Macroeconomics
Pre-Test Questions
Course Introduction
Macroeconomics is the branch of economics that examines the behavior, performance, and structure of an economy as a whole. This course explores key topics such as national income, economic growth, unemployment, inflation, fiscal and monetary policy, and the role of government intervention. Students will learn how various macroeconomic indicators are measured and analyzed, and how these indicators influence policy decisions and economic outcomes on a national and global scale. Through theoretical frameworks and real-world case studies, the course aims to provide a comprehensive understanding of the forces shaping the dynamics of modern economies.
Recommended Textbook
Macroeconomics 8th Edition by Andrew Abel
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15 Chapters
1417 Verified Questions
1417 Flashcards
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Page 2
Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) Aggregation is the process of
A)calculating real GDP based on nominal GDP and the price index.
B)summing individual economic variables to obtain economywide totals.
C)forecasting the components of GDP.
D)predicting when recessions will occur.
Answer: B
Q2) Before World War II,the average level of prices in the United States usually
A)fell during wartime and rose during peacetime.
B)fell during wartime and fell during peacetime.
C)rose during wartime and fell during peacetime.
D)rose during wartime and rose during peacetime.
Answer: C
Q3) How did Keynes propose to solve the problem of high unemployment?
A)Increase the growth rate of the money supply.
B)Allow wages to decline,so that firms will want to hire more workers.
C)Put on wage and price controls,so wages won't rise and firms won't have to lay people off to cut costs.
D)Have the government increase its demand for goods and services.
Answer: D
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Page 3
Chapter 2: The Measurement and Structure of the National Economy
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Sample Questions
Q1) Suppose that private saving is $1590 billion,investment is $1945 billion,and the current account balance is -$489 billion.From the uses-of-saving identity,how much is government saving?
A)-$134 billion
B)-$844 billion
C)$844 billion
D)$134 billion
Answer: A
Q2) The value of a household's assets minus the value of its liabilities is called A)wealth.
B)income.
C)debt.
D)stock.
Answer: A
Q3) Capital goods are
A)not counted in GDP as final goods.
B)not used to produce other goods.
C)used up in the same period that they are produced.
D)goods used to produce other goods.
Answer: D
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Chapter 3: Productivity, Output, and Employment
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Sample Questions
Q1) Changes in the capital stock occur ________,and changes in the amount of labor that firms employ occur ________.
A)quickly; quickly
B)slowly; slowly
C)slowly; quickly
D)quickly; slowly
Answer: C
Q2) How many people are unemployed if the employment ratio is 75%,there are 90 million people employed,and there are 20 million people not in the labor force?
A)20 million
B)10 million
C)5 million
D)0 million
Answer: B
Q3) State the growth rate form of Okun's Law and define the variables in the equation. Answer: The growth rate form of Okun's law is ?Y/Y = 3 - 2?u,where ?Y/Y is the growth rate of output,3 is the growth rate of full-employment output,and ?u is the change in the unemployment rate.
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Chapter 4: Consumption, Saving, and Investment
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Sample Questions
Q1) An increase in the expected real interest rate tends to
A)raise desired saving only.
B)raise desired investment only.
C)raise both desired saving and desired investment.
D)raise desired saving,but lower desired investment.
Q2) Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a rate of 25%,when the expected real interest rate is 5%.
A)$150
B)$500
C)$1500
D)$5000
Q3) If the stock market booms and people feel wealthier (in a closed economy),then the real interest rate ________ and investment ________.
A)falls; declines
B)falls; increases
C)rises; increases
D)rises; declines
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) The government of a small open economy announces a tax cut of $100 this year,combined with a tax increase of $110 next year,when the interest rate is 10%.What are the effects of this change on the world real interest rate,national saving,investment,and the current account balance in equilibrium when (a)Ricardian equivalence holds?
(b)Ricardian equivalence does not hold?
Q2) Consider a small open economy in equilibrium with a zero current account balance.What happens to national saving,investment,and the current account balance in equilibrium if
(a)future income rises?
(b)business taxes rise?
(c)government expenditures decline temporarily?
(d)the future marginal product of capital rises?
Q3) A large open economy reduces its investment demand.This causes the world real interest rate to ________ and the country's current account balance to ________.
A)rise; fall
B)rise; rise
C)fall; rise
D)fall; fall
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Page 7
Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) Suppose the current level of output is 5000.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,a 10% increase in capital combined with a 5% increase in labor and a 5% increase in productivity would increase the current level of output to A)5015.
B)5325.
C)5575.
D)6000.
Q2) Steady state consumption per worker is A)larger in the short run than in the long run. B)less than steady state investment per worker. C)less than steady state saving per worker.
D)steady state production per worker minus steady state investment per worker.
Q3) Suppose the current level of output is 5000.A 10% increase in productivity would increase the current level of output to A)5050. B)5100. C)5500. D)6000.
Q4) What types of government policies can increase long-run living standards?
Page 8
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Chapter 7: The Asset Market, Money, and Prices
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Sample Questions
Q1) By spreading her investments out over many different assets,an investor achieves A)a higher expected return.
B)increased risk.
C)diversification.
D)greater liquidity.
Q2) The least liquid asset on this list is A)money. B)bonds. C)houses. D)stocks.
Q3) Which of the following is most likely to lead to a decrease of 10% in the nominal demand for money?
A)An increase in real income of 5%
B)A decrease in real income of 5%
C)A decline of 10% in the price level
D)An increase of 10% in the price level
Q4) Give five examples of factors that could reduce the demand for money.
Q5) Why is per-capita U.S.currency demand so large? Who is holding large amounts of U.S.currency and why are they doing so? Should U.S.policymakers be concerned about this? Why?
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Chapter 8: Business Cycles
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Sample Questions
Q1) According to research by Stock and Watson,the recent decline in volatility in many macroeconomic variables was a
A)sudden drop that occurred around 1984.
B)gradual decline throughout the 1980s.
C)sudden drop that occurred around 1990.
D)gradual decline throughout the 1990s.
Q2) Using the seasonal business cycle as your guide,during which quarter would you be most likely to expect an increase in your corporation's sales?
A)The first quarter of the year (January-March)
B)The second quarter of the year (April-June)
C)The third quarter of the year (July-September)
D)The fourth quarter of the year (October-December)
Q3) One of the first organizations to investigate the business cycle was
A)the Federal Reserve System.
B)the National Bureau of Economic Research.
C)the Council of Economic Advisors.
D)the Brookings Institution.
Q4) Define the following characteristics of business cycles: recurrence and persistence.
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Page 10
Chapter 9: The IS-LM/AD-AS Model
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Sample Questions
Q1) The aggregate demand curve
A)is vertical.
B)slopes upward.
C)is horizontal.
D)slopes downward.
Q2) An increase in money supply 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
Q3) To reach general equilibrium,the price level adjusts to shift the ________ until it intersects with the ________.
A)IS curve; FE line and LM curve
B)FE line; LM and IS curves
C)LM curve; FE line and IS curve
D)ND curve; FE line and NS curve
Q4) Identify changes in three variables that would cause the FE line to shift to the right.
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Chapter 10: Classical Business Cycle Analysis
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Sample Questions
Q1) A classical economy is described by the following equations: Government spending and taxes are equal where T = G = 200.The nominal money supply M = 3560.
(a)What are the equilibrium values of the real interest rate,the price level,consumption,and investment?
(b)Suppose an economic shock increases desired investment by 10,so it is now Id = 360 - 100r.How does this affect the equilibrium values of the real interest rate,the price level,consumption,and investment?
(c)Returning to the initial situation in part (a),suppose an economic shock increases desired consumption by 10,so it is now Cd = 510 + 0.5 (Y - T)- 100r.How does this affect the equilibrium values of the real interest rate,the price level,consumption,and investment?
Q2) According to the misperceptions theory,if the Fed wanted to use monetary policy to influence the real economy it would have to
A)increase the money supply whenever the economy was in a recession.
B)decrease the money supply whenever the economy was in an inflationary boom.
C)surprise the public with unexpected changes in monetary policy.
D)abide by the monetary targets it announced.
Q3) Define real shocks,define nominal shocks,and give an example of each.
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Page 12
Chapter 11: Keynesianism: The Macroeconomics of Wage and Price Rigidity
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Sample Questions
Q1) In the Keynesian model,the difference between no intervention by the government during a recession and intervention using expansionary monetary or fiscal policy is that no intervention will return the economy to its equilibrium level of output
A)faster than intervention will and at a lower price level.
B)slower than intervention will and at a higher price level.
C)slower than intervention will and at a lower price level.
D)faster than intervention will and at a higher price level.
Q2) In the Keynesian model in the short run,an increase in the money supply will cause
A)an increase in output and a decrease in the real interest rate.
B)a decrease in the real interest rate but no change in output.
C)an increase in the real interest rate and an increase in output.
D)no change in either the real interest rate or output.
Q3) Describe the empirical research on the stickiness of prices.Given some doubt on how sticky prices are,why is it nevertheless useful for the Keynesian model to assume that prices are sticky,especially when analyzing monetary policy?
Q4) Do Keynesians and classicals agree on the effectiveness and desirability of macroeconomic stabilization? Briefly explain.
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Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) According to Okun's law,if full-employment output is $5,000 billion,then each percentage point of unemployment sustained for one year reduces output by A)$50 billion.
B)$100 billion.
C)$150 billion.
D)$200 billion.
Q2) The costs in time and effort incurred by people and firms who are trying to minimize their holdings of cash because of inflation are called
A)menu costs.
B)shoe leather costs.
C)transactions costs.
D)imperfect competition costs.
Q3) Countries in which wages adjust rapidly to changes in the supply and demand for labor are likely to have ________ sacrifice ratio.
A)an infinite
B)a high
C)a low
D)a negative
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14
Chapter 13: Exchange Rates,Business Cycles,and
Macroeconomic Policy in the Open Economy
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Sample Questions
Q1) The price of one currency in terms of another is called
A)the exchange rate.
B)purchasing power parity.
C)the terms of trade.
D)a currency band.
Q2) Suppose the Swiss franc rises against the British pound but falls against the Japanese yen.What happens to the prices of goods imported into Switzerland?
A)Both British and Japanese goods fall in price.
B)Both British and Japanese goods rise in price.
C)British goods rise in price while Japanese goods fall in price.
D)British goods fall in price while Japanese goods rise in price.
Q3) Under a system of fixed exchange rates,what happens if a country's currency is undervalued?
A)The central bank loses official reserve assets.
B)The central bank gains official reserve assets.
C)The currency depreciates.
D)The exchange rate falls.
Q4) Describe how the euro was created.What are the benefits of the monetary union? What are the costs?
Page 15
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Chapter 14: Monetary Policy and the Federal Reserve System
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Sample Questions
Q1) High-powered money consists of
A)bank reserves plus currency held by the nonbank public.
B)bank reserves minus vault cash.
C)all deposits at the Fed.
D)deposits at the Fed plus vault cash.
Q2) According to the Taylor rule,if the inflation rate in the last year was 2% and output was equal to its full-employment level,the nominal Fed funds rate should be A)3%.
B)4%.
C)5%.
D)6%.
Q3) In the Keynesian model,suppose the Fed sets a target for the real interest rate.If the IS curve shifts down and to the left,and the Fed wants to keep output unchanged in the short run and the price level unchanged in the long run,it will
A)shift the LR curve up.
B)not shift the LR curve.
C)shift the LR curve down.
D)shift the IS curve up and to the right.
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) Assume that in an all-currency economy the real interest rate is 4%,the expected rate of inflation is 8%,and the nominal interest rate is 12%.The monetary base equals $50 billion.The real seignorage revenue collected by the government would equal
A)$4 billion.
B)$6 billion.
C)$8 billion.
D)$12 billion.
Q2) If the deficit is 0.1 times GDP,the existing debt/GDP ratio is 0.5,and the growth rate of nominal GDP is 0.04,then the change in the debt-GDP ratio is
A)+0.08
B)+0.075.
C)0)
D)-0.075.
Q3) Increases in the debt-GDP ratio are primarily caused by A)a high growth rate of GDP.
B)a high government deficit relative to GDP.
C)increases in government borrowing through bonds.
D)increases in interest rates.
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