level
B)decrease; a decrease in real GDP and an increase in the price level
C)decrease; an increase in both real GDP and the price level
D)decrease; an increase in real GDP and a decrease in the price level
E)increase; a decrease in both real GDP and the price level
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Page 13
Chapter 12: Federal Budgets and Public Policy
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Sample Questions
Q1) The key link between the twin deficits involves:
A)higher interest rates and a stronger dollar.
B)lower interest rates and a stronger dollar.
C)higher interest rates and a weaker dollar.
D)lower interest rates and larger trade deficits
E)higher interest rates leading to more exports.
Q2) Discretionary policy deficits are associated with:
A)increases in national saving.
B)higher prices.
C)lower outputs.
D)lower interest rates.
E)raising taxes.
Q3) If the functional finance approach to federal budgeting is followed,the federal government's budget deficit should be zero.
A)True
B)False
Q4) State and local governments issue bonds to fund capital projects,such as schools and infrastructure.
A)True
B)False
Page 14
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Chapter 13: Money and the Financial System
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Sample Questions
Q1) During the Great Depression,the Federal Reserve Board:
A)prevented many bank failures.
B)failed to act as a lender of last resort.
C)failed to clear checks adequately.
D)began operating as the government's bank.
E)issued too many bank notes.
Q2) The three important functions of money are _____.
A)medium of exchange,facilitation of trade,and unit of account
B)unit of account,facilitation of trade,and store of value
C)store of value,facilitation of trade,and double coincidence of wants
D)facilitation of trade,medium of exchange,and unit of account
E)medium of exchange,unit of account,and store of value
Q3) In the 1970s,U.S.consumers transferred their deposits from accounts in banks and thrifts to money market mutual funds because money market mutual funds:
A)were more liquid.
B)were less risky.
C)paid higher interest rates.
D)were guaranteed for a larger amount.
E)were more liquid and paid higher interest rates.
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Page 15
Chapter 14: Banking and the Money Supply
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Sample Questions
Q1) Banks have more expertise than individual households in making loans because banks:
A)lend smaller amounts of money.
B)are regulated by the government.
C)also pay interest to savers.
D)are subject to severe penalties if they make bad loans.
E)make many more loans than individual households do.
Q2) Suppose the reserve requirement is 15 percent.Which of the following is true?
A)The simple money multiplier is 15.
B)The simple money multiplier is 1/15.
C)The simple money multiplier is 30,000.
D)The simple money multiplier is 1/30,000.
E)The simple money multiplier is 1/0.15.
Q3) Money expansion stops when new reserves introduced into the banking system have been converted into:
A)excess reserves.
B)securities.
C)deposits.
D)required reserves.
E)loans.
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Chapter 15: Monetary Theory and Policy
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Sample Questions
Q1) A decrease in the money supply in the short run will cause an increase in planned investment spending.
A)True
B)False
Q2) When the Fed purchases U.S.government securities through the open market,the money supply:
A)increases,the interest rate falls,and the quantity of money demanded increases.
B)falls,the interest rate falls,and the quantity of money demanded increases.
C)increases,the interest rate increases,and the quantity of money demanded increases.
D)falls,the interest rate increases,and the quantity of money demanded falls.
E)falls,the interest rate falls,and the quantity of money demanded falls.
Q3) Movements along a money demand curve reflect the effects of changes in the:
A)price level on the quantity of money demanded.
B)interest rate on the demand for money.
C)real exchange rate on the demand for money.
D)interest rate on the quantity of money demanded.
E)potential GDP on the quantity of money demanded.
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Chapter 16: Macro Policy Debate: Active or Passive
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Sample Questions
Q1) The selection of a new policy takes place during a period of time known as the
A)activity lag
B)decision-making lag
C)effectiveness lag
D)implementation lag
E)recognition lag
Q2) If the price level increases more rapidly than expected,_____.
A)output will decrease
B)output will increase
C)output will not change
D)real wages will increase
E)unemployment will increase
Q3) The long-run Phillips curve is located at the natural rate of unemployment.
A)True
B)False
Q4) The short-run Phillips curve is drawn for a given expected inflation rate and so it shifts as inflation expectations change.
A)True
B)False
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Chapter 17: International Trade
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Sample Questions
Q1) Which of the following results in international specialization?
A)Differing consumer tastes
B)Diseconomies of scale in production
C)A high world price for a good
D)Diminishing returns to a variable factor of production
E)Differences in benefits that consumers and producers get from domestic market exchange
Q2) The World Trade Organization (WTO):
A)became,in 1995,the institutionalized and more comprehensive successor to the General Agreement on Tariffs and Trade (GATT).
B)was established in 1947 by 23 member countries to reduce trade restrictions.
C)was established in 1980 to oppose and counteract the policies of the General Agreement on Tariffs and Trade (GATT).
D)meets in different countries every few years to analyze each country's trade policies and restrictions.
E)was based on an international treaty that expired in 1990.
Q3) Tariffs and quotas are the only two devices used to restrict foreign trade.
A)True
B)False
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Page 19
Chapter 18: International Finance
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Sample Questions
Q1) A rightward shift of a country's demand curve for foreign exchange will:
A)decrease the price of foreign exchange in the country.
B)decrease the value of its currency.
C)increase the value of its currency.
D)make foreign goods less expensive in the domestic market.
E)make its goods more expensive in foreign markets.
Q2) The debit side of the current account includes the imports of _____.
A)goods only
B)goods and services
C)services only
D)services and resources only
E)financial assets
Q3) If the U.S.dollar appreciates,it implies that:
A)the value of the U.S.dollar has decreased.
B)the value of foreign currency in terms of U.S.dollars has increased.
C)fewer U.S.dollars are required to purchase foreign exchange.
D)more U.S.dollars are required to purchase foreign exchange.
E)exports will rise immediately.
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Chapter 19: Economic Development
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Sample Questions
Q1) In the 1950s,the United States began the Food for Peace program that resulted in
A)the sale of U.S.farm products abroad
B)the sale of farm products from Africa in the U.S.
C)the sale of U.S.industrial products abroad
D)the sale of U.S.software services in foreign countries
E)a rise in contribution by the agricultural sector to the gross domestic product of the U.S.
Q2) Lack of education is a reason why farmers are unable to use advanced farming techniques.
A)True
B)False
Q3) Laws,customs,conventions,and other institutional elements that sustain an economy fall under the category of:
A)the rules of the game.
B)human capital.
C)natural resources.
D)financial institutions.
E)capital infrastructure.
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