Macroeconomic Theory Final
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Course Introduction
Macroeconomic Theory explores the fundamental principles and models that describe the behavior of an economy as a whole. The course examines key topics such as national income determination, unemployment, inflation, economic growth, monetary and fiscal policy, and the role of government and central banks. Through both classical and contemporary theoretical frameworks, students analyze aggregate economic activity, understand the causes of economic fluctuations, and evaluate policy responses to various macroeconomic challenges. Emphasis is placed on applying theoretical models to real-world issues and developing analytical tools for macroeconomic research and assessment.
Recommended Textbook
The Macro Economy Today 13th Edition by
Bradley Schiller Cynthia Hill
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Page 2
Chapter 1: Economics: The Core Issues
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Q1) The production possibilities decrease as more resources and better technology are utilized.
More resources and better technology create a greater capacity to produce.
A)True
B)False
Answer: False
Q2) Which of the following will cause the production possibilities curve to shift inward?
A)An increase in the working-age population.
B)A decrease in the size of the labor force.
C)A technological advance.
D)An increase in knowledge.
Answer: B
Q3) The basic factors of production include
A)Land,labor,money,and capital.
B)Land,labor,money,and inputs.
C)Labor and money.
D)Land,labor,capital,and entrepreneurship.
Answer: D
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3
Chapter 2: The Us Economy: A Global View
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Q1) In the United States today,nearly _________ of the population has attained a college degree.
A)30 percent
B)15 percent
C)50 percent
D)40 percent
Answer: A
Q2) The government regulates monopolies in order to
A)Ensure that product quality meets minimum standards.
B)Prohibit mergers or acquisitions that would lessen competition.
C)Protect consumers from false advertising.
D)All of the choices are correct.
Answer: D
Q3) The cost or benefit of a market activity borne by a third party is
A)An externality.
B)A government directive.
C)A monopoly.
D)Black-market economic activity.
Answer: A
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Page 4
Chapter 3: Supply and Demand
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Q1) Market price is the same thing as equilibrium price.
Equilibrium price is the price at which quantity demanded is equal to quantity supplied.The market will tend toward equilibrium price but is not always at equilibrium.
A)True
B)False
Answer: False
Q2) Ceteris paribus,which of the following would you expect to have no effect on the demand curve for new automobiles?
A)A rise in the price of gasoline.
B)Consumer expectations that the price of new automobiles will be lower next year.
C)Consumer expectations that a significant recession will develop and last for a year.
D)An increase in the price of new automobiles.
Answer: D
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Chapter 4: The Role of Government
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Q1) Which of the following explains why flood control is a public good?
A)There are external benefits associated with its consumption.
B)The private sector usually produces flood control projects.
C)It is not divisible and therefore cannot be kept from people who do not pay.
D)Flood control is paid for by taxpayers.
Q2) In response to the global recession of 2008 and 2009,governments around the world
A)Reduced public works spending.
B)Reduced income transfer programs.
C)Expanded income transfer programs but reduced public spending programs.
D)Expanded public works spending and income transfer programs.
Q3) Which of the following is the best description of the U.S.tax system?
A)The federal income tax is regressive,but sales,property,and other taxes tend to be progressive.
B)The U.S.tax system is consistently progressive.
C)The federal income tax is progressive,but sales,property,and other taxes tend to be regressive.
D)The U.S.tax system is consistently regressive.
Q4) Explain why government-funded college education can be considered a role of the government.
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Chapter 5: National Income Accounting
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Q1) Suppose the total market value of all the final goods and services produced in the country of Cannedada was $4 billion in 2008 (measured in 2008 prices)and $5 billion in 2009 (measured in 2009 prices).Which of the following statements is definitely correct?
A)Production increased in Cannedada between 2008 and 2009.
B)Average price levels increased in Cannedada between 2008 and 2009.
C)Nominal GDP decreased in Cannedada between 2008 and 2009.
D)Changes in real GDP cannot be determined without more information.
Q2) Gross investment is the
A)Expenditure on new plants,equipment,and residential construction,plus changes in business inventories.
B)Consumption of capital in the production process.
C)Wearing out of plant and equipment.
D)Alternative combinations of final goods and services that can be produced with all available resources and technology.
Q3) Explain the difference between intermediate goods and final goods and give an example of each.
Q4) Which is better for making comparisons over time,nominal GDP or real GDP,and why?
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Page 7
Chapter 6: Unemployment
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Q1) In the 1960s the Council of Economic Advisers determined that the acceptable level of unemployment that would be used in determining full employment was
A)5.5 percent.
B)5 percent.
C)4.5 percent.
D)4 percent.
Q2) Which of the following is considered a discouraged worker?
A)A professional football player who is forced to play a new position.
B)A professional football player who gets cut after the preseason schedule has been completed.
C)A professional football coach coming off a 0-16 season.
D)A retired professional football player who tried to make a comeback but found no one was willing to give him a tryout,so he no longer looks for a job.
Q3) According to Okun's Law,how does a 2 percent increase in unemployment affect the economy?
Q4) Explain the costs of unemployment.
Q5) Is the unemployment rate the same for all groups of people in an economy? Why or why not?
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Chapter 7: Inflation
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Q1) The redistributive mechanics of inflation include all of the following except A)Price effects.
B)Income effects.
C)Wealth effects.
D)Output effects.
Q2) What is the difference between demand-pull inflation and cost-push inflation?
Q3) Which of the following explains why redistribution occurs during inflation?
A)Rising prices fail to signal desirable changes in the mix of output.
B)Because all prices do not change at the same rate,people buy different combinations of goods and services and own different combinations of wealth.
C)Relative prices remain unchanged.
D)All loans are indexed to inflation.
Q4) Which of the following groups is protected from a sudden increase in inflation?
A)Borrowers who have loans at fixed interest rates.
B)Fixed-income groups.
C)Workers who receive fixed wages under multiyear contracts.
D)People who rent their homes under short-term leases in comparison with those who own their homes.
Q5) During a period of inflation,are all prices rising? Explain your answer.
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Chapter 8: The Business Cycle
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Sample Questions
Q1) Changes in real GDP are used to measure
A)Inflation.
B)Price level changes.
C)Business cycles.
D)Population growth.
Q2) Macro equilibrium always occurs when
A)Aggregate supply is greater than aggregate demand.
B)The labor force is fully employed.
C)Aggregate demand equals aggregate supply at a given average price level.
D)The level of output is expanding.
Q3) Which of the following is the best example of supply-side policy?
A)The government response to the Great Depression.
B)Inflation during the 1970s.
C)The Reagan tax cuts in 1981.
D)Government policy before 1930.
Q4) In the long run,an increase in aggregate demand will lead to
A)A higher price level and an increase in real GDP.
B)A higher price level only.
C)An increase in real GDP only.
D)A decrease in real GDP.
10
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Chapter 9: Aggregate Demand
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Q1) Which of the following will not cause an increase in U.S.gross exports?
A)An increase in foreign business investment.
B)An increase in foreign wealth.
C)An increase in foreign consumer income.
D)A decrease in U.S.imports.
Q2) If firms become more pessimistic about future sales,then
A)The AD curve will shift to the right.
B)The AD curve will shift to the left.
C)There will be a rightward movement along the AD curve.
D)There will be a leftward movement along the AD curve.
Q3) State and local purchases of goods and services account for approximately _______ percent of total government purchases.
A)25
B)50
C)67
D)75
Q4) What must the value of the average propensity to save (APS)be if the average propensity to consume (APC)is greater than 1? Why?
Q5) How can autonomous consumption be greater than zero when income is zero?
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Chapter 10: Self-Adjustment or Instability
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Q1) In the short run,if AD increases,the unemployment rate will
A)Rise,and the price level will rise.
B)Fall,and the price level will rise.
C)Rise,and the price level will fall.
D)Fall,and the price level will fall.
Q2) One In the News article titled "Deflation: There Are Bargains Everywhere.Here's Why That Could Be a Problem" suggests that deflation
A)Harms economic growth due to lower profits,more layoffs,and less spending that create a self-reinforcing cycle.
B)Harms the economy because bankruptcies decrease.
C)Harms sellers only,but not buyers since they get better deals without worries of job losses.
D)Results in higher interest rates that further slow the economy.
Q3) If the marginal propensity to consume is 0.60,then the multiplier equals
A)2.50.
B)0.60.
C)1.67.
D)0.40.
Q4) How does an inflationary gap occur?
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Chapter 11: Fiscal Policy
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Q1) Which of the following is a fiscal policy tool used to stimulate the economy?
A)Lower interest rates.
B)Increased imports.
C)Reducing inefficient employment of resources.
D)Increased government purchases.
Q2) If the economy has an inflationary GDP gap,one possible solution is to increase government expenditures.
Fiscal restraint is tax hikes or spending cuts intended to reduce (shift)aggregate demand.
A)True
B)False
Q3) The ranking of the size of tax revenues received by the federal government (from highest to lowest)would be corporate taxes,income taxes,and Social Security payroll taxes.
The federal government collects tax revenues primarily from income taxes,Social Security taxes,and corporate income taxes,in that order.
A)True
B)False
Q4) How can a tax cut increase investment,and what is the impact on the economy?
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Chapter 12: Deficits and Debt
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Q1) The cost of servicing the debt may increase if
A)The debt shrinks.
B)Deficits become smaller.
C)Interest rates rise.
D)The debt is held internally.
Q2) A nation can forecast the following year's deficit without knowing how fast GDP will grow.
Because of automatic stabilizers,the revenue and expenses of the government are sensitive to the budget cycle and the economic growth rate.
A)True
B)False
Q3) If Congress failed to keep the deficit below the ceiling,then the Gramm-Rudman-Hollings Act required
A)Automatic spending cuts.
B)Automatic tax increases.
C)Automatic stabilizers.
D)A balanced budget.
Q4) How do automatic stabilizers,on both the expenditure and revenue sides of the budget,respond during a recession?
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Chapter 13: Money and Banks
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Q1) Suppose a bank has $600,000 in deposits,a required reserve ratio of 5 percent,and bank reserves of $90,000.Then the bank can make new loans in the amount of A)$5,400.
B)$30,000.
C)$60,000.
D)$90,000.
Q2) Suppose a bank has $300,000 in deposits and a required reserve ratio of 15 percent.Then required reserves are A)$4,500.
B)$45,000.
C)$255,000.
D)$300,000.
Q3) Which of the following is true about the quantity of money in the U.S.economy?
A)It is equal to the amount of currency in circulation.
B)It is much greater than the amount of currency in circulation.
C)It is equal to the value of the government's gold reserves.
D)It is equal to the total amount of income.
Q4) How does the banking system create money?
Q5) Describe the three purposes that money must perform.
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Chapter 14: The Federal Reserve System
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Q1) The federal funds rate is the interest rate charged when
A)One bank lends reserves to another bank.
B)The Fed lends to banks.
C)The Fed lends to individuals.
D)Individual banks lend to the FeD.When a bank is deficient in reserves,it can go to the federal funds market to borrow what it needs from another bank.
Q2) If the required reserve ratio is 25 percent and the Federal Reserve sells $100,000 worth of bonds,the money supply can potentially
A)Decrease by $75,000.
B)Increase by $75,000.
C)Decrease by $400,000.
D)Increase by $400,000.
Q3) All of the following are true if a bank in Los Angeles borrows federal funds from a bank in San Francisco except
A)Lending potential goes up for the Los Angeles bank.
B)Lending potential for the banking system does not change.
C)Lending potential goes down for the San Francisco bank.
D)The money multiplier increases for the banking system.
Q4) Why do banks typically maintain a low level of excess reserves?
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Chapter 15: Monetary Policy
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Q1) Name and explain the three reasons for holding money balances.
Q2) The liquidity trap
A)Refers to the vertical portion of the money demand curve.
B)Refers to the possibility that interest rates may not respond to changes in the money supply.
C)Implies that people are willing to hold very limited amounts of money at low interest rates.
D)Occurs when people wish to hold more and more money as interest rates fall.
Q3) All of the following impact the effectiveness of Fed policy except
A)How well the Treasury follows the Fed's directions for releasing money.
B)The willingness or reluctance of banks to lend funds.
C)Global sources of money.
D)The responsiveness of interest rates to changes in the money supply.
Q4) The transactions demand for money is most closely associated with which of the following functions of money?
A)Standard of deferred payment.
B)Store of value.
C)Standard of value.
D)Medium of exchange.
Q5) What is the monetarist prescription for the reducing unemployment,and why?
Page 17
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Chapter 16: Supply-Side Policy: Short-Run Options
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Q1) Supply-side tax cuts are designed to
A)Reduce marginal tax rates.
B)Increase the equity of the tax system.
C)Remove as much disposable income as possible from the economy.
D)Shift the Phillips curve to the right.
Q2) According to supply-side theory,which of the following would cause a leftward shift in the aggregate supply curve?
A)Increasing government regulations.
B)Reducing the minimum wage.
C)Reducing discrimination in employment.
D)Eliminating excessive government regulation.
Q3) A World View article titled "Economic Hit from Japan Quake Seen Up to $200 Billion" implies that the most likely impact of this destruction would be
A)An increase in aggregate demand.
B)An increase in aggregate supply.
C)A decrease in aggregate demand.
D)A decrease in aggregate supply.
Q4) What are some of the policy tools used by supply-side economists,and how do they work?
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Chapter 17: Growth and Productivity: Long-Run Possibilities
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Q1) The "new growth theory" of economic growth emphasizes the importance of
A)Investing in new plants and equipment.
B)Household saving as a source of funds for investment.
C)Investing in ideas.
D)Borrowing funds for investment from foreign sources.
Q2) One In the News article in the text is titled "The New Economy." Features of the "new" economy include
A)Strong growth in GDP.
B)Falling incomes.
C)High inflation.
D)High unemployment.
Q3) How can the federal budget deficit affect the level of economic growth in the long run?
Q4) The labor force includes
A)All persons over the age 16 who are either working for pay or actively seeking paid employment.
B)All persons over the age 16 who are working for pay.
C)All persons over the age 21 who are either working for pay or actively seeking paid employment.
D)All persons over the age 21 who are working for pay.
Page 19
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Chapter 18: Theory Versus Reality
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Q1) External shocks can cause economic forecasts to become invalid. An external shock will not be built into a forecast because such events are rarely anticipated.
A)True
B)False
Q2) If the economy is experiencing a recessionary GDP gap from a demand shock,then aggregate
A)Supply must be increased so that producers can sell more goods.
B)Supply must be decreased so that producers will have fewer goods to sell.
C)Demand must be increased so that producers can sell more goods.
D)Demand must be decreased so that producers will have fewer goods to sell.
Q3) It is not possible to have a "growth recession" because if the economy grows at all then it is not in a recession.
A "growth recession" occurs when the economy experiences positive growth that is less than 3 percent.
A)True
B)False
Q4) What actions would a modern Keynesian economist advocate to cure a recessionary gap?
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Chapter 19: International Trade
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Q1) Explain how it is possible for a country to consume a greater quantity of goods and services than it is actually capable of producing.
Q2) Tariffs tend to reduce the volume of imports by
A)Setting maximum allowable import limits.
B)Placing severe quality restrictions on imported goods.
C)Making them more expensive to domestic consumers.
D)Reducing prices of domestically produced goods.
Q3) Suppose that Brazil has a comparative advantage in coffee and Mexico has a comparative advantage in tomatoes.Which of the following groups would be worse off if these countries specialize and trade?
A)Mexican coffee producers.
B)Brazilian coffee producers.
C)Mexican tomato producers.
D)All groups are better off when specialization and trade take place.
Q4) The elimination of import restrictions will
A)Alter the mix of output from export industries toward domestic industries.
B)Redistribute income from import-competing industries to export industries.
C)Alter the mix of output from export industries to import-competing industries.
D)Redistribute income from domestic to foreign producers.
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Chapter 20: International Finance
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Q1) The article on China's $3 trillion of reserves indicates that the yuan's depreciation is due to
A)Intervention of the Chinese government into the exchange markets to purchase yuan.
B)Intervention of the Chinese government to purchase dollars to suppress the yuan.
C)Intervention of the U.S.government to cause the dollar to depreciate.
D)Intervention on the part of the U.S.government to devalue the yuan.
Q2) When the exchange rate between the U.S.dollar and the Japanese yen is $1 = 100 yen,this is an indication that
A)It would take 100 yen to purchase $1.
B)The yen is stronger than the U.S.dollar.
C)The dollar is depreciating compared to the yen.
D)American companies are investing heavily in Japan.
Q3) Exchange rates change because of relative
A)Income changes but not relative price changes.
B)Price changes but not relative interest rate changes.
C)Interest rate changes but not relative income changes.
D)Income,relative price,and relative interest rates of countries.
Q4) State the case for and the case against currency bailouts.
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Chapter 21: Global Poverty
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Q1) Which of the following is not associated with global poverty?
A)Lack of medical care.
B)Low mortality rates.
C)Malnourishment.
D)Lack of proper clothing.
Q2) The World Bank defines extreme poverty as income of less than $1.25 per day per person.
By global standards,the United States is unquestionably a very rich nation.U.S.GDP per capita is five times larger than the world average.By American standards,virtually all the people in the poorest nations with average income under $4,000 would be poor.By their standards,no American would be poor.Extreme poverty refers to income of less than $1.25 per day.
A)True
B)False
Q3) Which of the following contributes to an institutional structure that promotes economic growth?
A)Comparative advantage.
B)The inequality trap.
C)Technology.
D)Property rights.
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