Macroeconomic Theory
Question Bank
Course Introduction
Macroeconomic Theory explores the fundamental principles that govern the functioning of entire economies. This course examines aggregate economic variables such as national income, output, employment, inflation, and economic growth. Students will analyze how policies, market forces, and global influences affect economic stability and growth, utilizing models like the IS-LM framework, aggregate demand and supply, and growth theories. By the end of the course, learners will understand the mechanisms behind fiscal and monetary policy, economic cycles, and the broader implications of macroeconomic challenges and solutions in both domestic and international contexts.
Recommended Textbook
ECON MACRO 6th Edition by
William A. McEachern
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19 Chapters
3854 Verified Questions
3854 Flashcards
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Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) Natural resources:
A) include bodies of water, trees, oil reserves, and minerals.
B) are not scarce.
C) are inexhaustible as long as they are managed properly.
D) are the result of human effort.
E) do not follow the law of demand and supply.
Answer: A
Q2) Refer to the circular-flow model in Exhibit 1.1. If D represents firms and B represents resource markets, then the flow from D to B is:
A) revenue.
B) expenditures.
C) labor, capital, and natural resources.
D) income and expenditures.
E) wages, interest, rent, and profit.
Answer: E
Q3) Rent is the payment received by resource owners for the use of their natural resources.
A)True
B)False
Answer: True
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Chapter 2: Economic Tools and Economic Systems
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Sample Questions
Q1) A country has an absolute advantage in the production of a good if that country
A) can produce the good using fewer resources than another country would require.
B) has the lowest opportunity cost of producing the good and can sell it at the highest price.
C) has the lowest opportunity cost of producing the good, regardless of whether it is produced using the fewest resources.
D) has the greatest opportunity cost of producing the good, regardless of whether it is produced using the fewest resources.
E) has the greatest opportunity cost of producing the good and can sell it at the highest price.
Answer: A
Q2) It is possible for one person to have a comparative advantage in the production of all products.
A)True
B)False
Answer: False
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Chapter 3: Economic Decision Makers
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Sample Questions
Q1) The difference between fiscal policy and monetary policy is that _____
A) fiscal policy is a macroeconomic policy, but monetary policy is a microeconomic policy.
B) monetary policy is a macroeconomic policy, but fiscal policy is a microeconomic policy.
C) fiscal policy involves regulation of natural monopolies, but monetary policy involves the provision of public goods.
D) monetary policy involves regulation of the money supply, but fiscal policy involves government spending and taxing.
E) fiscal policy involves the promotion of competition, but monetary policy involves collecting money to pay for taxes.
Answer: D
Q2) The term utility refers to _____
A) satisfaction.
B) a low-valued good.
C) productivity.
D) adaptability.
E) efficiency.
Answer: A
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Page 5
Chapter 4: Demand, Supply, and Markets
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Sample Questions
Q1) As the price of milk increases, producers are generally willing to sell a larger quantity of milk in the market, other things constant. This represents the law of _____
A) demand.
B) decreasing opportunity costs.
C) variable proportions.
D) diminishing marginal utility.
E) supply.
Q2) Suppose a market is in equilibrium. If a price ceiling is set by the government below the equilibrium price, which of the following is most likely to occur?
A) a decline in quantity demanded
B) a surplus
C) a shortage
D) an increase in the quantity being sold
E) a new equilibrium
Q3) 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
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6
Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) What occurred between 1873 and 1879?
A) A U.S. economic expansion became the longest on record.
B) Federal spending increased for both the war and social programs at home.
C) The outbreak of war boosted employment to fight for the country and to make tanks, ships, aircraft, and the like.
D) 80 railroads went bankrupt and most of the nation's steel mills shut down.
E) Home prices declined and foreclosures rose, as more borrowers failed to make their mortgage payments.
Q2) An economic variable that measures something at a particular point in time is called a _____.
A) stock variable
B) periodic variable
C) dummy variable
D) flow variable
E) constant variable
Q3) Macroeconomics simply focuses on the annual performance of a particular national economy and ignores its interactions with other national economies around the world.
A)True
B)False
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Page 7
Chapter 6: Tracking the U S Economy
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Sample Questions
Q1) If the value of exports equals $6.5 billion and the value of imports equals $8.0 billion in a year, then _____
A) together imports and exports add $1.5 billion to the GDP.
B) together exports and imports add $6.5 billion to the GDP.
C) together exports and imports reduce the gross domestic product (GDP) by $1.5 billion.
D) together exports and imports add $14.5 billion to the GDP.
E) together exports and imports add nothing to the GDP.
Q2) Which of the following is true of the gross domestic product (GDP) of a nation?
A) It can be measured by the stock of consumer goods in the nation at a particular point in time.
B) It can be measured by the stock of capital goods in the nation at a particular point in time.
C) It can be measured by calculating either the total spending on production or the total income from that production.
D) It is the sum of total spending on production and total income from that production.
E) It can be measured from the stock of wealth in the nation.
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Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) Inflation rates differ across regions mostly because of differences in _____
A) the base year.
B) revisions to the data.
C) housing prices.
D) food costs.
E) prices for durable goods.
Q2) Anne is an accountant who lost her job in the last recession and has given up looking for work after an unsuccessful job search. Which of the following is true in this case?
A) She is a discouraged worker.
B) She is underemployed.
C) This is an example of cyclical unemployment.
D) This is an example of seasonal unemployment.
E) She is overemployed.
Q3) A discouraged worker is one who _____
A) is underqualified for his current job.
B) dislikes his current job but is afraid to quit.
C) drops out of the labor force because he cannot find a job.
D) quits his job because the possibility of advancement is very low.
E) is overqualified for his current job.
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Chapter 8: Productivity and Growth
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Sample Questions
Q1) An increase in the production of capital goods and a reduction in the production of consumer goods would most likely lead to a faster rate of future economic growth.
A)True
B)False
Q2) Which of the following will be true if employment grows faster than the population as a whole?
A) Output per capita will increase faster than productivity per worker.
B) The standard of living will increase.
C) Output per capita and productivity per worker will grow at an equal pace.
D) Output per worker and productivity per worker will remain unaffected.
E) Output per capita will increase at a diminishing rate.
Q3) What percentage of the U.S. adult population had a degree in 2015?
A) 14 percent
B) 39 percent
C) 45 percent
D) 50 percent
E) 67 percent
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Chapter 9: Aggregate Demand
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Sample Questions
Q1) Linda earned an income of $3,000 per month which has now increased to $3,500 per month. She saves 10 percent and spends the remainder on food, lodging and other expenses. So far, she has managed to save $20,000. What is her disposable income after the increase?
A) $20,000
B) $3,500
C) $2,700
D) $3,150
E) $450
Q2) Linda earned an income of $3,000 per month, which has now increased to $3,500 per month. She saves 10 percent and spends the remainder on food, lodging, and other expenses. So far, she has managed to save $20,000. What is the change in her consumption per month after the increase in income?
A) $3,500
B) $3,000
C) $2,700
D) $3,150
E) $450
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Chapter 10: Aggregate Supply
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Sample Questions
Q1) A temporary adverse supply shock, such as a drought _____
A) permanently shifts both the short-run and the long-run aggregate supply curves to the right.
B) temporarily shifts both the short-run and the long-run aggregate supply curves to the right.
C) permanently shifts both the short-run and the long-run aggregate supply curves to the left.
D) temporarily shifts both the short-run and the long-run aggregate supply curves to the left.
E) has no effect on either the long-run or the short-run aggregate supply curves.
Q2) Unexpected events that reduce aggregate supply, sometimes only temporarily, are _____ shocks.
A) supply shocks.
B) demand shocks.
C) beneficial supply shocks.
D) adverse supply shocks.
E) unexpected shocks.
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Page 12
Chapter 11: Fiscal Policy
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Sample Questions
Q1) Deliberate manipulation of government spending and taxes to promote macroeconomic goals is effected by _____
A) discretionary fiscal policy.
B) automatic stabilizers.
C) expansionary fiscal policy.
D) contractionary fiscal policy.
E) monetary policy.
Q2) If the economy is already at its potential output, then the spending multiplier is
A) equal to zero in the long run.
B) infinite in the long run.
C) equal to 1 in the long run.
D) equal to zero in the short run.
E) equal to 1 in the short run.
Q3) Expansionary and contractionary gaps are automatically eliminated by shifts in aggregate demand.
A)True
B)False
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13
Chapter 12: Federal Budgets and Public Policy
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Sample Questions
Q1) The crowding in of private investment is more likely to occur when _____
A) there is a depreciation of domestic currency.
B) interest rates increase significantly.
C) a contractionary gap exists in an economy.
D) budget deficits lower expectations about economic growth.
E) an expansionary gap exists in an economy.
Q2) In 2009, the U.S. budget deficit was $1.4 trillion.
A)True
B)False
Q3) As a result of the increased deficit associated with discretionary fiscal policy, _____
A) both the interest rate and real output fall.
B) both the interest rate and nominal output rise.
C) the interest rate falls and real output rises.
D) the interest rate rises and nominal output falls.
E) the natural rate of unemployment rises and the interest rate falls.
Q4) Other things equal, an increase in defense spending will increase the budget deficit.
A)True
B)False
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Page 14
Chapter 13: Money and the Financial System
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Sample Questions
Q1) The members of the Board of Governors of the Fed are _____
A) elected by the member banks.
B) chosen by the state governors.
C) elected for seven-year terms.
D) all replaced after each presidential election.
E) appointed by the president with the approval of the Senate.
Q2) The only money that can be used as a standard of value is fiat money.
A)True
B)False
Q3) Which of the following is legal tender?
A) a check
B) a Federal Reserve note
C) a banknote issued by a foreign bank
D) a credit card
E) a traveler's check
Q4) A mortgage-backed security is a bundle of hundreds of mortgages which represents a claim on the monthly payments made on those mortgages.
A)True
B)False
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Chapter 14: Banking and the Money Supply
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200 Flashcards
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Sample Questions
Q1) Which of the following is a liability of a bank?
A) U.S. government securities owned by the bank
B) deposits with the Fed
C) checkable deposits
D) consumer and business loans
E) buildings and furniture owned by the bank
Q2) Which of the following measures did the Fed take during the financial crisis of 2008?
A) The Fed lowered the discount rate and paid interest on reserves held at the Fed.
B) The Fed increased the reserve requirement ratio.
C) The Fed sold all government securities.
D) The Fed decreased its spending.
E) The Fed increased the discount rate.
Q3) If the Fed buys a $1,000 U.S. government bond from a bank, it pays for it by giving the bank $1,000 in reserves-reserves that it simply creates out of thin air.
A)True
B)False
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16
Chapter 15: Monetary Theory and Policy
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Sample Questions
Q1) When people exchange money for financial assets, the _____ rises.
A) real GDP
B) price level
C) unemployment rate
D) nominal GDP
E) interest rate
Q2) In an economy in which velocity is constant and the same level of real output is produced year after year, a slow increase in the money supply would result in a _____
A) constant price level.
B) slowly increasing price level.
C) rapidly increasing price level.
D) slowly increasing real GDP.
E) rapidly increasing real GDP.
Q3) The equilibrium interest rate in a money market is determined by _____
A) the rate of inflation.
B) aggregate demand and aggregate supply.
C) money demand and money supply.
D) the Congress.
E) the Fed.
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Page 17
Chapter 16: Macro Policy Debate: Active or Passive?
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Sample Questions
Q1) The short-run Phillips curve shows that _____
A) the economy can have low inflation and low unemployment simultaneously.
B) the economy can have high per-capita income and a high interest rate simultaneously.
C) a reduction in per-capita income comes at the expense of lower inflation.
D) a reduction in unemployment comes at the expense of higher inflation.
E) a reduction in inflation comes at the expense of lower exchange rate.
Q2) Exhibit 16.5 shows a Phillips curve. If available, a reduction in unemployment with no change in inflation would be represented by _____
A) point a to point b.
B) point b to point a.
C) point a to point c.
D) point a to point d.
E) point c to point d.
Q3) Before discovering that the short-run Phillips curve does not show the true long-run situation, policy makers were successful in trying to bring the economy to the zero-inflation, zero-unemployment point on the short-run curve.
A)True
B)False
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Page 18
Chapter 17: International Trade
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Sample Questions
Q1) For each pound of blueberry cheesecake Abura produces, it gives up the opportunity to make 150 screwdrivers. Mayo can produce one pound of blueberry cheesecake for every 300 screwdrivers it produces. If specialization and trade were to occur between these two countries, which of the following is true of opportunity costs in the two countries?
A) The opportunity cost of producing cheesecakes is lower in Abura than in Mayo.
B) The opportunity cost of producing screwdrivers is lower in Abura than in Mayo.
C) The opportunity cost of producing cheesecakes is identical in both countries.
D) The opportunity cost of producing screwdrivers is identical in both countries.
E) In Mayo, the opportunity cost of producing one unit of screwdriver is one pound of cheesecake.
Q2) The Kennedy Round of GATT in the mid-1960s included new provisions against
A) free trade.
B) tariffs.
C) quotas.
D) dumping.
E) common markets.
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Page 19
Chapter 18: International Finance
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Sample Questions
Q1) Suppose a basket of goods costs $400 in the United States and £200 in Britain. If the exchange rate is $1 per pound, which of the following statements is true according to the purchasing power parity theory?
A) Purchasing the basket of goods from the United States and selling it in Britain will lead to a profit.
B) An increase in the demand for pounds will lead to an increase in the price of pounds.
C) An increase in the demand for dollars will lead to an increase in the price of dollars.
D) An increase in the demand for dollars will lead to a decrease in the price of dollars.
E) An increase in the demand for pounds will lead to a decrease in the price of pounds.
Q2) A nation has an unfavorable balance of trade when _____
A) it has a surplus in its balance of payments.
B) it has a deficit in its balance of payments.
C) the value of its imports is greater than the value of its exports.
D) merchandise exports exceed merchandise imports.
E) it has high tariffs.
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Chapter 19: Economic Development
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Sample Questions
Q1) Who would a country approach for assistance with their balance of payments?
A) the World Bank
B) the International Monetary Fund (IMF)
C) the United Nations Children's Fund (UNICEF)
D) the World Health Organization (WHO)
E) the World Trade Organization (WTO)
Q2) Multilateral assistance is ____
A) assistance provided by organizations.
B) country-to-country aid.
C) supplemental aid.
D) substitution aid.
E) interference in a sovereign nation.
Q3) The World Bank estimates GNI per capita and then adjusts figures across countries based on _____
A) the population growth rate in each country.
B) the unemployment rate in each country.
C) the purchasing power of the income in each country.
D) the inflation rate in each country.
E) the consumer price index in each country.
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Page 21