DEC5028 MACROECONOMICS TRI2 2015/16

TUTORIAL 1 INTRODUCTION TO MACROECONOMICS

SECTION A: MULTIPLE CHOICES QUESTION

1.

Which of the following is the best definition of economics?

A)
B)
C)
D)

the study of how individuals and societies choose to use the scarce resources that nature
and previous generations have provided
the study of how consumers spend their income
the study of how business firms decide what inputs to hire and what outputs to produce
the study of how the federal government allocates tax dollars

2.

Macroeconomics

A)
B)
C)
D)

studies the behavior of individual consumers, firms and markets.

involves the interaction between different countries in specific markets.
studies the behavior of the economy as a whole.
deals with both individual decisions and the sum of those individual decisions.

3.

Which of the following is NOT a topic studied in Macroeconomics?

A)
B)
C)
D)

gross domestic product

the unemployment rate
the price of Dell computers
the inflation rate

4.

An increase in the overall price level is known as

A)
B)
C)
D)

deflation.
recession.
inflation.
stagflation.

5.

Deflation occurs when

A)
B)
C)
D)

the average price level declines.

economic activity declines.
the economic growth rate declines.
the unemployment rate declines.

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6.

The term business cycle refers to the

A)
B)
C)
D)

short-term ups and downs in the price level.

long-term trends in the price level.
short-term ups and downs in the level of economic activity.
long-term trends in the level of economic activity.

7.

A period when the economy shrinks is known as

A)
B)
C)
D)

a recession.
a contraction.
a slump.
all of the above.

8.

In a business cycle, a peak represents the end of ________ and a trough represents the
end of ________.

A)
B)
C)
D)

an expansion; a recession
a depression; an expansion
a trough; a peak
a recession; an expansion

9.

Unemployment generally ________ during recessions and ________ during expansions.

A)
B)
C)
D)

falls; rises.
falls; falls.
rises; falls.
rises; rises.

10.

The government wants to encourage consumer spending through cutting income taxes.
This is an example of _____________.

A)
B)
C)
D)

an incomes policy.
a fiscal policy.
a supply-side policy.
a monetary policy.

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11.

If the central bank decreases the money supply, it is conducting

A)
B)
C)
D)

monetary policy.
supply-side policy.
fiscal policy.
incomes policy.

12.

The diagram that shows the income received and payments made by each sector of the
economy is the

A)
B)
C)
D)

aggregate demand-aggregate supply diagram.

circular flow diagram.
income flow diagram.
income-production diagram.

13.

In the circular flow diagram, the different payments made by firms to households include

A)
B)
C)
D)

wages and profits.

interest and taxes.
transfer payments and dividends.
taxes and transfer payments.

14.

An example of a transfer payment is

A)
B)
C)
D)

an interest payment on a General Motors' bond.

the added value of stock from the time it was bought to the time it was sold.
a Social Security retirement benefit.
the salary paid to a member of the armed forces.

15.

In which of the following markets are funds demanded and supplied?

A)
B)
C)
D)

the labor market

the goods and services market
the money market
the factor market

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DEC5028 MACROECONOMICS TRI2 2015/16

16.

In which basic market would DVDs be traded?

A)
B)
C)
D)

the goods and services market

the money market
the labor market
the factor market

17.

In the circular flow model, households earn their incomes in the:

A)
B)
C)
D)

Labor markets
Product markets
Capitalist markets
Money markets

18.

Which of the following would be primarily determined in the labor market?

A)
B)
C)
D)

The price of compact discs

The wage rates for electricians
The number of automobiles produced
The amount of money in circulation

19.

The money income of households consists of the sum of:

A)
B)
C)
D)

Wages plus salaries plus profits

Consumption expenditures plus profits
Wages plus rents plus interest plus profits
Revenues plus profits plus wages

20.

Dividends are

A)
B)
C)
D)

government profits distributed among bondholders.

corporate profits distributed among shareholders.
capital gains realized by stockholders.
promissory notes issued by corporations.

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SECTION B: STRUCTURED QUESTION

QUESTION 1
Identify the following topics as either predominantly macroeconomic or microeconomic.

(a) Provision by firms of medical benefits for employees

(b) The demand for coffee in Melaka
(c) Unemployment in Malaysia
(d) The price of a government bond relative to the price of IBM stock
(e) Unemployment among economics professors
(f) The business cycle
(g) Consumption spending by the household sector
(h) Rent controls in Selangor
(i) Inflation in Zimbabwe
(j) The money supply

QUESTION 2
a)

b)

Define the business cycle.

Draw a graph of a business cycle. Label and explain the phases of a business cycle.

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QUESTION 3
What is the circular flow diagram and why is it useful? Provide a brief explanation for each of
the macroeconomics component involve in the circular flow diagram .

QUESTION 4
List and briefly explain the three market arenas.

QUESTION 5
What are transfer payments? Provide at least two examples of transfer payments.

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