Principles of Macroeconomics Exam
Materials
Course Introduction
Principles of Macroeconomics introduces students to the foundational concepts and theories that explain the functioning of entire economies. The course explores key topics such as national income, economic growth, inflation, unemployment, and fiscal and monetary policy. Students learn how governments and central banks use policy tools to influence economic performance, as well as how these policies impact society. Through a combination of theoretical frameworks and real-world applications, the course provides a solid understanding of how aggregate economic indicators are measured, interpreted, and used to guide decision-making at both national and global levels.
Recommended Textbook
Macroeconomics 5th Edition by R.
Glenn Hubbard
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19 Chapters
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Which of the following is a normative economic statement?
A)Rising global demand for diesel and heating oil has led to increases in the price of crude oil.
B)With falling home prices and rising mortgage interest rates,the amount of foreclosures has increased.
C)The federal government is considering raising the gasoline tax to promote the use of public transportation.
D)Fashion designers should be allowed to copyright designs to promote innovation.
Answer: D
Q2) Explain the term "economics."
Answer: Economics is the study of the choices people make to attain their goals,given their scarce resources.
Q3) Which of the following generates allocative efficiency in a market economy?
A)national government intervention
B)voluntary exchange between buyers and sellers
C)United Nations rules for competition
D)equity
Answer: B
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3
Chapter 2: Trade-Offs,comparative Advantage,and the Market System
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Sample Questions
Q1) Refer to Figure 2-12.One segment of the circular flow diagram in the Figure shows the flow of funds from market F to economic agents G.The funds represent spending on goods and services.What is market F and who are economic agents G?
A)F = factor markets; G = households
B)F = product markets; G = households
C)F = factor markets; G = firms
D)F = product markets; G = firms
Answer: D
Q2) Refer to Figure 2-7.Suppose Mercedes-Benz has to shut down a portion of its facility as it works on remodeling the facility to merge two of its separate assembly lines in preparation for the production of a new,hybrid models.The production decision to shut down temporarily will result in a
A)movement from E to F in Graph A.
B)movement from G to H in Graph B.
C)movement from K to L in Graph C.
D)movement from J to H in Graph B.
Answer: C
Q3) List the four broad categories of factors of production. Answer: labor,capital,natural resources,and entrepreneurship
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Refer to Figure 3-8.The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D<sub>1</sub> and S<sub>1</sub> (point A).If there is a surplus of motorcycles how will the equilibrium point change?
A)The equilibrium point will move from A to B.
B)The equilibrium point will move from A to C.
C)There will be no change in the equilibrium point.
D)The equilibrium point will move from A to E.
Answer: C
Q2) Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for blu-ray discs.Which panel best describes what happens in this market if there is a substantial increase in the price of blu-ray players?
A)Panel (a)
B)Panel (b)
C)Panel (c)
D)Panel (d)
Answer: C
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Page 5
Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) The willingness of consumers to buy a product at different prices is shown on a A)demand curve.
B)supply curve.
C)production possibilities frontier.
D)marginal cost curve.
Q2) Refer to Table 4-4.Suppose that the quantity of labor supplied increases by 40,000 at each wage level.What are the new free market equilibrium hourly wage and the new equilibrium quantity of labor?
A)W = $9.00; Q = 410,000
B)W = $9.50; Q = 420,000
C)W = $8.50; Q = 400,000
D)W = $8.00; Q = 390,000
Q3) Refer to Figure 4-1.What is the total amount that Kendra is willing to pay for 2 ice cream cones?
A)$1.50
Q4) What is deadweight loss? When is deadweight loss equal to zero?
Page 6
Q5) What is meant by the term "economic efficiency"?
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Chapter 5: The Economics of Health Care
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Sample
Questions
Q1) Economists John Cogan,Glenn Hubbard,and Daniel Kessler have estimated that ________ the tax preference for employer-provided health insurance would reduce spending by people enrolled in these programs by 33 percent.
A)enacting
B)doubling
C)cutting in half
D)repealing
Q2) Typically,the lower the level of income per person in a country,the lower the level of spending per person on health care.This relationship between income and spending indicates that health care is a
A)normal good.
B)inferior good.
C)luxury.
D)necessity.
Q3) The rising cost of uninsured patients receiving treatment at hospital emergency rooms is one of the leading causes of the increase in health care spending as a percentage of GDP in the United States.
A)True
B)False
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Page 7
Chapter 6: Firms,the Stock Market,and Corporate Governance
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Sample Questions
Q1) A member of a corporate board of directors that is also a manager of the business is known as
A)a shareholder.
B)an inside director.
C)a partner.
D)a corporate governor.
Q2) What does limited liability mean?
A)The owners of the business are personally responsible for paying expenses incurred by the business.
B)Only employees can have a claim on the assets of the business.
C)The personal assets of the owners cannot be claimed if the business is bankrupt.
D)Anybody with a liability against a firm can claim only what their liability refers to.
Q3) How does the owner of a sole proprietorship relate to the business?
A)The owner and the business are separate legal entities.
B)The owner and the business are not separate legal entities.
C)The assets of the owner are considered separate from the asset of the business.
D)None of these describe the legal relationship of the owner to the business.
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Page 8
Chapter 7: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Your roommate Hansen argues that American producers cannot compete with foreign producers because wages are lower in foreign countries than in the United States.Hansen
A)is incorrect.Free trade raises living standards by increasing economic efficiency.
B)is right in asserting the need to protect high wages if the United States wishes to maintain its high standard of living.
C)is correct in arguing that the high wages of U.S.workers make it impossible to compete with workers in low-wage countries.
D)is advancing the anti-dumping argument for protectionism.
Q2) If the ________ cost of production for two goods is different between two countries then mutually beneficial trade is possible.
A)marginal
B)explicit
C)opportunity
D)implicit
Q3) What was the GATT,why was it established,and why and with what was it replaced?
Q4) What are terms of trade?
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Chapter 8: GDP: Measuring Total Production and Income
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Sample Questions
Q1) The informal sector can be a significant drag on the economies of developing countries because the firms in the informal sector
A)produce goods and services no one wants.
B)sell their goods and services to citizens in other countries.
C)do not pay taxes to the government.
D)employ illegal immigrants from other countries.
Q2) The output of Mexican citizens who work in Texas would be included in the
A)gross domestic product of Mexico.
B)gross national product of Mexico.
C)gross national product of the United States.
D)net national product of the United States.
Q3) Refer to Table 8-18.What is real GDP in 2013,using 2013 as the base year?
A)$28,885
B)$11,790
C)$11,200
D)$10,275
Q4) Refer to Table 8-9.Suppose that the above table represents the goods and services produced in a very simple economy in 2013.Assume that steel is used as an input in the production of autos.Using that information,calculate GDP for the year 2013.
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Chapter 9: Unemployment and Inflation
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Sample Questions
Q1) Upon your graduation from college,you find that the economy is in recession and the unemployment rate is relatively high.Nonetheless,you continue along your career path looking for a new job because
A)the cost of additional education is always higher during recession.
B)high unemployment rates do not usually last for very long.
C)looking for work is your only option.
D)the wages of college graduates do not fall during recession.
Q2) Nominal income is equal to real income if the CPI is less than 100.
A)True
B)False
Q3) If the number of unemployed workers is 19 million,the number in the working-age population is 500 million,and the unemployment rate is 4%,how many workers are in the labor force?
A)1 million
B)20 million
C)475 million
D)481 million
Q4) Explain what economists mean by full employment and why this rate of unemployment is not zero.
Q5) Describe the three types of unemployment.
Page 11
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Chapter 10: Economic Growth, the Financial System, and Business Cycles
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Sample Questions
Q1) What is human capital?
A)a slang term for the underground labor market
B)manufactured goods that are used to produce other goods
C)accumulated knowledge and skills acquired by a worker
D)the manager or owner of a business
Q2) How does a decrease in the tax rate on income earned on saving affect saving,investment,the interest rate,and economic growth?
Q3) If labor productivity growth slows down in a country,this means that the growth rate in ________ has declined.
A)labor force participation
B)the quantity of goods or services that can be produced by one hour of work
C)the working-age population
D)nominal GDP
Q4) Explain and show graphically how an increase in household saving affects the equilibrium interest rate and the equilibrium quantity of loanable funds.
Q5) Use the equations for public and private saving to demonstrate how total saving in the economy equals investment.
Page 12
Q6) Give three reasons why the U.S.economy is more stable since 1950.
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Chapter 11: Long-Run Economic Growth: Sources and Policies
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Sample Questions
Q1) According to a study by economists Raymond Fisman and Edward Miguel,as the ________ increases,so does the number of parking violations by the country's United Nations delegates.
A)level of corruption in a country
B)population of a country
C)per capita income of a country
D)rate of investment in a country
Q2) Refer to Figure 11-3.Technological change is shown in the figure above by the movement from
A)B to C.
B)B to D.
C)B to E.
D)B to A.
Q3) Over the last three decades in the United States,services have become a smaller fraction of GDP relative to goods.
A)True
B)False
Q4) Most economic growth in the world occurred between 1,000,000 B.C.and 1300 A.D.
A)True
B)False
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Chapter 12: Aggregate Expenditure and Output in the Short Run
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Sample Questions
Q1) The aggregate demand curve illustrates the relationship between ________ and the ________,holding constant all other factors that affect aggregate expenditure.
A)the price level; quantity of planned aggregate expenditure
B)the inflation rate; quantity of planned aggregate expenditure
C)the price level; quantity of planned investment expenditure
D)the price level; quantity of consumption expenditure
Q2) All of the following are components of aggregate expenditure except
A)consumption spending.
B)net export spending.
C)actual investment spending.
D)government spending.
Q3) Consumption spending is $5 million,planned investment spending is $8 million,actual investment spending is $8 million,government purchases are $10 million,and net export spending is $2 million.Based on this information,which of the following is true?
A)There was an unplanned change in inventories.
B)Aggregate expenditure is equal to GDP.
C)Aggregate expenditure is greater than GDP.
D)Aggregate expenditure is less than GDP.
Page 14
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Chapter 13: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?
A)Potential real GDP increases continuously.
B)The aggregate demand curve shifts to the right during most periods.
C)The short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages.
D)Aggregate demand and potential real GDP decrease continuously.
Q2) The short-run aggregate supply curve has a(n)________ slope because as prices of ________ rise,prices of ________ rise more slowly.
A)positive; final goods and services; inputs
B)infinite; final goods and services; inputs
C)positive; inputs; final goods and services
D)infinite; inputs; final goods and services
Q3) One factor which brought on the recession of 2007-2009 was the end of the housing bubble.
A)True
B)False
Q4) Using an aggregate demand graph,illustrate the impact of an increase in the interest rate.
Page 15
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Chapter 14: Money, banks, and the Federal Reserve System
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Sample Questions
Q1) Which of the following is not a tool the Fed uses to manage the money supply?
A)open market operations
B)setting the discount rate
C)expanding and contracting deposit insurance
D)setting reserve requirements for deposits in the banking system
Q2) If you transfer all of your currency to your checking account,then initially,M1 will ________ and M2 will ________.
A)increase; not change
B)not change; increase
C)not change; not change
D)decrease; increase
Q3) How is the quantity theory of money different from the quantity equation and why must the quantity equation always be true?
Q4) Economies where goods and services are traded directly for other goods and services are called ________ economies.
A)trade
B)barter
C)direct
D)seigniorage
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Chapter 15: Monetary Policy
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Sample Questions
Q1) The goals of monetary policy tend to be interrelated.For example,when the Fed pursues the goal of ________,it also can achieve the goal of ________ simultaneously.
A)high employment; economic growth
B)high employment; lowering government spending
C)economic growth; a low current account deficit
D)stability of financial markets; a low current account deficit
Q2) With the Troubled Asset Relief Program (TARP),the Treasury provided funds to banks in exchange for stock.
A)True
B)False
Q3) Refer to Figure 15-7.Suppose the Fed lowers its target for the federal funds rate.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from
A)A to B.
B)B to A.
C)C to B.
D)E to A.
E)C to D.
Q4) What problems can high inflation rates cause for the economy?
Page 17
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Chapter 16: Fiscal Policy
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Sample Questions
Q1) Lowering the individual income tax will increase household disposable income and consumption spending.
A)True
B)False
Q2) If Congress passed a one-time tax cut in order to stimulate the economy in 2014,and tax rate levels returned to their pre-2014 level in 2015,how should this tax cut affect the economy?
A)The tax cut would increase consumption spending less than would a permanent tax cut.
B)The tax cut would increase consumption spending more than would a permanent tax cut.
C)The tax cut would increase consumption spending by the same amount as would a permanent tax cut.
D)The tax cut would raise the price level in 2014.
Q3) Illustrate and explain the effects of tax reduction and simplification using the dynamic aggregate demand and supply model.To simplify the analysis,assume that aggregate demand is not affected by the tax cut.
Q4) How can tax simplification be beneficial to the economy?
Q5) What is the "tax wedge"?
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Chapter 17: Inflation, unemployment, and Federal Reserve Policy
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Q1) Why do most economists believe that it is important for a country's central bank to be independent of the rest of the country's central government?
Q2) If inflation falls from 11% to 5%,there is deflation.
A)True
B)False
Q3) According to the short-run Phillips curve,which of the following would result in high rates of unemployment?
A)strong increases in aggregate supply
B)a lower inflation rate
C)strong increases in aggregate demand
D)a higher inflation rate
Q4) If workers and firms ignore inflation or form their inflation expectations adaptively,expansionary monetary policy will lower unemployment permanently.
A)True
B)False
Q5) How would you expect the Fed to respond to a negative supply shock in the economy?
Page 19
Q6) What does it mean to say that workers and firms have rational expectations?
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Chapter 18: Macroeconomics in an Open Economy
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Q1) A country which incurs a current account deficit will most likely have a financial or capital account surplus.
A)True
B)False
Q2) When a foreign investor buys a bond issued in the United States,
A)the balance on the capital account increases.
B)the balance on the current account increases.
C)the balance on the financial account increases.
D)the balance of trade increases.
Q3) Investment (I)in the United States may increase with either an increase in national saving or an increase in net foreign investment.
A)True
B)False
Q4) Suppose that Federal Reserve policy leads to higher interest rates in the United States.How will this policy affect real GDP in the short run if the United States is a closed economy,and how will it affect real GDP in the short run if the United States is an open economy?
Q5) What are the three main sets of factors that cause the supply and demand curves in the foreign exchange market to shift?
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Chapter 19: The International Financial System
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Q1) Refer to Figure 19-4.The equilibrium exchange rate is at A,$3/pound.Suppose the British government pegs its currency at $4/pound.At the pegged exchange rate,
A)there is a shortage of pounds equal to 600 million.
B)there is a surplus of pounds equal to 400 million.
C)there is a shortage of pounds equal to 400 million.
D)there is a surplus of pounds equal to 600 million.
E)there is a shortage of pounds equal to 200 million.
Q2) Refer to Figure 19-5.Suppose the pegged exchange rate is $0.14/yuan and U.S.consumers increase their demand for Chinese products.Using the figure above,this would
A)increase the surplus of Chinese yuan.
B)decrease the surplus of Chinese yuan.
C)decrease the shortage of Chinese yuan.
D)increase the shortage of Chinese yuan.
Q3) The Bretton Woods exchange rate system was a
A)floating exchange rate system.
B)managed float exchange rate system.
C)fixed exchange rate system.
D)flexible exchange rate system.
Q4) What does it mean when one currency is "pegged" against another currency?
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