BADM 7200 Exam 2 Prep 2026 | 200 Practice Questions with
Answers & Explanations | Business Administration Guide
Section 1: Foundations of Macroeconomics (Questions 1–20)
1. What is the primary focus of macroeconomics?
A) Individual consumer behavior
B) The behavior of the economy as a whole
C) Firm pricing strategies
D) Market structures
Answer: B
Rationale: Macroeconomics examines aggregate phenomena such as national income, inflation,
unemployment, economic growth, and the effects of fiscal and monetary policy.
2. True or False: Macroeconomics is primarily concerned with the study of individual markets and price
determination.
Answer: False
Rationale: Individual markets and price determination are the focus of microeconomics.
Macroeconomics looks at the entire economy.
3. Which of the following is not a major macroeconomic goal?
A) Economic growth
B) Price stability
C) Low unemployment
D) Balanced budget for every household
Answer: D
Rationale: The four major macroeconomic goals are economic growth, price stability (low inflation), low
unemployment, and a stable balance of payments.
,4. True or False: The “Great Depression” of the 1930s led to the development of modern
macroeconomics, particularly the work of John Maynard Keynes.
Answer: True
Rationale: Classical economics could not explain the prolonged high unemployment. Keynes’s “General
Theory” (1936) provided a framework for government intervention.
5. Which of the following best describes the “circular flow model”?
A) The flow of goods and services between countries
B) The flow of resources, goods, services, and money between households and firms
C) The flow of capital in financial markets
D) The flow of labor between industries
Answer: B
Rationale: The circular flow model shows how households provide factors of production to firms and
receive income, then spend that income on goods and services produced by firms.
6. True or False: In the circular flow model, firms are sellers in the factor market and buyers in the
product market.
Answer: False
Rationale: In the factor market, firms buy factors of production (labor, capital, land) from households. In
the product market, firms sell goods and services to households.
7. What is the “national income accounts” identity?
A) Y = C + I + G + NX
B) Y = C + I + G
C) Y = C + S + T
D) Y = C + I + G + NX + S
Answer: A
,Rationale: National income (Y) equals consumption (C) plus investment (I) plus government purchases
(G) plus net exports (NX = exports – imports).
8. True or False: Transfer payments (e.g., Social Security) are included in government purchases (G) in
the national income accounts.
Answer: False
Rationale: Transfer payments are not included in G because they are not payments for currently
produced goods or services. They are transfers of income.
9. Which of the following is not a component of GDP using the expenditure approach?
A) Consumption
B) Investment
C) Transfer payments
D) Net exports
Answer: C
Rationale: Transfer payments are not included in GDP because they do not represent production. They
are redistributions of income.
10. True or False: GDP is the total market value of all final goods and services produced within a country
in a given period.
Answer: True
Rationale: This is the standard definition of Gross Domestic Product.
11. Which of the following would be counted in US GDP?
A) A Ford car produced in Mexico
B) A Toyota car produced in Kentucky
C) The sale of a used textbook
D) The purchase of a 100‑year‑old painting
, Answer: B
Rationale: GDP includes goods produced within the country’s borders, regardless of the company’s
nationality. Used goods and financial transactions are not counted.
12. True or False: GDP includes the value of intermediate goods to avoid double‑counting.
Answer: False
Rationale: Only final goods are counted. Including intermediate goods would double‑count.
13. Real GDP differs from nominal GDP because real GDP:
A) Uses current year prices
B) Uses constant base‑year prices
C) Excludes government spending
D) Includes only investment goods
Answer: B
Rationale: Real GDP is adjusted for inflation by using prices from a base year. Nominal GDP uses current
prices.
14. True or False: An increase in nominal GDP always means the economy produced more goods and
services.
Answer: False
Rationale: Nominal GDP can increase due to higher prices (inflation) even if output does not change.
15. The “GDP deflator” is calculated as:
A) (Nominal GDP / Real GDP) × 100
B) (Real GDP / Nominal GDP) × 100
C) (GDP / Population)
D) (Consumption / GDP) × 100
Answer: A
Answers & Explanations | Business Administration Guide
Section 1: Foundations of Macroeconomics (Questions 1–20)
1. What is the primary focus of macroeconomics?
A) Individual consumer behavior
B) The behavior of the economy as a whole
C) Firm pricing strategies
D) Market structures
Answer: B
Rationale: Macroeconomics examines aggregate phenomena such as national income, inflation,
unemployment, economic growth, and the effects of fiscal and monetary policy.
2. True or False: Macroeconomics is primarily concerned with the study of individual markets and price
determination.
Answer: False
Rationale: Individual markets and price determination are the focus of microeconomics.
Macroeconomics looks at the entire economy.
3. Which of the following is not a major macroeconomic goal?
A) Economic growth
B) Price stability
C) Low unemployment
D) Balanced budget for every household
Answer: D
Rationale: The four major macroeconomic goals are economic growth, price stability (low inflation), low
unemployment, and a stable balance of payments.
,4. True or False: The “Great Depression” of the 1930s led to the development of modern
macroeconomics, particularly the work of John Maynard Keynes.
Answer: True
Rationale: Classical economics could not explain the prolonged high unemployment. Keynes’s “General
Theory” (1936) provided a framework for government intervention.
5. Which of the following best describes the “circular flow model”?
A) The flow of goods and services between countries
B) The flow of resources, goods, services, and money between households and firms
C) The flow of capital in financial markets
D) The flow of labor between industries
Answer: B
Rationale: The circular flow model shows how households provide factors of production to firms and
receive income, then spend that income on goods and services produced by firms.
6. True or False: In the circular flow model, firms are sellers in the factor market and buyers in the
product market.
Answer: False
Rationale: In the factor market, firms buy factors of production (labor, capital, land) from households. In
the product market, firms sell goods and services to households.
7. What is the “national income accounts” identity?
A) Y = C + I + G + NX
B) Y = C + I + G
C) Y = C + S + T
D) Y = C + I + G + NX + S
Answer: A
,Rationale: National income (Y) equals consumption (C) plus investment (I) plus government purchases
(G) plus net exports (NX = exports – imports).
8. True or False: Transfer payments (e.g., Social Security) are included in government purchases (G) in
the national income accounts.
Answer: False
Rationale: Transfer payments are not included in G because they are not payments for currently
produced goods or services. They are transfers of income.
9. Which of the following is not a component of GDP using the expenditure approach?
A) Consumption
B) Investment
C) Transfer payments
D) Net exports
Answer: C
Rationale: Transfer payments are not included in GDP because they do not represent production. They
are redistributions of income.
10. True or False: GDP is the total market value of all final goods and services produced within a country
in a given period.
Answer: True
Rationale: This is the standard definition of Gross Domestic Product.
11. Which of the following would be counted in US GDP?
A) A Ford car produced in Mexico
B) A Toyota car produced in Kentucky
C) The sale of a used textbook
D) The purchase of a 100‑year‑old painting
, Answer: B
Rationale: GDP includes goods produced within the country’s borders, regardless of the company’s
nationality. Used goods and financial transactions are not counted.
12. True or False: GDP includes the value of intermediate goods to avoid double‑counting.
Answer: False
Rationale: Only final goods are counted. Including intermediate goods would double‑count.
13. Real GDP differs from nominal GDP because real GDP:
A) Uses current year prices
B) Uses constant base‑year prices
C) Excludes government spending
D) Includes only investment goods
Answer: B
Rationale: Real GDP is adjusted for inflation by using prices from a base year. Nominal GDP uses current
prices.
14. True or False: An increase in nominal GDP always means the economy produced more goods and
services.
Answer: False
Rationale: Nominal GDP can increase due to higher prices (inflation) even if output does not change.
15. The “GDP deflator” is calculated as:
A) (Nominal GDP / Real GDP) × 100
B) (Real GDP / Nominal GDP) × 100
C) (GDP / Population)
D) (Consumption / GDP) × 100
Answer: A
