Macroeconomics Practice Questions
Course Introduction
Macroeconomics is a branch of economics that focuses on the behavior and performance of an economy as a whole. This course covers key topics such as national income, economic growth, unemployment, inflation, monetary and fiscal policy, and the role of government in stabilizing the economy. Students will explore how different sectors interact within the broader economic system and analyze the impact of policy decisions on aggregate economic indicators. Through theoretical frameworks and real-world examples, the course equips students with the tools needed to understand contemporary economic issues and make informed judgments about macroeconomic policy.
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Macroeconomics 8th Edition by Andrew Abel
15 Chapters 1417 Verified Questions
1417 Flashcards
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Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) A central bank is an institution that
A)pays for government expenditures.
B)controls a nation's monetary policy.
C)runs a country's stock market.
D)determines a nation's fiscal policy.
Answer: B
Q2) An open economy is a national economy that
A)doesn't interact economically with the rest of the world.
B)has a stock market that is open to traders from anywhere in the world.
C)has extensive trading and financial relationships with other national economies.
D)has established diplomatic relations with most other national economies.
Answer: C
Q3) A country has a trade surplus when A)imports exceed exports.
B)imports equal exports.
C)exports exceed imports.
D)imports equal zero.
Answer: C
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3
Chapter 2: The Measurement and Structure of the National Economy
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Sample Questions
Q1) Which of the following is included in U.S.GDP?
A)The sale of a new car from a manufacturer's inventory
B)The purchase of a watch from a Swiss company
C)The sale of a used car
D)A newly constructed house
Answer: D
Q2) How does chain weighting lead to a different measurement of real GDP than the methods used by the BEA prior to 1996? What are the advantages of chain weighting? What are the disadvantages?
Answer: Prior to 1996,the growth rate of real GDP depended on which year was chosen as the base year.Now,however,the current year and preceding year are used as base years,averaging results using each as base year.The advantages of this method are that there is no longer a need to recompute historical data or to change base years.However,a disadvantage is that real GDP is no longer the sum of its components.
Q3) How are net exports,net factor payments from abroad,and the current account balance related?
Answer: NX + NFP = CA.
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Page 4
Chapter 3: Productivity, Output, and Employment
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Sample Questions
Q1) An increase in the real wage rate will cause
A)the labor demand curve to shift to the right.
B)the labor demand curve to shift to the left.
C)the quantity of labor demanded to rise.
D)a movement along the labor demand curve.
Answer: D
Q2) Because of diminishing marginal productivity
A)the labor supply curve is not vertical.
B)nominal wages are sticky in a downward direction.
C)the labor demand curve is negatively sloped.
D)households save only a small share of their income.
Answer: C
Q3) If Jeff's wage rate rises,he decides to work fewer hours.From this,we can infer that
A)for Jeff,the substitution effect is greater than the income effect.
B)for Jeff,the substitution effect is equal to the income effect.
C)for Jeff,the substitution effect is less than the income effect.
D)Jeff is a nitwit.
Answer: C
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Chapter 4: Consumption, Saving, and Investment
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Sample Questions
Q1) An increase in expected future output while holding today's output constant would
A)increase today's desired consumption and increase desired national saving.
B)increase today's desired consumption and decrease desired national saving.
C)decrease today's desired consumption and increase desired national saving.
D)decrease today's desired consumption and decrease desired national saving.
Q2) If the rate of depreciation increases,then user cost ________ and the desired capital stock ________.
A)falls; falls B)falls; rises C)rises; rises D)rises; falls
Q3) A temporary supply shock,such as a drought,would
A)increase the marginal product of capital and increase desired investment.
B)decrease the marginal product of capital and decrease desired investment.
C)have little or no effect on desired investment.
D)decrease both the marginal product of capital and the marginal product of labor in the long-term future.
Q4) How would the desired capital stock be affected by a decline in the user cost of capital?
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Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) If a French company exports $2 million of machinery to Italy and French tourists spend $2 million at Italian beaches,the French merchandise trade balance ________,and the French capital and financial account balance ________.
A)rises; rises
B)rises; is unchanged
C)is unchanged; is unchanged
D)is unchanged; rises
Q2) Total spending by domestic residents,businesses,and governments is called A)investment.
B)net domestic purchases.
C)absorption.
D)GDP.
Q3) If the United States sells computers to Russia,and uses the proceeds to buy shares of stock in Russian companies,the U.S.trade balance ________ and the U.S.capital and financial account balance ________.
A)rises; rises
B)rises; falls
C)falls; falls
D)falls; rises
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Page 7
Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) The idea that measurement problems could explain the productivity slowdown since 1973 is based on the fact that
A)official output measures make no adjustment for quality.
B)output can't be measured.
C)capital can't be measured.
D)quality improvements aren't fully accounted for in the data.
Q2) Endogenous growth theory attempts to
A)replace the Solow model with a model in which money growth plays a key role.
B)explain how societies can more easily reach the "Golden Rule."
C)show how population growth reduces capital and output.
D)explain why productivity changes.
Q3) The bowed shape of the per-worker production function is caused by
A)wealth effects that reduce labor supply.
B)diminishing marginal productivity of capital.
C)increasing marginal productivity of labor.
D)increasing marginal productivity of capital.
Q4) Describe the main ideas of endogenous growth theory.What does it have to say about the role of government in economic growth?
Q5) What types of government policies can increase long-run living standards?
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Chapter 7: The Asset Market, Money, and Prices
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Sample Questions
Q1) Define asset market equilibrium and state the asset market equilibrium condition.
Q2) Under a situation of asset market equilibrium,
A)the quantity of money supplied equals the quantity of money demanded.
B)the quantity of money supplied equals the quantity of nonmonetary assets demanded.
C)the quantity of nonmonetary assets supplied equals the quantity of monetary assets demanded.
D)the quantity of money supplied equals the quantity of nonmonetary assets supplied.
Q3) Money demand is given by Md/P = 1000 + .2Y - 1000i.
Given that P = 200,Y = 2000,and i = .10,real money demand is equal to A)1,300.
B)1,500.
C)260,000.
D)300,000.
Q4) Give five examples of factors that could reduce the demand for money.
Q5) What are the major components of M1? What are the major components of M2? Describe each component.
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Page 9
Chapter 8: Business Cycles
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Sample Questions
Q1) When plotted with the aggregate price level on the vertical axis and output on the horizontal axis,the long-run aggregate supply curve
A)slopes upward.
B)slopes downward.
C)is vertical.
D)is horizontal.
Q2) The three main components of the aggregate demand-aggregate supply model include
A)AD,SRAS,LM.
B)SRAS,LRAS,IS.
C)AD,IS,LM.
D)AD,SRAS,LRAS.
Q3) A variable that tends to move later than aggregate economic activity is called
A)a leading variable.
B)a coincident variable.
C)a lagging variable.
D)an acyclical variable.
Q4) How has the severity and duration of business cycles changed over time in the United States?
Q5) Define the following characteristics of business cycles: recurrence and persistence.
Page 10
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Chapter 9: The IS-LM/AD-AS Model
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Sample Questions
Q1) An adverse supply shock would cause the FE line to
A)shift to the right.
B)shift to the left.
C)remain unchanged.
D)remain unchanged if the shock is temporary; shift to the right if the shock is permanent.
Q2) What adjusts to restore general equilibrium after a shock to the economy?
A)The LM curve
B)The IS curve
C)The FE line
D)The labor supply curve
Q3) A temporary decrease in government purchases causes the real interest rate to ________ and output to ________ in the short run,before prices adjust to restore equilibrium.
A)rise; rise
B)rise; fall
C)fall; rise
D)fall; fall
Q4) Describe the differences between classical and Keynesian economists in terms of their views about monetary neutrality.
Page 11
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Chapter 10: Classical Business Cycle Analysis
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Sample Questions
Q1) According to classical economists,the government should increase government purchases when
A)the benefits of the spending exceed the costs.
B)the economy is in a recession.
C)the economy is likely to go into a recession in the next six months to a year.
D)inflation is lower than its targeted level.
Q2) Which of the following would not be an example of a productivity shock?
A)The introduction of new management techniques
B)A change in government regulations affecting production
C)A change in the level of government transfer programs
D)A spell of unusually good or unusually bad weather
Q3) The formula Y / (KaN1-a)provides a calculation of
A)x-efficiency.
B)dynamic efficiency.
C)economywide monopoly power.
D)the Solow residual.
Q4) Use the classical (RBC)IS-LM-FE model to show the effects on the economy of a temporary adverse supply shock-for example,an increase in the price of oil.You should show the impact on the real wage,employment,output,the real interest rate,consumption,investment,and the price level.
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Chapter 11: Keynesianism: The Macroeconomics of Wage and Price Rigidity
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Sample Questions
Q1) Describe the situation of the Japanese economy in the 1990s.What should the Japanese government have done differently,according to critics,to improve the economy?
Q2) Keynesians believe that the most important shocks for affecting the business cycle are
A)productivity shocks.
B)aggregate supply shocks.
C)aggregate demand shocks.
D)government spending shocks.
Q3) In the long run in the Keynesian model,a beneficial supply shock would leave the economy with a higher level of output,but also a ________ real interest rate and a ________ price level.
A)higher; lower
B)lower; higher
C)lower; lower
D)higher; higher
Q4) In the Keynesian model,what are the effects (on output,the real interest rate,and the price level)of an adverse productivity (i.e.,aggregate supply)shock?
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Q5) Why might firms pay an efficiency wage rather than a market-clearing wage?
Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) Ball found that the disinflation of the early 1980s in the United States had a sacrifice ratio of about
A)0)
B)1)
C)2)
D)3)
Q2) The main determinant of how quickly expected inflation adjusts to changes in monetary policy is
A)the slope of the Phillips curve.
B)the slope of the short-run aggregate supply curve.
C)the credibility of the central bank.
D)the degree of indexation in the economy.
Q3) The Phillips curve appeared to fit the data well for the United States in the A)1960s.
B)1970s.
C)1980s.
D)1990s.
Q4) Describe the major costs of inflation,being sure to distinguish between anticipated and unanticipated inflation.
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Chapter 13: Exchange Rates,Business Cycles,and
Macroeconomic Policy in the Open Economy
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Sample Questions
Q1) Describe the effects of contractionary fiscal policy by the domestic government on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model.
Q2) A decline in domestic output would cause a ________ in net exports and a ________ in the exchange rate.
A)rise; rise
B)rise; fall
C)fall; rise
D)fall; fall
Q3) Purchasing power parity does not hold in the short to medium run because A)exports don't equal imports.
B)exchange rates fluctuate too much.
C)most business cycles are caused by shocks to aggregate demand.
D)countries produce different goods.
Q4) Identify changes in two variables that would shift the supply curve of dollars to the right.Identify changes in two variables that would shift the demand curve for dollars to the right.
Q5) Describe how the euro was created.What are the benefits of the monetary union? What are the costs?
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Chapter 14: Monetary Policy and the Federal Reserve System
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Sample Questions
Q1) Which of the Fed's instruments is most frequently used?
A)Changing reserve requirements
B)Open-market operations
C)Changing the discount rate
D)Changing margin requirements for the stock market
Q2) Who determines the open-market operations of the Federal Reserve System?
A)Board of Governors
B)FDIC
C)FHLBB
D)FOMC
Q3) Vault cash is equal to $2 million,deposits by depository institutions at the central bank are $1 million,the monetary base is $15 million,and bank deposits are $35 million.Currency held by the nonbank public is
A)$3 million.
B)$12 million.
C)$15 million.
D)$20 million.
Q4) Describe how the real interest rate changes in a Keynesian model if a shock shifts the IS curve down and to the right and the Fed changes its policy to keep output unchanged.
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) The total amount of taxes paid divided by before-tax income is the
A)median taxpayer rate.
B)rate of hysteresis.
C)average tax rate.
D)marginal tax rate.
Q2) A decreased government deficit created by a lump-sum tax increase will increase national saving if
A)the value of government bonds outstanding grows slower than the public's wealth.
B)it causes consumption to fall.
C)the government runs a primary surplus as a result.
D)the real interest rate is less than the growth rate of real GNP.
Q3) From the late 1960s to the late 1990s,the share of GDP devoted to government purchases
A)drifted gradually upward.
B)drifted gradually downward.
C)remained fairly steady.
D)increased,but only after the onset of a war or a military buildup.
Q4) What are the main reasons (give at least three)that Ricardian equivalence might not hold?
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