Introduction to Macroeconomics Exam Review
Course Introduction
Introduction to Macroeconomics offers students a foundational understanding of the broad economic forces and institutions that shape national and global economies. The course examines key topics such as national income, inflation, unemployment, fiscal and monetary policy, and the role of government and central banks in managing economic growth. Through theoretical frameworks and real-world examples, students learn how economic indicators are measured, what influences business cycles, and how policies affect both individuals and societies. This course equips students with analytical tools to interpret economic trends and policy debates, preparing them for further studies in economics or informed participation in economic discussions.
Recommended Textbook
Macroeconomics 10th Edition by William Boyes
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Chapter 1: The Wealth of Nations: Ownership and Economic
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Sample Questions
Q1) Private property rights are important because:
A) they create incentives for people to improve their standard of living.
B) the Constitution says so.
C) they allow students to choose their major field of study in college.
D) an economy cannot function without them.
E) goods cannot be produced without them.
Answer: A
Q2) The basic economic problem is:
A) inflation.
B) unemployment.
C) poverty.
D) scarcity.
E) lack of money.
Answer: D
Q3) Scarcity is a concept that implies that choices must be made.
A)True
B)False
Answer: True
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Chapter 2: Scarcity and Opportunity Costs
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Sample Questions
Q1) A world-renowned brain surgeon can type twice as fast as her secretarial assistant. Which of the following statements is true in this situation?
A) The secretary has an absolute advantage in typing.
B) The surgeon should do her own typing to save money.
C) The surgeon should fire the assistant and work weekends and evenings to stay up on her typing.
D) The surgeon should spend her time doing brain surgery and allow her secretary to do the typing because the secretary has a comparative advantage in typing.
E) The surgeon should spend her time doing brain surgery and allow her secretary to do the typing because the surgeon has a comparative advantage in typing.
Answer: D
Q2) If an economy is operating at a point outside the PPC, either the society has resources that are not being fully used or production is not efficient.
A)True
B)False
Answer: False
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Chapter 3: The Market and Price System
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Sample Questions
Q1) The market demand curve is derived by summing individual demand curves horizontally.
A)True
B)False
Answer: True
Q2) According to Table 3.3, equilibrium in the market for bread occurs at the price of:
A) $2 per unit
B) $3 per unit
C) $4 per unit
D) $4.5 per unit
E) $1.5 per unit
Answer: B
Q3) The downward slope of the demand curve is attributed to:
A) the inverse relationship between price and quantity demanded.
B) the direct relationship between income and quantity demanded.
C) the direct relationship between price and quantity demanded.
D) the inverse relationship between income and quantity demanded.
E) the direct relationship between consumer preferences and quantity demanded.
Answer: A
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Chapter 4: The Aggregate Economy
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Sample Questions
Q1) The United States is the largest consumer and importer of grains and other agricultural output in the world.
A)True
B)False
Q2) An unmarried couple holding joint title to their condominium constitutes a household.
A)True
B)False
Q3) Identify the international organization that makes loans to developing countries.
A) The World Bank
B) The Federal Reserve
C) The World Trade Organization
D) The Industrial Development Board
E) The Bank of England
Q4) If a corporation cannot pay its debts, creditors cannot seek payment from shareholders' personal wealth.
A)True
B)False
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Chapter 5: National Income Accounting
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Sample Questions
Q1) Which of the following is true of nominal GDP?
A) It acts as an indicator of the general price level in the economy.
B) It measures the real level of output in the economy.
C) It measures national output based on the current year's prices.
D) It tends to rise by a smaller amount than real GDP when the general price level increases.
E) It measures changes in the output of intermediate goods and services.
Q2) Refer to Table 5.7. Compute the price index for the third year.
A) 150
B) 183
C) 100
D) 118
E) 130
Q3) The stock of unused goods held by a firm is called a(n):
A) depreciation.
B) supplement.
C) deadweight loss.
D) excess capacity.
E) inventory.
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Chapter 6: An Introduction to the Foreign Exchapterange
Market and the Balance of Payments
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Q1) If the exchange rate between the Canadian dollar [C$] and the U.S. dollar [$] on January 6, 2010 is C$/$ = 1.03, then the exchange rate $/C$ will be:
A) 0.67.
B) 0.79.
C) 0.97.
D) 1.97.
E) 1.33.
Q2) Currency and bank deposits that are denominated in foreign money are called: A) traveler's checks.
B) international funds.
C) foreign exchange.
D) foreign remittances.
E) international bonds.
Q3) If Michelle can buy a woolen jacket for 40 yuan in China, and Rebecca pays $40 for the same jacket in the U.S., it implies that the exchange rate between these two nations is 10 yuan = $1.
A)True
B)False
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Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) During a period of economic expansion, we would expect increasing levels of employment.
A)True
B)False
Q2) When the real interest rate is less than zero, then:
A) a creditor will gain purchasing power.
B) a creditor will just break even on his or her real loan return.
C) a creditor will lose purchasing power.
D) a creditor will benefit from inflation.
E) a creditor's purchasing power will not be affected, because the nominal interest rate is greater than zero.
Q3) Hyperinflation is usually accompanied by a great macroeconomic expansion.
A)True
B)False
Q4) When government provides generous unemployment benefits, unemployed workers have lesser incentives to look for jobs.
A)True
B)False
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Chapter 8: Macroeconomic Equilibrium: Aggregate
Demand and Supply
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Sample Questions
Q1) If there is a sudden jump in the inflation rate, the purchasing power of financial assets will immediately fall.
A)True
B)False
Q2) As the level of real GDP increases, the short-run aggregate supply curve:
A) shifts to the right.
B) shifts to the left.
C) becomes flatter.
D) becomes steeper.
E) becomes horizontal to the real GDP axis.
Q3) An increase in aggregate demand due to higher foreign income will cause:
A) domestic equilibrium GDP to increase.
B) domestic equilibrium GDP to decrease.
C) domestic prices to fall.
D) foreign prices to fall.
E) foreign equilibrium GDP to fall.
Q4) In the long run, increased consumption spending raises only the price level.
A)True
B)False
10
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Chapter 9: Aggregate Expenditures
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Sample Questions
Q1) Refer to Figure 9.5. The amount of government spending is indicated by the distance
A) Y Y
B) EF
C) Y Y
D) BC
E) AB
Q2) The sum of consumption and saving is called _____.
A) net investment
B) net income
C) personal income
D) disposable income
E) transfer payment
Q3) If it is assumed that there are absolutely no taxes in an economy, then aggregate consumption will be drawn as a function of:
A) disposable income.
B) real GDP.
C) government expenditure.
D) private income.
E) government transfers.
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Chapter 10: Income and Expenditures Equilibrium
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Sample Questions
Q1) Which of the following is true at the equilibrium level of income?
A) Unplanned inventory changes are positive.
B) Firms are unable to produce the desired rate of output.
C) Autonomous consumption spending is equal to induced consumption spending.
D) Aggregate expenditures equal real GDP.
E) Unplanned investment spending is positive.
Q2) Calculate the marginal propensity to save for the economy from the information given in Table 10.4.
A) 0.9
B) 0.8
C) 0.5
D) 0.2
E) 0.1
Q3) A rise in the price level that reduces the real wealth of people who hold financial assets is an illustration of the:
A) interest rate effect.
B) monetary theory.
C) supply-side theory.
D) wealth effect.
E) trade effect
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) Which of the following is true of fiscal policy before the Great Depression of the 1930s?
A) Fiscal policy was made at the federal level.
B) Policies associated with national defense were made at the state level.
C) Environmental degradation and education were the focus areas of the federal government while other areas of government policy were dealt by individual states.
D) The federal budget was determined mostly by economists and not by politicians.
E) National defense and foreign trade were the focus areas of the federal government while other areas of government policy were dealt by individual states.
Q2) If the private sector anticipates higher future taxes as a result of a current budget deficit, current autonomous saving will decline.
A)True
B)False
Q3) Transfer payments that use income to establish eligibility act as automatic stabilizers.
A)True
B)False
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Chapter 12: Money and Banking
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Sample Questions
Q1) An increase in the amount of excess reserves held by a bank helps to increase the economy's money supply.
A)True
B)False
Q2) Money fails to act as a store of value when:
A) it is no longer backed by gold.
B) the inflation rate is very high.
C) the goods produced in an economy are indivisible.
D) the economy goes into a recession.
E) coins are replaced by paper money.
Q3) In the 1980s, some states in the United States had significantly more bank failures than other states. What industries did the former states depend on heavily?
A) Oil and agriculture
B) Tourism
C) Defense and aeronautics
D) Construction and textiles
E) The computer industry
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Chapter 13: Monetary Policy
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Sample Questions
Q1) When the government raises spending to promote economic growth, the Fed sells government bonds on the open market. This implies that the Federal Reserve and the federal government are following different policy goals.
A)True
B)False
Q2) Which of the following is assumed to be constant in the quantity theory of money?
A) The money supply
B) Real GDP
C) The price level
D) The velocity of money
E) Nominal GDP
Q3) Which of the following is an intermediate target of the Fed's policies?
A) Exchange rate
B) Unemployment
C) Money supply
D) Interest rate
E) Inflation
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Chapter 14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility,
and Sources of Business Cycles
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Q1) According to the theory of rational expectations, expansionary fiscal policy that is anticipated will:
A) cause wage expectations to adjust downward immediately following the lower price level.
B) increase the real wage rate in the long run.
C) cause a permanent decline in the natural rate of unemployment.
D) decrease the real wage rate in the long run.
E) cause wage expectations to adjust upward immediately following the higher price level.
Q2) When workers expect more inflation than actually occurs:
A) the Phillips curve becomes vertical.
B) the long-run Phillips curve shifts to the right.
C) the short-run Phillips curve shifts to the left.
D) there will be a movement down the short-run Phillips curve.
E) there will be a movement up the short-run Phillips curve.
Q3) In the long run, the economy is better off if policymakers exploit the short-run trad-eoff between inflation and the unemployment rate.
A)True
B)False
Page 16
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Chapter 15: Macroeconomic Viewpoints: New Keynesian,
Monetarist, and New Classical
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Q1) Traditional Keynesians would argue that fluctuations in aggregate demand are closely tied to fluctuations in investment.
A)True
B)False
Q2) The primary difference between new Keynesian economics and traditional Keynesian economics is that the former is more realistic about international trade, whereas the latter stresses the importance of inward oriented strategies.
A)True
B)False
Q3) An economist from which of the following schools of thought would most likely say"An increase in government expenditure will only increase inflation, because the aggregate supply curve is vertical"?
A) Neoclassical economics
B) Traditional classical economics
C) New Keynesian economics
D) Keynesian economics
E) Marxist economics
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Chapter 16: Economic Growth
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Sample Questions
Q1) Economic growth is measured as:
A) the quarterly percentage change in nominal GDP.
B) total output per year divided by the inflation rate.
C) total nominal GDP at the end of each year.
D) the percentage change in population growth per year.
E) the annual percentage change in real GDP.
Q2) It is believed that the relatively high rate of labor force growth in the developing countries does not translate into a high rate of economic growth because:
A) workers in developing countries have excess capital.
B) workers in developing countries are not motivated enough.
C) workers in developing countries do not have the natural resources needed for production.
D) workers in developing countries have very little capital.
E) the high birth rate is more than offset by an enormous mortality rate.
Q3) U.S. labor productivity had slowed down in the 1970s and 1980s, but recent data shows that labor productivity has once again increased in the country.
A)True
B)False
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Chapter 17: Development Economics
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Sample Questions
Q1) Generally, there is a strong positive correlation between per capita GNP and other measures of human development.
A)True
B)False
Q2) Import substitution is the only strategy used by developing countries to develop their manufacturing industries.
A)True
B)False
Q3) The Taiwanese government allows tax credits for domestic producers who compete with manufacturers in First World nations. This suggests that Taiwan engages in _____.
A) trade protectionism
B) export substitution
C) foreign exchange market intervention
D) import substitution
E) voluntary export restrictions
Q4) Poverty is usually defined by economists in relative terms.
A)True
B)False
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Chapter 18: Globalization
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Sample Questions
Q1) In the financial crises of the 1990s, countries lost international reserves trying to maintain the parity of their currencies.
A)True
B)False
Q2) The deleveraging of financial institutions led to the financial crisis of 2007-2008 sometimes also referred to as the _____.
A) stock crisis
B) debt crisis
C) stock market bubble
D) bank run
E) credit crisis
Q3) In this era of globalization, one of the main reasons why some countries have remained closed to the rest of the world is:
A) the fact that their governments follow policies that explicitly work against economic integration.
B) racial discrimination.
C) the fact that their governments impose extremely high mortgage taxes.
D) the establishment of minimum wages.
E) the fact that they are too poor to trade anything with the rest of the world.
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Chapter 19: World Trade Equilibrium
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Sample Questions
Q1) Nations trade what they produce in excess of their own consumption to:
A) generate jobs for the domestic economy.
B) earn "good will" from the World Bank.
C) prevent chronic surpluses from driving down domestic prices.
D) acquire other things they want to consume.
E) reduce the size of their foreign trade deficit.
Q2) If the export supply curve of tomatoes and the import demand curve of tomatoes of Luxembourg intersect at the international price level of tomatoes, then Luxembourg will suspend trading tomatoes in the international market.
A)True
B)False
Q3) The theory of comparative advantage is based on:
A) absolute opportunity costs.
B) relative opportunity costs.
C) total costs of production.
D) total costs, including transportation costs.
E) a comparison of marginal cost with average variable costs.
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Chapter 20: International Trade Restrictions
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Q1) Every country imposes tariffs on at least some imports.
A)True
B)False
Q2) According to Figure 20.2, if the world price per bushel of wheat is $25, what is the domestic production?
A) 300 bushels
B) 450 bushels
C) 400 bushels
D) 150 bushels
E) 200 bushels
Q3) Which of the following probably best explains why trade restrictions are imposed even if the costs to consumers are greater than the benefits to protected industries?
A) Indifference on the government's part to the interests of domestic workers
B) A desire to make other countries suffer
C) Successful lobbying by consumers
D) Successful lobbying by employers and workers
E) The government's preference to safeguard the interest of the producers at the expense of the consumers
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Chapter 21: Exchapterange Rates and Financial Links
Between Countries
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Sample Questions
Q1) The exchange-rate arrangement that emerged from the Bretton Woods conference is often referred to as the:
A) dollar exchange standard.
B) euro exchange standard.
C) gold exchange standard.
D) silver exchange standard.
E) flexible exchange rate standard.
Q2) Suppose a U.S. citizen invests $1,000 to purchase a one-year Japanese bond that has an interest yield of 10 percent. If the dollar appreciates 20 percent against the Japanese yen by the maturity date, the dollar value of the proceeds is _____.
A) $900
B) $1,100
C) $1,300
D) $1,500
E) $1,200
Q3) Because of their greediness, speculators are considered bad for exchange-rate markets.
A)True
B)False
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