Economic Exam

Sample Macro Questions

Multiple Choice (Select the best option available.)

1.. In the factor market, households

(a) sell resources.

(b) buy resources.

(c) are neither buyers nor sellers of resources.

(d) are both buyers and sellers of resources.

2. GDP does not include

(a) business investment.

(b) overseas production of U.S. subsidiaries.

(c) net exports.

(d) consumption expenditures.

3. Official unemployment rates may underestimate the true rate of unemployment because the official rate

(a) includes those workers who only work part time.

(b) may include some individuals who are not actually in the labor force.

(c) does not include individuals receiving any type of unemployment compensation.

(d) fails to include discouraged workers.

4. If the U.S. economy enters a recessionary phase, the

(a) economy experiences full employment.

(b) unemployment rate will increase.

(c) entire population will be unemployed.

(d) entire population will be partially unemployed.

5. The circular flow diagram shows

(a) goods, services, and money payments flowing in the same direction.

(b) goods and money payments flowing in one direction and services flowing in the opposite direction.

(c) goods and services flowing in one direction and money payments in the other direction.

(d) goods flowing in one direction and services and money payments flowing in the other direction.

6. GDP measures

(a) the total value of labor used in the economy.

(b) the total market value of final goods and services produced within a nation’s borders.

(c) the total income received by residents of a nation.

(d) the total worth of all goods consumed within the borders of a nation.

7. A price index shows

(a) the current cost of a basket of goods.

(b) the relative price of necessities.

(c) the price of goods in the future.

(d) the cost of today’s goods expressed in terms of the cost of goods in a base year.

8. A public good is:

(a) a good or service for which it is relatively easy to exclude nonpaying customers from consumption.

(b) a good or service which is consumed by both the paying and nonpaying customers.

(c) any good or service which is produced by the government.

(d) a good or service which is consumed by private individuals and financed by private contributions.

9. The sum of all planned expenditures for the entire economy at each possible price level is

(a) aggregate supply.

(b) effective demand.

(c) aggregate demand.

(d) actual expenditures by consumers.

10. Suppose the total value of all assets in the United States is $10 trillion. In 2006, the total value of all final services produced in the United States was $100 billion, the total value of all final goods produced in the United States was $300 billion, and the total value of all final goods and services produced by American firms in other countries was $100 billion. In this situation, gross domestic product for 2006 was

(a) $600 billion.

(b) $500 billion.

(c) $400 billion.

(d) $10.4 trillion.

11. Which of the following best fits the definition of unemployed?

(a) Retired and not working.

(b) Working less than a full work week.

(c) Not working but looking for a job.

(d) Not working at a gainful pursuit, either in or out of the home.

12. Which of the following is most likely to contribute to economic growth as measured by real GDP per capita?

(a) an increase in marginal tax rates

(b) rapid population growth

(c) increased capital formation

(d) the imposition of tariffs and quotas on imported goods

13. Which of the following best illustrates the concept of a negative externality?

(a) A college student plays his new stereo system at 4:00 a.m on a school night.

(b) A college professor plays a vigorous game of racquet ball with the racquet he recently purchased.

(c) A janitor eats a Big Mac during his lunch break.

(d) A flood wipes out a farmer’s entire corn crop.

14. When externalities exist, buyers and sellers:

(a) do not neglect the external effects of their actions and the market equilibrium is not efficient.

(b) neglect the external effects of their actions but the market equilibrium is still efficient.

(c) do not neglect the external effects of their actions and the market equilibrium is efficient.

(d) neglect the external effects of their actions and the market equilibrium is not efficient.

?? 15. The Interest Rate Effect is another:

(a) reason why the effect of the price level causes the aggregate demand curve to have a negative slope.

(b) reason why the Federal Reserve is in place.

(c) reason why the effect of the price level causes the aggregate demand curve to have a direct relationship between price level and RGDP.

(d) reason why the effect of the price level causes the aggregate demand curve to have a positive slope.

16.  Which political leader suggested that the government should be actively involved in the “Commanding Heights” of the economy?

(a) Keynes 

(b) Friedman 

(c) Nehru

(d) Hayek

(e) Bernanke

17. The two principle methods of measuring GDP are the

(a) flow approach and the stock approach.

(b) expenditures approach and the income approach.

(c) intermediate approach and the value-added approach.

(d) domestic approach and the international approach.

18. Bob’s assembly line job has been replaced by robots, and Bob lacks abilities and skills required to attain other jobs. He is considered

(a) structurally unemployed.

(b) frictionally unemployed.

(c) seasonally unemployed.

(d) a discouraged worker.

19. As an additional consumer obtains the benefits of a pure public good such as national defense, the benefits to existing consumers

(a) decline.

(b) increase.

(c) increase in the short run but decrease in the long run.

(d) do not change.

20. Economic growth is:

(a) the annual percentage change in nominal GDP.

(b) the annual percentage change in real GDP.

(c) the annual percentage change in disposable income.

(d) the annual percentage change in per capita nominal GDP.

(e) the annual percentage change in per capita real GDP.

21. Which of the following best illustrates the free-rider problem?

(a) A toll booth is constructed at the entrance of a privately funded highway.

(b) Individuals contribute toward a national defense program by paying taxes to the government.

(c) Some home owners in a mountain resort area refuse to contribute toward paving the area's only access road.

(d) You erect a locked gate around your swimming pool to keep out unsupervised children.

22. In an economic system where there is no enforcement of private property rights:

a) individuals will have greater incentive to conserve resources for the future.

b) individuals will have greater incentive to undertake actions which increase the value of their resources.

c) individuals will have less incentive to innovate, since the innovator may not be able to claim the reward for innovation.

d) it is likely that resources will be depleted more rapidly than if such rights were upheld.

e) both c) and d) are likely to occur.

23. Which of the following transactions is included in GDP?

(a) A Social Security check received by a retired couple.

(b) Winnings from an office football pool.

(c) Tips received by a waiter who doesn’t report them to the IRS.

(d) Tips received by a waitress who reports them to the IRS.

24. Which of the following is included in measuring GDP?

(a) The purchase of a previously owned house for $70,000.

(b) The purchase of a new $10,000 automobile.

(c) A social security check for $800.

(d) A gift from your parents of $2,000.

25. Intermediate goods are not included in GDP calculations because

(a) they are used in the production of final goods and would then be counted twice.

(b) they are produced overseas.

(c) they are made from foreign raw materials.

(d) they have very low value added.

26. Keynes became most influential: (a) In the period before the start of the 20th century when globalization was extensive. (b) At the start of the 20th century, prior to World War I. (c) In the period from the 1930s until the 1970s. (d) In the period from the 1980s until the present time.

27. If Jack refinished his basement himself, the value of his work

(a) is not included in GDP.

(b) is included in GDP.

(c) is only included in GDP if he uses U.S. made components.

(d) is included in the next year’s GDP.

28. Unemployment that is caused by business recessions is called

(a) frictional unemployment.

(b) cyclical unemployment.

(c) seasonal unemployment.

(d) structural unemployment.

29. Hayek became most influential: (a) In the period before the start of the 20th century when globalization was extensive. (b) At the start of the 20th century, prior to World War I. (c) In the period from the 1930s until the 1970s. (d) In the period from the 1980s until the present time.

30. A farmer buys seed for 20 cents that is used to grow wheat. The farmer sells the wheat to the miller for 35 cents, and the miller makes flour, which is then sold to the baker for 55 cents. The baker makes bread and sells it to the grocer for 80 cents, and the grocer sells the bread to a family for $1. What is the value added of the baker and what is the sum of the value added at each stage of production?

(a) 80 cents; $1

(b) 80 cents; $2.90

(c) 25 cents; $2.90

(d) 25 cents; $1

31. Social Security payments are

(a) included in GDP.

(b) not included in GDP.

32. During a recession

(a) incomes rise and employment decreases.

(b) incomes fall and unemployment increases.

(c) incomes fall and unemployment falls.

(d) incomes rise and unemployment increases.

33. The nominal value of GDP is expressed in

(a) constant relative prices.

(b) constant dollars.

(c) current dollars.

(d) inflation-adjusted prices.

34. When we use the term fixed investment, we include in investment

(a) the purchase of stocks and bonds.

(b) the purchase of consumer goods.

(c) the purchase of private bonds, but not government bonds.

(d) the purchase of equipment and other capital goods.

35. Which one of the following is a durable consumer good?

(a) Furniture

(b) Gasoline

(c) Food

(d) Office supplies that will be used up this year

36. If all other factors are held constant, an increase in imports

(a) causes an increase in exports of the same size.

(b) causes GDP to increase.

(c) causes GDP to decrease.

(d) can cause GDP to increase or decrease, depending on whether the imports are purchased by consumers or by business firms.

37. If nominal GDP in 2001 was $500 billion with a price index of 100, what would be the real GDP in 2006 if the 2006 nominal GDP was $900 billion and the 2006 price index was 140?

(a) $900 billion

(b) $540 billion

(c) $800 billion

(d) $643 billion

38. Suppose that Matt quits a job with the XYZ Corporation in order to look for more rewarding employment. Matt would be

(a) counted as still being employed.

(b) included in the economy’s “hidden employment.”

(c) counted as frictionally unemployed.

(d) counted as cyclically unemployed.