Intermediate Macroeconomics
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Course Introduction
Intermediate Macroeconomics provides a comprehensive analysis of the aggregate performance of modern economies, building on basic macroeconomic principles. The course delves into the theories and models explaining national income determination, economic growth, unemployment, inflation, and business cycle fluctuations. Students examine the roles of government policy, central banking, and global economic interactions in shaping macroeconomic outcomes. Emphasis is placed on both classical and contemporary analytical frameworks, preparing students to critically evaluate current macroeconomic issues and policy debates using formal economic reasoning.
Recommended Textbook Microeconomics Today The Macro View 17th Edition by Roger LeRoy Miller
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Page 2
Chapter 1: The Nature of Economics
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Q1) Which of the following is NOT a positive statement?
A)The unemployment rate is 5.8 percent.
B)The inflation rate for 2002 was 2.3 percent.
C)The national debt is too high.
D)The federal government budget for 2004 is $2.2 trillion.
Answer: C
Q2) Which of the following statements is true regarding the textbook used in this course?
A)The textbook presents only economic theory,so no value judgments are involved in the text.
B)The textbook does not include normative statements.
C)The microeconomic section of the book includes only positive analysis while the macroeconomic section includes normative analysis.
D)The selection of topics included in the book involves value judgments as well as economic theory.
Answer: D
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Chapter 2: Scarcity and the World of Trade-Offs
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Q1) Comparative advantage is the ability to
A)perform an activity at a lower opportunity cost.
B)determine who your best trading partners are.
C)determine the best use of capital goods.
D)convince others of the best choices to make in their own self-interest.
Answer: A
Q2) In the above figure,points u,v,y,and z show
A)an inefficient allocation of society's scarce resources.
B)possible combinations of televisions and personal computers.
C)a constant trade-off between televisions and personal computers.
D)that society prefers more televisions than computers.
Answer: B
Q3) Whenever the economy is producing the maximum amount of goods given the level of technology and the amount of resources
A)the number of resources used should be decreased since society must protect its scarce resources.
B)the concept of opportunity costs does not exist.
C)more goods will be available than customers want to buy.
D)the economy is producing efficiently.
Answer: D
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Chapter 3: Demand and Supply
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Q1) A change in the price of a good causes
A)an increase in supply.
B)a decrease in supply.
C)an increase in demand and a decrease in supply.
D)a change in quantity supplied.
Answer: D
Q2) How does a change in quantity supplied differ from a change in supply?
A)A change in quantity supplied shifts the supply curve; a change in supply is a movement along the curve.
B)A change in one of the ceteris paribus conditions affects quantity supplied,not supply.
C)A change in the price affects quantity supplied,not supply.
D)There is no difference.
Answer: C
Q3) The money price of a good is also known as its
A)relative price.
B)case price.
C)absolute price.
D)subjective price.
Answer: C
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Page 5
Chapter 3: Extensions of Demand and Supply Analysis
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Q1) When the government sets a price floor which is below the equilibrium price
A)a surplus will develop.
B)a shortage will develop.
C)the equilibrium price will be maintained.
D)a price ceiling will follow.
Q2) In a market system,how are the price signals established?
A)Consumer advocacy groups establish fair prices for items,and most firms follow these pricing guidelines because they don't want to anger their consumers.
B)Industry associations establish an acceptable price range for each commodity sold within the industry,and member firms are obligated to abide by association guidelines. C)The forces underlying supply and demand interact to determine a market clearing price.
D)Federal legislation establishes maximum prices for most goods,and state governments regulate the prices of any remaining items.
Q3) Explain how agricultural price supports work and what the effects of the supports are.
Q4) What are the effects of an increase in the minimum wage? Who would be most affected?
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Chapter 4: Public Spending and Public Choice
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Q1) Education in the United States is
A)subsidized mainly by state and local governments.
B)funded by the federal government only.
C)paid for by the parents of students in public school system.
D)paid for by Social Security taxes.
Q2) Which of the following statements is NOT true of external benefits?
A)External benefits lead to an underallocation of resources to the production of the good that has the external benefit.
B)External benefits lead to a price in the market that is too high.
C)External benefits lead to too few of the goods that have the external benefit being produced.
D)External benefits are a good thing for the allocation of resources because people are getting something at no cost.
Q3) In the spring,I enjoy the fragrance coming from my neighbors' flowers.The fragrance is is an example of
A)a negative externality.
B)a private good.
C)the need for antitrust legislation.
D)a free rider.
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Page 7
Chapter 5: Funding the Public Sector
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Q1) Assume that the government one day decides to tax greens fees at all state golf courses.To the government's dismay,not only was the amount of tax collected small,but there was a 90 percent decline in golfing.What type of tax analysis did the government apparently rely upon when it imposed this tax?
A)static tax analysis
B)dynamic tax analysis
C)transaction cost analysis
D)ad hoc tax analysis
Q2) Which of the following forms of taxation accounts for the largest share of taxes received by state and local governments?
A)sales,excise,and gross receipts taxes
B)personal and corporate income taxes
C)license and permit fees
D)property taxes
Q3) The marginal tax rate is
A)the sum of all individual tax rates.
B)the total taxes paid as a percentage of total income.
C)the average tax rate paid by both individuals and corporations.
D)the increase in taxes as a percentage of the increase in income.
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Page 8
Chapter 6: Demand and Supply Elasticity
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Sample Questions
Q1) Vincent Van Gogh paintings have a price elasticity of supply
A)equal to 2.0.
B)equal to 1.0.
C)close to 0.0.
D)approaching infinity.
Q2) If the price of gasoline increased by 5 % and consumers responded by purchasing 1 % less gasoline,the absolute value of price elasticity of demand for gasoline would equal A)0.1.
B)0.5.
C)1.5.
D)0.2.
Q3) When many substitutes exist for a good,demand will be A)elastic.
B)unit-elastic.
C)inelastic.
D)perfectly unit-elastic.
Q4) "The income elasticity of a good is positive if a consumer increases the total spending on that good as a result of an increase in its market price." Do you agree or disagree? Why?
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Chapter 7: Consumer Choice
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Q1) Which of the following is FALSE?
A)A consumer is maximizing total utility when he or she gets the same amount of marginal utility from the last dollar spent on each good purchased.
B)As additional units of a good or service are consumed,marginal utility diminishes.
C)Utility is want-satisfying power.
D)Assuming that the law of diminishing marginal utility holds,the demand curve must be upward sloping.
Q2) The consumer optimum is the set of goods and services,subject to the limited income of the consumer,that
A)the consumer can afford to buy.
B)is characterized by zero marginal utility on each good and service.
C)maximizes the level of satisfaction for each consumer.
D)is characterized by increasing marginal utility.
Q3) Explain how a consumer maximizes utility.
Q4) How does an increase in the price of an individual good or service affect a consumer optimum,and how does this help explain the law of demand?
Q5) What is consumer optimum according to utility theory?
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Page 10
Chapter 8: Rents, profits, and the Financial Environment of Business
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Sample Questions
Q1) When a firm uses profits to purchase new capital equipment,it is engaging in A)tax evasion.
B)balance sheet accounting.
C)reinvestment.
D)the most risky way the firm can obtain investment funds.
Q2) The nominal rate of interest is
A)the rate observed in the market that includes an inflation premium.
B)not the rate observed in the market.
C)not adjusted for inflation.
D)expressed in dollars from the chosen base year.
Q3) The real rate of interest will approximately be equal to
A)the nominal interest rate plus the expected rate of inflation.
B)the stated rate of interest in a high-inflation economy.
C)the nominal interest rate minus the expected rate of change in the price level.
D)the stated rate minus the opportunity cost of capital.
Q4) What is the main purpose of an interest payment? What major factors affect interest rates?
Q5) "Economic rent reflects a waste of resources." Do you agree or disagree? Explain.
Page 11
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Chapter 9: The Firm: Cost and Output Determination
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Q1) How is the long-run average cost curve found? What is its importance to the firm?
Q2) Suppose that one worker can produce 15 cookies,two workers can produce 35 cookies together,and three workers can produce 65 cookies together.What is the marginal product of the 2nd worker?
A)15 cookies
B)20 cookies
C)30 cookies
D)35 cookies
Q3) A fixed resource is one that
A)is physically tied to a specific location.
B)costs more than the average daily revenue of the firm.
C)cannot be varied in the short run.
D)can be disposed of only if the firm goes out of business.
Q4) Which of the following statements is correct?
A)Average variable costs always exceed average total costs.
B)Average fixed costs are constant.
C)Average variable cost reaches its minimum when average product equals its maximum.
D)Average fixed costs are always less than average variable costs.
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Chapter 10: Perfect Competition
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Q1) A perfectly competitive industry's short-run supply curve is best described as A)the upward sloping portion of the industry's marginal cost curve.
B)horizontal.
C)perfectly inelastic.
D)the horizontal summation of the individual firms' supply curves.
Q2) A price taker is a firm that A)seeks to maximize revenue rather than profit.
B)cannot influence the market price.
C)searches for the best price and then takes the highest profits possible.
D)buys inputs for firms.
Q3) Economists generally assume that firms attempt to maximize A)total revenue.
B)sales.
C)marginal revenue.
D)total economic profits.
Q4) An increasing-cost industry will have
A)a perfectly elastic long-run supply curve.
B)a perfectly inelastic long-run supply curve.
C)an upward sloping supply curve in the long run.
D)an upward sloping demand curve in the long run.
Page 13
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Chapter 11: Monopoly
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Sample Questions
Q1) A tax that is imposed on an imported good is called a A)tariff.
B)quota.
C)government license.
D)patent.
Q2) In what ways is government involved with the creation of barriers to entry?
Q3) A monopolist wishing to increase its profit has just discovered that lowering its price and selling more output yielded the desired result.Profit increased.Based on this,we can conclude that the cost of the additional production is
A)greater than the revenue from the additional production.
B)precisely equal to the revenue from the additional production.
C)less than the revenue from the additional production.
D)there is no way to answer this because you have not given us the marginal revenue and marginal cost data.
Q4) Which of the following is NOT necessary for price discrimination to occur?
A)The firm must be able to separate the market into identifiable groups.
B)The firm must be selling a durable good.
C)The firm must have a downward sloping demand curve.
D)The firm has to be able to prevent resale of the product or service.
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Chapter 12: Monopolistic Competition
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Q1) In the above figure,the profit-maximizing monopolistically competitive firm will
A)make a profit of $24,000.
B)make a profit of $30,000.
C)make a profit of $0.
D)incur a loss of $20,000.
Q2) In the long run,firms in a monopolistically competitive market
A)usually earn positive economic profits.
B)always earn monopoly profits.
C)usually earn economic losses.
D)earn zero economic profits.
Q3) If the producer of an information product engages in marginal cost pricing,it earns A)a normal profit.
B)an economic loss.
C)zero economic profits.
D)positive economic profits.
Q4) What are the implications of there being a large number of firms in a monopolistically competitive market?
Q5) Why can't a monopolistic competitor earn economic profits in the long run?
Q6) Why do firms in a monopolistically competitive industry advertise?
Page 15
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Chapter 13: Oligopoly and Strategic Behavior
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Q1) Over the past several decades,U.S.firms have faced more competition from overseas firms.Does this have any impact on the market power of U.S.oligopoly firms?
A)No,because domestic firms in oligopoly markets are always so dominant that overseas producers have little or no impact on those markets.
B)No,because the United States government has effectively blocked all imports that might compete with domestic firms in oligopoly industries.
C)Yes,competition from overseas firms can substantially limit domestic firms' market power.
D)There is no way to know.
Q2) Which of the following statements about concentration ratios is correct?
A)A high concentration ratio indicates that the industry is a monopoly.
B)A high concentration ratio indicates that the industry is monopolistically competitive.
C)A high concentration ratio suggests that the industry is characterized by strategic independence.
D)A high concentration ratio suggests that the industry is characterized by strategic dependence.
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Chapter 14: Regulation and Antitrust Policy in a Globalized Economy
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Sample Questions
Q1) In a natural monopoly situation,
A)there are large economies of scale relative to demand.
B)the firm has an upward sloping average cost curve.
C)producers try to differentiate their product with advertising.
D)there is no need for government regulation.
Q2) When consumers have less information about a product than do sellers,then this is the situation of
A)asymmetric information.
B)symmetric information.
C)caveat emptor.
D)a market failure.
Q3) The Sherman Antitrust Act of 1890 prohibited A)export tariffs.
B)attempts to restrain trade.
C)all existing monopolies.
D)interstate commerce.
Q4) Explain the share-the-gains,share-the-pains theory.How does it differ from the capture hypothesis?
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Q5) "Regulations do not always have the intended result." Do you agree or disagree? Why?
Chapter 15: The Labor Market: Demand, supply and Outsourcing
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Q1) A firm's demand curve for labor is equal to the A)total revenue product.
B)marginal revenue product.
C)marginal factor cost.
D)marginal wage.
Q2) If the marginal factor cost of hiring an additional worker is $10 while the marginal revenue product is $15,then the firm should
A)hire more workers.
B)stop hiring more workers.
C)fire some workers.
D)none of the above: insufficient information to answer the question
Q3) A firm's employment of labor outside the country in which the firm is located is called
A)featherbedding.
B)a lockout.
C)outsourcing.
D)dumping.
Q4) Suppose a firm employs only capital and labor as inputs.Explain how the firm should allocate its inputs in order to maximize profits in a perfectly competitive market.
Page 18
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Chapter 16: Unions and Labor Market Monopoly Power
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Q1) A monopsonist finds its profit maximizing quantity of labor employed at the point at which
A)marginal revenue product is zero.
B)marginal revenue product equals marginal factor cost.
C)marginal factor cost is zero.
D)total cost equals total revenue.
Q2) Other things equal,granting unemployment benefits or welfare benefits to striking workers
A)reduces the likelihood of a strike since management will be more cooperative.
B)reduces the costs of a strike to workers and will increase their willingness to strike.
C)reduces the likelihood of a strike since union workers make wages significantly above unemployment benefits or welfare payments.
D)increases the willingness of management to permit a strike.
Q3) Monopsonistic exploitation refers to
A)the payment to the resource equal to MFC.
B)the payment to a resource less than MRP.
C)the payment to a resource equal to MRP.
D)the payment to a resource above MRP.
Q4) What can a union do in order to raise the wages of its members ?
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Chapter 17: Income, poverty, and Health Care
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Q1) Which of the following statements is FALSE?
A)The official absolute poverty level in the United States is far above the average income of many countries in the world.
B)In a relative sense,the problem of poverty will always exist.
C)An equal distribution of income would eliminate relative poverty.
D)An equal distribution of income would eliminate absolute poverty.
Q2) The government program that provides aid to families in need is A)TANF.
B)Social Security program.
C)Supplemental Security Income program.
D)Earned Income Tax Credit.
Q3) Refer to the above figure.For which Lorenz curve does the richest 40 percent make 50 percent of the nation's money income?
Q4) Why have health care costs risen so much in recent years?
Q5) What are the major criticisms of the Lorenz curve?
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Chapter 18: Environmental Economics
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Q1) Economists typically suggest three choices that allow a polluter to decide how to absorb most,or perhaps all,of the social costs of its actions,which are
A)continuing to overproduce the good,lowering the price of the good,or cutting output.
B)reducing the pollution-causing activity,changing production techniques,or paying a price to pollute.
C)installing pollution abatement equipment,paying to pollute,or just ignoring the issue.
D)paying a pollution tax,continuing to use existing production techniques,or continuing the polluting behavior without regard to the social implications.
Q2) Which of the following is FALSE?
A)Social costs do not include private costs.
B)Private costs do not include external costs.
C)If social costs are greater than private costs,"too much" of a good is being produced.
D)Pollution is a social cost.
Q3) Explain why the buffalo almost became extinct while cattle did not,even though both provide similar goods for people.
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Chapter 19: Comparative Advantage and the Open Economy
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Q1) The trend in current tariff laws is to
A)raise tariffs on foreign goods.
B)keep tariffs the same.
C)lower tariffs on foreign goods.
D)abolish tariffs all together.
Q2) The ability to produce the same quantity of a good or service using fewer units of labor is known as
A)competitive dominance.
B)productive dominance.
C)comparative advantage.
D)absolute advantage.
Q3) If protective import-restricting tariffs are imposed by a country,in the majority of cases that nation's consumers end up
A)paying a higher price for the good than they otherwise would.
B)paying a lower price for the good than they otherwise would.
C)consuming more of the good than they otherwise would.
D)having a higher standard of living than they otherwise would.
Q4) What is the relationship between imports and employment?
Q5) What are the effects of a tariff on a good?
Q6) How can comparative advantage yield gains from trade? Page 22
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Chapter 20: Exchange Rates and the Balance of Payments
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Q1) Suppose the currency price of the U.S.dollar in terms of the Japanese yen starts to fall.To prevent that from occurring,the U.S.central bank should
A)use U.S.dollars to buy Japanese goods.
B)use yen reserves to buy U.S.dollars in the foreign exchange market.
C)sell U.S.dollars in the foreign exchange market in exchange for yen.
D)buy both U.S.dollars and yen in the foreign exchange market.
Q2) The largest portion of any nation's balance of payments current account is the
A)importing and exporting of merchandise goods.
B)importing and exporting of services.
C)importing and exporting of gold.
D)importing and exporting of capital goods.
Q3) Which of the following items is NOT a deficit item in the balance of payments?
A)imports of merchandise
B)sales of domestic assets to foreigners
C)purchases of gold from foreigners
D)military spending abroad
Q4) Why does the supply curve of Japanese yen slope up?
Q5) How are deficit and surplus items determined in the balance of payments?
Q6) Distinguish between the balance of payments and the balance of trade.
Q7) Why does the demand curve for Japanese yen slope down?
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