Introduction to Macroeconomics Study Guide Questions
Course Introduction
Introduction to Macroeconomics explores the foundational concepts and principles that govern the overall economy. This course examines topics such as national income, economic growth, unemployment, inflation, and the role of government fiscal and monetary policy. Students will learn how macroeconomic indicators are measured, how markets interact at the national and global levels, and the factors influencing economic stability and growth. Through real-world case studies and data analysis, students will gain a comprehensive understanding of how economic policies affect individuals, businesses, and societies as a whole.
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Macroeconomics 11th Edition by Michael Parkin
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Page 2
Chapter 1: What Is Economics
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Q1) Overtime worked by a JCPenney associate is considered ________ and earns
A) labor; wages.
B) entrepreneurship; profit.
C) human capital; interest.
D) labor; profit.
Answer: A
Q2) If two points on a line are x = 2,y = 5 and x = 7,y= 10,what is the slope of this line?
Answer: The slope equals the change in the y-variable divided by the change in the x-variable.So,the slope equals \[( 10 - 5 ) / ( 7 - 2 ) = ( 5 ) / ( 5 ) = 1.00 \text {. }\]
Q3) A scatter diagram plots the value of one economic variable against time.
A)True
B)False
Answer: False
Q4) Define marginal cost and marginal benefit.
Answer: Marginal cost is the opportunity cost of an increase in an activity.Marginal benefit is the benefit of an increase in an activity.
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Chapter 2: The Economic Problem
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Q1) If the marginal benefit of a good exceeds its marginal cost
A) we've achieved efficient resource use.
B) we should produce more to achieve the allocatively efficient use of resources.
C) we should produce less to achieve the allocatively efficient use of resources.
D) we cannot tell if more or less should be produced to achieve the allocatively efficient use of resources.
Answer: B
Q2) Consider the PPF for office buildings and housing shown in the figure above.Which point in the diagram shows that resources to produce office buildings and housing are being misallocated,unused,or both?
A) Point F
B) Point G
C) Point H
D) Point I
Answer: A
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Chapter 3: Demand and Supply
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Q1) If the quantity demanded exceeds the quantity supplied,then there is
A) a shortage and the price is below the equilibrium price.
B) a shortage and the price is above the equilibrium price.
C) a surplus and the price is below the equilibrium price.
D) a surplus and the price is above the equilibrium price.
Answer: A
Q2) Growers expect that the price of a bushel of wheat will increase in one month.This belief results in
A) an increase in current supply of wheat.
B) a decrease in current supply of wheat.
C) a decrease in future supply of wheat.
D) no change in current or future supply of wheat.
Answer: B
Q3) Producers of DVDs are able to lower the wage rate that they pay to their workers. You predict that the
A) price will rise.
B) quantity supplied will decrease.
C) supply curve will shift leftward.
D) supply curve will shift rightward.
Answer: D
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Chapter 4: Measuring GDP and Economic Growth
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Q1) Personal consumption expenditures include
A) expenditures by households on goods and services produced only in the United States.
B) expenditures by households on goods and services produced in the United States and the rest of the world.
C) the purchase of new homes.
D) the purchase of used goods and new goods.
Q2) In the computation of GDP,social security payments count as
A) transfer payments and are included in GDP.
B) transfer payments and are not included in GDP.
C) government expenditure on goods and services and are included in GDP.
D) government expenditure on goods and services and are not included in GDP.
Q3) Trend refers to
A) the scale used on the x- and y-coordinates.
B) increases but not decreases of a variable.
C) decreases but not increases of a variable.
D) a general tendency for a variable to rise or fall.
Q4) Why does real GDP have limitations in determining economic welfare?
Q5) List and discuss various types of goods and services omitted from measured GDP.
Page 6
Q6) What is the distinction between gross investment and net investment?
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Chapter 5: Monitoring Jobs and Inflation
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Q1) Suppose the working-age population is 220 million,the labor force is 150 million,and the unemployment rate is 10 percent.The number of unemployed people is
A) 15 million.
B) 22 million.
C) 37 million.
D) 7 million.
Q2) The consumer price index (CPI)
A) compares the cost of the typical basket of goods consumed in period 1 to the cost of a basket of goods typically consumed in period 2.
B) compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.
C) measures the increase in the prices of the goods included in GDP.
D) is the ratio of the average price of a typical basket of goods to the cost of producing those goods.
Q3) The current U.S.population is about 300 million yet the current U.S.labor force is only about 150 million.What subtractions are made from the population number to set it equal to the labor force?
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Chapter 6: Economic Growth
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Q1) Define labor productivity.Discuss the relationship between labor productivity,human capital growth,and technology change.
Q2) The demand curve for labor shows how many hours workers demand to work.
A)True
B)False
Q3) Classical growth theory argues that when real GDP per person rises above the subsistence level,
A) technological change slows down, stagnating the economy.
B) population growth increases, driving real GDP per person back to subsistence level.
C) people don't want to work as much, decreasing labor supply.
D) the economy enjoys a period of permanent growth.
Q4) During 2014,the country of Economia had a real GDP of $115 billion and the population was 0.9 billion. In 2013,real GDP was 105 billion and the population was 0.85 billion. In 2014,real GDP per person was
A) $128
B) $124
C) $135
D) $117
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Chapter 7: Finance, Saving, and Investment
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Q1) The ________ interest rate approximately equals the ________ interest rate minus ________.
A) nominal; real; depreciation
B) nominal; real; the inflation rate
C) real; nominal; depreciation
D) real; nominal; the inflation rate
Q2) Suppose the United States spends more on foreign goods and services than foreigners spend on our goods and services and the United States sells no foreign assets.Then the
A) United States must borrow an amount equal to national saving.
B) United States must borrow an amount equal to imports minus exports.
C) rest of the world may or may not finance the U.S. trade deficit.
D) United States must borrow an amount equal to consumption expenditure plus investment.
Q3) The table above shows the loanable funds supply and demand schedules.
a) What is the equilibrium real interest rate and the equilibrium quantity of loanable funds?
b) If the real interest rate is 4 percent,is there a shortage or surplus? What will happen in the market?
Q4) How does expected future income affect saving supply?
Page 9
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Chapter 8: Money, The Price Level, and Inflation
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Q1) Checks ________ money and credit cards ________ money. A) are; are
B) are not; are C) are; are not D) are not; are not
Q2) "When the Fed buys securities from a bank,the quantity of money eventually decreases by a fraction of the initial change in the monetary base." Is the previous statement correct or incorrect?
Explain your answer.
Q3) According to the quantity theory,in the long run,an increase in the growth rate of ________ leads to an increase in the ________.
A) real GDP; inflation rate
B) the quantity of money; growth rate of real GDP
C) the quantity of money; inflation rate
D) real GDP; growth rate of velocity
Q4) The increased use of automatic teller machines has decreased the demand for money.
A)True
B)False
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) Other things remaining the same,if the U.S.interest rate differential increases,the demand curve for U.S.dollars shifts ________ and the supply curve of U.S.dollars shifts
A) rightward; rightward
B) rightward; leftward
C) leftward; rightward
D) leftward; leftward
Q2) In the figure above,suppose the demand for dollars temporarily decreases so that the demand curve shifts to D .To maintain the target exchange rate,the Fed
A) can sell dollars.
B) can buy dollars.
C) must violate both interest rate parity and purchasing power parity.
D) cannot maintain the target exchange rate.
Q3) What is purchasing power parity?
Q4) The U.S.interest rate minus the foreign interest rate is called the ________.
A) foreign interest rate differential
B) U.S. bond rate differential
C) U.S. interest rate differential
D) U.S. stock yield differential
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Chapter 10: Aggregate Supply and Aggregate Demand
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Questions
Q1) In 2008 the money wage rate in Ireland increased by 4 percent while the price level increased by 8 percent. As a result,Ireland's
A) short-run aggregate supply curve shifted leftward.
B) short-run aggregate supply curve shifted rightward.
C) long-run aggregate supply curve shifted rightward.
D) short-run and long-run aggregate supply curves shifted rightward.
Q2) Wealth and substitution effects explain why the aggregate demand curve has a positive slope.
A)True
B)False
Q3) Which of the following events will increase long-run aggregate supply?
A) an increase in the interest rate
B) an increase in resource prices
C) a decrease in expected profit
D) an advance in technology
Q4) The curve labeled A in the above figure will shift rightward when
A) the price level falls.
B) technology increases.
C) population falls.
D) the price level rises.
Page 12
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Chapter 11: Expenditure Multipliers
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Q1) In the above table,savings are positive when disposable income is greater than A) zero.
B) $100.
C) $300.
D) $500.
Q2) In the figure above,the marginal propensity to consume is
A) 3.00.
B) 1.00.
C) 0.67.
D) 0.25.
Q3) In a simple economy in which prices are constant and with no income taxes or imports,the marginal propensity to save is 0.2.If exports increase $50,what impact will that have on aggregate expenditure?
A) increase by $250
B) increase by $100
C) decrease by $250
D) decrease by $100
Q4) What is the relationship between the MPC and the slope of the AE curve?
Q5) Explain why the multiplier is greater than 1.
Q6) What effect does an increase in the MPC have on the slope of the AE curve?
Page 13
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Chapter 12: Inflation, Jobs, and the Business Cycle
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Q1) The long-run Phillips curve shows the relationship between the inflation rate and the unemployment rate when the
A) real interest rate equals the nominal interest rate.
B) real interest rate is zero.
C) actual inflation rate equals the expected inflation rate.
D) inflation rate is zero.
Q2) The short-run Phillips curve
A) slopes downward.
B) slopes upward.
C) is horizontal.
D) is vertical.
Q3) In the long run,what is the tradeoff between inflation and unemployment? Explain your answer using Phillips curve analysis.
Q4) The intertemporal substitution effect is the factor that creates business cycles in the Keynesian theory of the business cycle.
A)True
B)False
Q5) What is the factor that leads to business cycles in the Keynesian cycle theory?
Q6) What is demand-pull inflation?
Q7) What is a cost-push inflation?
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Chapter 13: Fiscal Policy
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Q1) Does the figure above illustrate a recessionary or an inflationary gap?
What do potential GDP and real GDP equal?
What is an appropriate fiscal policy to restore real GDP to potential real GDP?
Q2) What is automatic fiscal policy?
How does it affect the budget deficit and/or budget surplus during a recession and during an expansion?
Q3) At the start of 2013,the U.S.government predicted that economic growth would rise by 2016 and that the government's deficit would also increase.The government therefore was predicting that in 2016 the cyclical deficit would ________ and the structural deficit would ________.
A) increase; increase
B) decrease; increase
C) increase; decrease
D) decrease; decrease
Q4) The stimulus package passed by Congress in 2009 is an example of A) automatic fiscal policy
B) discretionary fiscal policy
C) monetary policy
D) increased taxation
Q5) How does a tax on labor income affect potential GDP?
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Chapter 14: Monetary Policy
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Q1) In the above figure,suppose the economy is at point D.If the Fed eases to fight the recession,the economy will move to
A) point A.
B) point B.
C) point C.
D) Either point A or point C, depending on precisely how the Fed eased.
Q2) Long-term interest rates fluctuate more than short-term rates.
A)True
B)False
Q3) An inflation rate targeting rule
A) reduces uncertainty about monetary policy.
B) will not work if the Fed continues to sue open market operations.
C) has been adopted the by the Fed in response to the financial crisis of 2008-2009.
D) means that the inflation rate must exceed 5 percent in order for the rule to be effective.
Q4) If the Fed is concerned about inflation,in the short run what is the proper monetary policy to restore price stability?
What actions can the Fed undertake to restore price stability?
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Chapter 15: International Trade Policy
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Q1) Based on the table below,at what world price would the country import?
\[\begin{array} { | l | l | l | }
\hline \text { Price } & \text { QDemanded } & \text { QSupplied } \\
\hline 2 & 100 & 70 \\
\hline 4 & 95 & 75 \\
\hline 6 & 90 & 80 \\
\hline 8 & 85 & 85 \\
\hline 10 & 80 & 90 \\
\hline 12 & 75 & 95 \\
\hline
\end{array}\]
A) all prices below $8
B) at exactly $8
C) all prices above $8
D) it is impossible to say
Q2) How does a tariff affect the domestic price of the import,the domestic consumption,the domestic production,and the quantity imported?
Q3) Some people assert that protection from foreign competition prevents rich countries from exploiting developing countries.What is this argument in more detail and what is its flaw?
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Chapter 16: Introduction
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Q1) The table above lists six points on the production possibilities frontier for cheese and DVDs.From this information you can conclude that production is inefficient if this economy produces
A) 2 tons of cheese and 56 thousand DVDs.
B) 8 tons of cheese and 21 thousand DVDs.
C) 5 tons of cheese and 48 thousand DVDs.
D) 7 tons of cheese and 20 thousand DVDs.
Q2) The opportunity cost of a good is
A) the income you forgo to get it.
B) the lowest valued alternative you give up to get it.
C) the highest valued alternative you give up to get it.
D) all alternatives you give up to get it.
Q3) If pizza is a normal good,then an increase in people's incomes shifts the ________ curve ________.
A) demand; rightward
B) demand; leftward
C) supply; rightward
D) supply; leftward
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Chapter 17: Monitoring Macroeconomic Performance
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Q1) The accumulated loss of output that results from a slowdown in the growth rate of GDP per person is called the
A) Keynesian gap.
B) Okun gap.
C) Lucas wedge.
D) unemployment wedge.
Q2) In the United States,over time GDP
A) stays relatively constant with occasional increases.
B) increases most of the time and decreases occasionally.
C) increases and decreases roughly about the same amount.
D) decreases more often than it increases.
Q3) The difference between nominal GDP and real GDP is that real GDP eliminates the effects from
A) depreciation.
B) inflation.
C) the unemployment rate.
D) changes in productivity.
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Chapter 18: Macroeconomic Trends
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Q1) Purchasing new capital ________.
A) creates an upward movement along the aggregate production function
B) creates a downward movement along the aggregate production function
C) shifts the aggregate production function upward
D) shifts the aggregate production function downward
Q2) The demand for labor ________ and the accumulated skill and knowledge of human is called ________.
A) increases when productivity rises; technology
B) depends on the nominal wage rate; human capital
C) depends on the real wage rate; human capital
D) is independent of technology; the marginal product of labor
Q3) If the U.S.interest rate differential ________,the demand for dollars ________ and the U.S.exchange rate ________.
A) increases; increase; appreciates
B) decreases; increase; appreciates
C) increases; decrease; depreciates
D) decreases; decreases; appreciates
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Chapter 19: Macroeconomic Fluctuations
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Q1) If the economy is at the natural unemployment rate,
A) real GDP > potential GDP.
B) real GDP < potential GDP.
C) real GDP = potential GDP.
D) All of the above can occur when the economy is at the natural unemployment rate.
Q2) The marginal propensity to consume measures
A) the cyclical deficit.
B) the structural deficit.
C) how much consumption expenditure occurs at the equilibrium level of income.
D) how much of a change in consumption expenditure results from a change in disposable income.
Q3) The level of potential GDP
A) increases when the inflation rate rises.
B) rises and falls with the business cycle.
C) determines the location of the long-run aggregate supply curve.
D) changes when cyclical unemployment changes.
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Chapter 20: Macroeconomic Policy
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Q1) An increase in taxes I. violates the Taylor rule.
II) decreases real GDP.
III) forces the Fed to change its instruments.
A) I only
B) II only
C) I and III
D) I and II
Q2) A decrease in the reserves of commercial banks could be the result of
A) an increase in the velocity of circulation.
B) the sale of government securities by the Federal Reserve.
C) a decrease in the velocity of circulation.
D) an increase in the required reserve ratio.
Q3) An economy has real GDP of $300 billion and potential GDP of $240 billion.To move the economy to potential GDP,the government should ________ taxes and/or ________ government expenditure.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
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