Macroeconomic Theory
Mock Exam
Course Introduction
Macroeconomic Theory explores the behavior, performance, and structure of entire economies, focusing on key aggregate indicators such as national income, output, unemployment, inflation, and economic growth. The course examines how different sectors interact within the economy, the role of government policy, and the impact of external shocks. Students will analyze theoretical models that explain macroeconomic activity, including the classical, Keynesian, and modern approaches, and apply these frameworks to understand contemporary economic issues. The aim is to provide a foundational understanding of macroeconomic principles and tools necessary for evaluating economic policies and their effects on society as a whole.
Recommended Textbook
Macroeconomics 4th Edition by Glenn P. Hubbard
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19 Chapters
2659 Verified Questions
2659 Flashcards
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) The number of people who have gray hair is very high among residents living in Florida.A student concludes that living in Florida causes hair to turn gray.What is the flaw in this student's reasoning?
A) The student is drawing a false conclusion by making the mistake of omitting critical variables such as the age and gender of the residents.
B) The student is using an inadequate sample size.
C) The student is drawing a false conclusion; he is confusing cause and effect.
D) The student has failed to take into account other causes of gray hair.
Answer: C
Q2) Which of the following is an example of an economic trade-off that a firm has to make?
A) whether it is cheaper to produce with more machines or with more workers
B) deciding why consumers want its products
C) whether or not consumers will buy its products
D) deciding what profit margin it desires for its products
Answer: A
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Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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Sample Questions
Q1) Which of the following statements about an entrepreneur is true?
A) purchases other factors of production in the output market
B) develops the vision for the firm and funds the producing unit
C) sells his entrepreneurial services in the output market
D) does not face personal risk
Answer: B
Q2) Suppose your expenses for this term are as follows: tuition: $5,000,room and board:
$3,000,books and other educational supplies: $500.Further,during the term,you can only work part-time and earn $4,000 instead of your full-time salary of $10,000.What is the opportunity cost of going to college this term,assuming that your room and board expenses would be the same even if you did not go to college?
A) $5,500
B) $8,500
C) $11,500
D) $14,500
Answer: C
Q3) List the four broad categories of factors of production.
Answer: labor,capital,natural resources,and entrepreneurship
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Even when the demand for one good is high,the price of the good is also affected by supply. The textbook illustrates this by comparing the price of two items that were auctioned on the same day. Which of the following describes the results of the auction?
A) A letter written by Abraham Lincoln sold for a higher price than a letter written by John Wilkes Booth.
B) A letter written by Abraham Lincoln was sold for a higher price than a letter written by Adam Smith.
C) A letter written by John Wilkes Booth sold for a higher price than a letter written by Lee Harvey Oswald.
D) A letter written by John Wilkes Booth sold for a higher price than a letter written by Abraham Lincoln.
Answer: D
Q2) A change in which variable will change the market demand for a product?
A) the price of the product
B) expected future prices
C) the number of firms in the market
D) the quantity supplied of the product
Answer: B
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Chapter 5: The Economics of Health Care
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Sample Questions
Q1) How can increases in a country's total income improve health?
Q2) Substantial co-payments are typically not required as a part of the health care system in
A) Canada and the United Kingdom.
B) Japan and Canada.
C) the United States and Japan.
D) Japan and the United Kingdom.
Q3) Under the Small Business Health Options Program (SHOP)provision of the health care plan,a small firm's employees would be
A) pooled with the employees of a major corporation.
B) pooled with the employees of other small firms.
C) pooled with government employees.
D) exempt from being required to carry health insurance.
Q4) In the United States from 1981 to 2009,deaths from which of the following increased?
A) cancer
B) kidney disease
C) heart attacks
D) strokes
Q5) How do adverse selection and moral hazard affect the market for insurance?
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Chapter 6: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) Securities dealers that trade stocks and bonds outside exchanges comprise the A) foreign exchange market.
B) over-the-counter market.
C) NASDAQ market.
D) outlet market.
Q2) Goodwill is listed as an asset on a firm's balance sheet.
A)True
B)False
Q3) On average,jobs at small firms pay ________ wages than jobs at large firms and are ________ likely to offer fringe benefits such as health insurance and retirement accounts.
A) higher; more
B) lower; more
C) higher; less
D) lower; less
Q4) With state and multistate lotteries,winners are typically given the choice between a lump sum payment today or a 20 year series of annuities.How should a winner decide which is better?
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Q5) Who is the seller in a primary market and who is the seller in a secondary market?
Chapter 7: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden,which of the following would explain this pattern of trade?
A) Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter.
B) The opportunity cost of producing butter in Denmark is higher than the opportunity cost of producing butter in Sweden.
C) Sweden must have an absolute advantage in producing cell phones and Denmark must have an absolute advantage in producing butter.
D) Sweden has a higher opportunity cost of producing cell phones than Denmark, and Denmark has a higher opportunity cost of producing butter.
Q2) Protectionism is the use of ________ to protect domestic firms from foreign competition.
A) military force
B) trade barriers
C) cheap labor
D) dumping
Q3) What are terms of trade?
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Chapter 8: Gdp: Measuring Total Production and Income
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Sample Questions
Q1) The change in consumption as a percentage of GDP in the United States from the mid-1980s to the early 2000s was due in part to households
A) increasing both saving and borrowing.
B) reducing saving and increasing borrowing.
C) reducing both saving and borrowing.
D) increasing saving and reducing borrowing.
Q2) Gross domestic product is generally ________ national income. A) greater than B) less than C) equal to D) unrelated to
Q3) Describe briefly how the final value of an iPhone must be equal to the sum of incomes generated by the production of the iPhone.
Q4) The underground economy can be described as A) production of intermediate goods and services.
B) economic production that includes mining.
C) economic activity that is hidden from the government to avoid taxes or because the activity is illegal.
D) production of infrastructure that spurs growth in the rest of the economy.
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Chapter 9: Unemployment and Inflation
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148 Flashcards
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Sample Questions
Q1) In 1986,an Apple IIe computer with 65 kilobytes of memory cost around $1,500.Today,a $1,500 iMac computer (also made by Apple)comes with 8 gigabytes of memory.This illustrates the potential for what kind of bias in CPI calculations?
A) new product bias
B) increase in quality bias
C) substitution bias
D) outlet bias
Q2) The inflation rate measures the percentage increase in the price level from one year to the next.
A)True
B)False
Q3) If inflation is completely anticipated,
A) no one loses in the economy.
B) borrowers lose in the economy.
C) lenders lose in the economy.
D) firms lose because they incur menu costs.
Q4) What is the natural rate of unemployment,and what types of unemployment constitute the natural rate of unemployment?
Q5) Explain how the CPI is constructed.
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Chapter 10: Economic Growth, the Financial System, and Business Cycles
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Sample Questions
Q1) If technological change increases the profitability of new investment for firms,then the ________ curve for loanable funds will shift to the ________ and the equilibrium real interest rate will ________.
A) supply; right; fall
B) supply; left; rise
C) demand; right; rise
D) demand; left; fall
Q2) An increase in the government budget surplus will shift the ________ curve for loanable funds to the ________ and the equilibrium real interest rate will ________.
A) supply; right; fall
B) supply; left; rise
C) demand; right; rise
D) demand; left; fall
Q3) Labor productivity is
A) the quantity of output produced in one hour by several workers.
B) the quantity of capital one worker can produce in one day.
C) the quantity of output produced by one worker or by one hour of work.
D) the quantity of output produced in one hour by one machine.
Q4) Carefully define the two categories of saving in the economy.
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Chapter 11: Long-Run Economic Growth: Sources and Policies
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141 Flashcards
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Sample Questions
Q1) Foreign direct investment occurs when a Chinese corporation
A) purchases stock issued in China.
B) opens a new Chinese factory.
C) purchases 1,000 shares of stock issued by an American company.
D) opens a new factory in France.
Q2) If there is a change in the ability of a firm to produce a given level of output with a given level of inputs,we say there is
A) human capital investment.
B) technological change.
C) an increase in labor productivity.
D) a movement along a given per-worker production function.
Q3) ________ is considered a high income country,________ a developing country,and ________ a newly industrializing country.
A) Japan; Hong Kong; South Korea
B) United States; Somalia; Taiwan
C) Canada; France; Singapore
D) Honduras; New Zealand; South Korea
Q4) How do economic growth rates affect a nation's standard of living?
Q5) List four types of government policies which can aid economic growth.
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Chapter 12: Aggregate Expenditure and Output in the Short Run
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Sample Questions
Q1) Which of the following will increase aggregate expenditure in the United States?
A) an increase in the value of the dollar
B) an increase in the price level
C) an increase in interest rates
D) an increase in government purchases
Q2) What are the four categories of aggregate expenditure?
Q3) Ceteris paribus,how does an expansion in the United States affect U.S.net exports?
Q4) A decrease in ________ can put your job at risk if aggregate expenditures fall.
A) consumer confidence
B) the natural rate of unemployment
C) the inflation rate
D) the length of a business cycle
Q5) If the MPC is 0.95,then a $10 million increase in disposable income will
A) increase consumption by $200 million.
B) increase consumption by $9.5 million.
C) decrease consumption by $105 million
D) increase consumption by $950 million.
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Q6) Would a larger multiplier lead to longer and more severe recessions or shorter and less severe recessions? Briefly explain.
Chapter 13: Aggregate Demand and Aggregate Supply Analysis
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145 Flashcards
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Sample Questions
Q1) Which of the following models has as its central idea that workers and firms have rational expectations ?
A) the monetarist model
B) the new classical model
C) the real business cycle model
D) the new Keynesian model
Q2) What is a supply shock,and why might a supply shock lead to stagflation?
Q3) When the price level falls from 135 to 120,the aggregate level of GDP supplied falls from $140 billion to $125 billion. This ________ relationship represents the ________ relationship between GDP and the price level.
A) negative; short-run
B) positive; short-run
C) negative; long-run
D) positive; long-run
Q4) The short-run aggregate supply curve has a
A) negative slope.
B) positive slope.
C) slope equal to infinity.
D) slope equal to zero.
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Chapter 14: Money, banks, and the Federal Reserve System
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Sample Questions
Q1) If the Fed buys U.S.Treasury securities,then this
A) increases reserves, encourages banks to make more loans, and increases the money supply.
B) decreases reserves, causes banks to reduce their loans, and decreases the money supply.
C) decreases reserves, causes banks to reduce their loans, and increases the money supply.
D) increases reserves, causes banks to reduce their loans, and increases the money supply.
Q2) Which of the following tools of monetary policy is used least often?
A) open market operations
B) setting the required reserve ratio
C) setting the discount rate
D) acting as a lender of last resort
Q3) In the United States,each bank panic in the late nineteenth and early twentieth centuries was accompanied by
A) inflation.
B) deflation.
C) a depression.
D) a recession.
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Chapter 15: Monetary Policy
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Sample Questions
Q1) To measure inflation,the Federal Reserve relies most upon the A) core personal consumption expenditures price index.
B) GDP Deflator, the broadest available price index.
C) consumer price index.
D) producer price index.
Q2) When the Fed decided to buy long-term Treasury securities while selling an equal amount of shorter-term treasury securities to keep long-term interest rates low,it was following a strategy known as A) securitization.
B) operation twist.
C) quantitative easing.
D) indirect finance.
Q3) Federal Reserve Board Chairmen Paul Volcker,Alan Greenspan,and Ben Bernanke all have focused on which of the following as their main goal of monetary policy?
A) high employment
B) price stability
C) economic growth
D) stability of financial markets
Q4) What problems can high inflation rates cause for the economy?
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Chapter 16: Fiscal Policy
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Sample Questions
Q1) During the twentieth century,the largest budget deficits as a percentage of GDP occurred
A) during the 1990s.
B) during the 1980s.
C) during the Vietnam war.
D) during World Wars I and II.
Q2) Expansionary fiscal policy will
A) shift the aggregate demand curve to the left.
B) shift the aggregate demand curve to the right.
C) not shift the aggregate demand curve.
D) shift the short-run aggregate supply curve to the left.
Q3) Assume a closed economy,that taxes are fixed,and the marginal propensity to consume is equal to 0.8. What is the government spending multiplier?
A) 10
B) 5
C) 4
D) 3
Q4) What is the difference between federal purchases and federal expenditures?
Q5) What is fiscal policy,and who is responsible for fiscal policy?
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Chapter 17: Inflation, unemployment, and Federal Reserve Policy
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Sample Questions
Q1) If expectations are adaptive,how will the economy adjust to a new long-run equilibrium in response to expansionary monetary policy? Support your answer with a graph of the Phillips curve.
Q2) If rational workers and firms know that the Federal Reserve is following a contractionary monetary policy,they will expect inflation to ________ and will adjust wages so that the real wage ________.
A) increase; remains unchanged
B) decrease; remains unchanged
C) decrease; increases
D) increase; decreases
Q3) During which of the following time periods did inflation remain above 5 percent every year?
A) 1990 through 1999
B) 1973 through 1982
C) 1968 through 1971
D) 1958 through 1962
Q4) A fall in the inflation rate from 8 to 2 percent is an example of deflation.
A)True
B)False
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Q5) Why is the credibility of the Fed's policy announcements particularly important?
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Chapter 18: Macroeconomics in an Open Economy
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Sample Questions
Q1) When a U.S.investor buys a bond issued in a foreign country,
A) the balance on the capital account decreases.
B) the balance on the current account decreases.
C) the balance on the financial account decreases.
D) the balance of trade decreases.
Q2) The current account includes records of a country's
A) net exports.
B) net investment income.
C) net transfers.
D) All of the above are included in an economy's current account.
Q3) When the United States sends money to the Philippines to help typhoon survivors,the transaction is recorded in
A) the capital account.
B) the current account.
C) the financial account.
D) the foreign exchange account.
Q4) Ceteris paribus,a decrease in the government's budget deficit will increase domestic investment and net foreign investment.
A)True
B)False
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Chapter 19: The International Financial System
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Sample Questions
Q1) China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan was ________ at the pegged exchange rate,the level of Chinese exports remained ________ than they would have been if the exchange rate were allowed to float freely. A) undervalued; higher B) undervalued; lower C) overvalued; higher D) overvalued; lower
Q2) The Latvian currency,the lat,is pegged to the euro at a rate of 0.71 lats to the euro.At the pegged exchange rate,how many euros would be exchanged for one lat?
A) 0.29
B) 0.71
C) 1.41
D) 1.71
Q3) What determined the exchange rates among currencies under the gold standard,and what caused the gold standard to collapse?
Q4) U.S.currency continues to be backed by the gold standard to this day.
A)True
B)False
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