Advanced Macroeconomics
Final Exam Questions
Course Introduction
Advanced Macroeconomics delves into the theoretical foundations and quantitative methods that underpin the analysis of aggregate economic phenomena in modern economies. The course explores dynamic models of economic growth, fluctuations, and policy interventions, including topics such as intertemporal consumption, investment, and government policies, as well as issues related to unemployment, inflation, and fiscal and monetary policy. Emphasis is placed on understanding and applying rigorous analytical frameworks such as the Solow growth model, Ramsey-Cass-Koopmans model, and overlapping generations model to real-world macroeconomic questions. The course blends formal mathematical techniques with empirical insights to help students critically evaluate current macroeconomic debates and policy challenges.
Recommended Textbook
Macroeconomics 12th Edition by Robert J Gordon
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18 Chapters
2208 Verified Questions
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Page 2
Chapter 1: What Is Macroeconomics
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Sample Questions
Q1) Immediately following a business cycle "peak" comes a A)"trough."
B)"recession."
C)"expansion."
D)"recurrence."
Answer: B
Q2) Going from a closed to an open economy ________ macroeconomic policymaking,especially now that exchange rates are ________.
A)complicates,flexible
B)complicates,fixed
C)simplifies,flexible
D)simplifies,fixed
Answer: A
Q3) Inflation tends to redistribute income from A)savers to borrowers.
B)borrowers to savers.
C)homeowners to landowners.
D)parents to students.
Answer: A
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Page 3
Chapter 2: The Measurement of Income,prices,and Unemployment
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Sample Questions
Q1) Refer to above Table 2-2.What is the increase in real GDP between years 1 and 2 at fixed year 2 prices?
A)2.1%
B)5.1%
C)4.4%
D)3.3%
Answer: D
Q2) Refer to above Table 2-1.What is the total amount of leakages?
A)530
B)1080
C)970
D)550
Answer: B
Q3) Help in financing our federal budget deficit comes from a ________ amount of net exports,which is called ________.
A)negative,net foreign investment
B)negative,foreign borrowing
C)positive,net foreign investment
D)positive,foreign borrowing
Answer: B
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Chapter 3: Income and Interest Rates: the Keynesian Cross
Model and the Is Curve
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Sample Questions
Q1) Since business firms will undertake a project whose rate of return exceeds the present level of interest rates,when interest rates
A)rise planned investment rises,ceteris paribus.
B)fall planned investment falls,ceteris paribus.
C)rise planned investment does not change.
D)rise planned investment falls,ceteris paribus.
Answer: D
Q2) If Y = $200 billion,c = 0.75,autonomous consumption = $10 billion,and T = $20 billion,induced consumption expenditure is
A)$135 billion.
B)$200 billion.
C)$180 billion.
D)$150 billion.
Answer: A
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Chapter 4: Strong and Weak Policy Effects in the Is-Lm
Model
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Q1) Moving upward along an LM curve,velocity ________ because ________ remains constant while ________ rises.
A)rises,real balances,real income
B)rises,the interest rate,the price level
C)rises,the interest rate,real balances
D)falls,real balances,real income
E)falls,real income,real balances
Q2) In a liquidity trap,the
A)IS curve is vertical.
B)IS curve is horizontal.
C)LM curve is vertical.
D)LM curve is horizontal.
Q3) Moving upward along an LM curve,________ quantity of real money balances is equally demanded as higher real incomes are accompanied by ________ interest rates.
A)an increasing,rising
B)an increasing,falling
C)a decreasing,falling
D)a constant,rising
E)a constant,falling
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Chapter 5: Financial Markets, financial Regulation, and Economic Instability
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Sample Questions
Q1) If the intersection of the IS curve with the horizontal axis comes at a level of output below the natural level of output,the Fed
A)can easily bring the economy back to the full-employment level of output.
B)loses control of the economy.
C)must use contractionary model policy to correct economic problem.
D)must decrease money supply and ignore interest rates.
Q2) Financial intermediaries are
A)institutions that regulate financial instruments.
B)organized exchanges where currencies are traded.
C)organized exchanges where securities and financial instruments are bought and sold
D)institutions that make loans to borrowers and obtain funds from savers.
Q3) Positive output gap indicates that
A)the actual real GDP is above natural real GDP.
B)the actual real GDP is below natural real GDP.
C)nominal GDP is above real GDP.
D)nominal GDP is below real GDP.
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Chapter
the Limitations of Fiscal Policy
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Sample Questions
Q1) From 1988 to 1990,the U.S.budget was ________,private saving was ________ domestic investment,and foreign borrowing was ________.
A)in deficit,higher than,still needed to finance deficit
B)balanced,roughly equal to,not needed to finance deficit
C)balanced,less than,substantial.
D)surplus,less than,negligible
Q2) In 1990-1991,the government budget deficit ________ mainly due to the ________.
A)rose,recession's effect on tax collection
B)rose,expenditures of the Persian Gulf War
C)fell,recession's effect on government expenditures
D)fell,economic stimulus provided by the Persian Gulf War
Q3) Actual output exceeds the natural output when
A)the actual budget surplus is above the structural surplus.
B)the actual budget surplus is below the structural surplus.
C)the structural surplus is positive.
D)the structural surplus is negative.
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Page 8
Chapter 7: International Trade, exchange Rates, and Macroeconomic Policy
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Sample Questions
Q1) If the European Central Bank buys dollars with euros,this causes the euro to ________ against the dollar,assisting European ________.
A)appreciate,importers of American goods
B)appreciate,exporters of goods to America
C)depreciate,importers of American goods
D)depreciate,exporters of goods to America
Q2) In the dollar-yen market,a movement of the exchange rate from 130 to 125 yen per dollar is good news for Japanese ________ and good news for U.S.________.
A)exporters to the U.S. ,exporters to Japan
B)exporters to the U.S. ,importers of Japanese goods
C)importers of U.S.goods,exporters to Japan
D)importers of U.S.goods,importers of Japanese goods
Q3) In moving from a small to a large open economy model under flexible exchange rates,fiscal policy
A)remains totally ineffective.
B)loses some of its effectiveness.
C)maintains the same degree of effectiveness.
D)gains extra effectiveness.
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Chapter
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Sample Questions
Q1) The fixed price level that was assumed in Chapters 3 through 7 implied that
A)there is always full employment.
B)there is always less than full employment.
C)the aggregate supply curve is upward sloping to the left.
D)the aggregate supply curve is horizontal.
Q2) Suppose we have an initial IS-LM equilibrium at a certain price level.A rise in the price level puts ________ pressure on the interest rate as the money market re-equilibrates,which in turn causes commodity market equilibrium to occur at an output level ________ the initial one.
A)upward,above
B)upward,below
C)downward,above
D)downward,below
Q3) In Figure 7-5 above,at point F,the real wage is ________ its equilibrium value,leading to changes in the nominal wage that ________.
A)above,shift AD back to AD
B)below,shift AD further to the left
C)below,shift SAS upward
D)above,shift SAS downward
Page 10
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Chapter 9: Inflation: Its Causes and Cures
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Sample Questions
Q1) Which of the following was NOT a beneficial supply shock occurring in the 1990s?
A)falling computer prices
B)the transition to managed health care organizations,i.e.HMOs.
C)a stronger bargaining position for labor
D)increased global competition
Q2) Which of the following does NOT affect nominal GDP?
A)tax rate
B)foreign exchange rate
C)nominal money supply
D)expected inflation rate
Q3) Which of the following represent supply shocks?
A)oil,farm prices,import prices,productivity growth
B)oil,export prices,unemployment,real GDP
C)farm prices,export prices,money supply,productivity growth
D)all of the above
Q4) Given an adverse supply shock,a "neutral policy" will
A)maintain the inflation rate and the output ratio.
B)lower the inflation rate and the output ratio.
C)raise the inflation rate and the output ratio.
D)maintain the inflation rate but lower the output ratio.
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Chapter 10: The Goals of Stabilization Policy: Low Inflation and
Low Unemployment
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Sample Questions
Q1) Supply shocks are a potential source of higher inflation,unless the government counters with ________ policy that ________ the money growth rate.
A)extinguishing,reduces
B)extinguishing,increases
C)neutral,leaves unchanged
D)accommodative,reduces
E)accommodative,increases
Q2) Job search theory regards ________ unemployment as a socially valuable,productive investment undertaken by the job searcher.
A)structural
B)cyclical
C)mismatch
D)frictional
Q3) When the actual unemployment rate equals the natural unemployment rate,inflation is
A)zero.
B)constant.
C)rising.
D)falling.
Page 12
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Chapter 11: The Theory of Economic Growth
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Sample Questions
Q1) The application of Solow's growth theory to the explanation of the slowdown in productivity growth in the United States suggests that the slowdown is primarily caused by
A)reduced growth in the capital stock per hour of work.
B)reduced growth in the technical change or total factor productivity.
C)slow residual growth of the capital stock.
D)ignorance since people save and invest less.
Q2) "Given the long run implication of Solow's growth model with respect to the rate of savings,the low savings rate in the United States is not a problem." This statement overlooks that over time it appears that
A)total factor productivity and the growth rate of capital per person are positively related.
B)total factor productivity and the growth rate of capital per person are inversely related. C)total factor productivity and the difference between the growth rates of capital per capita and population are not related a and k - n are not related. D)savings rates and per capita growth rates are inversely related.
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13
Chapter 12: The Big Questions of Economic Growth
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Sample Questions
Q1) Between 1973 and 1995,what changes occurred in the labor force and the capital stock that caused a productivity slowdown?
A)The growth of the capital stock and the growth of labor hours increased.
B)The growth of the capital stock and the growth of labor hours slowed.
C)The growth of the capital increased slowed and the growth of labor hours slowed.
D)The growth of the capital stock slowed and the growth of labor hours increased.
Q2) What sort of productivity shocks would cause lower real wage growth and result in lower growth in labor productivity?
A)productivity shocks which decrease supply of labor given the demand for labor
B)productivity shocks which increase supply of labor given the demand for labor
C)productivity shocks which increase demand for labor given the supply of labor
D)productivity shocks which decrease demand for labor given the supply of labor
Q3) In the production function Y = A(G,P,T)F(K,R,H,N),the exogenous factors are
A)G,R,H.
B)G,P,T.
C)P,T,K.
D)P,R,G.
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Page 14
Chapter 13: Money,banks,and the Federal Reserve
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148 Flashcards
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Sample Questions
Q1) For every dollar's worth of government securities the Fed sells,the money supply
A)rises by more than $1.
B)rises by less than $1.
C)falls by less than $1.
D)falls by more than $1.
Q2) The issuance of new stocks or bonds are examples of
A)indirect finance.
B)direct finance.
C)financial intermediation.
D)All of the above.
Q3) When the Fed targets interest rates,rightward shifts in the IS curve force the Fed to ________ the money supply to hold to that target,which acts to ________ velocity.
A)raise,destabilize
B)raise,stabilize
C)lower,destabilize
D)lower,stabilize
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15
Chapter 14: The Goals, tools, and Rules of Monetary Policy
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Sample Questions
Q1) The widespread,but not universal,consensus among economists would be to respond to
A)an adverse supply shock with an accommodating policy.
B)an adverse supply shock with an extinguishing policy.
C)an adverse demand shock with a policy to offset the shock.
D)all of the above.
Q2) The Fed has the least degree of discretion and the least to do under a policy rule setting
A)the growth rate of money.
B)the growth rate of high-powered money.
C)the Federal funds rate.
D)nominal GDP.
Q3) Fiscal policy in the United States is hampered by its particularly long ________ lag.
A)data
B)recognition
C)legislative
D)transmission
E)effectiveness
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16
Chapter 15: The Economics of Consumption Behavior
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Sample Questions
Q1) When it is assumed that people desire a smooth pattern of consumption enjoyment,if not consumption expenditure,this limits the permanent-income and life-cycle hypotheses to predicting the demand for consumer A)durables.
B)durables and services.
C)services and nondurables.
D)nondurables and durables.
E)nondurables.
Q2) In Figure 15-2 above,the difference between consumption levels at point A and point B is equal to
A)the long run MPC times the change in disposable income.
B)the short run MPC times the change in disposable income.
C)(Y - Y )times the short run change in income.
D)the long run change in income times (Y - YP).
Q3) The MPC on ________ income is less than the MPC on ________ income according to ________ theory.
A)transitory;permanent;Friedman's B)transitory;permanent;Modigliani's C)permanent;transitory;Modigliani's D)permanent;transitory;Friedman's
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Chapter 16: The Economics of Investment Behavior
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Sample Questions
Q1) The effects on the economy of a prolonged decrease in investment are ________ if ________ occurs.
A)more pronounced;consumers adjust permanent income downwards
B)less pronounced;consumers do not adjust permanent income upwards
C)more pronounced;consumers adjust permanent income upwards
D)less pronounced;consumers adjust permanent income downwards
Q2) The strongest point in the case against activism is that
A)so many segments of private aggregate demand are unstable.
B)activist policy,even if desirable,is too difficult to perform well enough.
C)private aggregate demand is basically stable.
D)policy rules for targets have been proven by the record of the Fed in the 1980s and 1990s to be perfectly feasible.
Q3) By the accelerator hypothesis,if a firm's actual sales jump in one period to a higher maintained level,that firm's gross investment
A)also jumps in one period to a higher maintained level.
B)gradually drifts upward to a higher maintained level.
C)jumps upward and then falls back to zero.
D)jumps upward and then falls back part of the way.
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Page 18
Chapter 17: New Classical Macro and New Keynesian Macro
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Sample Questions
Q1) Gordon presents several modern business cycle theories.He clearly states after all have been explained that he believes the most plausible of them to be the ________ model.
A)Lucas information-barrier
B)Friedman fooling
C)New Keynesian
D)real business cycle
Q2) RBC theorists claim that adverse supply shocks can take forms other than rising raw materials prices.One such shock comes from government policy:
A)reductions in government expenditure.
B)increases in tax rates.
C)more rigorous environmental regulation.
D)reductions in the money growth rate.
Q3) The New Classical assumption of how quickly markets clear is actually most appropriate in the analysis of
A)the labor market.
B)the aggregate good market.
C)financial markets.
D)the market for consumer durables.
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Page 19
Chapter 18: Conclusion: Where We Stand
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Sample Questions
Q1) The Great Depression of the 1930s opened the door to the ________ revolution in macroeconomic theory.
A)Keynesian
B)old classical
C)New Keynesian
D)New classical
Q2) The ________ of the U.S.economy during World War II,with its vast defense spending,________ of Keynesian macroeconomics.
A)continued stagnation,established the supremacy
B)continued stagnation,was the demise
C)rapid recovery,established the supremacy
D)rapid recovery,was the demise
Q3) The "new classical" economics took advantage of the disarray and partial eclipse of Keynesian economics to reestablish macro model-building based on the assumption of price ________ and market ________.
A)flexibility,clearing
B)flexibility,non-clearing
C)stickiness,clearing
D)stickiness,non-clearing
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