Principles of Macroeconomics Practice
Questions
Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and theories that help explain the overall functioning of an economy. The course covers topics such as national income, inflation, unemployment, economic growth, fiscal and monetary policy, and the role of government and central banks. Students will learn how to analyze aggregate economic indicators, understand the factors affecting economic performance, and evaluate the effects of policy decisions on issues like recessions, booms, and long-term growth. The course emphasizes real-world applications and current economic events to build a practical understanding of how macroeconomic principles impact society and daily life.
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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Chapter 1: Thinking Like an Economist
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) The opportunity cost of an activity is the value of:
A) an alternative forgone.
B) the next-best alternative forgone.
C) the least-best alternative forgone.
D) the difference between the chosen activity and the next-best alternative forgone.
Answer: B
Q2) The impact of government policies on the building of new roads and highways would be studied in the field of:
A) microeconomics.
B) macroeconomics.
C) government economics.
D) marginal economics.
Answer: A
Q3) Most of us make sensible decisions most of the time, because:
A) we know the cost-benefit principle.
B) subconsciously we are weighing costs and benefits.
C) most people know about the scarcity principle.
D) we conduct hypothetical mental auctions when we make decisions.
Answer: B
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Page 3
Chapter 2: Comparative Advantage
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) If a nation can produce a good more quickly than any other nation, that nation has a(n):
A) comparative advantage.
B) absolute advantage.
C) relative advantage.
D) specialization advantage.
Answer: B
Q2) Which of the following is true?
A) Lou has both an absolute advantage and a comparative advantage over Alex in both tasks.
B) Alex has a comparative advantage over Lou in cleaning.
C) Lou has a comparative advantage over Alex in cleaning.
D) Lou has a comparative advantage over Alex in cooking.
Answer: C
Q3) When a government increases the cost of international trade, it is:
A) helping domestic consumers.
B) hurting all domestic producers.
C) reducing the total amount of output available to domestic consumers.
D) keeping all domestic prices artificially low.
Answer: C
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Chapter 3: Supply and Demand
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) At the beginning of the fall semester, college towns experience large increases in their populations, causing a(n):
A) decrease in the quantity of apartments demanded.
B) increase in the supply of apartments.
C) increase in the demand for apartments.
D) decrease in the quantity of apartments supplied.
Answer: C
Q2) Suppose that a disease that affects people who consume beef has been discovered in the United States. One likely result is:
A) an increase in buyers' reservation prices for beef.
B) a decrease in demand for chicken.
C) a decrease in demand for beef.
D) a decrease in the quantity demanded of beef.
Answer: C
Q3) What might cause a demand function to shift to the right?
A) An increase in the price of a substitute.
B) An increase in the product's own price.
C) An increase in the price of a complement.
D) A decrease in the price of a substitute.
Answer: A
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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) Given the following data for the economy, compute the value of GDP. \[\begin{array} { | l l | }
\hline \text { Government purchases of goods and services } & 10 \\
\text { Consumption Expenditures } & 70 \\
\text { Exports } & 5 \\
\text { Imports } & 12 \\
\text { Change in inventories } & - 7 \\
\text { Construction of new homes and apartments } & 15 \\
\text { Sales of existing homes and apartments } & 22 \\
\text { Government payments to retirees } & 17 \\
\text { Business fixed investment } & 9 \\
\hline
\end{array}\]
A) 56
B) 83
C) 90
D) 141
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Chapter 5: Measuring Economic Activity: Gdp and Unemployment
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146 Verified Questions
146 Flashcards
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Sample Questions
Q1) In Econoland in 2000, people with incomes between $20,000 and $30,000 paid 12% of their income in taxes and people with incomes between $30,001 and $40,000 paid 15%. In 2000, the CPI in Econoland equaled 1.20, and it increased to 1.26 in 2001. If the government of Econoland wants to keep households with a given real income from being pushed up into a higher tax bracket by inflation, the $20,000-to-$30,000 bracket will be changed in 2001 to:
A) $15,873-to-$23,810
B) $21,000-to-$31,500
C) $24,000-to-$37,800
D) $25,200-to-$37,800
Q2) If the Boskin Commission's conclusion that the CPI ______ the "true" inflation rate is correct, then indexing Social Security benefits to the CPI is ______ the federal government billions of dollars.
A) understates; costing B) overstates; costing C) understates; saving D) measures; saving
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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) Structural unemployment is:
A) the additional unemployment not captured in official statistics resulting from discouraged workers and involuntary part-time workers.
B) the extra unemployment that occurs during periods of recession.
C) short-term unemployment that is associated with the process of matching workers with jobs.
D) long-term and chronic unemployment that exists even when the economy is producing at a normal rate.
Q2) Structural unemployment is increased when the wage is kept above the market-clearing wage by:
A) unemployment insurance.
B) worker mobility.
C) skill-biased technological change.
D) labor unions.
Q3) The labor force equals the number of people:
A) employed.
B) aged 16 years and older.
C) both employed and unemployed.
D) employed, unemployed and discouraged.
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Page 8
Chapter 7: Economic Growth, Productivity, and Living Standards
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142 Verified Questions
142 Flashcards
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Sample Questions
Q1) The growth of real GDP per person in the United States between 1960 and 2008 was the result of:
A) growth in average labor productivity only.
B) growth in the share of population employed only.
C) growth in both average labor productivity and the share of population employed.
D) neither the growth in average labor productivity nor the share of population employed.
Q2) A political system that promotes the free and open exchange of ideas:
A) will not have well-defined property rights.
B) slows the development of new technologies and products.
C) increases average labor productivity.
D) is detrimental to economic growth.
Q3) In Macroland, 500,000 of the 1 million people in the country are employed. Average labor productivity in Macroland is $20,000 per worker. Real GDP per person in Macroland totals:
A) $1,000.
B) $10,000.
C) $15,000.
D) $40,000.
Page 9
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Chapter 8: Workers, Wages, and Unemployment
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) Which of the following contributed to the turn-around in the government budget from a surplus in the early 2000s to record deficits by the end of the decade?
A) An increase in household saving.
B) An increase in business saving.
C) An increase in tax revenues because of a recession.
D) An increase in government spending on homeland security and wars.
Q2) Holding other factors constant, an increase in the tax rate on revenue generated by capital will:
A) increase national saving.
B) decrease national saving.
C) increase investment.
D) decrease investment.
Q3) Public saving is negative when:
A) there is a government budget surplus.
B) there is a government budget deficit.
C) the government's budget is balanced.
D) after-tax income of households and businesses is greater than consumption expenditures.
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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) Savers may prefer to use financial intermediaries rather than lending directly to borrowers because financial intermediaries:
A) reduce the cost of gathering information about borrowers.
B) have a monopoly on lending.
C) increase the risk of lending.
D) offer higher rates of return than available elsewhere.
Q2) An increase in interest rates results in a(n) ______ in the required rate of return to hold stocks and ______ current stock prices.
A) increase; reduces
B) increase; raises
C) decrease; raises
D) decrease; reduces
Q3) The current price of a stock increases when:
A) expected future dividends decrease.
B) the expected future price of the stock decreases.
C) interest rates decrease.
D) the perceived riskiness of the stock increases.
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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) In the short-run ______ determines output, and in the long-run ______ determines output.
A) potential output; prices
B) potential output; total spending
C) total spending; potential output
D) total spending; prices
Q2) If the natural rate of unemployment equals 6 percent and the actual rate of unemployment equals 5 percent, then cyclical unemployment equals:
A) -1 percent.
B) 1 percent.
C) 3 percent.
D) 11 percent.
Q3) In reference to short-term economic fluctuations, the "trough" refers to:
A) a period in which the economy is growing at a rate significantly below normal.
B) the high point of economic activity prior to a downturn.
C) the low point of economic activity prior to a recovery.
D) a particularly strong and protracted expansion.
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12
Chapter 11: Financial Markets and International Capital Flows
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133 Verified Questions
133 Flashcards
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Sample Questions
Q1) In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be:
A) increased by $10 billion.
B) decreased by $10 billion.
C) increased by more than $10 billion.
D) decreased by less than $10 billion.
Q2) For an economy starting at potential output, an increase in autonomous expenditure in the short run results in a(n):
A) expansionary output gap.
B) recessionary output gap.
C) increase in potential output.
D) decrease in potential output.
Q3) Changes in taxes and transfers affect planned spending:
A) only when there is an expansionary gap.
B) autonomously.
C) directly, by changing induced expenditures.
D) indirectly, by changing disposable income and, consequently, consumption.
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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) Reserve requirements set by the Federal Reserve are the:
A) minimum value of the ratio of reserves to bank deposits that commercial banks are allowed to maintain.
B) maximum value of the ratio of reserves to bank deposits that commercial banks are allowed to maintain.
C) minimum amount of currency banks must hold in their vaults.
D) maximum amount of currency banks are allowed to hold in their vaults.
Q2) The Board of Governors consists of ______ governors appointed for staggered ___-year terms.
A) 5; 12
B) 5; 14
C) 7; 12
D) 7; 14
Q3) The Federal Reserve can decrease the money supply by:
A) increasing reserve requirements.
B) decreasing the discount rate.
C) introducing deposit insurance.
D) conducting open market purchases.
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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) Inflation inertia is the result of the behavior of ____ and the existence of ______.
A) the central bank; automatic stabilizers
B) real and nominal interest rates; an output gap
C) autonomous aggregate demand; the Fed's policy reaction function
D) inflation expectations; long-term wage and price contracts
Q2) The economy is in short-run equilibrium:
A) when the AD and AS curves intersect at potential output Y*.
B) when the AD and AS curves intersect at a level of real GDP that is above or below Y*.
C) when the AD and AS curves become vertical.
D) at the peak of the business cycle.
Q3) A demand shock is a change in planned spending that is:
A) caused by changes in output.
B) caused by changes in the inflation rate.
C) caused by changes in output and changes in the real interest rate.
D) not caused by changes in output or changes in the inflation rate.
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15
Chapter
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75 Verified Questions
75 Flashcards
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Sample Questions
Q1) A reduction in the marginal tax rate can cause potential output to increase by
A) encouraging early entry into the labor market by reducing the incentive to earn advanced degrees.
B) increasing after-tax wage rates and thus allowing workers to work fewer hours.
C) increasing the incentive to invest more in education and earn advanced degrees.
D) increasing government revenues and thus government expenditure.
Q2) People's expectations of future inflation that do not change even if inflation rises temporarily are called _____ inflationary expectations.
A) aggregate
B) average
C) anchored
D) autonomous
Q3) Lower taxes on interest income
A) permanently lower growth rates by encouraging saving rather than consuming.
B) increase growth rates by increasing consumption rates.
C) increase growth rates by increasing saving and thus investment.
D) lower growth rates by reducing government expenditures.
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16
Chapter 15: Aggregate Demand, Aggregate Supply, and Inflation
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) Holding all else constant, an increase in preferences by Mexicans for U.S. goods will ______ the demand for dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S. dollar exchange rate.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Q2) In an open economy with flexible exchange rates, monetary policy affects consumption and investment by changing the ______ and affects net exports by changing the _____.
A) inflation rate; unemployment rate
B) exchange rate; real interest rate
C) growth of domestic real GDP; growth of foreign real GDP
D) real interest rate; exchange rate
Q3) The nominal exchange rate, e, is defined as the number of units of:
A) domestic goods relative to the number of units foreign goods.
B) foreign goods relative to the number of units of domestic goods.
C) the foreign currency that one unit of domestic currency will buy.
D) the domestic currency that one unit of foreign currency will buy.
Page 17
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