Advanced Macroeconomics Exam Review
Course Introduction
Advanced Macroeconomics delves deeply into the theoretical frameworks and empirical methods used to analyze aggregate economic phenomena such as growth, inflation, unemployment, and monetary and fiscal policy. The course explores dynamic general equilibrium models, intertemporal consumption and investment decisions, and the roles of expectations and microfoundations in macroeconomic analysis. Students engage with contemporary issues including economic crises, policy interventions, and open economy dynamics, utilizing both foundational theories and cutting-edge research to critically evaluate real-world economic challenges and outcomes.
Recommended Textbook
Macroeconomics 2nd Edition by Charles I. Jones
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20 Chapters
1883 Verified Questions
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Page 2
Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) Which of the following lists the four steps we use to study macroeconomic behavior in the correct order?
A)(1)document the facts; (2)develop a model; (3) compare the predictions of the model to the original facts; (4)use the model to make other predictions that may eventually be tested
B)(1)document the facts; (2)use the model to make other predictions that may eventually be tested; (3)compare the predictions of the model to the original facts; (4)develop a model
C)(1)compare the predictions of the model to the original facts; (2)develop a model; (3)document the facts; (4)use the model to make other predictions that may eventually be tested
D)(1)develop a model; (2)document the facts; (3)compare the predictions of the model to the original facts; (4)use the model to make other predictions that may eventually be tested
E)None of the above
Answer: A
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3
Chapter 2: Measuring the Macroeconomy
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Q1) Which of the following are not included in the expenditure approach to National Income Accounting?
A)software
B)taxes
C)defense expenditures
D)a and b
E)none of the above
Answer: B
Q2) According to the income approach to GDP,the largest portion of GDP is compensation to employees.
A)True
B)False
Answer: True
Q3) If the percent change in prices is greater than the percent change in the nominal GDP,the real GDP rises.
A)True
B)False
Answer: False
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Chapter 3: An Overview of Long- Run Economic Growth
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Sample Questions
Q1) What country or countries do the following characteristics possibly describe?
Life expectancy at birth is under 50 years.
More than 90 percent of households do not have electricity.
Fewer than 10 percent of young adults have graduated from high school.
A)Kenya
B)the United States in late 1800s
C)Bangladesh
D)Russia
E)a,b,and c
Answer: B
Q2) Assume that Mexico's average annual per capita GDP growth rate is 3 percent per year,while Argentina's is 2.5 percent.Next,assume that both countries began with an initial per capita GDP of $1,000 in 1950.By 2000,per capita GDP would have been __________ in Mexico and __________ in Argentina.
A)$228;$291
B)$3,437;$4,384
C)$4,515;$3,523
D)$4,384;$3,437
E)Not enough information is given.
Answer: D
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Page 5
Chapter 4: A Model of Production
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Sample Questions
Q1) A firm's profit is simply defined as:
A)zero.
B)revenues plus costs.
C)revenues minus costs.
D)the price of output minus labor costs.
E)the price of output minus labor costs minus capital costs.
Q2) If the marginal product of capital equals the rental rate of capital,firms should not hire any more capital.
A)True
B)False
Q3) The law of diminishing marginal product to capital means that as we add additional units of capital:
A)and labor,output will increase but at a constant rate.
B)and labor,output will increase but at a decreasing rate.
C)but hold labor constant,output will increase but at an increasing rate.
D)but hold labor constant,output will increase but at a constant rate.
E)but hold labor constant,output will increase but at a decreasing rate.
Q4) What are the three sources of total factor productivity discussed in the text? Can you name other possible sources? Explain your answer.
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Chapter 5: The Solow Growth Model
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Sample Questions
Q1) In Figure 5.1,if the economy begins with the initial capital stock at K1,the capital stock will __________ and the economy will __________.
A)decrease,grow
B)increase,grow
C)stay constant,shrink
D)decrease,shrink
E)stay constant,grow
Q2) In the corn farm example,saving some of the corn produced:
A)future output,which grows over time.
B)higher consumption in the future.
C)future output,which grows over time
D)higher consumption today.
E)both a and b
Q3) In the Solow model,if gross investment is equal to capital depreciation,the economy accumulates new capital.
A)True
B)False
Q4) What are the key assumptions of the Solow growth model?
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Chapter 6: Growth and Ideas
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Sample Questions
Q1) In the combined Solow-Romer model,an exogenous increase in the saving rate:
A)pushes the economy to a lower per capita output balanced growth path.
B)pushes the economy to a higher per capita output balanced growth path.
C)pushes the economy's growth rate of per capita output to infinity.
D)pushes the economy to a new steady-state level of per capita output.
E)has no impact on the growth rate or level of per capita output.
Q2) If there are decreasing returns to the ideas stock in the knowledge sector,
A)the Romer model cannot explain sustained growth.
B)the Romer model can explain an economy that reaches its steady state.
C)the Romer model can explain sustained growth.
D)the Romer model cannot explain why economies' saving rates differ.
E)the Romer model cannot explain why the output sector exhibits decreasing returns.
Q3) In the Romer model in Figure 6.2,at time t0,a change in the shape of the production function can be explained by:
A)an increase in the population.
B)an increase in the research share.
C)an increase in the ideas efficiency parameter.
D)an increase in the saving rate.
E)a and b
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Page 8
Chapter 7: The Labor Market,wages,and Unemployment
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Sample Questions
Q1) If the minimum wage is set below the equilibrium market wage,
A)it increases unemployment.
B)it is effective and reduces unemployment.
C)it equals the black market wage.
D)it is not effective,because it is lower than firms are willing to pay for labor.
E)None of the above are correct.
Q2) The idea that you value receiving $1,000 today more than in 10 years in the future is called:
A)real rate of return.
B)compound interest.
C)present discounted value.
D)utility maximization.
E)intertemporal substitution.
Q3) An institutional fixed wage set above the equilibrium wage is called:
A)the market wage.
B)the minimum wage.
C)a wage rigidity.
D)a real rigidity.
E)none of the above
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Page 9
Chapter 8: Inflation
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Sample Questions
Q1) Positive inflationary surprises lead to:
A)an increase in the real interest rate.
B)a redistribution of wealth from borrowers to lenders.
C)a decline in the nominal interest rate.
D)a decline in inflation risk for lenders.
E)a redistribution of wealth from lenders to borrowers.
Q2) Suppose you put $100 dollars in the bank on January 1,2007.If the annual nominal interest rate is 5 percent and the inflation rate is 5 percent,you will be able to buy __________ on January 1,2008.
A)$90 worth of goods
B)$110 worth of goods
C)$100 worth of goods
D)$105 worth of goods
E)$95 worth of goods
Q3) In the quantity theory of money,the:
A)price level is exogenous.
B)real GDP,velocity,and money supply are endogenous.
C)real GDP and money supply are endogenous.
D)real GDP,velocity,and money supply are exogenous.
E)real GDP is endogenous.
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Chapter 9: An Introduction to the Short Run
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Sample Questions
Q1) According to the text,which of the following can be used to characterize potential output?
i.Assume a perfectly smooth trend is passing through the quarter-to-quarter movements in the real GDP.
ii.Take averages of the surrounding actual GDP numbers.
iii.Gather current data from statistical agencies,such as the Bureau of Economic Analysis.
A)i only
B)ii only
C)ii and iii
D)i and ii
E)iii only
Q2) The Board of Governors of the Federal Reserve is responsible for dating business cycles.
A)True
B)False
Q3) What does the Phillips curve represent?
Q4) How is a recession "officially'' determined?
Q5) What does Okun's law state?
Q6) What three premises does the short-run model operate under?
Page 11
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Chapter 10: The Great Recession: a First Look
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Sample Questions
Q1) What is an indicator of the extent of risk in financial systems?
A)the difference between the unemployment rate and the natural rate of unemployment
B)falling commodity prices
C)the spread between the monthly LIBOR rate and U.S.T-bill yield
D)the spread between inflation-indexed and nonindexed U.S.bonds
E)the number of banks applying for federal assistance
Q2) Given the information in Table 10.2,the banks' net worth is equal to:
A)$3,400.
B)-$2,000.
C)$2,000.
D)-$700.
E)not enough information
Q3) In September 2008,the government took control of Lehman Brothers,and Fannie Mae and Freddie Mac were sold to the Bank of America.
A)True
B)False
Q4) Explain the relationships between the global savings glut,sub-prime loans,interest rates,and the burst housing bubble.
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Chapter 11: The Is Curve
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Sample Questions
Q1) One problem with insurance is that it allows people to live in flood plains.This is an example of adverse selection.
A)True
B)False
Q2) Which of the following is (are)an example(s)of an aggregate demand shock?
i.a change in interest rates
ii.a change in tax policy
iii.a natural disaster
iv.a change in the price of oil
A)i
B)ii
C)iii
D)iv
E)ii and iii
Q3) Derive Hicks' IS relationship beginning with the national income identity.
Q4) The I in the IS curve stands for investment and the S denotes saving.
A)True
B)False
Q5) What is the main conclusion of both the Permanent Income hypothesis and Life Cycle model of consumption? Carefully explain.
Page 13
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Chapter 12: Monetary Policy and the Phillips Curve
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Q1) In the classical dichotomy,some prices are sticky.
A)True
B)False
Q2) Monetary economists find that it takes anywhere from six to eight weeks for monetary policy to have a substantial impact on economic activity.
A)True
B)False
Q3) What tool does the U.S.Federal Reserve use to conduct policy? Explain.How does monetary policy impact the macroeconomy?
Q4) The money demand curve slopes upward with respect to the nominal interest rate.
A)True
B)False
Q5) What are the mechanics of lowering interest rates?
Q6) According to the Fisher equation,the nominal interest rate is equal to:
A)the rate of inflation.
B)the real interest rate minus the rate of inflation.
C)the real interest rate plus the rate of inflation.
D)the rate of unemployment.
E)the real interest rate plus short-run economic fluctuations.
Page 14
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Chapter 13: Stabilization Policy and the Asad Framework
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Sample Questions
Q1) A policy rule dictates that monetary policy is at the discretion of the president.
A)True
B)False
Q2) The aggregate supply curve is derived from:
A)Okun's law.
B)the Phillips curve.
C)the Fisher equation.
D)the monetary policy rule.
E)the interaction of the IS and MP curves.
Q3) The ultimate goal of macroeconomic policy is:
A)low and stable inflation.
B)full employment,output at potential,and low,stable inflation.
C)full employment,output above potential,and low,stable inflation.
D)zero unemployment and inflation.
E)low interest rates.
Q4) The U.S.Federal Reserve currently announces its inflation target.
A)True
B)False
Q5) What is the Taylor rule? How effective a tool is it?
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Chapter 14: The Great Recession and the Short-Run Model
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Q1) In response to the Great Recession the federal government responded with __________ for the Troubled Asset Relief Program and __________ for the American Recovery and Reinvestment Act.
A)$700 billion;$787 billion
B)$100 billion;$1 trillion
C)$0;$1.5 trillion
D)$700 million;$787 million
E)$150 billion;$500 million
Q2) The risk premium:
A)is equal to zero when the economy is in its long-run equilibrium.
B)is negative in Japan.
C)raises the borrowing rate above the nominal federal funds rate.
D)is equal to the rate of inflation.
E)c and a
Q3) In the aftermath of the recent financial crisis,the Fed financed its additional lending by printing money.
A)True
B)False
Q4) Briefly discuss the Fed's balance sheet before and after the financial crisis of 2008.
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Chapter 15: Consumption
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Sample Questions
Q1) Behavioral economics blends economics with:
A)psychology.
B)marketing.
C)physics.
D)anthropology.
E)a and b
Q2) Consumption smoothing is an implication of the neoclassical model of consumption.This is because a rise in income either today or the future reduces present value consumption,smoothing consumption.
A)True
B)False
Q3) The Euler equation states:
A)"The total supply of money is equal to nominal GDP divided by velocity."
B)"The real interest rate is the nominal interest rate minus inflation."
C)"A consumer must be indifferent between consuming today or in the future."
D)"The present value of government's spending must equal the present value of receipts."
E)"Consumption is a function of permanent income."
Q4) Are all households homogeneous and rational,at least as defined by economists?
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Chapter 16: Investment
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Sample Questions
Q1) We can use the arbitrage equation:
A)to forecast government spending.
B)for understanding fluctuations in precautionary saving.
C)for maximizing profits.
D)to analyze investment in capital,financial assets,and human capital.
E)to improve our understanding of the quantity theory of money.
Q2) If the marginal product of capital is 3 percent;the real interest rate is 4 percent;growth is 2.5 percent,and the capital depreciation rate is 10 percent,what is the equilibrium stock price?
A)$166.67
B)$500
C)$.40
D)$1.88
E)$0.01
Q3) A financial market is efficient if financial prices reflect information only available to traders.
A)True
B)False
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18
Chapter 17: The Government and the Macroeconomy
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Q1) What is the most pressing fiscal problem for the twenty-first century? What could be done to correct it?
Q2) The government uses funds to:
A)make transfer payments.
B)buy goods and services.
C)pay interest on outstanding debt.
D)all of the above
E)a and b only
Q3) The debt-to-GDP ratio in the United States was over 100 percent during World War II.
A)True
B)False
Q4) Which of the following should economic policymakers consider to be associated with large deficits and a large debt-to-GDP ratio?
A)the importance of economic growth
B)the possibility of high inflation or default
C)intergenerational equity
D)the extent to which deficits crowd out private investment
E)all of the above
Q5) Explain how budget deficits lead to crowding out.Is there evidence of this?
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Chapter 18: International Trade
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Q1) When the central government runs a budget deficit,the economy runs the risk of __________;this phenomenon is called __________.
A)balanced trade;protectionism
B)running a trade deficit;the twin deficits
C)running a financial account deficit;the J-curve
D)running a financial account deficit;the yield curve
E)an exchange rate depreciation;purchasing power parity
Q2) Generally,the losses due to free trade are concentrated within particular groups and the benefits are spread thinly across the rest of the economy.
A)True
B)False
Q3) Imports' share of GDP is about __________ percent.
A)5
B)10
C)15
D)20
E)40
Q4) Explain how trade can be used for international risk sharing.
Q5) What has been the trend of trade in the United States since 1950? Explain.
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Chapter 19: Exchange Rates and International Finance
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Sample Questions
Q1) Which of the following can be used to explain the failure of the law of one price with respect to Big Macs?
A)transportation costs
B)the price of nontradable goods
C)differences in money supply
D)over- or undervalued currency
E)a and b
Q2) China maintains a fixed and,many say,__________ exchange rate to
A)overvalued;keep prices stable
B)undervalued;promote exports
C)overvalued;reduce inflation
D)undervalued;reduce the domestic Chinese price of imports
E)undervalued;keep the government in power
Q3) If the real exchange rate is greater than 1,foreign goods:
A)and domestic goods are both relatively cheap.
B)are relatively expensive and domestic goods are relatively cheap.
C)are relatively cheap and domestic goods are relatively expensive.
D)and domestic goods are both relatively expensive.
E)None of the above is correct.
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Chapter 20: Parting Thoughts
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Q1) In the long run,the unemployment rate:
A)is zero.
B)is determined primarily by institutional features of the labor market.
C)is determined primarily by structural features of the labor market.
D)is determined primarily by the business cycle.
E)is indeterminate.
Q2) Which of the following has not contributed to higher standards of living in the long run?
A)productivity
B)investment in human capital
C)the stock of technology
D)investment in physical capital
E)none of the above
Q3) The credibility of the central bank
A)promotes long-run growth.
B)is irrelevant for controlling inflation.
C)is crucial for controlling inflation and stabilizing output.
D)promotes sensible fiscal policy.
E)implies low interest rates.
Q4) What problems is economics still trying to answer?
Page 22
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