Advanced Macroeconomics Study Guide Questions
Course Introduction
Advanced Macroeconomics delves into the complex theories and models that shape our understanding of economy-wide phenomena such as growth, inflation, unemployment, and fiscal and monetary policy. The course builds on intermediate macroeconomic concepts, exploring dynamic general equilibrium models, consumption and investment behavior, and the roles of expectations and policy in influencing macroeconomic outcomes. Analytical and quantitative tools are used to critically evaluate contemporary issues and empirical data, enabling students to engage with current research and debates in macroeconomic policy and theory.
Recommended Textbook
Macroeconomics 8th Edition by Andrew Abel
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15 Chapters
1417 Verified Questions
1417 Flashcards
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Page 2
Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) Short-run contractions and expansions in economic activity are called A)recessions.
B)expansions.
C)deficits.
D)the business cycle.
Answer: D
Q2) A country that has many well-trained macroeconomic analysts will not necessarily have more beneficial macroeconomic policies because
A)economists' understanding of the economy remains poor.
B)there are few ways in which economists' complex models can be applied to the real world.
C)economists agree on so few government policies.
D)economic policy is usually made by politicians,not economists.
Answer: D
Q3) Which of the following best describes a typical business cycle?
A)Economic expansions are followed by economic contractions.
B)Inflation is followed by unemployment.
C)Trade surpluses are followed by trade deficits.
D)Stagflation is followed by inflationary economic growth.
Answer: A
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Chapter 2: The Measurement and Structure of the National Economy
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Sample Questions
Q1) Monica grows coconuts and catches fish.Last year she harvested 1500 coconuts and 600 fish.She values one fish as having a worth of three coconuts.She gave Rachel 300 coconuts and 100 fish for helping her to harvest coconuts and catch fish,all of which were consumed by Rachel.Monica consumed the remaining fish and coconuts.In terms of fish,total consumption by both Monica and Rachel would equal A)700 fish.
B)900 fish.
C)1100 fish.
D)2700 fish.
Answer: C
Q2) How does chain weighting lead to a different measurement of real GDP than the methods used by the BEA prior to 1996? What are the advantages of chain weighting? What are the disadvantages?
Answer: Prior to 1996,the growth rate of real GDP depended on which year was chosen as the base year.Now,however,the current year and preceding year are used as base years,averaging results using each as base year.The advantages of this method are that there is no longer a need to recompute historical data or to change base years.However,a disadvantage is that real GDP is no longer the sum of its components.
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Page 4
Chapter 3: Productivity, Output, and Employment
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Sample Questions
Q1) Suppose the marginal product of labor is MPN = 200 - 0.5N
Where N is aggregate employment.The aggregate quantity of labor supplied is 300 + 8w,where w is the real wage.What is the equilibrium quantity of employment?
A)12
B)190
C)380
D)760
Answer: C
Q2) The aggregate supply of labor is the
A)total amount of time a person works over his or her lifetime.
B)total amount of time a person spends in the labor force over his or her lifetime.
C)unemployment rate.
D)sum of the labor supplied by everyone in the economy.
Answer: D
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Chapter 4: Consumption, Saving, and Investment
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Sample Questions
Q1) How would the expected real after-tax rate of return be affected by each of the following events?
(1)the tax rate on interest income increases
(2)expected inflation declines
Q2) When a person gets an increase in current income,what is likely to happen to consumption and saving?
A)Consumption increases and saving increases.
B)Consumption increases and saving decreases.
C)Consumption decreases and saving increases.
D)Consumption decreases and saving decreases.
Q3) You have just purchased a home that cost $250,000.The nominal mortgage interest rate is 8% per annum,mortgage interest payments are tax deductible,and you are in a 30% tax bracket.The expected inflation rate is 4%.Maintenance and other expenses are 8% of the initial value of the house.What is the real user cost of your house?
A)$20,000
B)$24,000
C)$27,000
D)$30,000
Q4) What is the marginal propensity to consume,and why is it always less than one?
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Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) If a country's merchandise exports exceed its merchandise imports it has a A)trade surplus.
B)trade deficit.
C)current account surplus.
D)current account deficit.
Q2) When there are two large open economies,the world real interest rate will be such that
A)desired international lending by one country equals desired international borrowing by the other country.
B)desired international lending will be the same in both countries.
C)desired international borrowing will be the same in both countries.
D)desired international lending and borrowing will be zero in both countries.
Q3) Suppose a wealthy Canadian donates $10 million to charities in Mexico.Mexican net exports ________ and the current account balance ________.
A)fall; rises
B)rise; rises
C)are unchanged; is unchanged
D)fall; is unchanged
Q4) What determines the interest rate in a small open economy?
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Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) The elasticity of output with respect to capital
A)is the increase in output resulting from an increase in the capital stock.
B)is the percentage increase in output resulting from a 1 % increase in the capital stock.
C)is always greater than one.
D)is the inverse of the elasticity of output with respect to labor.
Q2) Which of the following would be a useful way to increase the saving rate?
A)Tax breaks to increase the real return that savers receive
B)Increasing taxes if Ricardian equivalence holds
C)Increasing government spending
D)Increasing taxes on capital goods
Q3) In the Solow model,if f(k)= 2k0.5,s = 0.1,n = 0.1,and d = 0.05,what is the value of f(k)at equilibrium?
A)2/3
B)4/3
C)2
D)8/3
Q4) Describe the main ideas of endogenous growth theory.What does it have to say about the role of government in economic growth?
Q5) What types of government policies can increase long-run living standards?
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Chapter 7: The Asset Market, Money, and Prices
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Sample Questions
Q1) Suppose the money demand function is Md/P = 1000 + 0.2Y - 1000 (r + ?e).
(a)Calculate velocity if Y = 2000,r = .06,and ?e = .04.
(b)If the money supply (Ms)is 2600,what is the price level?
(c)Now suppose the real interest rate rises to 0.11,but Y and Ms are unchanged.What happens to velocity and the price level? So if the nominal interest rate were to rise from 0.10 to 0.15 over the course of a year,with Y remaining at 2000,what would the inflation rate be?
Q2) Why do people keep currency in their pockets when bank deposits pay interest?
A)Because banks might steal your money.
B)Because currency is more liquid.
C)Because bank deposits lose value due to inflation.
D)Because bank deposits lose value due to changes in interest rates.
Q3) Bonds sold by the U.S.government that offer a certain real interest rate are known as A)zero-coupon bonds.
B)Treasury Inflation-Protected Securities.
C)denominalized securities.
D)savings bonds.
Q4) Give five examples of factors that could reduce the demand for money.
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Chapter 8: Business Cycles
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Sample Questions
Q1) The recession of 2001 began in ________ and ended in ________.
A)March; November
B)February; December
C)April; October
D)February; October
Q2) In the long run,an increase in government purchases of military equipment would cause output to ________ and the aggregate price level to ________.
A)stay constant; fall
B)fall; fall
C)fall; stay constant
D)stay constant; rise
Q3) What are the two main components of business cycle theories?
A)A description of shocks and a model of how the economy responds to them
B)A model of how people decide to spend and a description of the government's role in the economy
C)A model of how equilibrium is reached and a description of the government's role in the economy
D)A description of shocks and a description of the government's role in the economy
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10
Chapter 9: The IS-LM/AD-AS Model
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Sample Questions
Q1) The short-run aggregate supply curve (in the absence of misperceptions)
A)is vertical.
B)slopes upward.
C)is horizontal.
D)slopes downward.
Q2) When the money supply declines by 10%,in the long run,output ________ and the price level ________.
A)is unchanged; is unchanged
B)declines; falls
C)is unchanged; falls
D)declines; is unchanged
Q3) Which of the following changes shifts the AD curve up and to the right?
A)A rise in the nominal money supply
B)An increase in income taxes
C)An increase in the risk on nonmonetary assets
D)A decrease in the future marginal productivity of capital
Q4) Calculate the real money supply growth rate when the nominal money supply increases by 10% and the price level increases by each of the following percentages: a)2%; b)8%; c)10%; d)15%.
Q5) Describe what happens to the FE line if government purchases increase.
Page 11
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Chapter 10: Classical Business Cycle Analysis
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Sample Questions
Q1) Assuming that money is neutral,an increase in the nominal money supply would cause
A)an excess supply for goods.
B)an increase in the real money supply.
C)a fall in the price level.
D)a rise in nominal wages.
Q2) If producers believe that the increase in their relative prices is large relative to the increase in the general price level,then the slope of the short-run aggregate supply curve will be
A)infinite.
B)small.
C)large.
D)negative.
Q3) Reverse causation is the idea that
A)current increases in output cause future increases in the money supply.
B)current increases in the money supply cause future increases in output.
C)expected future increases in the money supply cause increases in current output.
D)expected future increases in output cause increases in the current money supply.
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Chapter 11: Keynesianism: The Macroeconomics of Wage and Price Rigidity
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Sample Questions
Q1) In the Keynesian model in the long run,a decrease in the money supply will cause
A)a decrease in output and an increase in the real interest rate.
B)an increase in the real interest rate but no change in output.
C)a decrease in the real interest rate and a decrease in output.
D)no change in either the real interest rate or output.
Q2) A model in which workers won't be concerned about the possibility of being fired if they don't work hard,because their wage is so low,is called
A)a cost-benefit model.
B)a job-stress model.
C)a gift-exchange model.
D)a shirking model.
Q3) Assuming no change in the effort curve of employees,the efficiency wage model implies that
A)the real wage is rigid and equals the efficiency wage.
B)the real wage exceeds the marginal productivity of labor.
C)an increase in the marginal productivity of capital will increase the real wage.
D)the real wage is procyclical.
Q4) Why might firms pay an efficiency wage rather than a market-clearing wage?
Page 13
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Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) A COLA is
A)a center of labor activity.
B)a cost of living adjustment.
C)a contract on long-term assets.
D)a crisis of labor analysis.
Q2) If the expected rate of inflation rose at the same time the natural rate of unemployment rose,the Phillips curve
A)would shift down.
B)would shift up.
C)would not move.
D)might shift up or down or not move,depending on which effect was larger.
Q3) An increase in the expected rate of inflation would
A)shift the Phillips curve upward.
B)shift the Phillips curve downward.
C)shift the long-run Phillips curve to the right.
D)shift the long-run Phillips curve to the left.
Q4) Why did the government use expansionary monetary policies in the late 1970s,and what was the principal negative macroeconomic effect of these policies?
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14
Chapter 13: Exchange Rates,Business Cycles,and
Macroeconomic Policy in the Open Economy
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Sample Questions
Q1) When the domestic currency strengthens under a fixed-exchange-rate system,this is called
A)a depreciation.
B)an appreciation.
C)a devaluation.
D)a revaluation.
Q2) The Federal Reserve has just purchased bonds in the market,carrying out open market operations.In the short run in the Keynesian model,this would cause the foreign real interest rate to ________ and foreign output to ________.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease
Q3) According to the J curve,the rapid depreciation in the dollar from 1985 to 1987 caused net exports to
A)rise in the short run and fall in the long run.
B)rise in the short run and rise further in the long run.
C)fall in the short run and rise in the long run.
D)fall in the short run and fall further in the long run.
Page 15
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Chapter 14: Monetary Policy and the Federal Reserve System
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Sample Questions
Q1) In response to an unanticipated easing of monetary policy,the price level ________ at first,then ________ after a year.
A)rises; returns most of the way to its original value
B)falls; returns most of the way to its original value
C)remains roughly unchanged; begins to rise
D)remains roughly unchanged; begins to fall
Q2) In the Keynesian model,suppose the Fed sets a target for the real interest rate.If the IS curve shifts up and to the right,and the Fed wants to keep output unchanged in the short run and the price level unchanged in the long run,it will
A)shift the LR curve up.
B)not shift the LR curve.
C)shift the LR curve down.
D)shift the IS curve up and to the right.
Q3) Since the 1930s,the Fed's most important tool for controlling the money supply has been
A)setting the discount rate.
B)setting reserve requirements.
C)moral suasion.
D)open-market operations.
Page 16
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) The marginal tax rate is
A)the fraction of an additional dollar of income that must be paid in taxes.
B)the total amount of taxes paid divided by after-tax income.
C)the total amount of taxes paid divided by before-tax income.
D)the average amount of government spending that is financed by taxes.
Q2) Find the largest nominal deficit that the government can run without raising the debt-GDP ratio,under each of the following sets of assumptions:
(a)Suppose that real GDP is 20,000 and remains constant,nominal GDP is initially 30,000,inflation is 4%,and the debt-GDP ratio is 1.2.
(b)Suppose that nominal GDP growth is 5% and outstanding nominal debt is 1500.
Q3) The amount by which government purchases and transfers exceed tax revenues is known as the
A)primary surplus.
B)primary deficit.
C)primary current deficit.
D)government debt.
Q4) Who bears the burden of the government debt? Explain why.Under what circumstances is there no burden to be borne?
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