Macroeconomic Theory
Pre-Test Questions
Course Introduction
Macroeconomic Theory explores the behavior and performance of an economy as a whole, focusing on aggregate measures such as national income, output, employment, inflation, and economic growth. The course examines key economic models and policies related to consumption, investment, government spending, and international trade. Students analyze how macroeconomic variables interact within different theoretical frameworks, learn to evaluate the effects of fiscal and monetary policy, and gain insight into the causes and consequences of economic fluctuations and long-term growth trends. The course provides a strong foundation for understanding major issues in the global economy and for analyzing policy responses to economic challenges.
Recommended Textbook
Macroeconomics 2nd Edition by Daron Acemoglu
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2642 Verified Questions
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Chapter 1: The Principles and Practice of Economics
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Sample Questions
Q1) Which of the following is an example of a positive economic statement?
A) The pricing policies followed in single-producer markets should be strictly supervised.
B) Unemployment is more harmful than inflation.
C) Higher interest rates will encourage more savings.
D) Pollution is one of the most serious economic problems.
Answer: C
Q2) Which of the following statements is true?
A) A rational economic agent is not likely to optimize.
B) Cost-benefit analysis can also be used for normative economic analysis.
C) Cost-benefit analysis does not yield the same result as optimization analysis.
D) The net benefit of an option that costs $50 and provides a benefit of $100 is equal to $150.
Answer: B
Q3) Define economics.Who are economic agents?
Answer: Economics is the study of how agents choose to allocate scarce resources and how these choices affect society.An economic agent is an individual or a group that makes choices.
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Chapter 2: Economic Methods and Economic Questions
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Sample Questions
Q1) In country X,the average yearly salary of 50-year-olds with 16 years of education is $50,275,while the average yearly salary of 50-year-olds with 12 years of education is $36,265.According to these data,4 additional years of education are likely to be correlated with higher future wages of about ________.
A) 24 percent
B) 38 percent
C) 50 percent
D) 88 percent
Answer: B
Q2) The scientific method refers to the process by which economists and other scientists
A) collect data for further use in research
B) develop models of the world and test those models with data
C) develop models to explain the past but not to predict the future
D) plot graphs to illustrate relationships between different economic variables
Answer: B
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4
Chapter 3: Optimization: Doing the Best You Can
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Sample Questions
Q1) What are the different steps involved in optimization using marginal analysis?
Answer: Optimization using marginal analysis has three steps:
i)Translate all costs and benefits into common units,like dollars.
ii)Calculate the marginal consequences of moving between alternatives.
iii)Apply the Principle of Optimization at the Margin by choosing the alternative with the property that moving to it makes you better off and moving away from it makes you worse off.
Q2) The Principle of Optimization at the Margin states that ________.
A) an optimal alternative has the lowest indirect costs in comparison to other feasible alternatives
B) an optimal alternative has the highest net benefits in comparison to other feasible alternatives
C) moving toward the optimal alternative makes the decision maker better off and moving away from it makes him worse off
D) moving toward the optimal alternative makes the decision maker worse off and moving away from it makes him better off
Answer: C
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Chapter 4: Demand, Supply, and Equilibrium
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Sample Questions
Q1) How are the following events likely to affect the market supply of rice in an economy?
a)A fall in the wage rate of farm labor
b)An increase in the productivity of farm capital due to better technology
c)An increase in the use of agricultural land for non-agricultural purposes
Q2) Which of the following factors is likely to lead to an increase in the quantity demanded of pens?
A) A fall in the price of pens
B) A fall in the price of paper
C) A rise in the incomes of all consumers
D) A fall in the incomes of all consumers
Q3) Refer to the table above.At what price does the market for notebooks clear?
A) $2
B) $3
C) $4
D) $5
Q4) With real-world examples,explain the various factors that can cause a shift in the supply curve of a commodity.
Q5) Why is the competitive equilibrium price often referred to as the market clearing price?
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Chapter 5: The Wealth of Nations: Defining and Measuring
Macroeconomic Aggregates
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Q1) Which of the following would be included in the investment category of GDP?
A) A stock
B) A bond
C) A new tractor
D) A worker
Q2) There is only one firm in a small island country.The firm produced 1,000 units of Good X during a particular year,out of which it could sell 900 units.If each unit of the good sells for $500,what is the GDP of the country?
A) $40,000
B) $450,000
C) $500,000
D) $150,000
Q3) Refer to the above table.What is the GDP for Nabou using the expenditure method?
A) $3,901
B) $2,180
C) $2,490
D) $2,340
Q4) Why are the values of inputs not included in the calculation of the GDP?
Page 7
Q5) Explain the differences between real GDP and nominal GDP.
Q6) What is the relationship between the GDP of a country and its GNP?
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Chapter 6: Aggregate Incomes
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Sample Questions
Q1) Which of the following is an alternative measure of exchange rate proposed by The Economist magazine?
A) The Big Mac index
B) The Consumer Price Index
C) The GDP deflator
D) The midcap index
Q2) Refer to the scenario above.Computing a hypothetical GDP per capita for Country Y allows us to ________.
A) compare output in the two countries if workers were equally educated
B) compare output in the two countries if they had equal access to physical resources
C) compare output in the two countries if they had access to equal technology
D) all statements are correct
Q3) The income per capita in a country with a population of 50,000 is $4,500.Its GDP is ________.
A) $54,500
B) $900,000
C) $120,000,000
D) $225,000,000
Q4) What is human capital?
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Chapter 7: Economic Growth
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Sample Questions
Q1) Which of the following identifies the correct reasons for sustained growth in the Western world after the nineteenth century?
A) Demographic transition and the American Civil War
B) Demographic transition and the Industrial Revolution
C) The agricultural revolution and the Industrial Revolution
D) The American Civil War and the Industrial Revolution
Q2) Refer to the table above.Which country has the lowest consumption rate?
A) Country A
B) Country B
C) Country C
D) Country D
Q3) Refer to the scenario above.In steady-state equilibrium,which country must have the higher GDP?
A) Country A's GDP must be higher than Country B's GDP.
B) Country B's GDP must be higher than Country A's GDP.
C) The two countries' GDPs must be equal.
D) There is no way to determine which country's GDP must be higher from the information given.
Q4) What is the Industrial Revolution? How did it contribute to modern economic growth?
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Chapter 8: Why Isn't the Whole World Developed?
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Sample Questions
Q1) Which of the following statements is true of extractive economic institutions?
A) They protect private property rights of economic agents.
B) They do not uphold contracts and interfere with the workings of the market.
C) They allow free entry into new lines of business.
D) They encourage trade among nations.
Q2) Which of the following statements is true?
A) The fundamental causes of prosperity are effective only in the short run.
B) The proximate causes of prosperity are effective only in the short run.
C) The proximate causes of prosperity are shaped by the fundamental causes of prosperity.
D) The fundamental causes of prosperity are shaped by the proximate causes of prosperity.
Q3) Consider an economy where there are initially no barriers to entry into markets for new entrepreneurs.Everything else remaining unchanged,if the government of the nation decides to impose entry barriers,how will it affect the number of entrepreneurs in the economy? Use a return-to-entrepreneurship curve to illustrate.
Q4) What are proximate causes of prosperity? How are they related to fundamental causes of prosperity?
Q5) Explain the differences between inclusive and extractive economic institutions.
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Chapter 9: Employment and Unemployment
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Sample Questions
Q1) The natural rate of unemployment ________.
A) is constant
B) is the average of the unemployment rate in a country over time
C) is always less than the level of cyclical unemployment in an economy
D) is determined by adding the unemployment rates in all countries and then dividing it by the number of countries
Q2) Which of the following is likely to shift the labor supply curve to the left,assuming all else equal?
A) A fall in the wage rate
B) A rise in the wage rate
C) A decrease in the maximum amount of unemployment benefits
D) A social change that discourages women from participating in the labor force
Q3) Refer to the figure above.If there is downward wage rigidity in the market,what will be the wage rate,everything else remaining unchanged?
A) $10
B) $15
C) $25
D) $30
Q4) What is downward wage rigidity?
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Chapter 10: Credit Markets
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Sample Questions
Q1) The loanable funds market is also referred to as the ________.
A) spot market
B) credit market
C) capital market
D) exchange market
Q2) Refer to the figure above.Assume that the loanable funds market initially is in equilibrium at point A.The media report that a new housing bubble may warrant precaution.Holding all else constant,how might the equilibrium change?
A) Demand will increase, so people can pay off their houses faster. The new equilibrium will be at point C.
B) Supply will increase, because potential buyers will choose to save instead of investing. The new equilibrium will be at point C.
C) Demand will decrease, because potential buyers may fear stricter requirements to qualify for loans and so choose to not buy a house yet. The new equilibrium will be at point B.
D) Supply will decrease, because banks are less likely to approve new loans. The new equilibrium will be at point B.
Q3) What are the three functions that banks perform as financial intermediaries?
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Chapter 11: The Monetary System
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Sample Questions
Q1) When Terry retired from Caterpillar,he received a pension: Caterpillar would pay him $50,000 the first year he was retired,with the amount increasing by 5 percent each year thereafter.If inflation turned out to be 2 percent each year,what would happen to the real value of Terry's pension?
A) It would increase each year by 5 percent.
B) It would increase each year by 3 percent.
C) It would decrease each year by 5 percent.
D) It would decrease each year by 3 percent.
Q2) The Federal Reserve conducts "stress tests" to determine what?
A) Whether the portfolio of assets a private bank holds is too risky
B) Whether the economy could withstand a substantial negative shock
C) Whether a bank is qualified to accept deposits
D) Whether bank regulators at the Federal Reserve have been subject to regulatory capture
Q3) A business's cost of changing prices is referred to as ________.
A) shoe leather costs
B) menu costs
C) intangible costs
D) inflation taxes
Q4) How does inflation act as a tax?
Page 14
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Chapter 12: Short-Run Fluctuations
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Q1) Economic growth is said to be persistent,meaning that if the economy is in a recession this quarter,it will probably ________.
A) experience zero growth next quarter
B) experience negative growth next quarter
C) experience positive growth next quarter
D) be completely unpredictable next quarter
Q2) Assuming all else equal,if the demand for a firm's product falls,________.
A) the firm's labor demand curve shifts to the right
B) the firm's labor demand curve shifts to the left
C) the firm moves to a lower point along its labor demand curve
D) the firm moves to a higher point along its labor demand curve
Q3) Since the Great Depression,how long have U.S.recessions lasted,on average?
A) About 6 months
B) About 12 months
C) About 18 months
D) About 24 months
Q4) The nominal interest rate in Autarkia has risen sharply after a change in a government policy.How will this affect the economy if the wages in the country are downwardly rigid?
Q5) What happened during the Great Depression?
Page 15
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Chapter 13: Countercyclical Macroeconomic Policy
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Sample Questions
Q1) Which of the following should be increased by the government to control the growth rate of real GDP during an expansion?
A) Transfer payments
B) Expenditure on infrastructural development
C) Tax rates
D) Import duties
Q2) A specific policy rule announcement by the Fed decreases credibility in the Fed's ability to maintain low inflation.
A)True
B)False
Q3) Which of the following is an example of pork barrel spending?
A) Government funds spent by a senator to build fountains in his home state
B) Funds spent by the federal government to repair national highways
C) Funds spent by the government to provide unemployment insurance
D) Funds spent by the Fed to bail out large financial institutions during recessions
Q4) What is the disadvantage of using an expenditure-based fiscal policy?
Q5) Aside from pork barrel spending,what is another determinant of the effectiveness of expenditure-based policies and what concern does it raise?
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Chapter 14: Macroeconomics and International Trade
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Q1) Foreign direct investment is a major conduit for technology transfer.
A)True
B)False
Q2) Refer to the scenario above.The opportunity cost of producing 1 pound of apples in Zeta is ________.
A) 0.67 pounds of oranges
B) 1.5 pounds of oranges
C) 2 pounds of oranges
D) 3 pounds of oranges
Q3) A country has a current account deficit of $100 billion.This implies that ________.
A) its exports exceed its imports by $100 billion
B) net factor payments from abroad are positive
C) net transfers from abroad are positive
D) its imports exceed its exports by $100 billion
Q4) A U.S.company buying toys manufactured in China is an example of a(n)________.
A) export by China
B) import by China
C) transfer payment to the United States
D) transfer payment to China
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Chapter 15: Open Economy Macroeconomics
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Sample Questions
Q1) Domestic interest rates influence the real exchange rate.
A)True
B)False
Q2) Assume that the dollar price of a basket of goods in the United States is $4 and the rupee price of the same basket is 200 rupees.In addition,the dollar price of the same basket of goods in India is $20.Given this information,the rupee price of the basket in India will be ________.
A) 5 rupees
B) 200 rupees
C) 1,000 rupees
D) 1,200 rupees
Q3) Refer to the figure above.When the real exchange rate is above R*,________.
A) net exports are negative
B) net exports are positive
C) net exports are zero
D) net exports can be positive or negative depending on the value of R*
Q4) If the interest rate in India increases,how will it affect the net exports of India?
Q5) What was the main reason the Chinese authorities kept the dollar overvalued?
Q6) What led to Black Wednesday in the 1990s?
Page 18
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