First Macroeconomics 

Midterm Exam

Instructor: James Sondgeroth

The questions below and succeeding ones will function as learning objectives for multiple-choice exams and will also constitute a lecture outline for the course.

Depending on how quickly we move this semester, the class will cover between 45 to 54 of these questions.

The three midterm multiple-choice exams will consist of between 30 and 90 questions. These exams will be administered on-line through the course's Blackboard site. A wi-fi connectd laptop or tablet will be needed to take them. (If a student does not have such a devise, the instructor will provide a paper version if notified 48 hours in advance.) The exans will be administered during class. These exams must be completed during the 80 minutes the class normally meets.

A practice exam will be available on Blackboard for each exam to enable students to better prepare of the exams.

For each exam, students will be allowed to use one sheet (8.5 X 11) of paper with handwritten notes on both sides. These notes must be turned in after students complete each exam. Up to ten extra credit points will be awarded for these notes based on their thoroughness.

This exam covers chapters 1, 2, 3, 4, 6, and 7(?) plus various handouts.


  1. Scarcity
    1. What is scarcity and why does it exist?
    2. Explain the link between scarcity and each of the following:
      1. choice,
      2. opportunity cost,
      3. the need for a rationing device,
      4. competition.

  2. The Scientific Method (handout from 7th edition)
    1. Explain how the scientific method works.
    2. Are scientific theories ever proven? Explain why or why not.
    3. How is the scientific method similar to democracy, evolution, and the market system? Explain each.

  3. Opportunity Costs and the Law of Increasing Costs
    1. Explain what is meant by opportunity cost and the law of increasing costs?
    2. Illustrate these concepts with the use of a production possibilities frontier.

  4. Draw a production possibilities frontier.
    1. Discuss why it bows out from the origin. (Or stated differently: What causes opportunity costs to increase as more of a good is produced?)
    2. Show how seven major economic concepts can be illustrated with a Production Possibilties Frontier. Explain how the PPF illustrates each concept.

  5. The Production Possibilities Frontier, Economic Growth, and Technological Improvements
    1. Economic Growth
      1. Show how economic growth can be illustrated with a production possibilities frontier.
      2. List and discuss the different sources of economic growth.
    2. Discuss (and illustrate with another production possibilities frontier) how a technological advancement in one line of production (say in growing cotton) might result in greater output in production of an unrelated good (say maize) which did not experience any technological advancement in our ability to produce it.

  6. Socialism vs. Capitalism
    1. Socialism: What does the socialist thinker say about the following in a capitalistic market system:
      1. prices,
      2. competition,
      3. private property,
      4. exchange,
      5. government,
      6. income distribution,
      7. and power?
    2. Capitalism: What does the capitalist thinker say about the following in a capitalistic market system:
      1. prices,
      2. competition,
      3. private property,
      4. exchange,
      5. government,
      6. income distribution,
      7. and power?

  7. The Simple Circular Flow of Economic Activity Used in Microeconomics
    1. Draw the circular flow of economic activity, labeling all actors, markets, and flows.
    2. Point out where capitalism answers the questions of 'what,' 'how,' and 'to whom,' and explain how each question is answered at the places indicated on your drawing.

  8. Demand
    1. Define the law of demand and draw a Demand Curve labeling the axes correctly and curve correctly.
    2. List the "Ceteris Paribus" variables that affect demand and illustrate a shift in a Demand Curve. Now discuss how a change in each of these varialbes would lead to the shift you have illustrated in your drawing.

  9. Supply
    1. Define the law of supply and draw a Supply Curve labeling all the axes correctly.
    2. List the "Ceteris Paribus" variables that affect supply and illustrate a shift in a Supply Curve. Now discuss how a change in each of these varialbes would lead to the shift you have illustrated in your drawing.

  10. Equilibrium
    1. Draw a supply and demand curve on the same graph. Label all axes and curves appropriately. Label the equilibrium point, the equilibrium quantity, and the equilibrium price.
    2. Explain what market equilibrium is and why there is a tendency toward it. (In other words, if the price of something is higher or lower than the equilibrium price, what forces (i.e., human behavior) push the price and quantity to equilibrium.)

  11. Disequilibrium
    1. Graphs
      1. With the use of a graph illustrate what a shortage (excess demand) is.
      2. With the use of a graph illustrate what a surplus (excess supply) is.
    2. Explain how surpluses/shortages might become permanent. (In other words, explain what forces might keep the market from establishing an equilibrium.)

  12. Measuring Inflation
    1. What is the CPI?
    2. How is it constructed, and how does it measure inflation?
    3. Why is it so important to so many people in the U.S. today?
    4. What are some of it weaknesses?

  13. The Consumer Price Index and Measuring Inflation






    1914 10 all years give 1981 94.0
    1918 16.5 average CPI 1990 133.8
    1920 19.4 except '29  2000 174.0
    1929 17.3(high) and '33 2007 207.3
    1933 12.6(low)   2008 215.3
    1940 14.0   2009 214.5
    1945 18.0   2010 218.1
    1950 25.0   2012 229.6
    1960 29.8   2013 233.0
    1966 32.9   2014 234.8
    1970 39.8   2015 238.7
    .(Except for '29 to '33 and 2015, all values are from December of each year.)

    Show all your calculations when answering the following questions.

    1. What was a dollar in 2015 worth in 1914 dollars?
    2. If a textbook cost $180 in 2015, how much would it have cost in 1966 if real prices have not changed since then?
    3. If grandmothers were giving $10 bills as gifts to their grandchildren in 1950, how much would grandmothers today have to give their grandchildren so that grandchildren in 2015 would have the same purchasing power with their gifts as grandchildren in 1950 had with their $10 bills?
    4. What was the inflation rate from 1929 to 1933? What was happening during that time?
    5. What was the inflation rate from 1970 to 1981?
    Check your answers with the Bureau of Labor Statistics inflation calculator.

  14. Describe in detail the household survey of unemployment and, in the context of the survey, explain what is meant the terms below and give the number or rate of each based on the table below for the following dates-- December 2007; June 2009; and January 2015.:
    1. employed
    2. unemployed
    3. not in the labor force
    4. the unemployment rate
    5. the labor force participation rate
    6. the employment rate (employment -population ratio)
      December 2007 June 2009 July 2015
    Civilian noninstitutional population > 16 233,290,000 235,695,000 250,968,000
       Civilian labor force 153,918,000 154,730,000 157,106,000
           Employed 146,273,000 140,003,000 148,840,000


  15. Unemployment and Full Employment
    1. Give the definitions of:
      1. Frictional Unemployment;
      2. Structural Unemployment;
      3. Cyclical Unemployment;
      4. Natural Unemployment.
    2. Explain what is meant by full employment in macroeconomics, and explain why the unemployment rate might well be greater than zero at full employment.

  16. Circular Flow Model Used in Macroeconomics
    1. Draw the circular flow of economic activity, labeling all economic actors, markets, and money flows.
    2. Point out on the graph (and explain in terms or the equations that define them) where one might build a dam or dams to measure GDP by:
      1. the expenditure approach
      2. and also by the income approach.

  17. GDP
    1. What is the definition of the GDP?
    2. What items are not included in the calculation of GDP?
    3. How is it calculated using the expenditure approach?
    4. How is it calculated using the income approach?
    5. How is it calculated using the value added approach?
    6. Why are money prices used in calculating GDP?
    7. Explain the problem of "double-counting" and how it can be avoided.

  18. Discuss the strengths and weaknesses (i.e., problems) of using GDP data:
    1. to measure the social well being of a nation,
    2. in making comparisons of one nation to another,
    3. and in making comparisons of one time period in a given nation's history with another time period in the same nation's history if there has been a large passage of time between the periods.

  19. Suppose you are given the following information about some hypothetical economy and its national income accounts (which nonetheless closely follows the NIPA data for 2007 III annualized). Use this information to answer the questions that follow. (Amounts are in billions of dollars) (Chapter 7) (These figures are from the Bureau of Economic Analysis National Income and Product Account Tables which can be found at http://www.bea.gov/national/nipaweb/Index.asp.)
    Indirect Business Taxes $919.0
    Corporate profits $1208.9
    Corporate profits taxes $469.4
    Retained earnings $330.8
    Proprietors' income $1038.4
    Rental Income $62.1
    Net Interest $1171.1
    Exports $1685.7
    Imports $2380.4
    Income Receipts from rest of world $855.6
    Income Payments to rest of world $754.9
    Net National Product $12380.8
    Government expenditures for Goods and Services $2716.5
    Personal current Transfer receipts $1742.3
    Social Security Taxes (employee & employer) $981.5
    Personal Consumption expenditures $9785.7
    Gross Private Domestic Investment $2162.9
    Disposable personal income $10257.5

    1. Find GDP.
    2. Find the percentage Net Exports is of GDP.
    3. Find GNP.
    4. Find depreciation (capital consumption allowance).
    5. Find National Income.
    6. Find Wages and Salaries.
    7. Find the percentage 'Wages and Salaries' is of National income.
    8. Find Personal Income.
    9. Find Personal Income Taxes.
    10. Find Personal Saving.
    11. Find the percentage Personal Saving is of Disposable Personal Income.

  20. Business Cycle
    1. What is the business cycle?
    2. Draw a hypothetical graph of a business cycle labeling the four phases of the cycle.
    3. Explain what is happening during each phase of the cycle with:
      1. output,
      2. employment,
      3. and inflation.