Principles of Macroeconomics Review
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Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and theories that explain the behavior of the overall economy. The course covers topics such as national income, economic growth, unemployment, inflation, and the roles of monetary and fiscal policy. Students learn how aggregate measures like GDP are calculated, how business cycles function, and how government interventions can influence economic stability and growth. Emphasis is placed on understanding real-world economic events, interpreting economic indicators, and analyzing the effects of economic policy decisions on society as a whole.
Recommended Textbook
Principles of Economics 7th Edition by Robert H. Frank
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28 Chapters
4171 Verified Questions
4171 Flashcards
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Chapter 1: Thinking Like an Economist
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Sample Questions
Q1) During times of high unemployment, colleges often observe an increase in enrollment even if tuition remains unchanged. Why?
A)Students go to college even when the net benefit is negative.
B)The opportunity cost of attending college is lower when unemployment is high.
C)The opportunity cost of attending college is higher when unemployment is high.
D)The benefit of attending college is lower because college graduates are less likely to find jobs.
Answer: B
Q2) Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is:
A)not an economic problem because neither activity costs money.
B)not an economic problem because it's an hour that Chris has no matter what he does.
C)an economic problem because the tuition Chris pays covers the cost of both the gym and the library.
D)an economic problem because Chris has only one hour, and engaging in one activity means giving up the other.
Answer: D
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Page 3
Chapter 2: Comparative Advantage
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Sample Questions
Q1) Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tracy 6 minutes to make a sandwich and 12 minutes to make a smoothie. What is the opportunity cost to Dan of making a sandwich?
A)1/3 of a smoothie
B)3 smoothies
C)15 smoothies
D)5 smoothies
Answer: A
Q2) Points that lie outside the production possibilities curve are ________, and points that lie inside the production possibilities curve are ________.
A)efficient; inefficient
B)inefficient; efficient
C)unattainable; attainable
D)attainable; unattainable
Answer: C
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4
Chapter 3: Supply and Demand
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Sample Questions
Q1) In a market in which the government has set a price ceiling below the equilibrium price:
A)the quantity demanded will equal quantity supplied.
B)there will be excess supply.
C)a black market might develop.
D)quantity supplied will exceed quantity demanded.
Answer: C
Q2) For two goods, X and Y, to be classified as substitutes, it must be the case that:
A)X and Y are identical.
B)consumers tend to purchase both items together.
C)when the price of X rises, the demand for Y decreases.
D)when the price of X rises, the demand for Y increases.
Answer: D
Q3) If fast food is an inferior good then:
A)the demand for fast food will fall as income falls.
B)the demand for fast food will fall as income rises.
C)the quantity of fast food demanded will rise as the price of fast food rises.
D)the demand for fast food will fall as the price of fast food rises.
Answer: B
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Page 5
Chapter 4: Elasticity
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Sample Questions
Q1) The price elasticity of supply at a point is the:
A)percentage change in quantity supplied divided by the percentage change in price.
B)percentage change in price divided by the percentage change in quantity supplied.
C)change in quantity supplied divided by the change in price.
D)change in price divided by the change in quantity supplied.
Q2) Demand tends to be ________ in the short run than in the long run.
A)more elastic
B)less elastic
C)more variable
D)less important
Q3) Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. If they then still sell almost the same number of sodas per day, this suggests:
A)students do not have good nutritional information.
B)soda purchases represent a large fraction of students' budgets.
C)there are few other places to purchase soda on campus.
D)the price elasticity of demand for soda is equal to 1.
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Chapter 5: Demand
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Sample Questions
Q1) Sven likes to water ski, but can only water ski during the one week each year when he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven's vacation, Sven went blueberry picking all day. Sven's vacation convinced him that:
A)even for activities he really enjoys, diminishing marginal utility eventually sets in.
B)blueberry picking yields higher total utility than does water skiing.
C)even for activities he really enjoys, total utility declines over time.
D)economic theory applies to things you buy, but not to recreational activities.
Q2) The tendency for consumers to purchase more of a good or service as its price falls is captured by the:
A)law of supply.
B)law of increasing cost.
C)Low-Hanging Fruit Principle.
D)law of demand.
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Chapter 6: Perfectly Competitive Supply
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Sample Questions
Q1) Which of the following would be considered a factor of production in the provision of bus service?
A)The revenue from the sale of bus tickets
B)The amount it costs to provide bus service between two locations
C)Bus drivers
D)The hourly wage paid to bus drivers
Q2) Which of the following best explains why you are more likely to see a poor person than a wealthy person picking up aluminum cans to sell?
A)Wealthy people do not care about the environment.
B)The opportunity cost of picking up cans is higher for wealthy people than for poor people.
C)Wealthy people are more concerned about their public image than are poor people.
D)Wealthy people are more aware of diseases transmitted through litter than are poor people.
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Chapter 7: Efficiency, Exchange, and the Invisible Hand in Action
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Sample Questions
Q1) Suppose Lando Calrissian owns a smuggling business whose total revenue is $30,000 per month. The accompanying table shows Lando's monthly expenses. If Lando weren't a smuggler, he would earn $6,000 per month working for the Rebel Alliance. Apart from pay, Lando is indifferent between working as a smuggler and working for the Rebel Alliance. \[\begin{array} { | l | r | }
\hline \text { Fuel } & \$ 4,000 \\
\hline \text { Mairterarce } & \$ 12,000 \\
\hline \text { Weapors } & \$ 6,000 \\
\hline \text { Bribes } & \$ 3,000 \end{array}\]
What is Lando's accounting profit each month?
A)$1,000
B)$5,000
C) $1,000
D) $5,000
Q2) Explicit costs:
A)measure the opportunity costs of the resources supplied by the firm's owners.
B)are fixed in the short run.
C)measure the payments made to the firm's factors of production.
D)are variable in the short run.
Page 9
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Chapter 8: Monopoly, Oligopoly, and Monopolistic Competition
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Sample Questions
Q1) To sell an extra unit of output, a perfectly competitive firm ________, and an imperfectly competitive firm ________.
A)need not alter its price; must lower its price
B)must hope the market price falls; must lower its price
C)need not alter its price; need not alter its price
D)must lower its price; must lower its price
Q2) A monopoly that results from economies of scale is called a(n):
A)antitrust violator.
B)large-scale monopolist.
C)natural monopoly.
D)cost-plus firm.
Q3) Once a firm has determined the quantity of output it wishes to sell, the maximum price it can charge for each unit is determined by:
A)the average cost of making the product.
B)the demand curve facing the firm.
C)the marginal cost of making the product.
D)the firm's marginal revenue curve.
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Page 10
Chapter 9: Games and Strategic Behavior
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Sample Questions
Q1) Joe is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Joe cuts his price to $2.90 and Sam continues to charge $3, then Joe's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts his price to $2.90 and Joe continues to charge $3, then Sam's profit will be $1,350, and Joe's profit will be $500. If Sam and Joe both cut their price to $2.90, then they will each earn a profit of $900. In this situation, the Nash equilibrium yields a:
A)lower payoff than each would receive if each played his dominant strategy.
B)higher payoff than each would receive if each played his dominant strategy.
C)lower payoff than each would receive if each played his dominated strategy.
D)the same payoff that each would receive if each played his dominated strategy.
Q2) Commitment devices are necessary when:
A)people cannot correctly identify their dominant strategy.
B)players cannot trust that other players will avoid playing a dominated strategy.
C)following through on a threat or promise is not in a player's best interest.
D)commitments cannot be purchased.
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11
Chapter 10: An Introduction to Behavioral Economics
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Sample Questions
Q1) Widespread behavioral evidence suggests that people:
A)are unable to assess the relative value of gains and losses.
B)place equal weight on gains and losses.
C)weigh gains more heavily than losses.
D)weigh losses more heavily than gains.
Q2) An estimation technique that begins with an initial approximation, which is then modified in accordance with additional information, is known as:
A)status quo bias.
B)regression to the mean.
C)anchoring and adjustment.
D)the representative heuristic.
Q3) The ________ is the rule of thumb according to which people's belief about the likelihood that something belongs to a given category increases with the extent to which it shares characteristics with the stereotypical members of that category.
A)representative heuristic
B)adaptive rationality standard
C)availability heuristic
D)Weber-Fechner law
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12
Chapter 11: Externalities, Property Rights, and the Environment
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Sample Questions
Q1) If the market equilibrium quantity is less than the socially optimal quantity, one can infer that:
A)the private supply curve for the activity is below the socially optimal supply curve.
B)the private demand curve for the activity is above the socially optimal demand.
C)there is a positive externality associated with this good.
D)there is a negative externality associated with this good.
Q2) The tragedy of the commons refers to the:
A)overuse of resources that have no price.
B)overuse of resources that have no cost.
C)under production of goods that have external benefits.
D)failure of the Coase theorem when negotiation is costly.
Q3) If it is possible to place a commonly held resource under private ownership, then:
A)the tragedy of the commons can be solved.
B)the tragedy of the commons becomes even worse.
C)the privately held resource will be overused relative to the social optimum.
D)the privately held resource will be underused relative to the social optimum.
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Page 13
Chapter 12: The Economics of Information
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Sample Questions
Q1) Adam Smith's invisible hand only leads to an efficient outcome when
A)buyers are fully informed about all relevant aspects of a product and the market in which it is traded.
B)buyers collect information up to the point at which the marginal cost of having more information equals the marginal benefit of having more information.
C)buyers have more information about the product being traded than do sellers.
D)buyers have less information about the product being traded than do sellers.
Q2) In the presence of the free-rider problem, the market will provide ________ of a good or service.
A)more than the socially optimal quantity
B)the socially optimal quantity
C)less than the socially optimal quantity
D)either more than or less than the socially optimal quantity
Q3) The sum of the possible outcomes of a gamble multiplied by their respective probabilities is known as:
A)a fair gamble.
B)the variance of the gamble.
C)a better-than-fair gamble.
D)the expected value of the gamble.
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Page 14
Chapter 13: Labor Markets, Poverty, and Income Distribution
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Sample Questions
Q1) In order to maximize its profits, a firm that hires workers in a perfectly competitive labor market will hire workers until the:
A)extra revenue generated from hiring another worker equals the extra profit from hiring that worker.
B)extra revenue generated from hiring another worker equals the extra cost of hiring that worker.
C)the marginal wage rate equals marginal product of the last worker.
D)the marginal product of labor begins to decline.
Q2) Assume that the average male wage rate is 20 percent higher than the average female wage rate. One can infer that:
A)this is evidence of discrimination because females should be paid the same as males.
B)employers undervalue female employees, so they're able to pay them less.
C)customers overvalue male employers, so employers pay males more.
D)this is evidence of discrimination only if all factors affecting productivity are equal.
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Chapter 14: Public Goods and Tax Policy
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Sample Questions
Q1) Your state department of transportation is considering installing toll booths with gates on a quiet section of highway. If this is done, a good that is currently a:
A)public good will become a private good.
B)nonrival good will become a rival good.
C)nonexcludable good will become an excludable good.
D)rival good will become an excludable good.
Q2) A swing at a popular, unfenced public park is:
A)nonrival.
B)nonexcludable.
C)a collective good.
D)a pure public good.
Q3) If a tax imposed in a market generates deadweight in that market, then the tax:
A)will necessarily lower economic surplus.
B)could still increase economic surplus, depending on how the tax revenue is spent.
C)will never be approved by voters.
D)will generate very little tax revenue.
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Chapter 15: International Trade and Trade Policy
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Sample Questions
Q1) Sheila and Jim live in an island where they are the only two workers. Sheila can either catch 10 fish or gather 40 pounds of berries each day, and Jim can either catch 8 fish or gather 24 pounds of berries each day. Both of them work 200 days per year. At current world prices 1 fish trades for 3.5 pounds of berries. If they open up to trade and the citizens of the island consumed 1,200 fish per year, how many pounds of berries can they consume every year?
A)12,800 pounds
B)9,400 pounds
C)9,200 pounds
D)8,000 pounds
Q2) If the domestic producers of a good benefit from free trade, it suggests that the country:
A)is a net importer of that good.
B)is a net exporter of that good.
C)does not have an absolute advantage in that good.
D)does not have a comparative advantage in that good.
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Chapter 16: Macroeconomics: The Birds Eye View of the Economy
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Sample Questions
Q1) The rate at which prices in general are increasing is called the:
A)inflation rate.
B)standard of living.
C)unemployment rate.
D)trade balance.
Q2) Macroeconomists would be most likely to study which of the following?
A)Average annual earnings of lawyers
B)Average annual earnings of doctors
C)Average annual earnings of self-employed workers
D)Average annual earnings of all employed workers in the United States
Q3) The unemployment rate in the United States:
A)falls to zero during expansions.
B)never falls to zero.
C)equals zero during booms.
D)can be zero in both expansions and recessions.
Q4) Unemployment typically ________ during a recession.
A)only exist
B)rises
C)falls
D)remains constant
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Chapter 17: Measuring Economic Activity: GDP and Unemployment
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Sample Questions
Q1) Leaving the labor force or finding a job are two ways that:
A)a person can become a discouraged worker.
B)a person can become an involuntary part-time worker.
C)an unemployment spell can begin.
D)an unemployment spell can end.
Q2) An economy produces only 1,000,000 computers valued at $2,000 each. Of these, 200,000 are sold to consumers, 300,000 are sold to businesses, 300,000 are sold to the government, and 100,000 are sold abroad. No computers are imported. At the end of the year, the computer manufacturers hold the unsold computers in inventory. What is the value of GDP?
A)$0.9 billion
B)$1.0 billion
C)$1.8 billion
D)$2.0 billion
Q3) A measure of GDP in which quantities produced are valued at the prices of a fixed base year is called:
A)real GDP.
B)nominal GDP.
C)base GDP.
D)current GDP.
Page 19
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Chapter 18: Measuring the Price Level and Inflation
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Sample Questions
Q1) Suppose workers and employers agree to a three-year wage contract under the expectation of 3 percent inflation, but inflation turns out to be 1 percent. In this case, ________ lost purchasing power, and ________ gained purchasing power.
A)employers; workers
B)no one; employers
C)workers; employers
D)employers; no one
Q2) When statisticians fail to allow for the possibility that consumers switch from products with rising prices to those whose prices are stable or falling, the CPI will tend to ________ the rate of inflation.
A)understate
B)precisely measure
C)be unrelated to
D)overstate
Q3) It is difficult to engage in long-term financial planning when inflation is:
A)high and erratic.
B)low and stable.
C)accounted for through indexing.
D)predictable.
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Chapter 19: Economic Growth, Productivity, and Living Standards
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Sample Questions
Q1) The population of Alpha totals one million people, 40 percent of whom are employed. Average output per worker in Alpha is $20,000. Real GDP per person in Alpha totals:
A)$8,000.
B)$12,000.
C)$20,000.
D)$50,000.
Q2) 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.
Q3) Well-defined property rights:
A)are clearly written in English.
B)restrict the use of land and natural resources to productive uses.
C)allow the government to confiscate property.
D)clearly state who owns resources and how the resources can be used.
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Chapter 20: The Labor Market: Workers, Wages, and Unemployment
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Sample Questions
Q1) If the Luddites had succeeded in ________ the introduction of labor-saving machinery, economic growth in Great Britain may have been ________.
A)blocking; slower
B)blocking; more rapid
C)promoting; slower
D)promoting; more rapid
Q2) Periods of unusually low production in an economy result in ________ unemployment.
A)cyclical
B)environmental
C)structural
D)frictional
Q3) The marginal product of labor is the additional:
A)wage paid for an additional hour of work.
B)wage paid for an additional worker employed.
C)labor employed to produce one more unit of output.
D)output produced by one more worker.
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Page 22
Chapter 21: Saving and Capital Formation
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Q1) The impact of declining stock prices in the U.S. during 2000-2006 on U.S. household wealth was at least partially offset by:
A)an increase in the saving rate.
B)a decrease in the saving rate.
C)an increase in public saving.
D)increasing housing prices.
Q2) Saving to meet long-term objectives-such as retirement, college attendance, or to purchase a home,-is called ________ saving.
A)public
B)bequest
C)precautionary
D)life-cycle
Q3) Which of the following is a stock?
A)Saving
B)Income
C)Consumption
D)Wealth
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Chapter 22: Money Prices and the Federal Reserve
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Q1) In a fractional-reserve banking system the reserve/deposit ratio equals:
A)more than 100 percent.
B)currency held by the public divided by deposits.
C)100 percent.
D)less than 100 percent.
Q2) The seven leaders of the Federal Reserve System headquartered in Washington, D.C. constitute the:
A)Federal Reserve Bank of Washington, D.C.
B)Federal Open Market Committee.
C)Federal Economic Advisory Board.
D)Board of Governors.
Q3) In Macroland there is $1,000,000 in currency that can either be held by the public as currency or deposited into banks. Banks' desired reserve/deposit ratio is 10 percent. If the public of Macroland decides to hold more currency, increasing the proportion they hold from 50 percent to 75 percent, the money supply in Macroland will ________.
A)increase.
B)decrease.
C)remain the same.
D)either increase or decrease.
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Page 24
Chapter 23: Financial Markets and International Capital Flows
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Sample Questions
Q1) Stockholders receive returns on their financial investment in the form of ________ and ________.
A)interest payments; dividends
B)capital gains; dividends
C)coupon payments; capital gains
D)capital gains; interest payments
Q2) When a U.S. restaurant purchases French wine and the French wine company uses the proceeds to buy U.S. government debt, U.S. ________ and there is a capital ________ the United States.
A)imports increase; outflow from B)imports decrease; inflow to C)imports increase; inflow to D)exports increase; outflow from
Q3) The ongoing search by savers for high returns leads the bond and stock markets to direct funds to the uses that appear:
A)most likely to be productive.
B)least likely to be productive.
C)to have the least risk.
D)to have no risk.
Page 25
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Chapter 24: Short-Term Economic Fluctuations: An Introduction
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Q1) The proposition each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output, is known as:
A)the recessionary gap.
B)the expansionary gap.
C)the Fisher effect.
D)Okun's law.
Q2) The economy of Alpha operates according to Okun's law. In Alpha, potential GDP equals $500 billion, actual GDP equals $480 billion, and the natural rate of unemployment is 5 percent. What is the actual rate of unemployment in Alpha?
A)1 percent
B)3 percent
C)4 percent
D)7 percent
Q3) According to Okun's law, when cyclical unemployment is negative, the output gap: A)is positive.
B)is negative.
C)equals zero.
D)equals the rate of cyclical unemployment.
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Chapter 25: Spending and Output in the Short Run
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Sample Questions
Q1) As disposable income decreases, consumption:
A)increases.
B)decreases.
C)may either increase or decrease depending on the mpc.
D)may either increase or decrease depending on the wealth effect.
Q2) An economic expansion in the United States ________ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n)________ output gap in Mexico.
A)reduces; expansionary
B)increases; expansionary
C)reduces; recessionary
D)increases; recessionary
Q3) In the basic Keynesian model, a tax increase:
A)reduces short-run equilibrium output.
B)increases short-run equilibrium output.
C)reduces potential output.
D)increases potential output.
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Chapter 26: Stabilizing the Economy: The Role of the Fed
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Sample Questions
Q1) Which of the following would be a consequence of a bank choosing not to lend its excess reserves?
A)A decrease in the bank's required reserves
B)An increase in the bank's total reserves
C)An increase in the bank's reserve-deposit ratio
D)Increased risk-taking by the bank
Q2) Because a decrease in the nominal interest rate reduces the opportunity costs of holding money, the money demand curve:
A)shifts to the right.
B)shifts to the left.
C)slopes upward.
D)slopes downward.
Q3) When commercial banks borrow reserves from the Fed, the quantity of reserves in the banking system ________ and, ultimately, the money supply ________.
A)increases; increases
B)increases; decreases
C)decreases; increases
D)decreases; decreases
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Chapter 27: Aggregate Demand, Aggregate Supply, and Inflation
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Q1) High expected inflation leads to ________ increases in wages and costs and to ________ actual inflation.
A)large; high
B)large; low
C)small; low
D)small; high
Q2) For a given level of inflation, if bright prospects for the future of the economy cause businesses to increase their investment in new capital, then the ________ shifts
A)aggregate demand curve; right
B)short-run aggregate supply line; downward
C)aggregate demand curve; left
D)short-run aggregate supply line; upward
Q3) When there is a recessionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A)decline; raise; decline
B)decline; lower; expand
C)decline; lower; decline
D)increase; raise; decline
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Chapter 28: Exchange Rates and the Open Economy
Available Study Resources on Quizplus for this Chatper
157 Verified Questions
157 Flashcards
Source URL: https://quizplus.com/quiz/45070
Sample Questions
Q1) Purchasing power parity is the theory that nominal exchange rates are determined:
A)by the forces of supply and demand.
B)by real exchange rates.
C)as necessary to achieve the fundamental value of the exchange rate.
D)as necessary for the law of one price to hold.
Q2) All else being equal, if Asian restaurants switch from serving French champagne to serving California wines, then the market equilibrium value of the exchange rate for the U.S. dollar will:
A)rise.
B)fall.
C)become fixed.
D)either rise or fall depending on whether the supply or demand for dollars changes more.
Q3) A currency appreciation is a(n):
A)increase in the value of a currency relative to other currencies.
B)decrease in the value of a currency relative to other currencies.
C)reduction in the official value of a currency in a fixed-exchange-rate system.
D)increase in the official value of a currency in a fixed-exchange-rate system.
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