Introduction to Macroeconomics Exam Practice Tests
Course
Introduction
Introduction to Macroeconomics provides a comprehensive overview of the fundamental principles and tools used to analyze the economy as a whole. The course explores key topics such as national income, economic growth, unemployment, inflation, fiscal and monetary policy, and the role of governments and central banks in stabilizing economic fluctuations. Students will develop an understanding of how macroeconomic indicators are measured, the way economies interact in the global market, and the application of economic theories to address real-world problems. Through lectures, discussions, and problem-solving exercises, students will gain a foundation for further study in economics and related fields.
Recommended Textbook
Economics USA 8th Edition Edition by Nariman Behravesh
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Chapter 1: What is Economics
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Sample Questions
Q1) The intersection of the horizontal and vertical axes of a graph is called the A) equilibrium.
B) origin.
C) elbow.
D) solution.
E) nib.
Answer: B
Q2) The United States could expand output of both civilian and military goods during the period from 1939 through the early part of World War II because A) output per worker fell as more men were drafted by the military.
B) it captured large amounts of new resources from enemy territory.
C) military goods are produced using different resources than consumer goods.
D) during the 1930s it was operating well inside its production possibilities curve.
E) its production possibilities curve was bowed out during World War II.
Answer: D
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3
Chapter 2: Markets and Prices
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Sample Questions
Q1) In a market economy,who gets what
A) depends on the amount and kinds of resources individuals own.
B) cannot be resolved without government intervention.
C) is unrelated to the questions of what goods are produced and how.
D) is determined by the production possibilities curve.
E) is an irrelevant and unnecessary concern.
Answer: A
Q2) In free markets,the price system encourages producers to meet consumers' wants because
A) it signals to producers which goods are profitable.
B) producers have the public interest in mind.
C) it allows the government to direct firms to the best production technique.
D) it rewards consumers for the resources they bring to the marketplace.
E) consumers are generally willing to pay more than the actual price.
Answer: A
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4
Chapter 3: The Business Firm: Organization,motivation,and
Optimal Input Decisions
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Sample Questions
Q1) The use of computerized photo composition methods allowed the Asbury Park Press to
A) lay off reporters.
B) reduce the number of pages in its paper.
C) tailor its editions to target specific regions.
D) more cheaply purchase the paper on which to print its newspaper.
E) raise the price at the newsstand without reducing sales.
Answer: C
Q2) An input whose quantity is unaffected as output rises or falls is a(n)________ input.
A) irrelevant
B) dominant
C) fixed
D) independent
E) superior
Answer: C
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Chapter 4: Getting Behind the Demand and Supply Curves
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Q1) An equilibrium market basket is one that
A) gives the consumer the greatest amount of utility from a given income.
B) does not change even if consumer income changes.
C) does not change even if prices of the commodities purchased change.
D) ensures the consumer a level of satisfaction equal to all other possible consumption alternatives.
E) equalizes the marginal and total utilities for each commodity.
Q2) Another name for opportunity cost is ________ cost.
A) out-of-the pocket
B) irrelevant
C) manageable
D) alternative
E) historical
Q3) As consumption is increased from 5 to 7 units,marginal utility is
A) rising.
B) falling.
C) constant.
D) zero.
E) negative.
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Page 6
Chapter 5: Market Demand and Price Elasticity
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Q1) The demand curve for the output of an individual firm is highly price elastic when it A) shifts to the left.
B) is horizontal.
C)slopes upward to the right.
D) has a value of 0.15.
E) decreases as price falls.
Q2) Suppose the short-run price elasticity of demand for gasoline is 0.4.Acting on this information,one gasoline station at an intersection where there are three additional gasoline stations raises its price by 10 percent.If the other three stations keep their original prices,the first gasoline station will probably see its gasoline sales
A) increase by 0.4 percent.
B) remain unchanged.
C) fall by 0.4 percent.
D) fall by 4 percent.
E) fall by more than 4 percent.
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Chapter 6: Economic Efficiency,market Supply,and Perfect Competition
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Q1) Which of the following conditions would indicate that a perfectly competitive firm should expand its output to increase its profit?
A) Marginal cost equals average cost.
B) Total cost exceeds marginal cost.
C) Price exceeds marginal cost.
D) Total revenue exceeds total cost.
E) Total revenue equals price.
Q2) A price ceiling often necessitates that
A) the government buy up and store surplus production.
B) a formal system of rationing be established.
C) the government encourage producers to buy more at existing prices.
D) consumers be encouraged to buy more at existing prices.
E) producers be required to increase equilibrium prices.
Q3) If input prices increase with industry expansion
A) the short-run market supply curve will become more elastic.
B) profits will decline.
C) industry costs will fall.
D) the firm's marginal cost curves will not shift.
E) the market supply curve is not the horizontal summation of the firm's supply curves.
Page 8
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Chapter 7: Monopoly and Its Regulation
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Sample Questions
Q1) If the demand curve is horizontal,marginal revenue must be the same as A) total revenue.
B) quantity.
C) average costs.
D) price.
E) sales.
Q2) For this firm profits are maximized at an output rate of A) 0Q.
B) 0P.
C) 0W.
D) 0U.
E) 0V.
Q3) The profit-maximizing price is A) above $5.
B) $5.
C) between $4.50 and $5.
D) below $4.50.
E) impossible to determine; more information is needed.
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Chapter 8: Monopolistic Competition,oligopoly,and Antitrust Policy
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Sample Questions
Q1) Oligopolists prefer to compete through advertising and product differentiation because
A) the greater the degree of product differentiation in the mind of the consumer, the greater the degree of interdependence among rivals.
B) price wars are illegal according to existing antitrust statutes.
C) advertising and product development enable them to realize greater profits without increasing market share.
D) rivals may find it easier to respond to a price decrease than a style change or advertising campaign.
E) it doesn't pay to raise price when the demand curve is highly price inelastic.
Q2) Retail clothing stores provide a good example of monopolistic competition because A) there are few firms in the industry.
B) there are significant barriers to entry in the industry.
C) each firm possesses somewhat unique attributes in the form of location, service, and variety of merchandise.
D) profit margins are generally quite large for retail establishments.
E) firms in the industry face horizontal demand curves for their products.
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Page 10
Chapter 9: Pollution and the Environment
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Sample Questions
Q1) A paper mill that degrades river water while producing its product creates a divergence between private and social costs if,and only if,the
A) mill treats the water to restore its quality before returning it to the river.
B) mill dumps the degraded water back into the river, for which privilege it pays a high levy to towns downstream.
C) price of the paper produced there includes the cost of water treatment.
D) mill treats the water to restore its quality, for which service it is appropriately compensated by the towns downstream.
E) water is dumped back into the river in an untreated state with no compensation paid to downstream users.
Q2) One way the government can reduce the financial burden to firms that install pollution control equipment is to use
A) tax credits.
B) effluent fees.
C) direct regulation.
D) price controls.
E) quotas.
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Chapter 10: The Supply and Demand for Labor
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Q1) The inverse relationship between the price of labor and the amount of labor used is called the
A) labor production possibilities curve.
B) demand curve for labor.
C) total fixed cost curve.
D) money wage nexus.
E) employment function.
Q2) Unions regularly encourage Congress to reduce both immigration and working hours because unions want to
A) shift the supply curve for labor to the left.
B)shift the demand curve for labor to the right.
C) promote the unemployment of nonunion members.
D) encourage the importation of consumer goods from abroad.
E) stimulate the introduction of labor-saving machinery.
Q3) In a perfectly competitive economy,individuals would be paid according to their A) age and seniority.
B) physical ability.
C) education.
D) race or gender.
E) contribution to production.
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Chapter 11: Interest,rent,and Profit
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Sample Questions
Q1) The value of an asset such as a bond will rise when
A) interest rates rise.
B) interest rates fall.
C) the price of bonds falls.
D) the supply of loanable funds decreases.
E) the demand for loanable funds increases.
Q2) Schumpeter argued that
A) rents should be taxed away.
B) profits result from exploitation of labor.
C) interest is the reward for bearing risk.
D) profits are derived from innovation.
E) interest is best explained by the liquidity preference theory.
Q3) Land is defined by economists as an input whose ________ is fixed.
A) price
B) value
C) tax rate
D) quantity
E) revenue
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13
Chapter 12: Poverty,income Inequality,and Discrimination
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Sample Questions
Q1) Since the end of World War II,the incidence of poverty as measured by the Social Security Administration's criterion has ________ percent of the population.
A) held steady at about 15
B) declined from about 50 to 25
C) increased from about 20 to 24
D) declined from about 30 to 15
E) increased from about 25 to 32
Q2) In 2012,the top 5 percent of U.S.households received incomes in excess of
A) $5 million.
B) $1 million.
C) $500,000.
D) $250,000.
E) $200,000.
Q3) Those at the lowest end of the income distribution are typically those who A) have large amounts of inherited wealth.
B) are disabled, single, or lacking in employable skills.
C) hold jobs requiring extensive training.
D) have unique abilities or skills.
E) manage to obtain monopoly power.
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Page 14
Chapter 13: Economic Growth
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Sample Questions
Q1) Malthus believed that maintaining or improving humanity's standard of living would be possible only with
A) technological change.
B) war, famine, or the universal adoption of birth control measures.
C) the introduction of widespread public assistance programs.
D) an expansion of the Corn Laws limiting imports.
E) an accumulation of capital.
Q2) An element of economic welfare that is NOT effectively captured in growth measurement of real per capita GDP is
A) population growth.
B) output growth.
C) the rate of inflation.
D) income distribution.
E) a change in the price level.
Q3) High rates of economic growth are clearly related to high rates of A) unemployment.
B) consumption.
C) inflation.
D) technological change.
E) taxes on profits.
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Chapter 14: Public Goods and the Role of the Government
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Q1) With which of the following would Milton Friedman probably agree?
A) All people should have equal incomes.
B) Economic and political freedoms are likely to be lost if we rely too heavily on government to solve economic problems.
C) The nation suffers because too little is spent on governmental services such as transportation, education, and urban renewal.
D) The price system involves substantial coercion and must be supervised carefully.
E) Government tends to be more efficient and to respond more quickly than the market.
Q2) Assume an excise tax is imposed on the sale of a good described by the diagram.The excise tax is best illustrated by
A) AB.
B) CD.
C) DF.
D) 0F.
E) 0E.
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Chapter 15: National Income and Product
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Sample Questions
Q1) Negative net private domestic investment means that
A) intermediate goods are being double counted.
B) gross investment is smaller than depreciation.
C) imports are greater than exports.
D) indirect business taxes are rising.
E) a country's stock of capital goods is rising.
Q2) GDP is ________ billion.
A) $1,240
B) $1,250
C) $1,340
D) $1,640
E) $2,590
Q3) The two methods of measuring the value of GDP are the ________ approaches.
A) input and output
B) direct and residual
C) business and household
D) domestic and foreign
E) income and expenditures
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17
Chapter 16: Business Fluctuations and Unemployment
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Sample Questions
Q1) If the aggregate demand and supply curves intersect in the positively sloped range of the aggregate supply curve,a decrease in aggregate demand decreases
A) the price level but not total real output.
B) total real output but not the price level.
C) both total real output and the price level.
D) neither total real output nor the price level.
E) total employment while increasing the price level.
Q2) In the long run,the aggregate supply curve is vertical because A) in the long run, potential output is less than actual output.
B) input prices and output prices are unaffected by changes in aggregate demand.
C) aggregate demand becomes horizontal.
D) input prices change by the same proportion as product prices, leaving output levels unchanged.
E) excess capacity allows firms more resource flexibility.
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18
Chapter 17: The Determination of National Output and the Keynesian Multiplier
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Sample Questions
Q1) If the interest rate is 7 percent,the number of projects undertaken would be
A) 1.
B) 2.
C) 3.
D) 4.
E) 5.
Q2) If disposable income rises by $100 billion and personal consumption expenditure rises by $60 billion,what is the average propensity to consume?
A) 0.60
B) 0.40
C) -0.40
D) -1.00
E) impossible to calculate from these figures
Q3) An increase in autonomous investment spending initially produces an equal
A) increase in household consumption.
B) decrease in household saving.
C) increase in income for workers and suppliers.
D) decrease in induced investment spending.
E) increase in depreciation.
Page 19
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Chapter 18: Fiscal Policy and National Output
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Q1) Lower personal tax rates reduce
A) intended spending.
B) the equilibrium level of GDP.
C) the value of the multiplier.
D) the difference between GDP and disposable income.
E) the level of employment.
Q2) The fundamental idea of fiscal policy is that
A) the government should spend more than it collects in taxes.
B) decision making should be left to the Council of Economic Advisers.
C) the government can change the equilibrium GDP by promoting a change in public and/or private spending.
D) the government should always balance its budget.
E) unemployment is a less serious concern than inflation.
Q3) In a simple Keynesian model,an increase in government spending,other things being equal
A) increases the equilibrium GDP by a multiplier effect.
B) alters the composition of, but not the total amount of, intended spending.
C) shifts the C + I + G line downward.
D) pushes the aggregate demand curve to the left, causing price levels to fall.
E) changes the angle of the 45-degree line.
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Chapter 19: Inflation
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Q1) Germany's decision after World War I to print more money rather than tax its citizens to pay reparations resulted in
A) runaway inflation that totally destroyed Germany's middle class.
B) severe creeping inflation that took several years to control.
C) decreased inflation.
D) a mild, temporary inflation that actually boosted economic production.
E) the value of the mark rising relative to the U.S. dollar.
Q2) Inflation caused by increases in total intended spending is called
A) cost-push inflation.
B) the wage price spiral.
C) the crowding-out effect.
D) supply-side accommodation.
E) demand-side inflation.
Q3) Supply-side inflation is best illustrated by a
A) rightward shift in the aggregate supply curve.
B) rightward shift in the aggregate demand curve.
C) leftward shift in the aggregate supply curve.
D) leftward shift in the aggregate demand curve.
E) simultaneous rightward shift in the aggregate supply curve and a leftward shift in the aggregate demand curve.
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Chapter 20: Money and the Banking System
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Q1) In the absence of fractional-reserve banking practices,commercial banks would A) be less safe as places to keep money.
B) have more money available to be put to work on behalf of business firms.
C) charge depositors higher fees for keeping deposits.
D) be considered as nonprofit organizations.
E) need to borrow money if a run occurred.
Q2) The process of cumulative expansion of demand deposits assumes that no depositor withdraws cash from the banking system.If some do,when the required reserve ratio is 25 percent and no bank keeps excess reserves,a deposit of $10,000 in newly printed money will lead to an increase in the money supply of A) less than $30,000.
B) $30,000.
C) $40,000.
D) $50,000.
E) $60,000.
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22
Chapter 21: The Federal Reserve and Monetary Policy
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Q1) Increases in the discount rate tend to tighten the money supply by
A) making it more expensive for member banks to augment their reserves by borrowing from the Fed.
B) forcing member banks to recall loans.
C) inducing banks to sell government securities.
D) reducing the amount of demand deposits that a given amount of reserves can legally support.
E) increasing the interest rate banks are legally allowed to pay depositors.
Q2) Monetary policy is carried out primarily through actions taken by the A) president of the United States.
B) large member banks of the Federal Reserve System.
C) Treasury Department on advice from the Board of Governors of the Federal Reserve System.
D) Federal Reserve Board and Federal Open Market Committee.
E) chairperson of the Board of Governors of the Federal Reserve System.
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23
Chapter 22: Supply Shocks and Inflation
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Q1) Incomes policies are another name for
A) the Employment Act of 1946.
B) functional finance.
C) welfare programs.
D) wage and price guidelines and/or controls.
E) a full-employment budget.
Q2) A major factor leading to the supply-side inflation of the middle and late 1970s was the
A) tight money policies carried out by the Fed.
B) presence of considerable slack in the economy.
C) decreases in spending when resources were less than fully employed.
D) significant increases in the prices of important materials (for example, crude oil).
E) the rapid increase in labor productivity in the economy.
Q3) According to Friedman and Phelps,the long-run Phillips curve is
A) horizontal.
B) vertical.
C) downward sloping from left to right.
D) first upward, then downward sloping from left to right.
E) shifting upward and out from the origin.
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Page 24
Chapter 23: Productivity,growth,and Technology Policy
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Q1) In the video,Nariman Behravesh argued that the supply-side impact of the Reagan tax cuts was
A) very large, leading to increased government tax revenues.
B) about equal in magnitude to the demand-side impact of those cuts.
C) enough to ensure that the size of the federal budget deficit would decrease.
D) small at first but likely to grow as time went on.
E) virtually nonexistent, although they did boost investment and lead to higher productivity.
Q2) In the Stagflation video,economist Laffer argued that
A) a penny saved is a penny earned.
B) people do not work to pay taxes.
C) demand creates its own supply.
D) output per worker is a poor measure of productivity.
E) expected rates of return on R&D are positively correlated with the rate of inflation.
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Chapter 24: Surpluses,deficits,public Debt,and the Federal Budget
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Q1) Balancing the government's budget every year
A) is necessary because all debts eventually come due.
B) is a fundamental tenet of Keynesian economics.
C) is sensible for the same reasons as is balancing the family budget.
D) makes it difficult to use fiscal policy to stabilize the economy.
E) results in simultaneous inflation and unemployment.
Q2) A bill incorporating a major tax change
A) is first considered by the House Ways and Means Committee.
B) is considered by the House after it is approved by the Senate.
C) may be vetoed by the central bank.
D) is sent to a conference committee when differences exist between Congress and the president.
E) need be passed only by the House if the two legislative branches cannot agree.
Q3) As a result of government borrowing,private sector borrowing is
A) unaffected.
B) reduced by $100 billion.
C) reduced by $200 billion.
D) reduced by $300 billion.
E) reduced by $500 billion.
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Chapter 25: Monetary Policy,interest Rates,and Economic Activity
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Q1) Using monetary policy to help close a recessionary gap
A) shifts the aggregate supply curve to the left.
B) is ineffective if the short-run aggregate supply curve is close to horizontal.
C) requires that people not spend excess money balances to ensure falling wages and prices.
D) leads to increased unemployment unless price levels rise.
E) has inflationary consequences if the short-run aggregate supply curve is very steep.
Q2) In deciding on a policy,the Fed is faced with two difficult problems: The inability of experts to agree on the best measure of the degree of tightness of monetary policy and A) a lack of data on financial markets.
B) a need for approval from Congress and the president.
C) the long lag between an action taken by the Fed and its effect on the economy.
D) an inability to decide on a proper definition of the monetary base.
E) the lack of an adequate research staff.
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Chapter 26: Controversies Over Stabilization Policy
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Q1) A contemporary economist closely associated with the hypothesis of rational expectations is
A) Milton Friedman.
B) John Muth.
C) John Maynard Keynes.
D) Franco Modigliani.
E) Paul Samuelson.
Q2) A(n)________ policy rule allows the behavior of the variable governed by the policy rule to change based on future circumstances.
A) effective
B) domestic
C) feedback
D) managerial
E) golden
Q3) It is likely that involuntary unemployment would be reduced if wage rates were
A) rigid.
B) perfectly flexible.
C) indexed to upward movements in the price level but downwardly inflexible.
D) inversely related to labor productivity.
E) positively related to the unemployment rate.
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Chapter 27: International Trade
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Q1) The Trigger Price Mechanism
A) raised tariffs on imported steel.
B) was used by U.S. steel makers as a noncollusive way to set their prices.
C) is used to establish currency prices in foreign exchange markets.
D) tied imported steel prices to U.S. unemployment rates in the steel industry.
E) used the Japanese costs of producing steel as the guide for starting dumping investigations.
Q2) Goods and services produced in the United States and sold to other countries are called
A) extracts.
B) implants.
C) exurbs.
D) imports.
E) exports.
Q3) The terms of trade reflect the
A) equation of exchange.
B) gross-net export ratio.
C) balance of trade divided by the transactions demand for money.
D) difference between the trade surplus and consumer surplus.
E) international supply and demand curves for the traded goods.
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Chapter 28: Exchange Rates and the Balance of Payments
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Q1) In the diagram above,under fixed exchange rates,a foreign currency shortage for Americans is best illustrated by distance
A) AB.
B) BE.
C) CD.
D) BE + CD.
E) BE - CD.
Q2) In today's world market,the value of a dollar at any given time depends on
A) congressional mandate.
B) signed international agreements.
C) the price of gold.
D) the current exchange rate.
E) EMS guidelines.
Q3) The exchange rate system that has prevailed since 1973 is best described as A) fixed.
B) flexible.
C) indexed.
D) pegged.
E) the gold standard.
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Page 30