Principles of Macroeconomics
Test Preparation
Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and analytical frameworks used to understand the functioning of national economies. The course covers topics such as the measurement of economic performance through GDP, inflation, and unemployment; the role of government fiscal and monetary policy in influencing economic activity; aggregate demand and aggregate supply; and the causes and consequences of economic growth, business cycles, and international trade. Students will develop the ability to critically analyze economic issues and policy debates using macroeconomic models and real-world data.
Recommended Textbook
ECON MACRO4 4th Edition by William A. McEachern
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21 Chapters
3789 Verified Questions
3789 Flashcards
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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147 Verified Questions
147 Flashcards
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Sample Questions
Q1) Ceteris paribus means "other things constant."
A)True
B)False
Answer: True
Q2) In economics, the term "marginal" usually refers to
A)a small change in an economic variable
B)a low-quality product or resource
C)an unimportant and irrelevant economic variable
D)an all-or-nothing economic decision
E)a footnote or minor point
Answer: A
Q3) Economic theory
A)expresses normative values
B)invents imaginative and interesting stories
C)predicts the behavior of a specific economic decision maker after an economic change
D)predicts the average behavior of a group of similar economic decision makers after an economic change
E)uses only perfect and complete information
Answer: D
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Chapter 2: Understanding Graphs-Appendix
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64 Flashcards
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Sample Questions
Q1) In Exhibit 1-8, the slope of the line is
A)negative for all values of x
B)positive for all values of x
C)zero at x = 7
D)first negative, then positive as x increases
E)negative for all values of y
Answer: C
Q2) The statement that there is a direct relation between x and y means that
A)x and y move in the same direction
B)x causes y
C)y causes x
D)either y causes x or x causes y
E)the causal connection between x and y is immediate
Answer: A
Q3) The slope of a steep upward-sloping line is a smaller value than the slope of a nearly flat upward-sloping line.
A)True
B)False
Answer: False
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Chapter 3: Economic Tools and Economics Systems
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195 Verified Questions
195 Flashcards
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Sample Questions
Q1) The opportunity cost of going to college is best measured by the A)cost of room and board
B)cost of tuition
C)cost of room and board plus tuition
D)income forgone by not working, plus tuition
E)income forgone by not working, plus tuition and room and board
Answer: D
Q2) A major distinguishing feature between capitalist and socialist (or command) economies is that
A)under capitalism the average citizen is always wealthier than in socialist economies
B)decision making is typically decentralized in socialist economies and is centralized in capitalist economies
C)socialist countries all have red flags and capitalistic economies do not
D)resources are publicly owned in capitalist economies
E)decision making is typically decentralized under capitalism while it is centralized in command economies
Answer: E
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Page 5
Chapter 4: Economic Decision Makers
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200 Flashcards
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Sample Questions
Q1) Goods and services produced by the government are sold at prices that are set to recover production costs.
A)True
B)False
Q2) Which of the following is not an example of a business operated by a consumer cooperative?
A)grocery store
B)apartment building
C)Sunkist, a farm cooperative owned and operated by citrus growers
D)health plan
E)electric power facility
Q3) A public good is one that is supplied to
A)only people who pay for it
B)only people who do not pay for it
C)all people, regardless of whether they pay or not
D)the government from private firms
E)foreign governments from our federal government
Q4) Public goods are both rival and nonexclusive.
A)True
B)False
Page 6
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Chapter 5: Demand, Supply, and Markets
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232 Verified Questions
232 Flashcards
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Sample Questions
Q1) If there is a shortage in the market for automobiles, then
A)producers' inventories will rise
B)the price should begin to rise
C)the demand curve will shift to restore equilibrium in the market
D)the supply curve will shift to restore equilibrium in the market
E)the price is expected to fall
Q2) 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
Q3) If there is a shortage in the market for jeans,
A)producers' inventories will increase
B)the price should begin to rise
C)the demand curve will shift to restore equilibrium in the market
D)the supply curve will shift to restore equilibrium in the market
E)producers expect government to impose a price ceiling
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Chapter 6: Introduction to Macroeconomics
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162 Flashcards
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Sample Questions
Q1) All of the following would be considered supply-side approaches to increasing growth except one. Which is the exception?
A)improving the quality of human capital
B)developing an interstate highway system
C)investing in research and development
D)replacing obsolete plants with new ones
E)increasing transfer payments to retirees
Q2) If the government owes $3,500 billion and then borrows $300 billion more this year,
A)the debt is $300 billion and the deficit is $3.8 trillion
B)the debt is $3,800 billion and the deficit is $300 billion
C)the debt is $4,100 billion
D)the deficit is $3,800 billion
E)both the debt and the deficit are $3.8 trillion
Q3) By a leading economic indicator, economists mean
A)an indicator of future economic activity
B)an indicator that measures current economic activity
C)a highly accurate indicator that is easily measured
D)an indicator that is accurate most of the time
E)any variable that can measure either past or present economic activity
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Page 8
Chapter 7: Tracking the Us Economy
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213 Verified Questions
213 Flashcards
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Sample Questions
Q1) Which of the following is not included in GDP?
A)the value of the restoration of an old painting
B)interest payments on the national debt
C)the cost of a new vending machine
D)government expenditure on a new bridge
E)a purchase of legal services by a household
Q2) If real GDP is $5 trillion for a particular year and the GDP price index is 140, then nominal GDP is $7 trillion.
A)True
B)False
Q3) Which of the following would be included in GDP?
A)payment of the monthly telephone bill by Mr. Laconic
B)the purchase of corporate stock by Steven Jones
C)the purchase of a used limousine by Harold Abel
D)the value of a pair of mittens your mother knitted for you
E)the $300 George saved because he painted his own garage
Q4) The CPI tends to understate the true rate of inflation.
A)True
B)False
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Chapter 8: Unemployment and Inflation
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202 Verified Questions
202 Flashcards
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Sample Questions
Q1) Cyclical unemployment results from
A)a mismatch of skills
B)being in the wrong geographical location
C)taking the time to find the best job
D)seasonal decreases in demand for labor
E)a recession in the economy
Q2) In times of rapid inflation,
A)money loses its use as a store of value
B)money becomes an attractive store of wealth
C)people postpone purchases as long as possible
D)people spend less in transactions costs
E)people tend to save more money
Q3) Unanticipated inflation penalizes
A)those who are saving
B)those who are borrowing
C)governments
D)those who are in high growth industries where wages are growing faster than prices
E)those who can't find jobs at any wage rate
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Chapter 9: Productivity and Growth
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) If labor productivity growth slows, the standard of living must decrease.
A)True
B)False
Q2) Declining growth in productivity means that the standard of living has been falling over time.
A)True
B)False
Q3) "The most important factor in determining a nation's standard of living in the long run is the productivity of its resources."
A)True
B)False
Q4) The impact of computers on U.S. productivity growth
A)has been disappointingly small--about one-half percentage point annually between 1972 and 1996
B)has been dramatic, contributing to significant growth during the early years of the 21st century
C)has been significant in the health care sector, but not elsewhere
D)has actually been negative in most industries
E)was greater during the period 1972-1990 than it has been since that time
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Chapter 10: Aaggregate Expenditure and Agregate Demand
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179 Verified Questions
179 Flashcards
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Sample Questions
Q1) The opportunity cost of investing in capital is the interest rate.
A)True
B)False
Q2) An upward shift of the investment function (i.e., the one that relates investment spending to income) could be caused by
A)an increase in income
B)a decrease in the interest rate
C)an increase in the interest rate
D)more pessimistic business expectations
E)an increase in business taxes
Q3) Which is true of disposable income?
A)it excludes transfer payments
B)the portion of income is used solely for consumption
C)it is that part of aggregate income that is taken in taxes by government
D)all of disposable income contributes directly to aggregate expenditure
E)disposable income equals consumption expenditures plus saving
Q4) The slope of the consumption function equals the marginal propensity to consume.
A)True
B)False
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Chapter 11: Aggregate Expenditure and Aggregate Demand
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) An increase in the price level can be indicated by a downward shift of the aggregate expenditure line.
A)True B)False
Q2) Only a change in the price level can cause shifts in both the aggregate expenditure line and the aggregate demand curve.
A)True B)False
Q3) A decrease in the price level will
A)shift the aggregate demand curve to the left
B)shift the aggregate demand curve to the right
C)result in a movement up and to the left along the aggregate demand curve
D)result in a movement down and to the right along the aggregate demand curve
E)have no effect on the aggregate quantity demanded
Q4) A primary determinant of consumption spending is new wealth.
A)True B)False
Q5) The larger the MPS, the smaller the multiplier effect.
A)True
B)False
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Chapter 12: Aggregate Supply
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213 Flashcards
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Sample Questions
Q1) In constructing the short-run aggregate supply curve, we define the short run as the period in which
A)the price level is constant
B)output is fixed
C)profit is constant
D)the costs of some resources are fixed
E)the economic growth rate is less than 4 percent
Q2) Which of the following would be evidence that a contractionary gap exists?
A)Rapid deflation during a period in which plant capacity utilization is below average.
B)A steady price level and a 5 percent unemployment rate.
C)Help wanted advertising lower than usual, and the consumer price index lower than expected.
D)Inflation has risen markedly and the Dow Jones average is at record levels.
E)The number of new unemployment claims has skyrocketed and the price level is rising.
Q3) If wages are flexible, the long-run aggregate supply curve is vertical.
A)True
B)False
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14
Chapter 13: Fiscal Policy
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240 Verified Questions
240 Flashcards
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Sample Questions
Q1) All of the following might be effective in eliminating a contractionary gap except one. Which is the exception?
A)reducing Social Security payments to beneficiaries
B)reducing personal income taxes
C)increasing expenditures for the interstate highway system
D)increasing farm subsidies
E)reducing corporate income taxes
Q2) Fiscal policy focuses on manipulating
A)aggregate demand to smooth out business fluctuations
B)aggregate supply to smooth out business fluctuations
C)both aggregate supply and aggregate demand to smooth out business fluctuations
D)aggregate demand to stimulate the economy and aggregate supply to contract it
E)short-run aggregate supply to stimulate the economy and aggregate demand to contract it
Q3) A $200 increase in government purchases has a greater effect on the equilibrium level of real GDP than a $200 decrease in autonomous net taxes would.
A)True
B)False
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15
Chapter 14: Federal Budgets and Public Policy
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158 Verified Questions
158 Flashcards
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Sample Questions
Q1) In order for the government to increase spending, it must increase taxes to finance that spending.
A)True
B)False
Q2) Some economists argue that federal government capital projects, which offer benefits over a number of years, should be financed over a number of years and therefore involve deficit finance.
A)True
B)False
Q3) The U.S. government's fiscal year covers from
A)January through December
B)April of one year through March of the next year
C)June of one year through May of the next year
D)September of one year through August of the next year
E)October of one year through September of the next year
Q4) If discretionary fiscal policy creates a federal budget deficit, the economy must be experiencing falling output.
A)True
B)False
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Chapter 15: Money and the Financial System
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209 Verified Questions
209 Flashcards
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Sample Questions
Q1) The Federal Reserve System was established
A)by the U.S. Constitution
B)immediately after the Civil War
C)in 1914
D)during the Great Depression
E)immediately following World War II
Q2) Which of the following best illustrates the double coincidence of wants?
A)Both Tom and Jerry would like to purchase the same good.
B)Tom has something he's willing to trade to Jerry; Jerry has something he's willing to trade to Tom.
C)Tom and Jerry have very similar tastes; hence, Tom's wants coincide with Jerry's.
D)Tom has something he's willing to trade to Jerry, who wants it; Jerry has something he's willing to trade to Tom, who wants it.
E)Tom has something Jerry wants; Jerry has something Tom wants.
Q3) Interest rate ceilings resulted in great profitability for banks in the 1970s.
A)True
B)False
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17
Chapter 16: Banking and the Money Supply
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229 Verified Questions
229 Flashcards
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Sample Questions
Q1) Suppose the reserve requirement is 15 percent. Which of the following is true?
A)The simple money multiplier is 15.
B)The simple money multiplier is 1/15.
C)The simple money multiplier is 30,000.
D)The simple money multiplier is 1/30,000.
E)The simple money multiplier is 1/0.15.
Q2) If an increase in excess reserves of $10 million increases checkable deposits in the banking system by a maximum of $200 million, the required reserve ratio is
A)0
B)5 percent
C)10 percent
D)20 percent
E)2 percent
Q3) The Federal Reserve's narrowest definition of money is
A)M3
B)M2
C)M1
D)near money
E)money market mutual funds
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Page 18
Chapter 17: Monetary Theory and Policy
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186 Verified Questions
186 Flashcards
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Sample Questions
Q1) For interest rates to remain stable during economic expansions, the growth rate of the money supply should
A)exceed the growth in the demand for money
B)just match the growth in the demand for money
C)be less than the growth in the demand for money
D)be zero
E)just match the growth in nominal GDP
Q2) Because __________ the federal funds rate __________ the cost of covering any reserve shortfall, banks are __________ willing to lend to the public.
A)lowering, reduces, less B)raising, increases, more
C)lowering, reduces, more
D)raising, decreases, more
E)lowering, increases, more
Q3) When people exchange money for financial assets, the interest rate rises.
A)True
B)False
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Chapter 18: Macro Policy Debate: Active or Passive
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189 Verified Questions
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Sample Questions
Q1) Both those who favor an active approach as well as those who favor a passive approach to policy believe that the economy can suffer from extreme and long-lasting swings in real GDP.
A)True
B)False
Q2) An increase in price expectations shifts the long-run Phillips curve, but not the short-run Phillips curve.
A)True
B)False
Q3) If the price level increases by more than expected, output can be expected to decrease as a result.
A)True
B)False
Q4) Economist A. W. Phillips believed that
A)the Fed should follow a policy rule because it does not know the lag structure
B)the Fed should follow a policy rule to avoid monetary surprises
C)there is an inverse relationship between inflation and unemployment
D)private sector spending is inherently unstable
E)government spending is inherently unstable
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Chapter 19: International Trade
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163 Verified Questions
163 Flashcards
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Sample Questions
Q1) As a result of international trade,
A)the gain to producers in the importing country exceeds the loss to consumers in the importing country
B)the loss to producers in the importing country is less than the gain to consumers in the importing country caused by a decrease in price
C)the loss to producers in the importing country exceeds the gain to consumers in the importing country caused by an increase in price
D)the loss to producers in the importing country is equal to the gain to consumers in the importing country because price increases and equilibrium quantity decreases
E)the loss to producers in the importing country is equal to the gain to consumers in the importing country because price decreases and equilibrium quantity increases
Q2) Japan is generally considered an economy closed to foreign trade.
A)True
B)False
Q3) A tariff is a tax on either imports or exports.
A)True
B)False
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Chapter 20: International Finance
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231 Verified Questions
231 Flashcards
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Sample Questions
Q1) The Bretton Woods system
A)fixed exchange rates in terms of U.S. dollars
B)fixed exchange rates in terms of all major currencies
C)fixed exchange rates in terms of gold
D)established a system of flexible exchange rates
E)established the European monetary system
Q2) Suppose a basket of goods costs $400 in the United States and £200 in Britain. If the exchange rate is $1/pound, what will happen in the foreign exchange market, according to the purchasing power parity theory?
A)The market will go further out of equilibrium because of increased activity.
B)An increase in demand for pounds will lead to an increase in the price of pounds.
C)An increase in demand for dollars will lead to an increase in the price of dollars.
D)An increase in demand for dollars will lead to a decrease in the price of dollars.
E)An increase in demand for pounds will lead to a decrease in the price of pounds.
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Chapter 21: Economic Development
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) Which of the following does not describe the World Bank?
A)an economic development institution
B)affiliated with the United Nations
C)offers low-fee checking accounts to anyone in the world
D)estimates output per capita figures
E)uses output per capital figures to classify economies
Q2) Which of the following is true about GNP?
A)includes profits earned by a Mercedes factory in Alabama
B)excludes profits earned by General Electric in India
C)measures the market value of all goods and services produced by resources supplied the home country's residents and firms, regardless of the location of the resource
D)stands for Generally Nice Products
E)used by countries to classify the World Bank
Q3) One possible reason that the country of Whatsis is trapped in poverty is
A)a lack of mineral wealth
B)an honest and functional government
C)laws and regulations to help detect fiscal fraud
D)a free press
E)a civil war
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Page 23