Macroeconomic Theory
Test Questions
Course Introduction
Macroeconomic Theory explores the fundamental principles and models that explain the behavior of the economy as a whole. The course covers topics such as national income determination, economic growth, unemployment, inflation, monetary and fiscal policy, and the impact of government intervention in the economy. Students will learn to analyze aggregate demand and supply, understand the role of central banks, and evaluate policy tools designed to stabilize the economy. Emphasis is placed on both classical and contemporary macroeconomic theories, providing a solid foundation for understanding real-world economic fluctuations and long-term economic trends.
Recommended Textbook
Macroeconomics 14th Canadian Edition by Campbell
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Page 2
R. McConnell
Chapter 1: Limits, Alternatives, and Choices
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257 Verified Questions
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Sample Questions
Q1) Macroeconomics can best be described as the:
A) analysis of how a consumer tries to spend income.
B) study of the large aggregates of the economy or the economy as a whole.
C) analysis of how firms attempt to maximize their profits.
D) study of how supply and demand determine prices in individual markets.
Answer: B
Q2) Choices entail marginal costs because resources are scarce.
A)True
B)False
Answer: True
Q3) Opportunity cost is best defined as:
A) the monetary price of any productive resource.
B) the amount of labour which must be used to produce one unit of any product.
C) the ratio of the prices of imported goods to the prices of exported goods.
D) the amount of one product which must be given up to produce one more unit of another product.
Answer: D
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3
Chapter 2: The Market System and the Circular Flow
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Sample Questions
Q1) In terms of the circular flow diagram businesses obtain revenue through the _____ market and make expenditures in the _____ market.
A) product;financial
B) factor;product
C) product;factor
D) capital;product
Answer: C
Q2) Which of the following best describes the "invisible hand" concept?
A) The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.
B) The nonsubstitutability of resources gives rise to a conflict between private and public interests and the need for government intervention.
C) Mixed capitalism is the best system for overcoming the scarce resources-unlimited wants problem.
D) Central direction by the government will improve resource allocation in a capitalistic economy.
Answer: A
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Chapter 3: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) Refer to the above diagram.A surplus of 160 units would be encountered if price was:
A) $1.10,that is,$1.60 minus $.50.
B) $1.60.
C) $1.00.
D) $.50.
Answer: B
Q2) Which is most likely to be observed in a community where legal ceilings are imposed on residential rents?
A) Poor people will be able to find adequate housing.
B) Tenants will reduce their use of housing space,making more available for others.
C) Those whose needs for housing are most urgent will be able to obtain the space they want.
D) People moving into the community will have difficulty locating residential space to rent.
Answer: D
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Chapter 4: Market Failures: Public Goods and Externalities
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Sample Questions
Q1) If the production of a product or service involves external benefits,then the government can improve efficiency in the market by:
A) providing a subsidy to correct for an over-allocation of resources.
B) providing a subsidy to correct for an under-allocation of resources.
C) imposing a corrective tax to correct for an over-allocation of resources.
D) imposing a corrective tax to correct for an under-allocation of resources.
Q2) Market failures
A) fall only on the demand-side.
B) fall only on the supply-side.
C) can fall on either the demand-side or the supply-side.
D) fall on non-competitive markets only.
Q3) If the price of a product increases:
A) the consumer surplus will decrease.
B) the consumer surplus will increase.
C) total revenue will increase if demand is price elastic.
D) total revenue will decrease if demand is price inelastic.
Q4) There is a positive relationship between equilibrium price and the amount of producer surplus.
A)True
B)False
Page 6
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Chapter 5: Governments Role and Government Failure
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Sample Questions
Q1) Government loan guarantees tend to have the effect of:
A) socializing losses and privatizing gains.
B) socializing gains and privatizing losses.
C) socializing both gains and losses.
D) privatizing both gains and losses.
Q2) Which of the following is a key difference between the economic activities of government and those of private firms?
A) Private firms face the constraint of scarcity;government does not.
B) Government focuses primarily on equity;private firms focus only on efficiency.
C) Private economic activities create externalities;government activities do not.
D) Government has the legal right to force people to do things;private firms do not.
Q3) The problem of limited and bundled choices explains why many voters cannot fully express their political preferences.
A)True
B)False
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Chapter 6: An Introduction to Macroeconomics
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Sample Questions
Q1) Refer to the above diagram.Curve (a)is the current production possibilities frontier for the economy.Other things being equal,society's current choice of point P on curve (a)means:
A) more rapid economic growth compared to choosing point N.
B) a slower rate of economic growth compared to choosing point N.
C) the same rate of growth as would occur if point N were chosen.
D) it is unachievable because it exceeds the productive capacity of the economy.
Q2) The higher is the current level of saving:
A) the higher is the current level of investment and higher the future level of consumption.
B) the lower is the current level of investment and lower the future level of consumption. C) the higher is the current level of investment and lower the future level of consumption.
D) the lower is the current level of investment and higher the future level of consumption.
Q3) Commodities such as airline tickets,and gasoline have sticky prices.
A)True
B)False
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Chapter 7: Measuring the Economys Output
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Sample Questions
Q1) Refer to the above data.From 2003 to 2006,prices rose by:
A) 3 percent.
B) 7 percent.
C) 9 percent.
D) 10.7 percent.
Q2) The simplest way to calculate GDP is to sum the total sales of all business firms.
A)True
B)False
Q3) Assume that the size of the underground economy increases both absolutely and relatively over time.As a result:
A) real GDP will rise more rapidly than nominal GDP.
B) GDP will tend to increasingly understate the level of output through time.
C) GDP will tend to increasingly overstate the level of output through time.
D) the accuracy of GDP will be unaffected through time.
Q4) The purchase of Wal-Mart stock is a part of gross,but not of net,private domestic investment.
A)True
B)False
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9
Chapter 8: Economic Growth
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Sample Questions
Q1) Poorer follower countries can grow much faster than leader countries because they can simply adopt existing technologies from richer leader countries.
A)True
B)False
Q2) Which of the following is correct?
A) total output = labour productivity/worker-hours
B) labour productivity = worker-hours/total output
C) total output = worker-hours × labour productivity
D) worker-hours = labour productivity × total output
Q3) Which would be the best economic measure to compare standards of living among nations over time?
A) changes in labour productivity
B) changes in real domestic output
C) changes in real GDP per capita
D) changes in nominal income per capita
Q4) Economic growth lessens the burden of scarcity and provides increases in domestic output which can be used to alleviate national economic problems.
A)True
B)False
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Chapter 9: Business Cycles, Unemployment, and Inflation
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Sample Questions
Q1) A nation has a population of 300 million people.Of these,80 million are retired,in the military,in institutions,or under 15 years old.There are 210 million who are employed.What is the unemployment rate?
A) 3.3 percent
B) 3.6 percent
C) 4.5 percent
D) 5.2 percent
Q2) Unanticipated inflation arbitrarily:
A) subsidizes those who receive fixed money incomes.
B) penalises those who receive fixed money incomes.
C) penalizes those who borrow money.
D) benefits those who save money.
Q3) If the unemployment rate is 9 percent and the natural rate of unemployment is 7.5 percent,then the:
A) frictional unemployment rate is 7.5 percent.
B) cyclical unemployment rate and the frictional unemployment rate together are 7.5 percent.
C) cyclical unemployment rate is 1.5 percent.
D) natural rate of unemployment will eventually increase.
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Page 11
Chapter 10: Basic Macroeconomic Relationships
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Sample Questions
Q1) For all levels of income to the left of the intersection of the 45-degree line and the consumption schedule,the APC is:
A) greater than 100 percent.
B) less than the APS.
C) equal to the MPC.
D) equal to 100 percent.
Q2) If DI is $275 billion and the APC is 0.8,it can be concluded that saving is $55 billion.
A)True
B)False
Q3) The greater the MPC,the greater the multiplier.
A)True
B)False
Q4) The wealth effect will tend to decrease consumption and increase saving. A)True
B)False
Q5) The multiplier is equal to the reciprocal of the MPC.
A)True
B)False
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Page 12
Chapter 11: The Aggregate Expenditures Model
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Sample Questions
Q1) If the MPC is .50,all taxes are lump-sum taxes,and the equilibrium GDP is $40 billion below the full-employment GDP,then the size of the recessionary expenditure gap:
A) is $40 billion.
B) is $20 billion.
C) is $60 billion.
D) cannot be determined from the information given.
Q2) Refer to the above diagram for a private closed economy.At the equilibrium level of GDP saving is:
A) $10
B) $20
C) $30
D) $50
Q3) Refer to the above table.If taxes were zero,government purchases of goods and services $10,planned investment $6,and net exports zero,equilibrium real GDP would be:
A) $620
B) $630
C) $640
D) $650
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13
Chapter 12: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) How can the aggregate demand curve be derived from the aggregate expenditures model?
Q2) Which would increase aggregate supply?
A) an increase in business regulation
B) a decline in productivity
C) an increase in business subsidies
D) a decrease in the capital stock
Q3) Refer to the above diagram.Assume that nominal wages initially are set on the basis of the price level P<sub>2</sub> and that the economy initially is operating at its full-employment level of output Q<sub>f</sub>.In the short run,demand-pull inflation could best be shown as:
A) a move from b to c on AS<sub>2</sub>.
B) a move from b to c to d.
C) a change of aggregate supply from AS<sub>2</sub> to AS<sub>3</sub>.
D) a move from b to d.
Q4) In order to study the macroeconomics we must combine the prices and quantities generated in single-product markets into broad aggregates.
A)True
B)False
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Chapter 13: Fiscal Policy, Deficits, Surpluses, and Debt
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Sample Questions
Q1) In an economy,the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation.If the MPS is .25,then it could:
A) increase taxes by $16 billion.
B) increase taxes by $24 billion.
C) decrease government spending by $10 billion.
D) decrease government spending by $16 billion.
Q2) One of the timing problems with fiscal policy is an "operational lag" that occurs between the:
A) beginning of a recession and the time that it is recognized that the event is occurring.
B) time the need for fiscal action is recognized and the time that action is actually taken.
C) time that fiscal action is taken and the time that action has an impact on output,employment,and the price level.
D) time that fiscal action has an impact on output,employment,and the price level and the time by which it can be determined if the policy is effective.
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15
Chapter 14: Money, Banking, and Money Creation
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Sample Questions
Q1) A single chartered bank has a desired reserve ratio of 25 percent.If the bank has no excess reserves initially and $5,000 cash is deposited in the bank,it can increase its loans by a maximum of:
A) $1,250
B) $120,000
C) $5,000
D) $3,750
Q2) Refer to the above information.Suppose that customers of this bank collectively write cheques for cash at the bank in the amount of $1 million.As a result,the bank's excess reserves diminish to:
A) $0
B) $6 million.
C) $9 million.
D) $9.1 million.
Q3) Actual cash reserves equal desired reserves plus excess reserves. A)True B)False
Q4) If a coin is token money,its face value is greater than its intrinsic value. A)True B)False
16
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Chapter 15: Interest Rates and Monetary Policy
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Sample Questions
Q1) In which of the following instances can we be certain that the quantity of money demanded by the public will decrease?
A) nominal GDP decreases and the interest rate decreases
B) nominal GDP increases and the interest rate decreases
C) nominal GDP decreases and the interest rate increases
D) nominal GDP increases and the interest rate increases
Q2) If the amount of money demanded exceeds the amount supplied,it can be expected that the:
A) demand-for-money curve will shift to the left.
B) money supply curve will shift to the right.
C) interest rate will rise.
D) interest rate will fall.
Q3) The price of government bonds and the interest rate received by a bond buyer are:
A) negatively related.
B) unrelated.
C) positively related.
D) independent of Bank of Canada open-market operations.
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Chapter 16: Long-Run Macroeconomic Adjustments
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Sample Questions
Q1) In the short run,demand-pull inflation increases:
A) real wages,but in the long run only nominal wages.
B) nominal wages,but in the long run only real wages.
C) real output and the price level,but in the long-run only real output.
D) real output and the price level,but in the long-run only the price level.
Q2) Stagflation refers to:
A) an increase in inflation accompanied by decreases in real output and employment.
B) a decline in the price level accompanied by increases in real output and employment.
C) a simultaneous increase in real output and the price level.
D) a simultaneous reduction in real output and the price level.
Q3) Refer to the above graph.What events would tend to move the economy from point B<sub>2</sub> to C<sub>2</sub>?
A) a tight monetary policy
B) a contractionary fiscal policy
C) an increase in aggregate demand
D) an increase in aggregate supply
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Chapter 17: International Trade
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Sample Questions
Q1) Refer to the above data,in country Wat,the comparative cost of 1 unit of:
A) rice is 3 units of corn.
B) rice is <sup>1</sup>/<sub>3</sub> unit of corn and should not specialize in production of it if the two nations decide to trade with each other.
C) corn is 5 units of rice.
D) corn is <sup>1</sup>/<sub>5</sub> unit of rice.
Q2) Refer to the above diagram,where S<sub>d</sub> and D<sub>d</sub> are the domestic supply and demand for a product and P<sub>c</sub> is the world price of that product.S<sub>d</sub> + Q is the product supply curve after an import quota is imposed.The size of the import quota:
A) is vz.
B) is vy.
C) is wy.
D) cannot be determined.
Q3) Which of the following is an example of a land-intensive commodity?
A) chemicals
B) autos
C) watches
D) wool
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Page 19
Chapter 18: Exchange Rates and the Balance of Payments
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Sample Questions
Q1) If the dollar price of yen rises,then:
A) the yen price of dollars also rises.
B) the dollar depreciates relative to the yen.
C) the yen depreciates relative to the dollar.
D) all of the above will occur.
Q2) The current account on a nation's balance of payments statement includes net investment income.
A)True
B)False
Q3) Under the managed floating exchange rate system,a government may be able to reduce the international value of its currency by:
A) selling its currency in the foreign exchange market.
B) buying its currency in the foreign exchange market.
C) selling foreign currencies in the foreign exchange market.
D) increasing its domestic interest rates.
Q4) Refer to the above data.In 2008 Transylvania imported more products than it exported.
A)True
B)False
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