Macroeconomics
Exam Answer Key
Course Introduction
Macroeconomics is the study of the economy as a whole, focusing on the aggregate behavior of households, firms, and governments. This course covers key concepts such as national income, gross domestic product (GDP), unemployment, inflation, and economic growth. Students will explore the role of fiscal and monetary policy in stabilizing the economy, examine the effects of international trade and finance, and analyze economic fluctuations and long-term trends. By understanding the broader economic environment, learners will gain the analytical tools necessary to assess economic policies and their impact on society.
Recommended Textbook Principles of Economics 4th Edition by
N. Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) If a copper refinery does not bear the entire cost of the smoke it emits,it will
A)not emit any smoke so as to avoid the entire cost of the smoke.
B)emit lower levels of smoke.
C)emit an acceptable level of smoke.
D)emit too much smoke.
Answer: D
Q2) A rational decision maker takes an action only if the
A)marginal benefit is less than the marginal cost.
B)marginal benefit is greater than the marginal cost.
C)average benefit is greater than the average cost.
D)marginal benefit is greater than both the average cost and the marginal cost.
Answer: B
Q3) If an externality is present in a market,economic efficiency may be enhanced by A)government intervention.
B)increased competition.
C)better informed market participants.
D)weaker property rights.
Answer: A
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3
Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Because it is difficult for economists to use experiments to generate data,they generally must
A)do without data.
B)substitute assumptions for data when data are unavailable.
C)rely upon hypothetical data that were previously concocted by other economists.
D)use whatever data the world gives them.
Answer: D
Q2) Refer to Figure 2-2.The figure represents a circular-flow diagram.Marsha works as an attorney for a corporation and is paid a salary in exchange for the legal services she performs.James owns office buildings and rents his buildings to companies in exchange for rent payments.If Marsha's income is represented by a flow of dollars from Box D to Box B,then James's income is represented by a flow of dollars
A)from Box A to Box C.
B)from Box C to Box A.
C)from Box C to Box B.
D)from Box D to Box B.
Answer: D
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to Table 3-4.For Brenda,the opportunity cost of testing a computer is
A)setting up 2/3 of a computer.
B)setting up 3/4 of a computer.
C)setting up 1 1/3 computers.
D)setting up 1 1/2 computers
Answer: C
Q2) Refer to Table 3-2.Helen has a comparative advantage in
A)quilts and Carolyn has an absolute advantage in neither good.
B)dresses and Carolyn has an absolute advantage in quilts.
C)quilts and Carolyn has an absolute advantage in dresses.
D)dresses and Carolyn has an absolute advantage in neither good.
Answer: D
Q3) Refer to Table 3-1.The rancher has a comparative advantage in
A)neither good, and the farmer has a comparative advantage in both goods. B)both goods, and the farmer has a comparative advantage in neither good.
C)potatoes, and the farmer has a comparative advantage in meat.
D)meat, and the farmer has a comparative advantage in potatoes.
Answer: D
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Buyers and sellers who have no influence on market price are referred to as A)market pawns.
B)marginalists.
C)price takers.
D)price makers.
Q2) Refer to Figure 4-8.In this market,equilibrium price and quantity,respectively,are
A)$14 and 70.
B)$12 and 40.
C)$10 and 50.
D)$8 and 50.
Q3) A likely example of complementary goods for most people would be A)hamburgers and hot dogs.
B)lawnmowers and automobiles.
C)hamburgers and French fries.
D)Dr.Pepper and Pepsi.
Q4) It is not possible for demand and supply to shift at the same time.
A)True
B)False
Q5) The behavior of buyers and sellers drives markets toward equilibrium.
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Chapter 5: Elasticity and Its Applications
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Q1) There are very few,if any,good substitutes for motor oil.Therefore,
A)the demand for motor oil would tend to be inelastic.
B)the demand for motor oil would tend to be elastic.
C)the demand for motor oil would tend to respond strongly to changes in prices of other goods.
D)the supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.
Q2) Holding all other forces constant,when the price of gasoline rises,the number of gallons of gasoline demanded would fall substantially over a ten-year period because
A)buyers tend to be much less sensitive to a change in price when given more time to react.
B)buyers tend to be much more sensitive to a change in price when given more time to react.
C)buyers will have substantially more income over a ten-year period.
D)the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.
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Chapter 6: Supply, demand, and Government Policies
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Q1) To say that a price ceiling is binding is to say that the price ceiling
A)results in a scarcity.
B)is set above the equilibrium price.
C)results in excess demand.
D)All of the above are correct.
Q2) Suppose the demand curve for a good is very flat and the supply curve for the good is very steep.If the government taxes this good,
A)buyers and sellers will each share 50 percent of the burden, regardless of the slopes of the demand and supply curves.
B)sellers will bear a larger share of the tax burden and buyers will bear a smaller share of the burden.
C)the distribution of the burden will depend upon whether the buyers or the sellers are required to send the tax to the government.
D)the amount of tax revenue collected by the government will depend upon whether the buyers or the sellers are required to send the tax to the government.
Q3) How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) The "invisible hand" is
A)used to describe the welfare system in the United States.
B)a concept developed by Adam Smith to describe the virtues of free markets.
C)a concept used by J.M.Keynes to describe the role of government in guiding the allocation of resources in the economy.
D)a term used by some economists to characterize the role of government in an economy-- inevitable but invisible.
Q2) Refer to Table 7-3.Which of the following statements is correct?
A)Neither Barb's consumer surplus nor Carlos's consumer surplus can exceed Alex's consumer surplus, for any price of an orange.
B)All three individuals will buy at least one orange only if the price of an orange is less than $0.25.
C)If the price of an orange is $0.60, total consumer surplus is $4.90.
D)All of the above are correct.
Q3) When market price increases,producer surplus increases because (1)producer surplus received by existing sellers increases,and (2)new sellers enter the market.
A)True
B)False
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Chapter 8: Application: the Costs of Taxation
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Sample Questions
Q1) Refer to Figure 8-3.The amount of deadweight loss as a result of the tax is
A)$210.
B)$420.
C)$560.
D)$980.
Q2) For the purpose of analyzing the gains and losses from a tax on a good,we use tax revenue as a direct measure of
A)government's benefit from the tax.
B)government's loss from the tax.
C)the deadweight loss of the tax.
D)the overall net gain to society of the tax.
Q3) Consider a good to which a per-unit tax applies.The size of the deadweight that results from the tax is smaller,the
A)larger is the price elasticity of demand.
B)smaller is the price elasticity of supply.
C)larger is the amount of the tax.
D)All of the above are correct.
Q4) Illustrate on three demand-and-supply graphs how the size of a tax (small,medium and large)can alter total revenue and deadweight loss.
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Chapter 9: Application: International Trade
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Sample Questions
Q1) Most economists support the infant-industry argument because it is so easy to implement in practice.
A)True
B)False
Q2) Refer to Figure 9-15.Government revenue raised by the tariff is represented by the area
A)E.
B)B + E.
C)D + E + F.
D)B + D + E + F.
Q3) Refer to Figure 9-8.Total surplus in this market after trade is A)A + B.
B)A + B + C.
C)A + B + C + D.
D)B + C + D.
Q4) Refer to Figure 9-1.With free trade,this country will A)import 40 baskets.
B)import 70 baskets. C)export 35 baskets. D)export 65 baskets.
Page 11
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Chapter 10: Externalities
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Sample Questions
Q1) Which of the following is a problem that keeps people from privately solving externality problems?
A)Each party involved holds out for a better deal.
B)The externality is large.
C)Only problems with a sufficiently large number of parties can be solved.
D)There is a lack of government intervention.
Q2) In some cases,tradable pollution permits may be better than a corrective tax because
A)pollution permits allow for a market solution while a corrective tax does not.
B)pollution permits generate more revenue for the government than a corrective tax.
C)pollution permits are never preferred over a corrective tax.
D)the government can set a maximum level of pollution using permits.
Q3) Refer to Figure 10-4.If this market currently produces Q ,total economic well-being would be maximized if
A)production decreased to Q .
B)production increased to Q .
C)this product were no longer produced.
D)output stayed at Q .
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Chapter 11: Public Goods and Common Resources
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Q1) One way to eliminate the Tragedy of the Commons is to
A)increase law enforcement in public areas.
B)limit access to the commons.
C)increase access to the commons.
D)decrease taxes.
Q2) It is common knowledge that many U.S.national parks have become overused.One possible solution to this problem is to
A)increase entrance fees.
B)conduct a study to determine the daily attendance capacity of the individual parks.
C)reduce the national park service budget.
D)All of the above are possible solutions.
Q3) Which of the following statements is correct?
A)Common resources are excludable but nonrival in consumption.
B)National defense is an example of the Tragedy of the Commons.
C)When African elephants were privatized, the survival of the species improved.
D)Well established property rights are unnecessary because government can provide goods more efficiently than private markets.
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) If Christopher earns $80,000 in taxable income and pays $20,000 in taxes,his average tax rate is 20 percent.
A)True
B)False
Q2) Goals of efficiency and equity in tax policy are
A)complementary in most countries.
B)necessary for application of the ability-to-pay principle.
C)often in conflict with each other.
D)easier to achieve when tax codes are complex.
Q3) Tax evasion is
A)facilitated by legal deductions to taxable income.
B)the same as tax avoidance.
C)recommended by the American Accounting Association. D)illegal.
Q4) State and local governments generate revenue from all of the following sources except A)sales taxes.
B)the federal government.
C)corporate income taxes.
D)customs duties.
Page 14
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Chapter 13: The Costs of Production
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Sample Questions
Q1) Smith Tire Company has total fixed costs of $300,000 per year.The firm's average variable cost is $80 for 10,000 tires.At that level of output,the firm's average total costs equal
A)$80
B)$90
C)$100
D)$110
Q2) Refer to Table 13-6.One week,Adrian earns a profit of $125.If her revenue for the week is $1100,how many boxes of chocolate did she produce?
A)140
B)330
C)780
D)950
Q3) Refer to Figure 13-8.At levels of output below M the firm experiences
A)economies of scale.
B)diseconomies of scale.
C)economic profit.
D)accounting profit.
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) Refer to Table 14-4.What is the average revenue when 4 units are sold?
A)$0
B)$80
C)$90
D)$320
Q2) Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price,what effect would this have on the market?
Q3) If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost,then
A)a one-unit increase in output will increase the firm's profit.
B)a one-unit decrease in output will increase the firm's profit.
C)total revenue exceeds total cost.
D)total cost exceeds total revenue.
Q4) At the profit-maximizing level of output,
A)marginal revenue equals average total cost.
B)marginal revenue equals average variable cost.
C)marginal revenue equals marginal cost.
D)average revenue equals average total cost.
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Chapter 15: Monopoly
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Sample Questions
Q1) If a monopolist is able to perfectly price discriminate,
A)consumer surplus is always increased.
B)total surplus is always decreased.
C)consumer surplus and deadweight losses are transformed into monopoly profits.
D)the price effect dominates the output effect on monopoly revenue.
Q2) Why do economists usually prefer private ownership to public ownership of natural monopolies?
Q3) The amount of power that a monopoly has depends on whether there are close substitutes for its product.
A)True
B)False
Q4) Refer to Table 15-2.What is the total revenue from selling 6 shirts?
A)$100
B)$600
C)$625
D)$660
Q5) Firms with substantial monopoly power are quite common,because many goods are truly unique.
A)True
B)False
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Chapter 16: Oligopoly
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Sample Questions
Q1) Game theory is important for the understanding of A)competitive markets.
B)monopolies.
C)oligopolies.
D)all market structures.
Q2) Refer to Scenario 16-3.If Inhabii chooses to build new weapons,the country of Eudora will
A)disarm in order to prevent the loss of influence in world affairs.
B)disarm in order to promote world peace.
C)build new weapons in order to promote world peace.
D)build new weapons in order to prevent the loss of influence in world affairs.
Q3) Refer to Scenario 16-5.How much additional profit can the bank earn by switching to the use of a tying strategy to price checking accounts and ATM service rather than pricing these services separately?
A)$14
B)$11
C)$7
D)$1
Q4) Outline the purpose of antitrust laws.What do they accomplish?
Q5) Explain the practice of tying and discuss why it is controversial.
Page 18
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Chapter 17: Monopolistic Competition
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Q1) Before a new firm enters a monopolistically competitive market with a new product,it considers
A)the profit opportunities.
B)the business-stealing externality.
C)the product-variety externality.
D)Both b and c are correct.
Q2) Refer to Table 17-3.At the profit-maximizing quantity,what is Traci's total profit?
A)$30
B)$59
C)$77
D)$84
Q3) The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which
A)marginal revenue is equal to marginal cost.
B)average total cost is equal to marginal revenue.
C)average total cost is equal to price.
D)average revenue exceeds average total cost.
Q4) Discuss how "brand names" may enhance the efficiency of markets in a less developed country.
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Chapter 18: The Markets for the Factors of Production
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Q1) The equilibrium rental income paid to the owners of capital at any point in time equals the
A)marginal product of capital.
B)value of the marginal product of capital.
C)percentage of profits paid out to stockholders in the form of dividends.
D)equilibrium purchase price of capital.
Q2) Refer to Table 18-5.What is the value for the cell labeled DD?
A)-$100
B)$300
C)$100
D)$50
Q3) Refer to Table 18-6.What is the marginal product of the third worker?
A)7
B)8
C)25
D)75
Q4) The term Luddite refers to "tekkies" or people who are the first to adopt new technological advances.
A)True
B)False
Page 20
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Chapter 19: Earnings and Discrimination
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Q1) One hypothesis to explain the rising gap in wages between unskilled and skilled workers in the United States is that international trade has altered the relative demands for skilled and unskilled workers.
A)True
B)False
Q2) Why is a plumber never likely to be as rich as a movie star?
A)Compensating differential creates a higher wage in the movie business.
B)There haven't been any significant technological advances in the plumbing industry.
C)Productivity levels are low in the plumbing industry due to low worker morale.
D)A plumber can provide his services to only a limited number of customers.
Q3) Refer to Figure 19-2.This figure depicts labor demand and supply in a nonunionized labor market.The original equilibrium is at point A.If a labor union subsequently establishes a union shop and negotiates an hourly wage of $20,then there will be an excess
A)supply of 3,000 workers.
B)demand of 7,000 workers.
C)supply of 4,000 workers.
D)supply of 7,000 workers.
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Chapter 20: Income Inequality and Poverty
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Q1) Explain how a "leaky bucket" can be used to illustrate the utilitarian argument that governments should not attempt to completely equalize individual incomes.
Q2) The government enacts policies to
A)make the distribution of income more efficient.
B)make the distribution of income more fair.
C)maximize the use of the welfare system.
D)minimize the use of in-kind transfers.
Q3) "Equality of opportunities is more important than equality of incomes." This statement would be most likely attributed to which political philosophy?
A)utilitarianism
B)liberalism
C)libertarianism
D)None of the above is correct.
Q4) Saving and borrowing is indicative of a family that
A)is most likely to be poor.
B)has a difficult time balancing its standard of living.
C)adjusts its standard of living to reflect transitory changes in income.
D)is most likely millionaires.
Q5) Explain the relationship between labor earnings and the distribution of income.
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Chapter 21: The Theory of Consumer Choice
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Q1) Refer to Scenario 21-1.If the price of cola doubles to $2,then the
A)budget constraint intersects the vertical axis at 25 colas.
B)slope of the budget constraint rises to -2.
C)budget constraint intersects the vertical axis at 100 colas.
D)budget constraint shifts inward in a parallel fashion.
Q2) If the consumer's income and all prices simultaneously decrease by one-half,then
A)the optimum will shift outward relative to the old optimum.
B)the optimum will move leftward along the old budget constraint.
C)the optimum will shift inward relative to the old optimum.
D)the optimum will not change.
Q3) The marginal rate of substitution does not change for perfect substitutes.
A)True
B)False
Q4) If a good is a Giffen good,then
A)the supply curve slopes down.
B)the demand curve slopes up.
C)the demand curve is horizontal.
D)there is no optimal level of consumption for the consumer.
Q5) List and briefly explain each of the four properties of indifference curves.
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Chapter 22: Frontiers of Microeconomics
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Q1) When the buyer knows less than the seller about the characteristics of the good being sold,there is
A)a principal-agent problem.
B)a moral hazard problem.
C)an adverse selection problem.
D)a signaling problem.
Q2) Recent research that links psychology and economics is called
A)comparative psychology.
B)psychological economics.
C)behavioral economics.
D)sociology.
Q3) The problem of moral hazard is a problem of hidden action.
A)True
B)False
Q4) In economics,a difference in access to relevant knowledge is called a behavioral asymmetry.
A)True
B)False
Q5) Explain the Condorcet paradox.To which type of voting system does it apply?
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Chapter 23: Measuring a Nations Income
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Q1) A farmer produces the same output in 2004 as in 2003.His input prices increase by 50 percent,but so does his product price.We can conclude that
A)the farmer is better off in 2004.
B)the farmer was better off in 2004.
C)the farmer is equally well off in 2004 as in 2003.
D)we cannot tell whether the farmer is better off in 2004 or in 2003 without additional information.
Q2) Refer to Table 23-1.National income for this economy is A)$96.
B)$92.
C)$90.
D)$88.
Q3) Retained earnings is the part of income that
A)households retain after paying taxes.
B)businesses retain after paying taxes.
C)corporations have earned but have not used to invest in plant, equipment, and inventories.
D)corporations have earned but have not paid out to their owners.
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Chapter 24: Measuring the Cost of Living
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Q1) Suppose the nominal interest rate was 5 percent and the inflation rate was 3.5 percent.
A)The dollar value of savings increased at 1.5 percent, and the value of savings measured in goods increased at 3.5 percent.
B)The dollar value of savings increased at 3.5 percent, and the value of savings measured in goods increased at 1.5 percent.
C)The dollar value of savings increased at 3.5 percent, and the value of savings measured in goods increased at 5 percent.
D)The dollar value of savings increased at 5 percent, and the value of savings measured in goods increased at 1.5 percent.
Q2) The price index was 128.96 in 2006 and,between 2005 and 2006,the inflation rate was 24 percent.The price index in 2005 was
A)30.95.
B)104.00.
C)104.96.
D)106.67.
Q3) List the three major problems in using the CPI as a measure of the cost of living.
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Chapter 25: Production and Growth
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Q1) Which of the following is true?
A)Productivity is hours worked divided by output produced.
B)Americans have a higher standard of living than Indonesians because American workers are more productive than Indonesian workers.
C)Trends in the market prices of most resources indicate that they have become increasingly scarce over time.
D)All of the above are correct.
Q2) Which of the following countries,had the highest growth rate over the last 100 years?
A)Brazil
B)Germany
C)Canada
D)United States
Q3) The key determinant of a person's standard of living in a country is
A)the amount of goods and services produced from each hour of a worker's time.
B)the total amount of goods and services produced within the country.
C)the total amount of its physical capital.
D)its growth rate of real GDP.
Q4) Compare and contrast the population theories of Malthus and Kremer.
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Chapter 26: Saving, investment, and the Financial System
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Q1) Which of the following is not correct?
A)American families save a larger fraction of their incomes than their counterparts in many other countries such as Germany and Japan.
B)Saving is an important long-run determinant of a nation's standard of living.
C)A change in tax laws that encouraged greater saving would lower interest rates.
D)Taxes on interest income can substantially decrease the future value of current saving.
Q2) Joan uses some of her income to buy mutual fund shares.A macroeconomist refers to Joan's purchase as investment.
A)True
B)False
Q3) Other things being constant,when a business issues more stock,the
A)supply of the stock is greater and thus the price will fall.
B)supply of the stock is less and thus the price will rise.
C)demand for the stock is greater and thus the price will rise.
D)demand for the stock is less and thus the price will fall.
Q4) Draw and label a graph showing equilibrium in the market for loanable funds.
Q5) What are the basic differences between bonds and stocks?
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Chapter 27: The Basic Tools of Finance
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Q1) Diversification can reduce firm-specific risk.
A)True
B)False
Q2) Amanda talks with several different brokers at a social gathering.She hears the following advice from brokers A,B,and C.Which broker,if any,gave her incorrect advice?
A)There are risks in holding stocks, even in a highly diversified portfolio.
B)Portfolios with smaller standard deviations have lower risk.
C)Stocks with greater risks offer lower average returns.
D)They all gave her correct advice.
Q3) Marcus puts a greater proportion of his portfolio into government bonds.This
A)increases both risk and the average rate of return
B)decreases both risk and the average rate of return
C)increases risk, but decreases the average rate of return
D)decreases risk, but increases the average rate of return
Q4) According to the efficient markets hypothesis,stocks follow a random walk so that stocks that increase in price one year are more likely to increase than decrease in the next year.
A)True
B)False
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Chapter 28: Unemployment
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Q1) Ted is working part time.Alice is on temporary layoff.Who is counted as employed by the BLS?
A)only Ted
B)only Alice
C)both Ted and Alice
D)neither Ted nor Alice
Q2) Which of the following causes of unemployment is not associated with a continuing excess supply of labor?
A)minimum-wage laws
B)unions
C)job search
D)efficiency wages
Q3) Efficiency wages
A)increase frictional unemployment by keeping wages above equilibrium.
B)decrease frictional unemployment by keeping wages at equilibrium.
C)increase structural unemployment by keeping wages above equilibrium.
D)decrease structural unemployment by keeping wages at equilibrium.
Q4) Why have labor-force participation rates for women in the United States increased since World War II while labor-force participation rates for men have decreased?
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Chapter 29: The Monetary System
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Q1) Monetary policy affects employment
A)only in the long run.
B)only in the short run.
C)in both the long run and the short run.
D)in neither the long run nor the short run.
Q2) Debit cards
A)defer payments.
B)are equivalent to credit cards.
C)are included in M2.
D)are used as a method of payment.
Q3) The money supply increases when the Fed
A)lowers the discount rate.The increase will be larger the smaller the reserve ratio is.
B)lowers the discount rate.The increase will be larger the larger the reserve ratio is.
C)raises the discount rate.The increase will be larger the smaller the reserve ratio is.
D)raises the discount rate.The increase will be larger the larger the reserve ratio is.
Q4) What makes the New York Federal Reserve regional bank so important?
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Chapter 30: Money Growth and Inflation
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Q1) List and define any two of the costs of high inflation.
Q2) The classical dichotomy argues that changes in the money supply
A)affect both nominal and real variables.
B)affect neither nominal nor real variables.
C)affect nominal variables, but not real variables.
D)do not affect nominal variables, but do affect real variables.
Q3) Based on the quantity equation,if M = 100,V = 4,and Y = 200,then P = A)1/2.
B)2.
C)8.
D)None of the above is correct.
Q4) If money is neutral and velocity is stable,an increase in the money supply creates a proportional increase in A)real output only.
B)nominal output only.
C)the price level only.
D)Both the price level and nominal output.
Q5) Economists agree that increases in the money supply growth rate increase inflation and that inflation is undesirable.So why have there been hyperinflations and how have they been ended?
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) Suppose a Starbucks tall-latte cost $4.00 in the United States and 3.20 euros in the Euro area.Suppose a McDonald's Big Mac costs $3.50 in the United States and 2.45 euros in Euro area.If the nominal exchange rate is .80 euros per dollar,which goods have prices that are consistent with purchasing power parity?
A)Both the tall-latte and the Big Mac.
B)Neither the tall-latte nor the Big Mac.
C)The tall-latte but not the Big Mac.
D)The Big Mac but not the tall-latte.
Q2) When Ghana sells chocolate to the United States,U.S.net exports
A)increase, and U.S.net capital outflow increases.
B)increase, and U.S.net capital outflow decreases.
C)decrease, and U.S.net capital outflow increases.
D)decrease, and U.S.net capital outflow decreases.
Q3) Purchasing-power parity describes the forces that determine
A)prices in the short run.
B)prices in the long run.
C)exchange rates in the short run.
D)exchange rates in the long run.
Q4) What is the logic behind the theory of purchasing-power parity?
Q5) How do the nominal exchange rate and the real exchange rate differ?
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) The value of net exports equals the value of A)national saving.
B)public saving.
C)national saving - net exports.
D)national saving - domestic investment.
Q2) Which of the following is most likely to increase U.S.exports?
A)The government gives subsidies to U.S.firms that export goods or services.
B)The government reduces the size of the budget surplus.
C)The United States unilaterally reduces its restrictions on foreign imports.
D)Taxes on domestic saving rise.
Q3) Other things the same,a higher real interest rate raises the quantity of A)domestic investment.
B)net capital outflow.
C)loanable funds demanded.
D)loanable funds supplied.
Q4) Over the past two decades,the United States has
A)generally had, or been very near to a trade balance.
B)had trade deficits in about as many years as it has trade surpluses.
C)persistently had a trade deficit.
D)persistently had a trade surplus.
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) The effects of a higher than expected price level are shown by
A)shifting the short-run aggregate supply curve right.
B)shifting the short-run aggregate supply curve left.
C)moving to the right along a given aggregate supply curve.
D)moving to the left along a given aggregate supply curve.
Q2) Historically,the change in real GDP during recessions has been
A)mostly a change in investment spending.
B)mostly a change in consumption spending.
C)about equally divided between consumption and investment spending.
D)sometimes mostly a change in consumption and sometimes mostly a change in investment.
Q3) Other things the same,as the price level falls,
A)the money supply falls.
B)interest rates rise.
C)a dollar buys more domestic goods.
D)the aggregate demand curve shifts right.
Q4) Like real GDP,investment fluctuates,but investment fluctuates by a larger percentage.
A)True
B)False
Page 35
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Chapter 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) Open-market purchases
A)increase the price level and real GDP.
B)decrease the price level and real GDP.
C)increase the price level and decrease real GDP.
D)decrease the price level and increase real GDP.
Q2) The most important reason for the slope of the aggregate demand curve is that as the price level
A)increases, interest rates increase, and investment decreases.
B)increases, interest rates decrease, and investment increases.
C)decreases, interest rates increase, and investment increases.
D)decreases, interest rates decrease, and investment decreases.
Q3) If there is excess money demand,people will
A)deposit more into interest-bearing accounts, and the interest rate will fall.
B)deposit more into interest-bearing accounts, and the interest rate will rise.
C)withdraw money from interest-bearing accounts, and the interest rate will fall.
D)withdraw money from interest-bearing accounts, and the interest rate will rise.
Q4) What is the difference between monetary policy and fiscal policy?
Q5) Explain how unemployment insurance acts as an automatic stabilizer.
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Chapter 35: The Short Run Trade Off Between Inflation and Unemployment
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Q1) Faced with an adverse supply shock,policymakers can increase
A)aggregate demand, which increases prices and output.
B)aggregate demand, which decreases prices and increases output.
C)aggregate supply, which increases prices and output.
D)aggregate supply, which decreases prices and increases output.
Q2) In the long run,an increase in the money supply growth rate
A)increases inflation and shifts the short-run Phillips curve right.
B)increases inflation and shifts the short-run Phillips curve left.
C)decreases inflation and shifts the short-run Philips curve right.
D)decreases inflation and shifts the short-run Phillips curve left.
Q3) The restrictive monetary policy followed by the Fed in the early 1980s
A)reduced both unemployment and inflation.
B)reduced inflation significantly, but at the cost of a severe recession.
C)reduced unemployment significantly, but at the cost of higher inflation.
D)raised both unemployment and inflation.
Q4) In the long run,the natural rate of unemployment depends primarily on the growth rate of the money supply.
A)True
B)False
Q5) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) The cost of inflation reduction is a small but permanent increase in unemployment.
A)True
B)False
Q2) A nation's saving rate is not a primary determinant of its long-run economic prosperity.
A)True
B)False
Q3) The time inconsistency of policy implies that
A)what policymakers say they will do is generally what they will do, but people don't believe them because of current policy.
B)when people expect that inflation will be low, it is harder for the Fed to increase output by increasing the money supply.
C)people will believe Fed policy will be more inflationary than the Fed claims.
D)None of the above is correct.
Q4) Social Security transfers wealth from younger generations to older generations. A)True
B)False
Q5) Explain how it is possible for the government debt to grow forever.
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