Course Introduction
Applied Macroeconomics
Exam Materials
Applied Macroeconomics explores the practical aspects of macroeconomic theory, focusing on how national economic policies and global events impact real-world markets and societies. Students analyze major macroeconomic indicators such as GDP, inflation, unemployment, and interest rates, using contemporary data and case studies to assess fiscal and monetary policy effectiveness. The course emphasizes hands-on application through economic modeling, policy evaluation, and forecasting, equipping students with the skills necessary to interpret macroeconomic trends and advise on policy decisions in both the public and private sectors.
Recommended Textbook
Macroeconomics 5th Edition by Stephen D. Williamson
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966 Verified Questions
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) In the long run,inflation is caused by
A) aggressive labor unions.
B) greedy monopolists.
C) growth in the money supply.
D) global warming.
Answer: C
Q2) Government debt is different from individual debt because
A) the government can always tax to reduce it.
B) the government cannot declare bankruptcy.
C) the government does not need to pay interest.
D) the government can decide the interest rate.
Answer: A
Q3) The Beveridge curve shifted outward during what period?
A) during the Great Depression.
B) during the Great Moderation.
C) after January 2008.
D) between January 2000 and December 2007.
Answer: C
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Chapter 2: Measurement
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Sample Questions
Q1) What issue is there regarding housing and the measurement of GDP?
A) residential investment is measured using current house prices, not construction prices.
B) houses are a capital and a consumption good.
C) one does not know whether a house will be owned or rented when it is built.
D) mobile homes are not counted.
Answer: A
Q2) The GDP deflator is a broader measure of the price level than the CPI because
A) it covers sales tax.
B) it covers rents.
C) it covers investment.
D) it factors out fluctuations in seasonal items.
Answer: C
Q3) The base year matters for the computation of real GDP because A) otherwise we cannot compute growth rates.
B) relative prices can change over time.
C) it allows an international comparison of GDP.
D) it establishes a target for macroeconomic policy.
Answer: B
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Page 4
Chapter 3: Business Cycle Measurement
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Sample Questions
Q1) A reverse Phillips Curve would consist of a
A) positive relationship between deviations from trend in real and nominal interest rates.
B) negative relationship between deviations from trend in real and nominal interest rates.
C) positive relationship between deviations from trend in the level of prices and the level of aggregate economic activity.
D) negative relationship between deviations from trend in the level of prices and the level of aggregate economic activity.
Answer: D
Q2) The observation that the money supply is procyclical and leading the level of aggregate economic theory is most closely associated with
A) Lucas and Friedman.
B) Friedman and Schwartz.
C) Kydland and Prescott.
D) David Runkle.
Answer: B
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Chapter 4: Consumer and Firm Behavior: The Work-Leisure
Decision and Profit Maximization
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Sample Questions
Q1) A consumer's real disposable income equals
A) wage income plus consumption expenditures.
B) wage income plus profit income minus taxes.
C) total income minus profit income minus taxes.
D) total income minus wage income minus taxes.
Q2) A Cobb-Douglas production function is
A) a production function for the textile industry.
B) a particular production function that fits the data well.
C) a production function applicable in the service industry.
D) the production function that Henry Ford applied in his firm.
Q3) Which of the following is false?
A) a lump-sum tax does not depend on any action taken by a consumer.
B) in practice, no taxes are lump-sum.
C) lump-sum taxes are realistic.
D) all taxes have distorting effects on the behavior of economic agents.
Q4) If labor supply is increasing in the real wage,then
A) the substitution effect is larger than the income effect.
B) the income effect is larger than the substitution effect.
C) the production function is increasing in labor.
D) the marginal product of labor is decreasing.
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Chapter 5: A Closed-Economy One-Period Macroeconomic
Model
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Sample Questions
Q1) When the tax rate increases,the tax revenue
A) always increases.
B) does not change.
C) always decreases.
D) may increase or decrease.
Q2) Suppose total factor productivity increases. Which of the following is incorrect?
A) Households are better off.
B) Consumption goes up.
C) The real wage goes down.
D) Output goes up.
Q3) Which of the following is not a property of a competitive equilibrium?
A) markets clear.
B) consumers and firms optimize given market prices.
C) the government budget constraint is satisfied.
D) increasing total factor productivity.
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Chapter 6: Search and Unemployment
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Sample Questions
Q1) In the 1948-2012 data,the unemployment rate was highest in A) 2009
B) 1991
C) 1975
D) 1982
Q2) In the DMP model,
A) Firms maximize profits.
B) Firms determine how much effort they should put into filling job vacancies.
C) Firms decide whether or not to enter the labor market by posting vacancies.
D) Firms decide whether or not to retain or fire workers.
Q3) If A is the number of job vacancies in the aggregate,Q is the labor force,and U is the number of unemployed,then the vacancy rate is measured by
A) A/(A+Q-U)
B) A/(Q
C) A/(A+Q+U)
D) U/(A+Q-U)
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Chapter 7: Economic Growth: Malthus and Solow
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Sample Questions
Q1) In the Malthusian model,the population growth rate is A) exogenous.
B) positively related to consumption per worker.
C) negatively related to consumption per worker.
D) assumed to be constant.
Q2) One plausible explanation of the U.S. productivity slowdown starting in 1973 is that it was the result of the time needed to adapt to new technology. This explanation would require that
A) workers withdraw from the labor force to learn about the new technology.
B) a large number of new entrants be attracted to the labor force.
C) managers be reluctant to adopt changes.
D) workers time at their jobs be diverted from production to learning the technology.
Q3) In a Malthusian world,what event would improve temporarily the standard of living,as measured by output per capita?
A) a peace keeping mission
B) an increase in violent crime
C) a new mutation of germs
D) a new sewer system
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9
Chapter 8: Income Disparity Among Countries and Endogenous Growth
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Sample Questions
Q1) Human capital is knowledge in A) books.
B) people.
C) firms.
D) government.
Q2) According to the endogenous growth model with human capital,what can we say about countries with more efficient schools?
A) They are richer.
B) They are richer and grow faster.
C) They are richer and grow more slowly.
D) They grow faster.
Q3) Which of the following is a way to obtain endogenous growth: A) inflation.
B) human capital accumulation.
C) physical capital accumulation.
D) population growth.
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Chapter 9: A Two-Period Model: The Consumption-Savings
Decision and Credit Markets
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Sample Questions
Q1) The property of diminishing marginal rate of substitution follows from the property that the indifference curves are
A) downward sloping.
B) upward sloping.
C) bowed in toward the origin.
D) bowed out from the origin.
Q2) With higher future taxes
A) current consumption declines.
B) current consumption stays the same.
C) current consumption increases.
D) current consumption depends on other factors.
Q3) Distorting taxes can invalidate Ricardian equivalence because
A) they confuse consumers about the need for government to repay its debt.
B) alternative ways of collecting the same tax revenue produce different amounts of lost welfare.
C) they are inferior to lump-sum taxes.
D) they are more popular, politically, than lump-sum taxes.
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Page 11
Chapter 10: Credit Market Imperfections: Credit Frictions,
Crises, and Social Security
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Sample Questions
Q1) For a consumer not bound by the collateral constraint,a reduction in the price of the collateral leads to A) nothing.
B) an increase in current consumption and a decrease in future consumption.
C) a decrease in current consumption and no change in future consumption.
D) a decrease in current and future consumption.
Q2) For a consumer bound by the collateral constraint,a reduction in the price of the collateral leads to A) nothing.
B) an increase in current consumption and a decrease in future consumption.
C) a decrease in current consumption and no change in future consumption.
D) a decrease in current and future consumption.
Q3) Consumer choice theory predicts that,with identical consumers,pay-as-you-go social security
A) always makes all generations worse off.
B) makes some generations better off, and cannot make any generation worse off.
C) may make some generations worse off and cannot make any generation better off.
D) may be Pareto improving.
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Chapter 11: A Real Intertemporal Model with Investment
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Sample Questions
Q1) In the real intertemporal model with investment
A) the firm maximizes the present value of profits.
B) the firm maximizes current profits.
C) the firm maximizes the present value of revenues.
D) the firm maximizes current profits plus future profits.
Q2) If the interest rate goes up,what happens to the investment demand curve?
A) It shifts to the right.
B) It shift to the left.
C) It stays put.
D) We cannot tell.
Q3) The marginal cost of investment for the firm is equal to A) 1.
B) -1.
C) MP'K.
D) -MP'K.
Q4) In the real intertemporal model,an adverse sectoral shock acts to
A) reduce real output and reduce the real interest rate.
B) increase real output and increase the real interest rate.
C) increase real output and reduce the real interest rate.
D) reduce real output and increase the real interest rate.
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Chapter 12: Money, Banking, Prices, and Monetary Policy
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Sample Questions
Q1) The real return on bonds is
A) 0.
B) r.
C) R.
D) i.
Q2) If an increase in the level of the money supply results in a proportionate increase in prices with no effect on any real variables,we say that
A) the Fisher relationship holds.
B) money is neutral.
C) money is superneutral.
D) money is the most preferred store of value.
Q3) When the nominal interest rate increases,the quantity of credit card services
A) increases.
B) decreases.
C) stays constant.
D) moves in unpredictable ways.
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Chapter 13: Business Cycle Models with Flexible Prices and Wages
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Sample Questions
Q1) The phenomenon of underutilization of labor during a recession is called
A) labor stockpiling.
B) investing in human capital.
C) labor force stabilization.
D) labor hoarding.
Q2) One potential weakness of the coordination failure model as an explanation of business cycles is that
A) evidence supporting intertemporal substitution as an important determinant of labor supply is weak.
B) evidence supporting the existence of increasing returns at the aggregate level is weak.
C) it fails to explain several of the key business cycle regularities.
D) it requires that consumers not behave in a rational manner.
Q3) An important critique of real business cycle theory is the belief that cyclical movements in total factor productivity
A) rarely occur.
B) may, in part, be an artifact of measurement error.
C) lead to imperceptible changes in labor demand.
D) are too small to account for the size of fluctuations in real GDP.
Page 15
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Chapter 14: New Keynesian Economics: Sticky Prices
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Sample Questions
Q1) Why is it difficult to determine whether fluctuations in the target interest rate have led to business cycle fluctuations in the United States,according to the New Keynesian model?
A) Because the Federal Reserve may change the target interest rate according to economic conditions.
B) Because the target interest rate is nominal, not real.
C) Because inflation is not well measured.
D) Because money is neutral.
Q2) If prices in the New Keynesian model were perfectly flexible,then
A) there would be a role for monetary policy.
B) the output gap would be positive.
C) the equilibrium real interest rate would be the natural rate of interest.
D) the output gap would be negative.
Q3) What do we need to assume about firms in the sticky price model?
A) They accommodate any demand at the given price.
B) They hire until the real wage equals the average labor productivity.
C) They maximize only current profits.
D) They adapt the price to current conditions.
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Chapter 15: International Trade in Goods and Assets
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Sample Questions
Q1) Ricardian equivalence suggests that government budget deficits generated by decreases in current taxes
A) increase the current account surplus.
B) decrease the current account surplus.
C) have no effect on the current account surplus.
D) have unpredictable effects on the current account surplus.
Q2) In a two-period model with production,a shock that shifts the output demand curve to the right,and does not shift the output supply curve
A) causes an increase in the current account surplus and an increase in real output.
B) causes no change in the current account surplus and an increase in real output.
C) causes a decrease in the current account surplus and no change in real output.
D) causes a decrease in the current account surplus and an increase in real output.
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Chapter 16: Money in the Open Economy
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Sample Questions
Q1) A principal reason that purchasing power parity does not hold exactly in practice is A) that foreign and domestic assets are not perfect substitutes.
B) the existence of non-traded goods.
C) that consumers in different countries have different preferences.
D) that costs of production are not the same in all countries.
Q2) In the monetary small open-economy model with a fixed exchange rate,an increase in the foreign price level
A) increases the domestic money supply and increases the domestic price level.
B) increases the domestic money supply and decreases the domestic price level.
C) decreases the domestic money supply and increases the domestic price level.
D) decreases the domestic money supply and decreases the domestic price level.
Q3) Which of the following institutions plays the role of an international lender of last resort?
A) the World Bank
B) the International Monetary Fund
C) the European Monetary System
D) the Federal Reserve System
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Chapter 17: Money, Inflation, and Banking
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Sample Questions
Q1) Some of the most renowned examples of hyperinflation occurred in Austria,Hungary,Germany and Poland shortly after
A) the collapse of the Austro-Hungarian Empire.
B) World War I.
C) World War II.
D) the fall of the Berlin Wall.
Q2) The Friedman Rule is optimal because
A) households would be able to buy more as prices decrease.
B) the central bank has better control of the money supply.
C) money is neutral.
D) households are indifferent between holding bonds and money.
Q3) The Friedman rule works because
A) it maximizes productivity.
B) it eliminates over-consumption.
C) it encourages people to hold the appropriate quantity of money.
D) it can be implemented by the private sector.
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Chapter 18: Inflation, the Phillips Curve, and Central Bank Commitment
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Q1) In the United States,the Phillips curve is not stable in that
A) the intercept of the Phillips curve changes over time, but the slope does not change.
B) the intercept and slope of the observed Phillips curve change over time.
C) the slope of the Phillips curve changes, but its intercept does not change.
D) it changes from a curve to a circle.
Q2) A predominant view among Federal Reserve officials is that A) the Phillips curve is unimportant.
B) the Phillips curve helps us forecast inflation.
C) the Phillips curve helps us forecast the nominal interest rate.
D) the Phillips curve does not exist in the data.
Q3) The slope of the Phillips curve in the United States was smallest during which period?
A) 1985-2012
B) 1970-1984
C) 1947-1969
D) 1776-1800
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