Contemporary Macroeconomic Issues
Practice Questions
Course Introduction
This course examines pressing macroeconomic challenges facing global and national economies today. Topics include economic growth and productivity, unemployment, inflation, monetary and fiscal policy, income inequality, globalization, and the impacts of technological change. The course emphasizes real-world applications, policy debates, and the use of contemporary data to analyze current trends and events. Students will develop analytical skills through case studies, empirical research, and critical discussion, gaining a deeper understanding of how macroeconomic theory is used to address issues shaping societies and markets in the modern era.
Recommended Textbook
Macroeconomics 12th Edition by Michael Parkin
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Page 2
Chapter 1: What Is Economics?
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Q1) As a firm expands its output, cost per unit of output (average cost)decreases and then increases. Average cost and output have
A) a relationship with a minimum.
B) a relationship with a maximum.
C) no relationship.
D) a linear positive relationship.
Answer: A
Q2) If there is an inverse relationship between variable x and variable y, then an increase in the value of variable x will be accompanied by
A) an increase in the value of variable y.
B) a decrease in the value of variable y.
C) no change in the value of variable y.
D) variable y reaching its maximum value.
Answer: B
Q3) If the x-axis variable increases while the y-axis variable decreases, the variables x and y are negatively related.
A)True
B)False
Answer: True
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Chapter 2: The Economic Problem
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Q1) In the above figure, which of the following is TRUE regarding the movements from point A to B and from point C to D?
I.The movement from point A to B shows that the economy has chosen to produce 100 more jets.
II.The movement from point C to D shows that the economy has chosen to produce 100 more jets.
III.The movement from point A to B and from point C to D have the same opportunity cost.
A) I and II
B) I and III
C) II and III
D) I, II and III
Answer: A
Q2) Opportunity cost is represented on the production possibilities frontier by A) attainable and unattainable points.
B) efficient and inefficient points.
C) the amount of good Y forgone when more of good X is produced.
D) technological progress.
Answer: C
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Page 4
Chapter 3: Demand and Supply
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Q1) If the price of a candy bar is $1 and the price of a fast food meal is $5, then the
A) relative price of a candy bar is 5 fast food meals per candy bar.
B) money price of a candy bar is 1/5 of a fast food meal per candy bar.
C) relative price of a fast food meal is 5 candy bars per fast food meal.
D) money price of a fast food meal is 1/5 of a candy bar per fast food meal.
Answer: C
Q2) Which of the following influences does NOT shift the supply curve?
A) a rise in the wages paid workers who produce the good
B) the development of new technology
C) people deciding that they want to buy more of the product
D) a decrease in the number of suppliers
Answer: C
Q3) The relative price of a good is greater than the money price of a good.
A)True
B)False
Answer: False
Q4) What leads to a decrease in the quantity demanded of a good or service?
Answer: The quantity demanded of a good or service decreases when the price of the product increases.
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Chapter 4: Measuring GDP and Economic Growth
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Q1) Gross Domestic Product is equal to the sum of consumption expenditure, investment, net exports, and ________.
A) government expenditures on goods and services
B) saving
C) profits
D) net taxes
Q2) In the computation of GDP, Social Security payments count as
A) transfer payments and are included in GDP.
B) transfer payments and are not included in GDP.
C) government expenditure on goods and services and are included in GDP.
D) government expenditure on goods and services and are not included in GDP.
Q3) To measure GDP using the expenditure approach you must collect data on A) inflation.
B) exports.
C) wages.
D) saving.
Q4) The business cycle progresses from an expansion to a peak to a recession and then to a trough.
A)True
B)False
Page 6
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Chapter 5: Monitoring Jobs and Inflation
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Q1) The three types of unemployment are
A) voluntary, involuntary, and structural.
B) voluntary, part-time, and cyclical.
C) frictional, part-time, and involuntary.
D) frictional, structural, and cyclical.
Q2) If a new and better good replaced an older and less expensive good, then the price level measured by the CPI ________.
A) is lower than the actual price level
B) is higher than the actual price level
C) might be either higher or lower than the actual price
D) is the same as the actual price level because it measures the prices of the actual goods
Q3) Between September 2013 and September 2014 the number of discouraged workers decreased from 852,000 to 698,000. Assuming the change resulted from discouraged workers starting to make specific efforts to find a job again, this change creates
A) an increase to the U-3 unemployment rate.
B) a decrease to the U-3 unemployment rate.
C) no change to the U-3 unemployment rate.
D) a decrease in the labor force participation rate.
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Page 7
Chapter 6: Economic Growth
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Q1) According to neoclassical growth theory, the higher real GDP per person from economic growth will
A) not last because the population will increase.
B) last because there is no link between growth and population.
C) last indefinitely regardless of any other factor.
D) last as long as technological change continues.
Q2) Which of the following statements are TRUE regarding the demand for labor?
I.The quantity of labor demanded depends on the real wage rate.
II.If the money wage rate increases and the price level remains the same, the quantity of labor demanded decreases.
A) I only
B) II only
C) I and II
D) neither I nor II
Q3) How does the new growth theory explain economic growth?
Q4) The growth rate of real GDP per person in the United States has
A) averaged approximately 2 percent per year over the past century.
B) has consistently been 2 percent per decade over the past century.
C) has been the highest in the world over the past 5 decades.
D) has increased every year over the past century.
Page 8
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Chapter 7: Finance, Saving, and Investment
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Sample Questions
Q1) Sarah and Diane are both billing clerks for the local trucking company earning $17,000 per year. Sarah is attending college, plans to graduate in one year and earn $55,000 as an economist. Diane is not in college or undergoing any specialized training and will have the same job next year. According to economic theory, which of the two individuals would tend to have a higher current savings rate?
A) Diane
B) Sarah
C) Both will have the same saving rate.
D) Economic theory sheds no light on this question.
Q2) In the above figure, a decrease in the real interest rate will result in a movement from point E to
A) point F.
B) point G.
C) point H.
D) point I.
Q3) How does the real interest affect households' decisions about saving?
Q4) In the loanable funds market, what variable changes to eliminate a shortage of loanable funds and how is the shortage eliminated?
Q5) How does expected future income affect saving supply?
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Chapter 8: Money, the Price Level, and Inflation
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Q1) The velocity of circulation is
A) the rate of change of the GDP deflator.
B) the average number of times a dollar of money is used in a year to buy goods and services in GDP.
C) the changes in the purchasing power of money over a given time period.
D) constant.
Q2) When the monetary base increases by $2 billion, the quantity of money increases by $10 billion. Thus, the money multiplier equals
A) 0.2.
B) 5.
C) 20.0.
D) 0.5.
Q3) Pooling of risk occurs when depository institutions
A) make assets more liquid.
B) specialize in loaning only to good borrowers.
C) bring lenders together.
D) lend to a variety of different borrowers.
Q4) "If the currency drain increases, the monetary base decreases." Explain whether the previous statement is correct or incorrect.
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) Suppose that $1 U.S. costs $1.50 Canadian. If in St. Louis a CD costs $10 U.S. and in Montreal it costs $15 Canadian, then ________.
A) purchasing power parity holds
B) Canadians will buy CDs in St. Louis
C) Americans will buy CDs in Montreal
D) Virgin Records will have an incentive to build more stores in North America
Q2) In the United States -since 1981- which two of the following have almost always moved in the same direction?
A) net exports and the government sector balance
B) net exports and the private sector balance
C) the government sector balance and the private sector balance
D) none of the above
Q3) Using the above figure, an increase in the demand for Dutch goods by U. S. consumers will lead to
A) a depreciation in the Dutch currency.
B) an appreciation in the Dutch currency.
C) an increase in the supply of Dutch currency as foreign exchange.
D) a decrease in the supply of Dutch currency as foreign exchange.
Q4) What is purchasing power parity?
Page 11
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) The short-run aggregate supply curve is upward sloping because in the short run the A) money wage rate changes but the price level does not.
B) price level changes but the money wage rate does not.
C) both the money wage rate and the price level change.
D) neither the money wage rate nor the price level can change.
Q2) If real GDP is less than potential GDP, the economy is
A) not in macroeconomic equilibrium.
B) at full employment.
C) in an above-full-employment equilibrium.
D) in a below-full-employment equilibrium.
Q3) In the above figure, the economy is at point A when changes occur. If the new equilibrium has a price level of 120 and real GDP of $15.0 trillion, then it must be the case that
A) aggregate demand has increased.
B) aggregate demand has decreased.
C) aggregate supply has decreased.
D) aggregate supply has increased.
Q4) What is the difference between a recessionary gap and an inflationary gap?
Q5) Explain the reasons why the AD curve slopes downward.
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Chapter 11: Expenditure Multipliers
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Q1) If the marginal propensity to save is 0.25 in an economy with no imports or taxes, the multiplier equals
A) 0.25.
B) 0.75.
C) 4.
D) 1.33.
Q2) The graph of the aggregate expenditure curve has ________ on the y-axis and ________ on the x-axis.
A) real GDP; aggregate planned expenditure
B) aggregate actual expenditure; real GDP
C) household expenditures; real GDP
D) aggregate planned expenditure; real GDP
Q3) In the above figure, an increase in autonomous expenditure is depicted by the movement from point E to
A) point F.
B) point G.
C) point H.
D) point I.
Q4) Please explain the relationship between consumption, disposable income and saving.
Page 13
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Chapter 12: The Business Cycle, Inflation, and Deflation
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Q1) What is a cost-push inflation?
Q2) According to the new classical theory, ________ policy changes have NO effect on real GDP and according to the new Keynesian theory, ________ policy changes have an effect on real GDP.
A) only expected; expected and unexpected
B) only unexpected; expected and unexpected
C) only expected; only unexpected
D) only unexpected; only expected
Q3) Suppose that a severe shock that decreases the demand for loanable funds hits the United States. Which of the following can we expect to occur according to the real business cycle model?
A) The real interest rate will fall.
B) People will work fewer hours.
C) The real wage rate will fall.
D) All of the above are true.
Q4) In the short run, if there is an increase in the money wage rate, then
A) short-run aggregate supply increases and the price level rises.
B) short-run aggregate supply decreases and the price level rises.
C) aggregate demand decreases and the price level falls.
D) aggregate demand increases and the price level rises.
Page 14
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Chapter 13: Fiscal Policy
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Q1) A tax cut decreases government saving and can thereby crowd out investment.
A)True
B)False
Q2) Taxes and government expenditures that change in response to changes in the level of economic activity, without need for additional government action, are examples of A) discretionary fiscal variables.
B) automatic fiscal policy.
C) built-in monetary stabilizers.
D) cyclically balanced budgets.
Q3) Economic data for a mythical economy in the years 2012-2016 are summarized in the figure above. Assume that the spending formulas and tax schedules are identical for all years. When the economy is at full employment, the government has a A) budget surplus.
B) balanced budget.
C) budget deficit.
D) procyclical policy.
Q4) What is the effect on aggregate demand and the AD curve from either an increase in government expenditure or a cut in taxes?
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Chapter 14: Monetary Policy
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Q1) In March 2013 the Fed announced that it might decrease its open market purchases of securities by the end of the year. This announcement suggests that the Fed is concerned that
A) the unemployment rate will increase.
B) the inflation rate will rise.
C) the federal funds interest rate will fall too low for the Fed to control it.
D) the federal funds interest rate will rise too high for the Fed to control it.
Q2) The monetary policy instrument the Federal Reserve choose to use is the A) quantity of money.
B) exchange rate.
C) federal funds rate.
D) required reserves rate.
Q3) If the federal funds rate is greater than the federal funds rate target, there is a ________ of reserves and the federal funds rate ________.
A) surplus; falls
B) surplus; rises
C) shortage; falls
D) shortage; rises
Q4) Describe how open market operations change the quantity of money.
Q5) Why does the Fed pursue price stability as its ultimate goal?
Page 16
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Chapter 15: International Trade Policy
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Q1) If the United States imposes a tariff of $1 per imported shirt, the higher tariff
A) raises the price of a shirt to U.S. consumers.
B) benefits U.S. shirt consumers.
C) increases imports of shirts into the United States.
D) none of the above.
Q2) The gains from free trade are enjoyed by a ________ number of people and the costs of free trade are imposed by a ________ number of people.
A) small; large
B) large; small
C) small; small
D) large; large
Q3) Which of the following is a TRUE statement?
A) Everyone benefits from free trade.
B) Only exporters benefit from trade.
C) All producers benefit from trade and but not all consumers benefit.
D) Free trade harms domestic producers of goods that face import competition.
Q4) What is "rent seeking?" How does it apply to restricting imports?
Q5) What are the effects of a tariff?
Q6) Discuss reasons why we see trade restrictions. Are any of these reasons valid?
Page 17
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