Course Introduction
Macroeconomics
Test Questions
Macroeconomics is a foundational course that explores the behavior and performance of an economy as a whole. Topics include national income determination, unemployment, inflation, economic growth, monetary and fiscal policy, and the role of government in stabilizing the economy. By examining aggregate indicators and economic policies, students develop an understanding of how economies function, the causes and effects of economic fluctuations, and the interconnectedness of global markets. The course equips students with analytical tools to interpret real-world economic issues and policy debates.
Recommended Textbook
Economics Principles and Policy 13th Edition by William J. Baumol
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Page 2
Chapter 1: What Is Economics
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Sample Questions
Q1) Slope will vary along a curve (as opposed to a straight line).
A)True
B)False
Answer: True
Q2) A contour map illustrates a cause and effect relationship among three variables. A)True
B)False
Answer: False
Q3) If you leave your money in the bank at a fixed interest rate and allow for compounding of interest, show what will happen to your savings over time.Indicate with a graph whether there is a negative or positive slope between savings and time and what happens to the slope over time.
Answer: Figure 1-3
11ea4b3a_66d4_7fa8_b63d_895162dc660e_TB2282_00 Placing time on the horizontal axis (the independent variable) and savings on the vertical axis (the dependent variable), savings will increase at an increasing rate (Figure 1-2). Slope is positive, and increasing.For example, $100 saved at 5 percent interest will yield $105 at the end of one year.At the end of the second year, one has $105 + $105(.05) = $110.25.Savings increases by $5.25 in year 2, a greater increase than the $5 increase in year 1.
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Chapter 2: The Economy: Myth and Reality
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Sample Questions
Q1) Real GDP is the dollar value of all goods and services produced in an economy.
A)True
B)False
Answer: False
Q2) A firm that does business all over the world is called a(n)
A)multinational corporation.
B)international conglomerate.
C)competitive corporation.
D)government-owned business.
Answer: A
Q3) What you mean by business cycles? What are their consequences?
Answer: Business cycles are periodic upswings and downswings in economic growth.One important consequence of these ups and downs in economic growth is that employment varies considerably from one year to the next.
Q4) According to the data on real U.S.GDP,
A)economic growth has been irregular, with periodic downturns.
B)economic growth has been consistent, with few downturns.
C)economic growth has been extremely rapid, but with major collapses.
D)economic growth has been elusive, but downturns have been eliminated.
Answer: A
Page 4
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Chapter 3: The Fundamental Economic Problem: Scarcity and Choice
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Sample Questions
Q1) Which of the following quotations best captures the idea of opportunity cost?
A)"Opportunity knocks but once."
B)"Every choice involves a sacrifice."
C)"Let's not ask for the moon; we have the stars."
D)"Fools rush in where wise men fear to tread."
E)"All that glitters is not gold."
Answer: B
Q2) The total amount of consumption of a society can be increased if
A)firms allow each worker to perform multiple tasks.
B)resources are allocated by a central planning group.
C)individuals engage in specialization and voluntary trade.
D)barter exchange is used in place of money.
Answer: C
Q3) Do all valuable items have price tags?
A)No, because some valuable items have no opportunity cost.
B)Yes, because everything has its price.
C)Yes, because price is the measure of opportunity cost.
D)No, some have no explicit price on them.
E)Yes, because only items that can be sold in markets have value.
Answer: D
Page 5
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Chapter 4: Supply and Demand: an Initial Look
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Sample Questions
Q1) The demand curve for a typical good has
A)a negative slope because some consumers switch to other goods as the price of the good rises.
B)a negative slope because the supply of the good rises as demand rises.
C)a negative slope because the good has less "snob appeal" as its price falls.
D)an inverse slope because as the price goes up, the good has more profitability.
E)a positive slope because price is a clear indicator of need.
Q2) In a move to free the economy from unnecessary regulation, Congress decides to remove sugar price supports.What would most likely happen to the number of producers of sugar?
A)It would decrease, because sugar prices would fall.
B)It would decrease, because sugar prices would rise.
C)It would increase, because sugar prices would fall.
D)It would increase, because sugar prices would rise.
Q3) The demand for home computers has increased, yet the price has fallen.Explain this apparent paradox.
Q4) Price ceilings will likely result in the growth of black markets.
A)True
B)False
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Chapter 5: Consumer Choice: Individual and Market Demand
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Sample Questions
Q1) Figure 5-5 shows a consumer budget line for french fries and hamburgers.The price of an order fries is $2.The price of a burger is
A)$1.
B)$2.
C)$4.
D)$8.
Q2) Consumer surplus is the difference between the worth of a commodity to the consumer and the price the consumer pays for the commodity.
A)True
B)False
Q3) An inferior good is one that consumers buy in smaller quantities when incomes rise. A)True
B)False
Q4) Use consumer indifference curves and budget lines to show the optimal consumption curves for a normal good and for an inferior good.(Use two graphs.) Be sure your graphs are completely and correctly labeled.
Q5) Using Table 5-3, graph the marginal utility curve.
Page 7
Q6) What are the properties of indifference curves?
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Chapter 6: Demand and Elasticity
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Sample Questions
Q1) The emigration of some of Whoville's workers reduces the quantity of thingamabobs supplied at every price by 50.The new supply curve will ____ the old supply curve. A)be steeper and less elastic at every price than B)have the same slope and the same elasticity at every price as C)have the same slope and be more elastic at every price than D)More information is needed to predict the relationship between the elasticities of the two supply curves.
Q2) Sun City's public bus line has been operating at a deficit.The city decides to raise the fare from 50 cents to 75 cents, anticipating enough additional revenue to cover the deficit.What assumption is the city making about price elasticity?
Q3) Since an individual spends a small share of her income on salt, the elasticity of demand is likely to be low.
A)True B)False
Q4) A buyer's response to a change in income is an example of a "change in demand." A)True B)False
Q5) How might a court use cross elasticity in an antitrust case?
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Chapter 7: Production, Inputs, and Cost: Building Blocks for Supply Analysis
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Sample Questions
Q1) Economies of scale
A)require inputs' MPP to fall as output increases (everything else equal).
B)pertain to the long run only.
C)refer to increased output generalized by an increase in the quantity of a single input.
D)imply that the AC curve will fall continuously as output increases in the short run.
Q2) A budget line is the locus of all points representing every input combination of inputs that the producer can afford to buy with a given amount of money and given input prices.
A)True
B)False
Q3) Aunt Rose owned a dress shop on 81st Street and Broadway in Manhattan, selling limited-edition dresses to wealthy clients.One day, her landlord tripled her rent.What effect would this have on her dress price in the short run, assuming she is following the rules of profit maximization?
Q4) In the short run the firm has at least one fixed input.
A)True
B)False
Q5) How long is the long run?
Page 9
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Chapter 8: Output, Price, and Profit: the Importance of Marginal Analysis
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Sample Questions
Q1) Total profit = Total revenue Total cost (including opportunity cost).? ?
Total profit defined in this way is called
A)accounting profit.
B)economic profit.
C)absolute profit.
D)relative profit.
Q2) All business firms should consider their fixed costs in determining the prices they set. A)True
B)False
Q3) If marginal profit is zero, then total profit is at a maximum. A)True
B)False
Q4) A firm is generally more interested in marginal profits than in total profits. A)True B)False
Q5) Using marginal analysis, explain why many restaurants and coffee shops offer low-cost refills on beverages (for example, a shop may charge $1.50 for a cup of coffee and only $.50 for a refill).
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Chapter 9: Securities: Business Finance and the Economy:
the Tail That Wags the Dog
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Sample Questions
Q1) Corporate income is taxed twice-once in the form of corporate income tax and the second time when the owner must pay income tax on dividends.What are the effects of this double taxation?
Q2) A corporation seeking to expand, and looking for the least risky financing option would choose:
A)stocks B)bonds
C)retained earnings D)a bank loan
Q3) Takeover of one firm by another A)ties up the nation's capital wastefully. B)uses up the economy's credit supply.
C)reduces the value of the acquired firm.
D)changes ownership of the acquired firm.
Q4) A partnership requires the agreement of most or all partners to any major decision. A)True B)False
Q5) From the viewpoint of the individual investor, are stocks or bonds riskier? Explain.
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Chapter 10: The Firm and the Industry Under Perfect Competition
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Sample Questions
Q1) In a perfectly competitive industry, influence over price is exerted by A)individual sellers.
B)individual buyers.
C)the largest firms.
D)the forces of supply and demand.
Q2) If the price falls below minimum SRAVC, the quantity supplied by the firm will be
A)the quantity at minimum MC.
B)zero.
C)the quantity at the point where MC intersects AC.
D)the quantity at minimum AC.
Q3) The entry of new firms into a perfectly competitive market shifts the demand curve outward.
A)True
B)False
Q4) A firm operating at MC = MR must be making a profit.
A)True
B)False
Q5) What is the difference between the accountant's concept of profit and the economist's view of profit?
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Chapter 11: Monopoly
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Sample Questions
Q1) Why is the advent of monopoly likely to shift cost curves?
Q2) Given the average cost curve shown in Figure 11-8 for dry cleaning, where Q is the quantity demanded in a small town, and Q for a larger town, you would expect dry cleaning to be a monopoly
A)in a small town, but not a large one.
B)in both large and small towns.
C)in a large town, but not a small one.
D)only if the process is patented.
Q3) A monopolist firm may be more innovative than a competitive firm.
A)True
B)False
Q4) A pure monopoly is defined as having only one seller.
A)True
B)False
Q5) Give a complete and concise definition of each of the following terms.
a.deliberately erected entry barriers
b.inefficiency of monopoly
c.price discrimination
d.profit-maximizing equilibrium for a monopolist
Q6) Explain why marginal revenue is less than price for a monopolist.
Page 13
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Chapter 12: Between Competition and Monopoly
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Sample Questions
Q1) Given the characteristics: (1) many buyers and sellers, (2) free entry and exit, (3) perfect information, and (4) heterogeneity of products, monopolistic competition and perfect competition share
A)(1) and (4).
B)(1), (2), and (3).
C)(2) and (4).
D)(2), (3), and (4).
Q2) The excess capacity theorem states that society would clearly benefit from a reduction in the number of monopolistic competitors.
A)True
B)False
Q3) If a firm decides to ignore the reactions of its rivals to its policies, the appropriate model to analyze its behavior is
A)game theory.
B)perfect competition.
C)monopoly.
D)cartels.
Q4) What are the assumptions of the kinked demand curve model?
What is its main conclusion about oligopoly behavior?
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Chapter 13: Limiting Market Power: Regulation and Antitrust
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Sample Questions
Q1) Monopolies may be the only firms large enough to commercially produce a significantly innovative new product.
A)True
B)False
Q2) Deregulation has dramatically decreased airline safety.
A)True
B)False
Q3) One of the clear effects of deregulation was
A)lower prices of many services.
B)increased entry of new firms into regulated industries.
C)lower income to unions working in regulated industries.
D)all of the above.
Q4) Firms with monopoly power tend to be more efficient than competitive firms.
A)True
B)False
Q5) Unrestrained monopolies are criticized because they restrict output and reduce innovation.
A)True
B)False
Q6) Briefly review the history of antitrust legislation in the United States.
Page 15
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Chapter 14: The Case for Free Markets: the Price System
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Sample Questions
Q1) In a classic administrative snafu, the Army assigns trained classical musicians to kitchen duty and places trained cooks in the military band.This is an example of inefficiency in A)output selection.
B)production planning.
C)product distribution.
D)market segmentation.
Q2) In a free-market system, producers will react to an increase in demand when A)the price goes up.
B)the government announces the increased demand.
C)their costs increase.
D)the free press publishes news of the increased demand.
Q3) The introduction of a subsidy in a perfectly competitive marketplace that is originally in equilibrium will raise total surplus.
A)True
B)False
Q4) Prices set too low can actually be against the public interest.
A)True
B)False
Q5) What makes production-planning a daunting task for central planners?
Page 16
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Chapter 15: The Shortcomings of Free Markets
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Sample Questions
Q1) A 2% wage increase for teachers or police officers is:
A)usually offset by higher output per worker.
B)leads to increases in municipal budgets.
C)indicates that teachers and police have became more selfish.
D)leads to more personalized service.
Q2) For most industrial nations, health-care costs have increased faster than the rate of inflation.
A)True
B)False
Q3) Conscious manipulation of the interest rate causes it to become a less effective tool in allocating resources among time periods.
A)True
B)False
Q4) The opportunity cost of postponing income to some future time depends on the interest rate.
A)True
B)False
Q5) The marginal cost of serving an additional user of a public good is zero.
A)True
B)False
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Chapter 16: Externalities, the Environment, and Natural Resources
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Sample Questions
Q1) Many economists argue that the most efficient way to control pollution is to
A)ban all activities that create pollution.
B)enforce legal standards on air and water quality.
C)promote environmental awareness among citizens.
D)impose taxes on emissions.
Q2) Which of the following is most likely to reduce the consumption of an exhaustible natural resource?
A)a decrease in monopoly control of the market for the resource
B)government tax policies that give tax breaks to entrepreneurs who search for new reserves of the resource
C)implementation of a price ceiling for the resource below its equilibrium price
D)government macroeconomic policies that lower the interest rate on bonds
Q3) Economists predicted that the price of a depletable natural resource would rise by about 15 percent.Actually the price fell 10 percent.What most likely happened?
A)A government subsidy was removed.
B)Extraction costs increased.
C)Price controls were suspended.
D)An unexpected discovery of reserves was made.
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Chapter 17: Taxation and Resource Allocation
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Sample Questions
Q1) Which of the following taxes is least likely to be shifted?
A)a federal excise tax on grapefruit
B)a sales tax on some foodstuffs
C)a personal income tax
D)a state tax on football tickets
Q2) If two families are identical with respect to size, income, general expenses, etc., and are taxed equally, we say that there is
A)horizontal equity.
B)vertical equity.
C)observance of the ability-to-pay principle.
D)intergenerational equity.
Q3) Sales taxes, property taxes, and value-added taxes are examples of indirect taxes.
A)True
B)False
Q4) States rely primarily on income taxes as a source of revenue. A)True
B)False
Q5) Describe the U.S.Social Security system and explain how it is funded.
Q6) What are tax loopholes and what are their effects?
Page 19
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Chapter 18: Pricing the Factors of Production
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Sample Questions
Q1) The supply curve for land is perfectly elastic.
A)True
B)False
Q2) The cost of production on the "bottom forty" is $100,000 for a given size crop.On the "north forty," due to erosion of the soil, the cost is $150,000.If both are being farmed by tenants, we would expect the rent on the "bottom forty" to be
A)$50,000 below the rent on the north forty.
B)$50,000 above the rent on the north forty.
C)different from that on the north forty by an indeterminable amount.
D)$50,000, and the rent on the north forty is $50,000.
Q3) Marginal land is land
A)that is unprofitable under any circumstances.
B)that is the most productive in the area.
C)that is on the borderline of profitability.
D)of average productivity.
Q4) MPP is the additional output that results from a one-unit increase in use of the input.
A)True
B)False
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Chapter 19: Labor and Entrepreneurship: the Human Inputs
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Sample Questions
Q1) Which economist created the theory of creative destruction?
A)William Nordhaus
B)Joseph Schumpeter
C)Adam Smith
D)Milton Friedman
Q2) Statistical studies in the United States have reached the conclusion that for most workers the response of labor supply to wage changes is
A)quite strong.
B)not very strong.
C)inverted.
D)always zero.
Q3) Minimum wage legislation
A)has little effect on university professors.
B)raises incomes of unskilled laborers who have jobs.
C)prevents some willing workers from getting jobs.
D)All of the above are true.
Q4) What are the three noteworthy labor market trends that Americans have experienced for about two decades?
Q5) Distinguish between invention and innovation.
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Chapter 20: Poverty, Inequality, and Discrimination
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Sample Questions
Q1) If a female supervisor is discriminated against by one of her workers who refuses to cooperate, she may earn lower wages.
A)True
B)False
Q2) Under a system of free, competitive markets,
A)a society can usually achieve efficiency only at the expense of equality.
B)poverty cannot exist in the long run.
C)employers do not practice statistical discrimination.
D)income is distributed equally across the population.
Q3) Assume that a company has several male workers who do not give their full cooperation to female supervisors making them less effective as supervisors.Economists would refer to this type of situation as ____.
A)statistical discrimination
B)discrimination by fellow workers
C)discrimination by employers
D)non-discrimination
Q4) In the United States, the incidence of poverty has declined since the 1970s.
A)True
B)False
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Chapter 21: Is Useconomic Leadership Threatened
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Q1) The gains made against poverty by President Lyndon Johnson's "War on Poverty" were largely reversed by:
A)welfare cuts
B)an elimination of many jobs to overseas manufacturing facilities
C)slower economic growth
D)all of the above.
E)a and c only
Q2) In early 2013, two economists debated the question of whether:
A)the trade deficit should be reduced rapidly or steadily
B)the United States was past its prime
C)the percentage of health care to GDP was a warning sign for the economy
D)none of these
Q3) Regarding poverty in U.S.society, it is correct to say that:
A)Poverty affects a relatively small number of Americans.
B)Poverty results from a failure to work hard.
C)Most of the poor live in inner cities.
D)None of these statements is true.
Q4) It is urgent that the U.S.improve in certain economic arenas.
A)True
B)False
Page 23
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Chapter 22: An Introduction to Macroeconomics
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Q1) Aggregation involves adding together different products and services.
A)True
B)False
Q2) According to Keynes, a pessimistic outlook causes consumers and businesspersons to ____, and a recession could occur.
A)increase planned investment
B)decrease planned spending
C)increase exports
D)decrease imports
E)decrease saving
Q3) Figure 5-1 plots potential and real output for a hypothetical economy.Based on this graph, the recession occurred
A)between years 1 and 2.
B)between years 2 and 3.
C)between years 3 and 4.
D)after year 4.
Q4) In terms of macroeconomic conditions, the 1930s were the "good old days."
A)True
B)False
Q5) What are the two basic principles of aggregation?
Page 24
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Chapter 23: The Goals of Macroeconomic Policy
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Q1) Which of the following groups would have the lowest unemployment rates?
A)high-school dropouts
B)married men
C)nonwhite teenagers
D)nonwhite women
Q2) Small differences in economic growth rates translate into significant differences in living standards.
A)True
B)False
Q3) Saving is often discouraged by usury laws during inflationary periods because
A)nominal rates of interest are kept above real rates of interest.
B)nominal rates of interest are kept below inflation rates.
C)nominal rates of interest are kept above inflation rates.
D)real rates of interest are kept above inflation rates.
Q4) Economic growth is most likely to solve the problems of
A)environmental pollution.
B)world poverty.
C)emotional stress.
D)social alienation.
Q5) High unemployment is socially wasteful.Why?
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Chapter 24: Economic Growth: Theory and Policy
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Q1) Identify the main reason to expect convergence in the long run.
A)Low-productivity countries learning from high-productivity countries
B)Rapid growth in the supply of capital in low-productivity countries
C)Educational attainment rising quickly in low-productivity countries
D)Economic complacency and mismanagement in high-productivity countries
Q2) Property rights uncertainty will usually cause
A)lower levels of investment spending.
B)lower levels of real interest rates.
C)higher levels of investment spending.
D)higher levels of real interest rates.
Q3) Labor productivity rises as the amount of capital available to workers increases.
A)True
B)False
Q4) From the late 1960s to the late 1980s, in the United States SAT scores
A)and graduation rates increased.
B)and graduation rates decreased.
C)and school attendance rates decreased.
D)decreased and school attendance rates increased.
Q5) Describe the three pillars of productivity growth.
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Chapter 25: Aggregate Demand and the Powerful Consumer
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Q1) Which of the following is the best example of an intermediate good?
A)a tire purchased by an auto company
B)a new house purchased by a newly married couple
C)grain sold to foreign farmers
D)All of the above are intermediate goods.
Q2) If income in Austria decreases by 30 million euros and consumption decreases by 24 euros, then the MPC equals
A)0.90.
B)0.80.
C)0.60
D) 0.60.
Q3) If the consumption function shifts downward, which of the following is the most likely cause?
A)Consumers become more optimistic.
B)The price level increased.
C)Consumers' incomes increase.
D)Real interest rates decrease.
Q4) The typical value for the MPC is less than 1.0.
A)True
B)False
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Chapter 26: Demand-Side Equilibrium: Unemployment or Inflation
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Q1) The economy will reach equilibrium in a simple economy only if saving is A)greater than investment.
B)less than investment.
C)equal to investment.
D)equal to disposable income.
Q2) A recessionary gap exists when the equilibrium level of GDP
A)falls short of potential GDP.
B)equals potential GDP.
C)exceeds potential GDP.
D)causes inventory levels to fall.
Q3) If inventory levels are decreasing, then we should expect business firms to A)decrease prices.
B)decrease output.
C)lay off workers.
D)increase output.
Q4) The actual multiplier for the U.S.economy is estimated to be A)about 10.
B)approximately 5.
C)between 3 and 4.
D)less than 2.
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Chapter 27: Bringing in the Supply Side: Unemployment and Inflation
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Q1) Resource prices are fixed for some period of time because
A)some workers enter into long-term contracts.
B)firms purchase raw materials on set-price contracts.
C)many workers get pay increases only once a year.
D)All of the above are correct.
Q2) What does inflation do to the value of the oversimplified multiplier?
A)Inflation increases the value of the multiplier above the value of the oversimplified formula.
B)Inflation does not change the value of the multiplier.
C)Inflation decreases the value of the multiplier below the value of the oversimplified formula.
D)Inflation increases the value of the multiplier unless the level of unemployment also rises.
Q3) From the mid-1980s until late 2007, the less world's less volatile economies were probably due, at least in part, to good luck.
A)True
B)False
Q4) Distinguish between a movement along the aggregate supply curve and a shift of the entire aggregate supply curve.What factors cause each to occur?
Page 29
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Chapter 28: Managing Aggregate Demand: Fiscal Policy
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Q1) When government increases a fixed tax, consumption schedule
A)shifts downward in a parallel manner.
B)shifts upward in a parallel manner.
C)becomes horizontal.
D)becomes vertical.
Q2) President George W.Bush, who favored a smaller government sector,
A)believed we should increase G to eliminate a recessionary gap.
B)believed we should raise taxes to eliminate an inflationary gap.
C)favored an active fiscal policy just as well as those who favor a larger government sector.
D)argued against the use of an active fiscal policy.
Q3) In macroeconomic analysis, a transfer payment is considered a
A)positive tax.
B)fixed tax.
C)negative tax.
D)variable tax.
Q4) If the Bush tax cuts were allowed to expire in 2010, the maximum personal income tax rate in the United States would have moved above 50 percent.
A)True
B)False
Page 30
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Chapter 29: Money and the Banking System
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Q1) Currently in the United States, money is backed by A)silver in the IMF vaults.
B)Federal Reserve notes in banks.
C)gold in Fort Knox.
D)everyone's willingness to accept it.
Q2) What is fiat money?
Why is fiat money important in the United States today?
Q3) When prices for goods and services are quoted in money terms, this is an example of money being used as a store of value.
A)True
B)False
Q4) The new $20 bills are being introduced by the U.S.Treasury primarily to diminish A)inflation.
B)poverty.
C)counterfeiting.
D)bank failures.
Q5) E-cash cards are considered a major portion of the modern money supply. A)True B)False
Q6) Explain the "too big to fail" doctrine.
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Chapter 30: Monetary Policy: Conventional and
Unconventional
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Q1) If the Fed raises the discount rate, what happens to reserves and the money supply?
A)Reserves increase and the money supply decreases.
B)Both increase.
C)Reserves decrease and the money supply increases.
D)Both decrease.
Q2) If interest rates increase, what will happen to the demand for reserves?
A)It will shift outward.
B)It will shift inward.
C)Nothing, the economy will move to a new quantity demanded.
D)It depends on what happens to prices.
Q3) The Federal Open Market Committee consists of
A)the president and the Board of Governors.
B)Congresspeople, Senators, and the Board of Governors.
C)the Secretary of the Treasury and the Board of Governors.
D)the Board of Governors and five district bank presidents.
Q4) Contractionary monetary policy shifts the reserve supply schedule inward.
A)True
B)False
Q5) How does a central bank influence the lending capacity of the banks?
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Chapter 31: He Financial Crisis and the Great Recession
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Q1) In 2008, interest rates on Treasury securities fell even though most other interest rates were rising.
A)True
B)False
Q2) Which of the following was not a typical characteristic of subprime mortgages?
A)low down payments
B)loans to borrowers with poor credit histories
C)limited incomes with which to make loan payments
D)fixed interest rates
Q3) If a 10-year Treasury bond pays 1.5% and a 10-year corporate bond pays 4.4%, then the spread on this particular corporate bond is 5.9%.
A)True
B)False
Q4) In response to the economic downturn, the federal government enacted a fiscal stimulus bill with funding in excess of $700 billion.
A)True
B)False
Q5) Name some important lessons learned from the financial crisis.
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Chapter 32: The Debate Over Monetary and Fiscal Policy
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Q1) The fiscal stimulus bills of 2001, 2008, and 2009 were unusual examples of rapid implementation of fiscal policy.
A)True
B)False
Q2) Attempts to keep the economy always within a hair's breadth of full employment is called
A)shock absorption.
B)lagging.
C)fine tuning.
D)crowding out.
Q3) The major limitation of both the Keynesian approach and the monetarist approach is that both
A)focus on the determination of interest rates to the exclusion of price levels.
B)study the determination of real GDP equilibrium without including the price level.
C)are ways of studying the aggregate demand curve, but to learn anything about the price level and output, the aggregate supply curve must be included in the analysis.
D)concentrate on interest rates without considering changes in consumption or net exports.
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Chapter 33: Budget Deficits in the Short and Long Run
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Q1) Until about 1983, almost all of the U.S.national debt stemmed from
A)financing wars.
B)bank failures.
C)development assistance programs.
D)tax cuts.
Q2) If the economy is in an inflationary gap, which of the following is the least appropriate policy mix?
A)a budget surplus and expansionary monetary policy
B)a budget deficit and expansionary monetary policy
C)a budget deficit and contractionary monetary policy
D)a budget surplus and contractionary monetary policy
Q3) The national debt is defined as the total
A)amount that U.S.citizens owe to foreigners.
B)value that U.S.citizens borrow from foreigners during any time period.
C)value of government's indebtedness at any moment in time.
D)amount by which government's expenditures exceed receipts during any time period.
Q4) Describe the particular policy mix that accounts for the favorable economic conditions of the late 1990s.Be sure to specify the fiscal and monetary policies pursued during this period.
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Chapter 34: The Trade-Off Between Inflation and Unemployment
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Q1) Inflation targeting requires monetary policy makers to rely heavily on the Phillips curve.
A)True
B)False
Q2) If actual inflation differs from expected inflation, what is the slope of the aggregate supply curve?
A)It is horizontal in the short and long run.
B)It is vertical in the short and long run.
C)It is vertical in the short run and upward sloping in the long run.
D)It is upward sloping in the short run and vertical in the long run.
Q3) In 2010 the U.S.economy's inflation rate was higher than its unemployment rate.
A)True
B)False
Q4) If workers expect inflation, and tend to overestimate actual inflation when they negotiate wage increases, the result will be a continuing
A)shift of AD to the left.
B)shift of AD to the right.
C)recessionary gap.
D)inflationary gap.
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Chapter 35: International Trade and Comparative Advantage
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Q1) An example of a quota that protects an American industry is the quota on A)tourists entering the country.
B)sugar imports.
C)sales of oil products to foreign countries.
D)purchases of military hardware to foreign dictators.
E)All of the above are examples of protective quotas.
Q2) A tariff is better than a quota because
A)it does not distort trade as much.
B)quotas are inflexible.
C)tariffs produce tax revenue.
D)quotas hurt domestic producers; tariffs hurt foreign producers.
Q3) How does the imposition of a tariff reduce the price of imports?
A)At the lower quantity supplied, the price to the importer is lower than if there were free trade.
B)At the lower quantity demanded, the price to the importer is lower than if there were free trade.
C)Supply of the product is increased from domestic production, reducing the price of the imports.
D)Demand for the product is decreased, so that price must fall.
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Q4) Why is comparative advantage rather than absolute advantage the basis for trade?
Chapter 36: The International Monetary System: Order or Disorder
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Q1) When exchange rates are set by government decree, A)appreciation is called devaluation.
B)depreciation is called devaluation.
C)depreciation is called deflation.
D)appreciation is called inflation.
Q2) The most important single factor in determining the exchange rate in the short run is A)inflation differentials.
B)interest rate differentials.
C)monetary growth differentials.
D)price differentials.
Q3) The idea behind the "Big Mac index" is a test of A)interest rate parity theory.
B)long-run equilibrium theory.
C)purchasing power parity theory.
D)exchange rate equalization theory.
Q4) The exchange rate states the price, in terms of one currency, at which another currency can be bought.
A)True
B)False
Chapter 37: Exchange Rates and the Macroeconomy
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Q1) One possible cure for the trade deficit is protectionism.
A)True
B)False
Q2) If a currency depreciates, a country's net exports
A)fall and AD increases.
B)rise and AD increases.
C)fall and AD decreases.
D)rise and AD decreases.
Q3) Which of the following is correct?
A)Current account surplus + capital account surplus = 1
B)Current account surplus capital account surplus = 0
C)Current account surplus + capital account surplus = 0
D)Current account surplus capital account surplus = 1
Q4) The expected effects of an increased budget deficit are
A)higher real interest rates.
B)exchange rate depreciation.
C)lower inflation.
D)All of the above are correct.
Q5) How do the fluctuations in the exchange rate influence the domestic price level?
Page 39
Q6) Explain how exchange rate changes affect aggregate demand.
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