Principles of Macroeconomics
Chapter Exam Questions
Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and theories that explain how entire economies operate. Covering topics such as national income, unemployment, inflation, economic growth, fiscal and monetary policy, and the role of government in stabilizing the economy, this course provides a comprehensive overview of aggregate economic behavior. Students will learn how to analyze macroeconomic indicators, understand the interplay between different sectors, and assess the impact of policy measures on both domestic and international scales. The course equips students with essential analytical tools to interpret economic trends and to make informed decisions in a rapidly changing economic environment.
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Principles of Macroeconomics 6th Edition by N. Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is known as A)productivity.
B)an externality.
C)market power.
D)property rights.
Answer: B
Q2) Prices usually reflect
A)only the value of a good to society.
B)only the cost to society of making a good.
C)both the value of a good to society and the cost to society of making the good.
D)neither the value of a good to society nor the cost to society of making the good.
Answer: C
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Chapter 2: Thinking Like an Economist
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Questions
Q1) A survey of professional economists revealed that more than three-fourths of them agreed with fourteen economic propositions. Which of the following is not one of those propositions?
A)A ceiling on rents reduces the quantity and quality of housing available.
B)Fiscal policy has a significant stimulative impact on a less than fully employed economy.
C)The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged.
D)The United States should implement universal health care for its citizens.
Answer: D
Q2) The production possibilities frontier is a graph that shows the various combinations of outputs that the economy can possibly produce given the available factors of production and the available production technology.
A)True
B)False
Answer: True
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Chapter 3: Interdependence and the Gains From Trade
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Q1) Trade allows a country to consume outside its production possibilities frontier.
A)True
B)False
Answer: True
Q2) Refer to Figure 3-8. At which of the following prices would both Chile and Colombia gain from trade with each other?
A)6 pounds of soybeans for 9 pounds of coffee
B)8 pounds of soybeans for 20 pounds of coffee
C)11 pounds of soybeans for 33 pounds of coffee
D)Chile and Colombia could not both gain from trade with each other at any price.
Answer: A
Q3) Refer to Figure 3-1. The rate of tradeoff between producing chairs and producing couches is constant in
A)Panel (a).
B)Panel (b).
C)both Panel (a) and Panel (b).
D)neither Panel (a) nor Panel (b).
Answer: B
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Chapter 4: The Market Forces of Supply and Demand
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Q1) Which of the following events would cause the price of oranges to fall?
A)There is a shortage of oranges.
B)The FDA announces that bananas cause strokes, and oranges and bananas are substitutes.
C)The price of land throughout Florida decreases, and Florida produces a significant proportion of the nation's oranges.
D)All of the above are correct.
Q2) A shortage is the same as an excess demand.
A)True
B)False
Q3) If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos falls?
A)Both the equilibrium price and quantity would increase.
B)Both the equilibrium price and quantity would decrease.
C)The equilibrium price would increase, and the equilibrium quantity would decrease.
D)The equilibrium price would decrease, and the equilibrium quantity would increase.
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Chapter 5: Elasticity and Its Application
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Q1) Suppose that 500 candy bars are demanded at a particular price. If the price of candy bars rises from that price by 10 percent, the number of candy bars demanded falls to 480. Using the midpoint approach to calculate the price elasticity of demand, it follows that the
A)demand for candy bars in this price range is unit elastic.
B)price increase will decrease the total revenue of candy bar sellers.
C)price elasticity of demand for candy bars in this price range is about 0.41.
D)price elasticity of demand for candy bars in this price range is about 0.24.
Q2) You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center in order to meet expenses. The mayor advises you to decrease the price of a day pass. The city manager recommends increasing the price of a day pass. You realize that
A)the mayor thinks demand is elastic, and the city manager thinks demand is inelastic.
B)both the mayor and the city manager think that demand is elastic.
C)both the mayor and the city manager think that demand is inelastic.
D)the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.
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Chapter 6: Supply, Demand, and Government Policies
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Q1) Refer to Figure 6-21. The equilibrium price in the market before the tax is imposed is
A)$1.
B)$2.
C)$5.
D)$6.
Q2) A price floor is a legal minimum on the price at which a good or service can be sold.
A)True
B)False
Q3) Refer to Figure 6-27. If the government places a $2 tax in the market, the seller receives $6.
A)True
B)False
Q4) A tax on buyers usually causes buyers to pay more for the good and sellers to receive less for the good than they did before the tax was levied.
A)True
B)False
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Q1) Inefficiency exists in an economy when a good is
A)being produced with less than all available resources.
B)not distributed fairly among buyers.
C)not being produced by the lowest-cost producers.
D)being consumed by buyers who value it most highly.
Q2) Refer to Figure 7-18. If 40 units of the good are being bought and sold, then
A)the marginal cost to sellers is equal to the marginal value to buyers.
B)the marginal value to buyers is greater than the marginal cost to sellers.
C)the marginal cost to sellers is greater than the marginal value to buyers.
D)producer surplus would be greater than consumer surplus.
Q3) Refer to Table 7-3. If the price is $20, then consumer surplus in the market is
A)$20, and Wilbur and Ming-la purchase the good.
B)$45, and Carlos and Quilana purchase the good.
C)$45, and Quilana, Wilbur, and Ming-la purchase the good.
D)$55, and Carlos, Wilbur, and Ming-la purchase the good.
Q4) All else equal, a decrease in demand will cause an increase in producer surplus.
A)True
B)False
Page 9
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Chapter 8: Application: The Costs of Taxation
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Q1) Suppose Ashley needs a dog sitter so that she can travel to her sister's wedding. Ashley values dog sitting for the weekend at $200. Cami is willing to dog sit for Ashley so long as she receives at least $175. Ashley and Cami agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. The tax has made Ashley and Cami worse off by a total of
A)$30.
B)$25.
C)$10.
D)$5.
Q2) Refer to Figure 8-12. Which of the following statements is correct?
A)Supply 1 is more elastic than supply 2.
B)Demand 2 is more elastic than demand 1.
C)Demand 1 is more elastic than supply 1.
D)All of the above are correct.
Q3) Refer to Figure 8-9. The total surplus with the tax is
A)$2,000.
B)$3,000.
C)$15,000.
D)$20,000.
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Chapter 9: Application: International Trade
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Q1) The world price of a simple electronic calculator is $5.00. Before Zimbabwe allowed trade in calculators, the price of a calculator there was $7.50. Once Zimbabwe began allowing trade in calculators with other countries, Zimbabwe began
A)importing calculators and the price of a calculator in Zimbabwe decreased to $5.00.
B)importing calculators and the price of a calculator in Zimbabwe remained at $7.50.
C)exporting calculators and the price of a calculator in Zimbabwe decreased to $5.00.
D)exporting calculators and the price of a calculator in Zimbabwe remained at $7.50.
Q2) Refer to Figure 9-5. With trade, total surplus is A)$245.
B)$367.50.
C)$607.50.
D)$687.50.
Q3) NAFTA is an example of a multilateral approach to achieving free trade. A)True B)False
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Chapter 10: Measuring a Nations Income
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Q1) Which of the following items is the one type of household expenditure that is categorized as investment rather than consumption?
A)spending on education
B)the purchase of stocks and bonds
C)the purchase of a new house
D)the purchase of durable goods such as stoves and washing machines
Q2) If consumption is $4000, exports are $300, government purchases are $1000, imports are $400, and investment is $800, then GDP is $5700.
A)True
B)False
Q3) In the United States in 2009, purchases of capital equipment, inventories, and structures represented approximately
A)3 percent of GDP.
B)7 percent of GDP.
C)11 percent of GDP.
D)15 percent of GDP.
Q4) Macroeconomic statistics tell us about a particular household, firm, or market.
A)True
B)False
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Chapter 11: Measuring the Cost of Living
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Q1) Categories of U.S. consumer spending, ranked from largest to smallest, are
A)housing, food & beverages, education & communication, and transportation.
B)education & communication, housing, food & beverages, and transportation.
C)food & beverages, housing, transportation, and medical care.
D)housing, transportation, food & beverages, and medical care.
Q2) The CPI differs from the GDP deflator in that
A)the CPI is an inflation index, while the GDP deflator is a price index.
B)substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator.
C)increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the GDP deflator but not in the CPI.
D)increases in the prices of domestically produced goods that are sold to the U.S. government show up in the GDP deflator but not in the CPI.
Q3) The primary purpose of measuring the overall level of prices in the economy is to
A)allow for the measurement of GDP.
B)allow consumers to know what kinds of prices to expect in the future.
C)allow for the comparison of dollar figures from different points in time.
D)allow for the comparison of dollar figures from the same point in time.
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Chapter 12: Production and Growth
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Q1) Which of the following best describes the response of output as time passes to an increase in the saving rate?
A)The growth rate of output does not change.
B)The growth rate of output increases and gets even larger as time passes.
C)The growth rate of output increases and does not change as time passes.
D)The growth rate of output increases, but diminishes to its former level as time passes.
Q2) Two countries are the same, except one is poorer. Assuming the traditional assumption about the production function is made there are
A)diminishing returns to capital so the poor country grows slower.
B)increasing returns to capital so the poor country grows slower.
C)diminishing returns to capital so the poor country grows faster.
D)increasing returns to capital so the poor country grows faster.
Q3) Industrial machinery is an example of
A)a factor of production that in the past was an output from the production process.
B)technological knowledge.
C)a production function.
D)an item which always has the property called constant returns to scale.
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Chapter 13: Saving, Investment, and the Financial System
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Q1) If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 10.
A)True
B)False
Q2) If a firm sells a total of 100 shares of stock, then
A)each share represents 1 percent of the firm's indebtedness.
B)each share represents ownership of 1 percent of the firm.
C)the firm is engaging in term finance.
D)All of the above are correct.
Q3) Which of the following statements is correct?
A)The total income in the economy that remains after paying for consumption and government purchases is called private saving.
B)The sum of private saving and national saving is called public saving.
C)For a closed economy, the sum of private saving and public saving must equal investment.
D)For a closed economy, the sum of consumption, national saving, and taxes must equal GDP.
Q4) What are the basic differences between bonds and stocks?
Q5) Draw and label a graph showing equilibrium in the market for loanable funds.
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Chapter 14: The Basic Tools of Finance
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Q1) Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,
A)financial firms acted in too risky a fashion.
B)the Federal Reserves's efforts to rein in the risky behavior of certain financial firms were inadequate.
C)falling house prices "crashed the banks and the economy."
D)All of the above are correct.
Q2) A company that produces computer peripherals is considering buying some new equipment that it expects will increase future profits. If the interest rate rises, the present value of these future earnings
A)rises. The company is more likely to buy the equipment.
B)rises. The company is less likely to buy the equipment.
C)falls. The company is more likely to buy the equipment.
D)falls. The company is less likely to buy the equipment.
Q3) In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market
A)boom at that time reflected "irrational exuberance."
B)decline at that time reflected "irrational funk."
C)boom at that time reflected "rational exuberance."
D)decline at that time reflected "rational funk."
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Chapter 15: Unemployment
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Q1) When unions raise wages in one part of the economy, the supply of labor increases in other parts of the economy, which reduces wages in industries that are not unionized.
A)True
B)False
Q2) The theory of efficiency wages provides a possible explanation as to why A)workers form unions.
B)firms should try to reduce surpluses of labor.
C)firms may be inclined to keep their workers' wages above the equilibrium level. D)firms may be inclined to keep their workers' wages below the equilibrium level.
Q3) Following the recession of 2001, there was a month in which employment and the unemployment rate both rose. Assuming the computations were correct, how is it possible for both to have increased?
Q4) Critics of government-run employment agencies and public training programs argue that the private market is better at matching workers and jobs than the government is.
A)True
B)False
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Chapter 16: The Monetary System
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Q1) On a bank's T-account, which are part of the banks liabilities?
A)both deposits made by its customers and reserves
B)deposits made by its customers but not reserves
C)reserves but not deposits made by its customers
D)neither deposits made by its customers nor reserves
Q2) M1 includes savings deposits.
A)True
B)False
Q3) Which of the following is not correct?
A)The president of the New York Federal Reserve bank is the only Federal Reserve Regional Bank President who gets to vote at every meeting of the Federal Open Market Committee.
B)The Fed's policy decisions influence the economy's rate of inflation in the short run and the economy's employment and production in the long run.
C)The Fed's primary monetary policy tool is open-market operations.
D)All of the above are correct.
Q4) Commodity money cannot be used as a unit of account.
A)True
B)False
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Chapter 17: Money Growth and Inflation
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Q1) Deflation
A)increases incomes and enhances the ability of debtors to pay off their debts.
B)increases incomes and reduces the ability of debtors to pay off their debts.
C)decreases incomes and enhances the ability of debtors to pay off their debts.
D)decreases incomes and reduces the ability of debtors to pay off their debts.
Q2) Shoeleather cost refers to
A)the cost of more frequent price changes induced by higher inflation.
B)the distortion in resource allocation created by distortions in relative prices due to inflation.
C)resources used to maintain lower money holdings when inflation is high.
D)the tendency to expend more effort searching for the lowest price when inflation is high.
Q3) If P = 2 and Y = 1000, then which of the following pairs of values are possible?
A)M = 500, V = 4
B)M = 1500, V = 3
C)M = 2000, V = 2
D)M = 500, V = 1
Q4) Wages and prices are many times higher today than they were 30 years ago, yet people do not work a lot more hours or buy fewer goods. How can this be?
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Chapter 18: Open-Economy Macroeconomic Models
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Q1) If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy the same goods in India, the real exchange rate would be computed as how many Indian goods per U.S. goods?
A)one
B)the number of dollars needed to buy U.S. goods divided by the number of rupees needed to buy Indian goods
C)the number of rupees needed to buy Indian goods divided by the number of dollars needed to buy U.S. goods
D)None of the above is correct.
Q2) In which of the following situations must national saving rise?
A)Both domestic investment and net capital outflow increase.
B)Domestic investment increases and net capital outflow decreases.
C)Domestic investment decreases and net capital outflow increases.
D)Both domestic investment and net capital outflow decrease.
Q3) Refer to Table 18-1. What are Bolivia's net exports?
A)$30 billion
B)$5 billion
C)-$5 billion
D)-$25 billion
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Chapter 19: A Macroeconomic Theory of the Open Economy
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Q1) If people decide that some country is now a more risky place to keep their saving, then at the original interest rate in that country there is a
A)surplus of loanable funds, so the interest rate increases.
B)surplus of loanable funds, so the interest rate decreases.
C)shortage of loanable funds, so the interest rate increases.
D)shortage of loanable funds, so the interest rate decreases.
Q2) An increase in the budget deficit
A)reduces net capital outflow and domestic investment.
B)reduces net capital outflow and raises domestic investment.
C)raises net capital outflow and domestic investment
D)raises net capital outflow and reduces domestic investment.
Q3) If at a given exchange rate foreign citizens wanted to buy fewer U.S bonds, then the
A)supply of dollars in the market for foreign-currency exchange shfits right.
B)supply of dollars in the market for foreign-currency exchange shfits left.
C)demand for dollars in the market for foreign-currency exchange shfits right.
D)demand for dollars in the market for foreign-currency exchange shfits left.
Q4) Why do higher real interest rates lead to lower net capital outflow?
Q5) What effect do protectionist policies have on the trade deficit?
Q6) What do trade policies do to the standard of living?
Page 21
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Chapter 20: Aggregate Demand and Aggregate Supply
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Q1) Other things the same, a decrease in the price level motivates people to hold
A)less money, so they lend less, and the interest rate rises.
B)less money, so they lend more, and the interest rate falls.
C)more money, so they lend more, and the interest rate rises.
D)more money, so they lend less, and the interest rate falls.
Q2) As the price level rises
A)people are more willing to lend, so interest rates rise.
B)people are more willing to lend, so interest rates fall.
C)people are less willing to lend, so interest rates fall.
D)people are less willing to lend, so interest rates rise.
Q3) Other things the same, which of the following is correct?
A)A decrease in the price level causes the dollar to appreciate. Aggregate demand shifts right.
B)A decrease in the price level causes the dollar to depreciate. Aggregate demand shifts right.
C)If speculators lose confidence in the American economy, the dollar appreciates. Aggregate demand shifts right.
D)If speculators lose confidence in the American economy, the dollar depreciates. Aggregate demand shifts right.
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Chapter 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.
A)True
B)False
Q2) Shifts in the aggregate-demand curve can cause fluctuations in
A)neither the level of output nor the level of prices.
B)the level of output, but not in the level of prices.
C)the level of prices, but not in the level of output.
D)the level of output and in the level of prices.
Q3) A decrease in the interest rate could have been caused by the money-demand curve shifting
A)leftward because the price level fell.
B)leftward because the price level rose
C)rightward because the price level fell.
D)rightward because the price level rose.
Q4) Most economists believe that fiscal policy
A)only affects aggregate demand and not aggregate supply.
B)primarily affects aggregate demand.
C)primarily effects aggregate supply.
D)only affects aggregate supply and not aggregate demand.
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Chapter 22: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) Refer to Figure 22-8. Which of the following events could explain the shift of the aggregate-supply curve from AS<sub>1</sub> to AS<sub>2</sub>?
A)a reduction in firms' costs of production
B)a reduction in taxes on consumers
C)an increase in the price level
D)an increase in the world price of oil
Q2) If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift
A)aggregate demand right.
B)aggregate demand left.
C)aggregate supply right.
D)aggregate supply left.
Q3) If the sacrifice ratio is 2, reducing the inflation rate from 4 percent to 2 percent would
A)cost 1 percent of annual output.
B)cost 4 percent of annual output.
C)imply that unemployment would rise by 1%.
D)imply that unemployment would rise by 4%.
Q4) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
Page 24
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Chapter 23: Six Debates Over Macroeconomic Policy
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Q1) The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.
A)True
B)False
Q2) If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.
A)True
B)False
Q3) Which of the following are currently provisions of the U.S. tax system and discourage saving?
A)some forms of capital income are taxed twice
B)if they are large enough, bequests are taxed
C)both a and b
D)neither a nor b
Q4) A permanent reduction in inflation would
A)permanently reduce menu costs and permanently lower unemployment.
B)permanently reduce menu costs and temporarily raise unemployment.
C)temporarily reduce menu costs and temporarily lower unemployment.
D)temporarily reduce menu costs and temporarily raise unemployment.
25
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