Principles of Macroeconomics
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Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and theories that explain the overall functioning of an economy. The course covers topics such as national income, economic growth, unemployment, inflation, fiscal and monetary policy, and the role of government and central banks. Students will learn to analyze economic indicators and outcomes at the aggregate level, understand the causes and consequences of economic fluctuations, and evaluate policy responses to macroeconomic issues. Emphasis is placed on applying economic principles to real-world scenarios and interpreting current economic events within a theoretical framework.
Recommended Textbook
The Macro Economy Today 13th Edition by
Bradley Schiller Cynthia Hill
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Page 2
Chapter 1: Economics: The Core Issues
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Q1) Government intervention may achieve a more optimal outcome than the market mechanism when addressing
A)Inefficient bureaucracy.
B)Consumption of cigarettes.
C)Theme park construction.
D)None of the choices are correct.
Answer: B
Q2) Which of the following is not a basic decision that all nations must confront?
A)Should we have economic growth?
B)How should we produce goods and services?
C)For whom should goods and services be produced?
D)What goods and services should we produce?
Answer: A
Q3) All economies must make decisions concerning what to produce,how to produce it,and for whom to produce.
These are the basic questions of how an economy will be organized.
A)True
B)False
Answer: True
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Page 3
Chapter 2: The Us Economy: A Global View
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Q1) According to the World View chart in the text,from highest to lowest real GDP,which is correct?
A)United States,Japan,China,Germany,Britain.
B)United States,China,Japan,Germany,Russia.
C)United States,China,Japan,Germany,Britain.
D)United States,China,Germany,Japan,Canada.
Answer: B
Q2) In the years from 2000 through 2009,China's standard of living or per capita GDP grew faster than that of the United States.
Regarding the per capita GDP,the numerator (real GDP)grew faster and the denominator (population)grew more slowly for China than for the United States.In essence,China had a larger quotient and thereby larger growth in its standard of living.
A)True
B)False
Answer: True
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4
Chapter 3: Supply and Demand
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Sample Questions
Q1) A leftward shift of the market demand curve for HDTVs,ceteris paribus,causes equilibrium price to
A)Increase and quantity to decrease.
B)Decrease and quantity to decrease.
C)Increase and quantity to increase.
D)Decrease and quantity to increase.
Answer: B
Q2) To calculate market supply,we
A)Add the quantities supplied for each individual supply schedule horizontally.
B)Add the quantities supplied for each individual supply schedule vertically.
C)Find the average quantity supplied at each price.
D)Find the difference between the quantity supplied and the quantity demanded at each price.
Answer: A
Q3) If corn products are found to cause cancer,then the
A)Supply curve for corn will shift right.
B)Supply curve for corn will shift left.
C)Demand curve for corn will shift left.
D)None of the choices are correct.
Answer: C
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Chapter 4: The Role of Government
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Sample Questions
Q1) If Good X has social demand that is less than market demand,then Good X must be a A)Public good.
B)Good with an external cost.
C)Good with an external benefit.
D)Good suffering from the free-rider problem.
Q2) If you burn garbage in your backyard and the smoke damages a neighbor's house,the damage is considered an externality.
The externality is the cost of the house damage paid by the neighbor (third party).
A)True
B)False
Q3) An externality affecting demand can be measured graphically as the
A)Horizontal distance between the market demand curve and the social demand curve.
B)Vertical distance between the market demand curve and the social demand curve.
C)Height of the social demand curve at all points.
D)Height of the market demand curve at all points.
Q4) Why is it safe to assume that national defense will always be provided by the government instead of the market?
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Chapter 5: National Income Accounting
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Q1) A cartoon in the text shows two people watching television.On the screen are the words "Economic growth indicators are up,led by car repairs,divorce costs,open-heart surgeries,and toxic waste cleanups." The cartoon illustrates the
A)Difference between economic welfare and social welfare.
B)Difference between GDP and national income.
C)Problem of measuring the difference in wealth between the United States and other nations.
D)Difference between GDP and NDP.
Q2) National income accounting is defined as the
A)Use of economic theory to predict future income.
B)Measurement of aggregate economic activity.
C)Accounting cost associated with economic choices.
D)Assessment of the distribution of output.
Q3) If GDP per capita was $500 in 2002 and the population was 25,000,the GDP would have been approximately
A)$5,000,000.
B)$7,500,000.
C)$125,000,000.
D)None of the choices are correct.
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Page 7
Chapter 6: Unemployment
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Sample Questions
Q1) For the labor force to definitely increase,
A)There must be an increase in total population.
B)There must be an increase in immigration.
C)People must turn from being discouraged workers into people actively seeking employment.
D)None of the choices are correct.
Q2) The phantom unemployed are
A)People who report that they are actively seeking a job even when they have little or no intention of finding one.
B)People who want a job but aren't looking because they don't expect to find one.
C)People who lack the skills to be employed.
D)Workers with very high rates of absenteeism.
Q3) The benefits to the United States of outsourcing include all of the following except
A)Foreign firms insource or send jobs to the United States.
B)U.S.productivity rises,resulting in higher profits at U.S.firms that outsource.
C)Higher domestic labor cost for U.S.firms.
D)Greater domestic investment by U.S.firms that outsource.
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Page 8
Chapter 7: Inflation
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Sample Questions
Q1) All of the following are macroeconomic effects of inflation except A)Uncertainty.
B)Speculation.
C)Bracket creep.
D)Lower taxes.
Q2) According to the text,which group of assets increased the most in percentage terms from 1991 to 2001?
A)Housing.
B)Gold.
C)Stocks.
D)Bonds.
Q3) Income in constant prices is
A)Nominal income.
B)Real income.
C)Bracket creep.
D)Income effect.
Q4) The core inflation rate involves all price changes including food and energy. The core inflation rate excludes the prices of food and energy.
A)True
B)False
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Chapter 8: The Business Cycle
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Sample Questions
Q1) Before the year 2000,the most prolonged departure from the long-term growth path for the United States occurred during
A)The 1980s.
B)The Great Depression.
C)World War II.
D)The years following World War II.
Q2) The Great Depression did not
A)Follow a period of apparent prosperity.
B)Lead to an unemployment rate that reached 25 percent.
C)Cause President Roosevelt to declare a "bank holiday" in 1933.
D)Lead to a high rate of inflation.
Q3) Equilibrium is unique; it is the only price-output combination that is mutually compatible with aggregate supply and demand.
Macro equilibrium occurs at the intersection of the AS and AD curves.
A)True
B)False
Q4) Is equilibrium always at an optimal level of output? Explain your answer.
Q5) What are the differences between classical theory and what Keynes believed?
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Chapter 9: Aggregate Demand
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Q1) Which of the following is not a determinant of autonomous consumption?
A)Wealth.
B)Technology.
C)Tax policy.
D)Consumer confidence.
Q2) If,in the aggregate,consumers spend 75 cents of every extra dollar received,then the
A)APC is 1.25.
B)APC is 0.75.
C)MPC is 0.75.
D)MPS is 0.75.
Q3) Which of the following most likely occurs when an inflationary gap exists?
A)A bidding war for available goods and services.
B)More layoffs.
C)Rising inventories.
D)Excessive saving.
Q4) What are the two types of consumer spending as identified by Keynes,and what are the determinants of each?
Q5) If the economy is in equilibrium,how can a recessionary gap exist,and how will producers respond to this gap?
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Chapter 10: Self-Adjustment or Instability
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Q1) Assuming an upward-sloping aggregate supply curve,when aggregate demand decreases,unemployment
A)Decreases,and the price level decreases.
B)Increases,and the price level decreases.
C)Decreases,and the price level increases.
D)Increases,and the price level increases.
Q2) If the MPC = 0.60,the total change in spending resulting from an initial $500 decrease in aggregate spending will be
A)$300.
B)$800.
C)$1,250.
D)$833.
Q3) Assume there is no foreign trade and the economy is in equilibrium.If actual investment is greater than desired investment,then it is most likely that
A)Saving plus government spending is greater than investment plus taxes.
B)Saving plus taxes is greater than investment plus government spending.
C)Investment plus taxes is greater than saving plus government spending.
D)Investment plus government spending is greater than saving plus taxes.
Q4) How does an inflationary gap occur?
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) Assume the economy is operating below full employment.Which of the following policy actions will allow aggregate spending to increase but will not increase the size of the government in the process?
A)Increase government spending and leave tax rates unchanged.
B)Decrease tax rates and leave government spending unchanged.
C)Increase government spending and taxes by the same amount.
D)Decrease government spending by more than an increase in taxes.
Q2) Which of the following is generally considered a desirable outcome of fiscal policy?
A)More jobs.
B)Higher unemployment rates.
C)A higher price level.
D)Greater deficits.
Q3) Crowding out is the idea that an increase in government spending may cause a reduction in private sector spending. Crowding out occurs when a reduction in private sector borrowing (and spending)is caused by increased government borrowing.
A)True
B)False
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13
Chapter 12: Deficits and Debt
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Sample Questions
Q1) The burden of the internal portion of the debt is incurred
A)When the debt-financed activity takes place.
B)Solely by the U.S.government.
C)When the debt comes due.
D)None of the choices are correct.
Q2) External financing allows the economy to consume beyond its production possibilities temporarily.
The debt held by foreign households and institutions is known as the external debt.At the time the debt is sold externally,there are no opportunity costs.Instead of having to move along the production possibilities curve,external borrowing allows us to move from a point on the production possibilities curve to beyond it.
A)True
B)False
Q3) Which of the following is not an automatic stabilizer?
A)Progressive income taxes.
B)Unemployment benefits.
C)Welfare payments.
D)Defense spending.
Q4) How do rising interest rates cause crowding out?
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Chapter 13: Money and Banks
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Q1) To calculate required reserves,you must multiply the required reserve ratio by the amount of transactions account balances on the bank's balance sheet.
A bank must hold the required reserves as determined by the Fed; this is a percentage or fraction of its total deposits.
A)True
B)False
Q2) In the 2008 credit crisis,the FDIC increased the limit on insured deposits from
A)$50,000 to $100,000.
B)$100,000 to $200,000.
C)$100,000 to $250,000.
D)$250,000 to $500,000.
Q3) Money is anything that
A)Can be used to barter.
B)A government declares to have value.
C)Has value.
D)Is generally accepted as a medium of exchange.
Q4) What are the constraints on deposit creation for the banking system?
Q5) Why is barter less efficient than using money?
Q6) Describe the three purposes that money must perform.
Page 15
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Chapter 14: The Federal Reserve System
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Q1) The M2 money supply is defined as
A)Currency held by the public plus transactions accounts.
B)M1 plus savings accounts.
C)M1 plus balances in most savings accounts and money market mutual funds.
D)Most balances held in savings accounts and money market mutual funds.
Q2) When the Fed raises the discount rate,all of the following result except
A)The cost of borrowing reserves for member banks increases.
B)It sends a signal that it is moving toward a slower growth rate for the money supply.
C)It sends a signal that it is reluctant to lend reserves.
D)It expands the lending capacity of the banking system.
Q3) All of the following are tools available to the Fed for controlling the money supply except
A)The reserve requirement.
B)The discount rate.
C)Open market operations.
D)Taxes.
Q4) Why do banks typically maintain a low level of excess reserves?
Q5) How does the reserve requirement impact the banking system as a monetary policy tool,and is it used frequently?
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Chapter 15: Monetary Policy
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Q1) Monetary stimulus will fail if
A)Banks are reluctant to lend money.
B)The investment demand curve is fairly flat.
C)The money demand curve is fairly steep.
D)Consumers begin to spend more.
Q2) ____________ is the price paid for the use of money.
A)Gold
B)Monetary policy
C)Fiscal policy
D)The interest rate
Q3) If the Fed wants to increase AD,it should do which of the following?
A)Conduct open market purchases.
B)Raise the discount rate.
C)Raise the required reserve ratio.
D)Lower capital gains tax rates.
Q4) If the real rate of interest is negative,then,ceteris paribus,
A)The nominal interest rate is negative.
B)Monetary policy is tight.
C)The nominal interest rate is less than the anticipated inflation rate.
D)The inflation rate is negative.
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Chapter 16: Supply-Side Policy: Short-Run Options
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Q1) Which of the following characterizes stagflation?
A)An increase in both unemployment and inflation.
B)An increase in unemployment but a decrease in inflation.
C)A decrease in both unemployment and inflation.
D)A decrease in unemployment but an increase in inflation.
Q2) If the absolute value of the tax elasticity of supply is 0.5,a tax increase of 10 percent will
A)Increase output by 5 percent and decrease tax revenues.
B)Increase output by 20 percent and decrease tax revenues.
C)Decrease output by 5 percent and increase tax revenues.
D)Decrease output by 5 percent and decrease tax revenues.
Q3) Which of the following contributes to stagflation?
A)Price ceilings.
B)Lowering marginal tax rates.
C)Discrimination that prevents the most productive employee from being hired.
D)Job training programs that train workers to perform economically useful jobs.
Q4) What is the premise behind supply-side economics,and what are the economic outcomes?
Q5) What is the misery index? What are the economic conditions when it is low versus when it is high?
Page 18
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Chapter 17: Growth and Productivity: Long-Run Possibilities
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Q1) There is an inverse relationship between the share of output allocated to investment and the growth rate of an economy. There is a direct relationship between the share of output allocated to investment and the growth rate of an economy.
A)True
B)False
Q2) If the average worker's productivity is $20 of output per hour and the labor force is employed for 500 billion hours,GDP is equal to
A)$25 billion.
B)$250 billion.
C)$10 trillion.
D)$4 trillion.
Q3) When a large number of teenagers enter the workforce,there should be
A)No change in productivity.
B)A decrease in average productivity.
C)An increase in average productivity.
D)A decrease in total productivity.
Q4) What is the most common measure of productivity? How is it calculated?
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Chapter 18: Theory Versus Reality
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Q1) Assume the economy is in a recession and has a budget deficit.Ceteris paribus,if the economy starts expanding,automatic stabilizers will cause
A)A decrease in tax revenues.
B)An increase in government spending.
C)A decrease in the budget deficit.
D)A decrease in inflation.
Q2) Which of the following believes that the money supply should be expanded at a steady,predictable rate to ensure a natural rate of unemployment?
A)New classical economists.
B)Keynesians.
C)Supply-siders.
D)Monetarists.
Q3) Which of the following does not explain why the U.S.economy has been more stable since 1946?
A)A large government sector.
B)A shift from manufacturing to services.
C)Automatic stabilizers.
D)A laissez faire approach.
Q4) Do monetarists favor rules or discretionary policy? Why?
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Chapter 20: International Finance
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Q1) When foreigners come to the United States as tourists,they are generating a
A)Demand for U.S.dollars and a demand for a foreign currency.
B)Supply of U.S.dollars and a supply of a foreign currency.
C)Supply of U.S.dollars and a demand for a foreign currency.
D)Demand for U.S.dollars and a supply of a foreign currency.
Q2) Ceteris paribus,if African countries experience a drought and purchase food from the United States,the currencies of the African countries should
A)Appreciate,and the dollar should appreciate.
B)Appreciate,and the dollar should depreciate.
C)Depreciate,and the dollar should appreciate.
D)Depreciate,and the dollar should depreciate.
Q3) The capital account includes
A)Trade in goods.
B)Trade in services.
C)Unilateral transfers.
D)Foreign purchases of U.S.assets.
Q4) Under a fixed exchange rate regime,what will happen to the balance of payments for the United States and Mexico when the demand for Mexican goods rises? What is the only possible solution to this problem,given the fixed exchange rate?
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Chapter 21: Global Poverty
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Q1) Which of the following statements is true concerning comparative advantage?
A)Poor nations typically have a comparative advantage in high-tech but not agricultural goods.
B)Poor nations typically have a comparative advantage in agricultural but not high-tech goods.
C)Poor nations typically have a comparative advantage in the production of all goods.
D)Rich nations typically have a comparative advantage in the production of all goods.
Q2) Which of the following countries meets or exceeds the U.N.'s Millennium Aid Goal of 0.7 percent of donor country GDP?
A)Norway.
B)Australia.
C)The United Kingdom.
D)Japan.
Q3) China has experienced particularly high rates of economic growth as a result of A)High rates of consumer spending.
B)High rates of capital investment.
C)High rates of government spending.
D)Low rates of saving.
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