Macroeconomics
Question Bank
Course Introduction
Macroeconomics examines the behavior and performance of an economy as a whole, focusing on aggregate measures such as national income, unemployment, inflation, economic growth, and fiscal and monetary policy. This course explores the factors that determine economic output and cycles, the roles of government and central banks in stabilizing economic activity, and the impact of international trade and globalization. Students will develop analytical tools to understand real-world economic issues, interpret major macroeconomic indicators, and critically assess policy debates that shape the direction of national and global economies.
Recommended Textbook
Macroeconomics Understanding the Global Economy 3rd Edition by David Miles
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21 Chapters
704 Verified Questions
704 Flashcards
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Page 2
Chapter 1: What Is Macroeconomics
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Sample Questions
Q1) Which of the following is not a direct concern of macroeconomists?
A) interest rates
B) the growth rate of output
C) aggregate investment in machines and infrastructure
D) pricing decisions by an individual firm
E) monetary policy
Answer: D
Q2) Macroeconomics and microeconomics are complementary in that
A) macroeconomics explores the context within which microeconomic decisions are made
B) microeconomics takes a broader look at the issues upon which macroeconomics is more narrowly focused
C) microeconomics seeks to understand the economy as it is, while macroeconomics seeks to determine how the economy ought to be designed
D) microeconomics examines market-based economies, whereas macroeconomics examines command economies
E) macroeconomics studies private behavior, while microeconomics studies public behavior
Answer: A
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Chapter 2: The Language of Macroeconomicsthe National
Income Accounts
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Sample Questions
Q1) If both imports (M) and exports (X) are nonzero,which of the following accurately reflects a national income accounting measure?
A) aggregate supply = Y + M
B) aggregate demand = C + I + G + X - M
C) Y = C + I + G + X
D) aggregate supply = Y - X + M
E) Y = aggregate supply - aggregate demand
Answer: A
Q2) The Human Development Index (HDI) compiled by the United Nations
A) is used by anthropologists to track the evolution of human beings
B) measures standards of living by taking into account output, education, and life expectancy
C) facilitates interpersonal comparisons of utility by asking citizens how satisfied they are
D) is an employment/unemployment index, or ratio, used to evaluate the progress of non-market economies in becoming market-oriented
E) is the name international agencies give to real gross domestic product
Answer: B
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Chapter 3: The Wealth of Nationsthe Supply Side
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Sample Questions
Q1) Which of the following is an addition to the capital stock?
A) a developer's purchase of real estate
B) a stock broker's purchase of preferred stock
C) a corporation's purchase of an existing building
D) a household's purchase of a new automobile
E) a college's purchase of a new photocopy machine
Answer: E
Q2) Consider a hypothetical economy with a population of 500 people,each of whom is employed for 2000 hours per year. The nation's GDP is $25 million. In this economy,
A) GDP per capita is $12,500 and labor productivity per hour is $4
B) GDP per capita is $25,000 and labor productivity per hour is $50
C) GDP per capita is $50,000 and labor productivity per hour is $40
D) GDP per capita is $25,000 and labor productivity per hour is $80
E) GDP per capita is $50,000 and labor productivity per hour is $25
Answer: E
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5
Chapter 4: Capital Accumulation and Economic Growth
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Sample Questions
Q1) Convergence refers to
A) the reunification of formerly divided countries such as East and West Germany
B) an equality between a country's imports and exports
C) an economy reaching a steady state
D) poorer countries growing more rapidly than rich countries
E) agreement between economic historians of different political persuasions
Q2) Each year in this economy,
A) output is 20,000 and consumption is 18,000
B) output is 100,000 and consumption is 95,000
C) output is 50,000 and consumption is 1,000
D) output is 10,000 and consumption is 9,000
E) output is 25,000 and consumption is 10,000
Q3) The rate at which a country saves its income has no effect on
A) its long run growth rate
B) its short run GDP
C) its long run standard of living
D) its investment behavior
E) its interest rates
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Chapter 5: Total Factor Productivity, human Capital, and Technology
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Sample Questions
Q1) An increase in TFP
A) steepens the aggregate supply curve
B) shifts the aggregate supply curve upward
C) shifts the production function upward
D) increases the rate of depreciation
E) cannot occur once a steady state has been achieved
Q2) Rent-seeking differs from entrepreneurship in that rent-seeking
A) is conducted for profit; entrepreneurship is not
B) involves risk taking; entrepreneurship does not
C) is a zero-sum game; entrepreneurship is not
D) involves innovations; entrepreneurship does not
E) is illegal; entrepreneurship is not
Q3) Which of the following does not promote convergence between nations?
A) equal access to technology
B) the existence of multinational enterprises
C) foreign direct investment
D) openness to foreign trade
E) international patent protection
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Chapter 6: Endogenous Growth and Convergence
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Sample Questions
Q1) Output in this economy
A) is constant
B) grows by 2%
C) grows by 3%
D) grows by 5%
E) grows by 6%
Q2) If the capital stock suddenly doubles,output will rise by
A) 80%
B) a factor of 1.6
C) 100%
D) 10%
E) 5%
Q3) One reason to believe that the marginal product of capital may be constant is that
A) capital and labor are substitutes in production
B) physical capital and human capital may be complementary inputs
C) firms treat unsold output as inventory investments
D) beyond the optimal level, the extra output produced by another machine is always zero
E) technology rarely changes
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Page 8
Chapter 7: Unemployment and the Labor Market
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32 Flashcards
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Sample Questions
Q1) If the natural rate of unemployment is 10% and 6% of employed workers become unemployed each period,then
A) the natural rate is declining
B) 4% of the unemployed remain unemployed each period
C) the labor force is expanding at a rate of 16%
D) the outflow from unemployment occurs at a rate of 54%
E) 60% of the unemployed find employment each period
Q2) The labor force participation rate is defined as
A) the ratio of employment to the labor force
B) the ratio of the working-age population to the total population
C) the ratio of employment to the total population
D) the ratio of the labor force to the civilian, non-institutionalized, working-age population
E) the number of hours worked per week divided by 40
Q3) Unemployment insurance benefits increase productivity most by
A) shortening the duration of unemployment
B) providing replacement rates that are lower than real wages
C) shifting government funds away from less productive ventures
D) helping to improve the match-up between jobs and workers
E) weakening monopoly power
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Chapter 8: International Trade
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Sample Questions
Q1) The central prediction of the Hecksher-Ohlin theorem is that
A) international goods prices equalize under foreign trade
B) comparative advantages depend on the abundance of factor inputs
C) international trade disperses technology, speeding convergence
D) all nations move beyond their production possibilities sets with free trade
E) exchange rates adjust to ensure purchasing power parity
Q2) If country A is well-endowed with natural resources but a small population while B is endowed with much labor but little land and few natural resources,then trade theory predicts that
A) A and B will not trade with each other, as neither can produce enough goods to export
B) A will gain more from trade than B
C) The price of labor-intensive goods will fall in country B after trade
D) Trade will occur, but wages will fall in country A
E) Wages and land values will rise in both countries if they trade
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10
Chapter 9: Globalization
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Sample Questions
Q1) In general Globalization has resulted in
A) Increased global inequality
B) Increased inequality in poorer nations
C) Increased inequality in richer nations
D) Decreased inequality in richer nations
E) No impact on inequality
Q2) The second wave of globalization is distinct from the first in all of the following respects except
A) the second wave has been characterized by liberalization of trade policies
B) value is now added to a single product in several different countries before it reaches its final destination
C) nearly one-third of all trade is now conducted by multi-national enterprises
D) the opening of capital markets has occurred on a much larger scale in the second wave
E) the second wave has been less influenced by immigration than the first wave
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11
Chapter 10: Consumption Investment
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Sample Questions
Q1) A firm should continue to invest as long as the value of Tobin's q is
A) negative
B) zero
C) a positive fraction
D) one
E) greater than one
Q2) According to the simple Keynesian model,if disposable income rises,
A) the marginal propensity to consume rises
B) savings falls
C) consumption increases
D) the expenditure multiplier rises
E) all of the above
Q3) The equilibrium level of national income is
A) 15,000
B) 13,500
C) 1,500
D) 5,000
E) 4,500
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12
Chapter 11: Business Cycles
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Sample Questions
Q1) One of the reasons why higher prices affect the quantity of real output demanded is
A) at higher prices, business people become richer, so demand rises
B) at higher prices, real household wealth is reduced, so the quantity of output demanded falls
C) when prices are high, consumers fear that a recession is approaching D) when pricing are rising, the central bank tends to reduce interest rates, thereby reducing demand
E) at higher prices, time becomes more valuable, so people buy now instead of later
Q2) Strategic complementarity refers to
A) two trade partners producing goods in which they have the greatest relative efficiency, and sharing the benefits through trade
B) the increase in demand for one good when the price of another good falls
C) a market failure in which individual decisions are not coordinated
D) the relationship between capital and labor during a business cycle
E) government subsidies for investment
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13
Chapter 12: Money and Prices
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Sample Questions
Q1) Seignorage is an especially important source of government revenue in countries
A) with weak credit industries
B) with low inflation rates
C) with high tariffs on imports
D) with a currency tied to the dollar
E) that still use commodity money
Q2) Banks can expand the nation's money supply by
A) issuing credit cards
B) paying interest on deposits c
C) lending out excess reserves
D) cashing checks
E) selling life insurance
Q3) Fiat money differs from commodity money in that
A) only fiat money can be made legal tender
B) fiat money has no intrinsic value
C) fiat money is backed by gold
D) only fiat money can serve as a unit of account
E) only commodity money can serve as a store of value
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14
Chapter 13: Monetary Policy
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Sample Questions
Q1) Using the money supply as the exclusive intermediate target for policy purposes has fallen out of favor for all but which of the following reasons?
A) the velocity of money is unpredictable
B) the various monetary aggregates often send conflicting signals
C) the decision lag for setting money supply targets is too long
D) there is no reliable formula relating changes in interest rates to changes in the money supply
E) raising interest rates may reduce GDP rather than reducing inflation
Q2) Targeting interest rates and targeting the money supply are equivalent if A) money demand is stable
B) banks hold no excess reserves
C) exchange rates are fixed
D) central banks practice inflation targeting
E) consumers exhibit rational expectations
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15
Chapter 14: Fiscal Policy and the Role of Government
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29 Flashcards
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Sample Questions
Q1) With a tax of zero dollars,equilibrium occurs at
A) H = 10, W = 100
B) H = 9, W = 90
C) H = 8, W = 80
D) H = 7, W = 70
E) H = 6, W = 60
Q2) In most developed economies,government's share of GDP
A) exceeds 60%
B) has dropped dramatically since World War II
C) is less than 30%
D) rose continually throughout the twentieth century
E) fell during the Great Depression, and is now at World War I levels
Q3) If markets are Pareto efficient,
A) no one benefits from redistribution
B) redistribution is a zero-sum game
C) arbitrage opportunities exist
D) resource allocation is sub-optimal
E) resources are fully utilized but output remains unsold
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16
Chapter 15: Stabilization Policy
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Sample Questions
Q1) Time-inconsistency in monetary policy is most likely to create
A) long information lags
B) long decision lags
C) long implementation lags
D) low credibility
E) low sacrifice ratios
Q2) Which of the following would be an appropriate stabilization policy in response to an adverse demand shock?
A) an income tax increase
B) a reduction in government purchases
C) a reduction in transfer payments
D) a reduction of interest rates
E) wage and price controls
Q3) A reduction in personal saving would shift
A) the IS curve downward
B) both the IS curve and the aggregate demand curve outward
C) the LM curve inward
D) both the LM curve and the aggregate supply curve inward
E) the aggregate demand curve inward and the aggregate supply curve downward
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Page 17
Chapter 16: Financial Markets: Equities and Bonds
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Sample Questions
Q1) If a stock pays a $1 dividend every year and the required rate of return on stocks of this type is 25%,then the share price should be
A) $1
B) $2
C) $3
D) $4
E) $5
Q2) Which of the following is a correct statement of the efficient markets theory of stock price movements?
A) unpredictable fluctuations in share prices can occur only as the result of irrational behavior by investors
B) volatility in share prices imply a perfectly functioning stock market
C) if the stock market is efficient, stock prices will display an unpredictable, random path
D) predicting changes in investor expectations permits forecasts of future share prices despite random drift
E) economic fundamentals (interest rates and corporate profits) determine the fluctuations in stock prices around a trend created by psychological factors
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18
Chapter 17: The Banking Sector
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Sample Questions
Q1) A Credit Crunch is when
A) Central Banks tighten credit conditions too much
B) interest rate are too high
C) borrowers find it hard to access credit due to restricted supply by lenders
D) Central Banks dramatically increase the supply of money
E) several banks fail at once
Q2) Shareholders in the bank above are offered the following deal.The bank will gamble the whole loan book on a double or nothing coin toss (i.e.50% chance loan book doubles in value,50% chance it has zero value).From the shareholders point of view,this deal
A) gives them a 50% chance of losing 10 and a 50% chance of gaining 10
B) gives them a 50% chance of losing 10 and a 50% chance of gaining 20
C) gives them a 50% chance of losing 10 and a 50% chance of gaining 100
D) gives them a 50% chance of losing 100 and a 50% chance of gaining 100
E) gives them a 50% chance of losing 100 and a 50% chance of gaining 200
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Chapter 18: Sovereign Debt and Default
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Sample Questions
Q1) Which of the following is not a potential cost faced by a defaulting sovereign nation
A) Loss of reputation in international capital markets
B) Inability to borrow in international capital markets for some time
C) Losses to domestic holders of your debt
D) Losses to foreign holder of your debt
E) Inability of private sector borrowers to access credit internationally
Q2) Which of the following is not true of the HIPC programme
A) It is organized by the IMF and World Bank
B) It offers debt relief to qualifying nations
C) It is focused on highly indebted poor countries
D) It has been offered to more than 20 countries
E) It can be offered to any country
Q3) The debt relief Laffer curve implies that
A) Expected debt repayments always rise with the level of debt
B) Expected debt repayments always fall with the level of debt
C) Expected debt repayments first rise and then fall with the level of debt
D) Expected debt repayments first fall and then rise with the level of debt
E) Expected debt repayments and the level of debt are unrelated
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Page 20
Chapter 19: Exchange Rate Determination I the Real
Exchange Rate
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Sample Questions
Q1) The law of one price
A) outlaws price discrimination
B) refers to output produced by a monopolist
C) states that in the absence of a price floor, a market achieves an equilibrium price
D) indicates how the prices of many goods are aggregated into a single composite price index for measuring inflation
E) assumes that goods cost nothing to distribute
Q2) Imagine that the dollar appreciates 10% against the Euro and depreciates 10% against the Yen.If dollar trade weights are 75% against the Euro and 25% against the Yen,what has happened to the dollar effective exchange rate?
A) It is unchanged
B) It has appreciated by about 5%
C) It has appreciated by about 10%
D) It has depreciated by about 5%
E) It has depreciated by about 10%
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Chapter 20: Exchange Rate Determination Iinominal
Exchange Rates and Asset Markets
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Sample Questions
Q1) Compared to buying US bonds,American speculators who purchased British bonds at the start of the year received rates of return about
A) 26 percentage points lower
B) 13 percentage points higher
C) the same
D) 2 percentage points higher
E) 7 percentage points lower
Q2) Carry Trades involve
A) Buying low interest rate currencies and selling high interest rate ones
B) Holding a currency trade for a very long time
C) Buying high interest rate currencies and selling low interest rate ones
D) Trading on bandwagon effects
E) arbitrage
Q3) The geographic center of international currency exchange is
A) New York City
B) London
C) Tokyo
D) Bonn
E) Paris
22
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Chapter 21: Currency Crises and Exchange Rate Systems
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Sample Questions
Q1) The Guidotti-Greenspan rule suggests that foreign exchange reserves a sufficient when they
A) Cover 3 months of imports
B) are equal to 20% of GDP
C) are equal to the value of foreign currency debt
D) are equal to 20% of M2
E) are equal to short term debt of one year maturity or less
Q2) In first-generation models of currency crises,speculators
A) play no significant role; only the government is to blame
B) initiate the crisis, to which the government must then respond
C) exacerbate the crisis when foreign reserves are depleted to a critical level
D) misinterpret market signals regarding a currency's long run value
E) help to stabilize the currency and prevent the financial system from collapsing
Q3) Nations adopting currency boards have tended to experience
A) improved GDP growth
B) smaller budget deficits
C) lower average inflation rates
D) smaller swings in inflation rates over time
E) all of the above
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Page 23