Macroeconomic Policy Question
Bank
Course Introduction
Macroeconomic Policy explores the theory and practice of government interventions that influence a countrys overall economic performance. The course examines key concepts such as fiscal policy, monetary policy, and exchange rate policy, focusing on their roles in stabilizing the business cycle, promoting growth, and achieving macroeconomic goals like low inflation and full employment. Students will analyze policy tools, evaluate their effectiveness in addressing economic issues, and consider the implications of global economic integration on national policy choices. Through case studies and empirical evidence, the course provides a comprehensive foundation for understanding how policy decisions shape economic outcomes at the national and international level.
Recommended Textbook
ECON MACRO 6th Edition by William A. McEachern
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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Q1) The ceteris paribus assumption is a behavioral assumption.
A)True
B)False
Answer: False
Q2) Refer to the circular-flow model in Exhibit 1.2. Firms supply ________ to households through product markets.
A) goods and services
B) products
C) labor, capital, natural resources, and entrepreneurial ability
D) resources
E) wages, interest, rent, and profit
Answer: A
Q3) Economics is the only social science and the only business discipline for which the Nobel Prize is awarded.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Economic Tools and Economic Systems
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Sample Questions
Q1) An outward shift of the production possibilities frontier _____
A) reflects economic stability.
B) reflects economic growth.
C) reflects economic decline.
D) does not relate to the state of the economy.
E) is always a parallel shift.
Answer: B
Q2) Refer to Exhibit 2.2, which shows the production possibilities frontier for Good A and Good B. When moving from point f to point g, the production of _____
A) Good B increases without a change in the production of Good A.
B) Good A increases without a change in the production of Good B.
C) both Good A and Good B increases.
D) both Good A and Good B decreases.
E) Good B increases and the production of Good A decreases.
Answer: E
Q3) One flaw of pure capitalism is that a person who owns no resources could starve.
A)True
B)False
Answer: True
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Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Which of the following is true of sole proprietorships in the United States?
A) They are the most important form of business organization in terms of their numbers.
B) They are responsible for a large portion of the total production of goods and services in the U.S. economy.
C) They offer the owners less personal liability than the other forms of business organization.
D) There are no opportunity costs involved in operating such firms.
E) Such firms employ only one individual.
Answer: A
Q2) Which of the following is true of public goods?
A) The market mechanism helps to signal the quantity that is demanded by the public.
B) Payment for consumption is efficiently provided by market prices.
C) Consumption by one person does not preclude consumption of the same good by another person.
D) The public sector is guided to produce the correct quantity by market prices.
E) Voluntary contributions are sufficient to finance the production of public goods.
Answer: C
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Chapter 4: Demand, Supply, and Markets
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Sample Questions
Q1) If the number of consumers for a good increases, demand will ______
A) increase.
B) decrease.
C) not change.
D) stay the same, but price will increase.
E) stay the same, but price will decrease.
Q2) In which of the following situations is the change in the equilibrium price of a good indeterminate?
A) when supply decreases and demand increases
B) when demand decreases and supply increases
C) when demand remains constant and supply increases
D) when supply and demand both decrease
E) when supply remains constant and demand increases
Q3) The impact of a $200 increase in income on the quantity of housing demanded would be called an income effect.
A)True
B)False
Q4) If demand decreases, then quantity supplied will increase.
A)True B)False
Page 6
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Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) If the real GDP of a country in 2017 was $300 billion, its price index was 108.3, and its population was 150 billion, then real GDP per capita for that year was _____
A) $0.5 billion
B) $1 billion
C) $8.3 billion
D) $258.3 billion
E) $2 billion
Q2) Which of the following is the most likely to occur when a decrease in the price level in an economy affects the wealth of consumers?
A) a rightward shift of the aggregate supply curve
B) a leftward shift of the aggregate demand curve
C) a movement along the aggregate demand curve
D) a leftward shift of the aggregate supply curve
E) a leftward shift of both the aggregate demand and aggregate supply curves
Q3) The failure of the mercantilism policy and the tax policy during the Great Depression proves that economic policies are meaningless and they do more harm than good.
A)True
B)False
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Chapter 6: Tracking the U S Economy
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Sample Questions
Q1) If the consumer price index (CPI) is 160 one year and 175 the next, the annual rate of inflation as measured by the CPI is approximately _____
A) 4.5 percent.
B) 8.6 percent.
C) 9.4 percent.
D) 15 percent.
E) 175 percent.
Q2) The consumer price index (CPI) _____ inflation because it includes an item in the market basket only after the product becomes _____.
A) overstates; unpopular
B) overstates; obsolete
C) overstates; widely used
D) understates; widely used
E) understates; obsolete
Q3) Gross domestic product (GDP) understates total economic activity because it ignores household production of goods and services.
A)True
B)False
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Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) Consider an economy made up of 100 people who are sixteen years of age and older, 60 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The number of people in the labor force is _____
A) 30.
B) 60.
C) 85.
D) 90.
E) 70.
Q2) Consider an economy with an adult population of 100, 50 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The labor force participation rate is _____.
A) 100 percent
B) 60 percent
C) 50 percent
D) 40 percent
E) 10 percent
Q3) Most of the unemployment during the Great Depression was cyclical unemployment.
A)True
B)False
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Chapter 8: Productivity and Growth
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Sample Questions
Q1) A water bottle manufacturing plant uses a three-step procedure to produce each unit of bottle. The first step is casting, which needs 35 workers to operate the furnace. The second step is quenching, which needs 35 workers. At the third step, bottles are prepared for dispatch in the assembly line with the help of 70 workers. If the factory produces 14,000 bottles per day, then the productivity of labor in the factory is equal to
A) 200 bottles per worker.
B) 400 bottles per worker.
C) 100 bottles per worker.
D) 140 bottles per worker.
E) 220 bottles per worker.
Q2) Refer to Exhibit 8.3, which shows a per-worker production function. The bowed shape of the per-worker production function illustrates the law of diminishing returns to scale. A)True B)False
Q3) Since 1870, U.S. labor productivity growth has averaged roughly 2.1 percent annually. A)True B)False
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Chapter 9: Aggregate Demand
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Sample Questions
Q1) What changes in the income-expenditure model if spending exceeds GDP?
A) consumption
B) prices
C) expenditures
D) inventories
E) income
Q2) Refer to Table 9.2, which shows the values of different components of aggregate expenditure of an economy. At the equilibrium level of gross domestic product (GDP), saving equals _____
A) $0.4 trillion.
B) $0.1 trillion.
C) $0.5 trillion.
D) $0.2 trillion.
E) $0.3 trillion.
Q3) An increase in net wealth will _____
A) increase consumption and increase saving.
B) increase saving and decrease consumption.
C) decrease consumption and decrease saving.
D) increase consumption and decrease saving.
E) have no effect on consumption.
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Chapter 10: Aggregate Supply
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Sample Questions
Q1) Refer to Exhibit 10.8, which shows the long-run equilibrium in an aggregate demand-aggregate supply model. The change in real GDP in this exhibit from Y to Y could have been caused by _____
A) a government policy aimed at increasing demand.
B) a change in weather conditions that led to worldwide crop failures.
C) an attempt by key resource producers to monopolize supply.
D) an increase in taxation or a decrease in government spending.
E) an increase in labor productivity.
Q2) When an economy is producing its potential output, which of the following is true?
A) The price level is higher than that expected by workers.
B) The nominal wage is equal to the real wage.
C) The unemployment rate is about 14 percent.
D) The economy is producing its maximum sustainable output.
E) The actual price level is less than the expected price level.
Q3) An adverse supply shock generally decreases the price level and real GDP.
A)True
B)False
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Page 12
Chapter 11: Fiscal Policy
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Sample Questions
Q1) Suppose the federal government increases the unemployment benefits financed by higher income taxes. In this case, which of the following is likely to occur?
A) The equilibrium real GDP will increase.
B) Higher tax rates will reduce the opportunity cost of leisure.
C) The interest rate will increase.
D) The discount rate charged by the Central Bank will increase.
E) The income of the rich will increase and the income of the poor will decrease.
Q2) If the economy is already at its potential output, then the spending multiplier is
A) equal to zero in the long run.
B) infinite in the long run.
C) equal to 1 in the long run.
D) equal to zero in the short run.
E) equal to 1 in the short run.
Q3) A decrease in net taxes during a recession increases aggregate demand and helps the economy return to its potential output level.
A)True
B)False
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Chapter 12: Federal Budgets and Public Policy
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Sample Questions
Q1) U.S. Treasury securities are considered the safest in the world because _____
A) they carry the highest interest rate.
B) they carry the highest risk.
C) they are backed by the U.S. government.
D) they are backed by foreign buyers of U.S. debt.
E) of previous defaults on national debt.
Q2) Some economists argue that federal government capital projects, which offer benefits over a number of years, should be financed through deficit financing.
A)True
B)False
Q3) Biennial budgets have replaced the annual budget process for the federal government.
A)True
B)False
Q4) The federal budget surplus recorded in 1998 resulted from a(n) _____
A) decrease in taxes and a rapid growth in federal outlays.
B) increase in taxes and a sluggish growth in federal outlays.
C) decrease in taxes and a decrease in federal outlays.
D) increase in federal outlays and taxes.
E) increase in export earnings and a decrease in import bills.
Page 14
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Chapter 13: Money and the Financial System
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Q1) The Dodd-Frank Wall Street Reform and Consumer Protection Act gives the Federal Reserve the authority to establish a reserve requirement for all financial institutions.
A)True
B)False
Q2) The tendency of bankers to take unwarranted risks in making loans because deposits were insured is an example of _____
A) anchoring bias.
B) self-serving bias.
C) moral hazard.
D) hazard pay.
E) banker's lobbying.
Q3) During the Great Depression, the Federal Reserve Board _____
A) prevented many bank failures.
B) failed to act as a lender of last resort.
C) failed to clear checks adequately.
D) began operating as the government's bank.
E) issued too many bank notes.
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Chapter 14: Banking and the Money Supply
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Sample Questions
Q1) Which of the following is true of M1?
A) It is equal to M2.
B) It consists of all near-monies.
C) It consists of certificates of deposit.
D) It is the broader definition of money.
E) It is only a fraction of M2.
Q2) Which of the following countries has a reserve requirement?
A) Australia
B) Canada
C) United Kingdom
D) the United States
E) Hong Kong
Q3) Which of the following would likely increase the money supply?
A) the purchase of government securities by one bank from another bank
B) an increase in the required reserve ratio
C) an increase in the reserves of a commercial bank
D) an increase in the discount rate
E) the sale of government securities by a bank to the Fed
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Chapter 15: Monetary Theory and Policy
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Sample Questions
Q1) Planned investment expenditures will eventually decrease after _____
A) the money supply decreases.
B) the demand for money decreases.
C) the interest rate falls.
D) the Fed buys government securities.
E) business managers become more optimistic about future market conditions for their products.
Q2) The shadow banking system is made up of financial institutions that rely on customer deposits to make loans.
A)True
B)False
Q3) The equation of exchange states that the quantity of money multiplied by the velocity of money equals _____
A) the real gross domestic product.
B) the price level.
C) the nominal gross domestic product.
D) the turnover rate.
E) the demand for money.
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17
Chapter 16: Macro Policy Debate: Active or Passive?
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Sample Questions
Q1) Refer to Exhibit 16.6, which reflects the relationship between the inflation rate and the unemployment rate. The figure shows that the natural rate of unemployment is _____
A) 2 percent.
B) 1 percent.
C) 4 percent.
D) 8 percent.
E) 10 percent.
Q2) Which of the following central banks does not have an explicit inflation target?
A) the Bank of England
B) the Federal Reserve
C) the Swiss National Bank
D) the European Central Bank
E) the Reserve Bank of India
Q3) If an economy's actual GDP exceeds its potential GDP, _____
A)wages and prices must fall.
B)self-correcting forces will shift the SRAS curve to the left.
C)self-correcting forces will shift the AD curve to the left.
D)inflation will occur when AD shifts to the left.
E)unemployment is likely to be unusually high.
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Page 18
Chapter 17: International Trade
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Sample Questions
Q1) According to some economists, the protection granted to infant industries should be
A) terminated after one year.
B) to protect emerging domestic industries.
C) restricted to firms that face little competition.
D) based on absolute advantage.
E) based on opportunity costs.
Q2) If quota rights accrue to foreigners, then _____
A) the domestic economy is better off with a quota than with a tariff.
B) the domestic economy is worse off with a quota than with a tariff.
C) consumer surplus and economic welfare increase.
D) production costs decrease.
E) part of the decrease in consumer surplus is redistributed to the domestic government.
Q3) A country should export only those goods _____
A) in which it has an absolute advantage.
B) for which it has favorable terms of trade.
C) that have higher consumption possibilities.
D) that have a strong domestic demand.
E) that have a lower opportunity cost.
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Page 19
Chapter 18: International Finance
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Sample Questions
Q1) One difference between arbitrageurs and speculators is that _____
A) arbitrageurs buy and sell foreign exchange, while speculators do not.
B) speculators buy foreign exchange but do not sell it.
C) arbitrageurs take more risks than do speculators.
D) speculators take more risks than do arbitrageurs.
E) arbitrageurs buy foreign exchange in the hope that its value will increase.
Q2) Refer to Exhibit 18.1. What does the intersection of the demand curve for foreign exchange, D, and the supply curve for foreign exchange, S, determine?
A) The exchange rate, E.
B) The exchange rate, E'.
C) The price of imports in foreign currency.
D) The price of exports in domestic currency.
E) The interest rates in various countries.
Q3) In 2016, the U.S. merchandise trade deficit with Canada was _____
A) $11 billion.
B) $347 billion.
C) $80 billion.
D) $100 billion.
E) $230 billion.
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Page 20
Chapter 19: Economic Development
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Sample Questions
Q1) The bulk of exports from developing countries are _____
A) manufactured goods.
B) primary products.
C) services.
D) intermediate goods only.
E) capital equipment only.
Q2) A primary requirement for development is _____
A) government control over the production of essential consumer products.
B) government control over the distribution of natural resources.
C) high confidence in foreign currency.
D) a low and predictable inflation rate that encourages saving.
E) the ability to print money to finance a large proportion of public outlays.
Q3) If Eddie Li is a skilled worker employed in a low-skill job, he is _____
A) underemployed.
B) unemployed.
C) overemployed.
D) fully employed.
E) a discouraged worker.
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