Principles of Macroeconomics
Exam Answer Key
Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and theories that explain the behavior of an economy as a whole. The course covers major topics such as national income determination, economic growth, unemployment, inflation, and the role of government fiscal and monetary policies. Students explore the interrelationships between households, businesses, and government sectors, as well as the impact of international trade and finance on domestic economic performance. Through the analysis of real-world data and contemporary issues, students gain a solid foundation for understanding economic policy decisions and their implications on society.
Recommended Textbook
Principles of Macroeconomics 5th Edition by Robert Frank
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15 Chapters
1841 Verified Questions
1841 Flashcards
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Page 2
Chapter 1: Thinking Like an Economist
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134 Verified Questions
134 Flashcards
Source URL: https://quizplus.com/quiz/58108
Sample Questions
Q1) Economics is best defined as the study of:
A) prices and quantities.
B) inflation and interest rates.
C) how people make choices under the conditions of scarcity and the results of those choices.
D) wages and incomes.
Answer: C
Q2) Suppose a person makes a choice that seems inconsistent with the cost-benefit principle. Which of the following statements represents the most reasonable conclusion to draw?
A) The person (explicitly or implicitly) over-estimated the benefits or under-estimated the costs or both.
B) The cost-benefit principle is rarely true.
C) The person does not grasp how decisions should be made.
D) The person is simply irrational.
Answer: A
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Chapter 2: Comparative Advantage
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) To say that an individual possesses an absolute advantage in the production of software means that individual:
A) has a lower opportunity cost of producing software.
B) can produce more and/or higher quality software in a given amount of time.
C) was the first to create the software.
D) charges the lowest price for software.
Answer: B
Q2) The key to resolving the apparent paradox of international trade increasing total output yet facing much political opposition is noting that:
A) economists are mistaken about the increase in output.
B) only the wealthy benefit from trade.
C) no one benefits from trade.
D) everyone does not benefit equally from trade.
Answer: D
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Chapter 3: Supply and Demand
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120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/58100
Sample Questions
Q1) When the price of an item increases, buyers tend to purchase less of that item:
A) solely because of the substitution effect.
B) solely because of the income effect.
C) because of both the substitution and the income effects.
D) only if the substitution effect and the income effect do not cancel out each other.
Answer: C
Q2) Which of the following is NOT true of a demand curve?
A) It has negative slope.
B) It shows the amount consumers are willing and able to purchase at various prices, holding other factors constant.
C) It relates the price of an item to the quantity demanded of that item.
D) It shows how an increase in price leads to an increase in quantity demanded of a good.
Answer: D
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5
Chapter 4: Macroeconomics: the Birds-Eye View of the Economy
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) Comparisons of economic activity over time should be made using:
A) nominal GDP adjusted for unemployment.
B) nominal GDP per capita.
C) current-dollar GDP.
D) real GDP.
Q2) Bob's Barber Shop cut 3,000 heads of hair in 2009 and 3,100 in 2010. The price of a haircut was $7 in 2009 and $8 in 2010. If 2009 is the base year, what was Bob's contribution to real GDP in the year 2010?
A) $21,000
B) $21,700
C) $24,000
D) $24,800
Q3) Which of the following would increase the investment component of U.S. GDP?
A) You purchase a vacation at Disney World in Florida.
B) You purchase shares of Disney stock.
C) Disney World purchases tires for the monorail from a firm in Ohio.
D) A French man purchases a vacation at a Disney theme park in France.
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Page 6
Chapter 5: Measuring Economic Activity: Gdp and Unemployment
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146 Verified Questions
146 Flashcards
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Sample Questions
Q1) A price index measures:
A) the price of specific good or service.
B) the change in the price of a specific good or service.
C) only the prices that change.
D) the average price of a given class of goods or services relative to the price of the same goods and services in a base year.
Q2) If both the lender and borrower agree on an 8% interest rate, both expect a 4% inflation rate, and inflation turns out to be 4%, then ______ by the inflation.
A) the borrower is hurt and the lender gains
B) the borrower gains and the lender is hurt
C) neither the borrower nor the lender are hurt
D) both the borrower and lender are hurt
Q3) A relative price is:
A) the rate of inflation.
B) a measure of overall prices at a particular point in time.
C) the percentage change in a price index such as the CPI.
D) the price of a specific good in comparison to the prices of other goods and services.
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Page 7
Chapter 6: Measuring the Price Level and Inflation
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) The introduction of a new technology that increases the productivity of labor will:
A) increase the supply of labor.
B) decrease the supply of labor.
C) increase the demand for labor.
D) decrease the demand for labor.
Q2) Labor unions contribute to structural unemployment by:
A) keeping wages above the market-clearing level.
B) keeping wages below the market-clearing level.
C) allowing unemployed workers to search longer or less intensively for jobs.
D) forcing unemployed workers to take the first job offered to them.
Q3) In an economy of 100 people in the labor force, if 10 people are unemployed for 4 weeks during the year, and 30 people are unemployed for 8 weeks during the year, and the rest are employed continuously throughout the year, then the average duration of unemployment in this economy is:
A) 5 weeks.
B) 6 weeks.
C) 7 weeks.
D) 8 weeks.
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Chapter 7: Economic Growth, Productivity, and Living Standards
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142 Verified Questions
142 Flashcards
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Sample Questions
Q1) At the time it collapsed in 1991, the Soviet Union possessed all of the factors that promote increases in economic growth EXCEPT:
A) a highly educated worker force.
B) a large stock of capital.
C) abundant natural resources.
D) a political and legal environment that promoted economic productivity.
Q2) Providing workers with on-the-job training will increase:
A) average labor productivity.
B) the share of the population employed.
C) the unemployment rate.
D) the labor force participation rate.
Q3) Over the period from 1950 to 2008, which country experienced the fastest average annual growth rate of real GDP per person?
A) United States
B) Japan
C) China
D) Canada
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Page 9
Chapter 8: Workers, Wages, and Unemployment
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) The real rate of interest measures the ______ of capital investment.
A) value of the marginal product
B) opportunity cost
C) marginal benefit
D) relative price
Q2) Based on the following information, what is the amount of public saving?
\[\begin{array} { l c c } & \text { Receipts } & \text { Expenditures } \\
\text { Federal Government } & 2,500 & 2,000 \\
\text { State and Local Governments } & 1,200 & 1,500 \end{array}\]
A) +3,700
B) +2,500
C) +200
D) -300
Q3) The value of the marginal product of new capital increases when the:
A) price of new capital goods increases.
B) real interest rate increases.
C) the price of the good the firm produces decreases.
D) productivity of new capital increases.
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Chapter 9: Saving and Capital Formation
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126 Verified Questions
126 Flashcards
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Sample Questions
Q1) When the central bank sells $1,000,000 worth of government bonds to the public, the money supply:
A) decreases by more than $1,000,000.
B) decreases by $1,000,000.
C) decreases by less than $1,000,000.
D) increases by $1,000,000.
Q2) Stock prices increase when expected future dividends ____, interest rates _____, and/or the risk premium ______.
A) increase; increase; increases
B) increase; increase; decreases
C) decrease; decrease; increases
D) increase; decrease; decreases
Q3) One year before maturity the price of a bond with a principal amount of $1,000 and a coupon rate of 5% paid annually fell to $981. The one year interest rate must be:
A) 8.5%.
B) 7.0%.
C) 5.0%.
D) 1.9%.
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Chapter 10: Money, Prices, and the Federal Reserve
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) If actual output equals potential output, but potential is growing unusually slowly, then an economy:
A) is in a recession.
B) is in an expansion.
C) has an output gap.
D) has a recessionary gap.
Q2) According to Okun's Law, when cyclical unemployment is positive, then the output gap:
A) is positive.
B) is negative.
C) equals zero.
D) equals the rate of cyclical unemployment.
Q3) An expansion is:
A) a period in which the economy is growing at a rate significantly below normal.
B) a period in which the economy is growing at a rate significantly above normal.
C) the high point of economic activity prior to a downturn.
D) the low point of economic activity prior to a recovery.
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Chapter 11: Financial Markets and International Capital Flows
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133 Verified Questions
133 Flashcards
Source URL: https://quizplus.com/quiz/58106
Sample Questions
Q1) In Macroland autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. The slope of the Expenditure Line is:
A) 0.25.
B) 0.75.
C) 290.
D) 320.
Q2) If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then taxes must be ______ by approximately ______ to eliminate any output gap.
A) decreased; 250
B) decreased; 200
C) increased; 250
D) increased; 200
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Page 13
Chapter 12: Short-Term Economics Fluctuations: An Introduction
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) One problem with using monetary policy to address "bubbles" in asset markets is that:
A) doing so presupposes that the Federal Reserve is better than financial-market professionals at identifying bubbles.
B) monetary policy is well-suited for addressing the problem of inappropriately high asset prices.
C) reducing the real interest rate to deal with the bubble could lead to inflation.
D) the Federal Reserve is not interested in stabilizing output.
Q2) One problem with using monetary policy to address "bubbles" in asset markets is that:
A) the Federal Reserve is better than financial-market professionals at identifying bubbles.
B) monetary policy is not a very good tool for addressing the problem of inappropriately high asset prices.
C) reducing the real interest rate to deal with the bubble could lead to inflation.
D) the Federal Reserve is not interested in stabilizing output.
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14
Chapter 13: Spending and Output in the Short Run
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90 Verified Questions
90 Flashcards
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Sample Questions
Q1) Shifts in ______ can push the economy out of long-run equilibrium.
A) the AD curve only
B) the AS curve only
C) either the AD curve or the AS curve
D) the PAE line only
Q2) Starting from long-run equilibrium, a positive inflation shock results in a short-run equilibrium with ___ inflation and ____ output.
A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower
Q3) A large decrease in oil prices is an example of:
A) a positive inflation shock.
B) a negative inflation shock.
C) inflation inertia.
D) excessive aggregate spending.
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15
Chapter 14: Stabilizing the Economy: the Role of the Fed
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75 Verified Questions
75 Flashcards
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Sample Questions
Q1) The delay between the date a policy change is needed and the date it is implemented is called the:
A) recessionary gap.
B) expansionary gap.
C) outside lag.
D) inside lag.
Q2) Shocks to aggregate demand ______ require the Fed to choose between inflation and output stability; shocks to aggregate supply ______ require the Fed to choose between inflation and output stability.
A) do; do
B) do; do not
C) may or may not; may or may not
D) do not; do
Q3) The time between when Federal Reserve policymakers decide to close an output gap and when they act to change the fed funds rate is an example of:
A) the outside lag in macroeconomic policy.
B) a structural policy change.
C) anchoring inflationary expectations.
D) the inside lag in macroeconomic policy.
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Page 16
Chapter 15: Aggregate Demand, Aggregate Supply, and Inflation
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130 Verified Questions
130 Flashcards
Source URL: https://quizplus.com/quiz/58102
Sample Questions
Q1) The following table provides nominal exchange rates for the U.S. dollar. \[\begin{array} { l c c }
{ \text { Country } } & \text { Foreign currency/dollar } & \text { Dollar/foreign currency } \\
\text { Canada (Canadian dollar) } & 1.488 & .672 \\
\text { Mexico (peso) } & 9.259 & .108 \end{array}\] Based on these data, the nominal exchange rate equals approximately ______ pesos per Canadian dollar or, equivalently, ______ Canadian dollars per peso.
A) 0.672; 1.488
B) 9.259; 0.108
C) 6.222; 0.161
D) 7.771; 0.129
Q2) A country's trade balance equals:
A) the value of tariffs less the number of quotas.
B) the number of quotas less the value of tariffs.
C) the value of exports minus the value of imports.
D) the value of imports minus the value of exports.
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