Macroeconomics
Test Preparation
Course Introduction
Macroeconomics is the branch of economics that examines the behavior, performance, and structure of entire economies rather than individual markets. This course explores key concepts such as gross domestic product, inflation, unemployment, economic growth, fiscal policy, and monetary policy. Students will analyze how governmental and central bank decisions influence national and global economic indicators and compare different economic theories and models. Through case studies and real-world data, the course aims to develop a comprehensive understanding of how macroeconomic forces shape societal well-being and inform public policy.
Recommended Textbook
Essentials of Economics 6th Edition by R. Glenn Hubbard
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19 Chapters
6712 Verified Questions
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Which of the following is a problem inherent in centrally planned economies?
A) Households and firms make poor decisions in choosing how resources are allocated.
B) There is too little production of low-cost, high-quality goods and services.
C) Production managers are more concerned with satisfying consumer wants than with satisfying government's orders.
D) Exports tend to exceed imports.
Answer: B
Q2) A college must decide if it wants to offer more evening and weekend classes.This decision involves answering the economic question of "for whom to produce."
A)True
B)False
Answer: False
Q3) Examining the conditions that could lead to a recession in an economy is an example of a macroeconomic topic.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Figure 2-14.Which country has a comparative advantage in the production of snow cones?
A) Greenland
B) They have equal productive abilities.
C) Iceland
D) neither country
Answer: C
Q2) Refer to Figure 2-10.If the economy is currently producing at point E,what is the gain in production if the economy moves to point D?
A) 26 thousand forks
B) 20 thousand forks
C) 16 thousand spoons
D) 0 spoons
Answer: A
Q3) If a country is producing efficiently and is on the production possibilities frontier,the country can produce more of one good without producing less of the other good.
A)True
B)False
Answer: False
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Chapter 3: Where Prices Come From: The Interaction of
Demand and Supply
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Sample Questions
Q1) Which of the following would cause both the equilibrium price and equilibrium quantity of oysters (assume that oysters are a normal good)to decrease?
A) an increase in consumer income
B) an oil spill that sharply reduces oyster output
C) a decrease in consumer income
D) a technological advancement in the production of oysters
Answer: C
Q2) Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for tuna.Which panel best describes what happens in this market when there is a decrease in the productivity of commercial fishermen?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
Answer: B
Q3) All else equal,as the price of a product falls,the quantity supplied increases.
A)True
B)False
Answer: False
5
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Chapter 4: Market Efficiency and Market Failure
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Sample Questions
Q1) Refer to Figure 4-5.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $9,what changes in the market would result in an economically efficient output?
A) The price would decrease, the quantity supplied would decrease, and the quantity demanded would increase.
B) The quantity supplied would increase, the quantity demanded would decrease, and the equilibrium price would decrease.
C) The price would decrease, the demand would increase, and the supply would decrease.
D) The price would increase, the quantity demanded would decrease, and the quantity supplied would increase.
Q2) Which of the following is not a result of imposing a rent ceiling?
A) Some consumer surplus is converted to producer surplus.
B) There is a reduction in the quantity of apartments supplied.
C) There is an increase in the quantity of apartments demanded.
D) The marginal benefit of the last apartment rented is greater than the marginal cost of supplying it.
Q3) What is deadweight loss? When is deadweight loss equal to zero?
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Chapter 5: The Economics of Health Care
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Sample Questions
Q1) When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance,the insurance market is said to face the problem of
A) moral hazard.
B) adverse selection.
C) asymmetric information.
D) economic irrationality.
Q2) Compared to other high-income countries,health care spending per person in the United States has been
A) growing at a faster rate.
B) declining at a faster rate.
C) growing at approximately the same rate.
D) declining at approximately the same rate.
Q3) Refer to Figure 5-2.The efficient equilibrium quantity is ________ thousand vaccinations.
A) 200
B) 400
C) 600
D) > 600
Q4) What is adverse selection?
Page 7
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Chapter 6: Firms, The Stock Market, and Corporate Governance
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Sample Questions
Q1) Which of the following is an advantage of starting a new business as a corporation?
A) double taxation
B) ease in setting up
C) low expenses of legally organizing
D) greater ability to raise funds
Q2) When a business is set up as a partnership,the owners of the business face limited liability.
A)True
B)False
Q3) If the personal assets of the owners can be claimed if the business is bankrupt,the owners are said to have
A) unlimited liability.
B) a corporation type of business.
C) limited liability.
D) separation of ownership from control.
Q4) How does the principal-agent problem extend to managers and employees?
Q5) How can a corporation's board of directors and its managers try to reduce the principal-agent problem?
Q6) How do unlimited and limited liability differ?
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots,then
A) the price elasticity of demand for teapots is greater than 1 in absolute value.
B) the demand for teapots is unit elastic.
C) the price elasticity of demand for teapots is equal to zero.
D) the price elasticity of demand for teapots is less than 1 in absolute value.
Q2) Firms pay famous individuals to endorse their products because
A) apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product.
B) the firms are irrational and are wasting advertising expenditures.
C) famous people obviously know what are the best goods and services.
D) famous people only consume high-quality products.
Q3) Goods with upward sloping demand curves are referred to as
A) Marshall goods.
B) Giffen goods.
C) substitute goods.
D) luxury goods.
Q4) What is marginal utility and what is the law of diminishing marginal utility?
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Page 9
Chapter 8: Technology,Production,and Costs
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Sample Questions
Q1) In economics,technology only refers to the development of new products.
A)True
B)False
Q2) The Santa Fe Spark Plug Company supplies spark plugs to automotive parts dealers.An increase in the demand for its product led Santa Fe to hire 150 new workers.Santa Fe also plans to expand the capacity of its plant but this project will take 2 years to complete.Which of the following statements is true?
A) The wages and benefits paid to the new workers are implicit costs.
B) The long run for Santa Fe is longer than 1 year.
C) The short run for Santa Fe is 1 year.
D) In the short run Santa Fe's variable costs increase but its fixed costs decrease.
Q3) The process a firm uses to turn inputs into outputs of goods and services is called technology.
A)True
B)False
Q4) Use the general relationship between marginal and average values to explain why a marginal cost curve must intersect an average total cost curve and an average variable cost curve at their minimum points.
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Page 10
Chapter 9: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) If,for the last unit of a good produced by a perfectly competitive firm,MR > MC,then in producing it,the firm
A) added more to total costs than it added to total revenue.
B) added more to total revenue than it added to total cost.
C) is maximizing marginal profit.
D) has minimized its losses.
Q2) Assume that firms in a perfectly competitive market are earning economic profits.Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?
A) The market demand curve shifts to the right, causing price to rise and market output to increase.
B) The market demand curve shifts to the left, causing price to fall and market output to decrease.
C) The short-run market supply curve shifts to the right, causing price to fall and total market output to increase.
D) The short-run market supply curve shifts to the left, causing price to rise and total market output to decrease.
Q3) Under what conditions should a competitive firm shut down in the short run?
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Chapter 10: Monopoly and Antitrust Policy
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Sample Questions
Q1) The International Nickel Company of Canada is often cited as an example of monopoly.What was the source of the barrier to entry that gave this firm monopoly power?
A) It was a public enterprise; therefore, the Canadian government blocked entry into the market for nickel.
B) There were important network externalities in the production of nickel.
C) Economies of scale resulted in the company becoming a natural monopoly.
D) control of a key resource
Q2) The U.S.Congress has given two government entities the authority to police mergers.These two entities are
A) the antitrust division of the Department of State and the Securities and Exchange Commission.
B) the Federal Trade Commission and the Internal Revenue Service.
C) the Antitrust Division of the U.S. Department of Justice and the Council of Economic Advisors.
D) the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice.
Q3) What happens to a monopoly's revenue when it sells more units of its product?
Q4) If you own the only bookstore in a small town,do you have a monopoly?
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Which of the following is the best example of a firm that competes in a monopolistically competitive market?
A) the U.S. Postal Service
B) Microsoft
C) a movie theater
D) an automobile manufacturer
Q2) In which of the following cartels is total cartel profit likely to be the highest?
A) a cartel made up of equal sized firms each producing different quantities of a differentiated product
B) a cartel made up of firms of various sizes each producing different quantities of a homogeneous product
C) a cartel made up of firms of various sizes each producing the same quantity of a differentiated product
D) a cartel made up of identical firms each producing the same quantity of a homogeneous product
Q3) A prisoner's dilemma leads to a noncooperative equilibrium.
A)True
B)False
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13
Chapter 12: GDP: Measuring Total Production and Income
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Sample Questions
Q1) Refer to Table 12-18.What is the GDP deflator in 2018 if 2018 is the base year?
A) 120
B) 118
C) 100
D) 87
Q2) "Household production" refers to
A) the manufacturing of durable household products.
B) the home building sector of the economy.
C) home-based craft businesses.
D) goods and services people produce for themselves.
Q3) Refer to Table 12-27.Based on the table above,what is national income for this economy?
A) $1,950 billion
B) $2,250 billion
C) $2,950 billion
D) $3,550 billion
Q4) Why do we not count the value of intermediate goods and services in gross domestic product? Does the value of intermediate goods and services show up in gross domestic product? If so,how?
Q5) Why do we subtract import spending from total expenditures?
Page 14
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) Suppose you lend $1,000 at an interest rate of 10 percent over the next year.If the expected real interest rate at the beginning of the loan contract is 4 percent,then what rate of inflation over the upcoming year would be most beneficial to you as the lender?
An inflation rate
A) equal to 0 percent.
B) greater than 6 percent.
C) equal to 6 percent.
D) equal to 4 percent.
Q2) If the CPI rises from 206.7 to 212.7 between two consecutive years,by how much has the cost of living changed between these two years?
A) The cost of living has increased by 6%.
B) The cost of living has increased by 2.9%.
C) The cost of living has increased by 12.7%.
D) The cost of living has decreased by 6%.
Q3) Real interest rates at times have been negative.Why would anyone lending money agree to a negative real interest rate?
Q4) Efficiency wage is another name for the minimum wage.
A)True
B)False
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Chapter 14: Economic Growth, The Financial System, and Business Cycles
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Sample Questions
Q1) If real GDP in a closed economy is $40 billion,consumption is $20 billion,and government purchases are $10 billion,what is investment?
A) $10 billion
B) $30 billion
C) $40 billion
D) $70 billion
Q2) Which of the following is most likely to be able to sustain economic growth in an economy?
A) sustained increases in the labor force participation rate
B) technological change
C) increases in capital per hour worked
D) accumulations of economic resources
Q3) If GDP grew 3% in 1970,2.2% in 1971 and 2.5% in 1972 then,what is the average annual growth rate over this period?
A) 5%
B) 4%
C) 2.6%
D) -2.2%
Q4) How are unemployment,inflation,and the business cycle related?
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) How do changes in income tax policies affect aggregate demand?
A) Higher taxes increase disposable income, consumption, and aggregate demand.
B) Higher taxes reduce disposable income, consumption, and aggregate demand.
C) Higher taxes increase corporate investment and aggregate demand.
D) Higher taxes increase aggregate supply and thus increase aggregate demand as well.
Q2) The long-run aggregate supply curve shows the relationship between the ________ and ________.
A) inflation rate; quantity of real GDP demanded
B) real interest rate; quantity of real GDP supplied
C) nominal interest rate; quantity of real GDP supplied
D) price level; quantity of real GDP supplied
Q3) Deflation will
A) increase aggregate demand.
B) increase the quantity of real GDP demanded.
C) decrease aggregate demand.
D) decrease the quantity of real GDP demanded.
Q4) When potential GDP increases,long-run aggregate supply also increases.
A)True
B)False
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Chapter 16: Money,Banks,and the Federal Reserve System
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Sample Questions
Q1) Suppose a bank has the following balance sheet: \(\begin{array}{|l|l|c|}
\hline {\text { Assets }} & {\text { Liabilities }} \\
\hline \text { Reserves } \$ 14,000 & \text { Deposits } \$ 100,000 \\ \hline \text { Loans } \$ 90,000 & \text { Net Worth } \$ 4,000 \\ \hline \end{array}\)
If the required reserve ratio is 10 percent,how much excess reserves does the bank have? What is the maximum amount that the bank can expand its loans?
Q2) In an attempt to bring lenders and borrowers together following the financial crisis of 2008,the Federal Reserve made a large amount of new funds available to financial markets.The Fed expected this to increase the money supply and the total amount of lending because of the multiplier effect,in which a given amount of new reserves results in a multiple increase in
A) stockholders' equity.
B) bank deposits.
C) long-term debt.
D) required reserves.
Q3) How do open market operations work?
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Page 18
Chapter 17: Monetary Policy
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Sample Questions
Q1) Which of the following statements about inflation targeting is true?
A) Inflation targeting by the central banks in other countries has not typically lowered inflation.
B) Inflation targeting would not reduce the flexibility of monetary policy to address other policy goals.
C) Inflation targeting would not allow the central bank the flexibility to take action against a severe recession.
D) Inflation targeting would make it easier for households and firms to form accurate expectations of future inflation, improving their planning and the efficiency of the economy.
Q2) Using the Taylor rule,if the current inflation rate exceeds the target inflation rate and real GDP exceeds potential GDP,then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate.
A) will be greater than B) will be less than
C) will be the same as D) may be greater than or less than
Q3) What problems can high inflation rates cause for the economy?
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19
Chapter 18: Fiscal Policy
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Sample Questions
Q1) Refer to Figure 18-1.Suppose the economy is in short-run equilibrium above potential GDP and wages and prices are rising.If contractionary policy is used to move the economy back to long run equilibrium,this would be depicted as a movement from ________ using the basic AD-AS model in the figure above.
A) D to C
B) C to B
C) A to E
D) B to A
E) E to A
Q2) Give an example of an automatic stabilizer.Explain how automatic stabilizers work in the case of recession.
Q3) Consider the following statement,"The Federal Reserve fights recessions by increasing the money supply so people will have more money to spend." What is wrong with the statement and how can it be corrected?
Q4) What is the "tax wedge"?
Q5) The cyclically adjusted budget is calculated at potential GDP.
A)True
B)False
Q6) List the five categories of federal government expenditures.
Page 20
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Chapter 19: Comparative Advantage, International Trade, and Exchange Rates
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Sample Questions
Q1) What is a tariff?
Q2) Tastes for products such as beer differ.As a result
A) we see countries specializing completely in the production of beer.
B) consumers of beer have difficulty deciding what type of imported beer to buy.
C) the quality of imported beer is less than it could be.
D) different countries may each have a comparative advantage in producing different types of beer.
Q3) If a country has an absolute advantage in producing a product,it must also have a comparative advantage in producing that product.
A)True
B)False
Q4) A quota is a numerical limit on the quantity of a good that can be imported.
A)True
B)False
Q5) Refer to Figure 19-2.With the tariff in place,the United States
A) imports 16 million pounds of rice.
B) imports 9 million pounds of rice.
C) imports 15 million pounds of rice.
D) exports 31 million pounds of rice.
Page 21
Q6) What was the GATT,why was it established,and why and with what was it replaced?
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Page 22