Macroeconomic Theory Practice
Questions
Course Introduction
Macroeconomic Theory explores the behavior and performance of economies as a whole by examining key aggregate indicators such as national income, output, employment, inflation, and economic growth. This course covers foundational models such as the IS-LM framework, aggregate demand and supply, and the dynamics of fiscal and monetary policy. Students will analyze the causes and consequences of economic fluctuations, the role of government intervention, and the impact of global economic events. Through theoretical concepts and empirical evidence, the course provides the tools necessary to understand and evaluate the macroeconomic environment, preparing students for advanced study in economics and related fields.
Recommended Textbook
ECON MACRO 5th Edition by William A. McEachern
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19 Chapters
2883 Verified Questions
2883 Flashcards
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Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) The association is causation fallacy is the error of assuming that what is true for one member of a group must be true for the group.
A)True
B)False
Answer: False
Q2) The other-things-constant assumption:
A)allows the economist to make useful predictions.
B)is a prediction.
C)applies only to consumers' decisions and not to those of firms.
D)forces the economist to ignore reality,where things are constantly changing.
E)implies rational self-interest on the part of all economic actors.
Answer: A
Q3) As resources are scarce,_____
A)opportunity costs are zero.
B)people must make choices among alternatives.
C)all human wants and desires can be satisfied.
D)resource prices are fixed.
E)commodities are free.
Answer: B
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Page 3
Chapter 2: Economic Tools and Economic Systems
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154 Flashcards
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Sample Questions
Q1) Which of the following is a characteristic of a pure command economy?
A)All resources are privately owned.
B)Economic activity is coordinated by the price system.
C)Competitive markets guide resources to their highest-valued uses.
D)Centralized economic planning is used to answer the basic economic questions.
E)Economic choices are voluntary and are based on rational self-interest.
Answer: D
Q2) The law of comparative advantage says that:
A)the individual with the lowest opportunity cost of producing a particular good should produce it.
B)comparative advantage exists only when one person has an absolute advantage in the production of two goods.
C)whoever has a comparative advantage in producing a good also has an absolute advantage in producing that good.
D)whoever has an absolute advantage in producing a good also has a comparative advantage in producing that good.
E)gains from trade are possible only when one person has a comparative advantage in producing both goods.
Answer: A
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Page 4
Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Which category includes the largest number of firms?
A)Sole proprietorship
B)Partnership
C)Corporation
D)S corporation
E)Limited partnerships
Answer: A
Q2) The most common form of business organization in the United States is the sole proprietorship.
A)True
B)False
Answer: True
Q3) Which form of business organization accounts for the largest proportion of business sales in the United States?
A)Sole proprietorship
B)Partnership
C)Corporation
D)Nonprofit organization
E)Conglomerate
Answer: C
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Chapter 4: Demand, supply, and Markets
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Sample Questions
Q1) The substitution effect of a price change describes the change in the quantity demanded of a good due to a change in its relative price.
A)True
B)False
Q2) Which of the following statements about a demand curve is true?
A)The demand curve for a good will not shift when money income of consumers increases.
B)If price increases,the demand curve shifts to the right.
C)The demand curve for a good will not shift when its price changes.
D)If a supply curve shifts,thereby changing the price,the demand curve will shift as well.
E)If a demand curve shifts,the supply curve will shift as well,whether or not the price changes.
Q3) For a downward-sloping demand curve,a rightward shift of a supply curve:
A)has no impact on the equilibrium price and quantity.
B)decreases both price and equilibrium quantity.
C)increases both price and equilibrium quantity.
D)decreases equilibrium price and increases equilibrium quantity.
E)increases equilibrium price and decreases equilibrium quantity.
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6
Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) The ultimate objective of macroeconomics is to:
A)reduce the unemployment rate in an economy.
B)stabilize the growth rate in an economy.
C)develop and test theories about how the overall economy works.
D)improve the international competitiveness of U.S.financial markets.
E)maximize the efficiency of government intervention in the marketplace.
Q2) Economic fluctuations or business cycles:
A)measure changes in the total number of new businesses started during a year.
B)are fluctuations in the Dow Jones industrial average relative to a long-term growth trend.
C)look at the role played by business on the level of unemployment.
D)are fluctuations in the level of economic activity relative to a long-term growth trend.
E)are changes in government spending that occur over a period of time.
Q3) The word stagflation describes a situation in which:
A)a higher price level occurs simultaneously with higher employment.
B)a lower price level occurs simultaneously with economic growth.
C)a higher price level occurs simultaneously with lower aggregate output.
D)a lower price level occurs simultaneously with federal budget deficits.
E)a higher price level occurs simultaneously with federal budget surpluses.
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Page 7
Chapter 6: Tracking the Useconomy
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Sample Questions
Q1) The value added by a firm is defined as:
A)the sum of all income earned by the workers in the firm.
B)the firm's actual investment minus planned investment.
C)the value of the product manufactured by the firm plus the transaction costs incurred by the firm.
D)the value of the firm's product minus the cost of materials it bought from other firms.
E)the increase in the value of the firm's stock or bond.
Q2) Gross private domestic investment consists of _____.
A)spending by individual households on automobiles and durable goods
B)spending by businesses on labor resources
C)net additions to business inventories
D)spending by government on welfare benefits
E)spending by households on stocks and bonds
Q3) The value of tires purchased by a company to use on its cars is not included when calculating the gross domestic product (GDP).
A)True
B)False
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Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) An increase in unemployment benefits is likely to:
A)reduce a person's incentive to look for work.
B)reduce the opportunity cost of remaining employed.
C)provide a better safety net for employed families.
D)decrease the tax imposed on consumers.
E)increase the need to accept the first job available after becoming unemployed.
Q2) Frictional unemployment refers to unemployment that is a result of:
A)a mismatch of skills.
B)being out of work 27 weeks or longer.
C)job search.
D)seasonal decreases in demand for labor.
E)a recession in the economy.
Q3) A decrease in a person's real wage necessarily means:
A)lower purchasing power.
B)a lower nominal wage.
C)a lower personal disposable income.
D)a higher nominal wage.
E)a higher personal disposable income.
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9
Chapter 8: Productivity and Growth
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Sample Questions
Q1) A group of musicians performing at a concert for charity in New York is an example of a cluster in economics.
A)True
B)False
Q2) Which of the following factors can influence the production possibilities frontier in the future?
A)The amount of capital produced
B)A fall in the rate of inflation
C)A decrease in consumption in an economy
D)An increase in the tax rate
E)A legal reform that increases transaction costs
Q3) Basic research:
A)usually has a larger immediate payoff than applied research.
B)is more practical than applied research.
C)is the search for general knowledge without a specific product or procedure in mind.
D)is research done by a firm to market a good.
E)is research done by a firm during the production of a good.
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Chapter 9: Aggregate Demand
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Sample Questions
Q1) An increase in planned investment will shift the _____.
A)aggregate demand curve rightward
B)aggregate demand curve leftward
C)aggregate supply curve rightward
D)aggregate supply curve leftward
E)consumption function upward
Q2) Which of the following best describes aggregate expenditure?
A)C + I + G + (X M)
B)C + S + G + (X M)
C)C + I + G + (X + M)
D)C + I + T + (X M)
E)C + I + T + (X + M)
Q3) The main determinants of investment are the interest rates and expected profit. A)True
B)False
Q4) Movement along the aggregate expenditure line is caused by a change in the level of income.
A)True
B)False
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Chapter 10: Aggregate Supply
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Sample Questions
Q1) The capital stock of an economy increases:
A)whenever money in circulation is decreased.
B)whenever gross investment is positive.
C)whenever gross investment is negative.
D)only if net investment is positive.
E)only if gross investment is zero.
Q2) Which of the following is true of a beneficial supply shock?
A)It can lead to a temporary lower price level.
B)It can create a recessionary gap.
C)It can permanently decrease the economy's price level.
D)It can shift the aggregate demand curve rightward.
E)It can shift the aggregate demand curve leftward.
Q3) Given the aggregate demand curve,an increase in the supply of a productive resource will:
A)increase output but leave prices unchanged.
B)decrease both output and prices.
C)increase the price level and decrease output.
D)decrease the price level and increase output.
E)increase the price level but leave output unchanged.
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Page 12
Chapter 11: Fiscal Policy
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Sample Questions
Q1) The natural rate of unemployment is:
A)equal to the seasonal unemployment.
B)usually equal to 3 percent.
C)the unemployment rate when none of the work force is unemployed for more than six weeks.
D)the unemployment rate at which the economy is producing its potential GDP.
E)defined by the government.
Q2) A temporary tax cut is not likely to be effective in stimulating aggregate demand if:
A)the tax cut is large.
B)the MPC is relatively high.
C)the economy experiences a contractionary gap.
D)the short-run aggregate supply curve is relatively flat.
E)people based consumption decisions on their level of permanent income.
Q3) To close a recessionary gap using fiscal policy,the government can:
A)increase government spending by the size of the gap.
B)decrease government spending by the size of the gap.
C)increase government spending by more than the size of the gap.
D)increase government spending by less than the size of the gap.
E)decrease government spending by more than the size of the gap.
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Page 13
Chapter 12: Federal Budgets and Public Policy
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Sample Questions
Q1) Which of the following countries has the largest projected net debt as a percentage of their GDP for 2016?
A)Japan
B)The U.S.
C)Germany
D)Italy
E)Australia
Q2) An annually balanced budget:
A)is the surest path to economic stability.
B)is required by the U.S.Constitution.
C)dampens cyclical swings by decreasing government spending during expansions and increasing it during recessions.
D)accentuates cyclical swings by increasing government spending during expansions and reducing it during recessions.
E)is a goal that has only been achieved twice in the past 5 years.
Q3) Nearly half of the publicly held U.S.federal debt are held by foreigners.
A)True
B)False
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Chapter 13: Money and the Financial System
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Sample Questions
Q1) Paper money is a good example of commodity money.
A)True
B)False
Q2) If people use quartz as a medium of exchange,then they:
A)have a barter economy.
B)are using commodity money.
C)are using token money.
D)are using legal tender.
E)are using fiat money.
Q3) One advantage of a money market mutual fund account is that:
A)it is guaranteed for a larger amount than are FDIC-insured deposits.
B)it is a riskless asset.
C)its holders typically earn more interest than they can with a regular bank account.
D)it earns high interest and is liquid.
E)it is completely liquid and riskless.
Q4) The U.S.dollar is backed by gold.
A)True
B)False
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Chapter 14: Banking and the Money Supply
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Sample Questions
Q1) When using a debit card,a customer directly uses his or her checking account.
A)True
B)False
Q2) To prevent shortages of cash during a crisis,the Fed:
A)saves up cash in bank vaults around the country and the world.
B)reduces liquidity in the economy so that more cash can be saved.
C)sells U.S.government securities to commercial banks.
D)demands interest payments on reserves held at the Fed.
E)increases the discount rate.
Q3) The higher the required reserve ratio,_____.
A)the larger the money multiplier
B)the smaller the money multiplier
C)the more the excess reserves after each round of the money-creation process
D)the more the money that can be lent in each round of the money-creation process
E)the lower the demand for cash by the non-banking public
Q4) Banks are permitted to lend all of their reserves.
A)True
B)False
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Chapter 15: Monetary Theory and Policy
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Sample Questions
Q1) Which of the following would cause an increase in the velocity of money?
A)An increase in the use of credit cards
B)An increase in the money supply
C)An increase in the demand for money
D)A decrease in the rate of interest
E)A decrease in nominal GDP and a constant money supply
Q2) Suppose that the demand and supply of money are initially in equilibrium,and that the demand for money increases.A monetary authority interested in keeping the money supply constant and the interest rate low must:
A)adopt an expansionary monetary policy.
B)adopt a contractionary monetary policy.
C)increase the demand for money.
D)decrease the demand for money.
E)give up pursuing both goals at the same time.
Q3) Which of these is a flow variable?
A)Money
B)Income
C)Jewelry
D)Bank deposit
E)Foreign currency reserve
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Chapter 16: Macro Policy Debate: Active or Passive
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Sample Questions
Q1) An economy that self-corrects a recessionary gap will experience falling nominal wages,rising real wages,and falling output.
A)True
B)False
Q2) Suppose a recession surprises economic forecasters who did not see it coming.This is an example of a _____.
A)cyclical lag
B)recognition lag
C)decision-making lag
D)implementation lag
E)effectiveness lag
Q3) Both those who favor an active approach as well as those who favor a passive approach to policy believe that the economy can suffer from extreme and long-lasting swings in real GDP.
A)True
B)False
Q4) An economy that self-corrects an expansionary gap will experience stagflation.
A)True
B)False
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Chapter 17: International Trade
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Sample Questions
Q1) According to some economists,the protection granted to infant industries should be:
A)terminated after one year.
B)to protect emerging domestic industries.
C)restricted to firms that face little competition.
D)based on absolute advantage.
E)based on opportunity costs.
Q2) In determining comparative advantage,the cost of producing a good is measured in terms of:
A)foreign currency.
B)domestic currency.
C)only gold.
D)marginal cost of the resources employed.
E)opportunities forgone.
Q3) Specialization based on absolute advantage leads to gains from trade.
A)True
B)False
Q4) In 2012,exports amounted to about 14 percent of U.S.GDP.
A)True
B)False
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Chapter 18: International Finance
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Sample Questions
Q1) A country's balance of payments summarizes all economic transactions during a given period between the residents of that country and the residents of other countries.
A)True
B)False
Q2) Net unilateral transfers in the United States have been:
A)positive every year since 1950.
B)negative every year since 1950.
C)positive every year since 1950 except in 1991 during the Persian Gulf War.
D)negative every year since 1950 except in 1991 during the Persian Gulf War.
E)positive about half the time and negative about half the time since 1950.
Q3) If the U.S.dollar appreciates,it becomes cheaper for Australians to visit their relatives in the United States.
A)True
B)False
Q4) If an American citizen is planning to visit wildlife reserves in Kenya,he will hope that the U.S.dollar appreciates against Kenyan shillings.
A)True
B)False
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Chapter 19: Economic Development
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Sample Questions
Q1) Evidence from developing countries suggests that fertility rates decline when _____.
A)households are headed by women
B)the composition of children in the population exceeds the young adults
C)households are headed by men
D)literacy among women declines
E)women have employment opportunities outside their home.
Q2) Which of the following is not true of the World Bank?
A)It is an economic development institution
B)It is affiliated with the United Nations
C)It offers low-fee checking accounts to anyone in the world
D)It estimates output per capita figures
E)It uses output per capita figures to classify economies
Q3) Improvement in the quality of human capital is not an important requirement for technology adoption.
A)True
B)False
Q4) Most countries have received foreign aid for industrialization.
A)True
B)False
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