Macroeconomics
Question Bank
Course Introduction
Macroeconomics is the branch of economics that studies the behavior, performance, and structure of an entire economy rather than individual markets. This course examines aggregate indicators such as gross domestic product (GDP), unemployment rates, inflation, national income, and the overall level of prices. Students will explore how governments use policy tools such as monetary and fiscal policy to influence economic growth, stabilize the economy, and address issues like recessions or booms. The course also covers international trade, exchange rates, and the impact of global events on national economies, providing a comprehensive understanding of the forces that shape economic activity on a broad scale.
Recommended Textbook
Exploring Economics 6th Edition by Robert L. Sexton
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4557 Verified Questions
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Chapter 1: The Role and Method of Economics
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Sample Questions
Q1) In the discussion of correlation and causation,correlation means:
A) two sets of phenomena may be related, but one does not necessarily cause the other.
B) two sets of phenomena are not related and one may in fact cause the other.
C) that when two phenomena are repeatedly observed together, one must cause the other.
D) that if a groundhog sees his shadow in February, this phenomena causes there to be six more weeks of bad weather.
Answer: A
Q2) Why is abstraction important in developing economic theories?
Answer: Economic theories cannot realistically include every event that has ever occurred.A theory weeds out the irrelevant facts from the relevant ones.An economic theory provides a broad view,not a detailed examination,of human economic behavior.
Q3) Scarcity forces us to choose,and choices are costly because we must give up other opportunities that we value
A)True
B)False
Answer: True
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Chapter 2: Economics: Eight Powerful Ideas
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Sample Questions
Q1) Which of the following is true?
A) Poverty could be potentially eliminated but scarcity could not.
B) Scarcity could be potentially eliminated but poverty could not.
C) Both scarcity and poverty could be potentially eliminated.
D) Neither scarcity nor poverty could be potentially eliminated.
Answer: A
Q2) If a country wanted to maximize the value of its output,each job should be carried out by the person who:
A) has the highest opportunity cost.
B) has a comparative advantage in that activity.
C) can complete the particular job most rapidly.
D) enjoys that job the least.
Answer: B
Q3) Rational choices:
A) are based on a comparison of total benefits and total costs.
B) can only be made by those who are economists.
C) are made based on expectations of the additional benefits and additional costs involved.
D) measure benefits based on the past.
Answer: C
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Chapter 3: Scarcity, Trade-Offs, and Production Possibilities
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Sample Questions
Q1) Ming-Na must write a political science term paper and prepare for an economics exam.The production possibilities curve between political science and economics preparation is a straight line.As time spent studying economics increases,the opportunity cost of studying for economics:
A) increases.
B) remains the same.
C) decreases.
D) first increases then decreases.
Answer: B
Q2) Is increased capital spending the only way for an economy to expand its production possibilities curve?
A) No, an economy can also expand by invention and innovation.
B) No, an economy can also grow by reallocating more resources toward the production of consumption goods.
C) Yes, more capital investment is the only way to expand production possibilities.
D) Yes, although increased production of capital clearly increases the opportunity cost. Answer: A
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Chapter 4: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) Which of the following is the correct way to describe equilibrium in a market?
A) At equilibrium, demand equals supply.
B) At equilibrium, quantity demanded equals quantity supplied.
C) At equilibrium, market forces no longer apply.
D) At equilibrium, the "fairest" price for output is achieved.
Q2) Other things constant,an increase in the price of beef will:
A) encourage consumers to buy more beef.
B) discourage consumers from buying as much beef.
C) shift the demand curve for beef to the right.
D) shift the demand curve for beef to the left.
Q3) According to the law of demand,other things equal,when the price of a good or service falls,demand increases.
A)True
B)False
Q4) How will a decrease in price tend to affect supply?
A) Supply will increase.
B) Supply will decrease.
C) Supply will not change.
D) It is uncertain.
Q5) Differentiate between a change in quantity demanded and a change in demand.
Page 6
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Chapter 5: Markets in Motion and Price Controls
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Sample Questions
Q1) Beach resorts raise their prices during the summer months and yet more people book rooms at those times.Is this a violation of the law of demand?
Q2) When a binding price ceiling is imposed on a market to benefit buyers,
A) no buyers actually benefit.
B) some buyers benefit, but no buyers are harmed.
C) all buyers benefit.some buyers benefit, and some buyers are harmed.
D) all buyers benefit.
Q3) In an attempt to reduce poaching of elephant ivory tusks,officials in Kenya burned illegally gathered ivory.Using your understanding of shifts in supply and demand,will this turn out to be a helpful or hurtful move on the Kenyan government's part?
Q4) An increase in the price of inputs used to produce good A will:
A) increase supply, increase price and increase the quantity exchanged.
B) increase demand, increase price and increase the quantity exchanged.
C) decrease supply, increase price and decrease the quantity exchanged.
D) decrease supply, decrease price and decrease the quantity exchanged.
Q5) A price floor set above the equilibrium price is not binding. A)True B)False
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Chapter 6: Elasticities
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Sample Questions
Q1) The elasticity of supply coefficient for lobster is estimated to be equal to 0.6.It is expected,therefore,that a 10% decrease in price would lead to:
A) a 6% decrease in the quantity of lobsters supplied.
B) a 6% increase in the quantity of lobsters supplied.
C) a 10% decrease in the quantity of lobsters supplied.
D) a 10% increase in the quantity of lobsters supplied.
Q2) An increase in the price of good X due to a reduction in its supply will:
A) increase the total revenue of good X.
B) decrease the total revenue of good X.
C) increase the total revenue of goods that are substitutes for X.
D) increase the total revenue of goods that are complements for X.
Q3) If makers of snake anti-venom implement significant price increases,it is unlikely to significantly affect the use of anti-venom for treating poisonous snakebites.The demand for anti-venom among users is:
A) elastic.
B) inelastic.
C) unit elastic.
D) unit inelastic.
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Chapter 7: Market Efficiency and Welfare
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Sample Questions
Q1) Which of the following is true about consumer surplus?
A) Consumer surplus is how much more consumers have to pay than they are willing to pay.
B) Consumer surplus is shown graphically as the area under the demand curve but above the supply curve.
C) An increase in the market price due to a decrease in supply will increase consumer surplus.
D) A decrease in market price due to an increase in supply will increase consumer surplus.
Q2) A tax would not impose a welfare cost only if:
A) the quantity exchanged did not change as a result.
B) supply was perfectly elastic.
C) supply was unit elastic.
D) the demand curve was perfectly elastic.
Q3) How do taxes distort the incentives of buyers and sellers in a market?
Q4) How does the deadweight loss occur in a deficiency payment program?
Q5) Consumer surplus equals the quantity supplied minus the quantity demanded. A)True B)False
Page 9
Q6) Could a price ceiling decrease consumer surplus?
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Chapter 8: Market Failure
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Sample Questions
Q1) A positive externality will cause a market to produce:
A) more than the efficient equilibrium output level.
B) less than the efficient equilibrium output level.
C) the efficient equilibrium output level.
D) None of the above.
Q2) An negative externality is present whenever:
A) the private marginal cost of an activity exceeds the private marginal benefit.
B) the private marginal benefit of an activity exceeds the private marginal cost.
C) the social marginal cost of an activity exceeds the private marginal cost.
D) none of the above
Q3) Cleaning an environment may lead to:
A) less production.
B) higher prices.
C) lower incomes.
D) all of the above.
Q4) Transaction costs are the cost of negotiating and executing an exchange.
A)True
B)False
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Chapter 9: Public Finance and Public Choice
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Sample Questions
Q1) When you add payroll taxes and Medicare,the tax system becomes more progressive than when we solely consider the federal income tax:
A)True
B)False
Q2) The U.S.federal government relies more heavily on sales taxes,excise taxes,and customs duties than nearly any other government in the world.
A)True
B)False
Q3) The view that those whose preferences represent the middle position on an issue will tend to determine the outcome of an election is called:
A) rent seeking.
B) the median voter model.
C) the special interest effect.
D) the cyclical majority problem.
Q4) In a proportional tax system each individual would pay the same dollar amount in taxes.
A)True
B)False
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Chapter 10: Consumer Choice Theory
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Sample Questions
Q1) Behavioral economists use findings from psychology to explain complex consumer behavior that cannot always be explained by traditional economic models.
A)True
B)False
Q2) The income effect occurs when an individual switches to another similar good when the price of the preferred good increases.
A)True
B)False
Q3) When a consumer maximizes utility subject to a limited income,she allocates income across goods to the point that:
A) the marginal price is the same for all goods.
B) marginal utility is zero.
C) marginal utility is negative.
D) the marginal utility per dollar spent is the same for all goods.
Q4) The law of diminishing marginal utility helps explain:
A) why most individual demand curves are straight lines.
B) why most supply curves slope upward.
C) why most individual demand curves slope downward.
D) why marginal utility falls when total utility falls.
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Chapter 11: The Firm: Production and Costs
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Sample Questions
Q1) Diminishing marginal product of labor occurs when:
A) adding another unit of labor increases output, but not by as large a margin as the last unit of labor employed.
B) the average product of labor begins to rise.
C) adding another unit of labor increases output by a larger margin than the last unit of labor employed.
D) all inputs are varied simultaneously in the same proportion.
Q2) Diseconomies of scale are most likely at very low levels of output.
A)True
B)False
Q3) When marginal cost is increasing,average total cost must be increasing.
A)True
B)False
Q4) Which of the following is most likely a fixed cost?
A) Raw materials costs.
B) Shipping charges.
C) Property insurance premiums.
D) Fuel costs for running the factory.
Q5) Why is the long-run average total cost (LRATC)curve called the planning curve?
Page 13
Q6) What is the law of diminishing marginal product? What causes it?
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Darlene runs a fruit and vegetable stand in a medium-sized community where there are many such stands.Her weekly total revenue equals $3,500.Her weekly total cost of running the stand equals $3,500,consisting of $2,500 of variable costs and $1,000 of fixed costs.An economist would likely advise Darlene to:
A) shut down as quickly as possible because the stand is generating losses.
B) keep the stand open because it is generating a normal profit.
C) keep the stand open for a while longer because she is covering all of her variable costs and some of her fixed costs.
D) keep the stand open for a while longer because she is covering all of her fixed costs and some of her variable costs.
Q2) Perfect competition is characterized by a large number of buyers and sellers with identical products and no significant barriers to entry.
A)True
B)False
Q3) In order to maximize profits,a firm should produce the level of output at which total revenue is maximized.
A)True
B)False
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Chapter 13: Monopoly and Antitrust
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Sample Questions
Q1) In the short run,a monopolist:
A) always suffers an economic loss.
B) always earns an economic profit.
C) always earns a normal rate of return.
D) may make an economic loss, an economic profit, or zero economic profits.
Q2) In perfect price discrimination,consumer surplus is zero because each consumer pays:
A) the market price.
B) the cost price.
C) peak load price.
D) the reservation price
Q3) Which of the following need not be true of a monopoly?
A) The firm must be the only producer of the product.
B) The product must have no close substitutes.
C) There must be high barriers to entry.
D) The firm must earn an economic profit in the short run..
Q4) Control of a scarce resource or input can serve as an entry barrier.
A)True
B)False
Q5) Will all monopolistic firms always generate economic profits? Why or why not?
Page 15
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Chapter 14: Monopolistic Competition and Product
Differentiation
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Sample Questions
Q1) Which of the following is a correct listing of industry models ordered from most competitive to least competitive?
A) perfect competition - monopolistic competition - monopoly
B) perfect competition - monopoly - monopolistic competition
C) monopolistic competition - perfect competition - monopoly
D) monopolistic competition - monopoly - perfect competition
Q2) In the long run,monopolistically competitive firms typically produce with allocative efficiency.
A)True
B)False
Q3) Monopolistic competition differs from perfect competition only with regard to the number of firms participating in the market.
A)True
B)False
Q4) Monopolistic competition is characterized by:
A) one firm selling several products.
B) many firms selling the same product.
C) many firms selling slightly different products.
D) one firm selling one product.
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Chapter 15: Oligopoly and Strategic Behavior
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Sample Questions
Q1) Which of the following characterizes an oligopolistic industry?
A) mutual interdependence
B) low barriers to entry
C) small output of individual firms relative to the total market
D) a large number of competing firms
Q2) ____ is used in repeated games such that one player follows the other player's move in the previous round,leading to ____ cooperation.
A) Bandwagon effect; greater
B) Bandwagon effect; lesser
C) Tit-for-tat strategy; greater
D) Tit-for-tat strategy; lesser
Q3) An example of an oligopoly is:
A) the book industry.
B) the music CD industry.
C) the automobile industry.
D) the market for soybeans.
Q4) Pepsi is considering an expensive advertising campaign to steal market share from Coca-Cola.Why might both companies have a dominant strategy to advertise,even if advertising attracts few new customers to the cola drink industry?
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Chapter 16: The Markets for Labor, Capital, and Land
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Sample Questions
Q1) A decrease in the interest rate will:
A) increase the amount of money supplied by lenders.
B) decrease the amount of money supplied by lenders.
C) have no effect on the amount of money supplied by lenders.
D) have an ambiguous effect on the amount of money supplied by lenders.
Q2) Would the owner of a profit-maximizing fast-food establishment hire another worker for $55 per day if that worker added faster service,increasing sales and revenue by $50 per day? Why or why not?
Q3) Which of the following is the best example of an investment in human capital?
A) the purchase of an industrial development bond
B) a graduate student who completed 24 semester units in economics last year
C) the purchase of a lawn mower by a homeowner
D) an unemployed stockbroker who drives a cab in order to pay his bills
Q4) An increase in the interest rate will:
A) increase the amount of money supplied by lenders.
B) decrease the amount of money supplied by lenders.
C) have no effect on the amount of money supplied by lenders.
D) have an ambiguous effect on the amount of money supplied by lenders.
Q5) Would an increase in the productivity of labor lead to an increase or a decrease in the demand for labor? Why?
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Chapter 17: Income, Poverty, and Health Care
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Sample Questions
Q1) The fact that Jackie received a higher raise than did Jamie,while processing 12 percent more customers at her bank teller line,is evidence of wage discrimination.
A)True
B)False
Q2) There is a strong,positive correlation between educational attainment and lifetime earnings.
A)True
B)False
Q3) Poverty in the United States is defined as having an income that is less than the ____ level that is necessary to provide the basic necessities of life. A) sustainable B) relative C) absolute D) lowest quintile
Q4) Most Americans experience significant fluctuations in their economic well-being from one year to the next.
A)True
B)False
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Chapter 18: Introduction to Macroeconomics:
Unemployment, Inflation, and Economic Fluctuations
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Sample Questions
Q1) Persons who do not hold a job,but are actively seeking work are considered:
A) out of the labor force.
B) unemployed.
C) unemployable, and not counted in official statistics.
D) underemployed.
Q2) The costs imposed on a firm from changing listed prices is termed:
A) the nominal cost of inflation.
B) the shoe-leather cost of inflation.
C) the menu cost of inflation.
D) the implied cost of inflation.
Q3) Hometown,USA,has a labor force of 78,567 persons and employment of 74,382.The unemployment rate for the city is:
A) 5.3 percent.
B) 5.6 percent.
C) 6.0 percent.
D) none of the above.
Q4) Economists refer to the "typical" rate of unemployment as the natural rate of unemployment.
A)True
B)False
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Chapter 19: Measuring Economic Performance
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Sample Questions
Q1) Measures of well-being include:
A) pollution levels.
B) infant mortality rates.
C) literacy rates.
D) all of the above.
Q2) Gross domestic product is the value of all final goods and services produced within a country during a given period of time.
A)True
B)False
Q3) Nominal GDP is $10,000 billion in 2011,but real GDP is only $9,000.It follows that:
A) the GDP deflator is equal to 111.
B) the GDP deflator is equal to 100.
C) the GDP deflator is equal to 90.
D) prices must have decreased relative to the base year.
Q4) When real GDP declines in a particular year,nominal GDP:
A) will decline at a faster rate than real GDP if there is inflation.
B) will decline at a slower rate than real GDP if there is inflation.
C) may increase or decrease if there is inflation.
D) will increase if there is deflation.
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Chapter 20: Economic Growth in the Global Economy
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Sample Questions
Q1) Most modern economists agree that there is a single factor that can be used to explain economic growth.
A) This is a true statement because what are needed are abundant resources.
B) This is a true statement because at the foundation of economic growth, it is essential that there exist extensive private property rights.
C) This is a false statement because nearly all economists believe that economic growth is a complex process without a single dominant factor.
D) This is a false statement because economists typically do not agree on policy issues.
Q2) What is the relationship between savings,capital formation,and consumption?
Q3) An increase in the quantity of labor inputs always leads to economic growth.
A)True
B)False
Q4) Which of the following countries is lacking an abundance of natural resources?
A) Australia
B) Japan
C) Brazil
D) United States
Q5) According to Malthus,how do economic growth and population relate to each other?
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Chapter 21: Financial Markets, Saving, and Investment
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Q1) A government budget deficit will have a:
A) positive effect on public saving causing a rightward shift in the supply of loanable funds.
B) positive effect on public saving causing a leftward shift in the supply of loanable funds.
C) negative effect on public saving causing a rightward shift in the supply of loanable funds.
D) negative effect on public saving causing a leftward shift in the supply of loanable funds.
Q2) Rank bonds,common stock,and preferred stock with regard to two factors the possibility of a substantial increase in value.Rank these same securities with regard to investors' legal claims for repayment on their investments.
Q3) A stock is an obligation issued by a corporation that promises the holder to receive fixed annual interest payments and payment of the principal upon maturity.
A)True
B)False
Q4) List the various reasons that contributed to the financial crisis that occurred in 2008.
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Chapter 22: Aggregate Demand and Aggregate Supply
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Q1) The LRAS curve is ____ with real output levels that ____.
A) upward sloping; vary positively with the price level
B) upward sloping; vary negatively with the price level
C) vertical; are equal to the natural level of real output at all price levels
D) vertical; can be either greater than or less than the natural level of real output
Q2) If,due to rising demand,the price of cotton rose 10 percent while the prices of other goods and services rose an average of 15 percent,
A) the relative price of cotton has risen and one would expect the output of cotton to rise as a result.
B) the relative price of cotton has risen and one would expect the output of cotton to fall as a result.
C) the relative price of cotton has fallen and one would expect the output of cotton to rise as a result.
D) the relative price of cotton has fallen and one would expect the output of cotton to fall as a result.
Q3) Explain how changes in the stock of capital affect aggregate supply.
Q4) Discuss some of the reasons behind downward stickiness of wages and prices.
Q5) What is the natural level of output?
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Chapter 23: The Aggregate Expenditure Model
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Q1) Unplanned inventory decreases prompt firms to cut back on production until equilibrium output is restored.
A)True
B)False
Q2) The marginal propensity to consume (MPC)is defined as:
A) the additional consumption that results from one dollar increase in disposable income.
B) the fraction of total disposable income that households spend on consumption.
C) the fraction of total disposable income that households save.
D) the additional disposable income households earn in a given period.
Q3) Identify factors that would cause consumption spending to increase.What effect would that have on aggregate demand?
Q4) If George's MPS is 0.75 and he earns an additional $1,000,how much would he spend?
A) $250
B) $750
C) $1,333
D) $4,000
Q5) Will MPC plus MPS always equal one? Explain why or why not.
Q6) Explain the concept of autonomous consumption.
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Chapter 25: Monetary Institutions
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Q1) If a bank has $1 million in demand deposits,$350,000 in reserves,and faces a 30 percent reserve requirement,the amount of money that a bank could initially create by loaning out their excess reserves is:
A) $50,000.
B) $300,000.
C) $350,000.
D) $700,000.
Q2) If the reserve requirement for a bank is $200,000 for a deposit of $1 million,then the money multiplier is:
A) 1.25
B) 2.0
C) 5
D) 20
Q3) Credit cards should be included in M1 because they are just like checks.
A)True
B)False
Q4) In general,a bank that held excess reserves would earn lower profits as a result.
A)True B)False
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Chapter 26: The Federal Reserve System and Monetary Policy
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Q1) If the Federal Open Market Committee (FOMC)decides to expand the money supply,then:
A) it will issue directions to sell U.S. government securities, thus increasing the velocity of circulation of the money supply.
B) it will issue directions to purchase U.S. government securities, thus putting more reserves in the hands of banks.
C) it will order new Federal Reserve notes delivered to member banks.
D) it will raise the discount rate to member banks.
Q2) In the long run,inflation results from increases in a nation's money supply that exceed increases in its output of goods and services.
A)True
B)False
Q3) If the economy's real GDP is growing at 3 percent each year and velocity is constant,for the price level to increase:
A) the money supply would have to grow at more than 3 percent per year.
B) the money supply would have to grow at exactly 3 percent per year.
C) the money supply would have to grow at less than 3 percent per year.
D) the money supply would have to remain stable.
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Chapter 27: Issues in Macroeconomic Theory and Policy
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Q1) If a fixed money growth rate is followed and the growth rate of the natural level of real GDP is 4 percent per year,the average rate of inflation is:
A) 8 percent.
B) 4 percent.
C) zero.
D) 1-2 percent.
Q2) Higher than expected inflation rate:
A) shifts short-run Phillips curve to the right.
B) shifts long-run Phillips curve to the right.
C) shifts both short-run and long-run Phillips curve to the right.
D) shifts short-run Phillips curve to the left.
Q3) According to the Phillips curve analysis,if policy makers reduce aggregate demand growth,they can lower inflation,but only at the cost of a:
A) permanent increase in the natural rate of unemployment.
B) permanent increase in the actual unemployment rate.
C) temporary increase in unemployment.
D) temporary decrease in the natural level of unemployment.
Q4) Compare and contrast the shapes of the short-run and long-run Phillips curves.
Q5) What is the short-run Phillips curve and what observations does it make?
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Chapter 28: International Trade
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182 Verified Questions
182 Flashcards
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Sample Questions
Q1) The main reason why one nation trades with another is to
A) save its natural resources from rapid depletion.
B) exploit the advantages of specialization.
C) eliminate the danger of retaliation from other nations.
D) improve political alliances.
Q2) Which of the following would increase prices for U.S.consumers?
A) a tariff on imported automobiles
B) an automobile import quota
C) a foreign government subsidizing auto production
D) (a) and (b) above only
Q3) It is possible for some individuals within countries to lose from reducing international trade barriers.
A)True
B)False
Q4) The inevitable cost of protecting domestic industries from foreign competition will be higher prices for domestic consumers.
A)True
B)False
Q5) What is the law of comparative advantage,and why is it important in international trade?
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Chapter 29: International Finance
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138 Verified Questions
138 Flashcards
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Sample Questions
Q1) If Americans decide to buy more South African diamonds,what is the effect in the exchange market?
A) It will increase the supply of U.S. dollars.
B) It will decrease the supply of U.S. dollars.
C) It will increase the demand for U.S. dollars.
D) It will decrease the demand for U.S. dollars.
Q2) Whenever there is a deficit in the current account,the capital account:
A) will be negative.
B) will be positive.
C) will be zero.
D) could be negative, positive, or zero.
Q3) Which of the following examples would lead to a demand for German marks?
A) Judy Potter, an American, wants to purchase a German automobile.
B) Jim Potter, Judy's husband, wants to purchase German stocks.
C) IBM, Judy's employer, wants to buy a small computer firm in Germany.
D) All of the above.
Q4) Under a system of fixed exchange rates,what will happen if the price of a currency is set above market equilibrium? How can this be remedied?
Q5) Why is the demand for foreign currencies known as a derived demand?
Q6) What are the main arguments presented against flexible exchange rates?
Page 30
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