Principles of Macroeconomics Study Guide Questions
Course Introduction
Principles of Macroeconomics offers an introduction to the core concepts and analytical tools used to study the economy as a whole. The course explores topics such as national income determination, economic growth, unemployment, inflation, monetary and fiscal policy, and the role of government and central banks in stabilizing the economy. Students will develop an understanding of how economic indicators are measured, how economic theories are applied to real-world problems, and how macroeconomic policies affect business cycles, international trade, and financial markets. Through lectures, discussions, and problem sets, students will learn to critically analyze current economic issues and assess the impact of policy decisions on the broader economy.
Recommended Textbook
Macroeconomics 12th Edition by Robert J Gordon
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2208 Verified Questions
2208 Flashcards
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Chapter 1: What Is Macroeconomics
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Sample Questions
Q1) The period of the business cycle which follows the trough is the A)recession.
B)expansion.
C)peak.
D)All of the above may follow the trough.
Answer: B
Q2) Generally,the higher the level of output in an economy is the ________ will be.
A)lower the unemployment rate and inflation rate
B)higher the unemployment rate and inflation rate
C)higher the unemployment rate and the lower inflation rate
D)lower the unemployment rate and the higher inflation rate
Answer: D
Q3) Over the period between 1960 and 2010,the increase in unemployment rate was the greatest in
A)early 1960s.
B)late 2000s.
C)mid 1970s.
D)early 1980s.
E)early 1990s.
Answer: B
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Chapter 2: The Measurement of Income,prices,and Unemployment
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Sample Questions
Q1) Refer to above Table 2-2.What is the nominal GDP in year 2?
A)$18.60
B)$14.60
C)$18.00
D)400 units
Answer: A
Q2) Refer to above Table 2-2.What are the constant-dollar expenditures in years 1 and 2 at fixed year 1 prices?
A)$5.00,$7.80
B)$14.00,$14.60
C)$18.00,$18.60
D)$9.00,$10.80
Answer: B
Q3) In the simple circular flow model containing just households and business firms,all income is received by households in exchange for A)consumer expenditures.
B)wages.
C)labor services.
D)product.
Answer: C
4
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Chapter 3: Income and Interest Rates: the Keynesian Cross
Model and the Is Curve
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Q1) In the four-part diagram used to construct the IS curve,a lower interest rate
A)has no effect on Y.
B)has no effect on the position of the demand for autonomous planned spending curve.
C)has no effect on the position of the IS curve.
D)none of the above.
Answer: C
Q2) On a diagram of the consumption function and the 45-degree line,saving at each level of disposable income is the vertical distance
A)from the horizontal axis to the intersection point of the consumption line and the 45-degree line.
B)from the horizontal axis to the 45-degree line.
C)between the consumption and the 45-degree lines.
D)from the horizontal axis to where the consumption line intersects the vertical axis.
Answer: C
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Chapter 4: Strong and Weak Policy Effects in the Is-Lm
Model
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Q1) Along a downward-sloping money demand schedule,as the interest rate falls
A)the quantity of money demanded falls.
B)the quantity of money demanded rises.
C)real income rises.
D)real income falls.
Q2) An increase in the marginal propensity to consume would cause the IS curve to
A)make a parallel shift to the right.
B)make a parallel shift to the left.
C)rotate to become steeper from its vertical intercept.
D)rotate to become flatter from its vertical intercept.
E)rotate to become flatter from its horizontal intercept.
Q3) Employing Figure 4-2 above,the money market is initially in equilibrium at point G and after the economy moves to equilibrium,the Federal Reserve increases the money supply by 500.We would observe
A)the interest rate first rises to 7.5% and Y to 3500.
B)the interest rate first rises to 7.5% then falls to 5%.
C)Y rises to 4000 as interest rates remain stable.
D)the economy moves from point G to C,to F then D.
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Chapter 5: Financial Markets, financial Regulation, and Economic Instability
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Sample Questions
Q1) In addition to being subject to the Fed's reserve requirements,the banks are also required to maintain a capital requirement,which is
A)the ratio of its deposits to its reserves.
B)the ratio of its loans to its reserves.
C)the ratio of its total assets to its total liabilities.
D)the ratio of its equity to its total assets.
Q2) Referring to a bank's t-account,equity refers to
A)the difference between total assets and total liabilities.
B)the sum of total assets and total liabilities.
C)the ratio of the total assets and total liabilities.
D)none of the above.
Q3) Institutions that make loans to borrowers and obtain funds from savers are called A)financial markets.
B)financial intermediaries.
C)financial conglomerates.
D)financial branches.
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7
Chapter
of Fiscal Policy
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Sample Questions
Q1) Most economists would consider it sensible for the federal government to ________ its current operating and capital expenditure budgets and then ________.
A)consolidate,never borrow to fund it
B)consolidate,borrow what is necessary to fund it
C)separate,borrow what is necessary to fund the current operating budget.
D)separate,borrow what is necessary to fund the capital expenditure budget.
Q2) Society's rate of time preference is
A)the extra amount people would be willing to pay to have consumption goods in the future instead of now.
B)the value that people place on the time saved by purchasing capital goods rather than consumer goods.
C)the extra amount people would be willing to pay to have consumption goods now instead of the future.
D)is negative if people prefer present consumption to future consumption.
Q3) A major side-effect of a stimulative fiscal policy is that it will
A)discriminate in favor of housing.
B)crowd out private expenditures.
C)increase the natural rate of unemployment.
D)permanently raise the rate of inflation.
Page 8
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Chapter 7: International Trade, exchange Rates, and Macroeconomic Policy
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Sample Questions
Q1) Between 1992 and 1998 U.S.net exports fell substantially.The drop was attributable to
A)an appreciation of the dollar on foreign exchange markets.
B)an economic expansion in the United States.
C)slow economic growth in Japan and several European countries.
D)B and C.
E)all of the above.
Q2) The mechanism of "international crowding-out" is that a government budget deficit ________ the domestic interest rate,which makes the dollar ________ expensive for foreigners,which then ________ net exports.
A)raises,less,lowers
B)raises,less,raises
C)raises,more,lowers
D)lowers,less,lowers
E)lowers,more,raises
Q3) From 1995 to 1998,the ________ of the dollar led to ________.
A)appreciation,a substantial increase in net exports
B)appreciation,collapse of net exports
C)depreciation,a substantial increase in net exports
D)depreciation,collapse of net exports
Page 9
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Chapter
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Sample Questions
Q1) Which of the following is the basic rule by which firms find the number of workers to hire?
A)real wage = output price
B)real wage = marginal product of labor
C)marginal product of labor = output price
D)none of the above
Q2) As firms hire more labor
A)the supply of labor increases.
B)each additional worker hired produces an additional amount of output but at a diminishing rate.
C)each additional worker hired produces an additional amount of output but at an increasing rate.
D)the marginal labor cost of output decreases.
Q3) A fall in the price level causes
A)the LM curve to shift downward.
B)the LM curve to shift upward.
C)movement up along an LM curve.
D)movement down along an LM curve.
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Chapter 9: Inflation: Its Causes and Cures
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Sample Questions
Q1) Along the SP curve with expected inflation of 4 percent,we are below the natural GDP when
A)inflation falls below 4 percent.
B)inflation rises above 4 percent.
C)expected inflation falls below 4 percent.
D)expected inflation rises above 4 percent.
Q2) Suppose that an adverse supply shock causes downward pressure on nominal wages and unemployment to increase.If the Fed increases the money supply to stimulate AD and restore output to its previous level (assuming no change in the labor supply)a(n)
A)one time increase in prices will result.
B)inflationary spiral will begin if the real GDP has been reduced.
C)increase in the real GDP will follow.
D)All of the above
Q3) From an initial situation where P = 1.00 and Y = 100,6 percent nominal GDP growth that causes P to go to 1.10 also causes Y to go to A)116.
B)104.
C)96.
D)94.
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Chapter 10: The Goals of Stabilization Policy: Low Inflation and
Low Unemployment
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Q1) In the United States,the long-run inflation rate can be expressed simply as the growth rate of money
A)plus the long-run growth rate of velocity.
B)minus the long-run growth rate of velocity.
C)plus the long-run growth rate of real GDP.
D)minus the long-run growth rate of real GDP.
Q2) If the market rate of interest is 13%,the growth of nominal GDP 9%,and the growth of real GDP 2%,then
A)the rate of inflation is 11%.
B)the rate of inflation is 4%.
C)the rate of inflation cannot be determined.
D)none of the above
Q3) Applying elementary economics,mismatch unemployment should fall when relative wages
A)rise.
B)fall.
C)are more flexible.
D)are less flexible.
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Chapter 11: The Theory of Economic Growth
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Sample Questions
Q1) Using a Cobb-Douglas production function,Y/N = (K/N)b,the marginal product of capital is
A)b(K/N)b-1.
B)b(K/N).
C)(K/N)b-1.
D)(K/Y)b.
Q2) The "nonconvergence" problem with the Solow growth model is that
A)a higher return to capital in poor countries should essentially cause all nations to have roughly the same standard of living,yet they clearly do not.
B)if a disturbance dislodges an economy from the steady-state point,it continues moving further from that point indefinitely.
C)technological change is assumed to just "drop from the sky."
D)a rise in the rate of national saving does not raise the growth rate of real GDP per person.
Q3) If the economy is characterized by increasing returns to scale,then a
A)doubling of inputs will lead to a more than two-fold increase in output.
B)doubling of inputs will lead to a constant output.
C)doubling of inputs will lead to a two-fold increase in output.
D)doubling of inputs will lead to a less than two-fold increase in output.
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Chapter 12: The Big Questions of Economic Growth
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Sample Questions
Q1) What ratio defines the standard of living?
A)(Y/N)
B)(Y/K)
C)(Y/A)
D)(Y/Q)
Q2) What type of economic conditions are summarized by the variable a?
A)conditions other than changes in capital and labor that change productivity
B)urbanization
C)governmental regulations
D)All of the above
Q3) If 1 - b = WN/PY where W is the nominal wage rate,N is the quantity of labor input,and PY is total income in nominal terms,then labor's share of national income grows if
A)(w - p)> (y - n).
B)(w - p)< (y - n).
C)(w - n)> (y - p).
D)(w - n)< (y - p).
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Chapter 13: Money,banks,and the Federal Reserve
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Sample Questions
Q1) If the amount of high-powered money were 100 and the bank reserve holding ratio was 0.25 then the maximum stock of deposits would be (assuming that all money is deposited in the banking system)
A)500.
B)450.
C)400.
D)350.
Q2) A negotiable large-denomination certificate of deposit is an example of a A)capital market instrument to finance capital acquisitions.
B)money market instrument to finance inventories and short-term receivables.
C)type of stock held by financial institutions.
D)type of stock held by individuals.
Q3) Savers who do not want to research the credit-worthiness of borrowers take advantage of ________ finance,where risk is ________.
A)direct,spread
B)direct,concentrated
C)indirect,spread
D)indirect,concentrated
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Chapter 14: The Goals, tools, and Rules of Monetary Policy
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Sample Questions
Q1) Which of the following multiplier concepts is most important from the point of view of devising an activist policy?
A)the income and money-creation multipliers
B)the dynamic multipliers,that is the timing of multiplier effects given a policy change
C)the long-term multipliers,that is the total effect from several time periods given a policy change
D)the money-creation multiplier
Q2) Non-activists
A)distrust the ability of the political process to formulate sensible economic policy.
B)argue for a constant-growth-rate rule for the money supply.
C)argue that more unemployment now may prevent a lot more unemployment in the future.
D)All of the above.
Q3) Which of these policy targets does NOT provide a "nominal anchor?"
A)high-powered money
B)the unemployment rate
C)the money supply
D)the inflation rate
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Chapter 15: The Economics of Consumption Behavior
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Sample Questions
Q1) An individual having an unusually bad year will be on her short-run consumption function at a point ________ her long-run consumption function,with an unusually ________ saving ratio.
A)above,high
B)above,low
C)below,high
D)below,low
Q2) The challenge for economists in the early postwar period was to develop a consumption hypothesis that could explain how
A)the saving ratio could remain fairly constant across income groups while the aggregate saving ratio increased over time as average real income grew.
B)the saving ratio for high-income families could be lower than for low-income families while the aggregate saving ratio remained fairly constant over time as average real income grew.
C)the saving ratio for high-income families could be higher than for low-income families while the aggregate saving ratio remained fairly constant over time as average real income grew.
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17
Chapter 16: The Economics of Investment Behavior
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Sample Questions
Q1) Refer to the information above.What is the highest value of gross investment over these periods?
A)140.
B)106.75.
C)89.25.
D)192.5
Q2) If the government allows businesses to accelerate (increase)depreciation,then
A)the user cost of capital declines and V* increases.
B)the user cost of capital declines and V* decreases.
C)the user cost of capital increases and V* decreases.
D)the user cost of capital increases and V* increases.
Q3) An easier monetary policy ________ the user cost of capital,which ________ net investment.
A)raises,raises
B)raises,lowers
C)lowers,raises
D)lowers,lowers
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Chapter 17: New Classical Macro and New Keynesian Macro
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Q1) According to the new Keynesian economists,SAS adjusts slowly to a change in AD because of
A)high menu costs.
B)staggered overlapping wage contracts.
C)efficiency wages.
D)All of the above combinations explain slow adjustments in SAS.
Q2) By the theory of intertemporal substitution of labor,a higher current real interest rate ________ the amount of labor ________ at each real wage rate in the current period.
A)raises,demanded
B)raises,supplied
C)lowers,demanded
D)lowers,supplied
Q3) If it is less costly for business firms to adjust the labor demanded as the price level changes than it is for households to adjust Ns,then in the short-run
A)Ns has a positive slope and the demand for labor (Nd)negative slope.
B)Nd has a negative slope and the supply of labor (Ns)a positive slope.
C)AD has a negative slope.
D)SAS has a positive slope.
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Page 19
Chapter 18: Conclusion: Where We Stand
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Q1) There is currently a resurgence in Keynesian macroeconomics,based on the assumptions of market ________ and ________ expectations.
A)non-clearing,adaptive
B)non-clearing,rational
C)clearing,adaptive
D)clearing,rational
Q2) The evolution of macroeconomic theory
A)usually precedes and causes major macroeconomic events.
B)usually is in reaction to major macroeconomic events.
C)is evenly divided between causing and reacting to major macroeconomic events.
D)proceeds rather independently of major macroeconomic events.
Q3) The U.S.economy in the 1960s was dominated by a massively expansionary ________ policy that ended up ________.
A)monetary,overstimulating the economy
B)monetary,being impotent in ending the long stagnation of that decade
C)fiscal,overstimulating the economy
D)fiscal,being impotent in ending the long stagnation of that decade
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