Macroeconomics
Chapter Exam Questions
Course Introduction
Macroeconomics explores the broad aspects of an economy by examining aggregate indicators such as national income, output, employment, inflation, and economic growth. The course provides an understanding of how governments use fiscal and monetary policies to influence economic performance, stabilize fluctuations, and promote long-term prosperity. Key topics include gross domestic product (GDP), unemployment rates, price indices, economic cycles, and the role of central banks. Through theoretical frameworks and real-world examples, students learn to analyze the implications of policy decisions and global economic events on national and international markets.
Recommended Textbook Essentials of Economics 1st Edition by Dirk Mateer
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Page 2
Chapter 1: Thinking Like an Economist
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Sample Questions
Q1) What are opportunity costs,and why do economists spend so much time talking about them?
Answer: The opportunity cost is the highest valued alternative that one gives up when making a decision to do something else.Economists tend to spend so much time talking about opportunity costs because of scarcity-doing an activity or buying something always means not doing something else or not being able to buy something else.
Q2) When you chose a major,you likely thought about your skills.Let's say you do not enjoy dealing with numbers.How could you explain to your parents,using logic from economics,why you chose to major in English instead of mathematics?
A) The opportunity cost of learning mathematics is too high.
B) The opportunity cost of learning to appreciate literature is too high.
C) The expected value of a major in English after graduation is low.
D) The expected value of a major in mathematics after graduation is high.
E) The opportunity cost of going to college is too low.
Answer: A
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Chapter 2: Economic Models and Gains From Trade
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Sample Questions
Q1) Which of the following is a positive statement?
A) Winters in Arkansas are too cold.
B) Everyone should work in a bank to understand the true value of money.
C) Harvard University is the top education institution in the country.
D) On average, people save 15% when they switch to GEICO.
E) Everyone ought to have a life insurance policy.
Answer: D
Q2) As you move from one efficient point on the production possibilities frontier (PPF)to another efficient point on the PPF,you experience:
A) decreasing relative cost.
B) opportunity cost.
C) macroeconomics.
D) unlimited resources.
E) unattainable combinations.
Answer: B
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Chapter 3: The Market at Work: Supply and Demand
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Sample Questions
Q1) If the cost of flour increases from $3 to $5 a bag,you could predict the supply curve for bagels to:
A) shift to the right.
B) shift to the left.
C) become steeper.
D) become flatter.
E) increase.
Answer: B
Q2) Taxes cause the equilibrium price of a good to:
A) increase.
B) decrease.
C) remain the same.
D) go up only for producers.
E) go down only for consumers.
Answer: A
Q3) Using a supply and demand model,show what happens to the equilibrium price and equilibrium quantity in the market for bananas if,holding all else constant,a study comes out that says eating bananas causes cardiac problems.
Answer: 11ea592c_b205_0d96_af5c_d3649c2da060_TB4867_00
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Page 5
Chapter 4: Market Efficiency
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Sample
Questions
Q1) If the government imposes a price floor on wheat at $5 and agrees to purchase any surpluses,how much will the government be forced to spend?
A) $15 million
B) $3 million
C) $10 million
D) $25 million
E) nothing, because there would be no surplus
Q2) Producer surplus is depicted by the area:
A) above market price and below the supply curve.
B) between the supply curve and the demand curve.
C) below market price and above the supply curve.
D) above market price and below the demand curve.
E) above the demand curve and below the supply curve.
Q3) If a price floor is imposed at $15 per unit when the equilibrium market price is $12,there will be:
A) no surplus or shortage.
B) a surplus.
C) a shortage.
D) a downward pressure on prices.
E) an upward pressure on prices.
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Chapter 5: Costs and Production: How Do Businesses Work?
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Sample Questions
Q1) Which of the following is an example of a long-run cost for a manufacturing firm?
A) the purchase of additional raw materials
B) hiring more employees
C) an increase in the size of its factory
D) paying higher tax rates
E) increasing the size of its management team
Q2) Chief executive officers (CEOs)of major corporations are often paid mostly with stock options (which allow the holder to buy stock at a given price),as opposed to salaries and cash payments.These stock options often cannot be converted into stock and sold until years after they were issued.All this is ultimately intended to create incentives for the CEO to:
A) leave the company after a year or so.
B) lay off as many employees as possible.
C) increase the value of the stock by maximizing company profit.
D) outsource all production to other countries.
E) lobby Congress for subsidies and tax breaks.
Q3) Steve owns a bike store.If Steve decides to double the size of his bike store,his rent will increase as well.Is this increase in rent a short-run cost or a long-run cost?
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Chapter 6: Market Structures
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Sample Questions
Q1) Explain how a market with no barriers to entry or exit results in long-run economic profits equaling zero.
Q2) Why would advertising for the firm be effective under monopolistic competition but not under perfect competition?
Q3) When a competitive market comes under the control of a monopoly,the quantity changes from:
A) D to E.
B) E to D.
C) C to A.
D) B to A.
E) A to B.
Q4) Market failure occurs:
A) when the output level of the firm is efficient.
B) when the output level of the firm is inefficient.
C) when firms do not maximize profits.
D) only in the presence of a monopoly.
E) only in the presence of economies of scale.
Q5) If people found out that a major manufacturer produced its own brand and the store brand at the same factory using the same materials,what do you think would happen?
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Chapter 7: Behavioral Economics and Game Theory
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Sample Questions
Q1) When a market is characterized by mutual interdependence:
A) one firm's pricing decision does not affect the market share of any other firm.
B) one firm's quantity decision does not affect the market share of any other firm.
C) all firms always act in unison to produce the monopoly quantity.
D) the actions of one firm have an impact on the price and output of its competitors.
E) the actions of one firm have no impact on the price and output decisions of its competitors.
Q2) For Ivett to be willing to play this game,Ivett would need to be ________.For Brenda to be willing to play this game,Brenda would need to be ________.
A) risk averse; risk averse
B) risk averse; risk neutral
C) risk neutral; a risk taker
D) a risk taker; risk neutral
E) a risk taker; risk averse
Q3) What are the three ways that bounded rationality,or limited reasoning,can be explained?
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Page 9
Chapter 8: Labor Markets and Earnings
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Sample Questions
Q1) If the price of output is $5,the value of the marginal product of labor of the third worker is:
A) $8.
B) $30.
C) $40.
D) $38.
E) $190.
Q2) Derived demand best describes the demand for which of the following options?
A) cupcakes
B) water bottles
C) hair stylists
D) cat food
E) cars
Q3) If the wage is set temporarily at $15,it will need to __________ in order to restore equilibrium.
A) decrease to zero
B) increase to $35
C) fall
D) increase
E) remain unchanged
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Chapter 9: Government in the Economy
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Sample Questions
Q1) A good that is rival and excludable is defined as a ________ good.
A) private
B) public
C) common-resource
D) club
E) government
Q2) Explain the difference between an internal cost and an external cost.Give an example of each for a car.
Q3) If the government decides to adopt a carbon tax,the price of goods whose production generates carbon emissions will ________ and the quantity produced will ________.
A) increase; increase
B) increase; decrease
C) increase; remain unchanged
D) decrease; increase
E) decrease; decrease
Q4) Identify and briefly explain the four incentives that arise when there are well-defined property rights for a homeowner.
Q5) Are city parks considered public goods? Why or why not?
Q6) Explain why cap-and-trade is an efficient policy approach to reducing emissions.
Page 11
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Chapter 10: What Is Macroeconomics?
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Sample Questions
Q1) Give two examples of government regulations regarding hiring and firing that can contribute to frictional unemployment.
Q2) Natural unemployment is the:
A) average of frictional, structural, and cyclical unemployment.
B) sum of frictional, structural, and cyclical unemployment.
C) sum of frictional and cyclical unemployment.
D) sum of structural and cyclical unemployment.
E) sum of structural and frictional unemployment.
Q3) List and define the three different types of unemployment.
Q4) Which of the following is an example of frictional unemployment?
A) Raymond loses his job as a steelworker because the economy is in a downturn.
B) Chad graduates with his master's degree in economics and is searching for an analyst job.
C) Edith has decided to retire after 35 years of working at the state prison.
D) Cameron quits his job at the circus to volunteer for the Red Cross.
E) Jasmine loses her job as a newspaper editor because the publication has gone digital.
Q5) Explain why Italy experiences higher rates of unemployment during normal economic times than the United States does.
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Chapter 11: Measuring the Macroeconomy, Inflation, and Unemployment
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Sample Questions
Q1) The textbook shows that the inflation-adjusted movie receipts for Star Wars (released 1977)were $1,410,707,000 and the original receipts were $460,998,000.The implication is that:
A) prices in the current year are about the same as they were in 1977.
B) hyperinflation has occurred since 1977.
C) prices today are about 33% of what they were in 1977.
D) prices today are about three times what they were in 1977.
E) Star Wars was a bad movie at the time of its release but has become more popular over time.
Q2) The average inflation rate in the United States from 2000-2012 was about:
A) 20%.
B) 10%.
C) 5%.
D) 2%
E) - 4%.
Q3) What is the difference between a discouraged worker and an underemployed worker? Why is it important to understand both of these worker categories in order to fully understand the employment situation in an economy?
Q4) Describe the methodology of finding the consumer price index (CPI).
Page 13
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Chapter 12: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) An increase in aggregate demand is beneficial in the short run because ________,but harmful in the long run because ________.
A) output decreases; the unemployment rate falls
B) the unemployment rate falls; the price level rises
C) wages decrease; wages increase
D) real wealth decreases; real wealth increases
E) wages increase; the unemployment rate rises
Q2) If workers actively demand pay increases when the price level is rising and are willing to accept pay cuts when the price level is falling,then the short-run aggregate supply curve would be:
A) negatively sloped.
B) nearly vertical.
C) nearly horizontal.
D) positively sloped as usual.
E) always shifting to the right or the left.
Q3) Explain the difference between the short-run and long-run aggregate supply curves.
Q4) Draw a graph to illustrate the phases of the business cycle.Be sure to identify the length of a contraction and an expansion.Identify a peak and a trough.
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Page 14
Chapter 13: Economic Growth and the Wealth of Nations
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Sample Questions
Q1) From 2006 to 2010,per capita real gross domestic product (GDP)in Poland grew an average of 4.71% per year.At that rate,according to the Rule of 70,in roughly how many years will the Polish economy double in size?
A) 7.6 years
B) 14.9 years
C) 12.1 years
D) 8.8 years
E) 8.4 years
Q2) Which of the following are the three major categories of resources?
A) physical capital, technology, and institutions
B) land, labor, and technology
C) institutions, human capital, and land
D) natural resources, physical capital, and human capital
E) labor, physical capital, and technology
Q3) An increase in ________ would lead to an increase in long-run economic growth.
A) consumer spending and borrowing
B) government taxes and fees
C) resources and technology
D) imports and exports
E) prices and interest rates
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Chapter 14: Savings, Investment, and the Market for Loanable Funds
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Sample Questions
Q1) Assuming the figure represents the market for loanable funds,which of the following would represent an increase in household income?
A) a shift from line 1 to line 4
B) a shift from line 4 to line 1
C) a shift from line 2 to line 3
D) movement from A to B
E) a new shortage of loanable funds represented by the distance from C to D
Q2) The measurement of personal savings may be distorted by:
A) increased college tuition costs.
B) reduced college tuition costs.
C) higher marginal tax rates.
D) greater levels of home equity.
E) lower levels of home equity.
Q3) The correct production timeline is:
A) investment occurs, dollars are borrowed, and output is produced.
B) dollars are borrowed, investment occurs, and output is produced.
C) output is produced, dollars are borrowed, and investment occurs.
D) savings occurs, output is produced, and dollars are borrowed.
E) borrowing occurs, output is produced, and investment occurs.
Page 16
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Chapter 15: Money and the Federal Reserve
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Sample Questions
Q1) When a bank decided to invest in cash-counting equipment and new cubicles for its loan officers,they were recorded on the bank balance sheet as:
A) liabilities.
B) assets.
C) vault cash.
D) deposits.
E) loans.
Q2) ________ is/are considered a liability on a bank's balance sheet.
A) Cash in the vault
B) U.S.Treasury securities
C) Property owned by the bank
D) Deposits
E) Loans
Q3) What is the most appropriate measure of the money supply-M1 or M2?
Q4) What are the consequences of an economy relying on a fiat money?
Q5) If the required reserve ratio is 25%,write out the bank's balance sheet at the initial moment of the deposit and include the entries for required reserves,excess reserves,and deposits.
Q6) Briefly describe the three functions of the Federal Reserve.
Page 17
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Chapter 16: Monetary Policy
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Sample Questions
Q1) Expansionary monetary policy occurs when ________in an effort to stimulate the economy.
A) a central bank acts to decrease the money supply
B) Congress and the president increase taxes
C) Congress and the president decrease taxes
D) a central bank acts to increase the money supply
E) a central bank acts to increase government spending
Q2) To increase the money supply,the Federal Reserve could do which of the following?
A) increase the discount rate
B) increase the required reserve ratio
C) conduct an open market sale of government bonds
D) discourage banks from lending money to borrowers
E) conduct an open market purchase of government bonds
Q3) ________ would be hurt by unexpected inflation.
A) Someone who loaned money out at a fixed interest rate
B) A firm that hired a worker on a two-year wage contract
C) Someone who borrowed money at a fixed interest rate
D) A worker whose wage increases with inflation
E) A firm that purchased inputs with a two-year contract
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Page 18
Chapter 17: Fiscal Policy and Budget Deficits
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Sample Questions
Q1) Expansionary fiscal policy occurs when the ________ to stimulate the economy toward expansion.
A) government decreases spending or increases taxes
B) government decreases spending or decreases taxes
C) government increases spending or increases taxes
D) government increases spending or decreases taxes
E) Federal Reserve increases money supply
Q2) During recessionary periods,outlays:
A) increase and tax revenue falls.
B) increase and tax revenue increases.
C) decrease and tax revenue increases.
D) decrease and tax revenue falls.
E) and tax revenue stay the same.
Q3) Tie fiscal policy initiatives to budget deficits and surpluses.
Q4) Why have entitlements become such a major national issue?
Q5) List and summarize the three shortcomings of fiscal policy.
Q6) Name and describe the two significant fiscal policy initiatives enacted during the Great Recession.
Q7) Why may a budget deficit be considered undesirable?
Page 19
Q8) Discuss the following assertion: China owns the United States.
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Chapter 18: International Economics
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Sample Questions
Q1) Between April 12,2008,and April 12,2013,the U.S.dollar appreciated against the:
A) Australian dollar.
B) Canadian dollar.
C) Swiss franc.
D) Japanese yen.
E) British pound.
Q2) If this is a non-trading (closed)economy,how many cars (in thousands)will be exchanged?
A) 20
B) 40
C) 60
D) 80
E) 100
Q3) A tariff:
A) is a strict enforcement of health laws.
B) is a voluntary agreement between two countries to limit exports.
C) is a tax on imports.
D) is a limit on the quantity of a good that can be imported into a country.
E) subsidizes the production of goods leaving the country.
Q4) What are some of the gains from trade?
Page 20
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Chapter 19: Personal Finance
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Sample Questions
Q1) Renting would be most appropriate for people who:
A) want to reduce their taxes.
B) have difficulty establishing credit.
C) have limited funds currently available.
D) enjoy remodeling their residences.
E) desire the financial benefits of increased equity.
Q2) Which of the following investments has the lowest risk?
A) T-bills
B) municipal bonds
C) income stocks
D) real estate
E) corporate bonds
Q3) A valuable asset pledged to assure loan payments and which can be seized upon default is called:
A) capacity.
B) character.
C) capital.
D) collateral.
E) conditions.
Q4) What are some of the costs and benefits of home ownership?
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