Macroeconomics
Study Guide Questions
Course Introduction
Macroeconomics is the study of the economy as a whole, focusing on broad aggregates and their interactions such as national income, total employment, aggregate demand and supply, inflation, economic growth, and monetary and fiscal policy. This course examines the key indicators and models used to analyze economic performance and fluctuations, explores how government interventions and global factors influence economic stability, and provides the skills to interpret contemporary economic issues like recessions, unemployment, and international trade imbalances. Through a blend of theoretical frameworks and real-world applications, students will gain a comprehensive understanding of how economies function at the national and global levels.
Recommended Textbook
Essentials of Economics 6th Edition by R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) The relationship between consumer spending and disposable personal income is A) an inverse relationship.
B) a direct relationship.
C) a negative relationship.
D) independent.
Answer: B
Q2) What is voluntary exchange?
Answer: Voluntary exchange is a situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction.
Q3) Refer to Scenario 1-2.Had the firm not produced and sold the last 300 hats,would its profit be higher or lower,and by how much?
A) Its profit will be $1,100 higher.
B) Its profit will be $100 higher.
C) Its profit will be $100 lower.
D) Its profit will be $1,000 lower.
Answer: B
Q4) Explain the term "economics."
Answer: Economics is the study of the choices people make to attain their goals,given their scarce resources.
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Q1) Suppose that in the United States,the opportunity cost of producing a motor engine is 4 auto bodies.In Canada,the opportunity cost of producing a motor engine is 2 auto bodies.
A)What is the opportunity cost of producing an auto body for the United States?
B)What is the opportunity cost of producing an auto body for Canada?
C)Which country has a comparative advantage in the production of auto bodies?
D)Which country has a comparative advantage in the production of motor engines?
Answer: A. FOR THE UNITED STATES,THE OPPORTUNITY COST OF PRODUCING AN AUTO BODY IS 1/4 OF A MOTOR ENGINE.
b. For Canada,the opportunity cost of producing an auto body is 1/2 of a motor engine.
c. The United States has a comparative advantage in the production of auto bodies.
d. Canada has a comparative advantage in the production of motor engines.
Q2) It is not possible to have a comparative advantage in producing a good or service without having an absolute advantage.
A)True
B)False
Answer: False
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Chapter 3: Where Prices Come From: The Interaction of
Demand and Supply
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Sample Questions
Q1) Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for ramen noodles,an inferior good.Which panel describes what happens in this market as a result of an increase in income?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
Answer: D
Q2) According to a recent study,"Stricter college alcohol policies,such as raising the price of alcohol,or banning alcohol on campus,decrease the number of students who use marijuana." On the basis of this information,how would you describe alcohol and marijuana?
A) The two goods are substitutes in consumption.
B) There is no relationship between the two goods.
C) The two goods are complements in consumption.
D) They are both luxury goods.
Answer: C
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Chapter 4: Market Efficiency and Market Failure
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Sample Questions
Q1) Which of the following describes a positive externality?
A) John Henry paints the outside of his house in order to increase its market value just before he puts the house up for sale.
B) People who do not attend college still benefit from others who receive a college education.
C) The government imposes a tax on cigarettes in order to discourage smoking among teenagers.
D) Mary volunteers to drive her neighbor's children to soccer practice.
Q2) Deadweight loss refers to the reduction in economic surplus resulting from a market not being in competitive equilibrium.
A)True
B)False
Q3) Refer to Figure 4-1.If the market price is $1.00,what is the consumer surplus on the third burrito?
A) $0.50
B) $1.00
C) $1.50
D) $7.50
Q4) What is a black market?
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Chapter 5: The Economics of Health Care
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Q1) The situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction is known as asymmetric information.
A)True
B)False
Q2) The difference between adverse selection and moral hazard is that
A) moral hazard happens at the time parties enter into a transaction; adverse selection occurs after the transaction takes place.
B) adverse selection happens at the time parties enter into a transaction; moral hazard occurs after the transaction takes place.
C) moral hazard is the motive that is behind one party entering into a transaction with another party. Adverse selection refers to the other party being harmed by the transaction.
D) moral hazard refers to the likelihood that a transaction will lead one party to be better off at the expense of the other party to the transaction. Adverse selection refers to the consequences of the transaction after it has occurred.
Q3) What is the main difference between a single-payer health care system and socialized medicine?
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Chapter 6: Firms, The Stock Market, and Corporate Governance
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Sample Questions
Q1) A firm's net worth is calculated as
A) the difference between a firm's revenues and explicit costs.
B) the difference between a firm's revenues and implicit costs.
C) the difference between a firm's assets and liabilities.
D) the difference between a firm's liabilities and outstanding equities.
Q2) The Sarbanes-Oxley Act of 2002 requires that each member of the board of directors personally certify the accuracy of financial reports.
A)True
B)False
Q3) A financial statement that sums up a firm's financial position on a particular day is A) a balance sheet.
B) an income statement.
C) statement of cash flow.
D) an equity report.
Q4) If a partnership raised funds by recruiting additional owners to invest in the firm,what would happen to the firm's financial capital?
Q5) Why might a small investor be interested in buying a mutual fund as opposed to stock in an individual company?
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Chapter 7: Consumer Choice and Elasticity
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Q1) Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50,the quantity demanded falls from 800 to 600 reams per day.Using the midpoint formula,what is the price elasticity of demand (in absolute value)over this range?
A) 0.003
B) 0.41
C) 2.43
D) 4
Q2) The only Giffen goods that have been identified so far in the real world are luxury goods.
A)True
B)False
Q3) A standard which came to the market first,such as the QWERTY letter layout in typewriters,can become entrenched (this layout is still used for computer keyboards today).What is this phenomenon called?
A) network externalities
B) path dependency
C) sunk cost
D) comparative advantage
Q4) Describe the demand curve for a Giffen good.
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Chapter 8: Technology,Production,and Costs
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Sample Questions
Q1) Two stores-Lazy Guys and Ralph's Recliners-are located in the same city.Both stores buy recliner chairs from the same manufacturer at the same price and both stores are about the same size,so that the fixed costs of production for both stores are the same.Ralph's Recliners sells more recliners per month and Ralph's has a lower average total cost of production.Which of the following can explain why the average total cost of production is lower for Ralph's Recliners?
A) Because Ralph's Recliners sells more output its average fixed costs are lower than Lazy Guys' average fixed costs.
B) The rent Lazy Guys pays for its building is greater than the rent paid by Ralph's Recliners.
C) Ralph's explicit costs are less because Ralph owns the land on which his building is located. Lazy Guys must make lease payments for the land on which its store is located.
D) The price of recliners charged by Ralph's is greater than the price charged by Lazy Guys.
Q2) The short run is the time period during which a firm has at least one input constraint.
A)True B)False
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Chapter 9: Firms in Perfectly Competitive Markets
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Q1) Refer to the Article Summary.Assume that the increase in net farm income in 2017 was a result of average total cost falling from being equal to the market price to slightly below the market price at the output level where marginal cost equals marginal revenue.This indicates that the market went from
A) breaking even to earning a profit.
B) suffering a loss to breaking even.
C) suffering a loss to earning a profit.
D) earning a profit to suffering a loss.
Q2) If firms do not earn economic profits in a competitive equilibrium,then why would the firms choose to stay in business?
Q3) Which of the following is not a characteristic of a monopolistically competitive market structure?
A) There is a large number of independently acting small sellers.
B) All sellers sell products that are differentiated.
C) There are low barriers to entry of new firms.
D) Each firm must react to actions of other firms.
Q4) What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?
Q5) What is meant by the term "long-run competitive equilibrium?
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Chapter 10: Monopoly and Antitrust Policy
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Q1) Holding everything else constant,government approval of horizontal mergers is more likely to be granted if the "market" that firms are in are broadly defined rather than narrowly defined.
A)True
B)False
Q2) Refer to Figure 10-6.The monopolist's total revenue is
A) $1,116.
B) $1,488.
C) $1,726.40
D) $1,826.
Q3) The U.S.government would never approve a proposed merger between two firms that could significantly increase the newly merged firm's market power even if the efficiency gains from the newly merged firm could make consumers better off.
A)True
B)False
Q4) A monopolist's demand curve is the same as the marginal revenue curve for the product.
A)True
B)False
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Chapter 11: Monopolistic Competition and Oligopoly
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Q1) Which of the following best explains why airlines often cut their ticket prices at the last-minute in order to fill the remaining empty seats on their flights?
A) Fixed costs in the airline industry are very large, but the marginal cost of flying one more passenger is very low.
B) Airlines receive a subsidy from the government for each flight that is fully booked and departs on time.
C) The Federal Aviation Administration ranks each airline based on the percentage of flights that are fully booked. These rankings affect the decisions of firms to use a particular airline to fly their employees to business meetings.
D) Cutting prices makes the airlines more popular with their customers, who may fly with the same airline in the future as the result of buying low-price tickets.
Q2) Of the following industries,which has the highest four-firm concentration ratio?
A) discount department stores
B) college bookstores
C) athletic footwear stores
D) pharmacies and drugstores
Q3) What are the formulas for total revenue,average revenue,and marginal revenue.
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Chapter 12: GDP: Measuring Total Production and Income
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Q1) If China decides to enact laws to clean up the environment,what would be the effect on GDP?
A) GDP would increase reflecting the fact that the environment would be cleaner.
B) GDP would decrease if the pollution controls reduce productivity by more than the cost of the controls.
C) GDP would increase as the citizens of China were made happier as the environment was cleaned up.
D) GDP would increase as the environmental costs of pollution were not included in the calculation of GDP.
Q2) Describe briefly how the final value of an iPhone which costs $700 must be equal to the sum of incomes generated by the production of the iPhone.
Q3) Refer to Table 12-17.What is nominal GDP in 2013?
A) $3,320
B) $3,690
C) $6,360
D) $7,035
Q4) If the value added of a firm is positive,will the firm necessarily have positive profits?
Q5) Why do we subtract import spending from total expenditures?
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Chapter 13: Unemployment and Inflation
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Q1) What is the difference between the nominal interest rate and the real interest rate?
Q2) If the nominal rate of interest is 6.5% and the inflation rate is 3.0%,what is the real rate of interest?
A) -9.5%
B) -3.5%
C) 1.5%
D) 3.5%
E) 9.5%
Q3) Refer to Table 13-5.Consider the following values of the consumer price index for 2017 and 2018.The inflation rate for 2018 was equal to
A) 215 percent.
B) 21.5 percent.
C) 8.0 percent.
D) 3.9 percent.
Q4) The nominal interest rate plus the inflation rate equals the real interest rate. A)True B)False
Q5) Explain how the CPI is constructed.
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Chapter 14: Economic Growth, The Financial System, and Business Cycles
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Q1) If real GDP in a closed economy is $40 billion,consumption is $20 billion,and government purchases are $10 billion,what is investment?
A) $10 billion
B) $30 billion
C) $40 billion
D) $70 billion
Q2) The budget deficit is defined as
A) T - (G + TR), and this is negative.
B) T - (G + TR), and this is positive.
C) T + (G - TR), and this is negative.
D) T + (G + TR), and this is negative.
Q3) The U.S.federal government has experienced dramatic swings in the state of its budget over the past 20 years.
A)True
B)False
Q4) How has economist Robert Fogel explained that economic growth is connected to life expectancy? Based on this connection,in what country would you expect to have a longer life expectancy,the United States or India? Explain.
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Q5) Outline the various actions the government sector could take to promote growth.
Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Q1) A supply shock causes the long-run aggregate supply curve to shift left,decreasing the price level.
A)True
B)False
Q2) Refer to Figure 15-1.Ceteris paribus,an increase in firms' expectations of the future profitability of investment spending would be represented by a movement from
A) AD to AD .
B) AD to AD .
C) point A to point B.
D) point B to point A.
Q3) Explain whether KB Homes' sales are likely to fluctuate more or less than the sales of each of the following firms as the economy moves from recession to expansion and back to recession.
Whirlpool Corporation (appliance manufacturer)
Taco Bell
The Boeing Company (aircraft manufacturer) GameStop (video game sales and rentals)
Q4) Why does the short-run aggregate supply curve slope upward?
Q5) Briefly describe monetarism and the monetary growth rule.
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Chapter 16: Money,Banks,and the Federal Reserve System
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Q1) Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent.If the Federal Reserve raises the required reserve ratio to 15 percent,then the bank will now have excess reserves of
A) $0.
B) -$5 million.
C) $5 million.
D) $15 million.
Q2) A bank holds its reserves as ________ and ________.
A) securities; loans
B) securities; deposits at the Federal Reserve
C) vault cash; deposits at the Federal Reserve
D) vault cash; loans
Q3) The Fed can change the money supply more quickly by using open market operations as compared to discount policy.
A)True
B)False
Q4) Why does the holding of excess reserves by banks and the holding of currency by households and firms cause the real-world deposit multiplier to be less than the simple deposit multiplier?
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Chapter 17: Monetary Policy
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Q1) The Federal Reserve's two main ________ are the money supply and the interest rate.
A) monetary policy targets
B) policy tools
C) fiscal policy targets
D) fiscal tools
Q2) An increase in the interest rate
A) decreases the opportunity cost of holding money.
B) increases the opportunity cost of holding money.
C) decreases the percentage yield of holding money.
D) increases the percentage yield of holding money.
Q3) Refer to Table 17-3.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2018 and in 2019 if the Federal Reserve does not use monetary policy.If the Fed wants to keep real GDP at its potential level in 2019,it should
A) buy Treasury securities.
B) sell Treasury securities.
C) decrease the required reserve ratio.
D) decrease income taxes.
Q4) What problems can high inflation rates cause for the economy?
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Chapter 18: Fiscal Policy
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Q1) An increase in government purchases of $200 billion will shift the aggregate demand curve to the right by
A) $200 billion.
B) less than $200 billion.
C) more than $200 billion.
D) None of the above are correct. This policy shifts the long-run aggregate supply curve.
Q2) The aggregate demand curve will shift to the left ________ the initial decrease in government purchases.
A) by less than
B) by more than
C) by the same amount as
D) sometimes by more than and other times by less than
Q3) During 1970-1997,the U.S.federal government was
A) in surplus every year.
B) balanced every year.
C) in deficit every year.
D) in deficit most of those years.
Q4) Explain why the timing of fiscal policy may be more difficult than the timing of monetary policy.
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Chapter 19: Comparative Advantage, International Trade, and Exchange Rates
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Q1) In the 1930s,the United States charged an average tariff rate ________.Today,the rate is ________.
A) of 100 percent; 20 percent
B) above 50 percent; less than 1.5 percent
C) of less than 10 percent; over 40 percent
D) of 17 percent; 33 percent
Q2) How does an increase in a country's exchange rate affect its balance of trade?
A) An increase in the exchange rate raises imports, reduces exports, and reduces the balance of trade.
B) An increase in the exchange rate reduces imports, raises exports, and reduces the balance of trade.
C) An increase in the exchange rate reduces imports, raises exports, and increases the balance of trade.
D) An increase in the exchange rate raises imports, reduces exports, and increases the balance of trade.
Q3) What are terms of trade?
Q4) a.Define the term "globalization."
b.Describe the benefits of globalization.
c.Who is likely to oppose globalization and why?
21
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