Macroeconomics Practice Questions
Course Introduction
Macroeconomics is a branch of economics that focuses on the behavior, performance, and structure of entire economies at a national or global scale. This course explores key concepts such as economic growth, inflation, unemployment, monetary and fiscal policy, and the role of government intervention. Students will learn to analyze aggregate economic indicators, understand economic cycles, and evaluate how policy decisions impact overall economic stability and growth. Through theoretical models and real-world applications, the course equips students with tools to interpret and critically assess macroeconomic issues facing countries and the global economy.
Recommended Textbook
Macroeconomics 5th Edition by Stephen
D. Williamson
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18 Chapters
966 Verified Questions
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) In the 2008-09 recession,the government deficit
A) stayed roughly constant.
B) decreased.
C) increased.
D) would have increased if the government had intervened.
Answer: C
Q2) The real interest rate is A) always positive.
B) always negative.
C) variable.
D) zero.
Answer: C
Q3) Between 1947 and 2011,
A) Exports decreased and imports decreased.
B) Exports and imports increased.
C) The current account surplus rose.
D) The current account deficit fell.
Answer: B
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Chapter 2: Measurement
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Sample Questions
Q1) We know the following about a tie manufacturer: tie sales $1,300,cotton purchases $750,wages $400,interest on business loans $100,and profits $50. What is the contribution to GDP of this producer using the income approach?
A) $550
B) $500
C) $450
D) $400
Answer: A
Q2) Suppose that GDP is equal to 1000,national saving is equal to 200,the current account deficit is equal to 100,and the government budget deficit is equal to 50. Investment must equal
A) 150.
B) 200.
C) 250.
D) 300.
Answer: D
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Chapter 3: Business Cycle Measurement
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Sample Questions
Q1) The property that macroeconomic variables fluctuate together in patterns that exhibit strong regularities is called
A) coincidence.
B) co-movement.
C) correlation.
D) coexistence.
Answer: B
Q2) An example of a leading variable in the US is
A) GDP.
B) investment is structures.
C) the consumer price index.
D) housing starts.
Answer: D
Q3) Employment tends to be
A) procyclical and less variable than real GDP.
B) procyclical and more variable than real GDP.
C) countercyclical and less variable than real GDP.
D) countercyclical and more variable than real GDP.
Answer: A
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Page 5
Chapter 4: Consumer and Firm Behavior: The Work-Leisure
Decision and Profit Maximization
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Sample Questions
Q1) An increase in taxes has the following impact on the budget constraint
A) a parallel move down.
B) a parallel move up.
C) a tilting to the left.
D) a tilting to the right.
Q2) Which of the following is false?
A) a lump-sum tax does not depend on any action taken by a consumer.
B) in practice, no taxes are lump-sum.
C) lump-sum taxes are realistic.
D) all taxes have distorting effects on the behavior of economic agents.
Q3) The substitution effect measures
A) the responses of quantities to changes in the relative prices of goods.
B) the responses of relative prices to changes in the demand for goods.
C) how two goods can be used for the same purpose.
D) the responses of quantities to changes in the relative qualities of goods.
Q4) The consumer wants to work because he/she
A) is told to work.
B) likes to work.
C) likes leisure.
D) wants the income.
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Chapter 5: A Closed-Economy One-Period Macroeconomic Model
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Sample Questions
Q1) An increase in government spending
A) increases consumption, increases hours worked, and increases the real wage.
B) reduces consumption, increases hours worked, and increases the real wage.
C) reduces consumption, increases hours worked, and reduces the real wage.
D) reduces consumption, reduces hours worked, and reduces the real wage.
Q2) In the one-period competitive model we have been studying
A) both consumption and total factor productivity are exogenous.
B) consumption is exogenous and total factor productivity is endogenous.
C) consumption is endogenous and total factor productivity is exogenous.
D) both consumption and total factor productivity are endogenous.
Q3) If GDP increases in the model of public goods
A) people are richer, so they need less public goods.
B) there is substitution from private goods to public goods.
C) if the government provides public goods optimally, public and private goods production both increase.
D) all of the increase in GDP goes into public goods.
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Chapter 6: Search and Unemployment
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Sample Questions
Q1) In the DMP model
A) the firm threatens the worker with separation and takes all the surplus from the match.
B) the firm's surplus from a match is equal to a constant fraction of total surplus.
C) the firm earns zero profits in a match.
D) when a match occurs, the firm is indifferent between continuing with the match and letting the worker go.
Q2) In the DMP model,a decrease in the unemployment insurance benefit
A) increases the unemployment rate.
B) reduces labor market tightness.
C) reduces the unemployment rate.
D) reduces the vacancy rate.
Q3) The unemployment rate is
A) countercyclical
B) procyclical
C) a leading variable
D) smooth
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Chapter 7: Economic Growth: Malthus and Solow
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Sample Questions
Q1) In Solow's exogenous growth model,the principal obstacle to continuous growth in output per capita is due to
A) the declining marginal product of labor.
B) the declining marginal product of capital.
C) limits in the ability of government policymakers.
D) too little savings.
Q2) In the Malthusian model,population growth is endogenous because
A) the birth rate is endogenous.
B) the death rate is endogenous.
C) the birth and death rates are endogenous.
D) neither is endogenous.
Q3) In the Solow growth model,the law of motion of capital takes into account
A) the residential nature of houses.
B) the mobility of capital.
C) the depreciation of old capital.
D) the cost of shipping and installing capital.
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Chapter 8: Income Disparity Among Countries and Endogenous Growth
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Sample Questions
Q1) When countries converge,
A) they all grow at the same rate.
B) poorer ones grow faster.
C) richer ones grow faster.
D) richer ones do not grow.
Q2) A key characteristic of the production function in the endogenous growth model presented in the text is that
A) there are increasing returns to scale in human capital.
B) there are decreasing returns to scale in human capital.
C) there are constant returns to scale in human capital.
D) at low levels of human capital, there are increasing returns to scale in human capital, while at high levels of human capital, there are decreasing returns to scale in human capital.
Q3) What characteristic do both human and physical capital share?
A) Both are controlled by the government.
B) Current costs are incurred for future benefits.
C) The use of both exhibits rivalry.
D) They can easily be transferred to new ownership.
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Chapter 9: A Two-Period Model: The Consumption-Savings
Decision and Credit Markets
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Sample Questions
Q1) Why don't consumers work in the two-period model?
A) It's a convenient simplification.
B) It would make no difference to the model if consumers could work.
C) People who participate in real-world credit markets do not work.
D) We don't know how to include workers in the model.
Q2) In a two-period model,government spending is financed through A) taxes and transfer payments.
B) taxes and issuing debt.
C) taxes and redeeming debt.
D) taxes only.
Q3) We collapse the consumer's current-period and future-period budget constraints into a single lifetime budget constraint by A) assuming no default.
B) substituting for savings.
C) eliminating consumption smoothing.
D) assuming the consumer knows the future.
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11
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Sample Questions
Q1) In the two-period model with asymmetric information,a one-unit increase in the real rate of interest on bank deposits
A) causes the real loan interest rate to increase by more than one unit.
B) causes the real loan interest rate to increase by less than one unit.
C) cause the real loan interest rate to decrease by less than one unit.
D) causes the real loan interest rate to decrease by more than one unit.
Q2) Limited commitment means
A) one cannot credibly promise something.
B) one saves only part of what is optimal.
C) only some households are allowed to save.
D) there is rationing on the credit market.
Q3) If the proportion of bad borrowers increases,
A) the lending interest rate increases.
B) the lending interest rate decreases.
C) the borrowing interest rate increases.
D) the borrowing interest rate decreases.
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Page 12
Chapter 11: A Real Intertemporal Model with Investment
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Sample Questions
Q1) In the real intertemporal model,if future total factor productivity increases,this captures the effects of
A) intemporal substitution.
B) Ricardian equivalence.
C) the government expenditure multiplier.
D) news shocks.
Q2) In the real intertemporal model with investment
A) we abstract from labor/leisure choice.
B) consumers always save a constant fraction of their income.
C) there are many different consumers.
D) consumers make choices over current consumption and leisure, and future consumption and leisure.
Q3) The intertemporal substitution of leisure effect is used to justify the assumption that current labor supply increases when the A) current real wage increases.
B) current real wage decreases.
C) real interest rate increases.
D) real interest rate decreases.
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13
Chapter 12: Money, Banking, Prices, and Monetary Policy
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Sample Questions
Q1) In a model with money neutrality,a 10% increase in the money supply leads to an increase of prices by
A) more than 10%.
B) 10%.
C) less than 10%, but more than zero.
D) zero.
Q2) With money supply shocks in the intertemporal model with money,the price level is A) procyclical.
B) acyclical.
C) countercyclical.
D) somewhat cyclical.
Q3) To determine the real interest rate in the data,one should take the interest rate on government debt
A) and leave it at that.
B) and add the inflation rate.
C) and subtract the inflation rate.
D) and divide by the inflation rate.
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Chapter 13: Business Cycle Models with Flexible Prices and Wages
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Sample Questions
Q1) One potential weakness of the coordination failure model as an explanation of business cycles is that
A) evidence supporting intertemporal substitution as an important determinant of labor supply is weak.
B) evidence supporting the existence of increasing returns at the aggregate level is weak.
C) it fails to explain several of the key business cycle regularities.
D) it requires that consumers not behave in a rational manner.
Q2) In the real business cycle model,a persistent increase in total factor productivity
A) increases the real wage and increases the price level.
B) increases the real wage and decreases the price level.
C) decreases the real wage and increases the price level.
D) decreases the real wage and decreases the price level.
Q3) Real business cycle theory was introduced by
A) Milton Friedman and Robert Lucas.
B) Milton Friedman and Anna Schwartz.
C) Thomas Cooley and Gary Hansen.
D) Finn Kydland and Edward Prescott.
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Chapter 14: New Keynesian Economics: Sticky Prices
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Sample Questions
Q1) A price may be sticky because A) of monetary policy.
B) of menu costs.
C) of total factor productivity shocks.
D) of the monetary illusion.
Q2) Under a liquidity trap in the New Keynesian model, A) prices cannot be sticky.
B) monetary policy is ineffective.
C) the economy is always efficient.
D) fiscal policy is ineffective.
Q3) Active stabilization policy can be rationalized in the New Keynesian model because A) it makes it possible to obtain zero inflation.
B) the government knows best.
C) it counteracts the influence of unions.
D) it allows a faster return to economic efficiency.
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16
Chapter 15: International Trade in Goods and Assets
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Sample Questions
Q1) In a two-period model,holding everything else constant,an increase in government spending
A) unambiguously increases the current account surplus.
B) unambiguously decreases the current account surplus.
C) has an uncertain effect on the current account surplus.
D) has no effect on the current account surplus.
Q2) In a two-period model with default,if the market interest rate is low,then
A) default is more likely
B) there is no effect on the nation's default decision.
C) default is less likely.
D) the income effect is larger than the substitution effect.
Q3) In a two-period model,holding everything else constant,an increase in current-period income
A) unambiguously increases the current account surplus.
B) unambiguously decreases the current account surplus.
C) has an uncertain effect on the current account surplus.
D) has no effect on the current account surplus.
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Chapter 16: Money in the Open Economy
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Sample Questions
Q1) A natural region over which a single currency dominates as a medium of exchange is called
A) sovereign nation.
B) monetary union area.
C) common currency area.
D) currency union.
Q2) The acquisition of a domestic financial asset by a foreign resident is called
A) foreign direct investment.
B) foreign capital investment.
C) a portfolio inflow.
D) a portfolio outflow.
Q3) In the New Keynesian open economy model
A) the nominal exchange rate is always fixed.
B) prices are flexible.
C) net exports depends on the relative price of foreign goods to domestic goods.
D) the nominal exchange rate is always flexible.
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Chapter 17: Money, Inflation, and Banking
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Sample Questions
Q1) The current monetary system in the United States is
A) a mix of fiat money and exchange using transactions deposits at banks.
B) a commodity money system.
C) a gold standard.
D) a commodity-backed fiat money system.
Q2) The causal link between money growth and inflation is most closely associated with A) Jevons.
B) Kiyotaki and Wright.
C) Friedman and Schwartz.
D) Diamond and Dybvig.
Q3) In the contemporary U.S. economy,the best example of fiat money would be
A) coins issued by the U.S. Treasury.
B) deposits at all depository institutions.
C) deposits at commercial banks, but not deposits at other depository institutions.
D) Federal Reserve Notes.
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19
Chapter 18: Inflation, the Phillips Curve, and Central Bank Commitment
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Sample Questions
Q1) A Phillips curve is
A) the correlation between money growth and the inflation rate.
B) the negative correlation between the unemployment rate and the vacancy rate.
C) the positive observed correlation between the inflation rate and the nominal interest rate.
D) an observed positive correlation between the inflation rate and some measure of aggregate economic activity.
Q2) The original work on the application of the time inconsistency problem in macroeconomics is due to
A) Milton Friedman and Robert Lucas.
B) Michael Hutchinson and Carl Walsh.
C) Finn Kydland and Edward Prescott.
D) Robert Barro and Donald Gordon.
Q3) The Phillips curve shifts because
A) fiscal policy changes over time.
B) of total factor productivity shocks.
C) of economic development.
D) none of the above.
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