Microeconomics Practice Exam
Course Introduction
Microeconomics explores the decision-making processes of individual consumers, firms, and households as they interact within various types of markets. The course examines how these economic agents respond to changes in price, income, and other factors, and how their interactions determine the allocation of resources and the distribution of goods and services. Key topics include supply and demand analysis, consumer and producer behavior, market structures, market failures, and the role of government in influencing economic outcomes. Through theoretical frameworks and real-world applications, students gain a foundational understanding of the mechanisms that drive economic activity at the micro level.
Recommended Textbook
Economics 20th Edition Volume I and Volume II by Campbell R. McConnell\McConnell 20e
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Chapter 22: Income Inequality Poverty and Discrimination
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Sample Questions
Q1) If discrimination based on gender and race was eliminated,we would expect the:
A) personal distribution of income to become less equal.
B) personal distribution of income to become more equal.
C) personal distribution of income to be unaffected.
D) functional distribution of income to change in favor of profits and interest.
Q2) Standard Census data on the distribution of income:
A) take all taxes and transfer payments into account.
B) are before taxes in that they do not account for personal income and payroll taxes.
C) include noncash transfers.
D) exclude cash transfers.
Q3) Between 1995 and 2007 in the United States:
A) average U.S.household wealth increased and median household wealth declined.
B) average U.S.household wealth declined and median household wealth increased.
C) both average and median U.S.household wealth declined.
D) both average and median U.S.household wealth increased.
Q4) Unemployment compensation is financed by taxes levied on employers.
A)True
B)False
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Chapter 23: Health Care
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Sample Questions
Q1) Total U.S.health care spending in 2011 was approximately:
A) $847 billion.
B) $1.1 trillion.
C) $2.7 trillion.
D) $4.1 trillion.
Q2) The fundamental problem associated with the U.S.health care system is that:
A) the financing of health care through insurance has resulted in the underallocation of resources to the health care industry.
B) frivolous malpractice suits have increased malpractice insurance premiums for doctors.
C) at the margin,the value of health care services may be less than the value of alternative goods and services.
D) there are too many general practitioners and not enough specialists.
Q3) Because of health insurance,resources are underallocated to the health care industry.
A)True
B)False
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Chapter 24: Immigration
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Sample Questions
Q1) According to estimates,what percentage of agricultural workers in the United States are illegal immigrants?
A) 12.
B) 19.
C) 25.
D) 50.
Q2) Business income will decrease in the nation from which workers emigrate.
A)True
B)False
Q3) Other things equal,younger workers are more likely to migrate than older workers.
A)True
B)False
Q4) Compensating wage differentials:
A) refer to the wage premium given to domestic-born workers.
B) refer to the wage premium necessary to attract illegal immigrant workers.
C) discourage illegal immigrants from entering low-wage labor markets.
D) will attract U.S.workers to undesirable jobs if the differential over less unpleasant work is sufficiently high.
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Chapter 25: An Introduction to Macroeconomics
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Sample Questions
Q1) Higher rates of unemployment are linked with:
A) greater political stability because the employed tend to be more politically active.
B) higher crime rates as the unemployed seek to replace lost income.
C) lower rates of heart disease as the unemployed have eliminated job stress.
D) improvements in overall health as the unemployed have more leisure time to be physically active.
Q2) Inflation is defined as:
A) an increase in the overall level of prices.
B) the rate of growth in nominal GDP.
C) a situation where all prices in the economy rise simultaneously.
D) the growth phase of the business cycle.
Q3) Which of the following explanations argues that the Great Recession resulted from asset-price bubbles caused by euphoria and debt-fueled speculation?
A) Minsky explanation.
B) Austrian explanation.
C) Stimulus explanation.
D) Structural explanation.
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Chapter 26: Measuring Domestic Output and National Income
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Q1) The agency responsible for compiling the National Income Product Accounts for the U.S.economy is the:
A) Council of Economic Advisers.
B) Bureau of Economic Analysis.
C) National Bureau of Economic Research.
D) Bureau of Labor Statistics.
Q2) If the economy adds to its inventory of goods during some year:
A) gross investment will exceed net investment by the amount of the inventory increase.
B) this amount should be ignored in calculating that year's GDP.
C) this amount should be subtracted in calculating that year's GDP.
D) this amount should be included in calculating that year's GDP.
Q3) In comparing GDP data over a period of years,a difference between nominal and real GDP may arise because:
A) of changes in trade deficits and surpluses.
B) the length of the workweek has declined historically.
C) the price level may change over time.
D) depreciation may be greater or smaller than gross investment.
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Chapter 27: Economic Growth
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Sample Questions
Q1) In 1998,living standards in the United States were nearly ______ times higher than those in Africa.
A) 3
B) 8
C) 14
D) 20
Q2) Improvements in education and training explain about 80 percent of the historical growth of U.S.labor productivity.
A)True
B)False
Q3) Real GDP per capita is found by:
A) adding real GDP and population.
B) subtracting population from real GDP.
C) dividing real GDP by population.
D) dividing population by real GDP.
Q4) Labor productivity is defined as:
A) total output/worker-hours.
B) nominal GDP minus real GDP.
C) the ratio of real capital to worker-hours.
D) the annual increase in nominal GDP per worker.
Page 8
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Chapter 28: Business Cycles, Unemployment, and Inflation
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Sample Questions
Q1) Wait unemployment and search unemployment are both types of:
A) cyclical unemployment.
B) hidden unemployment.
C) frictional unemployment.
D) structural unemployment.
Q2) Real income is found by:
A) dividing nominal income by 70.
B) multiplying nominal income by 1.03.
C) dividing the price index (in hundredths)by nominal income.
D) dividing nominal income by the price index (in hundredths).
Q3) Suppose there are 10 million part-time workers and 90 million full-time workers in an economy.Five million of the part-time workers switch to full-time work.As a result:
A) the official unemployment rate will fall.
B) the official unemployment rate will rise.
C) the official unemployment rate will remain unchanged.
D) the size of the labor force will increase.
Q4) Unanticipated inflation benefits debtors at the expense of creditors.
A)True
B)False
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Chapter 29: Basic Macroeconomic Relationships
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Sample Questions
Q1) The greater is the marginal propensity to consume,the:
A) smaller is the marginal propensity to save.
B) higher is the interest rate.
C) smaller is the average propensity to consume.
D) lower is the price level.
Q2) The investment demand curve will shift to the right as a result of:
A) an increase in the excess production capacity available in industry.
B) an increase in business taxes.
C) technological progress.
D) an increase in the acquisition and maintenance cost of capital goods.
Q3) If the inflation rate is 10 percent and the real interest rate is 12 percent,the nominal interest rate is:
A) 2 percent.
B) zero percent.
C) 10 percent.
D) 22 percent.
Q4) Economists widely agree that the value of the real-world multiplier is 2.5.
A)True
B)False
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Chapter 30: The Aggregate Expenditures Model
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Sample Questions
Q1) Planned investment plus unintended increases in inventories equals:
A) actual investment.
B) consumption.
C) consumption minus saving.
D) unintended saving.
Q2) In an aggregate expenditures diagram,equal increases in government spending and in lump-sum taxes will:
A) shift the aggregate expenditures line downward.
B) shift the aggregate expenditures line upward.
C) leave the aggregate expenditures line unchanged.
D) reduce the equilibrium GDP.
Q3) (Advanced analysis)Assume the consumption schedule for a private closed economy is C = 40 + .75Y,where C is consumption and Y is gross domestic product.The multiplier for this economy is:
A) 3.
B) 4.
C) 5.
D) 10.
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Chapter 31: Aggregate Demand and Aggregate Supply
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Q1) Other things equal,if the U.S.dollar were to depreciate,the:
A) aggregate demand curve would remain fixed in place.
B) aggregate supply curve would shift to the left.
C) aggregate supply curve would shift to the right.
D) aggregate demand curve would shift to the left.
Q2) Graphically,the full-employment,low-inflation,rapid-growth economy of the last half of the 1990s is depicted by a:
A) rightward shift of the aggregate demand curve along a fixed aggregate supply curve.
B) rightward shift of the aggregate supply curve along a fixed aggregate demand curve.
C) rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve.
D) leftward shift of the aggregate demand curve and a leftward shift of the aggregate supply curve.
Q3) The real-balances effect indicates that inflation makes the public feel wealthier and they therefore spend more out of their current incomes.
A)True
B)False
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Chapter 32: The Balance of Payments, Exchange Rates, and Trade Deficits
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Sample Questions
Q1) Suppose the price level is fixed,the MPC is .8,and the GDP gap is a negative $200 billion.To achieve full-employment output (exactly),government should:
A) increase government expenditures by $200 billion.
B) reduce taxes by $200 billion.
C) increase government expenditures by $40 billion.
D) reduce taxes by $160 billion.
Q2) Suppose the price level is fixed,the MPC is .5,and the GDP gap is a negative $80 billion.To achieve full-employment output (exactly),government should:
A) increase government expenditures by $80 billion.
B) reduce government expenditures by $40 billion.
C) reduce taxes by $40 billion.
D) reduce taxes by $80 billion.
Q3) An expansionary fiscal policy is shown as a:
A) rightward shift in the economy's aggregate demand curve.
B) movement along an existing aggregate demand curve.
C) leftward shift in the economy's aggregate supply curve.
D) leftward shift in the economy's aggregate demand curve.
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Page 13
Chapter 33: Money, Banking, and Financial Institutions
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Sample Questions
Q1) Checkable deposits held in saving and loan institutions,mutual savings banks,and credit unions are part of the M1 definition of the money supply.
A)True
B)False
Q2) In the U.S.economy,the money supply is controlled by the:
A) U.S.Treasury.
B) Federal Reserve System.
C) Senate Committee on Banking and Finance.
D) Congress.
Q3) (Consider This)Credits cards are:
A) the fastest growing component of the M1 money supply.
B) near-monies that are part of the M2 money supply but not the M1 money supply.
C) not money,as officially defined.
D) also known as time deposits.
Q4) Small-denominated time deposits,by definition:
A) mature in one month or less.
B) mature in one year or less.
C) are less than $100,000.
D) are held by state and local banks only.
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Chapter 34: Money Creation
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Sample Questions
Q1) The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves:
A) is larger the smaller the required reserve ratio.
B) is the reciprocal of the bank's actual reserves.
C) is directly or positively related to the size of the required reserve ratio.
D) will be zero when the required reserve ratio is 100 percent.
Q2) The amount that a commercial bank can lend is determined by its:
A) required reserves.
B) excess reserves.
C) outstanding loans.
D) outstanding checkable deposits.
Q3) Excess reserves refer to the:
A) difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank.
B) minimum amount of actual reserves a bank must keep on hand to back up its customers deposits.
C) difference between actual reserves and loans.
D) difference between actual reserves and required reserves.
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Chapter 35: Interest Rates and Monetary Policy
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Q1) Suppose that,for every 1-percentage-point decline in the discount rate,commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks.Also assume that the reserve ratio is 10 percent.If the Fed lowers the discount rate from 4.0 percent to 3.5 percent,bank reserves will:
A) increase by $1 billion and the money supply will increase by $5 billion.
B) decline by $1 billion and the money supply will decline by $10 billion.
C) increase by $1 billion and the money supply will increase by $10 billion.
D) increase by $10 billion and the money supply will increase by $100 billion.
Q2) The asset demand for money is downsloping because:
A) the opportunity cost of holding money increases as the interest rate rises.
B) it is more attractive to hold money at high interest rates than at low interest rates.
C) bond prices rise as interest rates rise.
D) the opportunity cost of holding money declines as the interest rate rises.
Q3) When the Fed raises the interest rate paid on reserves,it discourages bank lending. A)True B)False
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Page 16
Chapter 36: Financial Economics
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Sample Questions
Q1) Arbitrage equalizes rates of return across assets of a given beta.
A)True
B)False
Q2) Brinley holds stock in large high-tech companies in his portfolio.The best way for Brinley to diversify his risk would be to buy:
A) more shares of the stock he already owns.
B) shares in other large high-tech companies.
C) bonds or stocks of small and medium-sized companies.
D) bonds from the large high-tech companies already in his portfolio.
Q3) The estimated value of all financial assets held by U.S.households and nonprofit organizations in 2012 was about:
A) $5.3 trillion.
B) $15.7 trillion.
C) $45 trillion.
D) $54 trillion.
Q4) The two most important investor preferences are a desire for high rates of return and a dislike of inflation.
A)True
B)False
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Chapter 37: Extending the Analysis of Aggregate Supply
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Q1) In the extended AD-AS model,the long-run aggregate supply curve is vertical.
A)True
B)False
Q2) According to the research of Christina Romer and David Romer:
A) a tax reduction of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent.
B) a tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent.
C) a tax reduction of 2 to 3 percent raises real GDP by roughly 1 percent.
D) a tax increase of 2 to 3 percent lowers real GDP by roughly 1 percent.
Q3) The short-run aggregate supply curve shifts to the left when nominal wages rise in response to price level increases.
A)True
B)False
Q4) A shift in the Phillips Curve to the left will improve the short-run inflation-unemployment choices available to society.
A)True
B)False
Q5) There is no trade-off between unemployment and inflation in the long run.
A)True B)False
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Chapter 38: Current Issues in Macro Theory and Policy
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Sample Questions
Q1) At the equilibrium level of GDP:
A) MV = nominal GDP.
B) MV = real GDP.
C) M = nominal GDP.
D) V = 1/MPS.
Q2) The traditional monetary rule is the idea that:
A) the annual rate of increase in the money supply should be equal to the potential annual growth rate of real GDP.
B) the annual rate of increase in the money supply should be equal to the long-term increase in the price level.
C) an expansionary fiscal policy should always be accompanied by an easy monetary policy.
D) monetary policy only affects the economy 6 to 9 months after the money supply is changed.
Q3) Mainstream economists favor:
A) the use of discretionary monetary policy and fiscal policy.
B) a monetary rule.
C) a balanced-budget amendment.
D) wage and price controls.
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Chapter 39: International Trade
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Q1) Which of the following arguments for trade protection is based on the premise that a nation should have a wide enough range of domestic industries to be self-sufficient if necessary?
A) The increased domestic employment argument.
B) The cheap foreign labor argument.
C) The diversification-for-stability argument.
D) The infant industry argument.
Q2) Economists prefer free trade to tariffs,and prefer tariffs to import quotas.
A)True
B)False
Q3) Other things equal,a tariff is:
A) superior to an import quota for Americans because a tariff increases the profits of foreign producers.
B) inferior to an import quota for Americans because a tariff increases the profits of domestic producers.
C) superior to an import quota for Americans because a tariff generates revenue for the U.S.Treasury.
D) inferior to an import quota for Americans because a tariff generates revenue for the U.S.Treasury.
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Chapter 40: The Balance of Payments, Exchange Rates, and Trade Deficits
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Sample Questions
Q1) The United States' current account deficit reached a new high in:
A) 2006.
B) 2007.
C) 2008.
D) 2009.
Q2) U.S.exports increase and U.S.imports decrease the supplies of foreign monies owned by U.S.banks.
A)True
B)False
Q3) Mainly because of large current account deficits,the United States:
A) is the leading exporting nation in the world.
B) has the world's largest external debt.
C) has the world's highest saving rate.
D) is experiencing an increase in its net inflow of investment income.
Q4) Firms engaged in international trade can reduce exchange-rate risk by:
A) paying for foreign goods only when they are delivered.
B) buying on credit.
C) hedging in the futures market.
D) dealing only with highly reputable firms.
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Chapter 41: The Economics of Developing Countries
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Sample Questions
Q1) An advantage of direct foreign investment (compared to foreign loans)is that management skill and technological knowledge often accompany such capital flows.
A)True
B)False
Q2) The World Bank:
A) is also known as the International Monetary Fund (IMF).
B) lends money to developing nations for basic infrastructure projects such as dams,irrigation,health and sanitation,communications,and transportation.
C) is an affiliate of the World Trade Organization (WTO).
D) provides subsidies to private firms so they can improve their wages and working conditions.
Q3) To be classified as a low-income developing country,annual per capita income in 2010 needed to be:
A) $1,005 or less.
B) $580 or less.
C) $3,723 or less.
D) $925 or less.
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Chapter 42: The United States and the Global Economy
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Sample Questions
Q1) The Trade Adjustment Assistance Act of 2002:
A) enacts temporary tariffs to enable firms hurt by foreign competition to transition to new industries or improve their international competitiveness.
B) subsidizes firms for a maximum of two years as they try to establish themselves in foreign markets.
C) provides price supports on domestically produced goods for up to 52 weeks.
D) provides financial help for up to 78 weeks for workers displaced by imports or plant relocations abroad.
Q2) If the equilibrium exchange rate changes so that it takes more dollars to buy a British pound,then:
A) the dollar has appreciated in value.
B) Americans will import more British goods.
C) the British will buy fewer U.S.goods.
D) the dollar has depreciated in value.
Q3) If the Japanese yen appreciates relative to the Swedish krona,then the krona:
A) will be more expensive to the Japanese.
B) may either appreciate or depreciate relative to the yen.
C) will appreciate relative to the yen.
D) will depreciate relative to the yen.
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