Principles of Macroeconomics Pre-Test
Questions
Course Introduction
Principles of Macroeconomics offers an introduction to the fundamental concepts, theories, and analytical tools used to understand the overall functioning of an economy. Topics include measurement of national income, economic growth, unemployment, inflation, and the role of government fiscal and monetary policy. The course explores how economies manage resources, address fluctuations, and promote stability and growth, equipping students with a foundation to analyze current economic issues and policymaking.
Recommended Textbook
Macroeconomics Principles and Applications 6th Edition by Robert E. Hall
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2744 Verified Questions
2744 Flashcards
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2
Chapter 1: What is Economics?
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Sample Questions
Q1) If two economists completely agree about the magnitude of employment effects of a proposed change in government policy,but disagree about whether the change is a good idea.The difference in opinion
A) must be normative in nature
B) is both positive and normative in nature
C) is more likely to be normative than positive
D) is more likely to be positive than normative
E) would be neither positive nor normative in nature
Answer: A
Q2) The four main categories of resources are
A) labor,money,capital,and inputs
B) capital,land,raw materials,and entrepreneurship
C) raw materials,money,labor,and capital
D) land,capital,labor,natural resources,and entrepreneurship
E) human capital,physical capital,labor,and natural resources
Answer: D
Q3) Opportunity costs arise because of resource scarcity.
A)True
B)False
Answer: True
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Chapter 2: Scarcity, Choice, and Economic Systems
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Sample Questions
Q1) Tax collections in the United States are an example of
A) tradition in a mainly market system
B) command in a mainly tradition system
C) market in a mainly tradition system
D) tradition in a mainly command system
E) command in a mainly market system
Answer: E
Q2) A person has a comparative advantage if
A) she can produce everything more cheaply than her co-worker can
B) she can produce everything at a faster rate than her co-worker can
C) she can produce a good with a smaller opportunity cost than her co-worker can
D) she sees through corporate and government manipulation
E) she gets rich through inheritance
Answer: C
Q3) Every economic system requires a means for determining resource allocation.
A)True
B)False
Answer: True
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Chapter 3: Supply and Demand
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Sample Questions
Q1) In the supply and demand schedules in Figure 3-10,the equilibrium quantity of socks is
A) 15 pairs
B) 10 pairs
C) 13 pairs
D) 6 pairs
E) 1 pair
Answer: D
Q2) The quantity supplied of a good
A) is the amount that sellers would provide if the firms faced no constraints
B) is the amount that sellers would provide if input prices were zero
C) must match the amount actually purchased in the market
D) is a fixed amount unaffected by the sellers' circumstances
E) is subject to the constraints imposed by technology and input prices
Answer: E
Q3) If the price of jelly (a complement with peanut butter)decreases,both the demand and supply curves of peanut butter will shift rightward.
A)True
B)False
Answer: False
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Chapter 4: Working With Supply and Demand
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Sample Questions
Q1) A price ceiling will increase the amount that is traded in the market while a price floor will reduce the amount that is traded in the market
A)True
B)False
Q2) Price ceilings are primarily targeted to help __________,while price floors generally benefit __________.
A) producers;no one
B) increase tax revenue for governments;producers
C) increase tax revenue for governments;consumers
D) producers;consumers
E) consumers;producers
Q3) If the government thinks the price that a consumer has to pay for a good is too low,then which of the following would solve this problem?
A) a price ceiling or an excise tax
B) a price floor or an excise tax
C) a price ceiling or a subsidy
D) a price floor or a subsidy
E) none of the above will lower the price a consumer has to pay for a good
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6
Chapter 5: What Macroeconomics Tries to Explain
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Sample Questions
Q1) "Output fell 2 percent last quarter" is an example of a positive economic statement.
A)True
B)False
Q2) Output per person rises when
A) the population increases faster than real GDP
B) real GDP rises faster than the number of employed workers
C) real GDP increases at the same rate as the population
D) real GDP rises slower than the population
E) real GDP rises faster than the population
Q3) Classical economists believed that
A) the government should play an active role in controlling the economy
B) the government can best help the economy by leaving it alone
C) the economy is controlled by the government
D) laissez faire will hurt the economy
E) economists should offer guidance to governmental leaders
Q4) In cases of extreme annual inflation,such as in thousands of percent or higher,people are no longer willing to hold currency or accept it from others.
A)True
B)False
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Chapter 6: Production, Income, and Employment
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Sample Questions
Q1) Changes in business inventories are part of private investment spending.
A)True
B)False
Q2) The process by which an economic variable is adjusted to remove the effects of changes predicted to occur at the time of year is known as
A) structural change
B) real change
C) macroeconomic adjustment
D) unemployment adjustment
E) seasonal adjustment.
Q3) Which of the following is the most volatile component of private investment?
A) Plant and equipment purchases
B) New home construction
C) Purchases of services
D) Changes in business inventories
E) Consumption of nondurables
Q4) When people buy land,their purchases are included in GDP.
A)True
B)False
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Chapter 7: The Price Level and Inflation
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Sample Questions
Q1) Assume you are lending money to a friend for a year and want to earn real interest of 5 percent on the loan.If you believe the inflation rate the next year will be 3 percent,you should charge your friend a nominal interest rate of
A) 5 percent
B) 8 percent
C) 3 percent
D) 15 percent
E) whatever he will pay
Q2) The real interest rate on a loan
A) is the amount that the consumer agrees to pay
B) is always the same as the nominal rate
C) is always greater than the nominal rate
D) is only of concern when serious inflation occurs
E) is the percentage increase in the lender's purchasing power that results from making the loan
Q3) Economists widely agree that the Consumer Price Index (CPI)understates the true U.S.inflation rate.
A)True
B)False
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Page 9
Chapter 8:The Classical Long run Model
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Sample Questions
Q1) Assume that markets clear.If in the labor market there is
A) an excess supply of labor,wages will rise
B) an excess demand for labor,wages will fall
C) an excess demand for labor,wages will rise
D) an excess supply of labor,wages stay constant
E) a decline in labor demand,wages will rise
Q2) Which concept springs to mind when thinking of the classical model?.
A) Inflation.
B) Population growth.
C) Markets clear.
D) The microeconomy.
E) Money supply.
Q3) Say's law assures us that in the classical model,total spending is always enough to purchase the economy's total output.
A)True
B)False
Q4) In the classical model,fiscal policy is both ineffective and unnecessary.
A)True
B)False
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Chapter 9: Economic Growth and Rising Living Standards
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Sample Questions
Q1) Each of the following would shift a nation's production possibilities frontier outward,but which is least likely to be accompanied by an increase in the standard of living?
A) population growth
B) increased investment in private physical capital
C) increased investment in human capital
D) technological advances
E) increased investment in infrastructure
Q2) If you observed the wage rate decreasing while employment increased,which of the following would be a possible explanation?
A) A decrease in labor demand
B) A decrease in labor demand coupled with a decrease in labor supply
C) An increase in labor supply
D) A decrease in labor supply
E) It is not possible for the wage rate to decrease while employment is increasing
Q3) Thomas Malthus argued that population grows geometrically and the food supply grows arithmetically.
A)True
B)False
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Chapter 10: Economic Fluctuations
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Sample Questions
Q1) Of the recessions and expansions from 1950 to 1990,the common events were A) reactions to war and oil prices
B) tax increases and tax cuts
C) changes in exports
D) Decreases in welfare spending
E) Increases and decreases in health care spending
Q2) Which of the following statements best describes the U.S.economy since 1960?
A) Potential output has risen steadily,but actual output has fluctuated above and below full-employment output.
B) Actual output has risen steadily,but potential output has fluctuated above and below actual output.
C) Potential output and actual output have both not risen steadily.
D) Potential output and actual output have both fluctuated above and below what the classical model predicts.
E) Potential output has remained constant but actual output has risen.
Q3) The assumption that labor markets clear makes it very easy for the classical model to explain recessions.
A)True
B)False
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Page 12
Chapter 11: The Short-run Macro Model
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Sample Questions
Q1) If the marginal propensity to consume is 2/3 and autonomous consumption spending increases by $3 trillion,what is the change in GDP?
A) $3 trillion
B) $1 trillion
C) -$3 trillion
D) $9 trillion
E) -$9 trillion
Q2) If aggregate expenditure exceeds GDP,we expect inventories to shrink and firms to increase production.
A)True
B)False
Q3) Use the graph shown in Figure 11-5 to determine equilibrium in the economy.
A) $1,000
B) $2,000
C) $3,000
D) $3,250
E) There is no equilibrium in this economy
Q4) The marginal propensity to consume is greater than zero but less than one. A)True
B)False
Page 13
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Chapter 12: Fiscal Policy
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Sample Questions
Q1) If you divide nominal debt by nominal GDP and real debt by real GDP,you will get two different answers.
A)True
B)False
Q2) Government expenditures are larger than government outlays.
A)True
B)False
Q3) The federal government's budget been in deficit every year since 1959.
A)True
B)False
Q4) Which factors led to the large rise in the government's budget deficit in the early 1980s?
A) The Clinton Administration's health care program
B) A cutback in military spending
C) An income tax increase
D) A build up in military spending
E) A large and unprecedented economic expansion.
Q5) Ricardian equivalence implies a tax multiplier of zero.
A)True
B)False
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Chapter 13: Money, Banks, and the Federal Reserve
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Sample Questions
Q1) The Federal Reserve System was created in
A) 1776
B) 1894
C) 1913
D) 1930
E) 1936
Q2) When the Fed increases or decreases the money supply,these actions are called
A) discounting
B) money printing
C) moral suasion
D) open market operations
E) interest payments
Q3) The primary reason that U.S.money has value is that it
A) is backed by gold
B) is fiat money
C) is accepted by others in exchange for goods and services
D) is commodity money
E) has a fixed value established by the Federal Reserve.
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Chapter 14: The Money Market and Monetary Policy
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Sample Questions
Q1) If the Fed reduces the money supply,there will be a decline in
A) government purchases
B) unemployment
C) purchases of consumer durables
D) demand for bonds
E) deflationary pressures
Q2) Refer to Figure 14-5.If the Fed wishes to reduce the interest rate,it will
A) increase money demand
B) decrease money demand
C) increase the money supply
D) decrease the money supply
E) simply set a lower market interest rate
Q3) If Cathy has a bond that will pay $1,000 one year from now and its current price is $800,what is the current interest rate?
A) 10 percent
B) 25 percent
C) 20 percent
D) 200 percent
E) 2 percent
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Page 16
Chapter 15: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) A movement along the AD curve down and to the right is caused by A) a rightward shift of the money demand curve
B) falling consumer confidence
C) a decreasing price level
D) expansionary open market transactions by the Fed
E) a stable price level and increases in consumption,investment,or government spending
Q2) In the aggregate demand-aggregate supply model,an increase in the price level will
A) increase money demand,raise the interest rate,reduce aggregate expenditure,and decrease equilibrium real GDP
B) decrease money demand,lower the interest rate,increase aggregate expenditure,and increase real GDP
C) increase the money supply,lower the interest rate,increase aggregate expenditure,and increase real GDP
D) decrease the money supply,raise the interest rate,reduce aggregate expenditure,and decrease real GDP
E) not change money supply,money demand or the interest rate,but will shift the aggregate demand curve to the right
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Chapter 16: Inflation and Monetary Policy
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Sample Questions
Q1) Which of the following is a possible cure for ongoing inflation?
A) The Fed could pursue anti-cyclical monetary policy.
B) The Fed could increase money supply whenever the AD curve shifts to the right.
C) The Fed could maintain a constant interest rate target regardless of economic circumstances.
D) The Fed could always try to keep the unemployment rate below the natural rate.
E) The Fed could pursue anti-cyclical fiscal policy.
Q2) Ongoing inflation has its own momentum because
A) prices rise whenever firms see other prices rising
B) the public learns to expect inflation and adjusts its decisions in response
C) public officials are unwilling to stop prosperity
D) more and more people now have jobs
E) we are always playing catch up,trying to get what we lost when others raise prices
Q3) If unemployment is below the natural rate,GDP is below potential output.
A)True
B)False
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Chapter 17: Exchange Rates and Macroeconomic Policy
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Sample Questions
Q1) If the demand for British pounds decreases, A) the equilibrium price of the pound will increase B) the equilibrium price of the pound will decrease C) the equilibrium price of the pound will not change D) the equilibrium price of the pound will change,but we need additional information to predict the direction of the change E) no one can predict what will happen
Q2) One reason why purchasing power parity may not work perfectly has to do with barriers to trade such as tariffs and quotas on imports.
A)True
B)False
Q3) The foreign exchange rate is controlled by the Federal Reserve.
A)True
B)False
Q4) If you know the number of euros that can be exchanged for one dollar,you can easily figure out the number of dollars needed to obtain one euro by finding the reciprocal of the exchange rate for dollars per euro.
A)True
B)False
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