Macroeconomics for Business Practice Exam
Course Introduction
Macroeconomics for Business offers an in-depth examination of the key macroeconomic principles and their practical implications for businesses. Students will explore topics such as national income determination, inflation, unemployment, fiscal and monetary policy, and international trade, with a focus on how these forces influence business decisions and operations. The course emphasizes understanding economic indicators, economic forecasting, and the impact of governmental policies on the business environment, equipping students with the tools to analyze and respond to changes in the broader economy. Case studies and real-world data are integrated throughout to connect theory to contemporary business challenges.
Recommended Textbook
The Macro Economy Today 13th Edition by Bradley Schiller Cynthia Hill
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Page 2
Chapter 1: Economics: The Core Issues
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Sample Questions
Q1) Which of the following has occurred when government directives do not produce better economic outcomes?
A)Government failure.
B)Market failure.
C)Macroeconomic failure.
D)Scarcity.
Answer: A
Q2) To calculate the slope of a line,find the vertical distance between two points and divide it by the horizontal distance between the same two points. This is the same as rise over run,or change in y divided by change in x.
A)True
B)False
Answer: True
Q3) How does the market mechanism answer the WHAT,HOW,and FOR WHOM questions?
Answer: The market mechanism answers the WHAT question through the indirect interactions of producers and consumers.Market prices and sales signal the desired output.Producers desire to maximize profits and look for the least-cost method of production.This answers the HOW question.The market distributes output to the highest bidder and in doing so answers the FOR WHOM question.
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Page 3
Chapter 2: The Us Economy: A Global View
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Q1) Those who are interested in assessing the relative standard of living of different countries over a given time period are most likely to look at A)GDP.
B)Percentage change in GDP.
C)Population.
D)Per capita GDP.
Answer: D
Q2) According to economists,which of the following is NOT a factor of production?
A)Land.
B)Labor.
C)Money.
D)Entrepreneurship.
Answer: C
Q3) Which of the following statements is true concerning income inequality?
A)Income is equally distributed in poor countries.
B)Developed countries have greater income inequality than developing countries.
C)The government has no way to alter income inequality.
D)The free market produces an unequal distribution of income.
Answer: D
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Page 4
Chapter 3: Supply and Demand
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Sample Questions
Q1) Ceteris paribus,which of the following would generally cause an increase in the demand curve for new automobiles?
A)A decrease in the price of new automobiles.
B)An increase in consumers' income.
C)The new models being perceived as ugly compared with old models.
D)Consumer expectations that the price of new automobiles will be lower next year.
Answer: B
Q2) Which of the following is purchased in a factor market?
A)A bag of jellybeans.
B)National defense.
C)The labor of a state university professor.
D)A motorized scooter used for commuting by a student.
Answer: C
Q3) A decrease in the price of electricity can best be explained by
A)A decrease in the population.
B)Abnormally cold winters and hot summers.
C)The increased use of electronic devices such as computers.
D)A growing economy.
Answer: A
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Chapter 4: The Role of Government
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Q1) Local governments provide law enforcement,which benefits society,but if the costs of law enforcement exceed the benefits,the result is a situation of
A)Market failure.
B)Efficiency as long as there is some benefit.
C)Government failure.
D)Public choice theory.
Q2) The central question in determining whether a good is public or private is whether
A)We have the technical capability to exclude nonpayers.
B)We have the political will to exclude nonpayers.
C)Free riding is considered immoral.
D)It is ethical to provide the gooD.The difference between public goods and private goods rests on technical considerations,not political philosophy.
Q3) Which of the following is most likely a private good?
A)Cars.
B)National defense.
C)Sidewalks.
D)The administration of justice.
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6
Chapter 5: National Income Accounting
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Sample Questions
Q1) If a farmer grows a head of cabbage with fertilizer costs of $0.10 and seed costs of $0.15 and sells it to a wholesaler for $0.55,the total value added by the farmer is
A)$0.30.
B)$0.25.
C)$0.55.
D)$0.35.
Q2) GDP is the total market value of all final goods and services produced in a given time period within a nation's borders.
GDP tracks production and is an important barometer of the economy's strength.
A)True
B)False
Q3) DVD players can be added to bicycles to compute the GDP by
A)Multiplying output by price and adding the resulting dollar values.
B)Dividing output by price and adding the resulting dollar values.
C)Multiplying dollar values of output by price and adding the result.
D)Dividing dollar values of output by price and adding the result.
Q4) What is the difference between GDP and GNP?
Q5) Are there any measurement problems that occur with the GDP calculation? Explain.
Q6) How are total output and total income related to each other,and why?
Page 7
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Chapter 6: Unemployment
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Q1) Unemployment is defined as
A)The active search and inability of labor force participants to find jobs.
B)The active search and inability of citizens to find jobs that utilize their capabilities.
C)The proportion of the total population that is unemployed.
D)A decrease in the labor force.
Q2) All of the following are true about Okun's Law except
A)It quantifies the relationship between unemployment and the production possibilities curve.
B)It allows a dollar value to be assigned to the cost of unemployment.
C)It indicates that there is a negative 2:1 relationship between output and unemployment.
D)It indicates that GDP is not affected by unemployment.
Q3) Which of the following government policies or programs would be most appropriate to offset cyclical unemployment?
A)Those that stimulate more demand.
B)More job training.
C)Additional job placement services.
D)Additional health services to counter the effects of unemployment.
Q4) How can the outsourcing of jobs cause production possibilities to expand?
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Chapter 7: Inflation
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Sample Questions
Q1) Deflation is a/an ____________ in the average level of prices of goods and services.
A)increase
B)decrease
C)stagnation
D)increase followed by a decrease
Q2) A sudden increase in inflation,ceteris paribus,
A)Raises the real income of lenders relative to borrowers.
B)Raises the CPI and reduces real income.
C)Reduces the nominal income of those who have constant real incomes.
D)Makes everyone worse off.
Q3) When production costs increase and producers raise output prices,the result is
A)The price effect.
B)Unemployment.
C)Cost-push inflation.
D)Demand-pull inflation.
Q4) In order to achieve price stability,inflation must be zero.
As long as inflation is 3 percent or less,price stability has been achieved.
A)True
B)False
Page 9
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Chapter 8: The Business Cycle
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Sample Questions
Q1) The Great Depression did not
A)Follow a period of apparent prosperity.
B)Lead to an unemployment rate that reached 25 percent.
C)Cause President Roosevelt to declare a "bank holiday" in 1933.
D)Lead to a high rate of inflation.
Q2) The aggregate demand curve is downward-sloping because,other things being equal,
A)People buy fewer goods and services at lower average incomes.
B)People buy more goods and services at lower average prices.
C)A higher average price level will induce producers to offer more output than otherwise.
D)People buy more goods and services at higher average prices.
Q3) If wages and prices are flexible,then a recession is best eliminated when prices
A)And wages both rise.
B)And wages both fall.
C)Rise and wages drop.
D)Drop and wages rise.
Q4) Is equilibrium always at an optimal level of output? Explain your answer.
Q5) Why does the slope of the aggregate supply curve change from the short run to the long run?
Page 10
Q6) What are the differences between classical theory and what Keynes believed?
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Chapter 9: Aggregate Demand
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Sample Questions
Q1) An increase in the income-dependent portion of the consumption function would correspond to a
A)Shift of the consumption function upward.
B)Shift of the consumption function downward.
C)Movement along the consumption function to the right.
D)Movement along the consumption function to the left.
Q2) If wealth rises,
A)There will be a movement to the left along the AD curve.
B)There will be a movement to the right along the AD curve.
C)The AD curve will shift to the left.
D)The AD curve will shift to the right.
Q3) A rise in interest rates will cause
A)A decline in investment spending.
B)A rise in investment spending.
C)Investment spending to remain constant.
D)Investment spending to be eliminated from the economy.
Q4) If the economy is in equilibrium,how can a recessionary gap exist,and how will producers respond to this gap?
Q5) What are the two types of consumer spending as identified by Keynes,and what are the determinants of each?
Page 11
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Chapter 10: Self-Adjustment or Instability
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Sample Questions
Q1) Unplanned inventory depletion is a warning sign of A)Impending inflation.
B)A recessionary gap.
C)Cyclical unemployment.
D)Both a recessionary gap and cyclical unemployment.
Q2) Equilibrium GDP could be upset by a change in
A)Investment only.
B)Injections only.
C)Leakages only.
D)Any leakage or injection.
Q3) Desired investment equals
A)Desired changes in business inventories.
B)Purchases of new plants and equipment plus desired changes in business inventories.
C)Desired investment plus undesired investment.
D)Desired changes in business inventories less purchases of new plants and equipment.
Q4) How can an event such as the terrorist attacks of September 2001 affect consumer and business confidence and the economy?
Q5) If consumers increase saving during a recession,what will this do and why?
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) Which of the following is an income transfer?
A)Free medical care made available to the poor by a private physician.
B)Unemployment benefits paid to a factory worker who was laid off.
C)A new highway built by the federal government.
D)A gift of money from a parent to a chilD.Income transfers are payments to individuals for which no current goods or services are exchanged,such as Social Security,welfare,and unemployment benefits.
Q2) In a diagram of aggregate demand and supply curves,the GDP gap is measured as the
A)Horizontal distance between the equilibrium output and the full-employment output.
B)Vertical distance between the equilibrium price and the price at which the aggregate demand would intersect aggregate supply at full employment.
C)Horizontal distance between the aggregate demand necessary to achieve full employment and the aggregate demand curve at equilibrium output.
D)Vertical distance between the equilibrium output and the full-employment output.
Q3) Why is the tax cut multiplier different from the purchases multiplier?
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Chapter 12: Deficits and Debt
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Sample Questions
Q1) Which of the following is an argument against balancing the federal budget?
A)The federal government interferes with the economy too much.
B)An increase in government spending and taxes by the same amount does not affect income.
C)Doing so may prevent the government from pulling the economy out of recession.
D)None of the choices are correct.
Q2) Increased government purchases crowd out private purchases whenever the economy is
A)Experiencing an AD shortfall.
B)On the production possibilities curve.
C)Facing serious cyclical unemployment.
D)Operating below full employment.
Q3) Like deficit ceilings,debt ceilings are political mechanisms for forcing compromises on how best to use budget surpluses or deficits.
Deficit and debt ceilings are mechanisms for forcing Congress to adopt specific fiscal policies.
A)True
B)False
Q4) How do rising interest rates cause crowding out?
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Chapter 13: Money and Banks
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Sample Questions
Q1) Which of the following is true about the quantity of money in the U.S.economy?
A)It is equal to the amount of currency in circulation.
B)It is much greater than the amount of currency in circulation.
C)It is equal to the value of the government's gold reserves.
D)It is equal to the total amount of income.
Q2) Which of the following statements is not correct about the U.S.monetary system?
A)The federal government did not print paper money until the Civil War.
B)Between 1789 and 1865,paper money was issued by hundreds of state-chartered banks.
C)Credit cards are the most common form of money today.
D)Early in U.S.history,the money supply consisted of items such as tobacco and bullets.
Q3) Given a required reserve ratio of 0.25,what is the maximum amount by which the money supply can increase in response to a $200 million increase in excess reserves for the whole banking system?
A)$200 million.
B)$250 million.
C)$500 million.
D)$800 million.
Q4) How does the banking system create money?
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Chapter 14: The Federal Reserve System
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Q1) Which of the following provides evidence that the Federal Reserve System is politically insulated?
A)The Fed governors are appointed by the president of the United States.
B)The Fed governors are appointed for 14-year terms and cannot be reappointed.
C)The Board of Governors is located in Washington,
D)The Fed acts as a clearinghouse between commercial banks.
Q2) When the Fed wishes to increase the reserves of the member banks,it
A)Buys securities.
B)Raises the reserve requirement.
C)Raises the discount rate.
D)Sells securities.
Q3) A change in the discount rate changes the size of the money multiplier. The money multiplier is determined by the required reserve ratio,not the discount rate. A)True
B)False
Q4) Is the Federal Reserve insulated from political pressures in any way? Explain.
Q5) How does the reserve requirement impact the banking system as a monetary policy tool,and is it used frequently?
Q6) Why do banks typically maintain a low level of excess reserves?
Page 16
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Chapter 15: Monetary Policy
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Q1) Lower interest rates redistribute income from
A)Lenders to borrowers.
B)Spenders to savers.
C)Borrowers to lenders.
D)Businesses to banks.
Q2) Which of the following is consistent with the monetarist view?
A)A reduction in taxes will leave the value of real output unaffected.
B)Prices may be affected by increases in G or reductions in T.
C)Changes in M may cause changes in V and Q in the long run.
D)Monetary policy should be used to correct a shortfall in aggregate demanD.This follows the logic of crowding out: lower taxes will lead to lower government spending but ultimately to higher private sector spending.
Q3) Money held for making everyday market purchases represents the A)Crisis demand for money.
B)Speculative demand for money.
C)Transactions demand for money.
D)Precautionary demand for money.
Q4) Why is expansionary monetary policy ineffective in the liquidity trap?
Q5) What is the monetarist prescription for the reducing unemployment,and why?
Q6) Name and explain the three reasons for holding money balances.
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Chapter 16: Supply-Side Policy: Short-Run Options
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Q1) The Phillips curve illustrates the
A)Inverse relationship between the unemployment rate and the inflation rate.
B)Direct relationship between the unemployment rate and the inflation rate.
C)Inverse relationship between the price level and the level of output.
D)Direct relationship between the price level and the level of output.
Q2) Tax incentives that encourage saving,investment,and work will shift the AS curve to the right.
These supply-side policies result in a rightward shift of AS because they lower production costs.
A)True
B)False
Q3) If the absolute value of the tax elasticity of supply is 8,a tax cut of 0.5 percent should cause the output supplied to
A)Increase by 16 percent.
B)Decrease by 16 percent.
C)Increase by 4 percent.
D)Decrease by 4 percent.
Q4) What is the premise behind supply-side economics,and what are the economic outcomes?
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Chapter 17: Growth and Productivity: Long-Run Possibilities
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Q1) Research and development include all of the following except for A)Foreign investment in current machinery.
B)Scientific research.
C)New production techniques.
D)Development of management improvements.
Q2) The process of economic growth is
A)Not affected by previous year's growth.
B)Cumulative,whereby gains made in one year accumulate in future years.
C)Not important to economists.
D)Constantly occurring in the United States.
Q3) Which of the following will accelerate long-run economic growth?
A)Crowding out.
B)Tax credits for new investments.
C)Elimination of government-subsidized college loans.
D)Elimination of infrastructure development.
Q4) The most common measure of productivity is output per A)GDP.
B)Capita.
C)Labor-hour.
D)Human capital.
19
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Chapter 18: Theory Versus Reality
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Q1) Which of the following is not a leading indicator for economic activity?
A)Orders for new equipment.
B)The level of inventories.
C)Natural disasters.
D)Building permits.
Q2) Since World War II,the U.S.economy has met its goals of full employment,price stability,and economic growth every year.
Many economic problems,such as the recession in 2001,have prevented the U.S.economy from achieving these lofty goals.
A)True
B)False
Q3) A supply-side policy to cure a recession might include
A)A decrease in government spending.
B)Elimination of the minimum wage.
C)A tax increase.
D)A decrease in the reserve requirement.
Q4) The structural deficit declines as the economy moves toward full employment. The structural deficit is the deficit when the economy is at full employment.
A)True
B)False
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Chapter 19: International Trade
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Q1) If the United States raises tariffs on foreign goods,it may achieve
A)Higher U.S.exports.
B)Higher efficiency in domestic production.
C)Greater profitability of import-competing firms.
D)Higher production possibilities.
Q2) With regard to international trade,
A)The production possibilities exceed the consumption possibilities.
B)Rich countries benefit at the expense of poor countries.
C)The market mechanism determines the terms of trade.
D)Some countries do not have a comparative advantage in producing anything.
Q3) What should happen to the equilibrium price and quantity in a market as a result of a tariff on imports?
A)Equilibrium price and quantity should both go up.
B)Equilibrium price should go up,and equilibrium quantity should go down.
C)Equilibrium price should go down,and equilibrium quantity should go up.
D)Equilibrium price and quantity should both go down.
Q4) What is the "beggar-thy-neighbor" policy,and why is it a problem for the country that caused it?
Q5) Why would the establishment of protective trade barriers be a poor way of protecting workers in domestic industries?
Page 21
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Chapter 20: International Finance
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Q1) One World View article,"Weak Dollar Helps U.S.Firms," discusses the devaluation of the U.S.dollar.When the value of a currency depreciates,imports become
A)More expensive,causing an increase in demand for domestically produced goods.
B)More expensive,causing a decrease in demand for domestically produced goods.
C)Less expensive,causing a decrease in demand for domestically produced goods.
D)Less expensive,causing an increase in demand for domestically produced goods.
Q2) Ceteris paribus,if interest rates in the United States rise relative to those abroad,then the surplus in the U.S.capital account would
A)Become smaller and the dollar would appreciate.
B)Become smaller and the dollar would depreciate.
C)Grow larger and the dollar would appreciate.
D)Grow larger and the dollar would depreciate.
Q3) When the dollar price of yen increases,Honda automobiles from Japan become cheaper to U.S.residents.
When the dollar price of yen increases,Honda automobiles from Japan become more expensive to U.S.residents because they are priced in yen.
A)True
B)False
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22
Chapter 21: Global Poverty
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Q1) The World Bank defines _______ poverty as an income of less than $2 per day per person.
A)exceptional
B)severe
C)extreme
D)significant
Q2) According to the World View titled "Jeffrey Sachs: Big Money,Big Plans," how does Columbia University economics professor Jeffrey Sachs expect global poverty rates to be reduced by half by 2015?
A)Rich nations must double their foreign aid flows now and then double them again in 10 years,while poor nations must develop full-scale,comprehensive plans for poverty reduction.
B)Rich nations must quadruple their foreign aid flows now,and poor nations need to be more accepting of help.
C)Rich nations must double their foreign aid flows now and develop full-scale,comprehensive plans for the poor countries to reduce poverty.
D)Poor nations must develop full-scale,comprehensive plans for poverty reduction without the help of rich nations.
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