Macroeconomics
Mock Exam
Course Introduction
Macroeconomics is the branch of economics that studies the behavior, performance, and structure of entire economies rather than individual markets. This course introduces fundamental concepts such as gross domestic product (GDP), inflation, unemployment, fiscal policy, monetary policy, and international trade. Students will explore how different economic indicators are measured and interpreted, how government and central banking interventions can influence the business cycle, and the factors that drive long-term economic growth. By examining economic models and real-world case studies, students will develop a deeper understanding of how policies and external shocks impact national and global economies.
Recommended Textbook Essentials of Economics 6th Edition by N.
Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it,the regulations come at the cost of reducing the incomes of the regulated firms' owners,workers,and customers.This statement illustrates the principle that
A) trade can make everyone better off.
B) rational people think at the margin.
C) people face tradeoffs.
D) people respond to incentives.
Answer: C
Q2) Senator Brown wants to increase taxes on people with high incomes and use the money to help the poor.Senator Johnson argues that such a tax will discourage successful people from working and will therefore make society worse off.An economist would say that
A) we should agree with Senator Brown.
B) we should agree with Senator Johnson.
C) a good decision requires that we recognize both viewpoints.
D) there are no tradeoffs between equity and efficiency.
Answer: C
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Chapter 2: Thinking Like an Economist
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Q1) Some,but not all,government economists are employed within the administrative branch of government.Which of the following government agencies employs economists outside of the administrative branch?
A) the Department of Labor
B) the Department of the Treasury
C) the Congressional Budget Office
D) the Council of Economic Advisers
Answer: C
Q2) The Council of Economic Advisers' Economic Report of the President discusses recent developments in the economy and presents the council's analysis of current policy issues.
A)True
B)False
Answer: True
Q3) When economists are trying to explain the world,they are A) scientists.
B) policy advisers.
C) in the realm of microeconomics rather than macroeconomics.
D) in the realm of normative economics rather than positive economics.
Answer: A
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Chapter 3: Interdependence and the Gains From Trade
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Q1) Refer to Table 3-5.The opportunity cost of 1 unit of cheese for Spain is
A) 1/2 unit of bread.
B) 2 hours of labor.
C) 2 units of bread.
D) 4 hours of labor.
Answer: A
Q2) Refer to Figure 3-7.If Bintu and Juba switch from each person dividing her time equally between the production of cups and bowls to each person spending all of her time producing the good in which she has a comparative advantage,then total production will increase by
A) 1 bowl and 1 cup.
B) 2 bowls and 4 cups.
C) 3 bowls and 5 cups.
D) 4 bowls and 8 cups.
Answer: A
Q3) International trade can make some individuals within a country worse off,even as it makes the country as a whole better off.
A)True
B)False
Answer: True
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Chapter 4: The Market Forces of Supply and Demand
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Q1) The quantity demanded of a good is the amount that buyers are A) willing to purchase.
B) willing and able to purchase.
C) willing,able,and need to purchase.
D) able to purchase.
Q2) Refer to Figure 4-9.The movement from point A to point B on the graph is caused by A) a decrease in the price of the good.
B) an increase in the price of the good.
C) an advance in production technology.
D) a decrease in input prices.
Q3) Refer to Table 4-1.If the market consists of Michelle,Laura,and Hillary and the price falls by $1,the quantity demanded in the market increases by A) 2 units.
B) 3 units.
C) 4 units.
D) 5 units.
Q4) Most markets in the economy are highly competitive.
A)True
B)False
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Chapter 5: Elasticity and Its Application
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Q1) An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system.
A)True
B)False
Q2) The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price.If the owner is only interested in increasing revenue,she should
A) lower the price of the cinnamon rolls.
B) leave the price of the cinnamon rolls unchanged.
C) raise the price of the cinnamon rolls.
D) reduce costs.
Q3) Total revenue
A) always increases as price increases.
B) increases as price increases,as long as demand is elastic.
C) decreases as price increases,as long as demand is inelastic.
D) remains unchanged as price increases when demand is unit elastic.
Q4) When demand is inelastic,a decrease in price increases total revenue.
A)True B)False
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Chapter 6: Supply,demand,and Government Policies
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Q1) Refer to Figure 6-16.Suppose a tax of $5 per unit is imposed on this market.How much will buyers pay per unit after the tax is imposed?
A) $5
B) between $5 and $10
C) between $10 and $14
D) $14
Q2) Lawmakers can decide whether the buyers or the sellers must send a tax to the government,but they cannot legislate the true burden of a tax.
A)True
B)False
Q3) The minimum wage has its greatest impact on the market for A) female labor.
B) older labor.
C) black labor.
D) teenage labor.
Q4) When a tax is imposed on a good,the result is always a shortage of the good.
A)True
B)False
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Q1) Refer to Table 7-9.You wish to purchase 10 piano lessons for yourself and for your brother,so you take bids from each of the sellers.You will take lessons at the same time,so one teacher cannot provide lessons to both of you.You must pay the same price for both sets of lessons,and you will not accept a bid below a seller's cost because you are concerned that the seller will not provide all 10 lessons.What bid will you accept?
A) $351
B) $349
C) $201
D) $199
Q2) Refer to Figure 7-20.If 6 units of the good are produced and sold,then
A) consumer surplus is maximized.
B) producer surplus is maximized.
C) the sum of consumer surplus and producer surplus is maximized.
D) the marginal value to buyers exceeds the marginal cost to sellers.
Q3) Consumer surplus equals the
A) value to buyers minus the amount paid by buyers.
B) value to buyers minus the cost to sellers.
C) amount received by sellers minus the cost to sellers.
D) amount received by sellers minus the amount paid by buyers.
Page 9
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Chapter 8: Application: the Costs of Taxation
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Q1) Refer to Figure 8-6.The tax results in a deadweight loss that amounts to
A) $600.
B) $900.
C) $1,500.
D) $1,800.
Q2) When a good is taxed,the burden of the tax
A) falls more heavily on the side of the market that is more elastic.
B) falls more heavily on the side of the market that is more inelastic.
C) falls more heavily on the side of the market that is closer to unit elastic.
D) is distributed independently of relative elasticities of supply and demand.
Q3) Andre walks Julia's dog once a day for $50 per week.Julia values this service at $60 per week,while the opportunity cost of Andre's time is $30 per week.The government places a tax of $35 per week on dog walkers.After the tax,what is the total surplus?
A) $50
B) $30
C) $25
D) $0
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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Q1) When a certain nation abandoned a policy of prohibiting international trade in automobiles in favor of a free-tree policy,the result was that the country began to import automobiles.The change in policy improved the well-being of that nation in the sense that
A) both producers of automobiles and consumers of automobiles in that nation became better off as a result.
B) the gains to automobile producers in that nation exceeded the losses of the automobile consumers in that nation.
C) the gains to automobile consumers in that nation exceeded the losses of the automobile producers in that nation.
D) even though total surplus in that nation decreased,it was still true that consumer surplus and producer surplus increased.
Q2) Since World War II,GATT has been responsible for reducing the average tariff among member countries from about
A) 40 percent to about 5 percent.
B) 40 percent to about 20 percent.
C) 80 percent to about 20 percent.
D) 20 percent to about 10 percent.
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Chapter 10: Externalities
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Q1) Tradable pollution permits
A) have prices that are set by the government.
B) will be more valuable to firms that can reduce pollution only at high costs.
C) are likely to create a higher level of total pollution.
D) are less desirable than corrective taxes in reducing pollution.
Q2) Government can be used to solve externality problems that are too costly for private parties to solve.
A)True
B)False
Q3) Dioxin emission that results from the production of paper is a good example of a negative externality because
A) self-interested paper firms are generally unaware of environmental regulations.
B) there are fines for producing too much dioxin.
C) self-interested paper producers will not consider the full cost of the dioxin pollution they create.
D) toxic emissions are the best example of an externality.
Q4) Using a supply and demand diagram,demonstrate how a positive externality leads to market inefficiency.How might the government help to eliminate this inefficiency?
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Chapter 11: Public Goods and Common Resources
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Q1) A free rider is a person who
A) will only purchase a product on sale.
B) receives the benefit of a good but avoids paying for it.
C) can produce a good at no cost.
D) rides public transit regularly.
Q2) When property rights are not well established,
A) private goods become public goods.
B) markets fail to allocate resources efficiently.
C) the distribution of private goods is unfair.
D) government resources are used inefficiently.
Q3) Which of the following is not a way for the government to solve the problem of excessive use of common resources?
A) regulation
B) taxes
C) turning the common resource into a public good
D) turning the common resource into a private good
Q4) Concerts in arenas are not excludable because it is virtually impossible to prevent someone from seeing the show.
A)True
B)False
Page 13
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Chapter 12: The Costs of Production
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Q1) Eldin is a house painter.He can paint three houses per week.He is considering hiring his friend Murphy.Murphy can paint five houses per week.What is the maximum total output possible if Eldin hires Murphy?
A) 2 houses
B) 3 houses
C) 5 houses
D) 8 houses
Q2) Average total cost (ATC)is calculated as follows:
A) ATC = (change in total cost)/(change in quantity of output).
B) ATC = (change in total cost)/(change in quantity of input).
C) ATC = (total cost)/(quantity of output).
D) ATC = (total cost)/(quantity of input).
Q3) Daphne sells 300 glasses of lemonade at $0.50 each.Her total costs are $125.Her profits are
A) $25.
B) $124.50.
C) $125.
D) $150.
Q4) What are opportunity costs? How do explicit and implicit costs relate to opportunity costs?
Page 14
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Chapter 13: Firms in Competitive Markets
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Q1) Refer to Figure 13-14.Assume that the market starts in equilibrium at point A in panel (b)and that panel (a)illustrates the cost curves facing individual firms.Suppose that demand increases from D0 to D1.Which of the following statements is correct?
A) Points A,B,and C represent both short-run and long-run equilibria.
B) Points A,B,C,and D represent short-run equilibria.
C) Points A and B represent long-run equilibria.
D) Points A and C represent long-run equilibria.
Q2) Refer to Table 13-10.The marginal cost of producing the 4th unit is
A) $7.
B) $8.
C) $10.
D) $23.
Q3) The manager of a firm operating in a competitive market can ignore sunk costs when making business decisions.
A)True
B)False
Q4) Give two reasons why the long-run industry supply curve may slope upward.Use an example to demonstrate your reasons.
Q5) List and describe the characteristics of a perfectly competitive market.
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Chapter 14: Monopoly
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Q1) Refer to Table 14-7.What is total profit at the profit-maximizing quantity?
A) $100
B) $245
C) $265
D) $395
Q2) When a firm's average total cost curve continually declines,the firm is a
A) government-created monopoly.
B) natural monopoly.
C) revenue monopoly.
D) All of the above are correct.
Q3) Which of the following statements is correct?
A) Firms with some degree of monopoly power are common,but firms with substantial monopoly power are rare.
B) Firms with some degree of monopoly power are rare,as are firms with substantial monopoly power.
C) Firms with some degree of monopoly power are common,as are firms with substantial monopoly power.
D) Firms with some degree of monopoly power are rare,but firms with substantial monopoly power are common.
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Chapter 15: Measuring a Nations Income
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Q1) Which of the following items is included in U.S.GDP?
A) goods produced by foreign citizens working in the United States
B) the difference in the price of the sale of an existing home and its original purchase price
C) known illegal activities
D) None of the above is included in U.S.GDP.
Q2) Household spending on education is included in
A) consumption,although it might be argued that it would fit better in investment.
B) investment,although it might be argued that it would fit better in consumption.
C) government spending,based on the fact that most higher-education students attend publicly-supported colleges and universities.
D) None of the above is correct; in general,household spending on services is not included in any component of GDP.
Q3) Since it is counted as investment,why doesn't the purchase of earthmoving equipment from China by a U.S.corporation increase U.S.GDP?
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Chapter 16: Measuring the Cost of Living
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Q1) The real interest rate is the interest rate corrected for inflation. A)True
B)False
Q2) Refer to Table 16-2.If 2008 is the base year,then the inflation rate in 2009 was A) 26.5 percent.
B) 36.1 percent.
C) 39 percent.
D) 47 percent.
Q3) Refer to Table 16-1.The cost of the basket in 2005 was A) $200.
B) $210.
C) $240.
D) $245.
Q4) Refer to Table 16-11.Suppose the consumer price index for 2010 is not necessarily 233.2.If the nominal interest rate for 2010 is 7.3 percent ,then the consumer price index for 2010 is,in fact, A) 210.00.
B) 216.06.
C) 220.48. D) 226.26.
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Chapter 17: Production and Growth
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Q1) Inventors often obtain patents on new products and processes,thereby turning new ideas into
A) private goods and increasing the incentive to engage in research.
B) private goods but decreasing the incentive to engage in research.
C) public goods and increasing the incentive to engage in research.
D) public goods but decreasing the incentive to engage in research.
Q2) Over the period 1900-2008,Brazil's rate of economic growth exceeded that of China.
A)True
B)False
Q3) If an economy with constant returns to scale were to double its physical capital stock,its available natural resources,and its human capital,but leave the size of the labor force the same,
A) its output would stay the same and so would its productivity.
B) its output and productivity would increase,but less than double.
C) its output and productivity would increase by more than double.
D) None of the above is correct.
Q4) An increase in a country's saving rate permanently raises its productivity.
A)True B)False
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Chapter 18: Saving,investment,and the Financial System
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Q1) The economy's two most important financial markets are
A) the investment market and the saving market.
B) the bond market and the stock market.
C) banks and the stock market.
D) financial markets and financial institutions.
Q2) A government reduces its budget deficit,but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default.Which of the following is correct.
A) The reduced budget deficit will raise interest rates in general.The increased risk of default will raise interest rates on government bonds.
B) The reduced budget deficit will raise interest rates in general.The increased risk of default will reduce interest rates on government bonds.
C) The reduced budget deficit will reduce interest rates in general.The increased risk of default will raise interest rates on government bonds.
D) The reduced budget deficit will reduce interest rates in general.The increased risk of default will reduce interest rates on government bonds.
Q3) What are the basic differences between bonds and stocks?
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Chapter 19: The Basic Tools of Finance
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Q1) Of the following interest rates,which is the highest one at which the present value of $200 ten years from today is greater than $150?
A) 2 percent
B) 4 percent
C) 6 percent
D) 8 percent
Q2) On May 25,1980 three pals graduated from high school,pooled together $3,000 and put the money into an account promising to pay 8% for the next 30 years.On May 25,2010 they withdrew all the money from the account.To the nearest dollar,how much did they withdraw?
A) $25,962
B) $27,297
C) $30,188
D) None of the above are correct to the nearest dollar.
Q3) What is the present value of a payment of $100 to be made one year from today?
A) $100*(1 + r)
B) $100/(1 + r)
C) $100 - $100r
D) $100 - (1 + r)/$100
Q4) List three different ways that a risk-averse person can reduce financial risk.
Page 21
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Chapter 20: Unemployment
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Q1) Most economists agree that eliminating unemployment insurance would increase the nation's overall level of well-being.
A)True
B)False
Q2) Measuring unemployment is the job of the Bureau of Labor Statistics.
A)True
B)False
Q3) Which of the following is not correct?
A) Unions are exempt from U.S.antitrust laws.
B) The Wagner Act of 1935 prevents U.S.employers from interfering when workers try to organize unions.
C) The National Labor Relations Board is the U.S.government agency that enforces workers' right to unionize.
D) Right-to-work laws prevent firms from hiring permanent replacements for workers who are on strike.
Q4) Public policy can reduce frictional unemployment.
A)True
B)False
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Chapter 21: The Monetary System
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Q1) Suppose the banking system currently has $300 billion in reserves; the reserve requirement is 10 percent; and excess reserves amount to $3 billion.What is the level of deposits?
A) $3,300 billion
B) $2,970 billion
C) $2,700 billion
D) $2,673 billion
Q2) If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 10 percent,this action by itself initially makes the money supply
A) and wealth increase by $100.
B) and wealth decrease by $100.
C) increase by $100 while wealth does not change.
D) decrease by $100 while wealth decreases by $100.
Q3) If the reserve requirement is 5 percent,a bank desires to hold no excess reserves,and it receives a new deposit of $400,it
A) must increase required reserves by $20.
B) will initially see reserves increase by $400.
C) will be able to use this deposit to make new loans amounting to $380.
D) All of the above are correct.
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Chapter 22: Money Growth and Inflation
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Q1) Deflation
A) increases incomes and enhances the ability of debtors to pay off their debts.
B) increases incomes and reduces the ability of debtors to pay off their debts.
C) decreases incomes and enhances the ability of debtors to pay off their debts.
D) decreases incomes and reduces the ability of debtors to pay off their debts.
Q2) Suppose the nominal interest rate is 10 percent,the tax rate on interest income is 28 percent,and the inflation rate is 6 percent.Then the after-tax real interest rate is -3.2 percent.
A)True
B)False
Q3) When the money market is drawn with the value of money on the vertical axis,as the price level decreases the quantity of money
A) demanded increases.
B) demanded decreases.
C) supplied increases.
D) supplied decreases.
Q4) In United States history there were long periods when most prices fell.
A)True
B)False
Q5) Why did farmers in the late 1800s dislike deflation?
Page 24
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Chapter 23: Aggregate Demand and Aggregate Supply
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Q1) Most economists use the aggregate demand and aggregate supply model primarily to analyze
A) short-run fluctuations in the economy.
B) the effects of macroeconomic policy on the prices of individual goods.
C) the long-run effects of international trade policies.
D) productivity and economic growth.
Q2) Changes in the price level affect which components of aggregate demand?
A) only consumption and investment
B) only consumption and net exports
C) only investment
D) consumption,investment,and net exports
Q3) Stagflation exists when prices
A) and output rise.
B) rise and output falls.
C) fall and output rises.
D) and output fall.
Q4) The recession of 2008-2009 was associated with a fall in housing prices which shifted aggregate demand to the left.
A)True
B)False
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Chapter 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) In the short run,an increase in the money supply causes interest rates to
A) increase,and aggregate demand to shift right.
B) increase,and aggregate demand to shift left.
C) decrease,and aggregate demand to shift right.
D) decrease,and aggregate demand to shift left.
Q2) The Employment Act of 1946 states that
A) the Fed should use monetary policy only to control the rate of inflation.
B) the government should promote full employment and production.
C) the government should periodically increase the minimum wage and unemployment insurance benefits.
D) All of the above are correct.
Q3) According to liquidity preference theory,the money-supply curve is
A) upward sloping.
B) downward sloping.
C) vertical.
D) horizontal.
Q4) Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.
Q6) What is the difference between monetary policy and fiscal policy? Page 26
Q5) Explain how unemployment insurance acts as an automatic stabilizer.
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