Principles of Macroeconomics Exam Practice Tests
Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and theories that explain the performance and behavior of national economies. The course covers topics such as gross domestic product (GDP), inflation, unemployment, economic growth, monetary and fiscal policy, and the role of government in influencing economic activity. Through an analysis of these topics, students gain an understanding of how economies operate on a large scale, the tools policymakers use to steer economic outcomes, and the global forces that shape economic trends. By the end of the course, students will be equipped to critically analyze current economic events and policy debates from a macroeconomic perspective.
Recommended Textbook
ECON for Macroeconomics 1st Edition by William A. McEachern
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Chapter 1: The Art and Science of Economic Analysis
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137 Verified Questions
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Sample Questions
Q1) In a circular-flow model,households supply all of the following except
A) labor
B) goods and services
C) capital
D) entrepreneurial ability
E) natural resources
Answer: B
Q2) Economic theory allows us to predict the behavior of a specific person or firm.
A)True
B)False
Answer: False
Q3) In macroeconomics,we analyze
A) all of the following
B) the overall performance of the economy as a whole
C) arrangements through which specific products are exchanged
D) influences on the decision making of particular households
E) the factors that affect the decisions of individual firms
Answer: B
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Chapter 2: Economic Tools and Economics Systems
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Sample Questions
Q1) On a straight-line production possibilities frontier,which of the following is true?
A) The problem of scarcity does not exist.
B) Resources are imperfect substitutes.
C) Opportunity costs are constant.
D) Technology is rapidly expanding.
E) Some resources are not being used efficiently.
Answer: C
Q2) The division of labor facilitates productivity increases for all of the following reasons,except one.Which is the exception?
A) It allows people to do those tasks for which they have the greatest natural ability.
B) Workers get better at tasks,the more they repeat them.
C) The more experience workers gain by specializing in a task,the more likely they will enjoy that task.
D) More sophisticated production techniques are introduced.
E) The division of labor often permits the introduction of labor-saving machinery.
Answer: C
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4
Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Stockholders share in the profits of a corporation
A) in proportion to their years of stock ownership
B) in proportion to their ownership of stock
C) equally regardless of number of shares owned
D) only if they participate in firm management decisions
E) only if they attend stockholders' meetings
Answer: B
Q2) What part of federal government spending has grown the most slowly in recent decades?
A) national defense
B) welfare
C) interest on the national debt
D) social security and medicare
E) all other forms of federal government spending
Answer: A
Q3) If the value of the euro increases relative to the U.S.dollar,then French goods will be less expensive in the U.S.
A)True
B)False
Answer: False
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Chapter 4: Demand, Supply, and Markets
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Sample Questions
Q1) A decrease in demand will result in a(n)
A) increase in equilibrium price and quantity
B) decrease in equilibrium price and quantity
C) decrease in equilibrium price and an increase in equilibrium quantity
D) increase in equilibrium price and a decrease in equilibrium quantity
E) change in equilibrium price and quantity only if supply changes too
Q2) Which of the following is true of the relationship between price and quantity supplied?
A) There is always an inverse relationship.
B) More is supplied at lower prices.
C) Producers work harder and sell more when the price decreases.
D) There is a direct relationship between price and quantity supplied.
E) It is always true that a higher price leads to a decrease in quantity supplied.
Q3) If there is a shortage in the market for automobiles,then
A) producers' inventories will rise
B) the price should begin to rise
C) the demand curve will shift to restore equilibrium in the market
D) the supply curve will shift to restore equilibrium in the market
E) the price is expected to fall
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Page 6
Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) Which of the following statements regarding Gross Domestic Product is not true?
A) It is a stock variable.
B) It is measured for a particular time period,usually one year.
C) It is perhaps the most effective means of viewing the same economy over time.
D) It is a measure of the economy's performance.
E) It is a flow variable,not a stock variable.
Q2) Long-term growth in production can be partially explained by
A) increases in government spending
B) increases in availability of resources
C) reductions in federal taxes
D) a gradual but consistent increase in the price level
E) general optimism about the future and the pioneering spirit of America
Q3) The aggregate supply curve reflects the direct relationship between the price level and the quantity of aggregate output supplied.
A)True
B)False
Q4) Keynesian demand management policies are not effective in fighting stagflation.
A)True
B)False
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Chapter 6: Productivity and Growth
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Sample Questions
Q1) Which of the following is most likely to increase productivity growth,as measured using GDP statistics?
A) reduced capital formation
B) decreased human capital
C) increased research and development
D) increased government regulation
E) higher prices for raw materials
Q2) 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
Q3) If on-the-job experience causes labor productivity to increase,that is the result of an improvement in human capital.
A)True
B)False
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Chapter 7: Tracking the US Economy
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Sample Questions
Q1) The country of Fishland had a GDP of 1,000 doubloons (the monetary unit)in 2003 and 1,500 doubloons in 2004.The GDP price index was 100 in 2003 and 150 in 2004.Between 2003 and 2004 real GDP in Irishland
A) increased by 500 doubloons
B) increased by 333 doubloons
C) increased by 50 doubloons
D) remained the same
E) decreased by 50 doubloons
Q2) If nominal GDP is $6 trillion in a particular year and base year GDP was $3 trillion,then the GDP price index is 167.
A)True
B)False
Q3) Which of the following is not true about Gross Domestic Product?
A) It includes only final goods and services.
B) It reflects production in a particular year.
C) Intermediate goods and services are excluded to prevent double counting.
D) It may be measured by totalling the spending by each group in society.
E) It includes transfer payments.
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Chapter 8: Unemployment and Inflation
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Sample Questions
Q1) Since the end of World War II,the U.S.unemployment rate
A) has displayed a downward trend
B) has displayed an upward trend
C) has remained almost constant from year to year
D) was generally higher during the 1970s than during the 1990s
E) has not displayed any clear pattern
Q2) An increase in the demand for loanable funds,other things constant,will increase the interest rate.
A)True
B)False
Q3) The official unemployment rate would be higher if it included the existence of hidden unemployment or individuals who are
A) on unemployment compensation
B) not working
C) working part-time but prefer full-time work
D) voluntarily retired
E) unemployed and looking for work
Q4) Anticipated inflation distorts markets more than does unanticipated inflation.
A)True
B)False
Page 10
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Chapter 9: Aggregate Expenditure
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Sample Questions
Q1) The marginal propensity to consume measures the change in consumption divided by the change in income.
A)True
B)False
Q2) Which of the following best represents the opportunity cost of investing in capital?
A) the actual revenue stream generated by the investment
B) the expected revenue stream generated by the investment
C) the profit that investment is expected to generate
D) the market interest rate
E) the purchase price of the plant and equipment
Q3) Which of the following is true regarding net taxes?
A) The level of net taxes varies directly with the level of transfer payments.
B) The level of net taxes varies inversely with the level of taxes.
C) Net taxes must always be less than zero.
D) Net taxes increase when income tax rates are slashed.
E) Net taxes rise when welfare benefits are cut.
Q4) The current level of investment depends on the current level of income.
A)True
B)False
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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 expenditure line upward
B) shift the aggregate expenditure line downward
C) cause a movement up along the aggregate expenditure line
D) cause a movement down along the aggregate expenditure line
E) have no effect on the aggregate expenditure or the equilibrium level of real GDP
Q2) On the aggregate expenditure graph,if autonomous investment decreases by $10 billion,
A) the aggregate expenditure line shifts upward by $10 billion
B) planned saving increases by $10 billion
C) the aggregate expenditure line shifts downward by $10 billion
D) planned saving decreases by $10 billion
E) the equilibrium level of real GDP demanded increases by $10 billion
Q3) At the equilibrium level of GDP in Exhibit 10-2,injections equal
A) $1.0 trillion
B) $1.5 trillion
C) $1.4 trillion
D) $1.2 trillion
E) $1.3 trillion
Page 12
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Chapter 11: Aggregate Supply
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Sample Questions
Q1) The graph in Exhibit 11-9 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
Q2) Given aggregate demand and aggregate supply schedule #1 in Exhibit 11-1,the equilibrium level of output is
A) $5.0
B) $5.5
C) $6.0
D) $6.5
E) $7.0
Q3) The movement shown in Exhibit 11-9 could be caused by
A) government policies to increase demand
B) weather conditions causing worldwide crop failures
C) an attempt by key resource producers to monopolize supply
D) an increase in taxation or a decrease in government spending
E) an increase in labor productivity
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Page 13
Chapter 12: Fiscal Policy
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Sample Questions
Q1) A $100 billion increase in government purchases has a greater effect on real GDP than a $100 billion reduction in net taxes because
A) some of the income consumers gain from the tax reduction will be saved rather than spent
B) some of the income consumers gain from the tax reduction will be spent on services rather than products
C) some of the income consumers gain from the tax reduction will be spent on goods made in foreign countries
D) the consumers' MPC is higher than the government's
E) the consumers' MPC is 1
Q2) Government transfer payments are a good example of an automatic stabilizer. A)True
B)False
Q3) The classical economists believed that the economy automatically move toward equilibrium at full employment.
A)True
B)False
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Chapter 13: Federal Budgets and Public Policy
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Sample Questions
Q1) Which of the following is true of an increase in a federal government budget surplus?
A) When the surplus increases,revenues rise less than expenditures.
B) The aggregate demand curve shifts rightward as a result of an increasing surplus.
C) The unemployment rate falls as a result of an increasing surplus.
D) Such an increase in the surplus might close an expansionary gap.
E) The natural rate of unemployment increases as a result of an increasing surplus.
Q2) Problems with the federal government budget process include
A) Congress having to make tough choices each year on which entitlement programs,if any,will receive full support and how much partial support all others will receive
B) the constitutional requirement that Congress balance the budget on an annual basis
C) an overly detailed budget that allows Congress to reward friends,thereby discouraging restraint on spending
D) a speedy process that causes errors that are expensive to correct
E) continuing resolutions that force Congress to face tough budgetary decisions in a timely manner
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Chapter 14: Money and the Financial System
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Sample Questions
Q1) Seigniorage is
A) a retirement home for senior citizens
B) revenue earned from coining money
C) a fine paid by counterfeiters
D) the profits made by illegally "clipping" or "shaving" bits of precious metal from coins
E) the oldest known form of commodity money
Q2) The chairman of the Fed is appointed by the president.
A)True
B)False
Q3) The chairman of the Fed must resign when a new president is elected.
A)True
B)False
Q4) In order for something to be used as money,it must be
A) issued by the government
B) issued by banks
C) declared to be money
D) generally acceptable
E) made of something valuable
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Page 16
Chapter 15: Banking and the Money Supply
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Sample Questions
Q1) If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits,then its
A) required reserves are $500,000
B) required reserves are $20,000
C) assets are $500,000
D) liabilities are $500,000
E) liabilities plus its net worth are $500,000
Q2) If the Fed buys U.S.government securities from a bank and credits the bank's reserve account,
A) the Fed's assets decrease
B) the Fed's assets increase
C) the Fed's liabilities decrease
D) the member bank's assets decrease
E) the member bank's liabilities decrease
Q3) When the Fed buys U.S.government securities from a bank,that bank's excess reserves and required reserves increase but total reserves decrease.
A)True
B)False
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17
Chapter 16: Monetary Theory and Policy
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Sample Questions
Q1) Which of the following,other things constant,will shift the money demand curve to the right?
A) an increase in the interest rate
B) a decrease in the interest rate
C) an increase in real GDP
D) a decrease in real GDP
E) a decrease in the price level
Q2) When people exchange money for financial assets,the interest rate rises.
A)True
B)False
Q3) If the money supply is $1,000,the price level is 3,and real income (or output)is $5,000,then the velocity of money is
A) 0.2
B) 0.6
C) 1.67
D) 5
E) 15
Q4) According to the equation of exchange,M *V = P * C. A)True
B)False
Page 18
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Chapter 17: Macro Policy Debate: Active or Passive
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Sample Questions
Q1) According to those who favor an active approach to policy,how can the economy shown in Exhibit 16-2 attain equilibrium at potential output?
A) The SRAS curve will shift to the left.
B) The SRAS curve will shift to the right.
C) Either the money supply or government spending should be increased.
D) Either the money supply or government spending should be decreased.
E) Aggregate demand should be increased.
Q2) One often-cited rationale for a fixed-growth-rate monetary policy is that
A) it is too expensive to pay a staff to continually make adjustments in policy
B) although it's possible to determine what's happening in the economy,it's not possible to determine what to do about it
C) it is not possible to determine with any certainty what's happening in the economy,so it's easy to make a mistake with active policy
D) we know that the economy is increasing at a fixed rate year after year,so a fixed rate of growth in the money supply is justified
E) then the Federal Reserve would be superfluous and we could eliminate one large bureaucracy
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Page 19
Chapter 18: International Trade
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Sample Questions
Q1) Low wages may be traceable to all of the following except one.Which is the exception?
A) low productivity
B) too much saving
C) unstable business climate
D) poor education and training
E) lack of adequate physical capital supplied to labor
Q2) In New Zealand one worker can produce 40 walking sticks or 10 boomerangs each hour.What is the opportunity cost of producing one walking stick?
A) 40 boomerangs
B) 10 boomerangs
C) 4 boomerangs
D) 1/4 of a boomerang
E) 1/2 worker
Q3) When it comes to basic commodities,the United States is a net exporter of oil and metals and a net importer of farm crops.
A)True
B)False
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Chapter 19: International Finance
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Sample Questions
Q1) An increase in U.S.income that increases American demand for all normal goods (including imports from Britain)will shift
A) the U.S.demand curve for foreign exchange to the right,causing an increase in the dollar-per-pound exchange rate
B) the U.S.demand curve for foreign exchange to the left,causing a decrease in the dollar-per-pound exchange rate
C) the U.S.supply curve for foreign exchange to the right,causing a decrease in the dollar-per-pound exchange rate
D) the U.S.supply curve for foreign exchange to the left,causing an increase in the dollar-per-pound exchange rate
E) neither the U.S.demand curve for foreign exchange nor the U.S.supply curve for foreign exchange
Q2) Today's exchange rate system can be described as
A) a fixed exchange rate system
B) a freely floating exchange rate system
C) a pegged exchange rate system
D) a flexible exchange rate system
E) a managed float
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Chapter 20: Developing and Transitional Economies
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Sample Questions
Q1) A reliable system of property rights and enforceable contracts are prerequisites for creating incentives that support a healthy market economy.
A)True
B)False
Q2) Developing countries
A) do not benefit from foreign aid
B) do not benefit from private investment
C) generate less than half of their annual flow of foreign exchange from exports
D) must acquire foreign exchange in order to pay for imports
E) need to decrease labor productivity
Q3) Any international transfer made on concessional terms for the purposes of promoting economic development is
A) foreign aid
B) first aid
C) immigration
D) private investment
E) remittances
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Page 22
Chapter 21: Understanding Graphs
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Sample Questions
Q1) Using the values in Exhibit 1-7,calculate the slope of a line graphed with x on the horizontal axis and y on the vertical axis.
A) 0.5
B) 2
C) 1.5
D) 100
E) the slope cannot be determined without additional information
Q2) In Exhibit 1-2,at y = 14,the
A) value of x is larger on curve A than on curve B
B) value of x is smaller on curve A than on curve B
C) value of x is the same on curve A as on curve B
D) slope of line A is negative
E) slope of line B is positive
Q3) A curved line may have a positive slope or a negative slope,but it cannot have both positive and negative areas of slope.
A)True
B)False
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Chapter 22: National Income Accounts
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Sample Questions
Q1) In Exhibit 7-5,Gross Domestic Product equals
A) $365 billion
B) $390 billion
C) $420 billion
D) $375 billion
E) $385 billion
Q2) Disposable income is
A) personal income minus personal taxes
B) national income plus transfer payments
C) NDP minus personal income tax
D) personal income minus transfer payments
E) national income minus transfer payments plus taxes
Q3) The difference between Personal Income and Disposable Income is
A) personal taxes (e.g.,federal personal income tax)
B) indirect business taxes
C) corporate income taxes
D) payroll taxes paid by employers
E) Social Security contributions paid by employers
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Chapter 23: Variable Net Exports
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Sample Questions
Q1) Subtracting the import function from the export function produces the net export function.
A)True
B)False
Q2) If imports increase as disposable income increases,economic growth will __________ net exports and contribute to a trade __________.
A) increase; deficit
B) increase; surplus
C) decrease; deficit
D) decrease; surplus
E) not affect; balance
Q3) If the value of the U.S.dollar decreases relative to other currencies,the export function will shift upward and the import function will shift downward,thereby shifting the net export function upward.
A)True
B)False
Q4) An increase in U.S.consumers' incomes will decrease U.S.exports.
A)True B)False
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Chapter 24: Variable Net Exports Revisited
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Q1) If variable net exports increase by the same amount at every level of income,then there is an upward and parallel shift of the net export line.
A)True
B)False
Q2) If the MPS = 0.25 and the MPM = 0.25,the spending multiplier with net exports equals A) 5
B) 4 C) 3
D) 2
E) 1
Q3) The formula for the spending multiplier in model with variable net exports trade equals 1/(MPS + MPM).
A)True B)False
Q4) Imports increase as domestic income increases.
A)True B)False
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Chapter 25: The Algebra of Income and Expenditure
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Q1) 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
Q2) If Y = C + I + G + (X - M)and Y = $190,C = $100,I = $50 and G = $50 then,in equilibrium,X - M must equal
A) -$20
B) -$10
C) $10
D) $20
E) $50
Q3) Investment is the only autonomous spending component in aggregate expenditure.
A)True B)False
Q4) If C = $3,000 + 0.9Y,which of the following will not be true?
A) If income is less than $30,000,saving must be negative.
B) If income is $30,000,then consumers are not saving.
C) If income equals $40,000,saving must be $0.
D) The marginal propensity to consume is 0.9.
E) Autonomous consumption is $3,000.
Page 27
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Chapter 26: The Algebra of Demand-Side Equilibrium
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Q1) In which of the following situations will the combination of the marginal propensity to consume and the proportional income tax rate (t)result in the largest multiplier?
A) Both the MPC and t are large.
B) Both the MPC and t are small.
C) The MPC is large; t is small.
D) The MPC is small; t is large.
E) The MPC equals t.
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
Q3) With a proportional income tax,
A) the tax multiplier equals (MPC)/(1 - MPC)
B) the tax multiplier equals -MPC/(1 - MPC)
C) the spending multiplier equals (MPC)/(1 - MPC)
D) the spending multiplier equals 1/[1 - MPC(1 - t)]
E) the spending multiplier equals 1/[1 - (MPC)t]
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Page 28