Principles of Macroeconomics
Exam Questions
Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and theories that explain how economies operate on a broad scale. The course covers topics such as national income, economic growth, unemployment, inflation, fiscal and monetary policy, and the role of government in the economy. Through the analysis of aggregate economic indicators, students learn how economic performance is measured and how various policy tools can influence overall economic stability and growth. The course also explores international trade and finance, helping students understand the dynamics of the global economy.
Recommended Textbook
Foundations of Macroeconomics 5th Edition by Robin Bade
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Page 2
Chapter 1: Getting Started
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Sample Questions
Q1) The opportunity cost of a one-unit increase in an activity
A) is greater than the marginal benefit.
B) is called sunk cost.
C) decreases as you do more of it.
D) is called marginal cost.
E) is measured by what the person is willing to give up to get one more unit of the activity.
Answer: D
Q2) Scarcity requires that we
A) produce efficiently.
B) learn to limit our wants.
C) have the most rapid economic growth possible.
D) have unlimited resources.
E) make choices about what goods and services to produce.
Answer: E
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 (30 - 60)/(25 - 15) = -3.0.
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3
Chapter 2: The Usand Global Economies
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Sample Questions
Q1) In the circular flow model,
A) the government is represented as a separate market.
B) the government buys goods and services from firms.
C) goods and services are sold by households and purchased by firms.
D) factor markets are where goods rather than services are bought and sold.
E) the government has no direct interaction with either households or firms.
Answer: B
Q2) Capital is best defined as
A) produced goods used by businesses.
B) financial capital.
C) investment.
D) money.
E) stocks and/or bonds.
Answer: A
Q3) Draw a circular flow diagram with households and firms and without government.Label the markets and the flows in the circular flow diagram.
Answer: 11ea5157_58a6_75c2_b971_617a43a68703_TB1454_00 A circular flow diagram with the markets and flows labeled is in the figure above.
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Page 4
Chapter 3: The Economic Problem
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Sample Questions
Q1) Which of the following best describes comparative advantage?
A) being able to produce more output than any other country
B) using the fewest number of resources to produce a given amount of output
C) having the largest number of resources compared to other countries
D) forgoing the fewest units of one product to produce a unit of another product
E) It is the same as absolute advantage.
Answer: D
Q2) Mac can bake more cookies than Monica per hour.It must be true that
A) Monica has an absolute advantage in cookie baking.
B) Mac has an absolute advantage in baking cookies.
C) Mac has a comparative advantage in baking cookies.
D) Monica has a comparative advantage in baking cookies.
E) Mac cannot benefit by trade between the two of them.
Answer: B
Q3) Why do nations engage in international trade?
Answer: Nations engage in international trade because they gain from trade.International trade results in a more efficient use of resources and thereby increases world output.As a result, it increases the amount of goods and services available for consumption in all nations and thereby makes all countries better off.
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Page 5
Chapter 4: Demand and Supply
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Sample Questions
Q1) Consider the market for camera film.If more people start using digital cameras, which do not require film,
A) the supply curve of film shifts rightward.
B) the demand curve for film shifts leftward.
C) there is a movement up along the demand curve for film.
D) there is a movement down along the demand curve for film.
E) neither the demand curve nor the supply curve for film shifts; instead there is a movement along both.
Q2) In the above figure, an increase in productivity
A) shifts the supply curve from S to S .
B) shifts the supply curve from S to S .
C) results in a movement from point a to point b.
D) results in a movement from point b to point a.
E) has no effect.
Q3) When moving along a demand curve, which of the following changes?
A) the consumers' incomes
B) the prices of other goods
C) the number of buyers
D) the price of the good
E) the consumers' preferences
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Chapter 5: Gdp: a Measure of Total Production and Income
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Q1) List and discuss various types of goods and services omitted from measured GDP.
Q2) The table gives data on the production and prices in a small economy.Use 2010 as the base period.Using the chained-price method, what is the growth rate of real GDP from 2010 to 2011?
Q3) U.S.net exports include
A) sales of Hollywood movies to the rest of the world.
B) the production of Ford Mustangs in China that are sold in China.
C) Honda automobiles produced and sold in Japan.
D) the sale of shares of Nike stock on the New York Stock Exchange.
E) the sale of U.S.government securities to U.S.citizens.
Q4) Which of the following is NOT included in the income approach to calculating GDP?
A) interest
B) wages
C) net exports of goods and services
D) profits
E) rent
Q5) Define and distinguish between final goods and intermediate goods.
Q6) What is the relationship shown by the circular flow among income, total expenditure, and GDP?
Page 7
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Chapter 6: Jobs and Unemployment
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Sample Questions
Q1) Full employment occurs when
A) the unemployment rate is zero.
B) the cyclical unemployment rate is zero.
C) the frictional unemployment rate is zero.
D) the seasonal unemployment rate is zero.
E) the structural unemployment rate is zero.
Q2) During 2009, General Motors announced that it would close its Saturn facilities in the United States because of the foreign competition it faced.This corporate move
A) increased structural unemployment.
B) increased seasonal unemployment.
C) increased cyclical unemployment.
D) had no impact on unemployment.
E) decreased frictional unemployment.
Q3) The highest unemployment rate in U.S.history was about
A) 10.2 percent in 2009.
B) 5.9 percent in 1972.
C) 10 percent in 1982.
D) 25 percent in 1933.
E) 52 percent in 1939.
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Page 8
Chapter 7: The Cpi and the Cost of Living
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Sample Questions
Q1) The CPI bias was estimated by the Congressional Advisory Commission on the Consumer Price Index as
A) understating the actual inflation rate by about 5 percentage points a year.
B) understating the actual inflation rate by more than 5 percentage points a year.
C) overstating the actual inflation rate by about 1 percentage point a year.
D) overstating the actual inflation rate by more than 5 percentage points a year.
E) understating the actual inflation rate by about 1 percentage point a year.
Q2) If your nominal income is $80,000 and your real income in base year prices is $71,500, what is the CPI?
A) 89
B) 100
C) 112
D) 106.
E) 150
Q3) "The new goods bias puts a downward bias into the CPI and its measure of the inflation rate." Is the previous sentence correct or not? Explain your answer.
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Chapter 8: Potential Gdp and the Natural Unemployment Rate
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Sample Questions
Q1) The existence of union wages, efficiency wages, and the minimum wage
A) raises the real wage rate above the equilibrium wage rate and creates a shortage of labor.
B) lowers the real wage rate below the equilibrium wage rate and creates a shortage of labor.
C) raises the real wage rate above the equilibrium wage rate and raises the natural unemployment rate.
D) does not have an impact on the equilibrium wage rate or on the amount of unemployment.
E) raises the real wage rate above the equilibrium wage rate and lowers the natural unemployment rate.
Q2) The real wage rate is $35 an hour.At this wage rate there are 100 billion labor hours supplied and 200 billion labor hours demanded.There is a
A) shortage of 300 billion hours of labor.
B) shortage of 100 billion hours of labor.
C) surplus of 100 billion hours of labor.
D) surplus of 300 billion hours of labor.
E) shortage of 200 billion hours of labor.
Q3) What is an efficiency wage and what effect does it have in the labor market?
Page 10
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Chapter 9: Economic Growth
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Sample Questions
Q1) If an economy's growth rate of real GDP is 3 percent per year and the growth rate of the population is 2.5 percent per year, the growth rate of real GDP per person is
A) 3 + 2.5 = 5.5 percent per year.
B) [(3 - 2.5) ÷ 2.5] × 100 = 20 percent per year.
C) [(2.5 - 3) ÷ 3] × 100 = 16.6 percent per year.
D) 3 - 2.5 = 0.5 percent per year.
E) 2.5 - 3 = -0.5 percent per year.
Q2) The quantity of real GDP produced by one hour of labor is defined as
A) real GDP per person.
B) the advance in technology.
C) the growth rate of technology.
D) labor productivity.
E) economic growth.
Q3) Labor productivity is $20 per hour and aggregate hours are 400 billion hours.
a. What does real GDP equal?
b. Because of technological advances, labor productivity doubles to $40 per hour.Furthermore, assume that aggregate hours decrease to 300 billion hours.What does real GDP equal?
Q4) How do we calculate growth in a nation's standard of living?
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Chapter 10: Finance, Saving, and Investment
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Sample Questions
Q1) The demand for loanable funds curve shows the relationship between the quantity of loanable funds demanded and
A) the real interest rate.
B) the price level.
C) the capital stock.
D) depreciation.
E) the expected rate of profit.
Q2) An increase in the quantity of loanable funds demanded occurs when
A) the real interest rate falls.
B) the real interest rate rises.
C) the supply of loanable funds decreases.
D) the expected profit rises.
E) wealth decreases.
Q3) If there is no Ricardo-Barro effect, when the government runs a budget surplus, it A) competes with businesses for private saving.
B) shifts the supply of loanable funds curve leftward.
C) shifts the demand for loanable funds curve leftward.
D) contributes to financing investment.
E) shifts the demand for loanable funds curve rightward.
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Page 12
Chapter 11: The Monetary System
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Sample Questions
Q1) The Fed conducts an open market operation and buys $50,000 of government securities from Commerce Bank.The desired reserve ratio is 25 percent.What is the change in Commerce Bank's total reserves and its excess reserves?
Q2) A currency drain occurs when the
A) Fed increases the required reserve ratio.
B) Fed sells U.S.government securities.
C) non-bank public increases its holdings of currency outside the banking system.
D) banks reduce the number of loans they create with their excess reserves.
E) Fed buys U.S.government securities.
Q3) Which of the following are considered money?
i. electronic checks
ii. paper checks
iii. the deposit transferred using an e-check
A) i, ii and iii.
B) i and iii.
C) i and ii.
D) iii only.
E) ii and iii.
Q4) Explain what is meant by the phrase a bank's "balancing act."
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Chapter 12: Money, Interest, and Inflation
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Q1) The proposition that in the long run when real GDP equals potential GDP, an increase in the quantity of money leads to an equal percentage increase in the price level is the called the quantity theory of A) constant velocity.
B) inflation.
C) money.
D) equal change.
E) the long run.
Q2) If real GDP grows by 3 percent, the velocity of circulation does not change, and the quantity of money grows by 5 percent, then in the long run the inflation rate is A) 3 percent.
B) -5 percent.
C) -2 percent.
D) 8 percent.
E) 2 percent.
Q3) What are the costs of inflation?
Briefly explain each.
Q4) Explain how the government gains revenue during inflation.
Q5) What is the opportunity cost of holding money?
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Chapter 13: Aggregate Supply and Aggregate Demand
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Sample Questions
Q1) When the price level rises and increases the demand for money, the nominal interest rate ________ and the real interest rate ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls
E) does not change; does not change
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) ________ increases potential GDP.
A) A decrease in the money wage rate
B) A recessionary gap
C) A recession
D) An increase in the amount of human capital
E) An increase in aggregate demand
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Chapter 14: Aggregate Expenditure Multiplier
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Sample Questions
Q1) If the expenditure multiplier is 5, the slope of the aggregate expenditure (AE) curve is
A) 0.5.
B) 0.6.
C) 0.7.
D) 0.8.
E) 0.2.
Q2) Which of the following events could result in the consumption function shifting from CF to CF ?
A) an increase in disposable income
B) a decrease in disposable income
C) a decrease in the real interest rate
D) a decrease in wealth
E) an increase in expected future income
Q3) Define induced expenditure and autonomous expenditure.Which expenditure items are induced expenditure and which are autonomous expenditure?
Q4) Discuss how the marginal propensity to consume, imports, and marginal tax rates influence the expenditure multiplier.
Q5) What effect does an increase in the MPC have on the slope of the AE curve?
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Chapter 15: The Short-Run Policy Tradeoff
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Q1) A country reports that its inflation rate and unemployment rate have both increased.These changes could be the result of
A) a movement upward along the short-run Phillips curve.
B) a movement downward along the short-run Phillips curve.
C) an upward shift of the short-run Phillips curve.
D) a downward shift of the short-run Phillips curve.
E) a leftward shift of the long-run Phillips curve.
Q2) Along the short-run Phillips curve SRPC the natural unemployment rate is A) 3 percent.
B) 6 percent.
C) 7 percent.
D) an amount that can be determined from the figure, but none of the above answers are correct.
E) an amount that cannot be determined from the figure.
Q3) Discuss the effects of a surprise inflation reduction policy on unemployment in the short run.If the reduction in inflation is permanent, what happens in the long run?
Q4) "A credible announced inflation reduction is less costly in terms of unemployment than a surprise inflation reduction." Is the previous statement correct or incorrect?
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Page 17
Chapter 16: Fiscal Policy
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Sample Questions
Q1) An increase in income taxes ________ employment and ________ potential GDP.
A) increases; increases
B) increases; does not change
C) decreases; decreases
D) does not change; does not change
E) increases; decreases
Q2) Automatic stabilizers
A) increase the magnitude of the government expenditure multiplier.
B) decrease the magnitude of the government expenditure multiplier.
C) have no effect on the magnitude of the government expenditure multiplier.
D) reduce the government expenditure multiplier to zero.
E) increase the magnitude of the tax multiplier.
Q3) If government expenditure on goods and services increase by $10 billion, then aggregate demand
A) increases by $10 billion.
B) increases by $10 billion multiplied by the government expenditure multiplier.
C) increases by $10 billion multiplied by the tax multiplier.
D) decreases by $10 billion.
E) decreases by $10 billion multiplied by the government expenditure multiplier.
Q4) Explain what fiscal policy actions could eliminate an inflationary gap.
Page 18
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Chapter 17: Monetary Policy
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Sample Questions
Q1) Consumer confidence in the economy falls, and as a result, aggregate demand decreases.As real GDP falls below potential GDP, if the Fed followed Friedman's k-percent rule, the Fed would
A) increase the quantity of money more than usual.
B) increase government expenditures.
C) continue allowing the quantity of money to grow at "k" percent.
D) lower the federal funds rate.
E) raise the federal funds rate.
Q2) If the Fed wants to fight recession, it will ________ the federal funds rate in order to ________.
A) raise; increase aggregate demand
B) raise; decrease aggregate supply
C) raise; increase aggregate supply
D) lower; increase aggregate supply
E) lower; increase aggregate demand
Q3) List and briefly explain the steps in how monetary policy affects real GDP in the AS/AD model using as your example the case when the Fed eases monetary policy to fight a recession.
Q4) Distinguish between monetary policy instruments and goals.
Q5) Describe inflation targeting rule as a monetary policy.What are its benefits?
Page 19
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Chapter 18: International Trade Policy
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Sample Questions
Q1) The fundamental force that drives trade between nations is
A) the government.
B) NAFTA.
C) absolute advantage.
D) comparative advantage.
E) legal treaties.
Q2) International trade benefits
A) only the exporter.
B) only the importer.
C) both the exporter and the importer.
D) neither the exporter nor the importer.
E) the exporter at all times and sometimes also the importer.
Q3) The argument that jobs are lost to free trade is
A) totally false because no jobs are lost to free trade.
B) correct because jobs are lost but foreign countries are helped and we can afford losses.
C) incorrect because no jobs are lost and new jobs are created by trade.
D) correct because some jobs are lost but incorrect because new jobs also are created.
E) true only when tariffs are imposed on the goods being imported.
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Page 20
Chapter 19: International Finance
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Sample Questions
Q1) Changes in a currency's exchange rate adjust immediately to insure that A) purchasing power parity always prevails.
B) interest rate parity always prevails.
C) official settlements account parity always prevails.
D) net exports always equal zero.
E) current account balance equals zero.
Q2) When the exchange rate between the U.S.dollar and the euro changes from 1.07 euros per dollar to 0.93 euros per dollar, then the
A) euro has depreciated against the dollar.
B) U.S.dollar has depreciated against the euro.
C) U.S.dollar has appreciated against the euro.
D) euro has depreciated against the euro.
E) U.S.dollar has depreciated against the dollar.
Q3) In 2008, the United States had
A) a current account surplus because imports were greater than exports.
B) a capital account deficit because exports were greater than imports.
C) a current account deficit because imports were greater than exports.
D) no change in U.S.official reserves.
E) a current account deficit and a capital account deficit.
Q4) Why can exchange rates be very volatile?
Page 21
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