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Macro Sample Tests All Chapters
Macro Sample Tests All Chapters
NAME __________________________________
Forty-one multiple-choice questions, each worth 2.439 points. For each question, circle the best answer.
2. Even though the Orlando Sentinel is inexpensive, people rarely buy more than one of them each day. This fact:
A) is an example of irrational behavior.
B) implies that reading should be taught through phonics rather than the whole language method.
C) contradicts the economic perspective.
D) implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.
3. The basic purpose of the "other things equal" (ceteris paribus) assumption is to:
A) allow one to reason about the relationship between price and quantity of X without the intrusion of a change in the price of
Z.
B) allow one to focus upon micro variables by ignoring macro variables.
C) allow one to focus upon macro variables by ignoring micro variables.
D) allow one to reason about the relationship between revenues and expenses of a business.
5. The problems of aggregate (at the national level) inflation and unemployment are:
A) major topics of macroeconomics. B) not relevant to the U.S. economy.
C) major topics of microeconomics. D) peculiar to socialistic economies.
6. "If you leave a football game at the end of the third quarter, you will avoid traffic and get home more quickly. Therefore,
everyone should leave the game early." This illustrates the:
A) "sore loser syndrome" B) adverse selection problem. C) fallacy of division. D) fallacy of
composition.
7. If we say that two variables are inversely related, this means that:
A) the two graph as an upsloping line.
B) an increase in one variable is associated with a decrease in the other.
C) an increase in one variable is associated with an increase in the other.
D) the resulting relationship can be portrayed by a straight line parallel to the horizontal axis.
8. Answer on the basis of the relationships shown in the above four figures. The amount of Y is inversely related to the amount of
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X in:
A) 2 only. B) both 1 and 3. C) 3 only. D) 1 only.
16. If two goods are complements (like pepperoni pizza and beer):
A) they are consumed independently.
B) an increase in the price of one will increase the demand for the other.
C) a decrease in the price of one will increase the demand for the other.
D) they are necessarily inferior goods.
17. If the demand curve for product B shifts to the right as the price of product A declines, then:
A) A and B are substitute goods. B) A is a normal good and B is an inferior good.
C) A is an inferior good and B is a normal good. D) A and B are complementary goods.
18. An increase in consumer incomes (like when one wins the big Fantasy Five prize) will:
A) increase the demand for an inferior good. B) increase the supply of an inferior good.
C) increase the demand for a normal good. D) decrease the supply of a normal good.
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Use the following to answer question 19:
x
P ric e
y
D 2
D 1
0
Q u a n t it y
19. A decrease in quantity demanded (as distinct from a decrease in demand) is depicted by a:
A) move from point x to point y. B) a shift from D1 to D2. C) shift from D2 to D1. D) move from point y to
point x.
21. Refer to the above diagram. A shortage of 160 units would be encountered if price was:
A) $1.10, that is, $1.60 minus $.50. B) $1.60. C) $1.00. D) $.50.
23. One can say with certainty that equilibrium quantity of enchiladas bought and sold will increase when:
A) supply and demand both decrease. B) supply increases and demand decreases.
C) the price of the salsa to go with them will go up. D) supply and demand both increase.
26. "The 'dollar votes' of consumers ultimately determine the composition of output and the allocation of resources in a market
economy." This statement best describes the concept of:
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A) political demand. B) consumer sovereignty.
C) "supply creates its own demand." D) market failure.
28. The personal distribution of income in the United States is such that the richest fifth receives about _____ percent of total
personal income.
A) 5 B) 30 C) 50 D) 95
32. The owners of a business face unlimited liability for the business’ debts in:
A) a corporation.
B) a partnership, but not in a proprietorship.
C) a proprietorship, but not in a partnership.
D) both a proprietorship and a partnership.
34. The U.S. Food Stamp program, which provides coupons that allow low-income individuals to buy food, is an illustration of:
A) public provision of a suitable legal framework for the market system.
B) the re-distributional function of government.
C) a government action designed to enhance competition.
D) the stabilization function of government.
38. The major source of tax revenue for the Federal government is:
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A) personal income taxes (i.e., your wallet and mine).
B) property taxes.
C) corporate income taxes.
D) sales and excise taxes.
39. According to the concept of comparative advantage, a good should be produced in that nation where:
A) its domestic opportunity cost is greatest.
B) money is used as a medium of exchange.
C) its domestic opportunity cost is least.
D) the terms of trade are maximized.
Use the following production possibilities table for countries Alpha and Beta to answer question 40:
A l p
h a B e t a
P r o d u c t i o n P o s s P i b r io l id t ui e c s t i o n P o s s i b i l i t i e s
P r o d A u c Bt C D P r o d A u c tB C D
X 3 2 1 0 X 6 4 2 0
Y 0 4 8 1 2 Y 0 4 8 1 2
40. Refer to the above tables. The domestic opportunity cost of one unit of X in Alpha is:
A) 2 units of Y. B) 4 units of Y. C) 1 unit of Y. D) 3 units of Y.
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24. B
25. B
26. B
27. B
28. C
29. B
30. A
31. A
32. D
33. D
34. B
35. C
36. C
37. C
38. A
39. C
40. B
41. B
Name ____________________________________________
Forty-two multiple-choice questions (each worth 2.38 points). Please circle/provide the BEST answer.
3. Suppose that inventories were $80 billion at the end of 2000 and $70 billion at the end of 2001. For 2001, accountants would:
A) add $10 billion to other elements of investment in calculating total investment.
B) subtract $10 billion from other elements of investments in calculating total investment.
C) add $40 billion (= $80/2) to other elements of investment in calculating total investment.
D) add $35 billion (= $70/2) from other elements of investment in calculating total investment.
4. GDP excludes:
A) the market value of unpaid work in the home. B) the production of services.
C) the production of nondurable goods. D) negative changes in inventories.
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6. If real GDP falls from one period to another, we can conclude that:
A) deflation definitely occurred. B) inflation definitely occurred.
C) nominal GDP definitely fell. D) production of goods and services definitely fell.
Use the following table to answer questions 7-8 (Note that year 1 is the base year):
P r i c e P r i c e
U n i t os f o b f a g i en l d e x
Y e a Or u t p p u e rt u ( y n ei at r 1 = 1 0 0 )
1 1 0 $ 1 0 1 0 0
2 1 2 2 0 2 0 0
3 1 5 3 0 3 0 0
4 2 0 4 0 4 0 0
7. Refer to the above data. Nominal GDP in year 4 is:
A) $320. B) $450.
C) $225. D) $800.
11. Recurring upswings and downswings in an economy's real GDP over time are called:
A) recessions. B) business cycles.
C) output yo-yos. D) total product oscillations.
12. The phase of the business cycle in which real GDP is at a minimum is called:
A) the peak. B) a recession.
C) the trough. D) the pits.
13. If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the:
A) frictional unemployment rate is 5 percent.
B) cyclical unemployment rate and the frictional unemployment rate together are 5 percent.
C) cyclical unemployment rate is 4 percent.
D) natural rate of unemployment will eventually increase.
14. Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the
unemployment rate is:
A) 3 percent. B) 6 percent.
C) 53 percent. D) Not enough information given.
15. Dr. Pinch A Penny, an economics professor, decided to take all of year 2007 off from teaching to work running a commercial
fishing boat in Alaska, a for-profit endeavor. Professor Penny did so poorly that all he caught was some blow fish and,
therefore, had no income from his fishing endeavor. In 2007, Professor Penny would be officially counted as:
A) structurally unemployed. B) frictionally unemployed.
C) not in the labor force. D) employed.
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16. "For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point GDP gap
occurs." This is a statement of:
A) Taylor's rule. B) Okun's law.
C) Say's law. D) Marx's communist theorem.
18. If the Consumer Price index rises from 300 to 330 in a particular year, the rate of inflation in that year is:
A) 10 percent. B) 33 percent.
C) 30 percent. D) 9.1 percent; that is, 30 divided by 330.
19. "Too much money chasing too few goods" best describes:
A) the GDP gap. B) demand-pull inflation.
C) the inflation premium. D) cost-push inflation.
20. In 2007 Frank N. Stine was rewarded for his late night work and got a 6.5% pay increase, but at the same time the price level
(inflation) rose by 3.5 percent. We can conclude that Mr. Stine's nominal income in 2007:
A) rose by 3 percent. B) rose by 10 percent.
C) rose by 6.5 percent. D) fell by 3.5 percent.
21. If Casimiro Aguacate’s disposable income increases from $1,200 to $1,700 and his level of saving increases from minus $100
to a plus $100, his marginal propensity to:
A) save is three-fifths. B) consume is one-fifth.
C) consume is three-fifths. D) save is one-fifth.
Use the following to answer question 25. Example of what the table shows: from row one to row two total disposable income goes from
200 to 225, and total consumption goes from 205 to 225.
D i s p o s a b l e
i n c o m C e o n s u m p t i o n
$ 2 0 0 $ 2 0 5
2 2 5 2 2 5
2 5 0 2 4 5
2 7 5 2 6 5
3 0 0 2 8 5
25. Refer to the above data. The marginal propensity to consume is:
A) Not enough information. B) .75.
C) .20. D) .80.
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26. Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional
revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is:
A) 5 percent. B) 10 percent.
C) 15 percent. D) 20 percent.
27. Assume a machine, which has a useful life of only one year, costs $2,000. Assume, also, that net of such operating costs as
power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. The expected rate
of return on this machine is:
A) 7.5 percent. B) 10 percent. C) 15 percent. D) 20 percent.
32. The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level
are the:
A) real-balances, interest-rate, and foreign purchases effects.
B) determinants of aggregate supply.
C) determinants of aggregate demand.
D) sole determinants of the equilibrium price level and the equilibrium real output.
Use the following to answer question 33 (and pay attention to the direction of the arrows):
A D A D A1 A S S2
A S A1 S
P r ic e le v e l
2
A S 2
1
A D A D P b
2 1
P 2 b 3
P r ic e le v e l
P r ic e le v e l
P a P 2 c
1
P a
P 1 1
A D
0 Q 2 Q 1 0 Q 2 Q 1 0 Q 1 Q 2 Q 3
R e a l d o m e s t i c R o e u a t l p d u o t m G e Ds t P i c R o ue a t pl ud to mG De s Pt i c o u t p u t G D P
( A ) ( B ) ( C )
33. Refer to the above diagrams. Assume that all curves have shifted as shown by the arrows. A recession is depicted by:
A) panel (A) only. B) panel (B) only.
C) panel (C) only. D) panels (A) and (B).
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35. Suppose the domestic price (no-international-trade price) of copper is $1.20 a pound in the United States while the world price
is $1.00 a pound. Assuming no transportation costs, the United States will:
A) have a domestic surplus of copper. B) export copper.
C) import copper. D) neither export nor import copper.
36. A nation will neither export nor import a specific product when its:
A) domestic price (no-international-trade price) equals the world price.
B) export supply curve lies above its import demand curve.
C) export supply curve is upsloping.
D) import demand curve is downsloping.
37. Tariffs:
A) may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition
(protective tariffs).
B) are also called import quotas.
C) are excise taxes on goods exported abroad.
D) are per unit subsidies designed to promote exports.
38. Evidence of a chronic balance of payments deficit (not trade deficit) is:
A) a decline in amount of the nation's currency held by other nations.
B) an excess of exports over imports.
C) diminishing reserves of foreign currencies.
D) an increase in the international value of the nation's currency.
Answer questions 39 and 40 on the basis of the following 2003 balance of payments data (+ and -) for the hypothetical nation of
Zabella. All figures are in billions of dollars.
C u r r e n t A c c o u n t
1 ) G o o d s e x p o r t s + $ 8 0
2 ) G o o d s i m p o r t s -7 0
3 ) E x p o r t s o f s e r v i c e s + 2 0
4 ) I m p o r t s o f s e r v i c e s -2 5
5 ) N e t i n v e s t m e n t i n c o m e + 5
6 ) N e t t r a n s f e r s -5
C a p i t a l A c c o u n t
7 ) F o r e i g n p u r c h a s e s o f a s s + e 1t s 3 i n t h e U n i t e d S t a t e s
8 ) U . S . p u r c h a s e s o f a s s e t s - 2a b3 r o a d
O f f i c i a l R e s e r v e s A c c o u n t
9 ) O f f i c i a l r e s e r v e s + 5
39. Refer to the above data. Zabella's balance on goods and services shows a:
A) $5 billion deficit. B) $5 billion surplus.
C) $10 billion surplus. D) $15 billion deficit.
Use the following table to answer questions 41-42 (Note that year 1 is the base year):
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Price Price
Units of of bagel index
Year Output per unit (year 1 = 100
1 10 $10 100100)
100
2 12 15 150
3 15 20 200
4 20 25 250
41. Refer to the above data, and using year 1 as the base year. From year 3 to year 4, real GDP:
A) went up by $50. B) went up by $100.
C) went up by $200. D) went up by $300.
42. Refer to the above data, and using year 1 as the base year. From year 3 to year 4, nominal GDP:
A) went up by $50. B) went up by $100.
C) went up by $200. D) went up by $300.
1. A
2. A
3. B
4. A
5. B
6. D
7. D
8. C
9. B
10. C
11. B
12. C
13. C
14. B
15. D
16. B
17. C
18. A
19. B
20. C
21. C
22. A
23. C
24. C
25. D
26. D
27. C
28. A
29. D
30. B
31. D
32. C
33. D
34. B
35. C
36. A
37. A
38. C
39. B
40. A
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41.A
42.C
MACROECONOMICS – TEST THREE (FINAL EXAM) SUMMER B 2006 (Chapters 12-15, 18)
One short-essay, and thirty-seven multiple-choice questions, each worth 2.63 points. For each question, provide the best answer.
NAME ___________________________________________
4. If the MPS in an economy is .4, government could shift the aggregate demand curve leftward by $50 billion by:
A) reducing government expenditures by $125 billion. B) reducing government expenditures by $20 billion.
C) increasing taxes by $50 billion. D) increasing taxes by $250 billion.
5. Suppose that the economy is in the midst of a recession. Which of the following policies would be consistent with active fiscal
policy?
A) a Congressional proposal to incur a Federal surplus to be used for the retirement of public debt
B) a reduction in agricultural subsidies and veterans' benefits
C) a postponement of a highway construction program
D) a reduction in Federal tax rates on personal and corporate income
6. Which of the following best describes the built-in stabilizers as they function in the United States?
A) The size of the balanced-budget multiplier varies inversely with the level of GDP.
B) Tax collections automatically fall and transfers and subsidies automatically rise as GDP rises.
C) Tax collections and transfers and subsidies all automatically vary inversely with the level of GDP.
D) Tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.
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7. Refer to the above diagram in which T is tax revenues and G is government expenditures. All figures are in billions. This
diagram portrays the idea of:
A) proportional taxation. B) built-in stability.
C) a balance budget at all levels of spending. D) discretionary fiscal policy.
8. Refer to the above diagram in which T is tax revenues and G is government expenditures. All figures are in billions. If GDP is
$400:
A) there will be a budget deficit. B) there will be a budget surplus.
C) the budget will be balanced. D) the macroeconomy will be in equilibrium.
Answer question 9 on the basis of the following sequence of events involving fiscal policy:
1) The composite index of leading indicators turns downward for three consecutive months; (2) Economists reach agreement that the
economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the
President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover.
9. Refer to the above information. The administrative lag of fiscal policy is reflected in events:
A) 1 and 2. B) 2 and 3.
C) 3 and 4. D) 4 and 5.
10. If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as:
A) a medium of exchange B) a store of value.
C) a unit of account. D) an economic investment.
11. In the United States, the money supply (M1) is comprised of:
A) coins, paper currency, and checkable deposits.
B) currency, checkable deposits, and Series E bonds.
C) coins, paper currency, checkable deposits, and credit balances with brokers.
D) paper currency, coins, gold certificates, and time deposits.
13. If the price index rises from 100 to 120, the value of the dollar:
A) may either rise or fall. B) will rise by one-sixth.
C) will fall by one-sixth. D) will rise by 20 percent.
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C) included in M2, but not in M1. D) not part of the nation's money supply.
16. Refer to the above diagram of the money market. The vertical money supply curve Sm reflects the fact that:
A) bond prices and interest rates are inversely related.
B) the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes.
C) the velocity of money is zero.
D) lower interest rates result in lower opportunity costs of supplying money.
S
R a te o f in te re s t (p e rc e n t)
1 0
8
6
4
2 D 1
1 0 2 0 0 3 0 04 00 0
A m o u n t o f m o n e y d e m a n d e d
( b i l l i o n s o f d o l l a r s )
17. Refer to the above money market diagrams. The asset demand for money is shown by:
A) D1. B) D2. C) D3. D) S.
19. To say that the Federal Reserve Banks are quasi-public banks means that:
A) they are privately owned, but managed in the public interest.
B) they deal only with banks of foreign nations and do not have direct business contact with U.S. banks.
C) they deal only with commercial banks, and not the public.
D) they are publicly owned, but privately managed.
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A) loans are made. B) checks written on one bank are deposited in another bank.
C) loans are repaid. D) the net worth of the banking system declines.
Answer question 22 on the basis of the following consolidated balance sheet for the commercial banking system. Assume the required
reserve ratio is 30 percent. All figures are in billions.
A s s e t s L i a b i l i t i e s a n d n e t w o r t h
R e s e r v e$ 5s 1 C h e c k a b l e D $ e1 p 4 o 0 s i t s
S e c u r i t i 1 e 0s 0 C a p i t a l S t o c k1 3 0
L o a n s 1 0 9
P r o p e r t y 1 0
22. Refer to the above data. The commercial banking system has excess reserves of:
A) $9 billion. B) $7 billion.
C) $6.1 billion. D) $5 billion.
23. The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of:
A) the MPS. B) its actual reserves.
C) its excess reserves. D) the reserve ratio.
27. The interest rate at which the Federal Reserve Banks lend to commercial banks is called the:
A) prime rate. B) short-term rate.
C) discount rate. D) Federal funds rate.
28. Which of the following actions by the Fed would cause the money supply to increase?
A) purchases of government bonds from banks. B) an increase in the reserve requirement.
C) an increase in the discount rate. D) sales of government bonds to the public.
29. Which of the following best describes the cause-effect chain of a tight money policy?
A) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand
and GDP.
B) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand
and GDP.
C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand
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and GDP.
D) An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand
and GDP.
30. One of the strengths of monetary policy relative to fiscal policy is that monetary policy:
A) can be implemented more quickly.
B) is subject to closer political scrutiny.
C) does not produce a net export effect.
D) entails a larger spending income multiplier effect on real GDP.
32. An annually balanced budget intensifies the business cycle because tax revenue declines associated with:
A) prosperity will require cuts in government spending.
B) recession will require increases in government spending.
C) prosperity will require cuts in government spending.
D) recession will require cuts in government spending.
34. The idea that the basic purpose of the Federal budget is to stabilize the economy regardless of any resulting changes in the size
of the public debt best describes:
A) a socially optimal budget. B) functional finance.
C) a cyclically balanced budget. D) an annually balanced budget.
35. If a customer makes a $ 100 deposit to his checking account in bank A, the total amount of additional money created in the
banking system, after the monetary multiplier has taken its full effect, is:
A) $400, if the reserve requirement is 20% B) $400, if the reserve requirement is 25%
C) $800, if the reserve requirement is 10% D) $800, if the reserve requirement is 12.5%
36. (Based on the tape shown in class). The fundamental equation of monetarism is the equation of exchange, which is (where M
= money supply; V = velocity of money; P = the price level; Y = real output or GDP):
A) MP = VY B) MV = PY
C) MY = VP D) None of the above
37. (Based on the tape shown in class). The equation of exchange is used to argue that changes in the quantity of the money supply
(M):
A) have no impact on real GDP in the short run
B) have no impact on real GDP in the long run
C) have no impact on real GDP in either the short run or the long run
D) Monetary policy is really useless.
38. In a sentence or two, describe the ancient practice of the Goldsmiths (embryonic bankers) and its relation to the current
fractional reserve banking system.
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Answer Key -- MaTest3of3SummerB2006
1. A
2. C
3. D
4. B
5. D
6. D
7. B
8. C
9. C
10. A
11. A
12. A
13. C
14. B
15. D
16. B
17. B
18. D
19. A
20. C
21. D
22. A
23. D
24. B
25. B
26. D
27. C
28. A
29. B
30. A
31. D
32. D
33. C
34. B
35. A
36. B
37. B
38. (No answer.)
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