Macroeconomics
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Course Introduction
Macroeconomics is the study of the economy as a whole, focusing on aggregate indicators and the overall functioning of national and global markets. This course covers key concepts such as gross domestic product (GDP), inflation, unemployment, economic growth, and fiscal and monetary policy. Students will learn how governments and central banks use policy tools to stabilize the economy, manage economic cycles, and promote sustainable development. Through theoretical models and real-world case studies, the course explores the interactions between households, firms, and governments, and examines contemporary macroeconomic issues such as recession, financial crises, and international trade.
Recommended Textbook Principles of Economics Arab World Edition 2nd Edition by Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) One advantage market economies have over centrally-planned economies is that market economies
A)provide an equal distribution of goods and services to households.
B)establish a significant role for government in the allocation of resources.
C)solve the problem of scarcity.
D)are more efficient.
Answer: D
Q2) Economists use the word equality to describe a situation in which
A)each member of society has the same income.
B)each member of society has access to abundant quantities of goods and services,regardless of his or her income.
C)society is getting the maximum benefits from its scarce resources.
D)society's resources are used efficiently.
Answer: A
Q3) Trade
A)allows specialization,which increases costs.
B)allows specialization,which reduces costs.
C)reduces specialization,which increases costs.
D)reduces specialization,which reduces costs.
Answer: B
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Chapter 2: Thinking Like an Economist
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Q1) John Maynard Keynes observed that during rare times of deep financial and economic crisis,when the "invisible hand" has temporarily ceased to function,
A)there is a more urgent need for government to play an active role in restoring markets to their healthy function.
B)government should avoid intervening in the market and wait patiently for proper market function to return.
C)economists need to re-evaluate all of their basic principles.
D)the economy can rely on entrepreneurs to take creative actions to end the crisis.
Answer: A
Q2) The use of the coordinate system allows
A)for the display of the flows of dollars,goods and services,and factors of production in an economic system.
B)for the display of how labor and other resources are organized in the production process.
C)for the display of two variables on a single graph.
D)for the creation of pie charts and bar graphs.
Answer: C
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Chapter 3: Interdependence and the Gains From Trade
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Q1) Refer to Figure 3-2.Without trade,Uzbekistan produced and consumed 12 bolts and 36 nails and Azerbaijan produced and consumed 14 bolts and 24 nails.Then,each country agreed to specialize in the production of the good in which it has a comparative advantage and trade 16 bolts for 38 nails.As a result,Uzbekistan gained
A)2 bolts and 2 nails and Azerbaijan gained 2 bolts and 18 nails.
B)4 bolts and 2 nails and Azerbaijan gained 2 bolts and 14 nails.
C)14 bolts and 38 nails and Azerbaijan gained 16 bolts and 42 nails.
D)16 bolts and 38 nails and Azerbaijan gained 16 bolts and 38 nails.
Answer: A
Q2) Refer to Figure 3-1.If the production possibilities frontier shown is for one month of production,then which of the following combinations of emeralds and rubies could Peru produce in a given month?
A)7 emeralds and 40 rubies
B)5 emeralds and 92 rubies
C)3 emeralds and 165 rubies
D)2 emeralds and 180 rubies
Answer: D
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Chapter 4: The Market Forces of Supply and Demand
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Q1) The signals that guide the allocation of resources in a market economy are
A)surpluses and shortages.
B)quantities.
C)government policies.
D)prices.
Q2) In a market economy,supply and demand determine both the quantity of each good produced and the price at which it is sold.
A)True
B)False
Q3) Refer to Table 4-2.Which supply schedules obey the law of supply?
A)Firm A's only
B)Firm B's,Firm C's,and Firm D's only
C)Firm A's and Firm C's only
D)Firm B's and Firm D's only
Q4) An increase in the price of a good will
A)increase supply.
B)decrease supply.
C)increase quantity supplied.
D)decrease quantity supplied.
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Chapter 5: Elasticity and Its Application
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Q1) If an increase in income results in a decrease in the quantity demanded of a good,then for that good,the
A)cross-price elasticity of demand is negative.
B)price elasticity of demand is elastic.
C)income elasticity of demand is negative.
D)income elasticity of demand is positive.
Q2) If a supply curve is horizontal,then supply is said to be perfectly elastic,and the price elasticity of supply approaches infinity.
A)True
B)False
Q3) If the price elasticity of supply is 1.5,and a price increase led to a 1.8% increase in quantity supplied,then the price increase is about
A)0.67%.
B)0.83%.
C)1.20%.
D)2.70%.
Q4) If the price elasticity of demand is equal to 0,then demand is unit elastic.
A)True
B)False
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Chapter 6: Supply,demand,and Government Policies
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Q1) In a competitive market free of government regulation,
A)price adjusts until quantity demanded is greater than quantity supplied.
B)price adjusts until quantity demanded is less than quantity supplied.
C)price adjusts until quantity demanded equals quantity supplied.
D)supply adjusts to meet demand at every price.
Q2) Most labor economists believe that the supply of labor is
A)less elastic than the demand,and,therefore,firms bear most of the burden of the payroll tax.
B)less elastic than the demand,and,therefore,workers bear most of the burden of the payroll tax.
C)more elastic than the demand,and,therefore,workers bear most of the burden of the payroll tax.
D)more elastic than the demand,and,therefore,firms bear most of the burden of the payroll tax.
Q3) Refer to Figure 6-26.A price ceiling set at 30 would create a shortage of 20 units.
A)True
B)False
Q4) How does elasticity affect the burden of a tax?
Justify your answer using supply and demand diagrams.
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Q1) The maximum price that a buyer will pay for a good is called the A)cost.
B)willingness to pay.
C)Equity.
D)efficiency.
Q2) A buyer is willing to buy a product at a price greater than or equal to his willingness to pay,but would refuse to buy a product at a price less than his willingness to pay.
A)True
B)False
Q3) Refer to Figure 7-17.Which area represents producer surplus when the price is P1?
A)A
B)B
C)C
D)D
Q4) Given the following two equations:
1)Total Surplus = Consumer Surplus + Producer Surplus
2)Total Surplus = Value to Buyers - Cost to Sellers
Show how equation (1)can be used to derive equation (2).
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Chapter 8: Application: The Costs of Taxation
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Q1) Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.With the tax,the producer surplus is
A)(P5-0)x Q5.
B) \(1 / 2\) x (P5-0)x Q5.
C)(P8-0)x Q2.
D) \(1 / 2\) x (P8-0)x Q2.
Q2) Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.With the tax,the total surplus is
A)[ \(1 / 2\) x (P0-P5)x Q5] + [ \(1 / 2\) x (P5-0)x Q5].
B)[ \(1 / 2\) x (P0-P2)x Q2] +[(P2-P8)x Q2] + [ \(1 / 2\) x (P8-0)x Q2].
C)(P2-P8)x Q2.
D) \(1 / 2\) x (P2-P8)x (Q5-Q2).
Q3) The price elasticities of supply and demand affect
A)both the size of the deadweight loss from a tax and the tax incidence.
B)the size of the deadweight loss from a tax but not the tax incidence.
C)the tax incidence but not the size of the deadweight loss from a tax.
D)neither the size of the deadweight loss from a tax nor the tax incidence.
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Chapter 9: Application: International Trade
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Q1) Economists agree that trade ought to be restricted if free trade means that domestic jobs might be lost because of foreign competition.
A)True
B)False
Q2) A logical starting point from which the study of international trade begins is
A)the recognition that not all markets are competitive.
B)the recognition that government intervention in markets sometimes enhances the economic welfare of the society.
C)the principle of absolute advantage.
D)the principle of comparative advantage.
Q3) Domestic producers of a good become worse off,and domestic consumers of a good become better off,when a country begins allowing international trade in that good and
A)the country becomes an importer of the good as a result.
B)the world price exceeds the domestic price of the good that prevailed before international trade was allowed.
C)the country in question has a comparative advantage,relative to other countries,in producing the good.
D)total surplus does not change as a result.
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Chapter 10: Externalities
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Q1) Refer to Figure 10-14.Which of the following statements is correct?
A)To induce firms to internalize the externality in this market,the government should impose a tax measured by P<sub>2 </sub>- P<sub>0</sub>.
B)To induce firms to internalize the externality in this market,the government should offer a subsidy measured by P<sub>2</sub> - P<sub>0</sub>.
C)To induce firms to internalize the externality in this market,the government should impose a tax measured by P<sub>2</sub> - P<sub>1</sub>.
D)There is no externality in this market.
Q2) The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.
A)True
B)False
Q3) Which of the following policies is not an example of a command-and-control policy?
A)subsidies
B)Pigovian taxes
C)tradable pollution permits
D)None of the above is an example of a command-and-control policy.
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Chapter 11: Public Goods and Common Resources
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Q1) One possible solution to the problem of protecting a common resource is to convert that resource to a private good.
A)True
B)False
Q2) Advocates of antipoverty programs claim that fighting poverty
A)is best accomplished by charities.
B)is a public good.
C)is more efficiently accomplished by the market.
D)should not be attempted with tax dollars.
Q3) Aristotle writes,"What is common to many is taken least care of,for all men have greater regard for what is their own than for what they possess in common with others." In this statement,Aristotle is referring to the free-rider problem that occurs when a person receives the benefit of a good without paying for it.
A)True
B)False
Q4) The pollution market failure is an example of the free rider problem.
A)True
B)False
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Chapter 12: The Design of the Tax System
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Q1) One characteristic of an efficient tax system is that it minimizes the costs associated with revenue collection.
A)True
B)False
Q2) Which of the following statements is correct?
A)Both tax avoidance and tax evasion are legal.
B)Both tax avoidance and tax evasion are illegal.
C)Tax avoidance is legal,whereas tax evasion is illegal.
D)Tax avoidance is illegal,whereas tax evasion is legal.
Q3) With a lump-sum tax,
A)the average tax rate for high income taxpayers will be the same as the average tax rate for low income taxpayers.
B)the average tax rate for high income taxpayers will be lower than the average tax rate for low income taxpayers.
C)the average tax rate for high income taxpayers will be higher than the average tax rate for high income taxpayers.
D)Any of the above could be true under a regressive tax system.
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Chapter 13: The Costs of Production
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Q1) The long-run average total cost curve is always
A)flatter than the short-run average total cost curve,but not necessarily horizontal.
B)horizontal.
C)falling as output increases.
D)rising as output increases.
Q2) The amount of money that a firm pays to buy inputs is called
A)total cost.
B)variable cost.
C)marginal cost.
D)fixed cost.
Q3) When economists speak of a firm's costs,they are usually excluding the opportunity costs.
A)True
B)False
Q4) Refer to Table 13-13.What is average variable cost when output is 50 units?
A)3.60
B)4.00
C)4.40 D)4.80
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Chapter 14: Firms in Competitive Markets
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Q1) A firm has market power if it can
A)maximize profits.
B)minimize costs.
C)influence the market price of the good it sells.
D)hire as many workers as it needs at the prevailing wage rate.
Q2) If all existing firms and all potential firms have the same cost curves,there are no inputs in limited quantities,and the market is characterized by free entry and exit,then the long-run market supply curve
A)is horizontal and equal to the minimum of long-run marginal cost for each firm.
B)must slope downward.
C)must slope upward.
D)is horizontal and equal to the minimum of long-run average cost for each firm.
Q3) Profit-maximizing firms in a competitive market produce an output level where
A)marginal cost equals marginal revenue.
B)marginal cost equals average total cost.
C)marginal revenue is increasing.
D)price is less than marginal revenue.
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Chapter 15: Monopoly
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Q1) Refer to Figure 15-7.What area represents the total surplus lost due to monopoly pricing?
A)the rectangle (F-D)xA
B)the triangle 1/2[(F-D)x(B-A)]
C)the triangle 1/2[(F-G)x(B-A)]
D)the rectangle (F-D)xA plus the triangle 1/2[(F-D)x(B-A)]
Q2) In order for antitrust laws to raise social welfare,the government must
A)disallow synergy benefits from accruing to monopolists.
B)disallow any mergers from taking place.
C)be able to determine which mergers are desirable and which are not.
D)always attempt to keep markets in their most competitive form.
Q3) Patent and copyright laws are major sources of
A)natural monopolies.
B)government-created monopolies.
C)resource monopolies.
D)antitrust regulation.
Q4) Even with market power,monopolists cannot achieve any level of profit they desire because they will sell lower quantities at higher prices.
A)True
B)False
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Chapter 16: Monopolistic Competition
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Q1) Which of the following best describes the idea of excess capacity in monopolistic competition?
A)Firms produce more output than is socially desirable.
B)The output produced by a typical firm is less than what would occur at the minimum point on its ATC curve.
C)Due to product differentiation,firms choose output levels where price equals average total cost.
D)Firms keep some surplus output on hand in case there is a shift in the demand for their product.
Q2) Under which of the following market structures would consumers likely pay the highest price for a product?
A)perfect competition
B)monopolistic competition
C)oligopoly
D)monopoly
Q3) There are four basic types of market structure.
A)True
B)False
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Chapter 17: Oligopoly
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Q1) A special kind of imperfectly competitive market that has only two firms is called
A)a two-tier competitive structure.
B)an incidental monopoly.
C)a doublet.
D)a duopoly.
Q2) Which of the following is correct?
When oligopolies collude
A)they make higher profits and consumers of the product are better off.
B)they make higher profits but consumers of the product are worse off.
C)they make lower profits and consumers of the product are better off.
D)they make lower profits and consumers of the product are worse off.
Q3) Games that are played more than once generally
A)lead to outcomes dominated purely by self-interest.
B)lead to outcomes that do not reflect joint rationality.
C)encourage cheating on cartel production quotas.
D)make collusive arrangements easier to enforce.
Q4) A group of firms that collude is called a cartel.
A)True
B)False
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Chapter 18: The Market for the Factors of Production
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Q1) When the wages paid to government economists increase,the labor supply curve for academic economists
A)shifts to the left.
B)shifts to the right.
C)will become backward-sloping.
D)will not change.
Q2) Labor supply curves are always upward sloping.
A)True
B)False
Q3) Consider the market for capital equipment.Suppose the price of firms' output increases.Holding all else constant,the equilibrium rental price of capital equipment will A)increase.
B)decrease.
C)not change.
D)It is not possible to determine what will happen to the equilibrium rental price of capital equipment.
Q4) Technological advances can cause the labor demand curve to shift. A)True B)False
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Chapter 19: Earnings and Discrimination
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Q1) Economists who attempt to explain the increasing earnings gap between skilled and unskilled workers offer two main hypotheses:
A)One hypothesis emphasizes education,and the other emphasizes random influences.
B)One hypothesis emphasizes education,and the other emphasizes supply and demand.
C)One hypothesis emphasizes international trade,and the other emphasizes technology.
D)One hypothesis emphasizes signaling,and the other emphasizes education.
Q2) Explain how compensating differentials could contribute to differences between the average wages of men and women.
Q3) Public school teachers are known to have low wages.Which of the following would push the teachers' wages lower?
A)Public school teacher jobs are difficult.
B)Public school teachers are required to be college graduates.
C)Public school teachers belong to a union.
D)Teaching in a public school has a high element of personal satisfaction.
Q4) Explain the role that consumers play in perpetuating discrimination in labor markets.
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Chapter 20: Income Inequality and Poverty
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Q1) A negative income tax system is designed to
A)provide in-kind benefits to the poor.
B)provide a minimum income to the poor.
C)reduce taxes on the rich when their incomes surpass the maximum income tax bracket.
D)subsidize food consumption in poor families.
Q2) The typical economic life cycle illustrates how people tend to
A)borrow more when they are younger and save more when they are middle-aged.
B)earn their peak incomes immediately prior to the typical retirement age of 65.
C)adjust their consumption based on changes in their transitory income.
D)All of the above are correct.
Q3) Refer to Table 20-4.In 2007,the bottom 60% of families have
A)only 12% of total income in the U.S.
B)only 27% of total income in the U.S.
C)50% of total income in the U.S.
D)73% of total income in the U.S.
Q4) The utilitarian justification for redistributing income is based on the assumption of diminishing marginal utility.
A)True
B)False
Page 22
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Chapter 21: The Theory of Consumer Choice
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Q1) If the interest rate rises,an individual could choose to
A)increase consumption when young.
B)increase consumption when old.
C)decrease consumption when young.
D)Any of the above could be correct.
Q2) Using indifference curves and budget constraints,graphically illustrate the substitution and income effect that would result from a change in the price of a normal good.
Q3) Bundle A contains 10 units of good X and 5 units of good Y.Bundle B contains 5 units of good X and 10 units of good Y.Bundle C contains 10 units of good X and 10 units of good Y.The consumer is indifferent between bundle A and bundle B.Assume that the consumer's preferences satisfy the four properties of indifference curves.Which of the following statements is correct?
A)The consumer must prefer bundle C to either bundle A or B.
B)Bundle A and bundle B lie on the same indifference curve.
C)The consumer must prefer bundle B to bundle C.
D)Both a)and b)are correct.
Q4) The slope of a consumer's budget constraint is unaffected by a change in income.
A)True
B)False
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Chapter 22: Frontiers of Microeconomics
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Q1) According to the median voter theorem,majority rule will produce an outcome that is inconsistent with transitive preferences.
A)True
B)False
Q2) Economic policy that appears to be ideal in an economics textbook may not be the final policy that is approved by elected politicians because
A)sometimes a politician's self interest may conflict with the national interest.
B)economics professors have a notoriously low voting rate.
C)only policies advocated by the President's Council of Economic Advisors receive enough national attention to interest politicians.
D)Economists cannot explain why politicians do not implement the ideas from their textbooks.
Q3) If A is preferred to B and C is preferred to D,then B must be preferred to C to satisfy transitivity.
A)True
B)False
Q4) Explain the Condorcet paradox.To which type of voting system does it apply?
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Chapter 23: Measuring a Nations Income
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Q1) U.S.GDP and U.S.GNP are related as follows:
A)GNP = GDP + Value of exported goods - Value of imported goods.
B)GNP = GDP - Value of exported goods + Value of imported goods.
C)GNP = GDP + Income earned by foreigners in the U.S.- Income earned by U.S.citizens abroad.
D)GNP = GDP - Income earned by foreigners in the U.S.+ Income earned by U.S.citizens abroad.
Q2) The GDP deflator for years subsequent to the base year measures the change in A)nominal GDP from the base year that cannot be attributable to a change in real GDP.
B)real GDP from the base year that cannot be attributable to a change in nominal GDP.
C)nominal GDP from the base year that cannot be attributable to a change in prices.
D)real GDP from the base year that cannot be attributable to a change in prices.
Q3) The overall effect of accounting for purchases of foreign goods in GDP reduces GDP. A)True B)False
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Chapter 24: Measuring the Cost of Living
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Q1) If the cost of transportation increases by 20 percent,then,other things the same,the CPI is likely to increase by about
A)0.3 percent.
B)1.7 percent.
C)3.4 percent.
D)10 percent.
Q2) If the consumer price index is 120 in 2009 and 139.2 in 2010,then the rate of inflation for 2010 is 39.2 percent.
A)True
B)False
Q3) In 1970,Professor Plum earned 12,000 dinars; in 1980,he earned 24,000; and in 1990,he earned 36,000.If the CPI was 40 in 1970,60 in 1980,and 100 in 1990,then in real terms,Professor Plum's salary was highest in
A)1980 and lowest in 1970.
B)1980 and lowest in 1990.
C)1990 and lowest in 1970.
D)1990 and lowest in 1980.
Q4) List the three major problems in using the CPI as a measure of the cost of living.
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Chapter 25: Production and Growth
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Q1) When Americans invest in Russia,the income of Russians (that is,Russian GNP)rises by more than production in Russia (that is,Russian GDP).
A)True
B)False
Q2) Productivity can be computed as the number of hours worked divided by output.
A)True
B)False
Q3) Industrial machinery is an example of
A)a factor of production that in the past was an output from the production process.
B)technological knowledge.
C)a production function.
D)an item which always has the property called constant returns to scale.
Q4) International data on real GDP per person gives us a sense of how standards of living vary across countries.
A)True
B)False
Q5) Compare and contrast the population theories of Malthus and Kremer.
Q6) What is the difference between human capital and technology?
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Chapter 26: Saving,investment,and the Financial System
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Q1) Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.
A)True
B)False
Q2) The slope of the demand for loanable funds curve represents the
A)positive relation between the real interest rate and investment.
B)negative relation between the real interest rate and investment.
C)positive relation between the real interest rate and saving.
D)negative relation between the real interest rate and saving.
Q3) If national saving in a closed economy is greater than zero,which of the following must be true?
A)Either public saving or private saving must be greater than zero.
B)Investment is positive.
C) \(Y - C - G > 0\)
D)All of the above are correct.
Q4) The identity that shows that total income and total expenditure are equal is
A)GDP = Y.
B)Y = DI + T + NX.
C)GDP = GNP - NX.
D)Y = C + I + G + NX.
Page 28
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Chapter 27: The Basic Tools of Finance
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Q1) Other things the same,when the interest rate rises,the present value of future revenues from investment projects
A)rises,so investment spending rises.
B)falls,so investment spending rises.
C)rises,so investment spending falls.
D)falls,so investment spending falls.
Q2) If the efficient markets hypothesis is correct,then
A)the number of shares of stock offered for sale exceeds the number of shares of stock that people want to buy.
B)the stock market is informationally efficient.
C)stock prices never follow a random walk.
D)All of the above are correct.
Q3) If stock prices follow a random walk,it means
A)long periods of declining prices are followed by long periods of rising prices.
B)the greater the number of consecutive days of price declines,the greater the probability prices will increase the following day.
C)stock prices are unrelated to random events that shock the economy.
D)stock prices are just as likely to rise as to fall at any given time.
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Chapter 28: Islamic Finance
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Q1) Which of the following statements is not a key difference between Islamic and conventional banks.?
A)A conventional bank aims to maximize profits for the shareholders and provide adequate returns to depositors.
B)Conventional bank financing is interest orientated and both fixed and variable rates can be charged for the use of money.
C)In conventional banking speculative ventures can be.and are undertaken.
D)In conventional banking depositors gain interest and a guarantee of principal repayment.
Q2) The interpretation of Islamic shariah principles is attributed to five main schools of thought.Which of the following is not one of these schools of thought?
A)Maliki
B)Hanafi
C)Nakheel
D)Hanbali
Q3) Zakat is imposed on corporate profits or upon reserves in the case of banks.
A)True
B)False
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Chapter 29: Unemployment
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Q1) Consumers decide to ride bikes more and drive cars less.Bicycle companies expand production while automobile companies fire workers.This is an example of
A)frictional unemployment created by sectoral shifts.
B)frictional unemployment created by efficiency wages.
C)structural unemployment created by efficiency wages.
D)structural unemployment created by sectoral shifts.
Q2) Minimum-wage laws and unions are similar to each other but different from efficiency wages in that minimum-wage law and unions
A)cause unemployment,but efficiency wages do not.
B)cause the quantity of labor supplied to exceed the quantity of labor demanded,but efficiency wages do not.
C)cause wages to be above the equilibrium level.
D)prevent firms from lowering wages in the presence of a surplus of workers.
Q3) If there were no factors keeping wages from reaching equilibrium then there would be no
A)cyclical unemployment.
B)frictional unemployment.
C)structural unemployment.
D)natural rate of unemployment.
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Chapter 30: The Monetary System
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Q1) If the Fed decreases reserve requirements,the money supply will increase.
A)True
B)False
Q2) If a bank has a reserve ratio of 8 percent,then
A)government regulation requires the bank to use at least 8 percent of its deposits to make loans.
B)the bank's ratio of loans to deposits is 8 percent.
C)the bank keeps 8 percent of its deposits as reserves and loans out the rest.
D)the bank keeps 8 percent of its assets as reserves and loans out the rest.
Q3) If the public decides to hold less currency and more deposits in banks,bank reserves
A)decrease and the money supply eventually decreases.
B)decrease but the money supply does not change.
C)increase and the money supply eventually increases.
D)increase but the money supply does not change.
Q4) A debit card is more similar to a credit card than to a check.
A)True
B)False
Q5) Economists argue that the move from barter to money increased trade and production.How is this possible?
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Chapter 31: Money Growth and Inflation
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Q1) When inflation falls,people
A)make less frequent trips to the bank and firms make less frequent price changes.
B)make less frequent trips to the bank while firms make more frequent price changes.
C)make more frequent trips to the bank while firms make less frequent price changes.
D)make more frequent trips to the bank and firms make more frequent price changes.
Q2) If money demand shifts right,the price level falls.
A)True
B)False
Q3) People can reduce the inflation tax by
A)reducing savings.
B)increasing deductions on their income tax.
C)reducing cash holdings.
D)None of the above is correct.
Q4) The price level is determined by the supply of,and demand for,money.
A)True
B)False
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Chapter 32: Open-Economy Macroeconomic Models
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Q1) Other things the same,which of the following would both make you more willing to buy Italian goods?
A)the nominal exchange rate falls,the price of goods in Italy falls
B)the nominal exchange rate falls,the price of goods in Italy rises
C)the nominal exchange rate rises,the price of goods in Italy falls
D)the nominal exchange rate rises,the price of goods in Italy rises
Q2) During a hyperinflation the real domestic value of a country's currency
A)falls and its nominal exchange rate depreciates.
B)falls and its nominal exchange rate appreciates.
C)rises and its nominal exchange rate depreciates.
D)rises and its nominal exchange rate appreciates.
Q3) An open economy's GDP is always given by
A)Y = C + I + G.
B)Y = C + I + G + T.
C)Y = C + I + G + S.
D)Y = C + I + G + NX.
Q4) Other things the same,an increase in the foreign price level leads to an increase in the real exchange rate.
A)True
B)False
Page 34
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Chapter 33: A Macroeconomic Theory of the Open Economy
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Q1) An increase in the budget surplus
A)raises net exports and domestic investment.
B)raises net exports and reduces domestic investment.
C)reduces net exports and raises domestic investment.
D)reduces net exports and domestic investment.
Q2) A firm produces manufacturing equipment,some of which it exports.Which of the following effects of capital flight in the country it produces in would likely reduce the quantity of equipment it sells?
A)both what happens to the interest rate and what happens to the exchange rate
B)what happens to the interest rate but not what happens to the exchange rate
C)what happens to the exchange rate but not what happens to the interest rate
D)neither what happens to the interest rate nor what happens to the interest rate.
Q3) If the budget deficit increases,then
A)an increase in the interest rate increases net capital outflow.
B)an increase in the interest rate decreases net capital outflow.
C)a decrease in the interest rate increases net capital outflow.
D)a decrease in the interest rate decreases net capital outflow.
Q4) What effect do protectionist policies have on the trade deficit?
Page 35
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Chapter 34: Aggregate Demand and Aggregate Supply
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Q1) An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level
A)rises,shifting aggregate demand right.
B)rises,shifting aggregate demand left.
C)falls,shifting aggregate supply right.
D)falls,shifting aggregate supply left.
Q2) Which of the following accounts for about two-thirds of the decline in output during a recession?
A)the decline in consumption expenditures on consumer durables alone
B)the decline in total consumption spending alone
C)the decline in investment spending alone
D)the combined decline in consumption and investment spending
Q3) The aggregate quantity of goods and services demanded changes as the price level rises because
A)real wealth falls,interest rates rise,and the dollar appreciates.
B)real wealth falls,interest rates rise,and the dollar depreciates.
C)real wealth rises,interest rates fall,and the dollar appreciates.
D)real wealth rises,interest rates fall,and the dollar depreciates.
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Chapter 35: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) Assuming no crowding-out,investment-accelerator,or multiplier effects,a $100 billion increase in government expenditures shifts aggregate demand
A)right by more than $100 billion.
B)right by $100 billion.
C)left by more than $100 billion.
D)left by $100 billion.
Q2) There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending.Which of the following is correct?
A)By themselves,both the change in output and the change in the interest rate increase desired investment.
B)By themselves,both the change in output and the change in the interest rate decrease desired investment.
C)By itself,the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending.
D)By itself,the change in output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending.
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Chapter 36: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) Disinflation would eventually cause
A)the short-run and the long run Phillips curve to shift right.
B)the short-run and the long run Phillips curve to shift left.
C)the short-run Phillips curve but not the long run Phillips curve to shift right.
D)the short-run Phillips curve but not the long run Phillips curve to shift left.
Q2) If people anticipate higher inflation,but inflation remains the same then
A)the short-run Phillips curve would shift right and unemployment would rise.
B)the short-run Phillips curve would shift right and unemployment would fall.
C)the short-run Phillips curve would shift left and unemployment would rise.
D)the short-run Phillips curve would shift left and unemployment would fall.
Q3) Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.
Q4) Other things the same,an increase in aggregate demand reduces unemployment and raises inflation in the short run.
A)True
B)False
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Chapter 37: Six Debates Over Macroeconomic Policy
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Q1) When the government has a deficit,a burden is necessarily imposed on future generations of taxpayers.
A)True
B)False
Q2) According to the political business cycle theory,if the central bank wanted to see an incumbent re-elected,prior to the election it might
A)lower the discount rate and sell bonds.
B)lower the discount rate and buy bonds.
C)raise the discount rate and sell bonds.
D)raise the discount rate and buy bonds.
Q3) Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output.How would this affect the arguments of those who oppose using policy to stabilize output?
Q4) One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.
A)True
B)False
Q5) Explain how it is possible for the government debt to grow forever.
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