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Macroeconomics Multiple Choice Questions - Prof. Larry Bryant, Cheat Sheet of Macroeconomics

University of North Texas (UNT)Macroeconomics
Prof. Larry Bryant

A series of multiple-choice questions covering key concepts in macroeconomics. It provides a comprehensive assessment of understanding related to aggregate demand, aggregate supply, economic growth, fiscal policy, and the keynesian model. The questions are designed to test knowledge of fundamental principles and their application to real-world scenarios.

Typology: Cheat Sheet

2022/2023

Uploaded on 03/25/2025

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Econ 1110, Principles of Macroeconomics: Practice Exam 2
The answers for this practice exam are on the last page of the exam.
1. Ceteris paribus, an increase in the price level leads to:
a. an increase in the quantity demanded of real GDP.
b. an increase in the demand for real GDP.
c. a decrease in the quantity demanded of real GDP.
d. a decrease in the demand for real GDP.
2. All of the following will increase aggregate demand except:
a. an increase in household wealth.
b. an increase in expected future business sales and profits.
c. a decrease in personal and business income taxes.
d. a decrease in foreign real national income.
3. The direct (positive) relationship between the quantity of real GDP producers are willing and able to
make available for sale and the price level is illustrated by:
a. an upward-sloping short-run aggregate supply curve.
b. a vertical long-run aggregate supply curve.
c. a downward-sloping aggregate demand curve.
d. a point on the aggregate supply curve.
4. Ceteris paribus, a decrease in consumer income and wealth when short-run aggregate supply is upward
sloping causes the:
a. price level to increase, real output to increase, and the unemployment rate to increase.
b. price level to decrease, real output to decrease, and the unemployment rate to increase.
c. price level to increase, real output to increase, and the unemployment rate to decrease.
d. price level to decrease, real output to decrease, and the unemployment rate to decrease.
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Econ 1 110 , Principles of Macroeconomics: Practice Exam 2

The answers for this practice exam are on the last page of the exam.

  1. Ceteris paribus, an increase in the price level leads to: a. an increase in the quantity demanded of real GDP. b. an increase in the demand for real GDP. c. a decrease in the quantity demanded of real GDP. d. a decrease in the demand for real GDP.
  2. All of the following will increase aggregate demand except : a. an increase in household wealth. b. an increase in expected future business sales and profits. c. a decrease in personal and business income taxes. d. a decrease in foreign real national income.
  3. The direct (positive) relationship between the quantity of real GDP producers are willing and able to make available for sale and the price level is illustrated by: a. an upward-sloping short-run aggregate supply curve. b. a vertical long-run aggregate supply curve. c. a downward-sloping aggregate demand curve. d. a point on the aggregate supply curve.
  4. Ceteris paribus, a decrease in consumer income and wealth when short-run aggregate supply is upward sloping causes the: a. price level to increase, real output to increase, and the unemployment rate to increase. b. price level to decrease, real output to decrease, and the unemployment rate to increase. c. price level to increase, real output to increase, and the unemployment rate to decrease. d. price level to decrease, real output to decrease, and the unemployment rate to decrease.
  1. In the long run, it is true that: a. the supply curve (LRAS) is vertical at the economy’s natural level of real GDP. b. the level of natural real GDP does not depend on the price level. c. non-inflationary growth occurs when increases in AD are matched by increases in SRAS. d. All of the above are true with respect to the long run. Use the graph below to respond to the next item. Price LRAS Level SRAS AD 0 QN QE Real GDP
  2. Which of the following describes what happens if the economy depicted above is self-regulating? a. Labor market shortages lead to higher wages which increases costs of production, resulting in a leftward shift in short-run aggregate supply to close the inflationary gap. b. Labor market shortages lead to lower wages which increases costs of production, resulting in a leftward shift in aggregate demand to close the inflationary gap. c. Labor market surpluses put downward pressure on wages which decreases costs of production, resulting in a rightward shift in short-run aggregate supply to close the recessionary gap.

d. decreases in the cost of production and an increase in short-run aggregate supply.

  1. In the Classical model: a. aggregate demand determines the equilibrium level of output and income. b. flexible wages ensure that labor shortages and surpluses (unemployment) will not persist. c. product prices will rise to eliminate shortages but are not likely to fall to eliminate surpluses. d. household saving is a function of personal disposable income.
  2. When the equilibrium (actual) level of real GDP is less than the natural level of real GDP, then: a. an inflationary gap exists, and the unemployment rate is greater than the natural rate. b. a recessionary gap exists, and the unemployment rate is greater than the natural rate. c. an inflationary gap exists, and the unemployment rate is less than the natural rate. d. a recessionary gap exists, and the unemployment rate is less than the natural rate.
  3. The significance of Say’s Law is that, if it holds true, government policy makers: a. do not have to implement policies designed to increase aggregate demand for the economy to move toward equilibrium at natural real GDP. b. must increase government spending in order to move the economy to an equilibrium at natural real GDP. c. will have to implement price ceilings to lower input prices in order to increase short-run aggregate supply. d. should continue to use fiscal policy to stimulate the demand-side of the economy.

  1. A laissez-faire policy with respect to the macroeconomy is associated with the: a. Keynesian view that the economy is self-correcting. b. Classical view that the economy cannot automatically move to equilibrium at full employment. c. Keynesian view that the economy will not automatically move to equilibrium at full employment. d. Classical view that the economy is self-correcting.

  2. Which of the following is not an assumption of the Classical model? a. Flexible prices and wages b. Say’s Law is true c. Unemployment does not occur d. Flexible interest rates equate the quantity of saving and investment

  3. When total production in the economy is less than total expenditures: a. people are not willing and able to buy all output, inventories increase, and firms decrease production and employment. b. people are willing and able to buy all output, inventories decrease, and firms increase production and employment. c. an inflationary gap will emerge and output will decrease. d. a recessionary gap will emerge and output will increase. Use the graph below to respond to the next two items. Price LRAS Level SRAS B A C AD 0 QE QN Real GDP

c. the greatest macroeconomic concern during a recession is inflation. d. whatever is produced will be purchased.

  1. In The General Theory of Employment, Interest and Money , John Maynard Keynes argued that: a. a market economy may settle at an equilibrium below full employment in the short run. b. a market economy will automatically eliminate recessionary and inflationary gaps through shifts in AD and move toward equilibrium at full employment. c. the Great Depression was primarily a result of falling prices and wages. d. the Civil War illustrated that it is necessary for the national government to actively manage a market economy.
  2. Keynes argued that during the Great Depression the economy did not automatically correct itself in the short run partly because: a. Say’s Law was true. b. prices and wages were not flexible, especially downward. c. the economy was very competitive. d. aggregate supply was not able to increase as fast as aggregate demand.
  3. In the Keynesian model of the macroeconomy, both consumption spending and personal saving increase in response to: a. lower interest rates. b. higher interest rates. c. higher disposable income. d. lower disposable income. Use the information in the table below to respond to the next two items. Disposable Income (YD) Consumption Spending (C) $ 0 $ 500 $1,000 $1, $2,000 $2, $3,000 $3, $4,000 $4, $5,000 $5, $6,000 $5,
  1. The algebraic form of the consumption function for the above example is: a. C = $1,000 + 0.75(YD). b. C = $500 + 0.90(YD). c. YD = C + S. d. MPC = 1 – MPS.
  2. For the consumption behavior given in the above table, all of the following are true except : a. break-even disposable income is equal to $5,000. b. at disposable income equal to $10,000, consumption spending is $9,500 and saving is $500. c. when disposable income increases by $1,000, consumption spending increases by $900. d. consumers plan to save $90 of every $1,000 of disposable income.
  3. What is the potential impact on equilibrium income (output) of a $50 billion increase in investment spending when the MPC = 0.80, given the assumptions of the simple Keynesian model? a. $ 8 0 billion increase b. $ 5 0 billion increase c. $400 billion increase d. $ 2 50 billion increase
  4. Changes in government spending or taxing policy for the purpose of influencing macroeconomic outcomes is: a. fiscal policy and is conducted by Congress.

b. $450 billion c. $100 billion d. $75 billion

  1. If equilibrium real GDP is equal to $5,000 billion and natural real GDP is equal to $5,450 billion and the MPC is 0.90, which of the following could move the economy to equilibrium at natural real GDP given the assumptions of the simplified Keynesian model? a. A $45 billion increase in government spending b. A $50 billion decrease in taxes c. A $450 billion increase in government spending financed by a $450 billion increase in taxes d. All of the above could move the economy to equilibrium at natural real GDP.

  1. An example of automatic (nondiscretionary) fiscal policy is: a. Congress approving a government spending increase in order to stimulate aggregate demand when the economy is in a recession. b. lower interest rates leading to increases in private consumption and investment spending. c. the President issuing an executive order limiting the ability of people to become U.S. citizens. d. an increase in the dollar amount of payments to people receiving unemployment benefits during an economic downturn.

  2. Expansionary fiscal policy may not be an effective tool for increasing aggregate demand if: a. increases in government spending crowd out private sector (investment) activity. b. investors are very sensitive to changes in interest rates. c. there are no time lags associated with fiscal policy. d. businesses are very optimistic with respect to future economic conditions. Use the graph below to respond to the next item. Price LRAS Level SRAS AD 0 QE QN Real GDP

  3. A fiscal policy solution to the situation illustrated in the graph above might be: a. the President lowering taxes so households have more disposable income to spend. b. banks lowering interest rates to encourage borrowing and spending. c. Congress approving an increase in government spending to stimulate aggregate demand. d. Senators agreeing to raise taxes in an effort to reduce the national debt.

  4. Which of the following is an example of supply-side fiscal policy?

  1. If the tax rate on $20,000 of taxable income is 12%, then the tax liability on the first $20,000 of taxable income will be: a. $1,200 for this progressive income tax structure. b. $1,200 for this proportional income structure. c. $2, 400 for this progressive income tax structure. d. $2,400 for this proportional income tax structure. Answers to Principles of Macroeconomics: Practice Exam 2

  2. c 11. b 21. a 31. c

  3. d 12. b 22. b 32. d

  4. a 13. a 23. c 33. d

  5. b 14. d 24. b 34. a

  6. d 15. c 25. d 35. c

  7. a 16. b 26. d 36. c

  8. d 17. a 27. a 37. a

  9. c 18. c 28. b 38. a

  10. a 19. a 29. a 39. c

  11. d 20. b 30. d 40. c 2