Intro to Macroeconomics

Midterm 1 Boot Camp

Assignment 1

Which of the following is not a reason to study economics?

A. To learn how people allocate scarce resources to produce goods.
B. To learn how to trade off quantities of goods for quality of life.
C. To learn a systematic model of economic principles for comprehending reality.
D. To learn to avoid the fallacy of composition in analyses of public policy.
E. All of the above are valid reasons for studying economics.

If you, as a farmer, have an extra-large crop this year you will make more money.
If all farmers have an extra-large crop this year, all farmers will make more
money. What kind of fallacy does this statement exhibit?

A. post hoc fallacy.

B. failure to hold other things constant fallacy.
C. fallacy of composition.
D. fallacy of normalcy.
E. None of the above.

Of the following, economics may best be defined as the study of:

A. how to stretch the family dollar.

B. how to make money in the stock market.
C. the interpretation of scarce data.
D. how scarce resources are used to produce various goods allocated among individuals in
society.
E. why resources are as scarce as they are.
•

The single word that best describes the fundamental essence of economics is:
Answers: A. employment.
B. inflation.
C. prices.
D. trade.
E. scarcity.
• Question 5

“Inflation is less of a problem, over the long term, than unemployment.” is an example of:
Answers: A. a positive statement.
B. a normative statement.
C. a statement that could never be true.
D. a statement that suffers from a logical error.
E. none of the above.
• Question 6

What is the fundamental difference between macroeconomics and microeconomics?

Answers: A.Macroeconomics involves studying the economy as a whole, while
microeconomics involves studying the behavior of individual industries, firms,
and households.
B. Macroeconomics concentrates on those parts of the economy involving very
large amounts of money, while microeconomics concentrates on those parts of
the economy involving small sums of money.
C. Macroeconomics studies the behavior of large firms, while microeconomics
studies the behavior of small firms.
D.There is no difference, basically macroeconomics and microeconomics are one
and the same.
E. None of the above.
 Question 7

Which of the following is the most basic of the subjects with which the study of economics
must try to deal?
Answers: A. Markets.

B. Money.
C. Profit seeking.
D. The price mechanism.
E. Scarcity.
• Question 8
“Distribution” in economics refers to:
Answers: A. retailing, wholesaling, and transportation.
B. what.
C. how.
D. for whom.
E. none of the above.
• Question 9

The main difference between a free good and an economic good is that:
Answers: A. it is not produced.
B. no one desires any amount.
C. it is not tradable.
D. it is not scarce.
E.
none of the above.
• Question 10

When the price of gasoline increases consumers may purchase more gasoline than
before, if their incomes are rising as well. Concluding that there is a positive relationship
between gasoline prices and the quantity demanded would be an example of:
Answers: A. the post hoc fallacy.
B. the failure to hold other things constant.
C. the fallacy of composition.
D. a mixed market economy.
E. none of the above.
• Question 11

When Paul decides to not go to the concert, but goes to the library to study instead, he is:
Answers: A. realizing that his time is a scarce resource that must be allocated.
B. at least implicitly recognizing that the opportunity cost of going to the library
is the concert he is giving up.
C. making an economic decision.
D. doing all of the above.
E.
doing choices A) and B) only.
• Question 12

Opportunity cost:
Answers: A. is useful when discussing the allocation of resources.
B. refers to a next-best alternative that is not chosen when making decisions.
C. can be used to measure the cost of something without using monetary prices.
D. is all of the above.
E.
statements A) and B) only.
• Question 13
The production possibilities frontier between two normal goods and services is typically
bowed out or concave to the origin because:
Answers: B. society must give up one good to get more of the other.
B. consumers do not want too much of either good.
C. government restrictions place limits on the production of certain goods.
D. consumers want as much of both goods as possible.
E.
the resources used to produce goods and services are not equally suited to the
production of both goods.
• Question 14

Being on the production-possibility frontier between guns and butter means that:
Answers: A. it is impossible to produce any more guns.
B. it is impossible to produce any more butter.
C. more guns can be produced only by doing without some butter.
D. population is in equilibrium.
E. if
society becomes more productive in producing butter, then we can have more
butter but not more guns.
• Question 15

Which one of the following must be held constant in drawing up a production-possibility

frontier?
Answers: B. The total resources.
B. The quantity of money.
C. Money income.
D. Prices.
E.
The allocation of resources among alternate uses.
• Question 16

Use the following graph to answer questions 16-18:

Figure 1-1

Which point on the production-possibility frontiers drawn in Figure 1-1 indicates no

consumption goods being produced?

Answers: A. A.
B. B.
C. C.
D. D.
E. E
• Question 17

Use the following graph to answer questions 16-18:

Figure 1-1

Of the following points, which point reflects the most efficient use of available resources in
relation to frontier AE in Figure 1-1?
Answers: A. F.
B. G.
C. C.
D. H.
E. Cannot tell from the information provided.
• Question 18

Use the following graph to answer questions 16-18:

Figure 1-1

In Figure 1-1, what could account for a shift in the frontier from AE to A’ E’?
Answers: A. A decrease in unemployment.
B. A decrease in inflation.
C. A war.
D. An increase in technology.
E. None of the above.
• Question 19

Answers: A. 2/3 units of y.

B. 1 units of y.
C. 3/2 units of y.
D. Cannot be determined from the given information.
E. None of the above.
• Question 20

Use the following to answer questions 19-20:

Figure 1-2

As country A’s economy grows, what will happen to the PPF in Figure 1-2?
Answers: A. The PPF will be stationary.
B. The PPF will shift inward.
C. The PPF will shift outward.
D. The PPF will shift outward then back in, until it is back at its original position.
E. None of the above.
• Question 21

Use the following figure to answer questions 21-23:

Figure 1-3

In Figure 1-3, what is Country A’s cost of producing 1 unit of y in terms of x?

Answers: B. The same as country B’s opportunity cost of producing 1 unit of y in
terms of x.
B. Less than country B’s opportunity cost of producing 1 unit of y in terms of x.
C. More than country B’s opportunity cost of producing 1 unit of y in terms of x.
D. 4 units of x.
E. None of the above.
• Question 22

Use the following figure to answer questions 21-23:

Figure 1-3

In Figure 1-3, what does point H represent?

Answers: A. A mixture of goods both nations can produce.
B. A mixture of goods only country A can produce.
C. A mixture of goods only country B can produce.
D. A mixture of goods neither country can produce.
E. None of the above.
• Question 23

Use the following figure to answer questions 21-23:

Figure 1-3

Country A has a PPF denoted by the lower line segment in Figure 1-3. Country B has a
PPF denoted by the higher line segment. Which country enjoys greater consumption
possibilities?
Answers: B. Country A.
B. Country B.
C. They have the same consumption possibilities.
D. Cannot be determined from the given information.
E. None of the above.
• Question 24

Use the following to answer questions 24:

Figure 1-4

Figure 1-4 displays the production-possibilities of two countries. Given that both countries
produce five units of x, which of the following best describes country B’s production of y?
B. The same as country A’s production of y.
C. More than country A’s production of y.
D. Cannot be determined from the graph.
E. Noneof the above.
• Question 25

Economies never operate beyond their production-possibility frontiers.

Answers: A. True

B. False
Answer Sheet
1. E
2. C
3. D
4. E
5. B
6. A
7. E
8. D
9. D
10.B
11. D
12. D
13. E
14. C
15. A
16. E
17. C
18. D
19. C
20. C
21. A
22. C
23. B
24. A
25. A
 Assignment 2

• Question 1
An increase in price will lead to a lower quantity demanded because:
Answers: A. suppliers will supply only the smaller amount.
B. some individuals will no longer purchase the good.
C. individuals purchase less of the good.
D. and b.
E. b and c.
• Question 2

A change in which of the following will not alter the demand curve for rental housing?
Answers: A. The price of houses.
B. Rental prices.
C. Incomes of consumers.
D. Energy prices.
E. Growth in the community.
• Question 3

The demand curve for a normal good will shift to the right if:
Answers: A. income increases.
B. population increases.
C. the price of a substitute good increases.
D. all the above.
E. none of the above.

• Question 4
 If E were the old equilibrium in the market for wheat in the figure below, and E' the new one,
which of the following could have caused the change?

Answers: A. Consumer income rose, causing a supply shift.

B. Bad weather caused a supply shift.
C. Consumer income rose, causing a demand shift.
D. Supply and demand both shifted.
E. None of the above are plausible descriptions.
• Question 5

In a competitive market, price is determined by:

Answers: A. the costs of producing the good in question.
B. the supply of the good.
C. the decisions of the buyers about how much they are willing to pay.
D. the interaction of tastes and demand.
E. all of the above.
• Question 6

If the demand schedule may be written P = 100 - 4Q, and the supply schedule P = 40 + 2Q,
then the market clearing price and quantity are:
Answers: A. P = 60, Q = 10.
B. P = 10, Q = 6.
C. P = 40, Q = 6.
D. P = 20, Q = 20.
E. none of the above.
• Question 7

Four of the five events described below might reasonably be expected to shift the demand
curve for beef to a new position. One would not shift that demand curve. The single
exception is:
Answers: A. a rise in the price of some good which consumers regard as a substitute for beef.
B. a fall in the price of beef.
C. an increase in the money incomes of beef consumers.
D. a
widespread advertising campaign undertaken by the producers of a product
competitive with beef (e.g. chicken).
E. a change in people's tastes with respect to beef.
• Question 8

If the market demand curve shifts sharply to the left as the market supply curve moves to the
right, we would expect:
Answers: A. the same price to prevail, with no change in quantity.
B. the same quantity to prevail.
C. price and quantity to fall.
D. price to fall while quantity may or may not change.
E. quantity to fall while price may or may not change.
• Question 9

Use the following to answer questions 9-13:

Figure 3-1

Given the supply and demand curves drawn for a normal good in Figure 3-1, an increase in
income can be expected to cause:
Answers: A. equilibrium price and quantity to increase.
B. equilibrium price to increase and equilibrium quantity to fall.
C. equilibrium price to increase while equilibrium quantity holds steady.
D. equilibrium price and quantity to fall.
E. equilibrium price to fall and equilibrium quantity to climb.
• Question 10

Use the following to answer questions 9-13:

Figure 3-1

When the demand curve shifts to the right:

Answers: A. equilibrium price increases.
B. equilibrium price decreases.
C. equilibrium quantity increases.
D. a and c.
E. b and c.
• Question 11
Use the following to answer questions 9-13:
Figure 3-1

According to the law of demand:

Answers: A. the intersection of demand and supply establishes the market equilibrium point.
B. consumers' tastes can influence the quantity demanded.
C. there is an inverse relationship between price and the quantity demanded.
D. "all other things held equal" is an important concept.
E. there is a direct relationship between price and the quantity demanded.
• Question 12

Use the following to answer questions 9-13:

Figure 3-1

Upward-sloping supply curves are the result of:

Answers: A. increasing returns to scale.
B. increasing costs of labor.
C. changes in government policies.
D. changes in technology.
E. none of the above.
• Question 13

Use the following to answer questions 9-13:

Figure 3-1

When we say that a price in a competitive market is "too low to clear the market," we usually
mean that:
Selected A. the
quantity supplied exceeds the quantity demanded at that price, so there is
Answer:
too much competition among producers to try to get rid of that supply.
Answers: A. the
quantity supplied exceeds the quantity demanded at that price, so there is
too much competition among producers to try to get rid of that supply.
B. consumers are not willing to buy enough at that price.
C. producers are leaving the industry.
D. the quantity demanded exceeds the quantity supplied at that price.
E. no producer can cover costs of production at that price.
• Question 14

If E were the old equilibrium in the wheat market depicted in the figure below and E' were the
new one, which of the following might have caused the change?

Answers: A. Good weather caused a supply shift.

B. Good weather caused a demand shift.
C. Bad weather caused a supply shift.
D. Bad weather caused a demand shift.
E. Consumer incomes changed, causing a supply shift.
• Question 15

If you were a government official and wanted to raise the price of oil, which of the following
actions would you take?
Answers: A. Take oil from government storage and sell it on the open market.
B. Encourage producers to drill more wells.
C. Try to lower the price of alternative fuels.
D. Try to lower average family income.
E. Encourage producers to cut back on drilling for oil.
• Question 16

Use the following to answer questions 16-17:

Figure 3-2

Let P* and Q* in Figure 3-2 represent market clearing price and quantity, respectively, of
good Q. Given the supply and demand curves drawn in Figure 3-2, a reduction in the price of
a substitute good for Q will cause:
Answers: A. P* and Q* to climb.
B. P* to climb while Q* declines.
C. P* to climb while Q* holds fixed.
D. P* to fall while Q* climbs.
E. P* and Q* to fall.
• Question 17

Use the following to answer questions 16-17:

Figure 3-2

Let P* and Q* represent market clearing price and quantity, respectively. Given the supply
and demand curves drawn in Figure 3-2, a technological advance that makes the production of
Q more efficient will cause:
Answers: A. P* and Q* to climb.
B. P* and Q* to fall.
C. P* to climb while Q* falls.
D. Q* to climb while P* holds fixed.
E. none of the above.
• Question 18

Use the following to answer questions 18:

Figure 3-3

Assume that automotive workers strike and the technological improvements occur at the same
time. If initial market conditions were reflected by the structure of Figure 3-3, which of the
following must occur?
Answers: A. Lower prices.
B. Less quantity.
C. More quantity.
D. Higher prices.
E. Cannot be determined from the given information.

• Question 19
 Which of the following could affect a demand schedule for petroleum products?
Answers: A. A change in the technology of oil production.
B. The discovery of new oil fields in Texas.
C. A strike by oil refinery workers.
D. An increase in national income.
E. None of the above.

• Question 20

Use the following to answer questions 20-22:

Table 3-1

According to Table 3-1, the equilibrium price for potato chips is:
Answers: A. $1.00.

B. $2.00.
C. $2.50.
D. $3.00.
E. $4.00.

• Question 21
Use the following to answer questions 20-22:
Table 3-1
 According to Table 3-1, for every $1.00 increase in price, the quantity demanded decreases by:
Answers: A. 5.

B. 500.
C. 10.
D. 25.
E.250.
• Question 22

Use the following to answer questions 20-22:

Table 3-1

The data in Table 3-1:

Answers: A. support the law of demand.
B. indicate that the supply curve is vertical.
C. contradict economic reasoning.
D. both b and c.
E. none of the above.

• Question 23
 An increase in demand means a movement to a higher quantity along a given demand curve.
Answers: A. True
B. False
• Question 24

Equilibrium occurs where the demand curve intersects the supply curve.
Answers: A. True
B. False
• Question 25
Over time the fact that some people buy more hamburger at 89 cents per pound than at 69
cents per pound refutes the law of downward-sloping demand.
Answers: A. True
B. False
Answer Sheet
1- E
2- B
3- D
4- C
5- E
6- A
7- B
8- D
9- A
10- D
11- C
12- E
13- D
14- A
15- E
16- E
17- E
18- E
19- D
20- D
21- E
22- A
23- B
24- A
25- B
 Assignment 3

• Question 1

Which of the following is primarily a macroeconomic topic?

Answers: A. monetary policy.
B. fiscal policy.
C. the growth rate of GDP.
D. inflation.
E. all of the above.
• Question 2

Which of the following are central themes of macroeconomics?

Answers: A. The short-term fluctuations in output, employment, financial conditions, and
prices.
B. The longer-term trends in output and living standards.
C. Studies in individual prices, quantities, and markets.
D. Both A and B.
E. none of the above.
• Question 3

Gross Domestic Product (GDP) is:

Answers: A. the
measure of the market value of only part of the goods and services produced in
a country during a year.
B. the
measure of the market value of all final goods and services produced in a
country during a year.
C. the
measure of the market value of all goods and services produced in a country
during a month.
D. not useful, so economist do not use it.
E. none of the above.
• Question 4

The goals of macroeconomic policy include:

Answers: A. high employment.
B. low unemployment.
C. stable prices.
D. growing real GDP.
E. all of the above.
• Question 5

Which of the following items is NOT part of fiscal policy?

Answers: A. Government purchases of goods and services.
B. Transfer payments.
C. The money supply.
D. Taxes.
E. Government borrowing by selling bonds.
• Question 6

Which of the following most accurately describes a recession?

Answers: A. a period of significant decline in total output, income, and employment, usually
lasting more than a few months and marked by widespread contractions in many
sectors of the economy.
B. a period of slight decline in employment, usually lasting only a few months.
C. aperiod of significant decline in total output, income, and employment, usually
lasting more than a few years and marked by widespread contractions in many
sectors of the economy.
D. a
period of decline in total output, usually lasting more than a few months and
marked by contractions in one or two sectors of the economy.
E. none of the above.
• Question 7
Personal income taxes are examples of:
Answers: A. fiscal-policy instruments.
B. monetary-policy instruments.
C. trade-policy instruments.
D. incomes policy instruments.
E. all of the above.
• Question 8

The aggregate demand curve is downward-sloping because:

Answers: A. higher prices make businesses more profitable and thus output expands.
B. lower prices makes business conditions more attractive so that quantities expand.
C. lower prices make some people feel wealthier and they therefore demand more.
D. lower prices cause substitutions that increase the quantity demanded.
E. none of the above.
• Question 9

An increase in government spending that increases aggregate demand should, in the short run,
cause:
Answers: A. prices to fall and output to remain fixed.
B. prices to climb and output to remain fixed.
C. prices to climb and output to fall.
D. prices to fall and output to climb.
E. none of the above.
• Question 10

The ups and downs of real GDP are called:

Answers: A. statistical errors.
B. accounting errors.
C. business cycles.
D. the Phillips curve.
E. consumption wave patterns.
• Question 11

Use the following to answer questions 11-12:

Figure-1

Which panel in Figure-1 most accurately reflects the effect of large increase in interest rates?
Answers: A. a.
B. b.
C. c.
D. d.
E. none of the above.
• Question 12

Use the following to answer questions 11-12:

Figure-1

Which panel in Figure-1 most accurately reflects the short-run effect of an increase in
efficiency?
Answers: A. a.
B. b.
C. c.
D. d.
E. none of the above.
• Question 13

Which of the following is a tool of fiscal policy?

Answers: A. Wage and price controls.
B. Government expenditures.
C. Control of the money supply.
D. Control of the exchange rate.
E. All of the above.
• Question 14

Potential GDP is:

Answers: A. the total value of goods and services measured at current prices.
B. the total value of goods and services that could be produced at full employment.
C. the total value of goods and services measured at prices corrected for inflation.
D. the total value of goods and services net of government borrowing.
E. none of the above.
• Question 15

Aggregate supply refers to:

Answers: A. the
total quantity of goods and services that the nation’s businesses willingly
produce and sell in a given period of time.
partial quantity of goods and services that the nation’s businesses willingly
B. the
produce and sell in a given period of time.
total quantity of goods and services that the nation’s government willingly
C. the
produce and sell in a given period of time.
total quantity of goods and services that the nation’s businesses hope to
D. the
produce and sell in a given period of time.
E. none of the above.
• Question 16

Positive price inflation necessarily means that:

Answers: A. all prices are increasing at the same time.
B. prices are climbing but wages are not.
C. though some prices may be falling, prices are, on the average, climbing.
D. the associated rate of unemployment is rising.
E. none of the above.
• Question 17

Use the following to answer questions 17-20:

Figure-2

Which panel in Figure-2 most accurately reflects the short-run effect of an increase in
personal income taxes?
Answers: A. a.
B. b.
C. c.
D. d.
E. None of the panels.
• Question 18

Use the following to answer questions 17-20:

Figure-2

Which panel in Figure-2 most accurately reflects the short-run effect of the imposition of an
environmental control that increases the cost of production?
Answers: A. a.
B. b.
C. c.
D. d.
E. None of the panels.
• Question 19

Use the following to answer questions 17-20:

Figure-2

Which panel in Figure-2 most accurately illustrates a period of high prices and low output?
Answers: A. a.
B. b.
C. c.
D. d.
E. none of the panels.
• Question 20

Use the following to answer questions 17-20:

Figure-2

Assuming that the new curve in each panel in Figure-2 is the one labeled with an apostrophe
or prime symbol ('), and that each panel begins in the same position, which panel would be the
"best" one for an economy?
Answers: A. a.
B. b.
C. c.
D. d.
E. Cannot be determined.
• Question 21

The most common measure of the price level in the U.S. economy is:
Answers: A. the Dow Jones Industrial Average.
B. the Consumer Price Index.
 C. the Laspeyres Index.
D. an incomes policy.
E. none of the above.

• Question 22

Real GDP is:

Answers: A. the total value of goods and services net of imports.
B. thetotal value of goods and services deflated by an index of current prices
to correct for inflation.
C. the
total value of goods and services that could be produced at low (full)
employment.
D. thetotal value of goods and services corrected so that it is measured in terms of
current prices.
E. none of the above.
• Question 23

With an upward sloping aggregate supply curve in the short run, an increase in aggregate
demand can be expected to cause:
Answers: A. the price level to climb.
B. the price level to fall.
C. output to climb.
D. the price level and output to climb.
E. the price level to fall even as output climbs.
• Question 24

Which of the following is likely to happen during wartime?

Answers: A. An increase in aggregate demand.
B. An increase in net exports.
C. An increase in aggregate supply.
D. An increase in prices.
E. A and D are correct.
• Question 25

The interaction of aggregate supply and demand help determine all of the following except:
 Answers: A. Output.

B. Employment.
C. Prices.
D. Exports.
E. None of the above.

Answer Sheet:
1- E
2- D
3- B
4- E
5- C
6- A
7- A
8- C
9- E
10- C
11- D
12- A
13- B
14- B
15- A
16- C
17- D
18- A
19- A
20- B
21- B
22- B
23- D
24- E
25- E