Principles of Macroeconomics Final Exam
Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and analytical tools used to understand the economy as a whole. The course covers topics such as national income determination, economic growth, unemployment, inflation, fiscal and monetary policy, and the role of government in stabilizing the economy. Students will learn how to interpret economic indicators, analyze the impacts of policy decisions, and understand the interconnectedness of global economies. Through real-world examples and models, the course equips students with the knowledge to critically evaluate economic issues and policy debates.
Recommended Textbook
ECON MACRO4 4th Edition by
William A. McEachern
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21 Chapters
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) Economic theory
A)expresses normative values
B)invents imaginative and interesting stories
C)predicts the behavior of a specific economic decision maker after an economic change
D)predicts the average behavior of a group of similar economic decision makers after an economic change
E)uses only perfect and complete information
Answer: D
Q2) The labor market is an example of a
A)government market
B)classified market
C)communication market
D)resource market
E)product market
Answer: D
Q3) Profit is the payment made for land resources.
A)True
B)False
Answer: False
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Chapter 2: Understanding Graphs-Appendix
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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
Answer: B
Q2) The slope of a steep upward-sloping line is a smaller value than the slope of a nearly flat upward-sloping line.
A)True
B)False
Answer: False
Q3) A downward-sloping straight line has a decreasing slope.
A)True
B)False
Answer: False
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Chapter 3: 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) Which of the following would shift the production possibilities frontier outward?
A)an increase in the size of the labor force
B)more efficient use of existing resources and technology
C)the government prints more money
D)the end of a strike by a labor union
E)society's desire to produce more of one of the goods
Answer: A
Q3) Absolute advantage is based on opportunity cost.
A)True
B)False
Answer: False
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Chapter 4: Economic Decision Makers
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Sample Questions
Q1) The excise tax on gasoline is based on the ability-to-pay principle of taxation.
A)True
B)False
Q2) Two important roles of government in the economy are to safeguard private property and enforce contracts.
A)True
B)False
Q3) You are more likely to hire a plumber to repair a leaky drain pipe
A)as the tax rate on your earned income rises
B)if you already own the specialized tools required to complete the plumbing repair work
C)following an increase in the opportunity cost of your time
D)the more knowledge and experience in plumbing repair work that you possess
E)as the transaction cost of entering into a plumbing contract increases due to government regulations
Q4) Import quotas on sugar result in lower sugar prices in the United States.
A)True
B)False
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Chapter 5: Demand, Supply, and Markets
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Sample Questions
Q1) Rent controls can result in
A)deteriorating or abandoned buildings
B)strong incentives to oust protected tenants
C)payments to motivate tenants to move out
D)benefits to rich people who get a windfall from low rents
E)All of the answers are correct.
Q2) Disequilibrium occurs when quantity demanded equals quantity supplied. A)True
B)False
Q3) An increase in supply will cause equilibrium price to __________ and equilibrium quantity to __________.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease
E)remain constant; increase
Q4) A decrease in the price of peanut butter will cause a leftward shift of the supply curve of peanut butter.
A)True
B)False
Page 7
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Chapter 6: Introduction to Macroeconomics
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Sample Questions
Q1) Keynes believed that the best method for ending the Great Depression was to
A)increase the money supply so that individuals would have more to spend
B)cut government spending and increase taxes to reduce or even eliminate the government's deficit
C)increase government spending and cut taxes so that consumers could spend more
D)cut both government spending and taxes so that government would not be such a large part of the economy
E)increase both government spending and taxes to increase the role government played in the economy
Q2) The Keynesian approach to fiscal policy calls for
A)budget deficits during periods of inflationary pressure
B)budget surpluses during periods of high unemployment
C)a balanced budget despite the state of the economy
D)tax cuts during recession
E)spending increases during inflation
Q3) If both aggregate demand and aggregate supply increase, then employment will increase.
A)True
B)False
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Page 8
Chapter 7: Tracking the Us Economy
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Sample Questions
Q1) In GDP measurement, consumer spending includes
A)spending by businesses on labor resources
B)spending by government on office buildings
C)spending by individual households on automobiles and durables
D)exchanges in business inventories
E)a firm's purchase of a radio made in Taiwan
Q2) If the price index for 2008 was 100 and the price index for 2009 was 109, then how much did prices change between 2008 and 2009?
A)1 percent increase
B)8 percent increase
C)9 percent increase
D)12 percent increase
E)12 percent decrease
Q3) A problem inherent in using value added to measure GDP is that the method does not avoid double counting.
A)True
B)False
Q4) Other things equal, increased imports decrease GDP.
A)True
B)False
Page 9
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Chapter 8: Unemployment and Inflation
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Sample Questions
Q1) Which of the following is true regarding labor force participation rates in the United States since the 1950s?
A)The rates for both men and women have risen.
B)The rate for women has fallen; that for men has risen.
C)The rate for men has fallen; that for women has increased.
D)The rates for both men and women have fallen.
E)The rates for both men and women have remained fairly constant.
Q2) If the inflation rate is higher than expected, which of the following groups in society would be most likely to gain?
A)borrowers
B)lenders
C)persons holding large amounts of money
D)persons on fixed incomes
E)workers under contract without a cost of living adjustment
Q3) If the nominal interest rate is 5 percent and there is no inflation,
A)the real interest rate exceeds 5 percent
B)the real interest rate is less than 5 percent
C)the real interest rate is 5 percent
D)there is not enough information to determine the real interest rate
E)the real interest rate is zero
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Chapter 9: Productivity and Growth
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Sample Questions
Q1) Basic research seeks to answer specific questions or to apply scientific discoveries to the development of specific products.
A)True
B)False
Q2) In the long run, changing technology on average has led to
A)lower employment and lower wage rates
B)higher employment and lower wage rates
C)lower employment with wage rates unchanged
D)higher employment with wage rates unchanged
E)higher incomes and more leisure time
Q3) Labor productivity in the United States has been
A)growing at ever-increasing rates since World War II
B)growing but at lower rates in the last 25 years compared to the 25 years immediately after World War II
C)falling for the last 50 years
D)largely unchanged over the last 50 years
E)growing more rapidly in the last 50 years than in most other developed economies
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11
Chapter 10: Aaggregate Expenditure and Agregate
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Sample Questions
Q1) A grocery store manager must decide whether to buy a rug cleaner to rent to customers. The cleaner costs $800. It is expected to yield $200 in income per year. What is the expected annual rate of return from the cleaner?
A)$600
B)$200
C)400 percent
D)75 percent
E)25 percent
Q2) A household that expects a decrease in disposable income in the future will
A)increase its current consumption spending
B)decrease its current consumption spending
C)maintain its current consumption spending
D)increase its current consumption spending, then increase spending when income falls
E)decrease its current consumption spending, then increase spending when income falls
Q3) At the equilibrium level of real GDP, the MPC equals 1.
A)True
B)False
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Chapter 11: Aggregate Expenditure and Aggregate Demand
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Sample Questions
Q1) 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
Q2) If output exceeds planned aggregate spending, the result is unintended inventory increases.
A)True
B)False
Q3) If the simple multiplier is 10, the marginal propensity to save is
A)1/10
B)9/10
C)1/9
D)10/9
E)9
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Chapter 12: Aggregate Supply
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Sample Questions
Q1) As actual output rises above the potential level, which of the following must be true?
A)more resources become unemployed
B)prices remain constant
C)real GDP rises
D)nominal GDP remains constant
E)production falls
Q2) Consider Exhibit 11-3. The short-run equilibrium output is Y<sub>1</sub>.
A)True
B)False
Q3) As an expansionary gap is closed in the long run,
A)nominal and real GDP decline
B)nominal and real GDP increase
C)nominal GDP increases but real GDP declines
D)nominal GDP declines but real GDP increases
E)real GDP declines, but nominal GDP can increase, decrease, or remain the same
Q4) An increase in the federal minimum wage would shift the long-run aggregate supply curve inward (to the left).
A)True
B)False
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Chapter 13: Fiscal Policy
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Sample Questions
Q1) Which of the following is true of automatic stabilizers?
A)They require ongoing decisions about government purchases and taxation to promote full employment and price stability.
B)They include the unemployment compensation program.
C)They tend to stimulate aggregate demand when the economy is experiencing an expansionary gap.
D)They include tax cuts passed by Congress to ease a current recession in an economy that has a proportional income tax.
E)They include government purchases of goods and services requiring Congressional approval.
Q2) Which of the following is not true about classical economists?
A)They criticized mercantilism as an economic system.
B)They advocated laissez-faire policies to promote economic growth.
C)They believed the economy would naturally tend toward full employment.
D)They believed prices and wages were flexible.
E)They sought government intervention in markets to promote fairness.
Q3) Military spending is a good example of an automatic stabilizer.
A)True
B)False
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Page 15
Chapter 14: Federal Budgets and Public Policy
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Q1) The long-run opportunity cost of government spending's crowding out of private investment
A)equals about 10 percent of GDP
B)is lower interest rates and hence lower interest income for U.S. resource owners
C)results from the corresponding expansionary gap
D)results from the corresponding contractionary gap
E)would be greater if the government's expenditures were devoted to increasing retirement benefits rather than to educating the work force
Q2) The President's budget is presented to Congress each year
A)in the Economic Report of the President
B)in a report followed shortly by the Economic Report of the President
C)at the beginning of the fiscal year
D)in a form that must be voted up or down within 60 days
E)and requires a two-third vote for ratification
Q3) The functional finance philosophy is based on the idea that balancing the federal budget is less important than using it to promote an economy operating to its potential.
A)True
B)False
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Chapter 15: Money and the Financial System
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Sample Questions
Q1) Each member of the Board of Governors serves
A)a four-year term that begins at the same time as that of the newly elected president
B)a four-year term that does not coincide with that of the current president
C)until a new president is elected
D)a fourteen-year term
E)a six-year term
Q2) The unit of account function of money
A)all of the following are correct
B)means that money makes the relative values of goods and services more easily known
C)requires that money be made of something valuable
D)means that money can be used to save up purchasing power
E)means that money is more easily counted than goods
Q3) The discount rate is the interest rate that
A)banks charge on large loans
B)banks charge on loans to other banks
C)the Fed charges on loans to branches of the U.S. government
D)the Fed charges on loans to depository institutions
E)the Fed charges on loans to the public
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Page 17
Chapter 16: Banking and the Money Supply
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Sample Questions
Q1) The business of banking is essentially a trade-off between liquidity and profitability.
A)True
B)False
Q2) Demand deposits are
A)long-term, high-interest savings accounts
B)accounts into which banks can require depositors make regular deposits
C)checkable deposits held by commercial banks that earn no interest
D)negotiable order of withdrawal accounts
E)loans from the Fed
Q3) A bank that borrows from the Fed at 3 percent annual interest
A)must hold 3 percent of its total reserves as required reserves
B)must hold 97 percent of its total reserves as required reserves
C)will be able to profit by charging less than 3 percent for its loans
D)hopes to charge more than 3 percent for its loans
E)must give up U.S. government securities to secure the loan
Q4) The simple money multiplier is equal to 1 minus the required reserve ratio.
A)True
B)False
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Chapter 17: Monetary Theory and Policy
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Q1) If investment is not sensitive to changes in the interest rate, then changes in the money supply
A)will have no effect on interest rates
B)will have a major impact on investment
C)will have no effect on aggregate demand
D)will have a major impact on aggregate demand
E)mean the money supply curve will not be vertical
Q2) Which monetary policy would be appropriate to close a contractionary gap?
A)a tax cut
B)a decrease in government purchases
C)an increase in reserve requirements
D)the Fed's purchase of U.S. government securities
E)the Fed's raising the discount rate
Q3) If the money supply decreases, the opportunity cost of holding money __________ and people will want to hold __________ quantity of money.
A)rises; a greater B)rises; a smaller C)does not change; the same D)falls; a greater E)falls; a smaller
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Chapter 18: Macro Policy Debate: Active or Passive
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Sample Questions
Q1) Which of the following statements supports the passive approach to a contractionary gap?
A)It is likely that policies will be subject to time lags.
B)Prolonged unemployment may cause the economy's potential real GDP to fall.
C)Workers' skills may grow rusty during a prolonged recession.
D)Unemployed workers may drop out of the labor force during a prolonged recession.
E)Firms may neglect their capital stock during a prolonged recession.
Q2) According to the rational expectations model, the only time active policy has an impact on aggregate output is when
A)it is expansionary
B)it is contractionary
C)it is unannounced
D)the economy has a contractionary gap
E)the economy has an expansionary gap
Q3) The long-run Phillips curve suggests that changing the rate of unemployment in the economy has no impact on the inflation rate.
A)True
B)False
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Chapter 19: International Trade
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Sample Questions
Q1) In Exhibit 19-5, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the United States, which area represents the amount of tariff revenue the United States government collects?
A)a
B)b
C)c
D)f
E)e
Q2) Differences in tastes among nations
A)make gains from trade possible even in the absence of differences in resource endowments
B)make gains from trade possible only when there are differences in resource endowments
C)negate any potential gains from trade
D)are caused by differences in resource endowments
E)occur only among countries whose people are of different religions
Q3) A tariff is a tax on either imports or exports.
A)True
B)False
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Page 21
Chapter 20: International Finance
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Sample Questions
Q1) Flexible exchange rates are more volatile than floating ones.
A)True
B)False
Q2) The demand curve for euros shows
A)a direct relationship between the dollar price of a euro and the quantity of euros demanded
B)an inverse relation between the dollar price of a euro and the quantity of euros demanded
C)that the higher the dollar price of a euro, the greater the quantity demanded
D)that the more expensive it is to buy euros, the larger the quantity of European goods demanded by Americans
E)that the dollar price of the euro is being held fixed by the European Union
Q3) If the U.S. dollar depreciates in the foreign exchange market, American exports will be __________ and American imports will be __________.
A)more expensive; more expensive
B)cheaper; cheaper
C)less expensive; less expensive
D)less expensive; more expensive
E)there will be no change
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Chapter 21: Economic Development
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Sample Questions
Q1) Throughout the world, poverty is greater among women than men, particularly women who head households.
A)True
B)False
Q2) One possible reason that the country of Whatsis is trapped in poverty is
A)a lack of mineral wealth
B)an honest and functional government
C)laws and regulations to help detect fiscal fraud
D)a free press
E)a civil war
Q3) If Gloria is woman in a developing country, then it is likely that
A)she is less educated than most men in her country
B)her brother has dropped out of high school, but not she has graduated
C)she has more employment opportunities and earns higher wages than her male classmates
D)she and other women will not have to work long hours in agriculture
E)she has special access to resources such as land, capital, and technology
Q4) Export promotion has been more successful than import substitution.
A)True
B)False
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