Applied Macroeconomics
Exam Bank
Course Introduction
Applied Macroeconomics focuses on the practical implementation of macroeconomic theories and models to analyze real-world economic issues. The course covers topics such as national income determination, economic growth, unemployment, inflation, fiscal and monetary policies, and their effects on the overall economy. Students examine current macroeconomic data, learn to interpret economic indicators, and apply quantitative techniques to forecast and evaluate policy decisions. Emphasis is placed on understanding contemporary macroeconomic challenges and formulating evidence-based recommendations for economic policy in both domestic and international contexts.
Recommended Textbook Macroeconomics 2nd Edition by Charles I. Jones
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Page 2
Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) In the short run,we are concerned with the causes of economic growth.
A)True
B)False
Answer: False
Q2) Which of the following does macroeconomics endeavor to answer?
i.What role does the government play in recessions and booms and in determining the rate of inflation?
ii.What caused the currency crises in Mexico in the mid-1990s and in many Asian economies at the end of the 1990s?
iii.How does a dairy farmer react to rising milk prices?
A)iii only
B)ii only
C)i and ii
D)i,ii,and iii
E)i and iii
Answer: C
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Page 3
Chapter 2: Measuring the Macroeconomy
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Q1) When you buy a car from your brother,which he bought new in 2000,the purchase adds to the current GDP.
A)True
B)False
Answer: False
Q2) Which macroeconomic variables has the text not yet discussed in much detail?
A)the unemployment rate
B)interest rates
C)exchange rates
D)all of the above
E)none of the above
Answer: D
Q3) If the percent change in real GDP is found to be 4 percent using the Laspeyres index and 3 percent using the Paasche index,the chain-weighted price index will give us a growth rate of 3.5 percent.
A)True
B)False
Answer: True
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Chapter 3: An Overview of Long- Run Economic Growth
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Sample Questions
Q1) Identify the benefits and costs of economic growth;explain.
Answer: This answer will depend on the student,and what the text offers.
Benefits: higher income,better health,higher standards of living,less pollution
Costs: pollution,health,resource depletion,increasing income inequality,loss of jobs in some sectors
Q2) The "birthplace" of modern economic growth was the mid-nineteenth-century United States.
A)True
B)False
Answer: False
Q3) Over the past 50 years,Brazil's population growth rate has averaged about 2.3 percent.According to the rule of 70,Brazil's population will double in about:
A)three years.
B)30 years.
C)33 years.
D)161 years.
E)1.6 years.
Answer: B
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5
Chapter 4: A Model of Production
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Sample Questions
Q1) Consider Figure 4.3.The shape of this production function suggests:
A)a diminishing marginal product of capital.
B)a constant marginal product of capital.
C)a diminishing marginal product of labor.
D)an increasing marginal product of capital.
E)Not enough information is given.
Q2) As a rough approximation,differences in capital per person explain about __________ of the difference in incomes between the richest and poorest countries,while differences in __________ explain __________.
A)one-third;wages;two-thirds
B)one-third;total factor productivity;two-thirds
C)one-third;total factor productivity;one-third
D)one-third;returns to capital;two-thirds
E)two-thirds;total factor productivity;one-third
Q3) After the Black Death in the fourteenth century,wages in Europe were higher than before the Black Death.
A)True
B)False
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Chapter 5: The Solow Growth Model
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Sample Questions
Q1) Consider the data in Figure 5.7 which shows the growth rates for three countries which were involved in World War II.How does the basic Solow model explain the trends in growth rates for each of these countries?
Q2) An increase in the __________ leads to a higher steady-state level of output;and an increase in __________ leads to a lower steady-state level of output.
A)saving rate;depreciation rate
B)saving rate;productivity
C)productivity;the initial capital stock
D)depreciation rate;the labor stock
E)none of the above
Q3) The key insight in the Solow model is that:
A)saving rates are determined in a particular manner.
B)savings have no impact on economic growth.
C)capital depreciation enhances economic growth.
D)the relationship between capital and output is static.
E)capital accumulation contributes to economic growth.
Q4) The amount of capital in an economy is a flow,while new investment is a stock.
A)True
B)False
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Chapter 6: Growth and Ideas
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Sample Questions
Q1) In monopolistic competition,the price is equal to the marginal cost.
A)True
B)False
Q2) In the Romer model with decreasing returns to the knowledge sector,
A)the transition dynamics appear very similar to those in the Solow model.
B)an increase in the research share increases the growth rate in the short run.
C)an increase in the research share increases the growth rate in the short and long runs.
D)a decrease in the research share increases the growth rate in the short run.
E)Both a and b are correct.
Q3) If there are large fixed costs,due to research and development,perfect competition does not generate new ideas,because:
A)firms need to recoup these costs through higher profits.
B)with monopolistic competition,prices are equal to the marginal cost plus a markup.
C)with monopolistic competition,prices are equal to the marginal cost minus a markup.
D)perfectly competitive firms always set prices lower than the marginal cost.
E)Both a and b are correct.
Q4) How does the Romer model of economic growth exploit the concept of nonrivalry?
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Chapter 7: The Labor Market,wages,and Unemployment
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Sample Questions
Q1) An increase in the income taxes on wages results in:
A)the labor demand curve shifting left.
B)the labor supply curve shifting left.
C)the labor supply and demand curves shifting left.
D)the labor demand curve shifting right.
E)neither the labor supply nor demand curves shifting.
Q2) Most of the total weeks of lost work are accounted for by:
A)retirees.
B)people who are discouraged workers.
C)people who are incarcerated.
D)people who are unemployed for a long period of time.
E)None of the above.
Q3) Wage rigidity decreases labor market volatility.
A)True
B)False
Q4) The unemployment rate in Europe has always been higher than the rate in the United States.
A)True
B)False
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Chapter 8: Inflation
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Sample Questions
Q1) The right to seignorage is the right to apply income taxes.
A)True
B)False
Q2) According to the quantity theory of money,the price level is determined by the ratio of the effective quantity of money to the volume of goods.
A)True
B)False
Q3) A risk a bank takes on by offering long-term fixed interest rate loans is:
A)the loss of real returns due to anticipated inflation.
B)the gain that could be made from offering short-term loans.
C)the loss of real returns due to an unexpected inflation surprise.
D)the gains that could have been made if the money were invested in an alternative asset.
E)the loss of customers wanting flexible interest loans.
Q4) The costs associated with changing prices are called small menu costs.
A)True
B)False
Q5) Briefly explain the cause of the Great Inflation in the 1970s.
Q6) Briefly discuss what makes up the monetary base,M1,and M2.
Page 10
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Chapter 9: An Introduction to the Short Run
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Q1) New technology,oil price changes,pork-barrel spending,interest rate changes,changes in planned investment,and disasters are examples of __________.
A)long-term economic shocks
B)short-term economic shocks
C)political unrest
D)monetary policy
E)fiscal policy
Q2) Consider Figure 9.4,which shows the annual inflation rate month to month.According to the Phillips curve,the period from about 1998.04 to 2000.02 is a period of
A)stagnation
B)recession
C)expansion
D)none of the above
E)Not enough information is given.
Q3) Generally speaking,the rate of inflation rises during a recession.
A)True
B)False
Q4) How is a recession "officially'' determined?
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Chapter 10: The Great Recession: a First Look
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Sample Questions
Q1) According to the IMF,which of these countries experienced positive growth in 2009?
A)India
B)the United States
C)China
D)Germany
E)a and c
Q2) When depositors rush to get their deposit out of a single bank,it is called a bank panic.
A)True
B)False
Q3) The __________ was hastily designed to __________ in September 2008.
A)Troubled Asset Relief Program;prevent financial collapse
B)American Recovery and Reinvestment Act;prevent financial collapse
C)New Deal;prevent tax revenues from falling
D)Savings and Loan bank bailout;prevent declining mortgage applications
E)Sherman Antitrust Act;reduce commercial banks' power over financial markets
Q4) The deepest recession in the post-World War II period was the 1982-83 recession.
A)True
B)False
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Chapter 11: The Is Curve
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Sample Questions
Q1) Explain how the Permanent Income hypothesis can be used to explain "multiplier effects" in an economy.
Q2) The investment function is proportional to potential output only.
A)True
B)False
Q3) Which of the following is (are)not 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)i and iv
Q4) When there is a change to potential output,the IS curve shifts.
A)True
B)False
Q5) What is the relationship between the real interest rate and the output gap in the IS curve? Explain.
13
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Chapter 12: Monetary Policy and the Phillips Curve
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Sample Questions
Q1) In the classical dichotomy,some prices are sticky.
A)True
B)False
Q2) The Phillips curve assumes that inflation expectations are:
A)rational.
B)adaptive.
C)always wrong.
D)equal to zero.
E)none of the above
Q3) Which of the following statements is not true?
A)Small menu prices lead to price stickiness.
B)In the classical dichotomy,some prices are sticky.
C)In the classical dichotomy,an increase in money supply growth leads to a corresponding increase in inflation.
D)Short-run contracts lead to price persistence.
E)Imperfect information may lead to price inflexibility.
Q4) In March and April 1980,inflation in the United States peaked at 14.6 percent.What did then-Fed Chairman Volcker elect to do? What was the impact of his policy?
Q5) What are the mechanics of lowering interest rates?
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Chapter 13: Stabilization Policy and the Asad Framework
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Q1) Because deflation is so costly,some have argued that setting an inflation target at 2 percent is too low and it should be set higher,to 3 percent,especially in the economic environment of 2007-2010.Consider the impact of such an increase in the inflation target using the AD/AS framework in the short and long run.Begin your analysis in the long-run equilibrium.
Q2) The monetary policy rule "dictates":
A)the optimal rate of inflation.
B)the choice of federal funds rate.
C)the marginal product of capital.
D)the natural rate of unemployment.
E)none of the above
Q3) The fact that any model that utilizes adaptive expectations necessarily will be misspecified is called:
A)Okun's law.
B)time inconsistency.
C)the Lucas critique.
D)the Slutsky paradox.
E)monetarism.
Q4) What is the Taylor rule? How effective a tool is it?
Q5) Define the steady state in the AS/AD framework.
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Chapter 14: The Great Recession and the Short-Run Model
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Sample Questions
Q1) By linking bank executive compensation to long-term performance,__________ hopes to __________ in financial markets.
A)Long Term Capital Management;increase the use of complicated financial algorithms
B)the Squam Lake Group;reduce systematic risktaking
C)American Insurance Group;increase the use of collateralized insurance obligations
D)the Fed;increase risk-sharing through the use of collateralized debt obligations
E)Fannnie Mae;reduce subprime loans
Q2) When an economy is in a deflationary spiral,and nominal interest rates are close to zero,it may be necessary:
A)for the Fed to print money.
B)to raise taxes.
C)to cut unemployment insurance.
D)to lay off government workers.
E)to conduct contractionary monetary policy.
Q3) The price-to-earnings ratio is useful in identifying asset bubbles.
A)True
B)False
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Chapter 15: Consumption
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Sample Questions
Q1) Household consumption accounts for about ___________ of U.S.GDP.
A)two-thirds
B)one-half
C)one-fourth
D)one-third
E)five-sixths
Q2) Consider Figure 15.3.A possible cause for the fall in the saving rate between 1980 and 2005 is:
A)precautionary saving.
B)consumption smoothing.
C)the changing composition of households' savings portfolios.
D)increasing competition among commercial banks.
E)less access to credit markets.
Q3) Consider Figure 15.3.A possible cause for the change in the saving rate after,about,2007 is:
A)precautionary saving.
B)consumption smoothing.
C)a falling discount factor.
D)rising marginal utility of consumption.
E)the aging of the baby boomers.
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Chapter 16: Investment
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Q1) Consider Figure 16.3 below,which shows changes in private inventories.Which of the following (approximate)dates are likely to be periods of recession? Given your analysis,inventories are __________.
A)1980;procyclical B)1997;procyclical C)2008;countercyclical D)2001;procyclical E)d and a
Q2) In a booming economy,__________ and so inventories __________.
A)production is rising;rise B)consumption is rising;fall C)government expenditures shrink;rise D)inflation rises;fall E)personal savings rise;rise
Q3) Over the ten-year period from 1997-2005,real interest rates fell gradually.Given this information,theory suggests that stock prices would rise over that period. A)True B)False
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Chapter 17: The Government and the Macroeconomy
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Q1) An implication of the intertemporal budget constraint is that:
A)the government can borrow only as much as it can credibly pay back.
B)the government can borrow as much as it wants.
C)the government must always have a balanced budget.
D)the government must balance its budget over the business cycle.
E)all generations pay the same amount of taxes.
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) Consider Figure 17.2,which shows the federal government receipts and outlays for the period 1934-2006,as percent of GDP.Which of the following were periods when the federal government ran a budget surplus?
A)1947-1949
B)1998-2002
C)1955-1958
D)all of the above
E)none of the above
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Chapter 18: International Trade
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Q1) Because free trade __________,it is incumbent on an economy __________.
A)creates losses for specific sectors;to redistribute the gains
B)generates gains for all sectors;to raise taxes
C)generates gains for specific sectors only;to tax them less heavily
D)creates losses for specific sectors;to hasten their decline to better take advantage of comparative advantage.
E)None of the above is correct.
Q2) Which of the following country(ies)has (have)export and import shares that exceed 20 percent of their respective GDP?
A)Brazil
B)Japan
C)India
D)Argentina
E)none of the above
Q3) As with new technology,trade can be viewed as a way for:
A)an economy to increase its production possibilities and welfare.
B)an economy to specialize to the detriment of everyone.
C)exporters to benefit at the expense of everyone else.
D)an economy to reduce its aggregate production.
E)none of the above
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Chapter 19: Exchange Rates and International Finance
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Q1) In the years prior to the Argentinean financial crisis,the Argentineans adopted a flexible exchange rate policy.
A)True
B)False
Q2) The reason the real and nominal exchange rates may differ in the short run is:
A)a sticky nominal exchange rate.
B)sticky prices.
C)price and nominal exchange rate stickiness.
D)differences in the nominal interest rate across countries.
E)differences in the inflation rate across countries.
Q3) The nominal exchange rate between the U.S.dollar and the Croatian kuna is the:
A)number of kuna you can get for one dollar.
B)number of kuna you can get for lending one dollar in Croatia for one year.
C)price of U.S.goods divided by the price of Croatian goods.
D)price of Croatian goods divided by the price of U.S.goods.
E)the ratio of per capita U.S.GDP to Croatian per capita GDP.
Q4) One impact of the Southeast Asian crisis was a decline in U.S.inflation and a widening trade deficit in the United States.How does the AS/AD model explain this phenomenon?
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Chapter 20: Parting Thoughts
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Q1) In the short run,
A)inflation has inertia.
B)the classical dichotomy does not hold.
C)inflation adjusts instantly.
D)inflation is governed only by money.
E)a and b are correct.
Q2) In the long run,the classical dichotomy holds,
A)money is not neutral.
B)there is constant tension between inflation and unemployment.
C)the inflation and unemployment rates are zero.
D)steady-state growth is a constant 2 percent.
E)there is no trade-off between inflation and unemployment.
Q3) Which of the following has not contributed to higher standards of living in the long run?
A)the stock of technology
B)investment in physical capital
C)investment in human capital
D)stable monetary policy
E)productivity
Q4) Name three contributing factors to standards of living in the long run.
Page 22
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