Macroeconomics Practice Questions

An economy is operating at a point inside its production possibilities curve (PPC). Which of the following will most likely cause the economy to move toward the current PPC in the short run?

• A decrease in government spending

• A decrease in inflation

• An increase in human capital

• An increase in employment

• An increase in imports

An increase in which of the following will most likely promote economic growth?

• Taxes on investment

• The price level

• Human capital

• Consumption of nondurable goods

• Interest rates

Which of the following will cause aggregate supply to increase in Country X?

• An increase in personal income taxes

• The discovery of low-cost alternative sources of energy

• A decrease in labor productivity with no change in nominal wages

• Depreciation of country X's currency on the foreign exchange market

• An increase in the price level

The graph above shows the production possibilities curve for Factory X and Factory Y. If Factory X uses the same amount of resources to produce skateboards and bikes as Factory Y uses, which of the following is true?

• Factory X has an absolute advantage in producing bikes.

• Factory X has an absolute advantage in producing skateboards.

• Factory X has a comparative advantage in producing skateboards.

• Factory Y has a comparative advantage in producing skateboards.

• Factory Y has an absolute advantage in producing skateboards.

An increase in the price of oil, an important input to production, will result in which of the following in the short run?

• A decrease in the price level

• A decrease in short-run aggregate supply

• A decrease in unemployment

• An increase in real wages

• An increase in aggregate demand

An economy is currently operating at the full-employment level of output. Which of the following would result in a recessionary gap in the short run?

• An increase in the costs of production

• An improvement in the productivity of labor

• An increase in money supply

• A positive supply shock

• A decrease in income tax rates

Thailand and Malaysia are trading partners. If the price level in Thailand decreases relative to the price level in Malaysia, what will happen to Thailand's exports to Malaysia and Thailand's aggregate demand?

• Exports: Increase

  AD: Decrease

• Exports: Increase

  AD: Increase

• Exports: Increase

  AD: Indeterminate

• Exports: Decrease

  AD: Decrease

• Exports: Decrease

  AD: Increase

Country X produces only apples and bananas. The following table shows prices and quantities of both products in two years. Assuming year 1 is the base year, what is the nominal and real gross domestic product (GDP) for year 2 ?

• Nominal GDP: $200

  Real GDP: $280

• Nominal GDP: $200

  Real GDP: $200

• Nominal GDP: $280

  Real GDP: $200

• Nominal GDP: $280

  Real GDP: $560

• Nominal GDP: $560

  Real GDP: $280

Which of the following is a fiscal policy action aimed at reducing unemployment?

• Decreasing government expenditures

• Decreasing income taxes

• Decreasing tax credits

• Increasing nominal interest rates

• Increasing required reserves

Increases in human capital can be achieved by which of the following?

• Building more factories

• Reducing immigration of skilled workers

• Improving the quality of job-training programs

• Increasing the physical capital per worker

• Increasing government spending on infrastructure