Intermediate Macroeconomics
Test Preparation
Course Introduction
Intermediate Macroeconomics builds on foundational economic principles to explore the broader dynamics of national economies. The course examines key macroeconomic indicators such as GDP, unemployment, inflation, and interest rates, and analyzes how government policies and external shocks influence economic performance. Students will engage with theoretical frameworks like the IS-LM and AD-AS models, deepen their understanding of fiscal and monetary policy, and consider topics such as economic growth, business cycles, and international macroeconomic interactions. This course provides the tools necessary for interpreting real-world economic trends and for critically evaluating policy decisions.
Recommended Textbook
Macroeconomics 12th Edition by Roger A. Arnold
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26 Chapters
3323 Verified Questions
3323 Flashcards
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Chapter 1: What Economics Is About
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) Something that provides utility is called a
A)good.
B)bad.
C)want.
D)need.
E)a and d
Answer: A
Q2) The slope of a horizontal line is always equal to zero.
A)True
B)False Answer: True
Q3) Price is the only rationing device that can be used in a modern economy.
A)True
B)False
Answer: False
Q4) The effect of a decrease in interest rates upon economic growth is an example of positive economics.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Production Possibilities Frontier Framework
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132 Flashcards
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Sample Questions
Q1) Refer to Exhibit 2-5.The opportunity cost of moving from point C to point B is
A)15,000 televisions.
B)15,000 fax machines.
C)10,000 televisions.
D)20,000 fax machines.
Answer: D
Q2) If the PPF for two goods is a downward-sloping straight line,the resources used to produce those goods are equally well suited to the production of both goods.
A)True
B)False
Answer: True
Q3) Suppose the economy goes from a point on its production possibilities frontier (PPF)to a point below that PPF.Assuming that the PPF has not shifted,this could be due to A)a gain of resources.
B)a loss of resources.
C)technological improvement in the production of both goods.
D)a new law that interferes with economic efficiency.
Answer: D
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Chapter 3: Supply and Demand: Theory
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197 Flashcards
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Sample Questions
Q1) Which of the following statements is false?
A)At equilibrium in a market,scarcity does not exist.
B)If there is a shortage of 100 units at a price of $2 per unit,the shortage will be greater than 100 units at a price of $1 per unit.
C)If there is a surplus of 30 units at a price of $3,the surplus will be less than 30 units (or even nonexistent)at a price of $2.
D)If there is a surplus,suppliers will not be able to sell all they had hoped to sell at a particular price.
Answer: A
Q2) Refer to Exhibit 3-5.In the market shown,a rightward shift in supply from S<sub>1</sub> to S<sub>2</sub> could have been caused by
A)a decline in the number of buyers in the market.
B)a decline in the price of a substitute good.
C)a decrease in income (assuming the good is a normal good).
D)the granting of a subsidy to the producer.
E)none of the above
Answer: D
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Page 5
Chapter 4: Prices: Free, controlled, and Relative
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Sample Questions
Q1) Exhibit 4-2 represents the orange juice market.The horizontal line represents a price ceiling imposed by the government.Which of the following is true?
A)At equilibrium,the quantity demanded is 700 units.
B)At the price ceiling,there is a surplus of orange juice.
C)The quantity supplied at the price ceiling will equal the quantity exchanged.
D)The quantity demanded at the price ceiling will equal the quantity supplied.
E)The quantity demanded at the price ceiling will equal the quantity exchanged.
Q2) The minimum wage is an example of a
A)price door.
B)price wall.
C)price floor.
D)price ceiling.
Q3) Refer to Exhibit 4-3.If price P<sub>1</sub> is a price ceiling,then
A)the quantity exchanged is Q<sub>3</sub>.
B)there is a shortage in this market.
C)it is the highest price that can legally be charged in this market.
D)both b and c
Q4) What condition is necessary for a price floor to have an impact on a market?
Describe two effects that a price floor can have on a market.
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Chapter 5: Supply,demand,and Price: Applications
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Sample Questions
Q1) High demand for a product does not necessarily mean a high quantity demanded for that product if the price is high enough.
A)True
B)False
Q2) Suppose that a television studio has two shows,X and Z,and that tickets for viewing the taping of each show is free.The equilibrium price for a ticket to view the taping of show X is $25 and the equilibrium price for a ticket to view the taping of show B is -$20.It is likely that tickets to show ________ will need to be rationed on a first-come-first-served basis,while the producers of show ________ will have a much more difficult time filling the seats in the studio since the equilibrium price for tickets to that show is a __________ dollar amount.
A)Z;X;positive
B)Z;X;negative
C)X;Z;positive
D)X;Z;negative
Q3) Using supply and demand analysis,explain why there is sometimes a surplus of seats to watch a television show being taped and other times there is a shortage of such seats.Assume that tickets to view the taping of a television show are free of charge.
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Chapter 6: Macroeconomic Measurements, part I: Prices and Unemployment
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) In many large retail stores,price markdowns are now determined by computer.The "middle managers" who used to make these decisions personally became __________ unemployed.
A)frictionally
B)structurally
C)naturally
D)cyclically
Q2) The base year is the year
A)in which prices are unstable.
B)in which prices are lowest.
C)in which prices are highest.
D)that serves as a reference point or benchmark.
E)in which nominal output is largest.
Q3) A common measure of inflation is the percentage change in the CPI of adjacent years.
A)True B)False
Q4) The CPI is based on a representative group of goods called the market basket.
A)True B)False
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Chapter 7: Macroeconomic Measurements, part II: GDP and
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) If in the process of calculating GDP,the market value of all intermediate goods is added to the market value of all final goods,this would
A)overstate the actual value of GDP.
B)produce the correct value of GDP.
C)understate the actual value of GDP.
D)avoid the possible error of double counting.
Q2) In the business cycle,what is the difference between the recovery phase and the expansion phase?
A)The expansion phase occurs in the rising portion of the business cycle,while the recovery phase occurs in the falling portion of the business cycle.
B)The expansion phase occurs in the falling portion of the business cycle,while the recovery phase occurs in the rising portion of the business cycle.
C)The expansion phase is the period when Real GDP increases beyond the recovery phase.
D)The expansion phase must always come before the recovery phase.
Q3) Draw an appropriate diagram to represent the business cycle and label each of the five phases.Provide a brief description of each phase.
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Page 9
Chapter 8: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Suppose a drop in prices in the stock market makes people feel less financially secure.This would cause __________ the economy's AD curve.
A)movement down along B)movement up along C)a rightward shift of D)a leftward shift of
Q2) An increase in labor productivity shifts the A)AD curve rightward.
B)AD curve leftward.
C)short-run aggregate supply (SRAS)curve leftward.
D)SRAS curve rightward.
E)none of the above
Q3) Refer to Exhibit 8-3.A shift in aggregate demand from AD<sub>1</sub> to AD<sub>2</sub> could have been the result of A)a decrease in the price level.
B)an increase in the price level.
C)an increase in foreign real national income.
D)a decrease in foreign real national income.
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10
Chapter 9: Classical Macroeconomics and the
Self-Regulating Economy
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Sample Questions
Q1) Suppose the AD curve and the SRAS curve intersect to the right of the LRAS curve.Which of the following is true?
A)The economy is in a recessionary gap.
B)The economy is in an inflationary gap.
C)The economy is in a long-run equilibrium.
D)This situation is actually impossible.
Q2) A recessionary gap exists if (actual)Real GDP is __________ Natural Real GDP.
A)less than B)greater than C)equal to D)b and c E)none of the above
Q3) The number of unpaid internships is more likely to rise in an economy when the economy is in a recessionary gap and wage rates are constant than when wage rates are falling.
A)True B)False
Q4) Describe how Say's law can hold in a money economy,according to the classical economists.
Q5) Explain the policy implications of the classical economists' beliefs.
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Chapter 10: Keynesian Macroeconomics and Economic
Instability: a Critique of the Self-Regulating Economy
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183 Verified Questions
183 Flashcards
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Sample Questions
Q1) According to Keynes,aggregate demand could be too low in an economy.What does this mean?
A)It means there is not enough purchasing power in the economy to maintain stable prices.
B)It means there are too many of some goods produced and too few of other goods produced.
C)It means spending in the economy is too low to bring about full employment.
D)It means that wages may get stuck in a recessionary gap because there is not enough demand (in the economy)to increase them.
E)none of the above
Q2) There are no idle resources,the multiplier is operative,and autonomous spending rises.It follows that
A)Real GDP will not increase.
B)Real GDP will rise.
C)prices will rise.
D)a and c
E)a,b,and c
Q3) Explain the sequence of events that occurs in the economy once total production (TP)is less than total expenditure (TE).
Page 12
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Chapter 11: Fiscal Policy and the Federal Budget
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162 Verified Questions
162 Flashcards
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Sample Questions
Q1) Both Jones and Smith agree that the economy is in a recessionary gap.Jones proposes a tax cut and believes that it will raise Real GDP and lower the price level.Smith agrees that a tax cut will raise Real GDP,but he argues that it will not lower the price level in the short run.It follows that
A)both Jones and Smith believe that lower taxes will shift the AD curve rightward,but will not shift the SRAS curve.
B)both Jones and Smith believe that lower taxes will shift the SRAS curve rightward,but will not shift the AD curve.
C)Jones believes that the tax cut will shift the SRAS curve rightward and the AD curve will not shift.Smith believes that the AD curve will shift rightward and the SRAS curve will not shift.
D)Smith believes that the tax cut will shift the SRAS curve rightward and the AD curve will not shift.Jones believes that the AD curve will shift rightward and the SRAS curve will not shift.
Q2) Complete crowding out occurs when an increase in government spending is completely offset by an equal increase in tax revenues.
A)True
B)False
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Page 13
Chapter 12: Money,banking,and the Financial System
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121 Verified Questions
121 Flashcards
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Sample Questions
Q1) Small-denomination time deposits are part of M2,but not part of M1.
A)True
B)False
Q2) According to the textbook,The Wonderful Wizard of Oz is alleged to be a story about
A)the California gold strikes of 1849.
B)the end of the gold standard in 1934.
C)the presidential election of 1896.
D)the financial panic of 1907.
Q3) Credit cards are a widely accepted form of money.
A)True
B)False
Q4) Which of the following is a correct listing of money's functions?
A)source of credit,value of transaction costs,unit of barter
B)medium of barter,medium of exchange,medium of transactions
C)unit of barter,unit of account,a unit of income
D)store of value,store of exchange,measure of account
E)store of value,medium of exchange,unit of account
Q5) Describe the circumstances under which the M1 money supply could fall while the M2 money supply remains constant at the same time.
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Chapter 13: The Federal Reserve System
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178 Verified Questions
178 Flashcards
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Sample Questions
Q1) Which of the following is not a responsibility of the Fed?
A)supervising member banks
B)serving as the lender of last resort
C)determining the level of government spending
D)providing check-clearing services
E)supplying the economy with Federal Reserve Notes
Q2) A discount loan is a loan the Federal Reserve makes to a commercial bank.
A)True
B)False
Q3) Under free banking,banks are regulated by the Federal Reserve.
A)True
B)False
Q4) The interest rate that a commercial bank pays when it borrows from the Fed is the __________ rate.
A)discount
B)exchange
C)federal
D)bank
Q5) Explain the major differences between the Federal Reserve and the U.S.Treasury.
Page 15
Q6) Summarize the history of how the Federal Reserve came to have twelve districts.
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Chapter 14: Money and the Economy
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Sample Questions
Q1) The velocity of money is the __________ number of times a dollar is spent to buy final goods and services in a year.
A)total
B)average
C)marginal
D)statistical
Q2) Real-world continued inflation is probably a result of continued
A)increases in aggregate demand.
B)decreases in aggregate demand.
C)increases in aggregate supply.
D)decreases in aggregate supply.
Q3) If Real GDP is $8,000,the money supply is $4,000,and the price level is 3,then velocity is
A)2.00.
B)3.33.
C)6.00.
D)7.50.
E)none of the above
Q4) Explain in detail how the California gold rush contributed to rising prices in the early 1850's.
Page 16
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Chapter 15: Monetary Policy
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174 Flashcards
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Sample Questions
Q1) In the monetarist transmission mechanism,changes in the money market directly affect aggregate demand.
A)True
B)False
Q2) If market interest rates increase,the prices of existing bonds will A)decrease.
B)not change.
C)increase.
D)decrease if Real GDP decreases and increase if Real GDP increases.
Q3) Economist Jones favors a constant-money-growth-rate rule.She says that if the annual money supply growth rate each year is equal to the average annual growth rate in Real GDP,price stability will exist over time.What would economist Smith,who favors activist monetary policy,say to economist Jones?
A)Your analysis assumes that Real GDP is constant over time,and it is not.
B)Your analysis assumes that velocity is constant,and it is not.
C)Your analysis assumes that you can correctly define the money supply.
D)b and c
E)a,b and c
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Chapter 16: Expectations Theory and the Economy
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Sample Questions
Q1) According to the real business cycle theory,business cycle contractions are generally caused by
A)the self-interest of politicians.
B)decreases in business investment.
C)decreases in the growth rate of the money supply.
D)decreases in the economy's capacity to produce.
E)all of the above
Q2) Refer to Exhibit 16-4.If LRAS<sub>1</sub> shifts to LRAS<sub>2</sub>,and this causes AD<sub>1</sub> to shift to AD<sub>2</sub>,economists would call this a
A)rational expectations cycle.
B)policy ineffectiveness proposition.
C)short run Phillips curve.
D)real business cycle.
Q3) New classical economists build their theories upon A)adaptive expectations.
B)inflexible wages and prices.
C)rational expectations.
D)the assumption that it takes a long time for markets to achieve equilibrium values.
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Page 18
Chapter 17: Economic Growth: Resources, technology, ideas, and Institutions
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Sample Questions
Q1) Refer to Exhibit 17-3 Assume that the starting point on the production function is point A.After an increase in the quantity of capital,there would be a ______________________ which would shift the LRAS curve from LRAS<sub>1</sub> to _______________ resulting in _______________..
A)movement along the production function to point C;LRAS<sub>2</sub>;economic growth
B)shift upward of the production function to point B;LRAS<sub>2</sub>;economic growth C)movement along the production function to point C;LRAS<sub>3</sub>;a shrinking economy
D)shift upward of the production function to point B;LRAS<sub>3</sub>;a shrinking economy
Q2) Using the production function Real GDP = T (L,K),define the term production function and describe what each of the variables (T,L,and K)represents.When graphed with Real GDP on the vertical axis and labor on the horizontal axis,which variable(s)can shift the production function and which variable(s)can cause a movement along the production function?
Q3) Describe new growth theory.Explain how it differs from neoclassical growth theory.
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Page 19
Chapter 18: The Financial Crisis of 2007-2009
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Sample Questions
Q1) Securitization is the process by which financial institutions
A)pool together a group of loans and then issue securities backed by the pool.
B)determine the composition of their assets that will yield the optimal amount of security for their financial health.
C)borrow funds from the Federal Reserve and then use those funds to make loans to their customers.
D)determine sub-prime mortgage rates.
Q2) According to Alan Greenspan,the Taylor rule is ________________ when trying to figure out the causes of sharp increases in housing prices.His opinion is based,in part,on his assertion that the Taylor rule addresses ____________ inflation,not ____________ inflation.
A)inappropriate;product-price;asset-price
B)inappropriate;asset-price;product-price
C)appropriate;product-price;asset-price
D)appropriate;asset-price;product-price
Q3) For financial institutions,securitization is the means by which regulatory capital arbitrage lowers capital requirements.
A)True
B)False
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Page 20
Chapter 19: Debates in Macroeconomics Over the Role and Effects
of Government
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Sample Questions
Q1) Society as a whole is made worse off by rent seeking behavior by producers.
A)True
B)False
Q2) In the median voter model,we assume that
A)voters will vote for the friendlier of two candidates.
B)voters will vote for the candidate who comes closer to matching their views.
C)the candidate who occupies the far right has a better chance of winning the election than the candidate who occupies the far left.
D)there are three candidates running for the same office.
E)b and c
Q3) In a simple majority vote on a public project,
A)the project will never be undertaken if the costs exceed the benefits.
B)the project may be undertaken even though the total costs exceed the total benefits.
C)the intensity of individual preferences is taken into account.
D)the project will always be undertaken if the total benefits exceed the total costs.
Q4) What is the median voter model? Describe four different ways in which this theory is predicted to impact the behavior of political candidates.
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Chapter 20: Public Choice and Special-Interest-Group
Politics
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Sample Questions
Q1) In the burglary crime model presented in the textbook,as the anguish cost of committing a burglary rises,the prediction is that
A)more people will commit burglary.
B)the same number of people will commit burglary.
C)fewer people will commit burglary.
D)There is not enough information to answer this question.
Q2) "The theory's predictions are consistent with what I believe,so now I have good reason to believe what the theory says." This statement is likely to have been made by a person who believes that
A)theories should be tested by gathering and analyzing data.
B)theories are descriptive of reality.
C)theories should be falsifiable or refutable.
D)b and c
E)none of the above
Q3) For economic imperialists,economics is more of a method of analysis than a specific field of study.
A)True
B)False
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Chapter 21: Building Theories to Explain Everyday Life: From
Observations to Questions to Theories to Predictions
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Sample Questions
Q1) If countries 1 and 2 produce only two goods,A and B,and they have the same opportunity cost for the production of good A (and thus good B),then
A)each country will specialize in the production of one good and engage in trade.
B)neither country will specialize in the production of a good,but both will engage in trade.
C)one country will specialize in the production of a good,and both will engage in trade.
D)neither country will specialize in the production of a good,and there will be no incentive for trade.
Q2) It is argued that certain industries should be protected from foreign competition because they are needed to secure the United States from foreign aggression.This argument is called the __________ argument.
A)saving domestic-jobs
B)low foreign wages
C)foreign export subsidies
D)national defense
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Chapter 22: International Trade
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Sample Questions
Q1) Refer to Exhibit 35-4.Under a fixed exchange rate system,at the exchange rate of E<sub>1</sub>,the dollar is __________ and there is a __________ of pesos.
A)overvalued;surplus
B)undervalued;surplus
C)overvalued;shortage
D)undervalued;shortage
Q2) If,under a fixed exchange rate system,the dollar price of Mexican pesos is below its equilibrium level,then the A)dollar is undervalued.
B)peso is undervalued.
C)dollar has depreciated.
D)peso has appreciated.
E)a and c
Q3) If Japanese real interest rates fall relative to real interest rates in the U.S. ,the yen will likely appreciate and the dollar will likely depreciate.
A)True
B)False
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24
Chapter 23: International Finance
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Sample Questions
Q1) Harvard University admits a larger percentage of applicants than does India's Indian Institute of Technology.
A)True
B)False
Q2) As the dollar appreciates,the foreign price of United States goods ______________,ultimately shifting the United States AD curve
A)rises;rightward B)rises;leftward
C)falls;rightward D)falls;leftward
Q3) When the dollar depreciates,this shifts the AD curve rightward and the SRAS curve leftward,which will always lead to a higher Real GDP.
A)True
B)False
Q4) In a two-country world consisting of Japan and the United States,a contraction in the Japanese economy will lead to lower Real GDP in the United States.
A)True
B)False
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Chapter 24: Globalization and International Impacts on the Economy
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Sample Questions
Q1) In the prisoner's dilemma setting for stealing and producing,both participants end up __________,which turns out to be ________________________ stolen.The government _________ make both participants better off by changing the payoff matrix.
A)stealing;better for them than if they had both not;can B)stealing;worse for them than if they had both not;can C)not stealing;better for them than if they had both;cannot D)not stealing;worse for them than if they had both;cannot
Q2) Consider a setting in which there is a negative externality,but no positive externality.It follows that
A)the market outcome is inefficient.
B)the market outcome is efficient.
C)MSC > MPC
D)MPC > MSC
E)a and c
Q3) Involuntary transfers are the type of transfers used in the case against government.
A)True
B)False
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Chapter 25: The Economic Case for and Against
Government: Five Topics Considered
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Sample Questions
Q1) Another term for a stockbroker is an account representative. A)True
B)False
Q2) The issuer of a bond is a lender.
A)True
B)False
Q3) A futures contract is a contract in which the seller agrees to provide a given good to the buyer on a predetermined future date at an agreed-upon price.
A)True
B)False
Q4) The federal government began issuing inflation-indexed Treasury bonds in A)1913.
B)1989.
C)1997. D)2001.
Q5) If you are buying a bond that is newly issued by the corporation,you are buying it in the primary market.
A)True B)False
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Chapter 26: Stocks, bonds, futures, and Options
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Sample Questions
Q1) If income elasticity of demand for food is 1.55 it follows that
A)a 10 percent rise in the price of food lowers the quantity demanded of food by 15.5 percent.
B)if income rises by 10 percent,consumption of food rises by 15.5 percent.
C)if income rises by 10 percent,consumption of food falls by 15.5 percent.
D)a 1 percent rise in the price of food decreases the quantity demanded of food by 1.55 percent.
E)none of the above
Q2) If the demand for foodstuffs is inelastic,which of the following positions would be most beneficial to Farmer Jones?
A)Bad weather for Jones and good weather for all other farmers.
B)Bad weather for all farmers except Jones (who witnesses good weather).
C)Bad weather for all farmers.
D)Good weather for all farmers.
E)There is not enough information to answer the question.
Q3) In 2014,the federal government disbanded the practices of fixed direct payments and countercyclical payments to farmers.
A)True
B)False
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