Macroeconomics
Test Questions
Course Introduction
Macroeconomics is the branch of economics that examines the behavior, performance, and structure of an economy as a whole rather than individual markets. It explores critical concepts such as gross domestic product (GDP), unemployment rates, inflation, economic growth, fiscal and monetary policy, and international trade. Through the study of macroeconomics, students gain an understanding of how aggregate demand and supply influence the overall level of economic activity, the role of government and central banks in stabilizing the economy, and the impact of global economic events. This course provides foundational knowledge for analyzing national and global economic trends and formulating informed policies to foster economic stability and growth.
Recommended Textbook
Macroeconomics Understanding the Global Economy 3rd Edition by David Miles
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704 Flashcards
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Chapter 1: What Is Macroeconomics
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Sample Questions
Q1) Which of the following is not a macroeconomic event?
A) a fluctuation in interest rates
B) a change in the exchange rate
C) the bankruptcy of a competitive firm
D) a drop in stock market prices
E) a shift in monetary policy
Answer: C
Q2) A general definition of economics is the study of A) money
B) the allocation of resources
C) the distribution of income
D) the production of goods
E) the role of government in society
Answer: B
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Chapter 2: The Language of Macroeconomicsthe National
Income Accounts
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Sample Questions
Q1) Using chain-weighted prices with year one as the base year,real GDP in years one,two,and three respectively was
A) 5000, 6428, 6299
B) 5000, 6700, 7200
C) 6000, 6800, 7400
D) 6320, 8900, 8800
E) 6083, 8070, 7909
Answer: A
Q2) The largest component of U.S.GDP is
A) the government's budget surplus
B) capital investments in physical assets
C) consumption expenditures
D) the national debt
E) dollar-denominated exports of U.S. goods
Answer: C
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Chapter 3: The Wealth of Nationsthe Supply Side
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Sample Questions
Q1) For an economy with a Cobb-Douglas production function in which labor receives 70% of national income and capital receives 30%,a 10% increase in total hours worked,holding all else constant
A) increases the marginal product of labor by 3%
B) increases the marginal product of capital by 7%
C) increases total factor productivity by 5%
D) increases the share of national income paid to labor 10%
E) increases output by 10%
Answer: B
Q2) The three principal inputs in the production process are
A) land, natural resources, and capital
B) money, labor, and technology
C) physical capital, human capital, and financial capital
D) capital, labor, and total factor productivity
E) technology, total factor productivity, and innovation
Answer: D
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Chapter 4: Capital Accumulation and Economic Growth
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Sample Questions
Q1) 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
Q2) During the 20<sup>th</sup> century,convergence occurred most clearly
A) between Africa and North America
B) between China and Western Europe
C) within Western Europe
D) between Japan and South America
E) between India and North America
Q3) Long run increases in an economy's output,achieved without increasing either the capital stock,total labor hours employed,or other inputs can result from
A) the removal of price floors
B) expansion of the money supply
C) technological progress
D) corporate mergers
E) all of the above
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Page 6
Chapter 5: Total Factor Productivity, human Capital, and Technology
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Sample Questions
Q1) Developed economies need to engage in research and development more than do developing economies because developed economies
A) have greater capital depreciation rates
B) have largely exhausted the gains from capital accumulation
C) are inherently less innovative than developing economies
D) need to exploit rent-seeking opportunities in order to continue growing
E) have smaller workforces
Q2) In this economy,approximately how fast would the capital stock need to grow to produce growth of 1% per annum?
A) 1% per annum
B) 2.5% per annum
C) 3.3% per annum
D) 4.8% per annum
E) 5.2% per annum
Q3) The historically slow development of the Chinese economy may be attributable to A) geographical constraints
B) it large markets
C) rent-seeking
D) the size of the labor force
E) lack of usable natural resources
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Chapter 6: Endogenous Growth and Convergence
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Sample Questions
Q1) Most rich economies have committed to donate what percentage of their GDP in aid?
A) 5%
B) 0.5%
C) 0.7%
D) 0.1%
E) none
Q2) Which of the following is not a geographical disadvantage of Sub-Saharan Africa
A) High percentage of land in the tropics
B) High percentage of population in landlocked nations
C) Long average distance to core market
D) High exposure to tropical diseases
E) Excessive population density at or near coast
Q3) If convergence is occurring between rich and poor countries one would expect
A) Economic growth rates to equalize
B) Rich countries to grow more quickly than poor countries
C) Poor countries to grow more slowly than poor countries
D) Population growth to be faster in poor countries that rich countries
E) Population growth to be slower in poor countries that rich countries
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Chapter 7: Unemployment and the Labor Market
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Sample Questions
Q1) In most developed economies,unemployment insurance benefits
A) are nonexistent
B) paid for by insurance companies
C) initially replace 100% of lost wages
D) replace an increasing percentage of lost earnings as the duration of unemployment becomes prolonged
E) become less generous as the duration of unemployment is prolonged
Q2) In general,high unemployment is associated with
A) High levels of labour market co-ordination
B) Low levels of labour market co-ordination
C) Both high and low levels of labour market co-ordination
D) Neither high nor low levels of labour market coordination
E) Other factors and is unrelated to labour market co-ordination
Q3) In the 1990s the Netherlands reduced its unemployment rate by
A) reducing union density and coverage
B) cutting payroll taxes
C) reducing the unemployment insurance replacement rate
D) using active labor market expenditures and coordination
E) all of the above
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Chapter 8: International Trade
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Sample Questions
Q1) Differences between trade partners in real hourly wage rates for unskilled labor illustrate
A) the fallacy of the factor-price equalization theorem
B) the importance of different capital endowments
C) discrepancies between nations in accounting procedures
D) the principle of comparative advantage
E) the disequilibria created by international trade
Q2) Applied to trade in two goods between two countries,the principle of comparative advantage does not suggest that
A) a nation with an absolute disadvantage in producing both goods will have a comparative advantage in producing one of them
B) the two nations will specialize in the production of different goods
C) both nations will equally benefit from trade
D) consumption possibilities will exceed production possibilities after trade
E) each nation will import the good whose opportunity cost of production is higher at home than abroad
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Chapter 9: Globalization
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Sample Questions
Q1) Which of the following is not among the primary operations of the IMF?
A) monitoring governments to determine which are in danger of experiencing a balance of payments crisis
B) establishing conditions on a country's economic policies as prerequisites for loans
C) lending funds on a short-term basis to countries in crisis
D) providing technical assistance to governments, to help implement economic reforms
E)arbitrating balance-of-payments disputes among member nations
Q2) Which of the following has not been proposed as a rationale for promoting import substitution?
A) The Prebisch-Singer hypothesis
B) The belief that technological progress occurs mainly in manufacturing
C) The infant industry argument
D) The idea that imports can be a source of TFP growth
E) The fear that reliance on imports makes the economy vulnerable to external forces
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Chapter 10: Consumption Investment
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Sample Questions
Q1) The marginal propensity to consume is
A) identical to the average propensity to consume
B) the inverse of the marginal propensity to save
C) the slope of the consumption function
D) the inverse of the expenditure multiplier
E) equal to the income tax rate
Q2) The equilibrium level of national income is
A) 15,000
B) 13,500
C) 1,500
D) 5,000
E) 4,500
Q3) In the absence of borrowing constraints,then beginning at age 18,the individual should consume
A) all of his income as he receives it each year
B) $10,000 every year
C) $20,000 every year
D) $30,000 every year
E) $25,000 every year
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Page 12
Chapter 11: Business Cycles
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Sample Questions
Q1) Internationally,recessions
A) are likely to begin in the smallest economies and spread to larger ones
B) are isolated events, uncorrelated across countries
C) in one region mean that world demand has shifted elsewhere, so other countries do not fall prey to downturns at the same time
D) are especially contagious among trade partners
E) are most pronounced among Socialist countries
Q2) A growth recession occurs when
A) there are two successive quarters of negative GDP growth
B) economic growth is so rapid that it creates inflation
C) real GDP is growing but nominal GDP is not
D) potential GDP declines
E) GDP grows at a slower rate than its long run trend
Q3) Which of the following could cause a recession?
A) An increase in consumption
B) An increase in saving
C) An increase in investment
D) An increase in government purchases
E) An increase in exports
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Chapter 12: Money and Prices
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Sample Questions
Q1) The equation of exchange states that the relationship among the money supply (M),the price level (P),the velocity of money (V) and real output (Y) is
A) MP = VY
B) M/P = YV
C) PV = MY
D) MV = PY
E) Y/V = MP
Q2) Japan appeared to have entered a liquidity trap at the turn of the century because
A) inflation made currency holdings virtually worthless
B) the central bank pushed nominal interest rates so high than investment stagnated
C) consumer spending rose dramatically, depleting savings
D) deflation pushed real interest rates up to levels that the central bank could not correct
E) long-term investments depleted the economy of cash
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Chapter 13: Monetary Policy
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Sample Questions
Q1) Which of the following is true of inflation targeting?
A) it is conducted with openness rather than secrecy
B) it is a specific policy rule
C) it restricts policymakers' attention to one easily identified variable
D) it is a form of monetarism which relies on a relatively narrow interpretation of the Quantity Theory
E) though theoretically legitimate, it has not been adopted in practice by any major central banks
Q2) Suppose that as sales of goods shift from bricks-and-mortar stores to the internet,the transactions demand for cash declines. Then in the absence of any other changes,
A) the IS curve shifts outward
B) the LM curve shifts inward
C) the velocity of money will adjust to keep GDP constant
D) interest rates will fall and GDP will increase
E) interest rates will rise and investment will decline
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Chapter 14: Fiscal Policy and the Role of Government
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Q1) The efficiency argument for tax smoothing is that tax-induced distortions are smallest when taxes are
A) levied on goods with highly elastic supply curves
B) levied on goods with highly elastic demand curves
C) not changed frequently
D) raised during recessions and lowered during booms
E) used to finance government consumption rather than infrastructure
Q2) Which of the following government functions could most easily be handled by the private sector?
A) education
B) national defense
C) the legal system
D) the police force
E) foreign policy
Q3) Which of the following is not generally considered a market failure?
A) public goods
B) missing markets
C) the undesirable distribution of income
D) monopoly
E) allocation of resources based on price
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Chapter 15: Stabilization Policy
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Sample Questions
Q1) The empirical relationship between inflation and unemployment is known as
A) the short run aggregate supply curve
B) the Phillips Curve
C) Okun's Law
D) Ricardian equivalence
E) the Laffer curve
Q2) A balanced budget rule which precluded a deficit in any fiscal year would
A) stabilize short- and medium-term GDP
B) exacerbate recessions
C) be equivalent to handing fiscal policy to an independent agency, just as monetary policy is handled by an independent central bank
D) create a more predictable environment conducive to investment
E) cause the national debt to rise at the same rate as inflation
Q3) A reasonable stabilization policy in these circumstances would involve
A) increasing the inflation rate to .06
B) reducing inflation through demand management
C) raising interest rates
D) shifting the short run Phillips Curve outward
E) an increase of .02 in the income tax rate
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Chapter 16: Financial Markets: Equities and Bonds
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Sample Questions
Q1) The difference in rates of return between corporate stocks and US government Treasury bills is called
A) capital gains
B) the dividend yield
C) the equity premium
D) covered interest parity
E) the sacrifice ratio
Q2) Suppose there is a 20% chance of mean reversion. Then if the bubble persists during the current period,the price will
A) rise 3.025%
B) rise 5.63%
C) rise 7.00%
D) rise 27.00%
E) remain constant
Q3) The yield on a bond
A) is fixed in advance, like the interest rate on a bank account
B) is directly proportional to the term to maturity
C) is inversely related to the bond price
D) is inversely related to the face value of the bond
E) in unrelated to the coupon rate
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Chapter 17: The Banking Sector
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Sample Questions
Q1) 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
Q2) A key difference between a Commercial and an Investment Bank is
A) Investment Banks focus on lending for investment rather the consumption
B) Commercial Banks tend to act as intermediaries in financial markets
C) Investment Banks focus on mortgages and loans to firms
D) Investment Banks may engage in proprietary trading
E) Commercial Banks often advise firms on how to raise funds in financial markets
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Chapter 18: Sovereign Debt and Default
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Q1) Inflation can reduce the burden of debt for a sovereign borrower because
A) High inflation reduces interest payments on existing debt
B) High inflation makes issuing new debt cheaper
C) High inflation raises the nominal value of tax revenues and GDP without raising the value of existing debt
D) High inflation causes foreign currency debt to fall in value in local currency terms
E) High inflation reduces the nominal value of existing debt.
Q2) Government borrowing tends to ________ in recessions and _______ in booms ?
A) Decrease, increase
B) Increase, decrease
C) Remain the same, remain the same
D) Increase, increase
E) Decrease, decrease
Q3) 'Junk' Bonds are defined as bonds
A) of an issuer in default
B) of an issuer with a credit rating below AAA (S&P rating)
C) of an issuer without a credit rating
D) of an issuer with a rating below BBB- (S&P rating)
E) of an issuer with a rating below CCC- (S&P rating)
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Chapter 19: Exchange Rate Determination I the Real
Exchange Rate
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Sample Questions
Q1) Then on a trade-weighted basis,North's currency has effectively
A) appreciated by 23%
B) appreciated by 33%
C) appreciated by 110%
D) depreciated by 5%
E) depreciated by 13%
Q2) An economy in which GDP = 900,C = 600,T = 100,I = 100,G = 300,and there is no net income on foreign accounts must have
A) exports equal to imports
B) saving in excess of investment by 200
C) a capital account deficit of 200
D) net exports of 100
E) a current account deficit of 100
Q3) If a nation has a capital account deficit,
A) its national debt in increasing
B) it also has a current account surplus
C) its government is running a budget deficit
D) its net exports are negative
E) its investment exceeds its savings
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Chapter 20: Exchange Rate Determination Iinominal
Exchange Rates and Asset Markets
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Sample Questions
Q1) 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
Q2) Consider the simple case of covered interest parity. If the spot market exchange rate is £1 = $2.50,the one-year UK interest rate is 6% and the one-year US interest rate is 4%,then the one-year forward rate must price the pound sterling at
A) $2.75
B) $2.55
C) $2.45
D) $2.25
E) $2.15
Q3) On the spot market,UIP predicts that the exchange rate should be
A) £1.08 = $1.04
B) £2.16 = $0.96
C) £2.04 = $1.00
D) £1.50 = $2.00
E) £1 = $2.08
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Chapter 21: Currency Crises and Exchange Rate Systems
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Q1) Advocates of capital account liberalization emphasize each of the following except the idea that capital flows
A) enable poor countries to borrow for investment
B) smooth consumption in the face of idiosyncratic risk
C) impose discipline on policy makers
D) increase the depth and sophistication of financial markets
E) lead to factor price equalization across countries
Q2) Dollarization occurs when
A) the Federal Reserve finances a federal budget deficit by buying newly issued Treasury bonds in order to prevent interest rates from rising
B) a country adopts the US dollar as its legal tender
C) foreign currency boards target the US dollar
D) US importers reprice items in dollar terms
E) The IMF or a central bank sells reserves of US dollars on the world market to alter exchange rates
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