Macroeconomic Theory Practice
Questions
Course Introduction
Macroeconomic Theory explores the fundamental principles that govern the economy as a whole, focusing on aggregate measures such as national income, output, unemployment, inflation, and growth. The course examines economic models and their implications for fiscal and monetary policy, analyzing how different factors interact within the broader economic system. Students will gain an understanding of the theoretical frameworks used to explain economic fluctuations, long-term economic development, and the effectiveness of government interventions, preparing them for advanced studies in economics and policy analysis.
Recommended Textbook
Macroeconomics 4th Edition by Glenn P. Hubbard
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19 Chapters
2659 Verified Questions
2659 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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146 Verified Questions
146 Flashcards
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Sample Questions
Q1) Which of the following contributes to the efficiency of markets?
A) Governments play an active role in the day-to-day operations of markets.
B) Markets are able to bring about an equitable distribution of goods and services.
C) Markets promote equal standards of living.
D) Markets promote competition and voluntary exchange.
Answer: D
Q2) The branch of economics which studies how households and firms make choices,interact in markets and how government attempts to influence their choices is called
A) macroeconomics.
B) microeconomics.
C) positive economics.
D) normative economics.
Answer: B
Q3) "The distribution of income should be determined by the government" is an example of a normative economic statement.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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153 Flashcards
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Sample Questions
Q1) It is not possible to have a comparative advantage in producing a good or service without having an absolute advantage.
A)True
B)False
Answer: False
Q2) Refer to Figure 2-4. A movement from ________ could occur because of an influx of immigrant labor.
A) X to W
B) X to Y
C) W to V
D) W to X
Answer: B
Q3) Any output combination inside a production possibility frontier is associated with unused or underutilized resources.
A)True
B)False
Answer: True
Q4) List the four broad categories of factors of production. Answer: labor,capital,natural resources,and entrepreneurship
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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147 Flashcards
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Sample Questions
Q1) Even when the demand for one good is high,the price of the good is also affected by supply. The textbook illustrates this by comparing the price of two items that were auctioned on the same day. Which of the following describes the results of the auction?
A) A letter written by Abraham Lincoln sold for a higher price than a letter written by John Wilkes Booth.
B) A letter written by Abraham Lincoln was sold for a higher price than a letter written by Adam Smith.
C) A letter written by John Wilkes Booth sold for a higher price than a letter written by Lee Harvey Oswald.
D) A letter written by John Wilkes Booth sold for a higher price than a letter written by Abraham Lincoln.
Answer: D
Q2) The phrase "demand has increased" means that
A) a demand curve has shifted to the left.
B) there has been an upward movement along a demand curve.
C) there has been a downward movement along a demand curve.
D) a demand curve has shifted to the right.
Answer: D
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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138 Flashcards
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Sample Questions
Q1) Refer to Table 4-1. The table above lists the highest prices three consumers,Curly,Moe,and Larry,are willing to pay for a bottle of champagne. If the price of the champagne falls from $24 to $14
A) consumer surplus increases from $32 to $53.
B) Curly will buy four bottles; Moe will buy two bottles, and Larry will buy one bottle.
C) consumer surplus will increase from $80 to $95.
D) Larry and Moe will receive more consumer surplus than Curly.
Q2) What is deadweight loss? When is deadweight loss equal to zero?
Q3) Government intervention in agriculture began in the Untied States in the 1930s. A)True B)False
Q4) Refer to Table 4-2.The table above lists the marginal cost of polo shirts by Marko's,a firm that specializes in producing men's clothing. If the price of polo shirts increases from $15 to $20
A) consumers will buy no polo shirts.
B) the marginal cost of producing the third polo shirt will increase to $20.
C) producer surplus will rise from $13 to $28.
D) there will be a surplus of polo shirts.
Page 6
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Chapter 5: The Economics of Health Care
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Which of the following is an example of adverse selection?
A) The odds of a fire rise after a building is insured because the person with fire insurance is likely to pay less attention to fire hazards.
B) Someone who did not install fire alarms and a sprinkler system in a building he owns buys insurance for the building.
C) Someone with automobile insurance drives more recklessly than someone without insurance.
D) People prefer to buy new cars rather than used cars.
Q2) What is asymmetric information?
Q3) Which of the following is not part of the "regulation of health insurance" provision of the Patient Protection and Affordable Care Act (PPACA)?
A) Individuals with pre-existing medical conditions will be able to acquire health insurance.
B) All policies must provide coverage for dependant children up to age 26.
C) Lifetime dollar maximums on coverage will be prohibited.
D) Limits on the size of deductibles and on waiting periods before coverage takes effect will be eliminated.
Q4) How can increases in a country's total income improve health?
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Page 7
Chapter 6: Firms, the Stock Market, and Corporate Governance
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141 Verified Questions
141 Flashcards
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Sample Questions
Q1) In 2011,the dividend yield on Microsoft (MSFT)stock rose from 1.97% to 3.10%.Which of the following would have generated that result?
A) The closing price of Microsoft stock rose.
B) Microsoft announced an increase in the dividend it would pay per share.
C) The price-earnings ratio rose.
D) Microsoft issued bonds with a coupon rate equal to 3.10%.
Q2) The minimum amount that investors must earn on the funds they invest in a firm,expressed as a percentage of the amount invested,is referred to as A) the explicit costs of production.
B) net worth.
C) net income.
D) a normal rate of return.
Q3) The coupon rate of a bond is equal to A) the coupon payment.
B) the interest payment.
C) the interest rate.
D) the face value.
Q4) Who is the seller in a primary market and who is the seller in a secondary market?
Page 8
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Chapter 7: Comparative Advantage and the Gains From International Trade
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123 Flashcards
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Sample Questions
Q1) Protectionism is usually justified on the basis of one of four arguments.What are those four arguments?
Q2) Refer to Figure 9-3.With a quota in place,what is the quantity consumed in the domestic market and what portion of this is supplied by imports?
A) Domestic consumption equals 28 million pounds of which 18 million pounds are imports.
B) Domestic consumption equals 40 million pounds of which 22 million pounds are imports.
C) Domestic consumption equals 34 million pounds of which 16 million pounds are imports.
D) Domestic consumption equals 34 million pounds of which 18 million pounds are imports.
Q3) a.Define the term "globalization."
b.Describe the benefits of globalization.
c.Who is likely to oppose globalization and why?
Q4) a.Distinguish between a tariff and a quota.
b.In what ways are tariffs and quotas similar?
c.In what ways are tariffs and quotas different?
d.Why might a foreign producer prefer a quota rather than a tariff?
Page 9
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Chapter 8: Gdp: Measuring Total Production and Income
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134 Flashcards
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Sample Questions
Q1) Refer to Table 19-7.Given the information above,calculate the GDP deflator in 2011.
A) 114
B) 105
C) 95
D) 87
Q2) Which component of consumption spending is the greatest in a typical economy?
A) services
B) durable goods
C) nondurable goods
D) new housing
Q3) The GDP deflator is equal to
A) real GDP divided by nominal GDP.
B) nominal GDP divided by real GDP, multiplied by 100.
C) nominal GDP divided by real GDP.
D) real GDP divided by nominal GDP, multiplied by 100.
Q4) If nominal GDP is less than real GDP,then the GDP deflator will be greater than 100.
A)True
B)False
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Page 10
Chapter 9: Unemployment and Inflation
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) An increase in cyclical unemployment will result in
A) an increase in the natural rate of unemployment.
B) an increase in the unemployment rate.
C) an increase in structural unemployment.
D) a decrease in frictional unemployment.
Q2) If the number of unemployed workers is 200 million,the number of employed workers is 300 million,and the working-age population is 800 million,what is the labor force participation rate?
A) 12.5%
B) 37.5%
C) 40%
D) 62.5%
Q3) The problem with inflation is that as prices rise,consumers can no longer afford to buy as many goods and services.
A)True
B)False
Q4) How could a growing labor force lead to an increase in the unemployment rate?
Q5) There are no costs to inflation if it is fully anticipated.
A)True
B)False
11
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Chapter 10: Economic Growth, the Financial System, and Business Cycles
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) The lengths of the recession and expansion phases and which sectors of the economy are most affected will rarely be the same in any two business cycles.
A)True
B)False
Q2) All else equal,the rising demand for air travel in 2011 would cause the demand curve for air travel to shift to the ________,resulting in ________ ticket prices and a ________ quantity of tickets supplied.
A) right; lower; higher
B) left; lower; lower
C) right; higher; higher
D) left; higher; lower
Q3) The only way the standard of living of the average person in a country can increase is if ________ increases faster than ________.
A) production; population
B) population; GDP per capita
C) population; production
D) population; income
Q4) Carefully define the two categories of saving in the economy.
Page 12
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Chapter 11: Long-Run Economic Growth: Sources and Policies
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Sample Questions
Q1) As predicted by the economic growth model,countries that start with lower levels of GDP per capita always grow faster than countries that start with higher levels of GDP per capita.
A)True
B)False
Q2) In 2010,South America had a lower average GDP per capita than any other continent.
A)True
B)False
Q3) To what do economists attribute the rapid growth of labor productivity in the United States relative to other countries?
A) the flexibility of U.S. labor markets and the efficiency of the U.S. financial system
B) the strict government rules in the United States that regulate a firm's ability to hire and fire workers
C) the low rate of job mobility in the United States.
D) the high level of unemployment benefits the United States pays relative to other countries like Canada
Q4) How do economic growth rates affect a nation's standard of living?
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Chapter 12: Aggregate Expenditure and Output in the Short Run
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154 Flashcards
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Sample Questions
Q1) The larger the MPC,the larger the value of the multiplier.
A)True
B)False
Q2) The change in consumption divided by the change in disposable income is equal to
A) the slope of the consumption function.
B) aggregate expenditure.
C) household saving.
D) real GDP.
Q3) Investment spending will decrease when
A) the interest rate falls.
B) the corporate income tax decreases.
C) business cash flow decreases.
D) firms become more optimistic about earning future profits.
Q4) Increases in the price level will
A) lower consumption because goods and services are less affordable.
B) raise consumption because some goods and services are more affordable.
C) raise consumption because real wealth increases.
D) lower consumption because real wealth decreases.
Q5) What are the four categories of aggregate expenditure?
Q6) What is the difference between aggregate expenditure and aggregate demand? Page 14
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Page 15
Chapter 13: Aggregate Demand and Aggregate Supply Analysis
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145 Flashcards
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Sample Questions
Q1) Refer to Figure 24-3. Suppose the economy is at point C. If investment spending decreases in the economy,where will the eventual long-run equilibrium be?
A) A
B) B
C) C
D) D
Q2) What is the relationship among the AD,SRAS and LRAS curves when the economy is in macroeconomic equilibrium?
Q3) The basic aggregate demand and aggregate supply curve model helps explain ________ fluctuations in real GDP and the price level.
A) short-term
B) long-term
C) both short-term and long-term
D) unrelated
Q4) The monetary growth rule is a plan for increasing the quantity of money
A) at a fixed rate that does not respond to changes in the economic condition.
B) at a rate which increases as the economy grows.
C) at a rate which decreases as the economy declines.
D) at a rate which increases during recessions and decreases during expansions.
Page 16
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Chapter 14: Money, banks, and the Federal Reserve System
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146 Flashcards
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Sample Questions
Q1) A commercial bank like Comerica creates money by A) printing paper money.
B) earning profits.
C) selling corporate bonds.
D) making loans.
Q2) In the United States,currency includes
A) gold, silver, and paper money.
B) checking and savings account deposits.
C) paper money and coins in circulation.
D) traveler's checks.
Q3) Commodity money is a good
A) used as money that has no secondary use.
B) that is designated as money by law.
C) used as money that also has value independent of its use as money.
D) used as money that has no intrinsic value.
Q4) The real power within the Federal Reserve lies with the A) Federal Reserve District banks.
B) Board of Governors.
C) Council of Economic Advisors.
D) Council of Monetary Advisors.
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Chapter 15: Monetary Policy
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Sample Questions
Q1) The Fed is able to use monetary policy to keep real GDP exactly at its potential level. A)True
B)False
Q2) The Federal Reserve responded to the 2008 financial crisis in several ways. Which of the following is one of the ways the Fed responded?
A) The Fed banned investment banks from obtaining discount loans.
B) The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities.
C) The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves.
D) The Fed helped Citibank to acquire General Motors and Chrysler.
Q3) When the price of a financial asset ________ its interest rate will ________. A) rises; rise B) falls; fall C) falls; rise D) rises; remain the same
Q4) Describe how the Fed uses open market operations to change short-term and long-term interest rates.
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18
Chapter 16: Fiscal Policy
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Sample Questions
Q1) Refer to Figure 27-5.In the graph above,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the Congress and the president use to move the economy to point C?
A) increase government purchases
B) decrease government purchases
C) increase income taxes
D) sell Treasury bills
Q2) The cyclically adjusted budget is calculated at potential GDP.
A)True
B)False
Q3) How does expansionary monetary policy increase spending in the economy compared to how expansionary fiscal policy increases spending in the economy?
Q4) Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.8,the tax rate equals 0.2,and the marginal propensity to import equals 0.05.
Q5) Consider the following statement,"The Federal Reserve fights recessions by increasing the money supply so people will have more money to spend." What is wrong with the statement and how can it be corrected?
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Chapter 17: Inflation, unemployment, and Federal Reserve Policy
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Sample Questions
Q1) Why do most economists believe that it is important for a country's central bank to be independent of the rest of the country's central government?
Q2) Refer to Figure 28-1. Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above,and the unemployment rate at A is the natural rate.If the economy was to move to point B,which of the following must be true?
A) The economy is producing a level of GDP equal to potential GDP.
B) Aggregate demand must have increased.
C) Equilibrium GDP at point B must be below potential GDP.
D) The Fed conducted expansionary policy to cause the move.
E) The Fed purchased treasury bills to cause the move.
Q3) If actual inflation is greater than expected inflation,
A) real wages rise.
B) real wages fall.
C) the Phillips curve is a vertical line.
D) the unemployment rate rises.
Q4) What action should the Fed take if it wants to move from a point on the short-run Phillips curve representing low unemployment and high inflation to a point representing higher unemployment and lower inflation?
Page 20
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Chapter 18: Macroeconomics in an Open Economy
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Sample Questions
Q1) How does an increase in the relative price of a country's goods in terms of foreign goods,or real exchange rate,affect its balance of trade?
A) An increase in the real exchange rate raises imports, reduces exports, and reduces the balance of trade.
B) An increase in the real exchange rate reduces imports, raises exports, and reduces the balance of trade.
C) An increase in the real exchange rate reduces imports, raises exports, and increases the balance of trade.
D) An increase in the real exchange rate raises imports, reduces exports, and increases the balance of trade.
Q2) The current account deficits incurred by the United States in the 1980s were caused,in the opinion of many economists,by
A) federal budget deficits.
B) "flight to quality" as foreign investors favored U.S. investments.
C) a sharp decline in private saving.
D) Both B and C are correct.
Q3) Why is the U.S.trade deficit almost always larger than the U.S.current account deficit?
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Page 21
Chapter 19: The International Financial System
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Sample Questions
Q1) In the 1960s,the deutsche mark was overvalued,creating a chronic surplus of deutsche marks in world currency markets.
A)True
B)False
Q2) By 2011,________ members of the European Union were using the euro as their currency.
A) 12
B) 17
C) 27
D) 57
Q3) If a firm in Thailand borrows dollars from a U.S.bank,its interest payments on the loan in bahts will decrease if the baht appreciates against the dollar.
A)True
B)False
Q4) International flows of capital increase both efficiency and growth in countries around the world.
A)True
B)False
Q5) Describe the four determinants of exchange rates in the long run.
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