Sample Questions and Answers
What is the primary goal of modern macroeconomic analysis?
A) To understand microeconomic behavior
B) To manage the distribution of income
C) To analyze national income, unemployment, inflation, and economic growth
D) To study individual market behavior
Answer: C
The term “Gross Domestic Product” (GDP) refers to:
A) The total income earned by a country’s citizens
B) The total market value of all final goods and services produced within a country
C) The total market value of all intermediate goods
D) The total value of exports minus imports
Answer: B
Unemployment that results from a downturn in the business cycle is known as:
A) Frictional unemployment
B) Structural unemployment
C) Cyclical unemployment
D) Seasonal unemployment
Answer: C
The “natural rate of unemployment” refers to:
A) The lowest possible unemployment rate achievable
B) Unemployment that occurs when the economy is at full employment
C) Unemployment caused by technological innovation
D) The unemployment rate during a recession
Answer: B
Inflation is best defined as:
A) A general increase in the prices of goods and services
B) A rise in the cost of living for households
C) A decrease in the purchasing power of money
D) A decrease in overall economic output
Answer: A
Which of the following is considered a consequence of high inflation?
A) Increased purchasing power for consumers
B) Decreased uncertainty in investment decisions
C) Reduced savings due to declining value of money
D) Decreased cost of borrowing
Answer: C
Economic growth is typically measured by changes in:
A) Government spending
B) The unemployment rate
C) The aggregate supply curve
D) Real GDP
Answer: D
A recession is defined as:
A) A period of rapid economic growth
B) A sustained increase in the inflation rate
C) A decline in real GDP for two or more consecutive quarters
D) A rise in the unemployment rate during an economic boom
Answer: C
The aggregate demand curve represents:
A) The total supply of goods and services in the economy
B) The total amount of income earned by households
C) The total demand for goods and services in an economy at various price levels
D) The total investment in capital goods
Answer: C
The Phillips Curve illustrates a relationship between:
A) Inflation and unemployment
B) Unemployment and economic growth
C) Government spending and GDP
D) Interest rates and GDP
Answer: A
If a country’s inflation rate is higher than its trading partners, its exports are likely to:
A) Increase, because they become cheaper
B) Decrease, because they become more expensive
C) Stay unchanged, because exchange rates will adjust
D) Increase, because of improved competitiveness
Answer: B
The primary function of the central bank in modern economies is to:
A) Set income tax rates
B) Manage the money supply and interest rates
C) Regulate wages and prices
D) Control the level of government debt
Answer: B
Which of the following is most likely to cause a shift in the aggregate supply curve?
A) A change in government spending
B) A change in the price level of goods and services
C) A change in resource prices or technology
D) A change in the interest rate
Answer: C
Which of the following is a policy tool used by the government to combat inflation?
A) Increasing government spending
B) Lowering taxes
C) Increasing interest rates
D) Raising the minimum wage
Answer: C
If a country’s real GDP is growing, it means:
A) The economy is expanding, and more goods and services are being produced
B) Unemployment rates are rising
C) The inflation rate is decreasing
D) The labor force is shrinking
Answer: A
The multiplier effect describes how an initial change in spending:
A) Leads to an equal change in the money supply
B) Is multiplied by changes in government policy
C) Is amplified by subsequent rounds of spending in the economy
D) Does not affect the real GDP
Answer: C
Which of the following is likely to result in a shift of the aggregate demand curve to the right?
A) An increase in interest rates
B) A decrease in government spending
C) A tax cut that increases disposable income
D) A decrease in consumer confidence
Answer: C
Which of the following is NOT typically considered a cause of long-term economic growth?
A) Increases in human capital
B) Technological advances
C) Increases in government spending
D) Increases in capital investment
Answer: C
A decrease in the price of oil would likely cause:
A) A rightward shift in the aggregate supply curve
B) A leftward shift in the aggregate demand curve
C) An increase in interest rates
D) A decrease in real GDP
Answer: A
Structural unemployment occurs when:
A) There is a mismatch between the skills of workers and the demands of the job market
B) People are temporarily between jobs
C) The economy is experiencing a downturn
D) There is seasonal variation in employment
Answer: A
The long-run aggregate supply curve is:
A) Vertical, indicating that output is determined by factors like technology and resources
B) Upward sloping, indicating that as prices increase, output increases
C) Downward sloping, indicating that as prices increase, output decreases
D) Horizontal, indicating that output remains constant
Answer: A
The GDP deflator is used to:
A) Measure the rate of inflation
B) Calculate real GDP from nominal GDP
C) Adjust for changes in population
D) Compare GDP growth rates across countries
Answer: B
Which of the following best describes the role of the labor force in economic growth?
A) The size of the labor force does not influence economic growth
B) Economic growth is limited by the size of the labor force
C) The labor force is the primary determinant of inflation
D) A growing labor force contributes to an increase in output
Answer: D
Which of the following would be an example of a supply-side economic policy?
A) A tax cut for consumers
B) A government program to reduce unemployment
C) Investment in infrastructure to reduce production costs
D) A stimulus check to increase consumer spending
Answer: C
A decrease in the savings rate would likely lead to:
A) A decrease in economic growth
B) An increase in investment and capital formation
C) A decrease in inflation
D) An increase in consumer spending
Answer: A
In the short run, an increase in government spending will most likely:
A) Increase the price level and output
B) Decrease unemployment and output
C) Decrease inflation but increase output
D) Increase the price level and decrease output
Answer: A
Which of the following would lead to an increase in aggregate demand?
A) An increase in interest rates
B) An increase in government spending on infrastructure
C) A reduction in consumer confidence
D) A rise in taxes
Answer: B
The “business cycle” refers to:
A) The pattern of GDP growth over time
B) The fluctuations in real GDP over periods of expansion and contraction
C) The change in the money supply
D) The changes in interest rates over time
Answer: B
Which of the following would be classified as an automatic stabilizer in the economy?
A) Tax cuts during a recession
B) Increased government spending on infrastructure
C) Unemployment insurance payments
D) The Federal Reserve’s interest rate changes
Answer: C
A country’s potential output is determined by:
A) The total demand for goods and services in the economy
B) The total number of unemployed workers
C) The economy’s available resources and technology
D) The level of government spending
Answer: C
Which of the following is considered an expansionary fiscal policy?
A) Reducing government spending
B) Increasing taxes
C) Increasing government spending
D) Decreasing the money supply
Answer: C
The concept of “crowding out” occurs when:
A) Increased government spending leads to reduced private sector investment
B) Increased private investment leads to reduced government spending
C) Higher taxes lead to higher private sector savings
D) Government regulation leads to more private sector investment
Answer: A
If the central bank decreases the money supply, the result is likely to be:
A) An increase in interest rates
B) A decrease in inflation
C) A decrease in unemployment
D) An increase in real GDP
Answer: A
The concept of “sticky wages” suggests that:
A) Wages adjust immediately to changes in the economy
B) Wages are fixed by the government and do not change
C) Wages do not adjust quickly in response to economic conditions
D) Wages are determined only by labor unions
Answer: C
What is the primary purpose of monetary policy?
A) To influence the distribution of income
B) To manage the supply of money and interest rates in the economy
C) To increase government spending on infrastructure
D) To control inflation by setting price controls
Answer: B
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