Macroeconomic Theory
Textbook Exam Questions
Course Introduction
Macroeconomic Theory explores the behavior and performance of an economy as a whole, focusing on aggregate indicators such as GDP, unemployment rates, inflation, and national income. The course examines the theoretical frameworks used to analyze economic growth, business cycles, fiscal and monetary policy, consumption, investment, and the dynamics of open economies. Through models and empirical analysis, students will gain an understanding of how economic policies impact overall economic stability and long-term development, equipping them with tools to interpret macroeconomic trends and policy debates.
Recommended Textbook
Macroeconomics 12th Edition by Roger A. Arnold
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3323 Verified Questions
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Chapter 1: What Economics Is About
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Sample Questions
Q1) Some economic studies have shown that mandatory seat belt laws do not lead to a reduction in traffic fatalities.
A)True
B)False
Answer: True
Q2) To an economist,the terms factor and resource are synonyms.
A)True
B)False
Answer: True
Q3) If variable X goes down as a result of variable Y going down,then X and Y are
A)directly related.
B)negatively related.
C)inversely related.
D)independent.
Answer: A
Q4) The slope of a (nonlinear)curve varies from one point to another.
A)True
B)False
Answer: True
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Chapter 2: Production Possibilities Frontier Framework
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Sample Questions
Q1) For each additional lamp produced,a constant opportunity cost is incurred in terms of bookshelves.This means
A)that it takes more resources to produce a lamp than a bookshelf.
B)that it takes fewer resources to produce a lamp than a bookshelf.
C)that for every lamp produced,a constant number of bookshelves is forfeited.
D)that for every lamp produced,a different number of bookshelves is forfeited.
Answer: C
Q2) The economy is currently on its production possibilities frontier (PPF).A politician says that it is possible to get more of everything---more infrastructure,more schools,more national defense,more spending on social programs,and so on.The politician is
A)correct if he is assuming a rightward-shifting PPF.
B)incorrect if he is assuming a rightward-shifting PPF.
C)incorrect if he is assuming a PPF that does not change.
D)correct if he is assuming a PPF that does not change.
E)a and c
Answer: E
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Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) If a market is in disequilibrium,economists would predict that the product's price would __________ to reach equilibrium when the quantity demanded is __________ than the quantity supplied.
A)rise;greater
B)fall;less
C)fall;greater
D)rise;less
E)a and b
Answer: E
Q2) If the U.S.government imposes a more restrictive import quota on Japanese video gaming systems,the ____________ curve for Japanese video gaming systems in the U.S.will shift ___________.
A)supply;leftward
B)supply;rightward
C)demand;leftward
D)demand;rightward
Answer: A
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Page 5
Chapter 4: Prices: Free, controlled, and Relative
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Sample Questions
Q1) In 1973 and 1979,the U.S.federal government imposed price ceilings on gasoline which resulted in surpluses of gasoline.
A)True
B)False
Q2) Refer to Exhibit 4-3.If price P<sub>3</sub> is a price ceiling,then
A)the price ceiling does not have an effect on the market for good X.
B)the price at which exchange takes place is P<sub>3</sub>.
C)the price at which exchange takes place is P<sub>2</sub>.
D)there is a shortage in the market for good X.
E)both a and c
Q3) In order for a price ceiling to have an impact on a market it must be set above the equilibrium price.
A)True
B)False
Q4) The absolute price of a good is the price of that good in terms of another good.
A)True
B)False
Q5) The need for a rationing device results from scarcity.
A)True
B)False
Page 6
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Chapter 5: Supply,demand,and Price: Applications
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Sample Questions
Q1) At college X and at college Y,students pay $3,000 less than the equilibrium tuition.If the supply of openings is the same at both colleges,it follows that a shortage of openings will be greater at A)college X than college Y.
B)college X than the surplus at college Y.
C)college Y than the surplus at college X.
D)college X than college Y if the demand is greater at college X. E)college X than college Y if the demand is less at college X.
Q2) Refer to Exhibit 5-1,which shows supply and demand for freeway space at both 8 A.m.and 11 p.m.Which toll creates equilibrium at 11 p.m.?
A)P<sub>2</sub>
B)P<sub>1</sub>
C)0
D)It is not constant.
Q3) If new legislation allowed patients to sue their health-maintenance organization (HMO),we would expect the supply curve for HMO-provided health care to shift to the left and the price of such coverage to rise.
A)True
B)False
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Chapter
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Sample Questions
Q1) Suppose the civilian non-institutional population equals 100,000 persons;the civilian labor force equals 75,000 persons;there are 70,000 employed persons and 5,000 unemployed persons.If 5,000 persons who are currently "not in the labor force" decide to join the civilian labor force,and 3,000 of them are unemployed,then
A)both the unemployment and the employment rate rise.
B)both the unemployment and the employment rate fall.
C)the unemployment rate rises and the employment rate falls.
D)the unemployment rate falls and the employment rate rises.
Q2) Suppose that 1983 is the base year for the Consumer Price Index (CPI)and in 2015 the CPI was 226.What does this "226" mean?
A)What cost $100 in 1983 on average cost 226 times as much in 2015.
B)What cost $100 in 1983 on average cost $226 more in 2015.
C)What cost $100 in 1983 on average cost 100/226 (or 0.44)times as much in 2015 (that is,it will cost $22 in 2015).
D)What cost $100 in 1983 on average cost $126 more in 2015.
Q3) Most unemployed persons fall into the category of job loser.
A)True
B)False
Q4) Describe what the term "full employment" means to an economist.
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Chapter 7: Macroeconomic Measurements, part II: GDP and Real GDP
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Sample Questions
Q1) Why do economists prefer to compare Real GDP figures for various years instead of GDP figures?
A)Because when GDP in one year is higher than in another year,there is no way to tell why it is higher.Is it because output is higher,prices are higher,etc.? This is not the case with Real GDP.If Real GDP is higher in one year than in another year,it is because output is higher.
B)Because when GDP in one year is higher than in another year,there is no way of knowing if the quality of goods produced is higher in one year than the other.This is not the case with Real GDP.If Real GDP is higher in one year than in another year,it is because the quality of the goods produced is higher.
C)Actually the question is incorrect.Economists prefer to compare GDP figures instead of Real GDP figures.
D)Because Real GDP is easier to compute than GDP.
E)Because when GDP in one year is higher than in another year,there is no way to tell if the quality of life is higher in one year than the other.This is not the case with Real GDP.If Real GDP is higher in one year than in another year,it is because the quality of life is higher.
Q2) Explain why GDP figures do not necessarily measure happiness or well-being.
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Chapter 8: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Suppose the real exchange rate of 10 Mexican pesos to the dollar changes to 9 pesos to the dollar.In this situation,the dollar has __________________,making American goods __________ expensive for Mexicans.
A)appreciated;less B)appreciated;more C)depreciated;less D)depreciated;more
Q2) An appreciation of the U.S.dollar against foreign currencies tends to __________ U.S.net exports and shift the U.S.AD curve to the __________.
A)raise;right B)raise;left
C)lower;right
D)lower;left
Q3) Suppose consumption increases at each price level.As a result,aggregate demand __________,and the AD curve shifts __________.
A)increases;leftward B)decreases;leftward C)increases;rightward D)decreases;rightward
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Chapter 9: Classical Macroeconomics and the
Self-Regulating
Economy
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Sample Questions
Q1) Which of the following is most nearly consistent with Say's law?
A)When a person produces one good,he or she plans to demand other goods.
B)When a person produces a good,he or she plans to sell it.
C)When a person buys a good,he or she plans to pay for it with money.
D)When a person goes to work,he or she plans to produce.
Q2) When the current state of the economy is such that Real GDP is equal to Natural Real GDP,the economy is in ____________________ .In this situation,the (actual)unemployment rate is ___________ the natural unemployment rate,and there is ________________ in the labor market.
A)long-run equilibrium;equal to;equilibrium
B)inflationary;less than;a shortage
C)long-run equilibrium;greater than;equilibrium
D)recessionary;greater than;a surplus
E)recessionary;less than;equilibrium
Q3) If the economy is self-regulating and in a recessionary gap, A)wages and prices will fall.
B)wages will fall,but prices will rise.
C)neither wages nor prices will change.
D)wages will rise,but prices will fall.
E)wages and prices will rise.
Page 11
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Chapter 10: Keynesian Macroeconomics and Economic
Instability: a Critique of the Self-Regulating Economy
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Sample Questions
Q1) In Keynes' view,labor unions would resist wage cuts,but individual employees would go along with wage cuts initiated by his/her employer.
A)True
B)False
Q2) Which statement is consistent with what Keynes believed about consumption and disposable income?
A)Consumption depends upon disposable income and falls as disposable income rises.
B)Consumption rises by the same amount as disposable income rises.
C)Consumption rises by less than disposable income rises.
D)Disposable income depends upon consumption.
Q3) Here is a consumption function: C = C<sub>0</sub> + MPC(Y<sub>d</sub>).If consumption is $3,300,MPC =0.85,and disposable income is $2,100,what does autonomous consumption equal?
A)$899.15
B)$450
C)$1,515
D)$4,785
E)none of the above
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Chapter 11: Fiscal Policy and the Federal Budget
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Sample Questions
Q1) All other things held constant,lower marginal (income)tax rates
A)necessarily increase tax revenues.
B)necessarily decrease tax revenues.
C)decrease the attractiveness of productive activities relative to leisure and taxavoidance activities,and shift the SRAS curve rightward.
D)do not affect the attractiveness of productive activities relative to leisure and taxavoidance activities and therefore the SRAS does not shift rightward or leftward.
E)increase the attractiveness of productive activities relative to leisure and taxavoidance activities and shift the SRAS curve rightward.
Q2) Buchanan and Wagner assert that there is a political bias toward contractionary fiscal policy and not expansionary fiscal policy.
A)True
B)False
Q3) A tax rate increase necessarily leads to an increase in tax revenue for the government.
A)True
B)False
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Chapter 12: Money,banking,and the Financial System
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Sample Questions
Q1) Credit cards are a widely accepted form of money.
A)True
B)False
Q2) Money's basic advantage as compared to barter is that
A)everybody has money but not everyone has the opportunity to barter.
B)a money system relies on a double coincidence of wants.
C)money reduces transaction costs.
D)money is the only medium you can use to store your wealth.
Q3) A unit of account is
A)a bank account.
B)a savings account.
C)a common measurement in which values are expressed.
D)the same as a medium of exchange.
E)none of the above
Q4) To an economist,money is a synonym for which of the following?
A)income
B)credit
C)wealth
D)salary
E)none of the above
Page 14
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Chapter 13: The Federal Reserve System
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Sample Questions
Q1) Suppose the Fed forecasts a reduction in cash leakages.It might offset the effect of this on the money supply by
A)buying government securities.
B)selling government securities.
C)lowering the required reserve ratio.
D)lowering the discount rate.
Q2) Which of the following statements is false?
A)The Fed has the legal authority to create money out of thin air.
B)There is a direct relationship between the money supply and the required reserve ratio.
C)The Fed can cause money to disappear into thin air.
D)The federal funds market is a market in which banks can borrow money from other banks.
Q3) A bank is less likely to borrow from the Fed when the __________ falls relative to the __________.
A)discount rate;required reserve ratio
B)excess reserve;required reserves
C)discount rate;federal funds rate
D)federal funds rate;discount rate
Q4) Explain the major differences between the Federal Reserve and the U.S.Treasury.
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Chapter 14: Money and the Economy
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Sample Questions
Q1) What is the only factor that can continually increase in such a way as to bring about continued increases in aggregate demand,and thus bring about continued inflation? Give two reasons why government purchases cannot continually increase,and so cannot be the cause of continued inflation.
Q2) The simple quantity theory of money predicts that if A)the money supply rises by $200,then GDP falls by $200.
B)GDP rises by $400,then the money supply rises by $400.
C)the money supply rises by 10 percent,then the price level rises by 10 percent. D)the money supply falls by $300,then GDP rises by $300.
Q3) The simple quantity theory of money predicts that the larger the percentage change in the money supply,the larger the percentage change in Real GDP.
A)True
B)False
Q4) In the equation of exchange,GDP divided by the money supply is equal to A)M.
B)V.
C)P.
D)Q.
Q5) Describe the expectations (or Fisher)effect.
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Chapter 15: Monetary Policy
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Sample Questions
Q1) The Keynesian transmission mechanism could be blocked by either interest-insensitive investment or by the liquidity trap.
A)True
B)False
Q2) If the investment demand curve is vertical,a decrease in the interest rate will __________ investment,and therefore aggregate demand will __________.
A)increase;increase
B)decrease;increase
C)decrease;decrease
D)decrease;remain unchanged
E)not affect;remain unchanged
Q3) A general definition of the "transmission mechanism" is: the routes or channels that ripple effects created in the
A)market for goods and the services travel to affect the money market.
B)money market travel to affect the market for goods and services.
C)labor market travel to affect the market for goods and services.
D)market for goods and services travel to affect the labor market.
E)none of the above
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Chapter 16: Expectations Theory and the Economy
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Sample Questions
Q1) As long as some people anticipate policy,the economic consequences may be the same as if all persons do so.
A)True
B)False
Q2) The policy ineffectiveness proposition (PIP)argument states that under certain circumstances,neither expansionary demand-side fiscal policy nor expansionary monetary policy is effective at achieving macroeconomic goals.
A)True
B)False
Q3) In the 1970s and early 1980s,the U.S.economy experienced A)stagflation.
B)low inflation and low unemployment.
C)high inflation and low unemployment.
D)high inflation and high unemployment.
E)a and d
Q4) Describe the sequence of events that real business cycle theorists would use to explain how an adverse supply shock would impact the economy.Use your answer to explain why it is easy to confuse cause and effect between changes originating on the supply side and those that begin on the demand side.
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Chapter 17: Economic Growth: Resources, technology, ideas, and Institutions
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Sample Questions
Q1) Examples of physical capital include _______________________.Examples of human capital include ______________________________.
A)knowledge one picks up through education and training;factories and computers
B)machines and factories;chairs and desks
C)knowledge one picks up through education and experience;factories and machines
D)machines and factories;knowledge one picks up through education and training
Q2) If Real GDP is $6 billion and the population is 300,000,per-capita Real GDP is
A)$30,000.
B)$20,000.
C)$33,333.
D)$39,434.
Q3) A useful rule of thumb called the "Rule of 70" states that if something grows at a constant rate of Z percent per year,it doubles in size approximately every __________ years.
A)70 - Z
B)70/Z
C)Z/70
D)70 × (Z/100)
Q4) Describe new growth theory.Explain how it differs from neoclassical growth theory.
Page 19
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Chapter 18: The Financial Crisis of 2007-2009
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Sample Questions
Q1) All other things being equal among the banks below,which bank is the least likely to become insolvent?
A)Bank A with assets of $100 million and liabilities of $80 million.
B)Bank B with assets of $100 million and liabilities of $70 million.
C)Bank C with assets of $200 million and liabilities of $120 million.
D)Bank D with assets of $400 million and liabilities of $310 million.
E)Bank E with assets of $100 million and liabilities of $60 million.
Q2) There are some economists who argue that low mortgage interest rates in the time period preceeding the financial crisis of 2007-2009 were a result of a ___________ in global savings.They argue that emerging countries began to save ___________ which helped to _____________ the supply of loanable funds in the United States.
A)glut;less;decrease
B)glut;more;increase
C)decline;more;increase
D)decline;less;decrease
Q3) Define the terms financial sector and real sector.Describe the processes by which a number of banks becoming insolvent (or approaching insolvency)can have an adverse impact on the real sector.
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Chapter 19: Debates in Macroeconomics Over the Role and Effects
of Government
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Sample Questions
Q1) There is evidence that __________ were the main lobbyists behind passage of the Factory Acts which put restrictions on women and children working in early 19th century England.
A)male workers
B)female workers
C)child-care advocates
D)factory owners
Q2) Public choice is concerned with
A)relative prices.
B)government decision making.
C)marketing techniques.
D)consumer surveying.
Q3) Special interest groups are subsets of __________ that hold (usually)intense preferences for or against a particular government service,activity,or policy.
A)the general population
B)bureaucrats
C)elected officials
D)candidates for political office
E)all of the above
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Chapter 20: Public Choice and Special-Interest-Group
Politics
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Sample Questions
Q1) If a person gives a gift to another person,an economist would say that it is because
A)the marginal benefit of giving the gift is at least as great as the marginal cost of giving the gift.
B)the marginal cost of giving the gift is at least as great as the marginal benefit of giving the gift.
C)he expects to receive a gift in return.
D)none of the above
Q2) Identify and describe each step of the five-step process outlined in the textbook for building and testing theories.
Q3) A theory predicts that all swans are white.A thousand people go out into the field and identify the color of the swans they see.Their results reveal that,of the 10,000 swans they saw,all were white.It follows that
A)the swan theory is a falsifiable theory.
B)the swan theory is correct.
C)the evidence fails to reject the swan theory.
D)a and b
E)a and c
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Chapter 21: Building Theories to Explain Everyday Life: From
Observations to Questions to Theories to Predictions
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Q1) Refer to Exhibit 34-12.P<sub>W</sub> is the price that exists in a free world market.With the imposition of a quota that limits imports to Q<sub>4</sub>Q<sub>3</sub>,consumers lose more than producers and importers gain.The result of the quota is a (net)loss represented by the area(s)
A)LGK + JHI.
B)KGHJ.
C)GCH + JHI.
D)LGK.
E)none of the above
Q2) Refer to Exhibit 34-2.The U.S.demand and supply for a good are shown.Under a policy of free trade,the world price is P<sub>W</sub>.At this price,producers' surplus equals the area of
A)P<sub>N</sub>BDP<sub>W</sub>.
B)DBC.
C)P<sub>W</sub>CBP<sub>N</sub>.
D)P<sub>W</sub>DE.
Q3) Describe who benefits and who loses from tariffs and from quotas.What is the major difference between the effects of a quota and the effects of a tariff?
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Chapter 22: International Trade
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Q1) Suppose the governments of Mexico and the United States agree to a fixed exchange rate.Describe some of the options available to the Mexican government if the peso was persistently overvalued,creating a surplus of pesos on the foreign exchange market.Be sure to explain how each of these options would be expected to impact the supply and/or demand for Mexican pesos.
Q2) If Japanese real interest rates fall relative to real interest rates in the U.S. ,the yen will likely appreciate and the dollar will likely depreciate.
A)True
B)False
Q3) The purchasing power parity theory predicts better in the __________ run,and when there __________ in inflation rates across countries.
A)long;is little difference
B)short;are large differences
C)long;are large differences
D)short;is little difference
Q4) Describe the type of international monetary system that is currently in use.What advantages do proponents of this type of system cite in support of its use? What disadvantages do its opponents cite?
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Chapter 23: International Finance
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Q1) Increased deficit financing,following the use of expansionary fiscal policy by the U.S. ,will raise U.S.interest rates and causes the dollar to appreciate.
A)True
B)False
Q2) The United States SRAS curve may shift to the left if we ____________________ Malaysia and the dollar ________________ against the Malaysian ringgit.
A)buy raw materials from;appreciates
B)buy raw materials from;depreciates
C)sell finished goods to;appreciates
D)sell finished goods to;depreciates
Q3) Between 1940 and 2000,income per person in China
A)doubled.
B)tripled.
C)quadrupled.
D)decreased by 5 percent.
Q4) List and describe two costs and two benefits of globalization as discussed in the textbook.Why does it tend to be more difficult to see the benefits of globalization as compared to the costs of globalization?
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Chapter 24: Globalization and International Impacts on the Economy
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Sample Questions
Q1) "I'm not going to pay for the good if,once produced,the good cannot be denied to anyone." This statement is most relevant to
A)negative externalities.
B)positive externalities
C)private goods.
D)nonexcludable public goods.
E)the issue of rivalry versus nonrivalry in consumption.
Q2) Critics of government frequently assert that special interest groups favor transfer policies rather than economic growth policies.
A)True
B)False
Q3) The strongest case for government with respect to a negative externality is that government needs to set the
A)subsidy equal to the marginal private benefits.
B)tax equal to the marginal external costs plus $1.
C)tax slightly below the marginal external costs.
D)tax equal to the marginal external costs.
E)subsidy equal to the marginal social benefits.
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Chapter 25: The Economic Case for and Against
Government: Five Topics Considered
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Sample Questions
Q1) Which of the following statements is false?
A)As the price paid for a bond rises,the yield declines.
B)If you purchase stock from an individual that currently owns the stock,you are buying it in the secondary market.
C)The yield on a bond is another term for the coupon rate on a bond.
D)A rating of Aaa from Moody's is the highest bond rating given by that rating agency.
Q2) The face value of a bond is
A)the dollar amount that a person would receive if he or she were to sell the bond.
B)the dollar amount that a person would receive if he or she were to buy the bond.
C)the total value of payments that will be made over the course of the bond's life.
D)the dollar amount of the bond's final payment at maturity.
Q3) Those who think that a popular investment is necessarily a good investment often find themselves earning low returns.
A)True
B)False
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Chapter 26: Stocks, bonds, futures, and Options
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Sample Questions
Q1) Explain how nonrecourse loans operate and how they help to support crop prices.
Q2) A government agricultural policy in which a mandated minimum price is set is the A)marketing quota system.
B)acreage allotment program.
C)price support program.
D)target price system.
E)paying farmers not to produce system.
Q3) Demand for a food item increases by more than the supply of the food item.One thing for certain is that
A)the price of the food item rises.
B)income elasticity of demand (for the food item)is greater than 1.
C)the supply curve is price elastic.
D)real income rises as a result.
E)none of the above
Q4) Refer to Exhibit 39-4.At a target price of $4 per bushel,how much does the private sector spend on wheat?
A)$2,400
B)$1,800
C)$2,800
D)$3,600
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