Advanced Macroeconomics
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Course Introduction
Advanced Macroeconomics delves into the theoretical foundations and empirical applications of modern macroeconomic analysis. The course covers key topics such as economic growth, business cycles, monetary and fiscal policy, consumption and investment behavior, and the role of expectations in macroeconomic dynamics. Students will engage with dynamic stochastic general equilibrium (DSGE) models, overlapping generations models, and explore issues related to price setting, unemployment, and market imperfections. Emphasis is placed on applying analytical tools to current macroeconomic debates and policy questions, equipping students with the skills to understand, evaluate, and conduct research in contemporary macroeconomic theory and practice.
Recommended Textbook
Macroeconomics 11th Edition by Michael Parkin
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Chapter 1: What Is Economics
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Q1) In the figure above,when income equals $20,000,what does consumption equal?
A) $0
B) $10,000
C) $20,000
D) impossible to tell
Answer: D
Q2) For the Jones household it has been estimated that for every ten degrees increase in the outdoor temperature the consumption of ice tea increases by 5 glasses.What type of relationship exists between temperature change and the consumption of ice tea?
A) negative relationship
B) positive relationship
C) no relationship
D) maximum relationship
Answer: B
Q3) What does the slope of the line shown in the above figure equal?
Answer: The slope equals the change in variable on the y-axis divided by the change in the variable on the x-axis,or \[( 18 - 27 ) / ( 10 - 20 ) = 0.90\]
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Chapter 2: The Economic Problem
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Q1) In the figure above,suppose that Mac and Izzie trade and reach point c.Then
A) Mac produces outside his production possibilities frontier.
B) Izzie produces outside her production possibilities frontier.
C) Mac and Izzie both produce outside their production possibilities frontiers.
D) neither Mac nor Izzie produce outside their production possibilities frontiers.
Answer: D
Q2) A country that has an absolute advantage in producing all goods will ________.
A) have a comparative advantage in some goods but not all
B) produce all goods at lowest opportunity cost
C) have a comparative advantage in all goods
D) not gain from specialization and trade
Answer: A
Q3) We have achieved production efficiency if we can produce more of one good without producing less of some other good.
A)True
B)False
Answer: False
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Chapter 3: Demand and Supply
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Q1) Changes in which of the following shifts the supply curve of hamburgers?
A) a rise in the price of soda, a complement for hamburgers
B) new research that establishes a link between hamburgers and heart problems
C) an increase in the price of meat used to produce hamburgers
D) an economy-wide decrease in income because of a long recession
Answer: C
Q2) When graphing a demand curve for corn,we are showing the relationship between the quantity demanded of corn and the
A) money price of corn.
B) relative price of corn.
C) income effect.
D) substitution effect.
Answer: B
Q3) If the quantity supplied exceeds the quantity demanded,then there is
A) a shortage and the price is below the equilibrium price.
B) a shortage and the price is above the equilibrium price.
C) a surplus and the price is below the equilibrium price.
D) a surplus and the price is above the equilibrium price.
Answer: D
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Chapter 4: Measuring GDP and Economic Growth
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Q1) The expenditure approach to measuring GDP includes firms' spending on wages.
A)True
B)False
Q2) The five categories of income used in the income approach to the measurement of GDP are
A) consumption, saving, rental income, corporate profits, and investment.
B) employee compensation, net interest, rental income, corporate profits, and proprietor's income.
C) employee compensation, consumption, rental income, corporate profits, and proprietor's income.
D) employee compensation, saving, rental income, corporate profits, and investment.
Q3) Which of the following items is NOT a component of the income approach to measuring U.S.GDP?
A) interest earned on savings deposits
B) profits made by businesses
C) income earned by businesses that export goods
D) investment
Q4) Define and distinguish between final goods and intermediate goods.
Q5) Define and discuss GDP.
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Chapter 5: Monitoring Jobs and Inflation
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Q1) The above table shows answers given by people interviewed in the Current Population Survey.Which person is cyclically unemployed?
A) A
B) B
C) C
D) None of the people
Q2) Suppose the CPI last year is 121 and the CPI this year is 137.The correct method to calculate the inflation rate is
A) (137 - 121)/100 = 0.16.
B) 137 × 121 = 258.
C) [(137 - 121)/121] × 100 = 13.2.
D) (137/121) × 100 = 113.2.
Q3) The unemployment rate measures the percentage of
A) people who want full-time jobs, but can't find them.
B) the working-age population who can't find a job.
C) people in the labor force who can't find a job.
D) the working age population that can't find a full-time job.
Q4) Is the CPI a biased measure of the inflation rate?
Explain your answer.
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Chapter 6: Economic Growth
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Q1) In the above figure,the equilibrium real wage rate is
A) $10 per hour.
B) $15 per hour.
C) $20 per hour.
D) none of the above
Q2) At the full-employment equilibrium in the labor market,
A) there is no unemployment.
B) there are no job vacancies.
C) there is neither a shortage nor a surplus of labor.
D) the money wage rate equals the real wage rate.
Q3) Labor productivity is
A) real GDP per hour of labor times the hours of work.
B) real GDP per hour of labor times the number of people.
C) real GDP per hour of labor.
D) the rate of change in real GDP per hour of labor.
Q4) Neoclassical growth theory assumes that technological progress
A) is determined by investment.
B) is determined by saving.
C) responds to economic incentives.
D) is a purely chance event.
Page 8
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Chapter 7: Finance, Saving, and Investment
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Q1) The table above shows the loanable funds supply and demand schedules.
a) What is the equilibrium real interest rate and the equilibrium quantity of loanable funds?
b) If the real interest rate is 4 percent,is there a shortage or surplus? What will happen in the market?
Q2) The free international mobility of financial capital pulls real interest rates around the world toward equality. Why then might interest rates in Greece and Spain in 2012 be much higher than in other western economies?
A) Greece and Spain are considered risky borrowers and their interest rates reflect a sizable risk premium.
B) Greece and Spain are considered large borrowers and their interest rates reflect a sizable transaction cost.
C) Greece and Spain are not fully integrated into the global economy.
D) Greece and Spain are considered small borrowers and do not attract many interested lenders because the potential profit is so small.
Q3) In the loanable funds market,what variable changes to eliminate a shortage of loanable funds and how is the shortage eliminated?
Q4) How does the real interest affect households' decisions about saving?
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Chapter 8: Money, The Price Level, and Inflation
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Q1) The Federal Open Market Committee (FOMC)
A) consists of the 12 districts of the Federal Reserve.
B) is the 7-member group that oversees the Federal Reserve.
C) is the 12-member monetary policy committee of the Federal Reserve.
D) is the 50-member organization of state banking regulators of the Federal Reserve.
Q2) In the figure above,if the interest rate is 4 percent,there is a $0.1 trillion excess
A) quantity of money and the interest rate will rise.
B) quantity of money and the interest rate will fall.
C) demand for money and the interest rate will fall.
D) demand for money and the interest rate will rise.
Q3) If Bank A holds $200 in reserves,deposits are $1000,and the desired reserve ratio is 15 percent,how much are excess reserves?
A) zero, because banks never hold excess reserves
B) $200
C) $50
D) $150
Q4) Define money and list its functions.
Q5) What are the economic functions of depository institutions?
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) In the foreign exchange market,if the demand for dollars permanently decreases,the Fed can maintain the exchange rate at its old equilibrium level indefinitely by buying dollars.
A)True
B)False
Q2) The ________ the exchange rate,the ________ are foreign-produced goods and hence the smaller the quantity of dollars supplied.
A) lower; more expensive
B) lower; cheaper
C) greater; cheaper
D) greater; more expensive
Q3) China has used a fixed yuan exchange rate and a crawling peg exchange rate.In both cases,China pegs its currency to the
A) U.S. dollar
B) Japanese yen
C) euro
D) Mexican peso
Q4) What happens in the foreign exchange market if the U.S.interest rate increases? What is the effect on the exchange rate?
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) In the above figure,B is the current long-run aggregate supply curve and E is the current short-run aggregate supply curve.If there is an increase in the full-employment quantity of labor,then the long-run aggregate supply curve and the short-run aggregate supply curve
A) remain B and E.
B) shift to A and D, respectively.
C) shift to C and F, respectively.
D) shift to A and F, respectively.
Q2) The figure above illustrates aggregate demand and aggregate supply in Sparta.Sparta's price level will rise above 100 if ________.
A) government expenditure decreases
B) the quantity of money increases
C) the quantity of capital increases
D) taxes increase
Q3) Which of the following shifts the aggregate demand curve rightward?
A) a decrease in consumption
B) an increase in investment
C) a decrease in net exports
D) a decrease in government expenditure on goods and services
Q4) How are potential GDP,full employment and the LAS curve related?
Page 12
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Chapter 11: Expenditure Multipliers
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Q1) Aggregate planned expenditure
A) always equals actual aggregate expenditure.
B) is always less than actual aggregate expenditure.
C) is always greater than actual aggregate expenditure.
D) equals actual aggregate expenditure at the equilibrium level of real GDP.
Q2) The multiplier is greater than 1 because the change in autonomous expenditure leads to ________.
A) more investment
B) more saving
C) less consumption expenditure
D) more induced expenditure
Q3) In the above figure,the line AB is called
A) the saving function.
B) the consumption function.
C) the 45-degree line.
D) the expenditure function.
Q4) Discuss how the marginal propensity to consume,imports,and income tax rates influence the multiplier.
Q5) How do imports and income taxes affect the multiplier? Why do they have this effect?
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Chapter 12: Inflation, Jobs, and the Business Cycle
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Q1) The government estimates that the natural unemployment rate has increased from 4.8 percent in 2006 to 5.2 percent in late 2012.If these estimates are accurate,the short-run Phillips curve has shifted ________ and the long-run Phillips curve has shifted ________.
A) rightward; rightward
B) rightward; leftward
C) leftward; rightward
D) leftward; leftward
Q2) A demand-pull inflation consists of ________ shifts in the AD curve and ________ shifts in the SAS curve.
A) rightward; rightward
B) rightward; leftward
C) leftward; rightward
D) leftward; leftward
Q3) A one-time increase in the price of oil followed by a one-time increase in aggregate demand produce
A) continuing cost-push inflation.
B) continuing demand-pull inflation.
C) a one-time decrease in the price level.
D) a one-time increase in the price level.
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Chapter 13: Fiscal Policy
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Q1) A structural deficit occurs when the government budget has a deficit
A) even though real GDP is less than potential GDP.
B) even though real GDP is greater than structural GDP.
C) even though real GDP is equal to potential GDP.
D) that is nominal, as opposed to a real budget deficit.
Q2) Because of automatic fiscal policy,when real GDP decreases
A) government expenditures decrease and tax revenues increase.
B) government expenditures increase and tax revenues decrease.
C) government expenditures equal tax revenues.
D) the economy will automatically go to full employment.
Q3) The government begins year 1 with $25 billion of debt.Based on the information in the above table,what is the amount of debt following year 1?
A) $0
B) $25 billion
C) $240 billion
D) Not enough information is provided to answer the question.
Q4) A fiscal stimulus is used to increase production and employment.
A)True
B)False
Q5) How does a tax on labor income affect potential GDP?
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Chapter 14: Monetary Policy
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Q1) Which of the following is a problem in pursuing monetary policy?
A) The lag between a change in the quantity of money and its effect on economic activity may be long.
B) Monetary policy must be approved by the Congress.
C) The Fed cannot control the federal funds rate.
D) None of the above answers is correct.
Q2) In an effort to address the troubled economy,..."For the ninth time in just over a year,the Federal Reserve is expected to cut interest rates,quite possibly its last reduction in this downturn." Rates have not been this low "...since 2003,when the economy was growing at a snail's pace." www.csmonitor.com,10/28/2008
These rate cuts are designed to
A) decrease the real long-term interest rate and increase real GDP.
B) increase the exchange rate and decrease government spending.
C) increase bank reserves and the exchange rate.
D) decrease the exchange rate and investment.
Q3) The Taylor Rule maintains that the Fed should set the growth rate of the quantity of money equal to the growth rate of real GDP.
A)True
B)False
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Chapter 15: International Trade Policy
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Q1) Because wage rates are so low in Africa,why don't Microsoft,Cisco and other major corporations close down their American operations and move to Africa?
Q2) If a government imposes a quota on imports of a popular doll,the price of the doll in the country will ________ and the quantity purchased in the country will ________. A) rise; increase B) rise; decrease C) fall; increase D) fall; decrease
Q3) When a rich nation buys a product made in a poor nation,in the poor nation the demand for labor ________ and the wage rate ________. A) increases; rises B) increases; falls C) decreases; rises D) decreases; falls
Q4) Why do nations engage in international trade?
Q5) What is "rent seeking?
" How does it apply to restricting imports?
Q6) Explain the effects of a quota.
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Chapter 16: Introduction
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Q1) If the wood used to produce houses rises in price,then the ________ houses
A) demand for; increases
B) demand for; decreases
C) supply of; increases
D) supply of; decreases
Q2) The table above lists six points on the production possibilities frontier for cheese and DVDs.Given this information,which of the following combinations is unattainable?
A) 2 tons of cheese and 56 thousand DVDs
B) 8 tons of cheese and 21 thousand DVDs
C) 6 tons of cheese and 34 thousand DVDs
D) 7 tons of cheese and 20 thousand DVDs
Q3) The table above lists six points on the production possibilities frontier for cheese and DVDs.What is the opportunity cost of producing the 7th ton of cheese?
A) 16 DVDs per ton of cheese
B) 8 DVDs per ton of cheese
C) 20 DVDs per ton of cheese
D) 28 DVDs per ton of cheese
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Chapter 17: Monitoring Macroeconomic Performance
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Q1) In the expenditure approach to measuring GDP,the components of GDP are
A) consumption, investment, government expenditure, and net exports.
B) consumption, taxes, saving, and investment.
C) inflation, unemployment, saving, and investment.
D) frictional unemployment, structural unemployment, and cyclical unemployment.
Q2) The difference between nominal GDP and real GDP is that real GDP eliminates the effects from
A) depreciation.
B) inflation.
C) the unemployment rate.
D) changes in productivity.
Q3) GDP is defined as
A) gross demanded prices.
B) generally demanded product.
C) gross domestic product.
D) generally demanded prices.
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Chapter 18: Macroeconomic Trends
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Q1) If the Fed makes an open market ________ of securities,in the quantity theory M ________ and V ________.
A) purchase; increases; increases B) sale; increases; decreases C) purchase; does not change; does not change D) sale; decreases; does not change
Q2) If the U.S.interest rate differential ________,the demand for dollars ________ and the U.S.exchange rate ________.
A) increases; increase; appreciates B) decreases; increase; appreciates C) increases; decrease; depreciates D) decreases; decreases; appreciates
Q3) If the Fed hikes the U.S.interest rate relative to interest rates in other countries,in the foreign exchange market the demand for dollars will ________,the supply of dollars will ________,and the exchange rate will ________.
A) increase; increase; rise B) decrease; decrease; fall C) increase; decrease; rise D) decrease; increase; fall
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Chapter 19: Macroeconomic Fluctuations
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Q1) Suppose that a severe shock that decreases investment demand hits the United States.Which of the following can we expect to occur according to the real business cycle model?
A) The Fed will lower the federal funds rate.
B) The structural deficit will increase.
C) The real wage rate will rise.
D) The real interest rate will fall.
Q2) The multiplier effect
A) is nonexistent in the Keynesian model.
B) has no effect if the cyclical deficit is positive.
C) magnifies small changes in spending into larger changes in output and income.
D) increases the MPC.
Q3) The Keynesian aggregate expenditure model focuses on changes in A) the price level.
B) real GDP.
C) potential GDP.
D) the SAS curve.
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Chapter 20: Macroeconomic Policy
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Q1) An example of a fiscal policy designed to increase real GDP is A) a cut in taxes.
B) an increase in taxes.
C) a decrease in government expenditure.
D) None of the above answers is correct.
Q2) Which of the following is true?
I. The quantity theory predicts that in the long run the inflation rate equals the money growth rate minus the growth rate of potential GDP.
II. If the Fed decreases the federal funds rate,aggregate demand increases.
III. The Fed's monetary policy works by shifting the short-run aggregate supply curve.
A) I and II
B) II and III
C) I and III
D) I, II and III
Q3) A fiscal action that is triggered by the state of the economy is called
A) monetarist policy.
B) the tax wedge.
C) automatic fiscal policy.
D) the multiplier.
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