Principles of Macroeconomics Exam Bank
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 explores topics such as national income determination, economic growth, unemployment, inflation, monetary and fiscal policy, and international trade. Emphasis is placed on understanding how economic indicators are measured and interpreted, and how government policies can influence economic outcomes. By examining these core concepts, students gain insights into current economic issues and the decision-making processes of policymakers at the national and global levels.
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Microeconomics Today The Macro View 17th Edition by Roger LeRoy Miller
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Page 2
Chapter 1: The Nature of Economics
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Q1) The issues that an economic system attempts to solve include:
A)what to produce.
B)how to produce items.
C)for whom items are produced.
D)all of the above.
Answer: D
Q2) Positive analysis can be described as
A)the study of whether people respond to positive incentives.
B)the study of whether people respond to negative incentives.
C)a value-free approach to inquiry.
D)a study that is not tested empirically.
Answer: C
Q3) Aggregate measures are
A)anything to do with economics.
B)a total measure of a variable across the economy.
C)used only in microeconomics.
D)determined by the Bureau of Labor Statistics.
Answer: B
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3
Chapter 2: Scarcity and the World of Trade-Offs
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Q1) People always face trade-offs because
A)they always have more than one use for their time and money.
B)they buy goods with money.
C)trading takes place in a market economy.
D)they can make themselves better off through trade.
Answer: A
Q2) The law of increasing additional costs is due to A)taxes.
B)scarcity.
C)the fact that it is more difficult to use resources efficiently the more society produces.
D)the fact that resources are not perfectly adaptable for alternative uses.
Answer: D
Q3) A bowed production possibilities curve is consistent with A)an unchanged opportunity cost.
B)a technologically inefficient society.
C)the underutilization of productive resources.
D)highly specialized resources.
Answer: D
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4
Chapter 3: Demand and Supply
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Q1) Which of the following is a likely result of the dramatic decrease in the price of microprocessor chips to computer manufacturers in the last two decades?
A)An increase in the demand for computers.
B)A decrease in the supply of diskettes.
C)An increase in the supply of computers.
D)An increase in the quantity supplied of computers.
Answer: C
Q2) In economics,"demand" refers to
A)the intensity of desire for a good.
B)the amount of a good people need rather than the amount they want.
C)the satisfaction a good will provide a person.
D)the quantities of a good that people will buy at various prices.
Answer: D
Q3) In the above figure,if the price is equal to $50,there is
A)a surplus of 200 units.
B)a shortage of 100 units.
C)an excess quantity demanded of 50 units.
D)an inadequate supply of 100 units.
Answer: A
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Page 5
Chapter 3: Extensions of Demand and Supply Analysis
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Q1) List prices on new cars do not change very often,so
A)the real price of cars is very inflexible.
B)the prices of new cars can only be flexible if there are changes in the cost of materials.
C)price flexibility is not an important feature in the auto market.
D)price flexibility shows up primarily through the negotiations between buyers and sellers.
Q2) A price floor that is set above market equilibrium will cause
A)an excess quantity demanded.
B)a shortage.
C)a surplus.
D)queuing on the part of consumers.
Q3) The way we know what commodities are relatively scarce or abundant is through A)transaction costs.
B)prices.
C)price ceilings.
D)price floors.
Q4) What are the terms of exchange and how are these terms related to the price?
Q5) Who gains and who loses from rent controls?
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Chapter 4: Public Spending and Public Choice
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Questions
Q1) Is there any common characteristic shared by government-inhibited goods and government-sponsored goods? Explain briefly.
Q2) Private goods are goods
A)that carry a price.
B)for which price is greater than zero.
C)for which the more one person has the less is available for someone else.
D)that are produced by the government.
Q3) Fred receives a $14,000.00 per year grant by the federal government because he is disabled.This is a
A)demerit good.
B)transfer payment.
C)non-rival good.
D)free rider problem.
Q4) How does a government-sponsored good differ from a public good?
Q5) Establishing rules for voter registration is an example of a(n)
A)economic function of government.
B)political function of government.
C)public good.
D)transfer payment.
Q6) What is the free-rider problem,and how is it related to public goods?
Page 7
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Chapter 5: Funding the Public Sector
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Q1) Eight years ago you purchased an asset for $100,000 that has yielded a nominal capital gain of $30,000.If you sold the asset today,your inflation-adjusted capital gains would be zero due to inflation over the last eight years.The capital gains tax is 28 percent.If you sold the asset today your tax liability would be
A)zero.
B)$28,000.
C)$8,400.
D)cannot be determined without more information.
Q2) The reason a corporation has retained earnings is to
A)pay unemployment taxes.
B)make investments that will increase the value of the stock.
C)avoid the double taxation of corporate profits.
D)be able to make unemployment payments.
Q3) A tax levied on purchases of a particular good or service
A)is illegal because it is discriminatory.
B)always leads to a reduction in total tax revenues.
C)always leads to an increase in total tax revenues.
D)is an excise tax.
Q4) Explain how corporate profits are taxed twice.
Q5) In what way is corporate income subject to double taxation?
Page 8
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Chapter 6: Demand and Supply Elasticity
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Q1) Usually,price elasticities of supply are
A)positive,because higher prices yield larger quantities supplied.
B)considered short-run adjustments due to supply constraints.
C)ordinarily a negative number based on the law of supply.
D)an inverse relationship between price and quantity supplied.
Q2) Within the range of prices around the midpoint on a straight-line demand curve,demand is
A)elastic.
B)inelastic.
C)unit-elastic.
D)zero.
Q3) When two goods are substitutes for each other,the cross price elasticity of demand
A)will be negative.
B)will be zero.
C)may be either positive or negative.
D)will be positive.
Q4) "Higher prices always yield higher revenues." Do you agree or disagree? Why?
Q5) Explain the three possible ranges for price elasticity of demand.
Q6) Price elasticity of demand is measured using percentage changes.Why?
Page 9
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Chapter 7: Consumer Choice
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Sample Questions
Q1) Refer to the above table.The marginal utility of the 5th movie for Michelle is
A)40 units of utility.
B)50 units of utility.
C)60 units of utility.
D)390 units of utility.
Q2) Refer to the above table.Suppose the price of a hamburger is $2,the price of a movie is $5,and the income of the consumer is $29.How many hamburgers and movies will this consumer buy to be at an optimum?
A)1 hamburger and 5 movies.
B)6 hamburgers and 3 movies.
C)4 hamburgers and 4 movies.
D)2 hamburgers and 5 movies.
Q3) Refer to the above table.The table gives the various combinations of Good A and Good B along Jane's indifference curve.The marginal rate of substitution when Jane goes from combination C to combination D is
A)4:1.
B)3:1.
C)2:1.
D)0.
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Page 10
Chapter 8: Rents, profits, and the Financial Environment of Business
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Q1) Which of the following is a disadvantage of the corporate form of business organization?
A)Limited liability
B)Limited financing
C)Double taxation
D)Unlimited liability
Q2) The nominal rate of interest is
A)the same as the price level.
B)the real rate of interest minus the previous year's change in the price level.
C)the interest rate actually paid by the borrower.
D)lower than the real rate in a period of inflation.
Q3) If the entrepreneur is also the manager of the firm,we would expect
A)the manager to work hard because he or she is also the residual claimant.
B)the manager to not work hard since there is no possibility of further advancement.
C)the firm to operate poorly because the specialization of labor is not adequate.
D)the firm to operate poorly because the entrepreneur is not as good at managing workers as a professional manager would be.
Q4) If the random walk theory is correct,then is there any way to "beat the market"?
Page 11
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Chapter 9: The Firm: Cost and Output Determination
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Q1) Use the above figure.The ATC at output 10 is
A)$30.00.
B)$2.67.
C)$2.00.
D)$3.00.
Q2) When Super Stuff Corporation produces 5,000 units,total costs equal $150,000 and total variable costs equal $75,000.At this level of output,what is Super Stuff's average fixed cost?
A)$75,000
B)$30
C)$225,000
D)$15
Q3) In the above figure,if this firm produces output level Q<sub>2</sub>,it has average variable costs of A)OF.
B)OE.
C)OC.
D)OD.
Q4) What is the relationship between the marginal cost curve and marginal product? Explain.
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Chapter 10: Perfect Competition
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Q1) A perfectly competitive industry's market price is found by
A)finding the point on the market demand curve where the largest number of units will be purchased.
B)locating the intersection of the market demand and market supply curves.
C)the horizontal summation of all the industry firms' individual supply curves.
D)identifying the price at which each firm realizes its largest economic profit.
Q2) Refer to the above figure.The market supply and demand curves in a perfectly competitive market intersect at $4.Which of the graphs represent the situation for an individual firm?
A)Panel A
B)Panel B
C)Panel C
D)Panel D
Q3) If a perfectly competitive firm is producing at an output at which marginal cost exceeds marginal revenue,
A)price will be at the profit maximizing level.
B)sales will be at the profit maximizing level.
C)the firm should expand production.
D)the firm should reduce production.
Q4) What are the main characteristics of a perfectly competitive market?
Page 13
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Chapter 11: Monopoly
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Q1) As a price searcher,a monopoly firm
A)must only determine the price it charges.
B)must determine its optimal price-output combination.
C)must determine its output level and then accept the market price for its product.
D)must determine the prices it pays for its inputs and accept the market price for its output.
Q2) A single supplier of a good or service for which there is no close substitute is referred to as a(n)
A)strategic competitor.
B)monopoly.
C)oligopoly.
D)monopolistic competitor.
Q3) Economies of scale may be a barrier to entry in a situation in which
A)only small-scale production can lower the per-unit cost of production.
B)only small-scale production can meet the constantly changing market demand.
C)only large-scale production can lower the per-unit cost of production.
D)large-scale production is inefficient.
Q4) Using a graph,show why marginal revenue is always less than price.
Q5) How does a monopoly maximize profits? What price does it charge?
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Chapter 12: Monopolistic Competition
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Q1) The main objective of advertising for a monopolistically competitive firm is
A)to differentiate the product and boost demand.
B)to reduce cost.
C)to earn long run profits.
D)none of the above.
Q2) Which of the following is FALSE about a comparison between a perfectly competitive firm and a monopolistically competitive firm?
A)A perfectly competitive firm has a horizontal demand curve,while a monopolistically competitive firm has a downward sloping demand curve.
B)In the short run,a perfectly competitive firm will earn zero economic profits,while a monopolistically competitive firm will earn positive economic profits.
C)Both the perfectly competitive and monopolistically competitive firm will earn economic profits equal to zero in the long-run.
D)In the long run,the perfectly competitive firm will produce at the minimum of the average total cost curve,while the monopolistically competitive firm will produce to the left of the minimum of the average total cost curve.
Q3) Why do firms in a monopolistically competitive industry advertise?
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Page 15
Chapter 13: Oligopoly and Strategic Behavior
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Q1) There are 30 firms in an industry.What happens to that industry's four-firm concentration when the third- and fourth-largest firms merge?
A)Nothing,because their shares are already included in the concentration calculation.
B)The industry's concentration ratio will fall.
C)The industry's concentration ratio will increase.
D)It is impossible to know without more information.
Q2) An association of producers in an industry that agree to set common prices and output quotas to prevent competition is
A)a tariff.
B)a patent.
C)economies of scale.
D)a cartel.
Q3) Opportunistic behavior by oligopolies means
A)that firms cooperate in both the long run and in the short run to prevent others from entering the industry.
B)that firms cooperate in the short run for current gains.
C)that firms refuse to cooperate in the short run.
D)that firms refuse to honor their product guarantees.
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Chapter 14: Regulation and Antitrust Policy in a Globalized Economy
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Q1) The regulation of the prices charged by insurance companies is known as A)the Federal Register.
B)social regulation.
C)the market share test.
D)economic regulation.
Q2) Why is antitrust legislation necessary?
A)Monopolies tend to misallocate resources.
B)All monopolies are unlawful in the United States.
C)Monopolies tend to allocate resources in a socially optimal manner.
D)Monopolies will always make a profit in the long run.
Q3) Regulators usually encourage natural monopolists to engage in A)marginal cost pricing.
B)average cost pricing.
C)marginal cost pricing,with subsidies from the government offsetting the losses.
D)inefficient pricing.
Q4) "Regulations do not always have the intended result." Do you agree or disagree? Why?
Q5) Why do government regulators not enforce marginal cost pricing for natural monopolies? What are the common regulatory solutions?
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Chapter 15: The Labor Market: Demand, supply and Outsourcing
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Q1) The demand curve for labor will shift whenever
A)the wage rate changes.
B)the marginal factor cost changes.
C)demand for the final product changes.
D)the supply of labor changes.
Q2) If the demand for hamburgers increases,it is likely that the demand for fast-food employees will
A)increase.
B)decrease.
C)stay the same.
D)increase at first but then fall rapidly.
Q3) A rule of thumb in the employment of resources is to set
A)marginal revenue product (MRP)equal to marginal factor cost (MFC).
B)marginal revenue (MR)equal to marginal cost (MC).
C)marginal physical product equal to marginal resource cost.
D)none of the above
Q4) For a firm that uses land,labor and capital as inputs,how should the inputs be utilized in order to minimize total costs?
Page 18
Q5) What can cause the demand curve for labor to shift? Explain.
Q6) Explain the efficiency wage theory.
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Page 19
Chapter 16: Unions and Labor Market Monopoly Power
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Q1) Featherbedding refers to
A)training programs initiated by the unions to make the less-skilled workers more productive.
B)attempts by management to reduce workers' interest in a union.
C)the practice that forces employers to use more labor than they would otherwise.
D)the amount of the union premium.
Q2) When you see a commercial on TV asking you to "look for the union label," the union is trying to
A)increase worker productivity.
B)increase the demand for nonunion goods.
C)increase the demand for union goods.
D)decrease the demand for nonunion goods.
Q3) Refer to the above table.What is the marginal factor cost when the firm employs the third unit of labor?
A)$62
B)$57
C)$25
D)$21
Q4) Distinguish between craft unions and industrial unions.
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Chapter 17: Income, poverty, and Health Care
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Q1) The lowest percentage of the U.S.population in poverty is found when using which measurement of household resources?
A)Private income only
B)Private income plus cash benefits
C)Private income with cash and in-kind benefits
D)Private income with Social Security payments subtracted
Q2) The idea that the Lorenz curve should be along the 45 degree line is consistent with A)the productivity standard.
B)the egalitarian principle.
C)the conservative principle.
D)none of the above.
Q3) Why have health care costs risen so much in recent years?
Q4) The way income is allocated among the population is called the A)income curve.
B)income spread.
C)distribution of income.
D)Gini allocation.
Q5) Explain the two theories of desired income distribution: the egalitarian principle and the productivity standard.
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Chapter 18: Environmental Economics
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Q1) The Endangered Species Act has
A)caused a loss of economic activities on some private land.
B)saved all endangered species without affecting anyone.
C)further reduced the number of endangered species.
D)had no impact on either the number of endangered species or other economic activities.
Q2) By adding internal costs to external costs,we determine the total A)private cost.
B)social cost.
C)psychological cost.
D)marginal cost.
Q3) A good that has external costs associated with its production will be A)produced at the optimal level.
B)underproduced.
C)overproduced.
D)not produced.
Q4) Explain why the buffalo almost became extinct while cattle did not,even though both provide similar goods for people.
Q5) Why are externalities associated with common property rather than private property?
22
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Chapter 19: Comparative Advantage and the Open Economy
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Q1) Discuss the relationship between U.S.competitiveness relative to other countries and standards of living in the United States.
Q2) Trade deflection is an act that
A)decreases the amount of international trade in the world.
B)increases the amount of international trade in the world.
C)has no impact on the amount of international trade in the world.
D)is illegal among all countries in the world.
Q3) A tariff is a
A)legal limit on sales of a foreign product in the domestic market.
B)regulation of the quality of a foreign product sold in the domestic market.
C)tax on sales of a foreign product in the domestic market.
D)voluntary limit on sales of a foreign product in the domestic market.
Q4) Which of the reasons given for tariff protection make consumers better off by generating lower prices?
A)infant industry argument
B)protecting U.S.jobs argument
C)anti-dumping argument
D)None provides lower prices for domestic consumers.
Page 23
Q5) How can comparative advantage yield gains from trade?
Q6) What is the relationship between imports and employment?
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Chapter 20: Exchange Rates and the Balance of Payments
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Q1) The effect that a gift given to a U.S.citizen from a foreign resident will have on the balance of payments is to
A)increase the current account balance.
B)have no effect on the balance of payments if the gift was made in the U.S.
C)have no effect on the balance of payments if the gift was made by a foreign country.
D)decrease the balance of payments.
Q2) In the above figure,the equilibrium exchange rate between U.S.dollars and British pounds is
A)A.
B)B.
C)C.
D)W.
Q3) If the current account is in deficit,we know that
A)the merchandise trade balance is also in deficit.
B)the merchandise trade balance is in surplus.
C)the capital account is in surplus.
D)there is a statistical discrepancy in the surplus.
Q4) In foreign exchange markets,who demands dollars and who supplies dollars?
Q5) Distinguish between the balance of payments and the balance of trade.
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