Principles of Macroeconomics
Textbook Exam Questions
Course Introduction
Principles of Macroeconomics provides an introduction to the core concepts and analytical frameworks economists use to understand the behavior of the economy as a whole. This course covers topics such as national income determination, economic growth, unemployment, inflation, fiscal and monetary policy, and the role of government in stabilizing the economy. Students will learn to analyze macroeconomic data, interpret economic indicators, and evaluate the impact of various policy decisions on overall economic performance and societal well-being. Practical examples and real-world case studies help students connect theoretical concepts to current economic issues on both the national and global scale.
Recommended Textbook
Macroeconomics 7th Edition by R. Glenn Hubbard
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19 Chapters
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Which of the following statements is false?
A)Anytime you have to decide which action to take you are facing an economic trade-off.
B)Trade-offs do not apply when the consumers purchase a product for which there is excess supply,such as a stock clearance sale.
C)Every individual,no matter how rich or poor,is faced with making trade-offs.
D)Economics is a social science that studies the trade-offs we are forced to make because of scarcity.
Answer: B
Q2) Which of the following is an example of an activity undertaken by an entrepreneur?
A)choosing the color scheme for your renovated kitchen
B)being promoted to the position of Chief of Police
C)being appointed to the U.S.Supreme Court
D)starting a snow cone business
Answer: D
Q3) Refer to Table 1-4.The table above shows the sales of flat-panel television sets in Central America.Present the information using a bar graph.
Answer: 11ea6c24_e766_fccb_9716_cf74ea54f335_TB1236_00
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) When a celebrity has the desire to have his image protected following his death,this is best described as an example of the protection of
A)an invention.
B)a patent.
C)a trademark.
D)intellectual property.
Answer: D
Q2) Refer to Figure 2-8.What is the opportunity cost of producing 1 ton of pineapples in Guatemala?
A)1/2 of a ton of coconuts
B)1 1/3 tons of coconuts
C)2 tons of coconuts
D)180 tons of coconuts
Answer: C
Q3) If additional units of a good could be produced at a constant opportunity cost,the production possibilities frontier would be linear.
A)True
B)False
Answer: True
Page 4
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Chapter 3: Where Prices Come From: The Interaction of
Demand and Supply
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Sample Questions
Q1) What is the Law of Demand.
Answer: The law of demand is the rule that,holding everything else constant,when the price of a product falls,the quantity of the product demanded will increase,and when the price of a product rises,the quantity of the product demanded will decrease.
Q2) Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for laptop computers.Which panel best describes what happens in this market when the price of computer hard drives falls?
A)Panel (a)
B)Panel (b)
C)Panel (c)
D)Panel (d)
Answer: A
Q3) In response to a shortage,the market price of a good will rise.As the price rises,the demand will decrease and supply will increase until equilibrium is reached.
A)True
B)False
Answer: False
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Table 4-2.The table above lists the highest prices five consumers are willing to pay for a concert ticket.If the price of one of the tickets is $20
A)everyone will buy a ticket except for Zachary.
B)only Violet and Walter will buy tickets.
C)Xavier's consumer surplus is $50.
D)the total consumer surplus from the purchase of tickets will be $122.
Q2) In the market for gasoline,an increase in the federal excise tax on gasoline would shift the supply curve up.
A)True
B)False
Q3) The market price for coffee is $2.25 per cup.Austin is willing to pay $5.00 per cup,Colin is willing to pay $4.00 per cup,Lucy is willing to pay $3.00 per cup,and Ike is willing to pay $2.00 per cup.Construct a graph showing the consumer surplus for each cup of coffee purchased.How many cups of coffee will be purchased? What is the value of the consumer surplus each of the four consumers receives from their coffee purchases?
Q4) Price floors are illegal in the United States.
A)True
B)False
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Chapter 5: The Economics of Health Care
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Sample Questions
Q1) Federal and state governments in the United States pay for ________ of health care spending.
A)less than 10 percent
B)approximately 34 percent
C)just over half
D)more than 80 percent
Q2) A goal of ________ is to give patients an incentive to pay more attention to the prices of medical services.This would tend to increase economic efficiency by decreasing the costs of medical services
A)the Patient Protection and Affordable Care Act (ACA)
B)market-based reforms of the health care system
C)government-provided health care
D)socialized medicine
Q3) In 1960,out-of-pocket spending on health care in the United States was
A)2.2 percent.
B)6 percent.
C)48 percent.
D)64 percent.
Q4) What is asymmetric information?
Q5) What is health insurance?
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Chapter 6: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) If a firm has implicit costs as well as explicit costs
A)accounting profits are greater than economic profits.
B)economic profits will always be greater than accounting profits.
C)accounting profits will be equal to economic profits.
D)the firm has no economic profits.
Q2) The higher the default risk on a bond,the higher the interest rate will be.
A)True
B)False
Q3) Some corporate governance experts believe that serving on a company's board of directors for an extended length of time ________that member's independence from the company's CEO.If this is true,it would tend to ________ the principal-agent problem.
A)enhances; increase B)diminishes; increase
C)has no impact on; increase D)diminishes; decrease
Q4) Javier wants to start a microbrewery business and is thinking of setting it up as a sole proprietorship.What are the advantages and disadvantages he will face by setting up the business as a sole proprietorship as opposed to a partnership or a corporation?
Page 8
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Chapter 7: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) A tariff is the same as a quota.
A)True
B)False
Q2) In the real world we don't observe countries completely specializing in the production of goods for which they have a comparative advantage.All of the following are reasons for this except
A)not all goods and services are traded internationally.
B)some countries have more resources than other countries.
C)tastes for many traded goods are different in many countries because of globalization.
D)production of most goods involves increasing opportunity costs.
Q3) Trade restrictions are often motivated by a desire to save domestic jobs threatened by competition from imports.Which of the following counter-arguments is made by economists who oppose trade restrictions?
A)Statistics show that trade restrictions actually do not save jobs.
B)Consumers pay a high cost for jobs saved through trade restrictions.
C)Trade restrictions have a limited impact because most Americans prefer domestic goods over imports.
D)Trade restrictions benefit consumers in the short run but not in the long run.
Page 9
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Chapter 8: GDP: Measuring Total Production and Income
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Sample Questions
Q1) GDP is not a perfect measure of well-being because
A)the value of leisure is included in GDP.
B)GDP is not adjusted for pollution.
C)GDP is adjusted for changes in crime rates.
D)GDP is adjusted for increases in drug addiction.
Q2) Disposable personal income is defined as
A)personal income less personal taxes plus indirect sales taxes.
B)personal income less transfer payments plus personal taxes.
C)personal income less personal taxes.
D)personal income less depreciation.
Q3) Refer to Table 8-29.Based on the table above,what is personal income for this economy?
A)$1,950 billion
B)$2,030 billion
C)$2,450 billion
D)$5,130 billion
Q4) Why do we subtract import spending from total expenditures?
Q5) The values of real GDP and real GNP are almost the same for the United States.
A)True
B)False
Page 10
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Chapter 9: Unemployment and Inflation
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Sample Questions
Q1) Jack was unemployed two weeks ago but just started a new job.As a result of this increase in the number of employed workers,which of the following occurred?
A)The labor force participation rate increased.
B)The unemployment rate increased.
C)The labor force participation rate decreased.
D)The unemployment rate decreased.
Q2) Which of the following is not an example of inflation causing a redistribution of income because the inflation was unanticipated?
A)A firm signs a 3-year contract with a union based on a 2 percent anticipated rate of inflation per year,and the actual rate of inflation ends up being 7 percent per year.
B)A worker receives a raise in salary that is less than the rate of inflation,because management under-predicted inflation.
C)Firms have to hire an extra worker to change prices in its store because of inflation.
D)A bank collects a lower amount of interest from a loan because inflation was under-predicted.
Q3) Describe the three types of unemployment.
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Chapter 10: Economic Growth, the Financial System, and Business Cycles
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Sample Questions
Q1) Using equations for public and private saving,show that saving must equal investment in a closed economy.Begin with the expression for total saving in the economy.
Q2) When the government runs a budget deficit,we would expect to see that
A)private saving will fall.
B)investment will fall.
C)G + TR < T.
D)public saving is positive.
Q3) A period of expansion in the business cycle ends when
A)real GDP is equal to potential GDP.
B)the business cycle reaches its peak.
C)the business cycle reaches its trough.
D)real GDP is less than potential GDP.
Q4) Refer to Figure 10-6.The market is in equilibrium.If the government budget deficit rises,which of the following would you expect to see?
A)The quantity of loanable funds demanded by firms will rise above $120 million.
B)The quantity of loanable funds demanded by firms will fall below $120 million.
C)The budget deficit will have no impact on the quantity of loanable funds demanded by firms.
D)The interest rate will fall below 4 percent.
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Chapter 11: Long-Run Economic Growth: Sources and Policies
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Sample Questions
Q1) Knowledge capital is nonrival in the sense that
A)two people can use the same knowledge to develop and produce a product.
B)firms do not compete to be the first to develop new technologies.
C)no single company can be excluded from the benefits of new technologies.
D)firms can benefit from the research and development of rival firms without paying for that benefit.
Q2) Which of the following would you expect to result in faster economic growth?
A)the invention of new computers that increase labor productivity
B)a decrease in the average level of education in the economy
C)a decrease in the stock of capital per worker
D)a decrease in research and development spending
Q3) Which of the following policies is designed specifically to directly promote technological change in an economy?
A)government subsidization of research and development
B)tax incentives to promote investment in 401K plans
C)laws to strengthen property rights
D)a vaccination program to combat infectious diseases
Q4) Most of the countries of Africa are considered newly industrializing countries.
A)True
B)False
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Chapter 12: Aggregate Expenditure and Output in the Short Run
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Sample Questions
Q1) An unplanned increase in inventories results from
A)an increase in planned investment.
B)a decrease in planned investment.
C)actual investment that is greater than planned investment.
D)actual investment that is less than planned investment.
Q2) The aggregate expenditure model focuses on the short-run relationship between ________ and ________.
A)real spending; real GDP
B)unemployment; inflation
C)nominal spending; nominal GDP
D)planned inventories; unplanned inventories
Q3) The multiplier is calculated as the
A)change in real GDP/ change in autonomous expenditure.
B)change in autonomous expenditure/ change in real GDP.
C)change in nominal GDP/ change in autonomous expenditure.
D)change in real GDP/ change in induced spending.
Q4) If the marginal propensity to save is 0.35,the multiplier is 2.86.
A)True
B)False
Q5) Given Table 12-6 below,fill in the values for saving.Assume taxes = $800.
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Chapter 13: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) In the dynamic aggregated demand and aggregate supply model,if AD shifts further than AS
A)inflation occurs.
B)deflation occurs.
C)stagflation occurs.
D)disinflation occurs.
Q2) ________ of unemployment during ________ make it easier for workers to ________ wages.
A)High levels; a recession; accept lower
B)Low levels; an expansion; accept lower
C)Low levels; a recession; negotiate higher
D)High levels; an expansion; negotiate higher
Q3) If stricter immigration laws are imposed and many foreign workers in the United States are forced to go back to their home countries
A)the long-run aggregate supply curve will shift to the right.
B)the long-run aggregate supply curve will shift to the left.
C)we will move up along the long-run aggregate supply curve.
D)we will move down along the long-run aggregate supply curve.
Q4) What is a supply shock,and why might a supply shock lead to stagflation?
Page 15
Q5) What does the phrase "Keynesian revolution" refer to?
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Chapter 14: Money,Banks,and the Federal Reserve System
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Sample Questions
Q1) If whole tomatoes were money,which of the following functions of money would be the hardest for tomatoes to satisfy?
A)unit of account
B)store of value
C)certificate of gold
D)medium of exchange
Q2) Of the three primary tools the Federal Reserve uses to conduct monetary policy,the tool used most often is
A)open market operations.
B)discount policy.
C)setting reserve requirements.
D)acting as the lender of last resort.
E)check clearing.
Q3) Gold is an example of A)commodity money.
B)fiat money.
C)barter money.
D)M1.
Q4) How do open market operations work?
Q5) What is the principle monetary policy tool used by the Fed.Why?
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Chapter 15: Monetary Policy
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Sample Questions
Q1) Refer to Figure 15-7.Suppose the Fed lowers its target for the federal funds rate.Using the basic AD-AS model in the figure above,this situation would be depicted as a movement from
A)A to B.
B)B to A.
C)C to B.
D)E to A.
E)C to D.
Q2) Refer to Table 15-5.Suppose the table above illustrates the values of real and potential GDP and the price level if the Fed does not vote to change their current policy to be more contractionary or expansionary.Suppose that the Fed uses an appropriate policy and is successful in keeping real GDP at potential in 2019.State whether each of the following will be higher or lower than if the Fed had taken no action: a.Real GDP
b.Potential real GDP
c.The price level
d.The unemployment rate
Q3) Give an example of a monetary policy target.Explain why the Fed uses policy targets. To view all questions and flashcards with answers, click on the resource link above.
Chapter 16: Fiscal Policy
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Q1) Refer to Figure 16-1.Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued.Using the basic AD-AS model in the figure above,this would be depicted as a movement from
A)D to C.
B)A to E.
C)C to D.
D)C to B.
E)E to A.
Q2) Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.
A)True
B)False
Q3) During 1970-1997,the U.S.federal government was
A)in surplus every year.
B)balanced every year.
C)in deficit every year.
D)in deficit most of those years.
Q4) How could the existence of an unemployment insurance system or other transfer programs have reduced the severity of the Great Depression?
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Chapter 17: Inflation, Unemployment, and Federal Reserve Policy
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Sample Questions
Q1) If the Federal Reserve chooses to fight high inflation with contractionary monetary policy and firms and consumers expect this policy to reduce inflation,which of the following would you expect to see?
A)a downward shift of the short-run Phillips curve
B)a reduction in the unemployment rate
C)a decrease in the long-run aggregate supply curve
D)an increase in inflationary expectations
Q2) What is a "structural" relationship?
A)a relationship that depends on the size of firm investments in capital such as buildings and other structures
B)a relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods
C)a relationship between any two variables that is temporary
D)any relationship that cannot be anticipated
Q3) Does the short-run Phillips curve have a positive or negative slope? Explain how this slope is derived.
Q4) If firms and workers have adaptive expectations,what impact will expansionary monetary policy have on inflation,unemployment,and the Phillips curve?
Page 19
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Chapter 18: Macroeconomics in an Open Economy
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Sample Questions
Q1) When exchange rates are ________,we say that the country's exchange rate is fixed.
A)determined in the market
B)set by a country's central bank
C)determined by supply and demand
D)relatively stable
Q2) The federal budget deficit and the trade balance are often referred to as the A)balance of payments.
B)dueling depreciators.
C)twin deficits.
D)national debt.
Q3) If the balance on the current account in the United States is $750 billion,which of the following is most likely to be true?
A)The balance on the financial account is negative.
B)The trade balance is negative.
C)Net foreign investment is negative.
D)The balance on the capital account is positive.
Q4) What is the relationship among the current account,the financial account,and the balance of payments?
Q5) What is the difference between net exports and the current account balance?
Page 20
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Chapter 19: The International Financial System
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Sample Questions
Q1) What determined the exchange rates among currencies under the gold standard,and what caused the gold standard to collapse?
Q2) The current exchange rate system has which of the following characteristics?
A)The United States allows the dollar to float against other major currencies.
B)All developing countries allow their currencies to float against the dollar and other major currencies.
C)The countries of the European Union have adopted the gold standard.
D)Several developing countries in Asia have adopted the Bretton Woods system.
E)The current global foreign exchange system is a fixed system.
Q3) Which of the following explains why purchasing power parity does not completely explain long-run fluctuations in exchange rates?
A)Some goods and services produced in any country are not traded internationally.
B)Consumer preferences for goods and services across countries are very similar.
C)Most countries do not impose barriers to trade.
D)Most countries have free markets with little,if any,government regulation.
Q4) What three real-world complications keep purchasing power parity from being a complete explanation of exchange rate fluctuations in the long run? Explain.
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