Macroeconomic Theory
Mock Exam
Course Introduction
Macroeconomic Theory examines the behavior and performance of an economy as a whole, focusing on aggregate indicators such as GDP, unemployment rates, and inflation. This course explores key theoretical frameworks that explain national income determination, business cycles, economic growth, and the impact of fiscal and monetary policies. Students will analyze the roles of government intervention, central banking, and international linkages in shaping macroeconomic outcomes. Emphasis is placed on developing a solid understanding of both classical and contemporary models, equipping students to interpret real-world economic phenomena and policy debates.
Recommended Textbook
Macroeconomics 10th Edition by William Boyes
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21 Chapters
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2257 Flashcards
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Page 2
Chapter 1: The Wealth of Nations: Ownership and Economic
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Sample Questions
Q1) Opportunity cost:
A) applies only to consumption decisions.
B) applies only to production decisions.
C) is the same as monetary costs.
D) exists because of scarcity.
E) is irrelevant for wealthy economies.
Answer: D
Q2) Which economic concept is the closest to the saying, "There's no such thing as a free lunch"?
A) Specialization
B) Unlimited wants
C) Underutilization of resources
D) Opportunity costs
E) Overutilization of resources
Answer: D
Q3) Specialization according to comparative advantage, followed by trade, allows everyone to acquire more of the goods they want.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Scarcity and Opportunity Costs
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Sample Questions
Q1) If an individual can produce a good or service with a lower opportunity cost than another individual, then he or she is said to have the comparative advantage.
A)True
B)False
Answer: True
Q2) According to economists, human activity is unresponsive to changes in costs.
A)True
B)False
Answer: False
Q3) If you have a choice of consuming either two apples, three oranges, or one candy bar, the opportunity cost of the candy bar is:
A) two apples.
B) three oranges.
C) two apples and three oranges.
D) two apples or three oranges, whichever you value more.
E) the difference in the prices of the three options.
Answer: D
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Chapter 3: The Market and Price System
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Sample Questions
Q1) Refer to Table 3.1. If Quantity Demanded 1, Quantity Demanded 2, and Quantity Demanded 3 are market demand schedules, then the change from Quantity Demanded 1 to Quantity Demanded 3 may have been due to:
A) an increase in price.
B) an increase in the number of sellers.
C) a decrease in price.
D) a decrease in the number of buyers.
E) an increase in the price of a substitute good.
Answer: D
Q2) The market demand curve is derived by:
A) studying an individual's demand for a product over a year.
B) comparing the monthly consumption of a group of people.
C) surveying a set of consumers and ascertaining their preferences.
D) adding up the quantities that consumers in a market are willing and able to purchase at each price.
E) calculating the average price a random sample of consumers are willing to pay for a product.
Answer: D
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Page 5
Chapter 4: The Aggregate Economy
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Sample Questions
Q1) When a household owns shares of stock, _____.
A) it has ownership rights in that firm
B) it is entitled to the majority of the firm's profits
C) it is liable to bear the entire loss faced by the firm
D) it can consume the firm's products without paying for it
E) it is responsible for correcting any defect in the product identified by the customers
Q2) The United States is the largest consumer and importer of grains and other agricultural output in the world.
A)True
B)False
Q3) According to the World Bank, low-income economies are heavily concentrated in:
A) Europe and Africa.
B) Europe and Asia.
C) Asia and Africa.
D) Asia and Australia.
E) North America and Australia.
Q4) An enterprise that has only one shareholder does not constitute a corporation.
A)True
B)False
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Chapter 5: National Income Accounting
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Sample Questions
Q1) If net investment spending in a nation is zero, we can conclude that:
A) gross investment exceeds the capital consumption allowance.
B) the capital consumption allowance exceeds gross investment.
C) imports equal exports.
D) gross investment equals the capital consumption allowance.
E) no investment goods were produced in the economy.
Q2) National income is the sum of:
A) personal income and personal tax payments.
B) proprietors' income, rental income, compensation of employees, corporate profits, and interest receipts, net of indirect business taxes and the capital consumption allowance.
C) wages, transfer payments, interest paid to businesses, and tax revenue.
D) NNP and the capital consumption allowance.
E) consumption, investment, government spending, and net exports.
Q3) A price index is a measure of the average level of prices in an economy.
A)True
B)False
Q4) Depreciation must be subtracted from the calculation of gross domestic product.
A)True
B)False
Page 7
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Chapter 6: An Introduction to the Foreign Exchapterange
Market and the Balance of Payments
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Sample
Questions
Q1) The average household in Australia spends AUD 560 on groceries per month. What would this grocery bill amount to in U.S. dollars if the current exchange rate is AUD 1.55 per dollar?
A) $868.00
B) $560.00
C) $447.91
D) $361.29
E) $222.00
Q2) The four main components of the current account are:
A) services, financial assets, unilateral transfers, and debits.
B) net exports, unilateral transfers, services, and domestic bank deposits abroad.
C) government asset holdings abroad, foreign official assets, private bank deposits abroad, and merchandise.
D) unilateral transfers, merchandise, services, and investment income.
E) capital exports, services, merchandise, and royalties.
Q3) An increase in the dollar price of foreign currency constitutes an appreciation of the U.S. currency.
A)True
B)False
Page 8
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Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) A recent economics graduate is looking for a position as an industrial economist. During the period this individual starts looking for a job and ultimately finds one, he may be classified as:
A) seasonally unemployed.
B) frictionally unemployed.
C) cyclically unemployed.
D) structurally unemployed.
E) occasionally unemployed.
Q2) Refer to Scenario 7.1. According to the data provided, the official unemployment rate is:
A) 0.02 percent.
B) 2.0 percent.
C) 10 percent.
D) 3.6 percent
E) 33.7 percent..
Q3) Variable-rate mortgages decrease the risks associated with unexpected inflation. A)True
B)False
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9
Chapter 8: Macroeconomic Equilibrium: Aggregate
Demand and Supply
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Sample Questions
Q1) Other things equal, an increase in aggregate demand will result in:
A) an economic expansion.
B) higher unemployment and a lower equilibrium price level.
C) an economic recession.
D) a decrease in equilibrium real GDP and an increase in the equilibrium price level.
E) a decrease in the overall economic welfare.
Q2) A lower domestic price level raises aggregate expenditures and, therefore, shifts the aggregate demand curve to the right.
A)True
B)False
Q3) Which of the following is not held constant in the short run when determining the aggregate supply curve?
A) Interest rates
B) Rent
C) Wages
D) Profit
E) Price level
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Page 10
Chapter 9: Aggregate Expenditures
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Sample Questions
Q1) The aggregate expenditures function:
A) has the same slope as the aggregate demand curve.
B) is the key determinant of equilibrium real GDP in a fixed-price model.
C) is negatively related to household consumption.
D) is negatively related to net exports.
E) is equal to C+I+G-X.
Q2) Suppose the Kwik Print Company considers an investment project that involves the purchase of a copier with an expected output of $4,000. If the firm has to borrow $3,000 and the rate of return is 11.1 percent, then the interest rate associated with the loan must be 20 percent.
A)True
B)False
Q3) Any increase in autonomous consumption is associated with:
A) an equivalent increase in autonomous saving.
B) an equivalent decrease in autonomous saving.
C) an equivalent increase in the slope of the saving function.
D) an equivalent decrease in the slope of the consumption function.
E) an equivalent movement along the consumption function.
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11
Chapter 10: Income and Expenditures Equilibrium
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Sample Questions
Q1) Refer to Table 10.3. The equilibrium value of imports in year 1 is:
A) $1,600
B) $1,450.
C) $1,400.
D) $1,300.
E) $1,200.
Q2) In macroeconomics, equilibrium is defined as the point at which:
A) the economy attains the highest level of GDP.
B) there is no unemployment in the economy.
C) people's plans match the reality.
D) there is high inflation and unemployment in the economy.
E) there is no inflation in the economy.
Q3) The paradox of thrift explains that increased savings by households could actually lower savings for the economy as a whole.
A)True
B)False
Q4) Injections to the economy include consumption, investment, and government spending.
A)True
B)False
Page 12
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) A progressive tax system is one in which the tax rate actually increases as income rises.
A)True
B)False
Q2) Assume that European interest rates fall as a result of decreased deficit spending by the governments of the European Union. We would expect all of the following, except:
A) a depreciation of the euro with respect to the U.S. dollar.
B) increased European demand for American government securities.
C) a higher level of U.S. imports from Europe.
D) higher U.S. net exports to Europe.
E) higher French exports to the United States.
Q3) Which of the following is a form of a direct tax?
A) Personal income tax
B) Sales tax
C) Excise duty
D) Import tariff
E) Value-added tax
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Chapter 12: Money and Banking
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Sample Questions
Q1) A scalper reselling Super Bowl tickets is an example of money being used as:
A) a store of value.
B) a unit of account.
C) an illegal asset.
D) a standard of deferred payment.
E) a medium of exchange.
Q2) An asset is said to be illiquid when:
A) it lacks purchasing power.
B) it cannot act as a store of value.
C) it is an illegal tender.
D) it cannot be readily exchanged for goods.
E) it cannot be used to settle debts.
Q3) A depository institution's profit is derived from the difference between:
A) the interest rate it receives on loans and the rate it receives on investments in government securities.
B) the interest rate it pays on deposits and the rate it receives on loans.
C) its primary deposit and its derivative deposit.
D) its assets and its liabilities.
E) the interest rate it receives on domestic loans and the rate it receives on Eurodollar loans.
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Chapter 13: Monetary Policy
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Sample Questions
Q1) Other things equal, when the Fed raises the reserve requirement, the banking system's excess reserves will fall, the deposit expansion multiplier will decline, and the money supply will decrease.
A)True
B)False
Q2) Suppose Fed's purchase of government bonds results in a $120,000 increase in the excess reserves of a particular bank. What would be the applicable reserve requirement for the whole banking system to be able to expand the money supply by $600,000?
A) 10 percent
B) 12 percent
C) 16 percent
D) 20 percent
E) 25 percent
Q3) Refer to Table 13.2 and calculate the legal reserves of the bank.
A) $425
B) $5,450
C) $1,725
D) $2,150
E) $1,500
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Page 15
Chapter 14: Macroeconomic Policy: Tradeoffs,
Expectations, Credibility, and Sources of Business Cycles
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Sample Questions
Q1) When workers expect more inflation than actually occurs:
A) the Phillips curve becomes vertical.
B) the long-run Phillips curve shifts to the right.
C) the short-run Phillips curve shifts to the left.
D) there will be a movement down the short-run Phillips curve.
E) there will be a movement up the short-run Phillips curve.
Q2) A recessionary real shock is associated with an outward shift of the short-run Phillips curve and with a leftward shift of the short-run aggregate supply curve.
A)True
B)False
Q3) Which of the following gives the Fed a credibility problem because the Fed may change its planned policies in light of new economic developments?
A) Adaptive expectations
B) Time inconsistency
C) Wage expectations
D) Disinflation
E) Rational expectations
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Page 16
Chapter 15: Macroeconomic Viewpoints: New Keynesian,
Monetarist, and New Classical
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Sample Questions
Q1) Milton Friedman is widely considered to be the father of monetarism.
A)True
B)False
Q2) The time it takes for a particular monetary policy to change income is called the _____.
A) recognition lag
B) data lag
C) reaction lag
D) effect lag
E) action lag
Q3) The recognition lag refers to the:
A) time taken for changes in the money supply to be translated into changes in real?GDP.
B) time taken by policymakers to formulate an appropriate policy to solve an?economic problem.
C) time taken by policies to have an impact on the different macroeconomic variables.
D) time taken by policymakers to recognize that an economic problem exists.
E) natural difference between monetary policy timing and fiscal policy timing.
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Chapter 16: Economic Growth
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Sample Questions
Q1) If the average annual growth rate of a developing country is 7.2 percent, real GDP will double in _____.
A) 2 years
B) 7.2 years
C) 14.4 years
D) 10 years
E) 15 years
Q2) Contrary to popular belief, U.S. productivity growth did not actually improve in the mid 1990s despite the massive growth in technological innovation.
A)True
B)False
Q3) If real GDP for Mexico was 19.8 trillion pesos at the end of 1999 and 21.3 trillion pesos at the end of 2000, then Mexico's economy grew at an annual rate of _____.
A) -0.015%
B) 4.4 %
C) 4.2%
D) 7.57%
E) 3.8%
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18
Chapter 17: Development Economics
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Sample Questions
Q1) Proponents of inward-oriented policies ignore the fact that natural resources are exhaustible, so their long-run market value will fall.
A)True
B)False
Q2) Compared to First World countries, developing countries would have _____.
A) a higher life expectancy
B) higher productivity rates
C) lower education levels
D) lower birthrates
E) a higher rate of private investment
Q3) A foreign aid that flows from one country to another is called a(n):
A) project aid.
B) emergency aid.
C) development aid.
D) bilateral aid.
E) multilateral aid.
Q4) A quality-of-life index measures absolute poverty levels.
A)True
B)False
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Chapter 18: Globalization
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Sample Questions
Q1) Which of the following stands true for income inequality?
A) The benefits of increased economic growth are widely shared in the First World countries.
B) As a result of globalization, income inequality in China has decreased.
C) The decrease in income inequality in China is an effect of socialist policies in that country.
D) The gap between rich countries and globalized developing countries has shrunk.
E) Internal migration has played a big role in reducing the income inequality in China.
Q2) Which of the following multinational agreements allows the international movement of workers?
A) NATO
B) The European Union
C) The group of G-8
D) NAFTA
E) The United Nations Accords
Q3) Globalization benefits all the participating nations equally.
A)True
B)False
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Chapter 19: World Trade Equilibrium
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Sample Questions
Q1) The original comparative advantage model that used the relative abundance of factors of production to explain comparative advantage assumed that countries:
A) employed all four factors of production; land, labor, capital, and entrepreneurship.
B) employed only two factors of production; labor and capital.
C) employed only two factors of production; land and entrepreneurial ability.
D) worked with a fixed capital stock.
E) were free to vary their employment of only one factor of production; labor.
Q2) The export supply and import demand curves measure the domestic shortage and surplus, respectively, at different world prices.
A)True
B)False
Q3) If the world price of a good is equal to its no-trade equilibrium price, the country will import more of the good from other nations.
A)True
B)False
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21
Chapter 20: International Trade Restrictions
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Sample Questions
Q1) The United States has no comparative advantage in shipping, so a domestic shipping industry has no reason to exist.
A)True
B)False
Q2) Which of the following tools of commercial policy yields a revenue to the government?
A) Quota
B) Tariff
C) Export subsidy
D) Government procurement policy
E) Health and safety standards
Q3) If an infant industry truly has a good chance to become competitive and produce profitably once it is well established, it is not at all clear that government should even offer protection to reduce short-run losses.
A)True
B)False
Q4) Every country imposes tariffs on at least some imports.
A)True
B)False
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Chapter 21: Exchapterange Rates and Financial Links
Between Countries
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Sample Questions
Q1) If the official gold value of the Australian dollar changes from 470 Australian dollars per ounce to 493 Australian dollars per ounce, we can say that the Australian dollar has appreciated in value.
A)True
B)False
Q2) Suppose the 12-month interest rate on a U.S. Treasury bill is 16 percent, and the one-year interest rate on a comparable British Treasury bill is 6 percent. The exchange rate today is $2.00 per pound. What must be the expected exchange rate at maturity for interest rate parity to hold?
A) $1.00 = 0.50 pound
B) $1.00 = 0.75 pound
C) 1 pound = $2.20
D) 1 pound = $1.80
E) 1 pound = $2.50
Q3) Appreciation of the dollar means that now it takes more dollars to buy one unit of foreign currency.
A)True
B)False
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