Macroeconomic Theory Review
Questions
Course Introduction
Macroeconomic Theory explores the fundamental principles that govern the functioning of economies at the aggregate level. The course examines key topics such as national income determination, economic growth, unemployment, inflation, and the roles of fiscal and monetary policy. Students will analyze various models of the macroeconomy, including classical, Keynesian, and contemporary approaches, to understand how economic policies impact overall economic performance. Emphasis is placed on both theoretical frameworks and real-world applications, preparing students to critically evaluate current macroeconomic issues and policies.
Recommended Textbook
ECON for Macroeconomics 1st Edition by William A. McEachern
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26 Chapters
3573 Verified Questions
3573 Flashcards
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) Ceteris paribus means "other things constant."
A)True
B)False
Answer: True
Q2) Which of the following statements regarding the basic economic problem of scarcity is correct?
A) The problem only exists in countries that are not highly industrialized.
B) The problem is likely to disappear as production increases.
C) The problem is sure to disappear as technology improves.
D) The problem will exist as long as resources are available in limited amounts.
E) The problem will disappear as a person's income falls.
Answer: D
Q3) An economic model is useful if it
A) includes every detail of reality
B) involves no unproven assumptions
C) is expressed in equations
D) makes accurate predictions
E) is simple enough to be understood by a child
Answer: D
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Page 3
Chapter 2: Economic Tools and Economics Systems
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179 Flashcards
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Sample Questions
Q1) Which of the following would not shift the production possibilities frontier?
A) an increase in worker training
B) a war that destroyed many buildings
C) a technological improvement that improved fuel efficiency in cars
D) a decrease in the size of the labor force
E) a change to a more inefficient production process
Answer: E
Q2) Suppose you have an hour before your next class starts.You can either read a book,get something to eat,or take a nap.The opportunity cost of getting something to eat is
A) the cost of what you eat
B) the value of reading and sleeping
C) the loss of value from not reading or sleeping
D) the net benefit of sleeping for another hour
E) impossible to determine because the most preferred alternative is not known
Answer: E
Q3) Specialization often leads to gains in productivity for society as a whole.
A)True
B)False
Answer: True
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Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Since 1930,U.S.government spending as a percent of GDP has
A) increased
B) decreased
C) stayed the same
D) showed no particular trend
E) increased by the same percent each year
Answer: A
Q2) One explanation for the increased participation of married women in the U.S.labor force is that
A) fewer women are being trained for household work by the public school system
B) rapid growth in the service sector has provided additional job opportunities for women
C) the cost of professional day care has increased
D) couples are having more children
E) husbands earn more today than they did previously
Answer: B
Q3) Gasoline taxes illustrate the benefits-received principle of taxation.
A)True
B)False
Answer: True
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Chapter 4: Demand, Supply, and Markets
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Sample Questions
Q1) The market supply curve of a particular product indicates the total quantities
A) that are actually sold during a given time period
B) that buyers are willing to purchase at alternative prices
C) that sellers are willing and able to offer at alternative prices
D) that sellers are willing to offer for sale
E) of complements offered for sale
Q2) If suppliers expect an increase in price,they will reduce the current supply of a good.
A)True
B)False
Q3) As the price of milk increases,producers are normally willing to supply greater quantities.This is known as the law of
A) demand
B) gravity
C) variable proportions
D) profitability
E) supply
Q4) A rightward shift of a demand curve represents a decrease in demand.
A)True
B)False
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Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) An increase in government spending,other things constant,would cause a
A) leftward shift of the aggregate supply curve
B) rightward shift of the aggregate supply curve
C) leftward shift of the aggregate demand curve
D) rightward shift of the aggregate demand curve
E) movement toward equilibrium,along curves that do not shift
Q2) Keynes proposed that government should shock the economy out of the Great Depression by
A) increasing aggregate supply
B) increasing aggregate demand
C) raising prices so that firms could earn higher profits and employ more people
D) reducing prices so that people could afford to buy more goods and services
E) subsidizing firms that wanted to buy stocks after the crash
Q3) If the economy were initially in equilibrium and the aggregate demand curve shifted to the left,
A) employment would fall
B) the price level would rise
C) the aggregate supply curve would shift rightward
D) the aggregate supply curve would shift leftward
E) the economy would experience an expansion period
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Chapter 6: Productivity and Growth
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Sample Questions
Q1) A country that has a higher percentage of younger adults with at least a college degree is
A) Norway
B) Canada
C) Japan
D) France
E) Italy
Q2) Which of the following does not contribute to an improved standard of living?
A) increases in the amount and quality of available resources
B) better technology
C) lower prices for the necessities of life
D) improvements in the "rules of the game"
E) increases in the quality of labor
Q3) Which is the resource whose quality is most often enhanced by technological change
A) capital
B) land
C) labor
D) entrepreneurship
E) credit
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Chapter 7: Tracking the US Economy
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Sample Questions
Q1) Which of the following is the best example of an investment as defined by economists?
A) a household's purchase of 100 shares of Apple computer stock
B) a firm's purchase of 100 shares of General Electric stock
C) a firm's purchase of a bond issued by General Mills
D) a firm's purchase of a U.S.savings bond
E) a firm buying personal computers for its secretarial staff
Q2) The Consumer Price Index is a measure of the
A) cost of a market basket of consumer goods and services relative to its cost in some base year
B) change in the average price of a market basket of "necessary" goods and services
C) annual inflation rate in the producers' goods market
D) change in the average price level of all final goods and services
E) average price of all goods and services relative to their price last year
Q3) If real GDP is $5 trillion for a particular year and the GDP price index is 140,then nominal GDP is $7 trillion.
A)True
B)False
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9
Chapter 8: Unemployment and Inflation
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Sample Questions
Q1) Which of the following would lead to the most inflation?
A) Both aggregate demand and aggregate supply increase.
B) Both aggregate demand and aggregate supply decrease.
C) Aggregate demand increases and aggregate supply decreases.
D) Aggregate demand increases and aggregate supply increases.
E) Aggregate supply decreases.
Q2) During periods of inflation,all prices increase.
A)True
B)False
Q3) If the official unemployment rate increases in August from its July level,we can conclude that __________ unemployment is responsible for the increase.
A) seasonal
B) cyclical
C) structural
D) frictional
E) any of the causes of
Q4) Most of the unemployment during the Great Depression was cyclical unemployment.
A)True
B)False
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Chapter 9: Aggregate Expenditure
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Sample Questions
Q1) We can tell from the data in Exhibit 9-2 that planned investment is autonomous because
A) actual investment is constant at each level of income
B) it does not vary as consumption changes
C) it does not vary as income changes
D) it does not vary as the actual investment changes
E) it does not vary as the price level changes
Q2) Which of the following would not increase the Gallego family's real net wealth?
A) an increase in the value of their home
B) an increase in the value of Mrs.Gallego's pension fund
C) an increase in the amount that the Gallegos have saved in the bank
D) a rise in the price level
E) a decrease in the size of the mortgage payments on the Gallego's home
Q3) If income increases by $100 and $75 of the increase is spent (consumed),the MPS equals
A) 1/4
B) 1/2
C) 3/4
D) 4/5
E) 1
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Chapter 10: Aggregate Expenditure and Aggregate Demand
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Sample Questions
Q1) A decrease in the price level will
A) shift the aggregate demand curve to the right
B) shift the aggregate demand curve to the left
C) result in a movement upward along the aggregate demand curve
D) result in a movement downward along the aggregate demand curve
E) change the slope of the aggregate demand curve
Q2) Suppose that planned investment increases by $200 billion and that the marginal propensity to consume equals 0.80.The aggregate expenditure line will shift upward by __________ at every level of real GDP.
A) $40 billion
B) $160 billion
C) $200 billion
D) $250 billion
E) $1,000 billion
Q3) A decrease in the price level will have which of the following effects?
A) The real value of dollar-denominated assets will fall.
B) The aggregate expenditure line will shift downward.
C) The equilibrium level of output demanded will rise.
D) There will be upward movement along a particular aggregate demand curve.
Page 12
E) The aggregate demand curve will shift leftward.
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Chapter 11: Aggregate Supply
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Sample Questions
Q1) The actual price level is assumed to be constant along a given short-run aggregate supply curve.
A)True
B)False
Q2) Real wages are nominal wages adjusted for price changes.
A)True
B)False
Q3) The graph in Exhibit 11-4 shows a(n)
A) increase in short-run aggregate supply
B) increase in long-run aggregate supply
C) decrease in short-run aggregate supply
D) decrease in long-run aggregate supply
E) decrease in aggregate quantity demanded
Q4) If the price level rises by 4 percent and the nominal wage rises 6 percent,the real wage
A) falls by 2 percent
B) falls by 10 percent
C) rises by 2 percent
D) rises by 10 percent
E) remains constant
Page 13
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Chapter 12: Fiscal Policy
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208 Flashcards
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Sample Questions
Q1) Which of the following did classical economists believe caused depressions and high unemployment?
A) wars
B) tax increases
C) poor crop growing seasons
D) changing tastes
E) All of the answers are correct
Q2) If government purchases and autonomous net taxes increase by the same amount,the equilibrium level of real GDP will be unchanged.
A)True
B)False
Q3) If the MPC = 0.8,then the simple tax multiplier equals
A) 0.8
B) 4
C) 5
D) -4
E) -5
Q4) Military spending is a good example of an automatic stabilizer.
A)True
B)False
Page 14
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Chapter 13: Federal Budgets and Public Policy
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141 Flashcards
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Sample Questions
Q1) The Budget of the United States Government is officially submitted by
A) the President to the Congress and contains proposals for government expenditures
B) the Congress to the President and contains proposals for government expenditures
C) the President to the Congress and contains proposals for tax increases
D) the Congress to the President and contains proposals for tax increases
E) the President to the Congress and it is reviewed by the Supreme Court
Q2) The annual Economic Report of the President is written by
A) the President
B) Congress
C) the Office of Management and Budget
D) the Council of Economic Advisers
E) the Secretary of the Treasury
Q3) With few exceptions,the U.S.federal government has historically run a balanced budget.
A)True
B)False
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Chapter 14: Money and the Financial System
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183 Flashcards
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Sample Questions
Q1) The chairman of the Fed must resign when a new president is elected.
A)True
B)False
Q2) Whatever functions as money must be
A) authorized by the government
B) accepted for deposit by banks
C) backed by precious metals like gold or silver
D) completely indestructible
E) limited in supply
Q3) Which of the following is not thought to have contributed to the Great Depression?
A) interest rate competition
B) banks selling corporate stocks and bonds
C) fears about the safety of deposits
D) lack of bank liquidity
E) bank holiday
Q4) Paper money is a good example of commodity money.
A)True
B)False
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Page 16
Chapter 15: Banking and the Money Supply
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213 Flashcards
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Sample Questions
Q1) The M1 money supply is defined as
A) one-dollar bills
B) currency and coins held by the nonbank public,checkable deposits,and traveler's checks
C) M3 minus M2
D) all currency and checkable deposits
E) coins and currency held by the nonbank public
Q2) Which of the following are the two forms in which a bank can legally hold reserves?
A) gold and coins
B) gold and checks
C) cash in its vault and non-interest-bearing reserve deposits at the Fed
D) gold and non-interest-bearing reserve deposits at the Fed
E) U.S.government securities and coins
Q3) Refer to Exhibit 14-2.What kind of transaction just took place at Countybank?
A) A customer withdrew $1,000 from her checking account.
B) A customer deposited a $1,000 check in her savings account.
C) A customer deposited $1,000 in her checking account.
D) The bank purchased a security with $1,000 cash.
E) The bank borrowed $1,000 from the Federal Reserve.
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Page 17
Chapter 16: Monetary Theory and Policy
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Sample Questions
Q1) If real output and velocity are stable and predictable,then the equation of exchange can be used to derive a simple relationship between
A) the money supply and the price level
B) the money supply and the interest rate
C) the money supply and the foreign exchange rate
D) velocity and real GDP
E) velocity and nominal GDP
Q2) The demand for money is depicted by a curve downward sloping curve because if the interest rate falls,the opportunity cost of holding assets in the form of money decreases.
A)True
B)False
Q3) If the Fed sells U.S.government securities to drain reserves from banks,which of the following will probably occur?
A) The demand for money will increase and the interest rate will rise.
B) The money supply will increase and the interest rate will fall.
C) The interest rate will rise and the quantity of money demanded will fall.
D) The money supply will decrease and the interest rate will fall.
E) The interest rate will fall and the quantity of money demanded will increase.
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Page 18
Chapter 17: Macro Policy Debate: Active or Passive
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Sample Questions
Q1) Those of the rational expectations school
A) favor monetary rules because they believe we know too little about how the economy works
B) favor monetary rules so that workers and firms do not get any unanticipated surprises from the Fed
C) are those who favor an "active approach" to policy and therefore reject monetary rules
D) oppose any monetary rules because they believe rules impede the natural self-correcting mechanism of the economy
E) neither oppose nor favor monetary rules
Q2) The selection of a new policy takes place during a period of time known as the
A) activity lag
B) decision-making lag
C) effectiveness lag
D) implementation lag
E) recognition lag
Q3) The long-run Phillips curve is located at the natural rate of unemployment.
A)True
B)False
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Page 19
Chapter 18: International Trade
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Sample Questions
Q1) If the country in Exhibit 19-6 is initially trading without restrictions at a world price of $2.00 and an import quota of 50 units per month is enacted,
A) imports will not change
B) imports will increase from 25 to 50 units per month
C) domestic production will increase from 100 to 175 units per month
D) domestic production will increase from 100 to 125 units per month
E) domestic production will increase from 100 to 150 units per month
Q2) The United States is a major exporter of
A) diamonds
B) bauxite
C) coffee
D) corn
E) gold
Q3) A nation's producers can compete effectively with imports from other nations if it has
A) high wages
B) low wages
C) low labor cost per unit of output
D) less specialization
E) low labor productivity
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Chapter 19: International Finance
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Sample Questions
Q1) Foreign investors may wish to purchase U.S.assets for all of the following reasons except one.Which is the exception?
A) The rate of return on assets is higher in the United States than in other countries.
B) They may wish to diversify their portfolios.
C) The United States may be regarded as a relatively safer place in which to invest.
D) Governments of most other industrialized countries actively discourage foreign investment.
E) With their increased foreign debt burdens,investment in developing countries has become less attractive.
Q2) A nation has an unfavorable balance of trade when
A) it has a surplus in its balance of payments
B) it has a deficit in its balance of payments
C) the value of its imports of goods is greater than the value of its exports of goods
D) its current account is in surplus and its capital account is in deficit
E) it has high tariffs
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21
Chapter 20: Developing and Transitional Economies
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Sample Questions
Q1) In developing countries,it is not true that
A) banks are often viewed with suspicion
B) at the first sign of economic problems,many bank depositors withdraw their funds
C) because banks cannot rely on a continuous supply of deposits,banks cannot make loans for extended periods
D) if financial institutions fail to serve as intermediaries between savers and borrowers,the lack of funds for investment will make growth rates double
E) the credit provided by banks as a percent of total output is one fifth that in high-income countries
Q2) Which of the following is true about GNP?
A) includes profits earned by a Mercedes factory in Alabama
B) excludes profits earned by General Electric in India
C) measures the market value of all goods and services produced by resources supplied the home country's residents and firms,regardless of the location of the resource
D) stands for Generally Nice Products
E) used by countries to classify the World Bank
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Chapter 21: Understanding Graphs
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Sample Questions
Q1) If slope = 2 for a line on a graph with x on the horizontal axis and y on the vertical axis,then if
A) x decreases by 4,y decreases by 8
B) x = -4,then y = -2
C) y decreases by 4,x decreases by 8
D) x = -4,y = -8
E) x increases by 4,y decreases by 8
Q2) Using Exhibit 1-12,calculate the slope of the curve where x equals 50.
A) 0
B) 1
C) infinite
D) -1
E) the slope cannot be determined because there is no tangent line
Q3) The slope of a horizontal line is
A) infinitely large
B) zero
C) positive
D) negative
E) infinitely small
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Page 23
Chapter 22: National Income Accounts
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Sample Questions
Q1) In Exhibit 7-5,National Income equals
A) $420 billion
B) $390 billion
C) $365 billion
D) $385 billion
E) $375 billion
Q2) Imputed rent is included in
A) consumption
B) investment
C) government spending
D) national income
E) indirect business taxes
Q3) Which one of the following is not included in National Income?
A) employee compensation
B) proprietors' income
C) rental incomes of persons
D) corporate profits
E) gross interest income
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Page 24
Chapter 23: Variable Net Exports
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Sample Questions
Q1) U.S.economic growth does not contribute to a U.S.trade deficit.
A)True
B)False
Q2) A decrease in U.S.income would lead to a(n)
A) increase in U.S.exports
B) decrease in U.S.imports
C) decrease in both U.S.imports and U.S.exports
D) increase in U.S.exports and a decrease in U.S.imports
E) decrease in U.S.exports and an increase in U.S.imports
Q3) Which of the following would shift the U.S.net export function upward?
A) an increase in the value of the dollar relative to other currencies
B) a decrease in the value of the dollar relative to other currencies
C) an increase in incomes in the U.S.relative to other economies
D) an increase in the U.S.price level relative to other economies
E) a decrease in foreign incomes relative to U.S.incomes
Q4) If the U.S.economy were to go through a severe recession by itself (i.e.,without it being contagious to the rest of the world),we would typically observe an increase in the U.S.trade deficit.
A)True
B)False
Page 25
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Chapter 24: Variable Net Exports Revisited
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Sample Questions
Q1) Imports are a leakage from the circular flow.
A)True
B)False
Q2) In Exhibit 10-7,the marginal propensity to consume is
A) 0.3
B) 0.1
C) 0.7
D) 0.4
E) 0.2
Q3) The larger the marginal propensity to import,the __________ during each round of spending and __________ the resulting spending multiplier.
A) greater the leakage; the smaller
B) smaller the leakage; the smaller
C) smaller the leakage; the larger
D) greater the leakage; the larger
E) smaller the injection; the larger
Q4) If the MPC = 0.9 and the MPM = 0.1,then the spending multiplier with variable net exports equals 8.
A)True
B)False
Page 26
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Chapter 25: The Algebra of Income and Expenditure
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Sample Questions
Q1) Consumption that is independent of the level of income is called autonomous consumption.
A)True
B)False
Q2) Equilibrium output can be found by solving for the value of Y in the expression a + b(Y - NT)+ I + G + X - M(Y - NT).
A)True
B)False
Q3) The nation of Omega has an MPC of 0.70 and an MPM of 0.15.Therefore,Omega's spending multiplier is
A) 1.18
B) 2.22
C) 3.33
D) 1.43
E) This question cannot be answered without knowing the MPS
Q4) If the marginal propensity to import increases,the spending multiplier increases. A)True
B)False
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Chapter 26: The Algebra of Demand-Side Equilibrium
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Sample Questions
Q1) If the government increased autonomous net taxes by $60 million and increased its own purchases by the same amount,we would expect the net effect of these actions to be
A) an increase in aggregate demand,which is a rightward shift of the aggregate demand curve
B) an increase in aggregate demand,which is a leftward shift of the aggregate demand curve
C) a decrease in aggregate demand,which is a rightward shift of the aggregate demand curve
D) a decrease in aggregate demand,which is a leftward shift of the aggregate demand curve
E) to leave the aggregate demand curve unchanged
Q2) The balanced budget multiplier
A) increases as MPC increases
B) increases as MPC decreases
C) depends on the absolute level of government spending
D) is always greater than the government multiplier
E) is equal to 1
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