Principles of Macroeconomics Solved
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Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and theories that explain the functioning of an economy at the aggregate level. The course covers key topics such as national income, gross domestic product (GDP), unemployment, inflation, economic growth, and the role of government policy in managing economic stability and growth. Students will analyze how markets and governments interact, the impacts of monetary and fiscal policies, and explore global economic issues. By the end of the course, students will have a foundational understanding of macroeconomic indicators and their significance in guiding economic decision-making at both national and international levels.
Recommended Textbook
Economics 20th Edition Volume I and Volume II by Campbell R. McConnell
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2785 Verified Questions
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Chapter 1: Limits, Alternatives, and Choices
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Sample Questions
Q1) The economic perspective entails:
A) irrational behavior by individuals and institutions.
B) a comparison of marginal benefits and marginal costs in decision making.
C) short-term but not long-term thinking.
D) rejection of the scientific method.
Answer: B
Q2) The process of producing and accumulating capital goods is called:
A) money capital.
B) depreciation.
C) investment.
D) consumption.
Answer: C
Q3) You should decide to go to a movie:
A) if the marginal cost of the movie exceeds its marginal benefit.
B) if the marginal benefit of the movie exceeds its marginal cost.
C) if your income will allow you to buy a ticket.
D) because movies are enjoyable.
Answer: B
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3
Chapter 2: The Market System and the Circular Flow
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Sample Questions
Q1) The invisible hand concept suggests that:
A) market failures imply the need for a national economic plan.
B) big businesses are inherently more efficient than small businesses.
C) the competitiveness of a capitalistic market economy invariably diminishes over time.
D) assuming competition,private and public interests will coincide.
Answer: D
Q2) The presence of market failures implies that:
A) money is not an effective tool for exchange in a market system.
B) there is an active role for government,even in a market system.
C) individuals and firms should strive to be self-sufficient rather than specialize.
D) command systems are superior to market systems in the allocation of resources.
Answer: B
Q3) The invisible hand refers to the many indirect controls that the federal government imposes in a market system.
A)True
B)False
Answer: False
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4
Chapter 3: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) (Advanced analysis)Answer the question on the basis of the following information.The demand for commodity X is represented by the equation P = 10 - 0.2Q and supply by the equation P = 2 + 0.2Q. Refer to the given information.If demand changed from P = 10 - .2Q to P = 7 - .3Q,we can conclude that:
A) demand has increased.
B) demand has decreased.
C) supply will increase.
D) supply will decrease.
Answer: B
Q2) An increase in quantity supplied might be caused by an increase in production costs.
A)True
B)False
Answer: False
Q3) A government subsidy to the producers of a product:
A) reduces product supply.
B) increases product supply.
C) reduces product demand.
D) increases product demand.
Answer: B
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Chapter 4: Market Failures: Public Goods and Externalities
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Sample Questions
Q1) Nonrivalry and nonexcludability are the main characteristics of:
A) consumption goods.
B) capital goods.
C) private goods.
D) public goods.
Q2) (Consider This)Suppose that a large tree on Betty's property is blocking Chuck's view of the lake below.Betty accepts Chuck's offer to pay Betty $100 for the right to cut down the tree.This situation describes:
A) the Coase theorem.
B) the optimal allocation of a public good.
C) nonrivalry and nonexcludability.
D) a market for externality rights.
Q3) (Last Word)A cap-and-trade program:
A) assigns a property right to the atmosphere.
B) mandates that every firm individually cut its emissions to below a certain level.
C) assigns a property right to polluting the atmosphere.
D) is easy to establish and enforce.
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Chapter 5: Governments Role and Government Failure
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Sample Questions
Q1) Government's unfunded liabilities:
A) result from the political bias toward immediate benefits and deferred costs.
B) result in more efficient policies in an attempt to satisfy these liabilities.
C) are caused primarily by market failures.
D) only occur in democratically elected governments.
Q2) "Earmarks" refer to:
A) the additional votes that must be taken when a voting paradox occurs.
B) taxes that redistribute wealth or income from one income group to another.
C) authorized expenditures benefiting a narrow,specifically designated group that are included in more comprehensive spending legislation.
D) legislation focused on correcting negative externalities.
Q3) The Securities and Exchange Commission's supervision of Wall Street financial firms is a possible example of regulatory capture.
A)True
B)False
Q4) Majority voting assures that government will provide a public good if it yields total benefits in excess of total costs.
A)True
B)False
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Chapter 6: Elasticity
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Sample Questions
Q1) If the University Chamber Music Society decides to raise ticket prices to provide more funds to finance concerts,the Society is assuming that the demand for tickets is:
A) parallel to the horizontal axis.
B) shifting to the left.
C) inelastic.
D) elastic.
Q2) When the percentage change in price is greater than the resulting percentage change in quantity demanded:
A) a decrease in price will increase total revenue.
B) demand may be either elastic or inelastic.
C) an increase in price will increase total revenue.
D) demand is elastic.
Q3) If the demand for farm products is price inelastic,a good harvest will cause farm revenues to:
A) increase.
B) decrease.
C) be unchanged.
D) either increase or decrease,depending on what happens to supply.
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Chapter 7: Utility Maximization
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Sample Questions
Q1) The diamond-water paradox occurs because:
A) the price of a product is related to its total utility,not its marginal utility.
B) the price of a product is related to its marginal utility,not its total utility.
C) water is,in fact,very scarce in certain regions of the world.
D) diamonds are more useful than water.
Q2) A budget line shows the:
A) alternative combinations of two goods that a consumer can purchase with a given money income.
B) alternative combinations of two goods that will yield the same level of total utility to a consumer.
C) quantities of a particular good that a consumer will buy at various prices.
D) ratio of money income to product price.
Q3) Indifference analysis assumes that utility is numerically measurable.
A)True
B)False
Q4) When total utility is at a maximum,marginal utility is zero.
A)True
B)False
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9
Chapter 8: Behavioral Economics
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Sample Questions
Q1) Behavioral economists believe that the human brain is generally:
A) efficient and accurate.
B) efficient but prone to errors.
C) inefficient but accurate.
D) inefficient and prone to errors.
Q2) Anchoring leads people to consider irrelevant information when making decisions.
A)True
B)False
Q3) Whenever Josh goes to his favorite restaurant,he wants to buy tiramisu,his favorite dessert.Despite the fact he would enjoy the flavor of the tiramisu the same amount every time,Josh only buys it when others are having dessert,and never buys it if he would be the only one having dessert.Behavioral economists would say that Josh's decision is affected by:
A) the availability heuristic.
B) confirmation biases.
C) framing effects.
D) the self-serving bias.
Q4) Heuristics generally help people make faster decisions.
A)True
B)False
Page 10
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Chapter 9: Businesses and the Cost of Production
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Sample Questions
Q1) If a firm doubles its output in the long run and its unit costs of production decline,we can conclude that:
A) technological progress has occurred.
B) economies of scale are being realized.
C) the firm is encountering diminishing returns.
D) diseconomies of scale are being encountered.
Q2) Other things equal,if the fixed costs of a firm were to increase by $100,000 per year,which of the following would happen?
A) Marginal costs and average variable costs would both rise.
B) Average fixed costs and average variable costs would rise.
C) Average fixed costs and average total costs would rise.
D) Average fixed costs would rise,but marginal costs would fall.
Q3) In which of the following industries are economies of scale exhausted at relatively low levels of output?
A) Aircraft production.
B) Automobile manufacturing.
C) Concrete mixing.
D) Newspaper printing.
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Chapter 10: Pure Competition in the Short Run
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Sample Questions
Q1) In the short run,a purely competitive seller will shut down if product price:
A) equals average revenue.
B) is greater than MC.
C) is less than AVC.
D) is less than ATC.
Q2) A competitive firm will maximize profits at that output at which:
A) total revenue exceeds total cost by the greatest amount.
B) total revenue and total cost are equal.
C) price exceeds average total cost by the largest amount.
D) the difference between marginal revenue and price is at a maximum.
Q3) The demand curve in a purely competitive industry is ______,while the demand curve to a single firm in that industry is ______.
A) perfectly inelastic;perfectly elastic
B) downsloping;perfectly elastic
C) downsloping;perfectly inelastic
D) perfectly elastic;downsloping
Q4) The term imperfect competition refers to every market structure besides pure competition.
A)True
B)False
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Chapter 11: Pure Competition in the Long Run
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Sample Questions
Q1) (Consider This)The average life expectancy of a U.S.business is approximately:
A) 2 years.
B) 5.5 years.
C) 10.2 years.
D) 22 years.
Q2) If production is occurring where marginal cost exceeds price,the purely competitive firm will:
A) maximize profit,but resources will be underallocated to the product.
B) maximize profit,but resources will be overallocated to the product.
C) fail to maximize profit and resources will be overallocated to the product.
D) fail to maximize profit and resources will be underallocated to the product.
Q3) Because the equilibrium position of a purely competitive seller entails an equality of price and marginal costs,competition produces an efficient allocation of economic resources.
A)True
B)False
Q4) The long-run supply curve for a decreasing-cost industry is downsloping.
A)True
B)False
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Chapter 12: Pure Monopoly
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Sample Questions
Q1) Assume a pure monopolist is currently operating at a price-quantity combination on the inelastic segment of its demand curve.If the monopolist is seeking maximum profits,it should:
A) retain its current price-quantity combination.
B) increase both price and quantity sold.
C) charge a lower price.
D) charge a higher price.
Q2) Because of the ability to influence price,a pure monopolist can increase price and increase volume of sales simultaneously.
A)True
B)False
Q3) The gains to monopolists from exercising market power:
A) exceed the losses to consumers in monopoly markets,resulting in a net gain to society.
B) equal the losses to consumers in monopoly markets,resulting in no net change for society.
C) are less than the losses to consumers in monopoly markets,resulting in a net loss to society.
D) create smaller deadweight losses than occur in purely competitive industries.
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Page 14
Chapter 13: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) A monopolistically competitive industry combines elements of both competition and monopoly.It is correct to say that the competitive element results from:
A) a relatively large number of firms and the monopolistic element from product differentiation.
B) product differentiation and the monopolistic element from high entry barriers.
C) a perfectly elastic demand curve and the monopolistic element from low entry barriers.
D) a highly inelastic demand curve and the monopolistic element from advertising and product promotion.
Q2) In long-run equilibrium,a monopolistically competitive producer achieves:
A) neither productive efficiency nor allocative efficiency.
B) both productive efficiency and allocative efficiency.
C) productive efficiency but not allocative efficiency.
D) allocative efficiency but not productive efficiency.
Q3) Two industries that have the same four-firm concentration ratio can have significantly different Herfindahl indexes.
A)True
B)False
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Chapter 14: Technology RD and Efficiency
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Sample Questions
Q1) Which of the following supports the contention that monopolistic competitors have a strong incentive to engage in R&D?
A) Entry to monopolistic competitive industries is relatively easy and thus profit from innovation is quickly competed away.
B) Most monopolistic competitive industries are decreasing-cost industries.
C) The desire to differentiate products from competitors may motivate monopolistic competitors to engage in R&D.
D) Monopolistic competitors have large retained earnings that are available to finance R&D.
Q2) The first commercial introduction of transparent tape is an example of: A) innovation.
B) invention.
C) creative destruction.
D) diffusion.
Q3) Successful new products enable consumers to increase the total utility they obtain from a specific amount of their total spending.
A)True
B)False
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Chapter 15: The Demand for Resources
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Sample Questions
Q1) A competitive employer is using labor in such an amount that labor's MRP is $10 and its wage rate is $8.This firm:
A) should hire more labor because this will increase profits.
B) should hire more labor,although this may either increase or decrease profits.
C) is currently hiring the profit-maximizing amount of labor.
D) is selling its product in an imperfectly competitive market.
Q2) Which of the following statements is correct?
A) If the profit-maximizing rule is fulfilled,it necessarily follows that the cost-minimization rule is being fulfilled.
B) The profit-maximizing and the cost-minimizing rules are such that the fulfilling of one has no bearing on the fulfilling of the other.
C) If the profit-maximizing rule is fulfilled,the cost-minimization rule may or may not be fulfilled.
D) If the cost-minimization rule is fulfilled,it necessarily follows that the profit-maximizing rule is being fulfilled.
Q3) The demand for labor is a derived demand,whereas the demand for capital is not.
A)True
B)False
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17
Chapter 16: Wage Determination
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Sample Questions
Q1) Many economists are critical of the minimum wage because they believe that it:
A) hurts the efforts of labor unions.
B) reduces the number of available job opportunities.
C) conflicts with policies designed to equalize the distribution of income.
D) causes labor shortages in affected markets.
Q2) Craft unions:
A) attempt to organize workers at all skill levels in a firm or industry.
B) have been declared illegal by federal legislation.
C) only organize workers who have a particular skill.
D) attempt to increase the supply of their particular type of labor.
Q3) If a firm is hiring variable resources D and F in imperfectly competitive input markets,it will maximize profits by employing D and F in such quantifies that:
A) MRP<sub>D</sub>/MRC<sub>D</sub> = MRP<sub>F</sub>/MRC<sub>F</sub> = 1.
B) MRP<sub>D</sub>/MRC<sub>D</sub> = MRP<sub>F</sub>/MRC<sub>F</sub>.
C) MRP<sub>D</sub>/P<sub>D</sub> = MRP<sub>F</sub>/P<sub>F</sub> = 1.
D) MRP<sub>D</sub>/P<sub>D</sub> = MRP<sub>F</sub>/P<sub>F</sub>.
Q4) Efficiency wages are established at below-equilibrium levels.
A)True
B)False
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Chapter 17: Rent Interest and Profit
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Sample Questions
Q1) (Last Word)Suppose you borrow $500 and agree to pay this $500 plus $75 of interest at the end of a year.The interest rate is:
A) 10 percent.
B) 15 percent.
C) 12.5 percent.
D) 7.5 percent.
Q2) The demand for land is:
A) perfectly elastic.
B) perfectly inelastic.
C) upsloping.
D) downsloping.
Q3) Demand is the active and supply the passive determinant of land rent.
A)True
B)False
Q4) The amount to which some current amount of money will grow as interest compounds over time is known as:
A) the future value of that sum of money.
B) the present value of that sum of money. C) compound interest.
D) the time-value of money.
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Chapter 18: Natural Resource and Energy Economics
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Sample Questions
Q1) Property rights over fish in the open ocean exist once the fish are caught.
A)True
B)False
Q2) A total fertility rate of 1.0 is necessary to keep the population constant over time.
A)True
B)False
Q3) Melanie and Oli are competing Pacific halibut fishers.Both have been allocated ITQs that limit their catch to 1,000 tons of Pacific halibut each.Melanie's cost per ton is $20;Oli's cost per ton is $28. Refer to the information given.If the market price of Pacific halibut is $40 per ton,and Melanie and Oli both catch their quota,their combined profit will be:
A) $12,000.
B) $22,000.
C) $25,000.
D) $32,000.
Q4) Fisheries have been overexploited relative to forests primarily because people care more about trees than fish.
A)True
B)False
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Page 20
Chapter 19: Public Finance: Expenditures and Taxes
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Sample Questions
Q1) The maximum federal marginal tax rate on taxable personal income is,as of 2013:
A) 50 percent.
B) 39.6 percent.
C) 35 percent.
D) 28 percent.
Q2) Although state and local taxes are highly progressive,federal taxation is predominantly regressive.
A)True
B)False
Q3) Which of the following best reflects the ability-to-pay philosophy of taxation?
A) A tax on residential property.
B) A progressive income tax.
C) An excise tax on gasoline.
D) An excise tax on coffee.
Q4) The greater the elasticity of demand and supply,the greater is the efficiency loss of a tax.
A)True
B)False
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Chapter 20: Antitrust Policy and Regulation
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Sample Questions
Q1) Critics of the regulation of natural monopolies contend that:
A) regulation increases the incentive of firms to lower costs.
B) regulated firms may use creative accounting to reduce costs,prices,and profits.
C) when rates of return are based on the value of real capital,an uneconomic substitution of labor for capital may occur.
D) the industry may "capture" or control the regulatory commission.
Q2) (Consider This)The Consider This box "Of Catfish and Art (and Other Things in Common)" lists examples of recent antitrust cases involving:
A) monopolization.
B) tying contracts.
C) price-fixing.
D) horizontal mergers.
Q3) The Sherman Act:
A) was declared unconstitutional in 1895.
B) provided for government regulation of the railroads.
C) declared monopoly and restraints of trade to be illegal.
D) exempted the railroad and communications industries from the antitrust laws.
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Page 22
Chapter 21: Agriculture: Economics and Policy
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Sample Questions
Q1) U.S.exports of farm products have generally declined as a percentage of U.S.farm output over the past half-century.
A)True
B)False
Q2) Measured in terms of farm employment and the number of farms,agriculture has been:
A) a declining industry.
B) an expanding industry.
C) a stable industry.
D) a volatile industry.
Q3) Import quotas on sugar may cost consumers $2 billion per year.But this quota goes unchallenged because the $10 average annual cost per person is so small that probably not one voter in 200 knows the quota exists.This statement describes:
A) the voting paradox.
B) the special-interest effect.
C) the median-voter model.
D) free-rider problem.
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