Macroeconomics (C719) Exam
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Free Macroeconomics (C719) Exam Questions
Which of the following best categorizes the types of unemployment that can occur within an economy?
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Seasonal, frictional, cyclical, and structural
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Temporary, permanent, voluntary, and involuntary
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Long-term, short-term, structural, and frictional
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Cyclical, structural, natural, and seasonal
Explanation
Correct Answer
A. Seasonal, frictional, cyclical, and structural
Explanation
The four main types of unemployment recognized in macroeconomics are:
Seasonal Unemployment – Jobs that exist only during certain times of the year (e.g., ski instructors, holiday retail workers).
Frictional Unemployment – Temporary unemployment due to job transitions, such as people quitting to find better opportunities.
Cyclical Unemployment – Job losses due to economic downturns or recessions, when demand falls and businesses cut jobs.
Structural Unemployment – Unemployment caused by mismatches in skills between workers and available jobs, often due to technological advancements or outsourcing.
Why Other Options Are Wrong
B. Temporary, permanent, voluntary, and involuntary.
These terms describe the nature of unemployment (duration or choice) but do not represent recognized economic categories of unemployment.
C. Long-term, short-term, structural, and frictional.
While structural and frictional unemployment are real categories, long-term and short-term refer to the duration of unemployment rather than distinct economic types.
D. Cyclical, structural, natural, and seasonal.
This is incorrect because "natural unemployment" is not a distinct category; rather, it is the sum of frictional and structural unemployment, representing normal unemployment levels in an economy.
What approach is commonly recommended to address the challenges posed by structural unemployment in the labor market?
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Job creation programs
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Retraining and skill development
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Increased minimum wage
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Temporary unemployment benefits
Explanation
Correct Answer
B. Retraining and skill development
Explanation
Structural unemployment occurs when workers' skills no longer match the demands of the job market, often due to technological advancements, shifts in industries, or globalization. Retraining and skill development programs help workers gain new, relevant skills, making them employable in growing sectors.
Why Other Options Are Wrong
A. Job creation programs are helpful for cyclical unemployment, which is caused by downturns in the economy, but they do not directly address the mismatch of skills in structural unemployment.
C. Increased minimum wage does not solve structural unemployment; it primarily affects wage levels rather than skill mismatches.
D. Temporary unemployment benefits provide short-term financial assistance but do not help individuals acquire the necessary skills for new job opportunities.
The consumer price index measures the:
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Average price of a basket of goods and services bought by a typical consumer.
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Total price of a basket of goods and services bought by a typical consumer.
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Total price of a basket of goods and services bought by all families in the country.
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Average price of a basket of goods and services bought by all families in the country.
Explanation
Correct Answer
A. Average price of a basket of goods and services bought by a typical consumer.
Explanation
The Consumer Price Index (CPI) measures the average change in prices paid by a typical consumer for a fixed market basket of goods and services over time. It is used to track inflation and purchasing power. The CPI does not sum up the total price of all goods bought but rather calculates the weighted average cost of the basket. This index is widely used to adjust wages, social security payments, and economic policies.
Why Other Options Are Wrong
B. Total price of a basket of goods and services bought by a typical consumer.
The CPI does not measure the total price but rather the average price change over time. A total price would not account for inflation trends properly.
C. Total price of a basket of goods and services bought by all families in the country.
CPI focuses on the typical consumer and not all families collectively. A measure that includes all families would require a broader calculation, like GDP deflators.
D. Average price of a basket of goods and services bought by all families in the country.
The CPI is based on a representative consumer's basket, not an average of all families. The spending habits of the entire population vary widely, and CPI calculations are based on a standard consumer profile rather than the national average across all families.
Inflation occurs when:
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The purchasing power of money remains unchanged
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The average level of prices is increasing
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Some prices are increasing but other prices are decreasing
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The purchasing power of money is increasing
Explanation
Correct Answer
B. The average level of prices is increasing
Explanation
Inflation is defined as the rise in the general price level of goods and services over time. It results in a decrease in the purchasing power of money, meaning that the same amount of money buys fewer goods and services. Inflation is measured by indices such as the Consumer Price Index (CPI) or the Producer Price Index (PPI).
Why Other Options Are Wrong
A. The purchasing power of money remains unchanged
If the purchasing power of money remains unchanged, there is no inflation because prices are stable. Inflation occurs when the value of money declines.
C. Some prices are increasing but other prices are decreasing
Inflation refers to a broad increase in price levels across the economy, not just individual price fluctuations. Some prices may rise while others fall, but if the overall price level is rising, then inflation is occurring.
D. The purchasing power of money is increasing
When the purchasing power of money increases, it indicates deflation, not inflation. Deflation occurs when prices decline, making money more valuable over time.
The foreign exchange market (FOREX) trades with:
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Shares
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Foreign currencies
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Commodities
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Bonds
Explanation
Correct Answer
B. Foreign currencies
Explanation
The foreign exchange market (FOREX) is a global marketplace for trading currencies. It enables businesses, investors, governments, and individuals to buy, sell, exchange, and speculate on foreign currencies. The FOREX market is the largest and most liquid financial market in the world, operating 24 hours a day.
Why Other Options Are Wrong
A. Shares
Shares (or stocks) represent ownership in a company and are traded in stock markets, not in the FOREX market.
C. Commodities
Commodities such as gold, oil, and agricultural products are traded on commodity markets, not on the FOREX market.
D. Bonds
Bonds are debt instruments traded in bond markets, which are separate from the FOREX market.
Which of the following sets of objectives best represents the primary goals of macroeconomic policy?
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High unemployment, high inflation, rapid economic decline, trade deficits, and income inequality
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Low unemployment, low inflation, sustainable economic growth, a favorable balance of trade, and equitable income distribution
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Unstable economic growth, fluctuating inflation rates, high trade surpluses, and unequal income distribution
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Constant unemployment, moderate inflation, stagnant economic growth, trade neutrality, and wealth concentration
Explanation
Correct Answer
B. Low unemployment, low inflation, sustainable economic growth, a favorable balance of trade, and equitable income distribution
Explanation
Macroeconomic policy aims to promote economic stability and growth while minimizing negative economic impacts. The key objectives include:
Low unemployment: Ensuring job opportunities for the workforce.
Low inflation: Preventing excessive price increases that reduce purchasing power.
Sustainable economic growth: Encouraging steady development without economic crashes.
A favorable balance of trade: Striving for more exports than imports to boost economic stability.
Equitable income distribution: Reducing economic inequality for a balanced economy.
Why Other Options Are Wrong
A. High unemployment, high inflation, rapid economic decline, trade deficits, and income inequality.
This option describes an economic crisis, not the goals of macroeconomic policy. High unemployment and inflation harm economic stability.
C. Unstable economic growth, fluctuating inflation rates, high trade surpluses, and unequal income distribution.
Macroeconomic policies focus on stability, not instability or extreme trade imbalances.
D. Constant unemployment, moderate inflation, stagnant economic growth, trade neutrality, and wealth concentration.
A stagnant economy with constant unemployment and wealth concentration leads to long-term economic decline.
What is cost-of-living adjustment (COLA) used for?
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Increasing Social Security benefits
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Simplifying WIC eligibility
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Eliminating debt for NSLP users
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Identifying regional health disparities
Explanation
Correct Answer
A. Increasing Social Security benefits
Explanation
A cost-of-living adjustment (COLA) is used to adjust Social Security and other government benefits to keep pace with inflation. It ensures that beneficiaries maintain their purchasing power despite rising living costs. COLA is typically based on the Consumer Price Index (CPI) and helps retirees and other recipients manage expenses as prices increase over time.
Why Other Options Are Wrong
B. Simplifying WIC eligibility
The Women, Infants, and Children (WIC) program provides nutritional assistance but does not use COLA for eligibility determination. WIC eligibility is based on income thresholds and nutritional risk, not adjustments for inflation.
C. Eliminating debt for NSLP users
The National School Lunch Program (NSLP) provides free or reduced-price meals to students, but it does not involve COLA in eliminating debt. Debt forgiveness programs for school meals are handled through separate policies at federal, state, or district levels.
D. Identifying regional health disparities
COLA is used for adjusting benefits, not for analyzing regional health differences. Identifying health disparities involves demographic, economic, and epidemiological research, often using public health data rather than cost-of-living adjustments.
The economy (GDP) will contract (shrink) if
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Leakages exceed injections
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Injections exceed leakages
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Injections equal leakages
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Expenditures exceed output
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Investment exceeds saving
Explanation
Correct Answer
A. Leakages exceed injections
Explanation
Leakages (such as savings, taxes, and imports) represent money that exits the economy, while injections (such as investment, government spending, and exports) introduce money into the economy. If leakages exceed injections, less money circulates in the economy, leading to a contraction in GDP.
Why Other Options Are Wrong
B. Injections exceeding leakages would lead to economic growth rather than contraction.
C. Injections equal leakages would result in economic equilibrium, meaning no contraction or expansion.
D. Expenditures exceed output does not necessarily cause contraction. It could lead to inflation rather than a shrinking GDP.
E. Investment exceeds saving can lead to increased economic activity rather than contraction, as investment drives production and job creation.
What is an economy?
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A banking system
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A system for coordinating the production and distribution of goods and services
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The coordination of a buyer of a good and a seller of a good
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The movement of goods and services between countries
Explanation
Correct Answer
B. A system for coordinating the production and distribution of goods and services
Explanation
An economy is the structure through which a society organizes the production, distribution, and consumption of goods and services. It includes businesses, consumers, governments, and financial institutions that interact within a market system to allocate resources efficiently.
Why Other Options Are Wrong
A. A banking system.
While banking is an essential part of an economy, it only represents the financial sector rather than the full coordination of economic activities.
C. The coordination of a buyer of a good and a seller of a good.
This describes a market transaction, but an economy is broader and includes government policies, labor markets, financial systems, and production processes.
D. The movement of goods and services between countries.
This refers to international trade, which is a part of the economy, but an economy also includes domestic activities, investments, and government expenditures.
The Misery Index, the rate of inflation plus the unemployment rate, reached its peak under:
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Gerald R. Ford
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Jimmy Carter
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Ronald Reagan
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Bill Clinton
Explanation
Correct Answer
B. Jimmy Carter
Explanation
The Misery Index is the sum of a country's inflation rate and unemployment rate, used to measure economic distress. The highest recorded Misery Index in U.S. history occurred under President Jimmy Carter, peaking at 21.98% in 1980 due to high inflation and unemployment. This period was marked by stagflation, a combination of economic stagnation and rising prices.
Why Other Options Are Wrong
A. Gerald R. Ford.
The Misery Index was high during Ford’s presidency, but it did not reach the record peak. His administration faced economic difficulties, but inflation was lower than during Carter’s term.
C. Ronald Reagan.
When Reagan took office in 1981, the Misery Index was still high due to Carter-era stagflation. However, Reagan implemented policies that lowered inflation and unemployment over time, reducing the Misery Index.
D. Bill Clinton.
During Clinton’s presidency, the economy performed well with low inflation and low unemployment, resulting in a low Misery Index. His economic policies led to a period of strong growth, making this option incorrect.
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