Macroeconomic Theory
Textbook Exam Questions
Course Introduction
Macroeconomic Theory explores the fundamental principles and models that explain the behavior of economies on a large scale. The course examines key topics such as national income, aggregate demand and supply, economic growth, inflation, unemployment, monetary and fiscal policy, and international trade. Students will analyze how policy decisions and external shocks influence overall economic performance and stability. Through theoretical frameworks and real-world applications, this course equips students with the analytical tools needed to understand and evaluate macroeconomic issues and policy debates in both domestic and global contexts.
Recommended Textbook
CoreMacroeconomics 3rd Edition by Eric
Chiang
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Chapter 1: Exploring Economics
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Sample Questions
Q1) Macroeconomics studies the outcomes of individual markets in the national economy.
A)True
B)False
Answer: False
Q2) Which statement about markets is TRUE?
A) They always operate efficiently.
B) They bring buyers and sellers together.
C) Profits are never an effective discipline on the market.
D) Markets need to be always controlled by government.
Answer: B
Q3) What would be a possible opportunity cost of you going to a doctor for a check-up?
A) the cost of getting nontraditional care
B) the opportunity to make an acquaintance in the waiting room
C) lost income due to not being at work for those hours
D) the cost of the insurance reimbursing the doctor
Answer: C
Q4) Is understanding recessions a microeconomic or a macroeconomic issue? Explain.
Answer: Macroeconomic;it is a national issue.
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Chapter 2: Production, Economic Growth, and Trade
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Sample Questions
Q1) The production possibilities frontier is bowed outward as a result of increasing costs.
A)True
B)False
Answer: True
Q2) Industries at a comparative disadvantage may find it necessary to decrease their workforce.
A)True
B)False
Answer: True
Q3) Which statement regarding entrepreneurs is NOT correct?
A) Entrepreneurs combine the other resources to produce goods and services.
B) Entrepreneurs manage the day-to-day marketing,finance,and production decisions.
C) The payment entrepreneurs earn is called profit.
D) Entrepreneurs do not take on any business risks.
Answer: D
Q4) Can a productively efficient economy be allocatively inefficient? Explain.
Answer: Yes,a productively efficient economy can be allocatively inefficient if it produces goods and services that consumers don't want.
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Chapter 3: Supply and Demand
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Sample Questions
Q1) Suppose that an artist prices his painting at $150,but it remains unsold.We can conclude that the price of $150 is too:
A) high for this painting and it should be lowered.
B) high for this painting but it should not be lowered.
C) low for this painting and it should be raised.
D) low for this painting but it should not be raised.
Answer: A
Q2) Sales of luxury consumer products for cats and dogs,such as pet spas and hotels,have experienced:
A) a large decline over the past decade.
B) a modest decline over the past decade.
C) little change over the past decade.
D) a large increase over the past decade.
Answer: D
Q3) Which of the following would shift the supply curve for catheters to the left?
A) an increase in taxes on catheters
B) an increase in subsidies on catheters
C) an increase in the price of catheters
D) an increase in the number of producers of catheters
Answer: A
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Chapter 4: Markets and Government
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Sample Questions
Q1) A price floor is effective if it is set above the market price.
A)True
B)False
Q2) Suppose that a customer's willingness to pay for a product is $5,and the seller's willingness to sell is $4.If the negotiated price is $3,how much is consumer surplus?
A) $1
B) $2
C) $5
D) $8
Q3) If a pharmaceutical company knows that one of its products has a dangerous side effect,but does not disclose that to its customers,then the market for that product is likely to fail due to:
A) external costs.
B) external benefits.
C) market power.
D) asymmetric information.
Q4) Price serves as a rationing device.
A)True
B)False
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Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) The Integrated Environmental and Economic Satellite Accounts are intended to take into account the environmental benefits or harmful effects of economic activity.
A)True
B)False
Q2) U.S.business cycles since 1950 have shown:
A) expansions to be just as lengthy as recessions.
B) expansions to be longer than recessions.
C) expansions to be shorter than recessions.
D) stable unemployment rates.
Q3) The U.S.Congress has taken an interest in the development of "green" GDP accounts.
A)True
B)False
Q4) The four main categories of spending included in the expenditure approach to calculating GDP are personal consumption,gross private domestic investment,government purchases,and net exports.
A)True
B)False
Q5) Describe the shortcomings of GDP as a measure of our standard of living.
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Chapter 6: Measuring Inflation and Unemployment
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Sample Questions
Q1) Prices from about ________ goods and services are collected each month by Bureau of Labor Statistics data collectors to be used in calculating the consumer price index.
A) 800
B) 8,000
C) 80,000
D) 800,000
Q2) The Weekly Jobs Report is used as a way to estimate trends in layoffs and hiring.
A)True
B)False
Q3) Workers who want to work but have been frustrated by the inability to find work and have stopped searching are known as:
A) the invisible unemployed.
B) temporary workers.
C) discouraged workers.
D) the disgruntled unemployed.
Q4) "Even if an economy is healthy,it will never have a zero unemployment rate." Explain.
Q5) Describe the methods used for measuring inflation.
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Chapter 7: Economic Growth
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Sample
Questions
Q1) Whispering Valley Furniture employs five workers working eight hours each to produce 80 rocking chairs.Rocky Gap Furniture employs 10 workers working eight hours each to produce 160 rocking chairs.Which company's workers are more productive?
A) Whispering Valley Furniture's workers are more productive.
B) Rocky Gap Furniture's workers are more productive.
C) The two companies' workers are equally productive.
D) It is not possible to determine which workers are more productive.
Q2) Thomas Malthus believed that living standards would rise as a result of population growth,because people are the economy's best resource.
A)True
B)False
Q3) Every year in India:
A) about a million people get out of poverty.
B) tens of millions of people get out of poverty.
C) tens of millions people fall into poverty.
D) about a million people fall into poverty.
Q4) Investments in human capital help to improve productivity.
A)True
B)False
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Chapter 8: Aggregate Expenditures
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Sample Questions
Q1) Disposable income equals:
A) income minus government spending.
B) income minus taxes.
C) income plus government spending.
D) income plus taxes.
Q2) The full Keynesian model illustrates the importance of spending in an economy whose investment,government spending,and exports all increase income,while saving,taxes,and imports reduce it.
A)True
B)False
Q3) Equilibrium income is reached when injections equal withdrawals.
A)True
B)False
Q4) What are the determinants of investment in the simple Keynesian model? Explain each determinant briefly in your response.
Q5) The multiplier works for increases in spending but not for cuts in spending.
A)True
B)False
Q6) The multiplier effect is a domino effect as income goes from person to person.Explain.
Page 10
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Chapter 9: Aggregate Demand and Supply
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Sample Questions
Q1) An increase in the incomes of the countries that purchase U.S.-made products will cause a(n)_________ in the ____________ U.S.-made products.
A) decrease;aggregate demand for
B) increase;short-run aggregate supply of
C) increase;aggregate demand for
D) decrease;short-run aggregate supply of
Q2) Which of the following events will shift the aggregate demand curve to the right?
A) decreased exports
B) increased imports
C) a rise in the interest rate
D) a new government program to eliminate poverty
Q3) Suppose consumers fear that a recession is coming soon.How might this fear become a self-fulfilling prophecy?
Q4) Cost-push inflation occurs because of a shift to the:
A) right of the short-run aggregate supply curve.
B) left of the short-run aggregate supply curve.
C) right of the aggregate demand curve.
D) left of the aggregate demand curve.
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Chapter 10: Fiscal Policy and Debt
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Sample Questions
Q1) Which are examples of automatic stabilizers?
A) income tax revenues and transfer payments
B) sales tax rates and transfer payments
C) sales tax revenues and income security
D) sales tax rates and income security
Q2) Which of the following items does NOT constrain the federal budget?
A) the mortgage interest rate
B) the amount of bonds the public is willing to purchase
C) the money supply
D) tax receipts
Q3) If the economy is producing at an output level below full employment,the government should _____________ spending and ________ taxes.
A) decrease;increase
B) decrease;decrease
C) increase;decrease
D) increase;increase
Q4) How can public investment mitigate the crowding-out effect of financing the deficit by selling bonds to the public?
Q5) Describe the tools that governments use to influence aggregate demand.
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Chapter 11: Saving, Investment, and the Financial System
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Sample Questions
Q1) Which of the following assets is the LEAST liquid?
A) money
B) gold
C) silver
D) a farm
Q2) Which of the following assets is MOST liquid?
A) a house
B) a Picasso painting
C) a corporate bond
D) money
Q3) When demand by firms for investment funds falls,real interest rates fall and investment rises.
A)True
B)False
Q4) List the factors that shift the supply curve of loanable funds.
Q5) Which of the following statements about M1 and M2 is CORRECT?
A) M1 is the broader measure of money.
B) M2 is greater than M1.
C) M1 includes savings deposits.
D) M2 excludes currency.
Page 13
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Chapter 12: Money Creation and the Federal Reserve
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Sample Questions
Q1) The Fed consists of 12 regional banks overseen by the Board of Governors.
A)True
B)False
Q2) Term auctions are considered to be the last resort for stimulating the economy.
A)True
B)False
Q3) If the reserve requirement is 25%,then a $1 increase in deposits means that the money supply:
A) will increase by $4.
B) has the potential to increase by $4.
C) will increase by $25.
D) has the potential to increase by $25.
Q4) The financial panic and credit freeze in late 2008 pointed to the Fed's important role as:
A) lender of last resort.
B) creator of inflation.
C) promoter of price stability.
D) promoter of full employment
Q5) What will the Fed do if its target for the federal funds rate is 3% and the actual federal funds rate is 3.2%?
14
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Chapter 13: Monetary Policy
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Sample Questions
Q1) Since 1978,no Fed chairman has had to deal with deflation.
A)True
B)False
Q2) A policy of transparency in the Federal Reserve:
A) allows investors to sit in on Federal Reserve Board meetings.
B) requires the Federal Reserve to act in specific ways in specific situations.
C) requires the Federal Reserve to explain why it acted or chose not to act in a specific situation.
D) allows Wall Street to audit the Federal Reserve books.
Q3) Why did the European Central Bank take extraordinary actions to prevent member countries from defaulting on their debt?
A) to avoid imposing losses on depositors of major banks in the Eurozone
B) to avoid large deposit outflows from Eurozone banks
C) to prevent a resurgence of deflation in the Eurozone
D) to prevent a loss of confidence in the euro
Q4) According to Keynesian monetary theory,when the money supply decreases,interest rates increase and investment and output decrease.
A)True
B)False
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Chapter 14: Macroeconomic Policy: Challenges in a Global Economy
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Sample Questions
Q1) Banks had an incentive to originate subprime mortgages because they could collect origination fees and then sell the mortgage.
A)True
B)False
Q2) The efficiency wage theory states that by paying their employees more than the market-clearing wage,employers hope to:
A) reduce productivity.
B) set up incentives for employees to shirk their duties.
C) increase turnover.
D) improve employee morale.
Q3) Statements by members of the Federal Reserve Board of Governors indicate a desire to boost economic growth by increasing the money supply.If unions form expectations rationally,then they will:
A) wait for prices to rise before demanding higher wages.
B) ask the Federal Reserve to hold off on changing monetary policy.
C) immediately demand wage increases.
D) wait and see whether the new policy works before demanding any wage increases.
Q4) What happens when the actual inflation rate is more than the expected rate?
Page 16
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Chapter 15: International Trade
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Sample Questions
Q1) Which of the following is NOT a commonly made argument regarding the impact of globalization on environmental protection?
A) As globalization improves economic prosperity in other countries,they will become stricter in their regulations.
B) Firms have an incentive to locate production where environmental laws are lax.
C) The major trade agreements do not address environmental protection.
D) A country may use environmental concerns as an excuse to engage in trade protectionism.
Q2) Both countries can gain from trade when each specializes in producing goods in which it has a comparative advantage.
A)True
B)False
Q3) A tax on imports is called a(n):
A) inbound tax.
B) tariff.
C) foreign-sourced tax.
D) trade equalization tax.
Q4) Describe the benefits of free trade.
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Chapter 16: Open Economy Macroeconomic
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Sample Questions
Q1) If the Fed increases the money supply to bring down the federal funds rate:
A) the value of the dollar will decrease in foreign exchange markets.
B) the current account deficit will increase.
C) the value of the dollar will increase in foreign exchange markets.
D) the capital account surplus will increase.
Q2) The _____ summarizes the flow of money into and out of domestic and foreign assets.
A) capital account
B) current account
C) income account
D) income statement
Q3) Under a flexible exchange system,an expansionary monetary policy would:
A) appreciate the currency,as foreigners want to invest in a country with rising income.
B) depreciate the currency because of the drop in interest rates.
C) reduce exports.
D) have no effect on the exchange rate.
Q4) The real exchange rate is defined as the nominal rate times the inflation rate.
A)True
B)False
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