Principles of Macroeconomics
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Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and theories that explain the behavior of an economy as a whole. Topics covered include national income determination, economic growth, inflation, unemployment, fiscal and monetary policy, international trade, and exchange rates. The course emphasizes how these macroeconomic variables interact and influence societal welfare, as well as the roles that government and central banks play in managing economic performance. Students will gain analytical tools necessary to understand current economic issues, evaluate policy debates, and interpret economic indicators within a global context.
Recommended Textbook
Economics The Basics 2nd Edition by Michael Mandel
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Page 2
Chapter 1: Introduction
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Q1) Renewable energy sources provided _____% of U.S.needs as of 2009.
A) 8
B) 15
C) 20
D) Almost 100
Answer: A
Q2) Economics is the study of how individuals,businesses,and governments make decisions and make trade-offs in the face of scarce resources.
A)True
B)False
Answer: True
Q3) For the United States,one important benefit of foreign trade is
A) less domestic competition.
B) decreased domestic competition.
C) reality checks in the economy.
D) access to cheaper goods and services.
Answer: D
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Chapter 2: Demand and Supply: The Basics of the Market Economy
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Q1) In contrast to the law of supply,sometimes ______ can reduce the quantity supplied.
A) an increased price
B) a market supply curve
C) a market demand curve
D) price negotiations
Answer: A
Q2) What is the price of labor in a market?
A) The supply rate.
B) The demand rate.
C) The net profit.
D) The wage rate.
Answer: D
Q3) Natural resources,such as crude oil and fish,are often sold in __________ markets.
A) local
B) national
C) global
D) labor
Answer: C
Page 4
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Chapter 3: Market Equilibrium and Shifts
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Q1) For which pair of goods below would an increase in income have the same effect on both goods?
A) A normal good and an inferior good.
B) An inferior good and a luxury good.
C) A normal good and a luxury good.
D) A superior good and a normal good.
Answer: C
Q2) On the basic supply-demand graph,where the demand curve and supply curve intersect is known as the
A) focal point.
B) equilibrium balance model.
C) quantity demanded.
D) equilibrium price.
Answer: D
Q3) Most markets,if left alone,will tend toward
A) equilibrium price.
B) market demand.
C) market price.
D) equilibrium balance.
Answer: A
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Chapter 4: How Businesses Work
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Q1) The added expense of producing one more unit of output is called the A) marginal product.
B) marginal cost.
C) average cost.
D) production cost.
Q2) Fixed costs are also known as __________ costs because they are much harder for a business to change.
A) short-term
B) long-term
C) variable
D) static
Q3) Revenue is the money that customers pay for the output of a business.
A)True
B)False
Q4) Economists think of a business as a machine,where you put inputs in one end and get outputs from the other end.This metaphor is called the
A) revenue process.
B) cost process.
C) profit process.
D) production function.
Page 6
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Chapter 5: Competition and Market Power
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Q1) Does the stock market resemble a perfectly competitive market?
A) No, because there are not enough buyers and sellers in the stock market.
B) No, because the products (stocks) in the market are not standardized enough.
C) No, because the buyers and sellers in the market lack access to reliable information about prices in the market.
D) Yes, the stock market does resemble a perfectly competitive market.
Q2) Marshall Field's and Sterns Department Stores are examples of low-cost producers in a perfect competition market.
A)True
B)False
Q3) An example of an oligopoly is the
A) airline industry.
B) convenience store industry.
C) car wash industry.
D) photocopying services industry.
Q4) Perfect competition requires a nonstandard product.
A)True
B)False
Q5) Over the long run,why do low-cost providers generally prevail?
Q6) Why does the government sometimes support a monopoly?
Page 7
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Chapter 6: Government and the Economy
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Q1) The original research that culminated in the Internet was sponsored by A) Al Gore.
B) Microsoft.
C) NASA.
D) The Defense Department.
Q2) The era of deregulation,when the role of the government in the economy steadily decreased,began
A) shortly after WWII.
B) in the mid-1970s.
C) with the presidency of Dwight Eisenhower.
D) with the presidency of Ronald Reagan.
Q3) The U.S.Consumer Product Safety Commission is responsible for A) cell phone company billing practices.
B) regulating the flammability of mattresses.
C) regulating the safety of aircraft.
D) regulating consumer financial protection.
Q4) What is income redistribution?
Q5) There are no discernible downsides to government action.
A)True
B)False
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Chapter 7: The First Step Into Macroeconomics
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Q1) Simon Kuznets was
A) a contemporary of Albert Einstein's who is responsible for the theory of economic relativity.
B) the Secretary of the Treasury that helped pull the country out of the Great Depression.
C) an award-winning hip-hop artist.
D) the first economist to construct an overall measurement of the U.S. economy.
Q2) The BEA is the
A) Bureau of Educational Administration.
B) Bureau of Economic Alliances.
C) Bureau of Economic Analysis.
D) Bureau of Educational Analysis.
Q3) One of the only purchases a business can make that counts directly in the GDP is
A) Software.
B) Copy paper.
C) Pencils.
D) Pens.
Q4) Only final goods and services count in calculating the GDP.
A)True
B)False
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Chapter 8: Inflation
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Q1) A wage-price spiral occurs when
A) businesses boost prices and wages to try to stay ahead of higher-than-expected inflation.
B) businesses reduce prices and wages to try to stay ahead of higher-than-expected deflation.
C) businesses boost production to try to stay ahead of higher-than-expected inflation.
D) businesses reduce production to try to stay ahead of higher-than-expected inflation.
Q2) The inflation-adjusted percentage change is the nominal percentage change plus the inflation rate.
A)True
B)False
Q3) If an auto manufacturer installs antilock brakes on a vehicle,and that alone causes the price to increase by $100,the BLS
A) counts that increase as part of the inflation rate.
B) does not count that increase as part of the inflation rate.
C) subtracts that price increase from the overall inflation rate.
D) counts only $50 of the price increase as part of the inflation rate.
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Page 10
Chapter 9: Growth
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Q1) Identifying real GDP growth requires
A) measuring all the items that go into the GDP, and then adjusting for inflation.
B) measuring the CPI after adjusting for inflation.
C) measuring the GDP with current-year prices.
D) estimating the GDP based on unadjusted price levels.
Q2) To measure the growth of the average standard of living over time,we
A) look at the aggregate production function.
B) look at the growth in human capital.
C) look at the change in real GDP per capita.
D) measure and compare inflation rates.
Q3) In 2007,Google spent more than $2 billion on property and equipment.This is called
A) intermediate inputs.
B) aggregate production investment.
C) investment in physical capital.
D) aggregate investment.
Q4) Besides a growing workforce,how can a country boost its aggregate production?
Q5) What could low productivity growth in a country suggest?
Q6) What is the economic definition of productivity?
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Chapter 10: Business Cycles, unemployment and Inflation
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Q1) An example of a generally recession-resistant business is A) consumer electronics.
B) health care.
C) automobiles.
D) boats.
Q2) The potential growth rate is sometimes also called the A) breaking point.
B) speed limit.
C) stop point.
D) peak.
Q3) The expansion is the period of time after the peak in business cycles.
A)True
B)False
Q4) The natural rate of unemployment is A) 5%.
B) dependent on the business cycle.
C) determined by the Bureau of Labor Statistics.
D) the level where inflation is more or less stable.
Q5) How is it possible for output to be greater than potential GDP?
Q6) What are the definition and purpose of potential GDP?
Page 12
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Chapter 11: Fiscal Policy
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Q1) Which recent president raised taxes when the income tax share of GDP was very low?
A) Ronald Reagan.
B) Bill Clinton.
C) George W. Bush.
D) Barack Obama.
Q2) A result of budget deficits is that governments have to borrow more,sometimes resulting in
A) increasing the rate of inflation.
B) decreasing interest rates.
C) increased foreign borrowing.
D) crowding out of the private sector from the market for loans.
Q3) An increase in government spending is more likely to have a positive impact on jobs and output when
A) the unemployment rate is below the natural rate.
B) real GDP is above potential GDP.
C) the business cycle is near the peak.
D) the economy is in a recession.
Q4) What is the multiplier effect?
Q5) What does the government have to do when there is a budget deficit?
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Chapter 12: Monetary Policy
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Q1) What advantages does monetary policy have over fiscal policy?
Q2) If the Federal Reserve reduces the federal funds rate,
A) The quantity of funds borrowed and lent will decrease.
B) Other interest rates, such as home mortgage rates, will rise to compensate.
C) Inflation is more likely to appear.
D) Long-term interest rates will react more than short-term rates.
Q3) If the Federal Reserve raises the federal funds rate,which one of the following will not tend to happen as a result?
A) Economic activity will decrease.
B) Car loan and home mortgage rates will rise.
C) Businesses will find it easier to obtain funds to expand.
D) Inflation will decline.
Q4) What is the role of the "discount window" in preventing financial crises? How was it used during the financial crisis of 2007-2009?
Q5) The Fed's response to the housing crisis of 2007 and 2008 was to
A) encourage discount window borrowing.
B) reduce taxes on financial institutions.
C) raise the federal funds rate.
D) raise the reserve requirement.
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Chapter 13: The Financial Markets
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Q1) How are banks and venture capital firms different?
A) Banks are financial intermediaries.
B) Venture capital firms provide funds to businesses.
C) Banks receive funds from the suppliers of capital.
D) Venture capital firms expect quite a few of their investments to fail.
Q2) Which of the following companies would be most likely to use the bond market to raise capital?
A) A sole proprietorship grossing $100,000 a year, in which the owner is a full-time consultant and has no employees.
B) A large, growing firm trying to expand its business.
C) A small technology firm with high potential but a great deal of risk.
D) A partnership of five attorneys that wishes to borrow money to buy a larger office building.
Q3) Suppose the ABC Corporation had a stock price of $56.80 on December 31,2006.On December 30,2007,it has a stock price of $60.15.Over the year,it paid $2.00 in dividends per share.Calculate the total return of a share of ABC Corporation stock in 2007,showing your work.
Q4) Why is the interest rate on U.S.Treasury securities lower than on other types of bonds?
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Chapter 14: International Trade
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Q1) Protectionist policies include all of the following EXCEPT A) tariffs.
B) the central bank's efforts to raise the value of the domestic currency. C) quotas.
D) regulations applied to imported goods.
Q2) Which of the following statements about the World Trade Organization (WTO)is FALSE?
A) The WTO is a development of the General Agreement on Tariffs and Trade (GATT).
B) The WTO is the main world organization governing rules of international trade.
C) The WTO has worked to increase tariff rates in an effort to protect infant industries in developing countries.
D) The WTO makes an effort to ensure that trade flows smoothly and predictably.
Q3) Which of the following could make Chinese-made goods more expensive for American consumers?
A) A rise in the value of the dollar.
B) A rise in the value of the yuan.
C) An increase in the inflation rate in the United States.
D) A reduction in the size of the U.S. trade deficit.
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Page 16
Chapter 15: Technological Change
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Q1) Television would have been considered a "new good" type of innovation because
A) consumers already regularly listened to the radio for entertainment.
B) it had no equivalent in the past.
C) it gave companies a new source of advertising revenues.
D) it enhanced the quality of life for most people in the economy.
Q2) Which of the following would be an example of basic research?
A) Studies of the atmosphere on Neptune.
B) Research into gene therapy to treat Alzheimer's disease.
C) Studies of circuit miniaturization for applications in computers.
D) A pharmaceutical company's research into a chemical compound that could reduce the growth rate of cancer cells.
Q3) A productivity-enhancing innovation has the effect of
A) shifting a supply curve to the right.
B) shifting a supply curve to the left.
C) shifting a demand curve to the right.
D) shifting a demand curve to the left.
Q4) What is the difference between basic research and applied research? Provide one example of each.
Q5) What is a patent,and how does it encourage innovation?
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Chapter 16: Economics of the Labor Market
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Q1) Employees who are members of a union can expect
A) a wage that is higher than the equilibrium wage in the labor market.
B) less job security.
C) poorer working conditions as employers try to compensate for higher wages by reducing benefits.
D) lower wages than nonunion workers in the same industry.
Q2) Which of the following individuals would be likely to face the lowest opportunity cost of a college education?
A) A high school basketball star who is offered a multimillion-dollar contract with the NBA, as well as a full scholarship at the university of his choice.
B) A high school graduate who has few skills, does not qualify for a full scholarship, and would be able to work as a server at her family's restaurant if she did not go to college.
C) The 40-year-old owner of a successful construction company who wants to finish college as an example to his children.
D) A well-paid staff member at a college who can take classes for free.
Q3) What effects will globalization have on labor demand? What will happen to wages of U.S.workers as more foreign trade occurs?
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Chapter 17: The Distribution of Income
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Q1) A quintile,sometimes used to measure wealth inequality,represents one-fourth of households.
A)True
B)False
Q2) Which of the following is among the arguments for using government intervention to reduce income inequality?
A) Taking money away from individuals who have earned it is unfair and immoral.
B) Government intervention is more effective in promoting creativity and hard work than the hope of higher earnings.
C) Large income differences eventually lead to political strife and will undermine support for a market economy.
D) The income distribution statistics understate inequality because they fail to take economic mobility into account.
Q3) The 80/20 ratio of income has been rising over the last three decades.
A)True
B)False
Q4) How has global trade affected income inequality? Explain briefly.
Q5) Why might people object to a regressive tax structure?
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Chapter 18: Economics of Retirement and Healthcare
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Q1) The old-age dependency ratio is found by
A) dividing the number of people of working age by the number of retirees.
B) dividing the number of older people by the number of people in the entire population.
C) multiplying the number of older people by the percentage in that group who have no retirement savings.
D) dividing the number of older people by the number of people of working age.
Q2) Which of the following best describes the adverse selection problem in healthcare?
A) People don't know how much they will need to pay for healthcare in old age, adding to the risks of old age.
B) The poor are exposed to medical disasters because they cannot afford to pay for insurance.
C) The people who are selected for jobs with health insurance benefits are often the people who least need the health insurance.
D) Healthier people are less likely to buy health insurance because they are less likely to need it, meaning that a health insurance plan is likely to have the sickest people in it, driving up premiums.
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Chapter 19: Economics of Energy, the Environment, and Global Climate Change Glossary
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Q1) One of the characteristics of the cap-and-trade system is that
A) there is no way to ensure that pollution is reduced below some allowable total amount.
B) it is inflexible, and does not respond well to differences in the marginal cost of pollution reduction.
C) it is more expensive than a command-and-control system.
D) it reduces the economic damage that would have been done by a command-and-control system.
Q2) In some ways,adaptation is similar to A) mitigation.
B) a cap-and-trade system.
C) the usual demand response to a price change.
D) a supply curve shift.
Q3) Adjusting GDP downward for the impact industry has on the environment results in a number that is greatly disputed,but is often referred to as A) "eco-output."
B) "environment-neutral GDP."
C) "resource-adjusted GDP."
D) "green GDP."
Page 21
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