Macro Economics 1 60 MCQs with answers PDF

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Macro Economics 1: Test Your Understanding

1. Which of the following is a major area of study for economists? a. How countries choose national leaders b. The design of recycling water c. The best way to design a nature reserve d. How people make decisions 2. Economic models: a. Emphasize basic economic relationships by abstracting from the complexities of the real world b. Are limited to variables that are positively related to one another c. Are of limited use because they cannot be tested empirically d. Are unrealistic as they cannot accurate predict the future 3. For economists, statements about the world are of two types: a. Assumptions and theories b. Positive statements and negative statements c. Positive statements and normative statements d. Specific statements and general statements 4. The opportunity cost of going to university is: a. The total spent on food, clothing, books, transportation, tuition, lodging and other expenses b. Zero for students who are fortunate enough to have all of their university expenses paid by someone else c. Zero, since a university education will allow a student to earn a higher income after graduation d. The value of the best opportunity a student gives up to attend university 5. In a market economy: a. Households decide which firms to work for and what to buy with their incomes b. Profit and self-interest guide the decisions of firms and households c. Firms decide whom to hire and what to produce d. All of the above are true 6. Statistics such as GDP, the unemployment rate, the rate of inflation and the trade balance are: a. Macro, since they tell us something about the entire economy b. Neither macro nor micro, but properly in the realm of political science c. Both micro and macro d. Micro, since they affect individual households and firms

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7. The difference between the values of final production and value of the inputs is called: a. The gross product of the final goods and services b. The value added of the final goods and services c. The profit of the final goods and services d. The surplus of the final goods and services 8. Real GDP is: a. Production of foods and service valued at constant prices b. Production of foods and service valued at future-year prices c. Production of foods and service valued at current-year prices d. Production of foods and service valued at Ratio of current-year prices to constant prices 9. Since black market and non-market measures are excluded from measures of GDP, the GDP measure tends to: a. Overestimate the total production of an economy b. Lead one to the conclusion that GDP measures are not very useful to anyone but market economists c. Not make a significant difference in determining the total production of an economy d. Underestimate the total production in an economy 10. Which of the following accounts for the largest portion of GDP? a. Investment b. Consumption c. Exports d. Imports Maybe government 11. In 2014, nominal GDP is $500 million and real GDP is $550 million. What is the GDP deflator? a. -50 b. 80 c. -91 d. 91 Deflator = Nominal/real 12. Suppose that the prices of imported consumption goods rose from the base year. Which is the most accurate statement about CPI and the GDP deflator? a. The CPI rises but the GDP deflator doesn’t change b. The GDP rises but the CPI doesn’t change c. Both the GDP deflator and the CPI rise d. Both the GDP deflator and the CPI don’t change Page 2 of 11

13. If a borrower and lender agree to an interest rate on a loan when inflation is expected to be 5% and inflation turns out to be 9% over the life of the loan, then the borrower _____ and the lender _____. a. Gains; gains b. Loses; gains c. Loses; loses d. Gains; loses 14. David’s 1965 salary was $15 000. The CPI is 27 for 1965, and 150 for 2015. What is David’s salary in 2015 dollars? a. $45 000 b. $25 000 c. $83 333 d. $33 333 15000*150/27 15. The official unemployment rate is calculated as: a. Number of working age people 15 years of age or older who are employed, divided by the number of people in labour force b. Number of people 15 years or older who are not employed and are actively seeking work, divided by number of people in labour force c. Percentage of 15 years or older who are not working but are actively seeking work d. All people 18 years of age or older who are employed, plus all those unemployed who are actively seeking work 16. The labour-force participation rate: a. Equals one minus the unemployment rate b. Equals one minus the labour force c. Measures the percentage of the number of employed in the labour force d. Measures the percentage of the total adult population in the labour force (Employ + unemployed)/ labour force)

17. In a country with 20 million people aged 15 years and older, 12 million in the labour force, and 11.4 million employed, what is the unemployment rate? a. 4% b. 5% c. 6% d. 7%

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18. Which of the following statements is correct about minimum wages? a. Minimum wages are binding in every labour market equally b. Minimum wages do not cause unemployment c. Minimum wages are a predominant cause of unemployment in the economy d. Minimum wages have an important effect on certain groups with particularly high unemployment rates 19. Efficiency-wage theory suggests that to improve workers performance, firms should: a. Fire all existing workers and hire new ones b. Give incentive pay to employees for dobbing in their fellow workers who are shirking c. Spend more money and effort on monitoring d. Raise wages above the market equilibrium level 20. A Person sees no prospect in her current and quits her job in order to spend time looking for a better paying job. This is an example of: a. Seasonal unemployment b. Cyclical unemployment c. Frictional unemployment d. Structural unemployment 21. Economic growth can be defined as: a. An increasing rate of savings b. Increasing in government surplus c. Increasing Real GDP per person d. Increasing Nominal GDP 22. Australia’s annual growth rate of real GDP per person was 1.65 percent for the period 1960 – 2010. Which of the followings statements is correct? a. This does not mean that Australia’s real GDP per person actually rose exactly 1.65 percent every year b. This means that Australia’s real GDP per person actually rose less than 1.65 percent every year c. This means that Australia’s real GDP actually rose more than 1.65 percent every year d. rose exactly 1.65 percent every year 23. Physical capital is: a. the knowledge and skills that workers acquire while using machinery and tools b. accumulation of R&D c. education, training and experience d. the stock of equipment and structures that are used to produce goods and services

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24. Holding the amount of capital constant, if firms increase the amount of labor they use, output increases at a diminishing rate, and this is the definition of: a. diminishing marginal utility of labor b. diminishing marginal productivity of labor c. marginal revenue product of labor d. marginal product of labor 25. Countries that devote a small share of GDP to investment, such as New Zealand, tend to have: a. high growth rates b. stable growth rates c. negative growth rates d. low growth rates 26. Inward orientation policies, such as those in India between 1947 and 1993 have tended to: a. maximize consumer benefits b. create a highly efficient use of natural resources c. enable large amounts of tariff-free trade d. limit growth opportunities 27. If consumption spending increase by $20 billion with no changes in net transfer payments, then: a. private savings decreases b. public saving decreases c. private savings increases d. public savings increases 28. The financial system moves the economy’s scarce resources from: a. foreign investors to local investors b. higher valued uses to lower valued uses c. borrowers to savers d. savers to borrowers Savers is surplus sectors; Borrower is deficit sectors

29. Financial markets are: a. institutions that sell shares to the public and use the proceeds to buy various types of stocks and/ or bonds b. financial institutions through which savers can indirectly provide funds to borrowers c. institution in which a person who wants to save can directly supply funds to a person who wants to borrow d. the same thing as banks

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30. Vincent has the choice of two bonds, one that pays 4% interest and one that pays 8% interest. Which of the following is most likely? a. 8% bond has shorter term than the 4 bond b. 8% bond is a government bond and the 4 bond is a junk bond c. 8% bond is more risky than 4% bond d. None of the above 31. Financial intermediaries are: a. Same as financial market b. Financial institution through which savers can directly provide funds to borrowers c. Market that facilitate stock and bond transactions d. Financial institution through which savers can indirectly provide funds to borrows (Financial intermediaries are link banks) 32. In a closed economy, national saving can be expressed by the equation S = (Y – T – C) + (T – G). What (Y – T – C) means? a. Public saving b. Government tax revenue c. Private saving d. Investment 33. What would happen in the market for loanable funds if the government were to increase the tax on interest income? a. Demand for loanable funds increase b. Decrease c. Supply of loanable funds decrease d. Increase 34. The value of money: a. Increase when price fall b. Increase price of bonds falls c. Increase when prices rise d. Decrease when price fall 35. IF MAS purchased government securities, then: a. Money supply increase b. Money supply Would not change c. Money supply would decrease d. Market liquidity would decrease

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36. If reserve requirements are decreased: a. Reserve ratio will increase, money multiplier will increase and money supply will increase b. Reserve ratio Decrease, money multiplier decrease and money supply decrease c. Reserve ratio Decrease, money multiplier increase and money supply increase d. Reserve ratio Increase, money multiplier decrease and money supply decrease

37. When the MAS is trying to control rising inflation, it: a. Deceases the interest rate that financial institutions can earn on overnight loans of their currency b. Targets inflation at two to three percent c. Increase the interest rate that financial institutions can earn on overnight loans of their currency d. None of the above 38. In the long run, countries with higher rates of money growth usually have: a. Smaller budget deficits b. Lower rates of inflation c. Faster growth rates of real output d. Higher rates of inflation 39. According to the quantity equation, if velocity and output are constant, then an increase in the money supply leads to _____ in inflation. a. A less than proportional increase b. A greater than proportional increase c. A less than proportional decrease d. The same percentage increase 40. Which of the following statements is correct? a. Economic variables measured in physical units are nominal variables, and economic variables measured in monetary units are real variables b. Economic variables measured in physical units are real variables, and economic variables measured in monetary units are actual variables c. Economic variables measured in physical units are actual variables, and economic variables measured in monetary units are nominal variables d. Economic variables measured in physical units are real variables, and economic variables measured in monetary units are nominal variables 41. The principle of monetary neutrality implies that an increase in the money supply will: a. Decrease the price level b. Lower nominal interest rates c. Not affect real interest rates d. Not affect nominal interest rates

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42. Unexpected inflation redistributes wealth from _____. a. The government to fixed income recipients b. Owners of real property to owners of financial assets c. Debtors to creditors d. Creditors to debtor Debtors = borrower; Creditors = lender 43. The components of aggregate expenditure that depend negatively on the interest rate are: a. Consumption and government expenditure b. Government expenditure and net exports c. Consumption and investment d. Consumption and taxes 44. Another reason for the downward slope of the aggregate demand curve is the effect of inflation on the: a. Real value of equilibrium output b. Real value of properties held by investors c. Nominal value of net assets d. Real value of net assets 45. According to the new classical misperception theory, the upward slope of the short run aggregate supply curve results from: a. Misperception about quantity of goods and services demanded b. Misperception about the ability of production c. Misperception about prices d. Misperception about market equilibrium 46. Mundell-Fleming’s effect implies that a currency depreciation: a. Increase net exports and increase the quantity of goods and services demanded b. Decreases net exports and increase the quantity of goods and services demanded c. Increases net exports, decreases the quantity of goods and services demanded d. Decreases net exports, decreases the quantity of goods and services demanded 47. If there is an excess demand situation in the economy at the current price level, then the: a. Price level will remain the same b. Economy must be operating on the flat section of the AS curve c. Price level will decrease d. Price level will increase

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48. In the long run persistent increases in aggregate demand will: a. Result in stagflation b. Result in inflation with no changes in real GDP c. Eliminate structural unemployment d. Result in shifts of the long run aggregate supply curve to the right 49. According to the theory of liquidity preference, the money demand curve is downward sloping, reflecting ____. a. The risk of holding money b. The cost of buying goods and services c. The effect of unforeseen inflation d. The opportunity cost holding money 50. The money demand curve shifts to the left if there is _____, causing the equilibrium interest rate to _____. a. An increase in price level; rise b. An increase in price level; fall c. A decrease in price level; rise d. A decrease in price level; fall 51. The MAS can stimulate the economy by ____, all of which shift the aggregate demand to the _____. a. Increasing the money supply; left b. Increasing the money supply; right c. Decreasing the interest rate; left d. Increase the interest rate; right 52. Two macroeconomic effects that make the size of the shift in aggregate demand differ from the change in government purchases are: a. The multiplier effect and the automatic stabilizer effect b. The multiplier effect and the crowding out effect c. The Keynes effect and the crowding out effect d. The accelerator effect and the multiplier effect 53. An increase in government purchases of $20 billion will shift the aggregate demand curve to the: a. Left by more than $20 billion b. Left by more or less than $20 billion c. Right by more than $20 billion d. Right by less than $20 billion

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54. According to _____, net taxes ____ during an economic expansion. a. Automatic stabilizers; fall b. Automatic stabilizers; rise c. Automatic destabilizers; rise d. Automatic destabilizers; fall 55. A country’s balance on merchandise trade equals: a. The value of tariffs less the number of quotas b. The value of exports minus the value of imports c. The number of quotas less the value of tariffs d. The value of imports minus the value of exports 56. If net exports are negative, the country has a: a. Trade balance b. Trade Surplus c. Trade Deficit d. Budget surplus 57. Net foreign investment measures: a. Foreign assets held by domestic residents b. Investment plus saving c. The imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners d. All of the above 58. Purchasing power parity describes the forces that determine: a. Exchange rates in the short run b. Prices in the short run c. Prices in the long run d. Exchange rates in the long run 59. If the nominal exchange rate is 75 yen per dollar, and a Big Mac hamburger sells for $4 in Australia and for 200 yen in Japan, then the real exchange rate is: a. 2.5 b. 3.5 c. 1.5 d. 4.5 60. Which of the following items may demonstrate limitations of the purchasing power parity? a. when certain goods are easily tradable b. when goods are perfect substitutes c. consumer preference may change over time d. all of the above

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