Principles of Macroeconomics Exam Preparation Guide
Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and theories that explain the operation of the economy as a whole. The course covers topics such as national income, economic growth, unemployment, inflation, aggregate demand and supply, fiscal and monetary policy, international trade, and the role of government in economic management. Students will learn to analyze economic indicators, understand the dynamics of economic cycles, and evaluate the effects of different policy decisions on national and global economies. This foundational course provides the analytical tools necessary for understanding broad economic issues and for informed participation in economic decision-making.
Recommended Textbook
Foundations of Macroeconomics 5th Edition by Robin Bade
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19 Chapters
5019 Verified Questions
5019 Flashcards
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Chapter 1: Getting Started
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Sample Questions
Q1) Which of the following is a positive statement?
A) An increase in college tuition is not fair to students.
B) A recession leads to higher enrollments at universities.
C) University bookstore prices are too high.
D) Parking tickets on campus impose an excessive fee.
E) The school needs more parking for students.
Answer: B
Q2) A graph showing the values of an economic variable for different groups in a population at a point in time is called a
A) cross-section graph.
B) time-series graph.
C) scatter diagram.
D) Venn diagram.
E) None of the above answers is correct.
Answer: A
Q3) What does the slope of the line shown in the above figure equal?
Answer: The slope equals the change in variable on the y-axis divided by the change in the variable on the x-axis, or (150 - 300)/(600 - 800) = 0.75.
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3
Chapter 2: The Usand Global Economies
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Sample Questions
Q1) In the circular flow model, consumption goods are bought and sold in the
A) goods market.
B) financial market.
C) factor markets.
D) government market.
E) monetary flows.
Answer: A
Q2) Approximately ________ people live in the United States and ________ people live in the world.
A) 400 million; 8 billion
B) 300 million; 7 billion
C) 200 million; 5 billion
D) 300 million; 6 billion
E) 200 million; 6 billion
Answer: B
Q3) In the United States, which factor of production earns the largest share of the nation's total income?
Answer: The largest fraction of the nation's total income is earned by labor.In the United States, labor earns about 65 percent of the nation's total income.
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Page 4
Chapter 3: The Economic Problem
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Sample Questions
Q1) Deb and Pete have volunteered to help their favorite charity mail out fundraiser information.The figure above shows their production possibilities frontiers for assembling packets and stuffing envelopes.What is Deb's opportunity cost of assembling 1 packet?
A) 160 envelopes
B) 40 envelopes
C) 4 envelopes
D) 1/4 of an envelope
E) 4 packets
Answer: C
Q2) The United States produced approximately ________ worth of goods and services in 2007.
A) $14 trillion
B) $14 billion
C) $140 trillion
D) $140 billion
E) $1,400 trillion
Answer: A
Q3) How is economic growth shown in a production possibilities frontier graph?
Answer: Economic growth is illustrated as an outward shift of the PPF.
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Page 5
Chapter 4: Demand and Supply
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Sample Questions
Q1) The quantity supplied of a good is
A) the same thing as the quantity demanded at each price.
B) the amount that the people are willing and able to sell during a given time period at a specified price.
C) equal to the difference between the quantity available and the quantity desired by all consumers and producers.
D) the amount the firm will sell when it can sell all it wants.
E) is always larger than the quantity demanded at each price.
Q2) The above figure shows the market for pizza.The market is in equilibrium.Pizza and tacos are substitutes for consumers.The price of tacos falls.What point represents the most likely new price and quantity?
A) A
B) B
C) C
D) D
E) E
Q3) Suppose that the productivity used to produce computers advances.How does this change affect the supply of computers and the supply curve of computers?
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6
Chapter 5: Gdp: a Measure of Total Production and Income
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Q1) The measurement of GDP handles underground production by
A) including the amount produced in this sector of the economy in exactly the same way that all other production is included.
B) omitting it because underground production is unreported to the government by the people involved.
C) adding it at fixed prices that change only infrequently.
D) adding an estimate of it because it is difficult to precisely measure underground production.
E) omitting it because, being illegal, it has no effect on the nation's total production.
Q2) Nominal GDP is GDP
A) using current market values.
B) during a recession.
C) minus depreciation.
D) after adjusting for any price changes.
E) that ignores depreciation.
Q3) What is a business cycle?
What are its phases and turning points?
Q4) How are changes in inventory treated in GDP?
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Chapter 6: Jobs and Unemployment
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Sample Questions
Q1) In the United States over the last 50 years,
A) the labor force participation rate for women has increased to match that for women in other developed countries.
B) both women's and men's labor force participation rates have increased due to technology.
C) the change in men's labor force participation rate explains the behavior of the unemployment rate.
D) the labor force participation rate for women has increased to about 60 percent.
E) women's earning power has remained fairly constant.
Q2) During a recession, the unemployment rate
A) is, by definition, above 25 percent.
B) is, by definition, above 10 percent.
C) usually increases but not necessarily to 10 percent or 25 percent.
D) remains constant.
E) usually decreases.
Q3) What is the definition of the unemployment rate?
How are part-time workers and discouraged workers treated when calculating the unemployment rate?
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8
Chapter 7: The Cpi and the Cost of Living
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Sample Questions
Q1) If the current period has a CPI of 143, then the amount of inflation since the base period is
A) 143 percent.
B) 43 percent.
C) 57 percent.
D) 157 percent.
E) unknown without knowing the base period's CPI.
Q2) When we compare the records of the CPI and the PCE price index over time, the A) two are very different in magnitude.
B) PCE price index tends to exceed the CPI.
C) CPI tends to exceed the PCE price index.
D) two measures are identical.
E) CPI tends to exceed the PCE price index when inflation is high and the PCE price index tends to exceed the CPI when inflation is low.
Q3) What is the difference between nominal variables and real variables?
Discuss the calculations undertaken to determine the real wage rate and the real interest rate.Explain why the real wage rate and real interest rate are real variables.
Q4) Is the CPI a biased measure of the inflation rate?
Explain your answer.
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Chapter 8: Potential Gdp and the Natural Unemployment Rate
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Sample Questions
Q1) Suppose the full-employment equilibrium wage rate is $11 per hour while the real wage rate is $12 per hour.As a result,
A) job rationing will occur.
B) job search will decline.
C) a positive Okun gap will occur.
D) the production function will shift downward.
E) job rationing will decrease.
Q2) The first table above gives the labor demand and labor supply schedules for a nation.The second table gives its production function.
a. What is the equilibrium real wage rate and the level of employment?
b. What is potential GDP?
If you cannot determine a precise amount, give the range in which potential GDP must lie.
Q3) If the government increases unemployment benefits, then the labor
A) demand curve shifts rightward.
B) demand curve shifts leftward.
C) supply curve shifts rightward.
D) supply curve shifts leftward.
E) Both answers B and D are correct.
Page 10
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Chapter 9: Economic Growth
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Sample Questions
Q1) If the stock of physical capital (that is machinery, equipment, etc.) and human capital remain the same and the population increases, then
A) labor productivity will increase.
B) labor productivity will decrease.
C) the standard of living will increase.
D) the new labor will be more productive.
E) real GDP decreases.
Q2) If Country A's real GDP grows at a rate of 14 percent per year, about how many years will it take for Country A's real GDP to double?
A) 10
B) 7
C) 5
D) 30
E) 14
Q3) What are the sources of human capital?
Q4) What is the Rule of 70?
Q5) Define labor productivity.Discuss the relationship between labor productivity, human capital growth, and technology change.
Q6) What policies can a government undertake to achieve faster economic growth?
Page 11
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Chapter 10: Finance, Saving, and Investment
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Sample Questions
Q1) If wealth ________, then saving increases, which is shown by a ________.
A) increases; movement upward along the supply of loanable funds curve
B) decreases; a movement downward along the supply of loanable funds curve
C) increases; rightward shift of the supply of loanable funds curve
D) decreases; rightward shift of the supply of loanable funds curve
E) increases; leftward shift of the supply of loanable funds curve
Q2) ________ increases the quantity of capital and ________ decreases the quantity of capital.
A) net investment; gross investment
B) investment; depreciation
C) depreciation; net investment
D) investment; saving
E) gross investment; net investment
Q3) Suppose the government has a budget deficit of $2 billion.If there is no Ricardo-Barro effect, how much crowding out of investment occurs?
A) more than $2 billion
B) some crowding out occurs, but less than $2 billion
C) exactly equal to $2 billion dollars
D) no crowding out occurs and investment does not change
E) no crowding out occurs because investment increases
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Chapter 11: The Monetary System
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Sample Questions
Q1) A credit card is
A) money.
B) barter money.
C) not money.
D) fiat money.
E) not money but the card's credit line is money.
Q2) An open market purchase of securities by the Fed leads to all of the following EXCEPT
A) an initial increase in excess reserves.
B) an increase in bank lending.
C) a decrease in the quantity of money.
D) an increase in banks' reserves.
E) an increase in the monetary base.
Q3) Which of the flowing lists includes only banks' assets?
A) liquid assets, loans, securities, and reserves
B) reserves, savings deposits, securities, and loans
C) reserves, securities, liquid assets, and savings deposits
D) securities, reserves, checkable deposits, and liquid assets
E) reserves, checkable deposits, securities, and loans
Q4) Define money and list its functions.
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Chapter 12: Money, Interest, and Inflation
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Sample Questions
Q1) If the quantity of money starts to grow more rapidly than real GDP and velocity does not change, the result is
A) more rapid growth in potential GDP.
B) the inflation rate rises.
C) an increase in investment.
D) an eventual slowing in the growth rate of the quantity of money.
E) slower growth in the price level.
Q2) In 2009, the interest rate fell below 1 percent in the United States.As a result, there was a
A) leftward shift in the supply of money curve.
B) rightward shift in the demand for money curve.
C) movement downward along the demand for money curve.
D) movement upward along the demand for money curve.
E) movement upward along the money supply curve.
Q3) Shoe-leather costs of inflation arise from the
A) increasing costs of apparel (clothes and shoes) as inflation rises.
B) increase of velocity as inflation rises.
C) decline in the use of money as a unit of account.
D) increasing costs of agricultural products as inflation rises.
E) confusion that results from higher inflation.
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Chapter 13: Aggregate Supply and Aggregate Demand
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Sample Questions
Q1) When the quantity of real GDP demanded exceeds the quantity of real GDP supplied, firms
A) increase production and prices.
B) decrease production and prices.
C) increase production and lower prices.
D) decrease production and increase prices.
E) do not change production because aggregate demand and potential GDP will adjust.
Q2) The slope of the aggregate supply curve shows that the ________ the price level, the ________.
A) higher; greater is the quantity of real GDP supplied
B) higher; smaller is the quantity of real GDP supplied
C) lower; greater is the quantity of real GDP supplied
D) higher; is the quantity of potential GDP supplied
E) lower; is the quantity of potential GDP supplied
Q3) What is an inflationary gap and how does the price level change? What is a deflationary gap and how does the price level change?
Q4) How does a rise in the foreign exchange rate affect aggregate demand in the United States?
Explain your answer.
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Chapter 14: Aggregate Expenditure Multiplier
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Sample Questions
Q1) If the real interest rate increases, there is
A) a movement upward along the consumption function.
B) a movement downward along consumption function.
C) an upward shift of the consumption function.
D) a downward shift of the consumption function.
E) a change in the slope of the consumption function.
Q2) The slope of the AE curve is .80.What is the expenditure multiplier?
Everything else the same, by how much does equilibrium aggregate expenditure increase if
a. exports increase from $1.75 trillion to $2.25 trillion.
b. government expenditure on goods and services decrease from $2.0 trillion to $1.8 trillion.
c. investment increases from $1.2 trillion to $2.3 trillion.
Q3) On a graph of the consumption function, where the consumption function crosses the 45 degree line,
A) disposable income is zero.
B) the maximum level of disposable income is earned.
C) there is no saving and no dissaving.
D) there are no tax payments.
E) induced consumption equals zero.
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Chapter 15: The Short-Run Policy Tradeoff
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Sample Questions
Q1) Explain how the short-run and long-run Phillips curves are related.
Q2) "The short-run Phillips curve shifts leftward when the inflation rate rises." Is the previous statement correct or incorrect?
Q3) The long-run Phillips curve is graphed as a
A) horizontal line at the expected level of inflation.
B) vertical line at the natural unemployment rate.
C) curve that slopes downward to the right.
D) curve that slopes upward to the right.
E) a straight line with a 45 degree slope.
Q4) Moving ________ the short-run Phillips curve is equivalent to moving ________.
A) downward along; downward along the aggregate demand curve
B) downward along; upward along the aggregate demand curve
C) upward along; upward along the aggregate supply curve
D) downward along; upward along the potential GDP line
E) downward along; downward along the potential GDP line
Q5) Using the Phillips curve framework, discuss how a credible announced decrease in the growth of aggregate demand affects inflation and unemployment.
Q6) "The short-run Phillips curve is vertical at the natural unemployment rate." Is the previous statement correct or incorrect?
Page 17
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Chapter 16: Fiscal Policy
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Sample Questions
Q1) The government expenditure multiplier reflects the magnification on ________ from a change in government expenditure on goods and services.
A) aggregate demand.
B) the budget deficit.
C) tax receipts.
D) aggregate supply.
E) potential GDP.
Q2) Which of the following is an example of a discretionary fiscal policy action?
A) increased unemployment payments resulting from higher unemployment
B) an increase in spending on defense goods resulting from increased world tensions
C) an increase in tax revenue resulting from an increase in GDP
D) a decrease in the tax rate resulting from an effort to increase aggregate demand to combat a recession
E) None of the above answers are correct.
Q3) What is the effect on aggregate demand and the AD curve from either an increase in government expenditure or a cut in taxes?
Q4) Explain how tax revenue can be both an automatic fiscal policy and a discretionary fiscal policy.
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Chapter 17: Monetary Policy
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Sample Questions
Q1) To determine whether the goal of stable prices is being achieved, the Federal Reserve monitors the ________; to determine whether the goal of maximum employment is being achieved, the Federal Reserve monitors ________.
A) core CPI inflation rate; the natural unemployment rate
B) CPI; the gap between nominal GDP and real GDP
C) core GDP deflator inflation rate; the natural unemployment rate
D) core PCE deflator inflation rate; the output gap
E) GDP price deflator; real GDP
Q2) Under a k-percent rule, if the economy goes into a expansion, the Fed would
A) raise the federal funds rate.
B) lower tax rates to keep revenue constant.
C) lower the federal funds rate.
D) increase the quantity of money.
E) None of the above answers are correct.
Q3) If there is an inflationary gap, what is the proper monetary policy to restore price stability?
What actions can the Fed undertake to restore price stability?
Q4) Explain the role the Fed, Congress, and the President play in making monetary policy.
Q5) Distinguish between monetary policy instruments and goals.
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Chapter 18: International Trade Policy
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Sample Questions
Q1) If a tariff is imposed on imports of shrimp into the United States, U.S.producer surplus from shrimp will ________ and U.S.total surplus from shrimp will ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease E) increase; not change
Q2) The two main reasons why international trade is restricted is because restricting trade means that governments can ________ and because domestic businesses
A) create jobs; earn profits
B) obtain revenue; rent seek
C) rent seek; want to dump
D) prevent dumping; want to dump
E) rent seek; obtain revenue
Q3) Because wage rates are so low in Africa, why don't Microsoft, Cisco and other major corporations close down their American operations and move to Africa?
Q4) What is dumping?
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Chapter 19: International Finance
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Sample Questions
Q1) The official settlements account contains data on
A) officials' expenses.
B) official reserves.
C) trade complaints that are officially settled.
D) official governmental complaints between countries.
E) capital imports and exports.
Q2) What balance of payment account records foreign investment between countries?
Q3) Interest rate parity occurs when
A) the interest rate in one currency equals the interest rate in another currency when exchange rate changes are taken into account.
B) interest rate differentials are always maintained across nations.
C) interest rates are equal across nations.
D) prices are equal across nations when exchange rates are taken into account.
E) interest rates no longer affect the exchange rate.
Q4) The figure above illustrates the U.S.foreign exchange market.Illustrate how the exchange rate changes if the expected future exchange rate falls.Does the dollar appreciate or depreciate?
Q5) If imports are $1,200 billion and exports are $1,300 billion, while net interest income and net transfers are zero, what is the current account balance?
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