Advanced Macroeconomics
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Course Introduction
Advanced Macroeconomics explores the theoretical frameworks and empirical methods used to analyze the behavior of economies at an aggregate level. The course covers key topics such as economic growth, consumption and investment theories, market imperfections, business cycles, monetary and fiscal policy, and the implications of expectations for macroeconomic dynamics. Emphasis is placed on evaluating current macroeconomic models and understanding their relevance in real-world policy-making, equipping students with the analytical tools necessary for research and advanced economic analysis.
Recommended Textbook
Macroeconomics 5th Edition by Stephen D. Williamson
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) Inflation is defined as
A) the rate of increase in the government budget deficit.
B) the increase in the money supply.
C) the rate of change in the average level of prices.
D) the nominal interest rate minus the price level.
Answer: C
Q2) Between 1947 and 2011,
A) Exports decreased and imports decreased.
B) Exports and imports increased.
C) The current account surplus rose.
D) The current account deficit fell.
Answer: B
Q3) Over the long run,taxes and government expenses have
A) remained relatively stable.
B) decreased.
C) increased.
D) drifted apart.
Answer: C
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Chapter 2: Measurement
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Q1) The government deficit
A) is equal to the government surplus plus taxes minus government spending.
B) is equal to GDP minus GNP.
C) is equal to disposable income plus the current account surplus.
D) is equal to the negative of government saving.
Answer: D
Q2) What is the real GDP in year 2 using base year 2?
A) $418.
B) $300.
C) $360.
D) $338.
Answer: A
Q3) Recently,consumption has comprised approximately
A) one-half of GDP.
B) two-thirds of GDP.
C) three-fourths of GDP.
D) four-fifths of GDP.
Answer: B
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Chapter 3: Business Cycle Measurement
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Sample Questions
Q1) Robert Lucas has popularized the notion that with respect to A) severity, business cycles are all alike.
B) causation, business cycles are all alike.
C) quantitative behavior of co-movements among series, business cycles are all alike.
D) qualitative behavior of co-movements among series, business cycles are all alike.
Answer: D
Q2) Predicting business cycles is difficult because
A) they are very persistent.
B) the weather changes unpredictably.
C) statistics lie.
D) their frequency is irregular.
Answer: D
Q3) For the period 1947-2012 in the United States,the money supply was A) procyclical and leading.
B) procyclical and lagging.
C) countercyclical and leading.
D) countercyclical and lagging.
Answer: A
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5
Chapter 4: Consumer and Firm Behavior: The Work-Leisure
Decision and Profit Maximization
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Sample Questions
Q1) A consumption bundle
A) is a particular combination of consumption and leisure.
B) only measures a quantity of goods and services, but not the amount of leisure.
C) is a method of bringing home consumption goods.
D) measures the quality of a particular good.
Q2) The consumer's work-leisure choice problem focuses on how a consumer's work-leisure decision is affected by the consumer's
A) preferences and productivity.
B) productivity and psychology.
C) psychology and preferences.
D) preferences and constraints.
Q3) A consumer is said to be indifferent between two consumption bundles
A) when the consumer doesn't care about his or her consumption bundle.
B) when the two bundles provide equal amounts of utility.
C) when the consumer chooses the bundles equally often.
D) when the consumer is indecisive.
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6
Chapter 5: A Closed-Economy One-Period Macroeconomic Model
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Sample Questions
Q1) Relative to the social optimum,monopoly power tends to lead to A) underproduction.
B) overproduction.
C) too much leisure.
D) too little leisure.
Q2) The Laffer curve is a curve showing
A) output as a function of the tax rate.
B) tax revenue as a function of the tax rate.
C) government expenses as a function of how liberal the government is.
D) the tax rate as a function of government expenses.
Q3) In the model of public goods,when the government chooses public goods provision optimally
A) there is no public goods production.
B) public goods are provided in an amount equal to private goods.
C) the marginal rate of substitution of private goods for public goods equals the marginal rate of transformation.
D) GDP is maximized.
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Page 7
Chapter 6: Search and Unemployment
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Sample Questions
Q1) The participation rate was higher in 2012 than in 1948 because
A) the labor force was larger in 2012 than in 1948.
B) the unemployment rate became less variable over time.
C) of the Great Moderation
D) the participation rate of women rose between 1948 to 2012.
Q2) In the DMP model,a decrease in matching efficiency
A) has no effect on vacancies.
B) reduces the unemployment rate.
C) increases labor market tightness.
D) increases the size of the labor force.
Q3) The unemployment rate is
A) countercyclical
B) procyclical
C) a leading variable
D) smooth
Q4) In the DMP model,
A) Firms maximize profits.
B) Firms determine how much effort they should put into filling job vacancies.
C) Firms decide whether or not to enter the labor market by posting vacancies.
D) Firms decide whether or not to retain or fire workers.
Page 8
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Chapter 7: Economic Growth: Malthus and Solow
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Sample Questions
Q1) In the Golden Rule steady state,the marginal product of capital is equal to the
A) savings rate plus the population growth rate.
B) population growth rate plus the depreciation rate.
C) depreciation rate plus the savings rate.
D) savings rate divided by the marginal product of labor.
Q2) On average,for the last 100 years or more,real GDP per capita in the United States has increased by
A) 0.5% per year.
B) 1% per year.
C) 2% per year.
D) 4% per year.
Q3) When we compare poor and rich countries in the world
A) There is much greater dispersion in growth rates in per capita income for the poor countries than for the rich countries.
B) The investment rate is higher for poor countries than for rich countries.
C) There is much greater dispersion in growth rates in per capita income for the rich countries than for the poor countries.
D) Population growth rates are higher in rich countries than in poor countries.
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Chapter 8: Income Disparity Among Countries and Endogenous Growth
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Q1) According to Solow's exogenous growth theory,what happens to a country at steady state that suffered extensive capital destruction due to a war or climate event?
A) It will stay poor forever.
B) It will grow back to be richer than before.
C) It will get back to its original status.
D) Anything can happen.
Q2) The endogenous growth model predicts that
A) there is convergence in incomes per capita across countries.
B) output per capita is constant.
C) rich countries will always become poor.
D) differences in per capital incomes across countries persist forever.
Q3) Suppose a poor economy inches towards the steady state in Solow's exogenous growth model. What happens?
A) Capital grows faster than population.
B) Capital grows slower than population.
C) Capital grows as fast as population.
D) It depends.
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Page 10
Chapter 9: A Two-Period Model: The Consumption-Savings
Decision and Credit Markets
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Sample Questions
Q1) The two primary explanations for the excess volatility of consumption are
A) consumers' limited life spans and credit market imperfections.
B) credit market imperfections and changes in market prices.
C) changes in market prices and distorting taxes.
D) distorting taxes and consumers' limited life spans.
Q2) If the interest rate increases,lifetime wealth (we) A) increases.
B) stays constant.
C) decreases.
D) changes in an ambiguous way.
Q3) An increase in second-period income results in
A) an increase in first-period consumption, an increase in second-period consumption, and an increase in saving.
B) an increase in first-period consumption, a decrease in second-period consumption, and an increase in saving.
C) a decrease in first-period consumption, an increase in second-period consumption, and an increase in saving.
D) an increase in first-period consumption, an increase in second-period consumption, and a decrease in saving.
Page 11
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Chapter 10: Credit Market Imperfections: Credit Frictions,
Crises, and Social Security
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Sample Questions
Q1) A default premium is the interest rate premium
A) under normal market circumstances.
B) when there are no market fluctuations.
C) covering the default risk.
D) for government debt.
Q2) Which of the following is not a reason for studying credit market frictions?
A) explaining features of financial crises.
B) explaining key elements of financial market behavior.
C) understanding why Ricardian equivalence may not work.
D) explaining why collateral does not matter.
Q3) Consumer choice theory predicts that,with identical consumers,pay-as-you-go social security
A) always makes all generations worse off.
B) makes some generations better off, and cannot make any generation worse off.
C) may make some generations worse off and cannot make any generation better off.
D) may be Pareto improving.
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12
Chapter 11: A Real Intertemporal Model with Investment
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Sample Questions
Q1) For the firm in the real intertemporal model with investment
A) depreciation occurs more quickly if the firm produces more output.
B) depreciation takes place at a constant rate.
C) depreciation can be slowed with more maintenance.
D) depreciation is always 100%.
Q2) In determining the benefit of additional investment to the representative firm,we consider the marginal product of
A) current capital.
B) future capital
C) current labor.
D) future labor.
Q3) In response to a temporary increase in government spending,the representative consumer consumes
A) more and takes more leisure.
B) more and takes less leisure.
C) less and takes more leisure.
D) less and takes less leisure.
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Chapter 12: Money, Banking, Prices, and Monetary Policy
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Sample Questions
Q1) If an increase in the level of money supply leads to a proportionate increase in prices with no effect on real variables ,we say that
A) the Fisher relationship holds.
B) money is neutral.
C) money is superneutral.
D) money is a medium of exchange.
Q2) The supply curve for credit card services is an increasing function of A) the price of credit card services.
B) bank profitability.
C) the real interest rate.
D) the quantity of money.
Q3) The most narrowly defined monetary aggregate is
A) M0.
B) M1.
C) M2.
D) L.
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Chapter 13: Business Cycle Models with Flexible Prices and Wages
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Q1) The appropriate monetary policy response to a situation with deficient financial liquidity
A) an open market sale of government bonds.
B) to do nothing.
C) an open market purchase of government bonds.
D) to increase reserve requirements.
Q2) If,in the coordination failure model,the nominal money supply acts as a sunspot variable,then it is likely that the nominal money supply would
A) be procyclical.
B) be acyclical.
C) be countercyclical.
D) alternatively appear to be procyclical and countercyclical.
Q3) Extraneous events that are completely unrelated to economic fundamentals are called
A) moonbeams.
B) black holes.
C) sunspots.
D) time warps.
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Chapter 14: New Keynesian Economics: Sticky Prices
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Sample Questions
Q1) The central bank in the New Keynesian model pursues a policy of A) fixed money supply.
B) inflation between 2 and 3%.
C) zero inflation.
D) targeting the market interest rate.
Q2) A money supply increase in the New Keynesian model is not neutral because A) consumers are fooled into working harder.
B) the real interest falls, the quantity of output demanded rises, and firms supply more output.
C) productivity rises, increasing output supply.
D) bank lending rises.
Q3) In the New Keynesian model,if there is a decrease in anticipated future total factor productivity,then
A) there should be no change in monetary or fiscal policy.
B) the central bank's interest rate target should be increased.
C) government spending should fall, and the central bank's interest rate target should rise.
D) government spending should increase.
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16
Chapter 15: International Trade in Goods and Assets
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Sample Questions
Q1) In a two-period model,as long as wealth effects are small,an increase in the world real interest rate
A) increases consumption and increases the current account surplus.
B) increases consumption and decreases the current account surplus.
C) decreases consumption and increases the current account surplus.
D) decreases consumption and decreases the current account surplus.
Q2) In a two-period model with production,a temporary increase in domestic government spending
A) increases domestic output and increases the current account surplus.
B) increases domestic output and decreases the current account surplus.
C) decreases domestic output and increases the current account surplus.
D) decreases domestic output and decreases the current account surplus.
Q3) In a two-period model,holding everything else constant,an increase in current-period income
A) unambiguously increases the current account surplus.
B) unambiguously decreases the current account surplus.
C) has an uncertain effect on the current account surplus.
D) has no effect on the current account surplus.
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Chapter 16: Money in the Open Economy
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Q1) In the monetary small open-economy model with a fixed exchange rate,an increase in the exchange rate has which impact on domestic money demand?
A) It increases it.
B) It decreases it.
C) It has no impact.
D) It depends.
Q2) iPods are less expensive in Canada than the United States,once the exchange rate is taken into account. This is an indication that
A) the nominal exchange rate is equal to one.
B) purchasing power parity does not hold.
C) the law of one price holds.
D) the exchange rate is fixed.
Q3) In the monetary small open-economy model with a flexible exchange rate,an increase in the foreign price level has which impact on domestic money demand?
A) It increases it.
B) It decreases it.
C) It has no impact.
D) It depends.
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18
Chapter 17: Money, Inflation, and Banking
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Sample Questions
Q1) Some early forms of money,like commodity money,did not survive because A) they were outlawed.
B) quality control was difficult.
C) people disagreed on which good to use.
D) paper quality was poor.
Q2) The current monetary system in the United States is
A) a mix of fiat money and exchange using transactions deposits at banks.
B) a commodity money system.
C) a gold standard.
D) a commodity-backed fiat money system.
Q3) Some of the most renowned examples of hyperinflation occurred in Austria,Hungary,Germany and Poland shortly after
A) the collapse of the Austro-Hungarian Empire.
B) World War I.
C) World War II.
D) the fall of the Berlin Wall.
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Chapter 18: Inflation, the Phillips Curve, and Central Bank Commitment
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Q1) If the central bank cannot commit,then
A) the inflation rate is higher than with commitment, but aggregate output is the same.
B) money is neutral in the short run.
C) the inflation rate is higher than with commitment, and aggregate output is lower.
D) the central bank can permanently increase the quantity of real output.
Q2) A Phillips curve is
A) the correlation between money growth and the inflation rate.
B) the negative correlation between the unemployment rate and the vacancy rate.
C) the positive observed correlation between the inflation rate and the nominal interest rate.
D) an observed positive correlation between the inflation rate and some measure of aggregate economic activity.
Q3) The Phillips curve shifts because
A) fiscal policy changes over time.
B) of total factor productivity shocks.
C) of economic development.
D) none of the above.
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Page 20