Principles of Macroeconomics
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Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and theories that explain the functioning of the overall economy. The course explores topics such as national income, gross domestic product (GDP), economic growth, unemployment, inflation, fiscal and monetary policy, and the role of government intervention. Students will examine how economic indicators are measured, the factors that influence economic performance, and the impact of global events on domestic economies. By analyzing aggregate supply and demand, students develop an understanding of the major challenges and policy tools involved in managing an economy at the national and international levels.
Recommended Textbook foundations of macroeconomics 7th edition by robin bade
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Chapter 1: Getting Started
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Q1) When two variables in a graph are related to a third,changing the third causes
A) a movement along the curve.
B) a shift of the curve.
C) no change in the curve because the third variable isn't on the axes.
D) either a shift or a movement in the curve but more information is needed to determine which occurs.
E) None of the above answers is correct.
Answer: B
Q2) A normative statement
i.can be tested as to whether it is true or false.
ii.is considered negative.
iii.depends on a person's values.
A) i only
B) iii only
C) i and iii
D) ii and iii
E) i, ii, and iii
Answer: B
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Chapter 2: The USand Global Economies
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Q1) The circular flow model is used to show the A) flow of renewable natural resources.
B) recycling process of production materials.
C) expansions and contractions of economic activity.
D) flow of expenditures and incomes in the economy.
E) flow of supply and the flow of demand.
Answer: D
Q2) The income paid for the use of land is called A) rent.
B) wages.
C) interest.
D) profit.
E) land capital.
Answer: A
Q3) What is meant by the term "human capital"?
Answer: Human capital refers to the skills people possess.These skills help increase the quality of labor.Human capital can be increased through education,on the job training,and experience.The knowledge and skill gained from these improvements are called human capital.
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Chapter 3: The Economic Problem
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Q1) The figure above shows the production possibilities frontiers for the United Kingdom and France.If the United Kingdom and France specialize and engage in trade,the United Kingdom will produce ________ and France will produce ________.
A) wheat; wheat
B) wheat; fish
C) fish; wheat
D) fish; fish
E) both wheat and fish; both wheat and fish
Answer: C
Q2) A bowed out production possibility frontier shows that the
A) opportunity cost of a good is constant as more of the good is produced.
B) opportunity cost of a good decreases as more of the good is produced.
C) opportunity cost of a good increases as more of the good is produced.
D) opportunity cost relationship is linear.
E) opportunity cost of producing another good is negative.
Answer: C
Q3) Are all points inside the production possibilities frontier unattainable?
Answer: No,all points within the production possibilities frontier are attainable,though there are unemployed resources at these points.
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Chapter 4: Demand and Supply
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Q1) Both the demand for and supply of cars changes in France.You observe that the quantity of cars does not change but the price rises.Thus,which of the following occurred?
A) Demand and supply increased by an equal amount.
B) Demand and supply decreased by an equal amount.
C) Demand increased and supply decreased by an equal amount.
D) Demand decreased and supply increased by an equal amount.
E) Demand increased by a larger magnitude than supply decreased.
Q2) If the supply of solar panels increases,
A) the price and quantity of solar panels increases.
B) the demand for solar panels increases.
C) the quantity demanded of solar panels decreases.
D) the price of solar panels decreases and the quantity increases.
E) None of the above.
Q3) When does a surplus occur?
Q4) In the figure above,what is the equilibrium price and quantity?
Q5) At prices above the equilibrium price,what occurs?
Q6) In early 2012 the price of computer hard disc drives rose.In a demand and supply model,shifts in what curve or curves could have brought about the higher price?
Page 6
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Chapter 5: Elasticities of Demand and Supply
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Q1) An inferior good has a ________ elasticity of demand.
A) positive income
B) negative income
C) negative cross
D) positive cross
E) negative price
Q2) "The fewer the number of substitutes for a product,the more elastic the demand for that product." Is the previous statement true or false?
Q3) If the cross elasticity of demand between car insurance and new cars is -0.41,then car insurance and new cars are
A) complements.
B) substitutes.
C) normal goods.
D) inferior goods.
E) unrelated goods.
Q4) Is supply more elastic or less elastic as more time passes after a price change? Explain your answer.
Q5) Water is considered a necessity.So,is the demand for water elastic or inelastic?
Q6) List factors that increase the price elasticity of supply.
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Chapter 6: Efficiency and Fairness of Markets
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Q1) The figure above represents the competitive market for slices of key lime pie.When the price is $3,the total producer surplus equals
A) $0.
B) $60.
C) $90.
D) $120.
E) None of the above answers is correct.
Q2) Graphically,producer surplus is the area under the
A) demand curve and above the supply curve, up to the relevant quantity.
B) price and above the demand curve, up to the relevant quantity.
C) price and above the supply curve, up to the relevant quantity.
D) price and above the quantity axis, up to the relevant quantity.
E) demand curve and above the price, up to the relevant quantity.
Q3) Which of the following is an example in which "the big tradeoff" can occur?
A) The government redistributes income from the rich to the poor.
B) Ford increases the price of a pickup truck.
C) A basketball player signs a $5 million contract.
D) A college lowers tuition.
E) The price of personal computers falls year after year.
Q4) Briefly describe the concept of the "invisible hand."
Page 8
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Chapter 7: Government Actions in Markets
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Q1) When a rent ceiling law is passed in a city,which of the following occurs?
A) The total price of renting an apartment decreases to all renters.
B) The quantity of apartments supplied does not change.
C) Some landlords and renters use methods such as "key money" to get around the rent ceiling law.
D) Renters have no trouble finding a nice, reasonably priced apartment to rent.
E) Generally the number of renters in the city increases because people move to the city to take advantage of the low-rent apartments.
Q2) A rent ceiling in a housing market
A) makes all rents lower than the ceiling illegal to charge.
B) is set above the equilibrium rent in order to have an effect.
C) increases the time people spend searching for housing.
D) Both answers B and C are correct.
E) Both answers A and C are correct.
Q3) A rent ceiling is
A) fair, because it helps all renters.
B) fair, because it insures that low-income families can rent apartments.
C) fair, because it helps all landlords.
D) unfair.
E) fair, because it helps more renters than it harms.
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Chapter 8: Taxes
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Q1) "The only fair tax is a progressive tax." Comment on this assertion.
Q2) In the Village of Punjab,Sheryl owns a well,which is the only source of drinking water.The supply of water is perfectly inelastic at a quantity of 1,000 gallons of water per day.At a price of $2.00 per gallon,the quantity demanded per day is 1,000 gallons.The government imposes a $0.50 per gallon tax.
a.After the tax is imposed,what is the price paid by the villagers? What is the price received by Sheryl?
b.How much revenue does the government collect?
c.What fraction of the tax does Sheryl pay? What fraction is paid by the villagers?
Q3) As a result of the tax on capital income,labor productivity
A) increases.
B) decreases.
C) fluctuates.
D) does not change.
E) might change but whether it increases, decreases, or does not change depends on the magnitude of the tax.
Q4) What are the similarities and differences between horizontal and vertical equity?
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Chapter 9: Global Markets in Action
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Q1) When a nation exports a good or service,the nation's consumer surplus ________,its producer surplus ________,and its total surplus ________.
A) increases; decreases; increases B) increases; decreases; decreases C) increases; increases; increases D) decreases; decreases; decreases E) decreases; increases; increases
Q2) The above figure shows the U.S.market for replacement cell phone batteries.With free international trade,the United States
A) exports 300,000 batteries.
B) imports 400,000 batteries.
C) imports 500,000 batteries.
D) imports 800,000 batteries.
E) exports 700,000 batteries.
Q3) Who gains from exports? How do they gain? Who loses? How do they lose? Does the overall economy gain or lose from exports?
Q4) How does a quota affect the consumer surplus and the producer surplus from the imported good? Is the overall economy helped or harmed by quotas? Briefly explain your answers.
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Chapter 10: Externalities
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Q1) The figure above shows the market for annual influenza immunizations the United States.The marginal external benefit associated with immunizing 14 million people is ________ per person per year.
A) $40
B) $20
C) $90
D) $30
E) $60
Q2) Cost effective technologies to reduce pollution are most likely to result from
A) marketable pollution permits.
B) pollution charges.
C) taxes.
D) pollution limits.
E) quotas.
Q3) Which of the following best describes an externality?
A) something that is external to the economy
B) a sales tax on a good in addition to the market price
C) an effect of a transaction felt by someone other than the buyer or seller
D) anything produced in other countries
E) a change from what is normal
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Chapter 11: Public Goods and Common Resources
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Q1) We determine the economy's marginal benefit curve for a public good or service by A) vertically summing the individual marginal benefit curves of each member of society. B) horizontally summing the individual marginal benefits curves of each member of society.
C) multiplying the marginal benefits of each member of society.
D) dividing the sum of the marginal benefits of each member of society by the number of people in society.
E) vertically summing the individual firm's marginal cost curves.
Q2) Very few voters know the enormous cost of providing price supports to farmers.As a result,these voters most likely exhibit
A) the public provision of a good.
B) the principle of minimum differentiation.
C) rational ignorance.
D) the tragedy of the commons.
E) None of the above answers is correct.
Q3) What does it mean for a good to be "nonexcludable"? Are private goods nonexcludable? Are public goods nonexcludable? Are common resources nonexcludable?
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Chapter 12: Markets with Private Information
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Q1) The missing insurance market in health care is the insurance market for
A) young healthy people.
B) infectious diseases.
C) people who have pre-existing health problems.
D) people in Health Maintenance Organizations.
E) vaccinations.
Q2) The tendency for people to enter into agreements in which they can use their private information to their own advantage and to the disadvantage of the less informed party is known as
A) adverse selection.
B) a pooling selection.
C) moral hazard.
D) the market for oranges.
E) a signal.
Q3) Adverse selection is created by
A) incentives to change behavior after two parties have reached an agreement.
B) risk.
C) signaling.
D) taxes.
E) private information.
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Chapter 13: Consumer Choice and Demand
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Q1) One reason why the price of diamonds is so high is because the
A) marginal utility of diamonds is zero.
B) marginal utility of diamonds is high.
C) marginal utility of diamonds is low.
D) total utility of diamonds is low.
E) total utility of diamonds is high.
Q2) Ricardo likes to rent videos and attend concerts.The videos cost $4 and the concerts cost $40.Ricardo's marginal utility from the last video is 20 units.Ricardo is maximizing his utility.What is his marginal utility from the last concert he attended?
Q3) As Shaniq drinks additional cups of tea at breakfast,Shaniq's
A) marginal utility from tea decreases.
B) total utility from tea increases.
C) total utility from tea decreases.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Q4) What is "marginal utility"?
Q5) How can restaurants offer all-you-can-eat specials without fear of going bankrupt?
Q6) How are total utility and marginal utility related?
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Chapter 14: Production and Cost
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Q1) The table above shows a total product schedule.Suppose that labor costs $20 per worker and fixed costs are $60.The average variable cost of producing 80 units equals ________ per unit.
A) $0.75
B) $1.00
C) $1.75
D) $20
E) $0.25
Q2) Average product is equal to
A) marginal product + total product.
B) total product ÷ marginal product.
C) total product ÷ quantity of labor.
D) total product × quantity of labor.
E) marginal product × quantity of labor.
Q3) Which of the following is an example of an implicit cost?
A) rent on a building
B) the cost of fertilizer for a farmer
C) the economic depreciation of capital equipment the business owns
D) the cost of fuel and materials.
E) wages paid to workers
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Chapter 15: Perfect Competition
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Q1) A market with a large number of sellers
A) can only be a perfectly competitive market.
B) might be an oligopoly or a perfectly competitive market.
C) might be a monopolistically competitive or a perfectly competitive market.
D) might be a perfectly competitive, monopolistically competitive, oligopoly, or monopoly market.
E) can only be a monopolistically competitive market.
Q2) If a perfectly competitive firm manufacturing chairs produces 100 more chairs,what happens to the market price of a chair?
Q3) Suppose a perfectly competitive market is in short-run equilibrium.Firms that are incurring a ________ economic loss ________.
A) persistent; increase their output to increase their profit
B) temporary; exit the industry
C) temporary; decrease their production but definitely stay open
D) persistent; exit the industry and shift the market supply curve leftward
E) persistent; exit the industry and shift the market supply curve rightward
Q4) Why does the profit-maximizing level of production occur at the point where marginal revenue equals marginal cost?
Q5) Describe how economic losses are eliminated in a perfectly competitive industry.
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Chapter 16: Monopoly
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Q1) Suppose that along a linear demand curve,the elasticity of demand is equal to 1 when the price is $4 and the quantity is 100 units.Then the
A) total revenue is at its maximum when 100 units are produced.
B) marginal revenue is positive at 100 units.
C) marginal revenue is negative at 100 units.
D) Both answers A and B are correct.
E) Both answers A and C are correct.
Q2) A monopolist has the market demand and marginal cost schedules given in the above table.If the monopoly can perfectly price discriminate,what is the profit-maximizing level of output and price?
Q3) The figure above shows the demand,marginal revenue,and marginal cost curves for Paul's Parrot Pillows,a single-price monopoly producer of pillows stuffed with parrot feathers.When Paul maximizes his profit,he produces ________ pillows per hour.
A) 1,000
B) 3,000
C) 4,000
D) 0
E) 2,000
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Chapter 17: Monopolistic Competition
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Q1) Why are firms in monopolistic competition unable to make an economic profit in the long run?
Q2) If the four-firm concentration ratio equals 0.1 percent for the Mexican tomato industry,then this industry is best characterized as
A) a monopoly.
B) monopolistic competition.
C) an oligopoly.
D) perfect competition.
E) either a monopoly or monopolistic competition.
Q3) The larger the four-firm concentration ratio,the ________ competition within an industry; the larger the Herfindahl-Hirschman Index,the ________ competition within an industry.
A) more; more
B) more; less
C) less; more
D) less; less
E) The premise of the question is wrong because the four-firm concentration ratio applies only to markets with four firms in it and these markets are, by definition, not competitive.
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Chapter 18: Oligopoly
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Q1) A group of firms in Sunnyvale have a complaint about one of their competitors.They charge that Big Box Building Supply charges such low prices that they can't stay in business.Which of the following is the most likely response from an economist?
A) Big Box Building Supply isn't engaged in predatory pricing because new firms can always enter and compete away any monopoly profits.
B) Big Box Building Supply is engaged in price fixing and should be prosecuted for violating antitrust law.
C) The firms have a valid complaint against Big Box Building Supply because it is engaged in resale price maintenance.
D) The firms don't have a valid complaint against Big Box Building Supply because it is operating like a natural monopoly.
E) Big Box Building Supply is engaged in resale price maintenance but most likely is providing efficient service.
Q2) What market structures other than oligopoly have the characteristic of one firm's actions affecting the actions of its competitors? Explain your answer.
Q3) What three characteristics do all games have in common?
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Chapter 19: Markets for Factors of Production
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Q1) How does an increase in the adult population affect the labor market?
A) The demand for labor will become more inelastic.
B) The supply of labor will decrease.
C) The supply of labor will increase.
D) The demand for labor will decrease.
E) The demand for labor will increase.
Q2) Over time,the actual (not expected)price of a nonrenewable natural resource
A) falls.
B) rises.
C) stays the same.
D) could rise, fall, or stay the same.
E) first rises and then falls.
Q3) The supply of labor curve shifts leftward if
A) the population increases.
B) the demand for labor curve shifts leftward.
C) the supply of labor increases.
D) the wage rate falls.
E) the supply of labor decreases.
Q4) Why might an individual decrease the quantity of labor he or she supplies when the wage rate increases? Briefly explain your answer.
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Chapter 20: Economic Inequality
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Q1) What is "human capital" and why is it considered an investment?
Q2) In the United States,the poorest 20 percent of households receive about ________ percent of total money income while the richest 20 percent receive about ________ percent of total money income.
A) 3; 50
B) 8; 71
C) 12.; 32
D) 13; 68
E) 20; 20
Q3) Based on the figure above,which of the following can cause a movement from point C to point D on the Lorenz curve for income?
A) an increase in income for the bottom 60 percent of households
B) an increase in income for the bottom 80 percent of households
C) a decrease in income for the bottom 60 percent of households
D) a decrease in income for the bottom 80 percent of households
E) None of the above answers is correct.
Q4) Of age,marital status,family size,education,and race,which is the single biggest factor affecting the household income distribution?
Q5) How is human capital acquired?
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