Principles of Macroeconomics Practice
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Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and analytical tools used to study the economy as a whole. This course covers topics such as national income determination, economic growth, unemployment, inflation, fiscal policy, monetary policy, and the role of government in influencing economic performance. Through examining aggregate demand and supply, students learn how various sectors of the economy interact and how policies can affect overall economic stability and growth. The course also explores international trade, exchange rates, and the global economic environment, providing a broad perspective on how macroeconomic principles apply in real-world scenarios.
Recommended Textbook
ECON MACRO4 4th Edition by William A. McEachern
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Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) The labor market is an example of a
A)government market
B)classified market
C)communication market
D)resource market
E)product market
Answer: D
Q2) Economics
A)studies human behavior when scarcity exists and choices must be made
B)provides the only reasonable explanation of how people make decisions
C)can accurately explain all human behavior since it is based on the assumption of rationality
D)is better at showing the way things ought to be than the other social sciences are E)is the only social science that can explain the existence and behavior of public institutions
Answer: A
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Chapter 2: Understanding Graphs-Appendix
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Sample
Questions
Q1) Suppose y is measured on the vertical axis, x is on the horizontal axis, and the various combinations of x and y are shown by a nonvertical straight line. Which of the following must be true?
A)There is a negative relation between x and y.
B)There is a positive relation between x and y.
C)There is a causal relation between x and y.
D)If the value of x is known, the value of y can be determined.
E)The value of y is independent of the value of x.
Answer: D
Q2) The slope of a vertical line is
A)infinitely large
B)zero
C)positive
D)negative
E)infinitely small
Answer: A
Q3) A U-shaped curve has a positive slope everywhere.
A)True
B)False
Answer: False
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Chapter 3: Economic Tools and Economics Systems
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Sample Questions
Q1) An improvement in technology
A)will always result in a parallel shift of the production possibilities frontier
B)will never result in a parallel shift of the production possibilities frontier
C)will be indicated as a movement along the production possibilities frontier
D)will shift the production possibilities frontier outward but not necessarily to a parallel position
E)may not shift the production possibilities frontier
Answer: D
Q2) A rational decision maker engages in an activity if that activity is more attractive than the best alternative.
A)True
B)False
Answer: True
Q3) The production possibilities frontier represents all desirable combinations of outputs.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Economic Decision Makers
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Sample Questions
Q1) Which of the following is not a function of government?
A)promotion of competition
B)stabilization to achieve the macroeconomic goals
C)redistribution of income through taxation and transfer payments
D)production of public goods
E)providing the economy's private goods
Q2) Despite specialization and comparative advantage, household production still exists because for some households
A)the opportunity cost of production at home is greater than the cost of purchasing the good in the market
B)production at home is less costly than purchasing the good in the market
C)the value of home production exceeds the sunk cost of home production
D)the value of home production is ignored
E)food and clothing expenditures represent a small portion of their total budget
Q3) The main source of revenue for the U.S. federal government is
A)personal income taxes
B)corporate income taxes
C)sales taxes
D)borrowing on financial markets
E)revenue from the sale of government goods and services
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Chapter 5: Demand, Supply, and Markets
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Sample Questions
Q1) An increase in the demand for peanut butter could be caused by a(n)
A)decrease in consumer income
B)increase in the supply of peanut butter
C)decrease in the price of bread
D)drought in Georgia that destroyed 30 percent of the peanut crop
E)decrease in the price of bologna
Q2) Refer to the supply curve in Exhibit 4-9. If the price increases from P to P', quantity supplied will
A)increase
B)The answer can only be determined with numbers to analyze.
C)stay the same
D)drop to zero
E)decrease
Q3) If good B is a complement to good A, then a rise in the price of B
A)increases the quantity demanded of A
B)decreases the demand for A
C)increases the demand for A
D)decreases the quantity demanded of A
E)will cause the demand for B to increase
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Page 7
Chapter 6: Introduction to Macroeconomics
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Sample Questions
Q1) The ultimate objective of macroeconomics is to
A)reduce the unemployment rate
B)stabilize the economy's growth rate
C)develop and test theories about how the overall economy works
D)improve the international competitiveness of the U.S. financial markets
E)maximize the efficiency of government intervention in the marketplace
Q2) Which of the following is a reason why the aggregate demand curve slopes downward?
A)At a higher price level, fewer goods and services are available.
B)Periods when the price level is rising are usually times of swift declines in economic activity.
C)Households feel poorer with an increase in average prices.
D)If the U.S. price level rises, foreigners will buy more U.S. goods, leaving fewer U.S. goods for domestic consumers.
E)As the price level rises, business leaders become pessimistic about the future and reduce production.
Q3) Economic strength overseas can give the U.S. economy a lift.
A)True
B)False
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Page 8
Chapter 7: Tracking the Us Economy
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Sample Questions
Q1) Which of the following is not true about Gross Domestic Product?
A)It includes only final goods and services.
B)It reflects production in a particular year.
C)Intermediate goods and services are excluded to prevent double counting.
D)It may be measured by totalling the spending by each group in society.
E)It includes transfer payments.
Q2) Marianne and Laura are both homemakers with children. Then Laura takes a volunteer (unpaid) job at a hospital and hires Marianne to care for her preschool-age child. What happens to GDP?
A)GDP increases
B)GDP decreases
C)there is no change in GDP
D)GDP increases only if Marianne gives the child better care than Laura
E)GDP increases only if the patients receive better care now that Laura works in the hospital
Q3) Other things equal, increased imports decrease GDP.
A)True
B)False
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Chapter 8: Unemployment and Inflation
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Sample Questions
Q1) Demand-pull inflation is caused by an
A)inward shift of the aggregate demand curve
B)inward shift of the aggregate supply curve
C)outward shift of the aggregate supply and demand curves
D)outward shift of the aggregate demand curve
E)outward shift of the aggregate supply curve
Q2) The difference between demand-pull inflation and cost-push inflation is that
A)demand-pull inflation is caused by movements of the aggregate supply curve; cost-push inflation is caused by changes in firms' costs of production
B)cost-push inflation is caused by movements of the aggregate demand curve; demand-pull inflation is caused by cyclical activity in the economy
C)demand-pull inflation is caused by movements of the aggregate demand curve; cost-push inflation is caused by movements of the aggregate supply curve
D)demand-pull inflation is caused by government deficit spending; cost-push inflation is caused by firms
E)demand-pull inflation is caused by foreign demand; cost-push inflation is caused by domestic production problems
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Page 10
Chapter 9: Productivity and Growth
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Sample Questions
Q1) The rules of the game refer to
A)any factor that facilitates production and exchange
B)a gradual but consistent change in the price level until a fair price is attained
C)the set of election laws that ensure that all votes are counted in every election
D)the requirements place on firms earning a profit
E)the requirements that households must provide funding for the investments that firms need to make
Q2) Economies grow for a variety of reasons. Which of the following is not a primary cause of economic growth?
A)government regulation
B)growth in the availability of productive resources
C)improvements in the quality of resources
D)technological change
E)changes in the rules of the game that enhance production
Q3) If labor productivity growth slows, the standard of living must decrease.
A)True
B)False
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Chapter 10: Aaggregate Expenditure and Agregate Demand
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Sample Questions
Q1) The slope of the saving function is equal to the MPS.
A)True
B)False
Q2) In Exhibit 9-2, the marginal propensity to consume equals
A)140
B)1.00
C)1.43
D)0.43
E)0.70
Q3) Suppose that autonomous investment level is $100 billion per year. If income in the economy falls,
A)the level of investment will increase
B)the level of investment will decrease
C)the quantity of investment demanded will increase
D)the quantity of investment demanded will decrease
E)investment spending will not change
Q4) Expectations that the price level will rise in the future cause consumption to rise today.
A)True B)False
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Chapter 11: Aggregate Expenditure and Aggregate Demand
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Sample Questions
Q1) If people spend 2/3 of any extra income they receive, new autonomous spending of $10 causes equilibrium to increase by
A)$6.67
B)$16.67
C)$15.00
D)$30.00
E)$45.00
Q2) The MPS in the economy represented in Exhibit 10-4 is A)0
B)0.1
C)0.2
D)0.8
E)20
Q3) The economy will expand if A)leakages exceed injections
B)injections exceed leakages
C)leakages equal injections
D)expenditures are less than output
E)saving exceeds investment
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Page 13
Chapter 12: Aggregate Supply
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Sample Questions
Q1) If the expected price level exceeds the actual price level,
A)firms increase production in the short run
B)firms decrease production in the short run
C)firms maintain production in the short run but increase prices
D)firms maintain production in the short run but decrease prices
E)firms increase production and raise prices in the short run
Q2) Because nominal wages fall slowly, the supply-side adjustments needed to close a contractionary gap may take very long.
A)True
B)False
Q3) The key resource underlying aggregate supply is
A)economic institutions
B)production incentives
C)labor
D)technology
E)natural resources
Q4) Real wages are nominal wages adjusted for price changes.
A)True
B)False
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Chapter 13: Fiscal Policy
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Sample Questions
Q1) If net taxes increase and government purchases decrease,
A)the price level will rise
B)the money supply must increase
C)the aggregate demand will shift rightward
D)output and employment will fall
E)there will be a federal budget deficit
Q2) The reason that fiscal policy was not helpful in the 1970s was that such policy is aimed at
A)both aggregate demand and aggregate supply, but the problem was only with demand
B)both aggregate demand and aggregate supply, but the problem was only with supply
C)aggregate demand only, but the problem was in aggregate supply
D)aggregate supply only, but the problem was in aggregate demand
E)either aggregate demand or aggregate supply, but the problem was with both of them at once
Q3) The government can close an expansionary gap by increasing the price level.
A)True
B)False
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Chapter 14: Federal Budgets and Public Policy
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Sample Questions
Q1) Federal spending (including transfer payments), as a percent of GDP,
A)has remained largely unchanged over the last 50 years
B)has exceeded 10 percent only in wartime periods
C)is less than half of state and local government spending
D)has increased since 1921
E)has greatly diminished in recent years
Q2) The difference between the federal budget deficit and the national debt is that the
A)deficit is a stock and the debt is a flow
B)deficit is a flow and the debt is a stock
C)debt includes interest payments and the deficit does not
D)deficit can be positive but the debt cannot
E)debt can be negative but the deficit cannot
Q3) As a result of an increased deficit associated with discretionary fiscal policy,
A)both the interest rate and real output fall
B)both the interest rate and nominal output rise
C)the interest rate falls and real output rises
D)the interest rate rises and real output falls
E)nominal output rises, real output falls, and the interest rate rises
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Chapter 15: Money and the Financial System
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Sample Questions
Q1) The earliest type of exchange involved
A)coins
B)barter
C)commodity money
D)fiduciary money
E)fiat money
Q2) A bank holding company is
A)a conglomerate that owns a bank to service the other businesses it owns
B)a loose federation of private banks that hold assets in common
C)a corporation that owns one or more banks
D)a bank that is owned by the depositors
E)a subsidiary of a major corporation
Q3) Banks earn a profit by making loans.
A)True
B)False
Q4) The emergence of the subprime mortgage market following the recession of 2001 made it increasingly difficult for low income individuals to obtain a mortgage.
A)True
B)False
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Chapter 16: Banking and the Money Supply
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Sample Questions
Q1) The actual money multiplier is smaller than the simple money multiplier because
A)the actual multiplier involves M2 rather than M1
B)cash withdrawals reduce the amount banks can lend out
C)withdrawals from checkable deposits increase the amount of excess reserves each bank receives
D)the Fed wants to reduce the money supply
E)the actual multiplier uses a different measure of reserve requirements
Q2) By reducing the required reserve ratio, the Fed can not only create excess reserves but also
A)increase mortgage interest rates
B)reduce borrowing by corporations
C)increase the safety of bank deposits
D)reduce the risk of bank failure
E)increase the money multiplier
Q3) Usually, a commercial bank's depositors and its owners are the same individuals.
A)True
B)False
Q4) Banks are permitted to lend all of their excess reserves.
A)True
B)False
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Chapter 17: Monetary Theory and Policy
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Sample Questions
Q1) For interest rates to remain stable during economic contractions, monetary authorities should
A)reduce the demand for money
B)increase the demand for money
C)match the rate of growth in the money supply to the rate of growth in nominal GDP
D)reduce the rate of growth in the money supply below the rate of growth in the demand for money
E)slow the growth of the money supply, or even let the money supply shrink
Q2) Which of the following would cause an increase in the velocity of money?
A)increased use of credit cards
B)an increase in the money supply
C)an increase in demand for money
D)a decrease in interest rates
E)a decrease in nominal GDP and a constant money supply
Q3) The demand for money is depicted by a curve downward sloping curve because if the interest rate falls, the opportunity cost of holding assets in the form of money decreases.
A)True
B)False
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Page 19
Chapter 18: Macro Policy Debate: Active or Passive
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Sample Questions
Q1) According to those who favor an active approach to policy, how can the economy shown in Exhibit 17-2 attain equilibrium at potential output?
A)The SRAS curve will shift to the left.
B)The SRAS curve will shift to the right.
C)Either the money supply or government spending should be increased.
D)Either the money supply or government spending should be decreased.
E)Aggregate demand should be increased.
Q2) The time inconsistency problem arises when
A)attempts are made to coordinate monetary policy throughout different time zones
B)there is a lag between the announcement of a monetary policy and the implementation of it
C)policy makers have an incentive to mislead people about their monetary policy intentions
D)policy makers do not allow enough time for a new policy to take effect
E)there is a deep conflict among monetary policy makers
Q3) An economy that self-corrects an expansionary gap will experience stagflation.
A)True
B)False
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Chapter 19: International Trade
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Sample Questions
Q1) Ad valorem tariffs on imports are based on a percentage of an import's value; specific tariffs are based on a lump sum per physical unit imported.
A)True
B)False
Q2) In Exhibit 19-3, if the world price of tulips is $1 and there are no trade restrictions, The Netherlands will
A)produce 7,000, consume 10,000, and export 3,000 tulips
B)produce 10,000 and consume 10,000 tulips
C)produce no tulips
D)import all of the tulips that it consumes
E)consume all of the tulips that it produces
Q3) Differences in tastes among nations
A)make gains from trade possible even in the absence of differences in resource endowments
B)make gains from trade possible only when there are differences in resource endowments
C)negate any potential gains from trade
D)are caused by differences in resource endowments
E)occur only among countries whose people are of different religions
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Page 21
Chapter 20: International Finance
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Sample Questions
Q1) When net unilateral transfers are added to the net exports of goods and services, the result is called the
A)merchandise trade balance
B)official reserve transactions account
C)balance of payments
D)balance on capital account
E)balance on current account
Q2) Exchange rates
A)are always fixed
B)fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied
C)fluctuate to equate imports and exports
D)fluctuate to equate interest rates in various countries
E)fluctuate according to agreements between the governments of various countries
Q3) Under the gold standard, each country had little control over its own monetary policies.
A)True
B)False
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Chapter 21: Economic Development
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Sample Questions
Q1) Labor productivity depends on the
A)quality of the labor
B)the amount of capital
C)the amount of natural resources
D)the amount of other inputs, such as technology
E)All of the answers are correct
Q2) The bulk of exports from developed countries are
A)manufactured goods
B)primary products
C)agricultural goods
D)raw materials
E)raw sugar products
Q3) Which of the following is not a country or region most likely to be among industrial market countries?
A)Western Europe
B)North American
C)Australia
D)South Asia
E)Japan
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Page 23