Global Economic Issues
Test Preparation
Course Introduction
This course explores the major economic challenges and trends shaping the global economy today. Topics include international trade and finance, globalization, poverty and inequality, economic development, the impact of technology, and the role of national and international institutions. Students will gain an understanding of how economic policies and global events influence markets, growth, and welfare across countries. Through case studies and analysis, the course emphasizes the interconnectedness of nations and the complexities of crafting effective economic policy in a rapidly changing world.
Recommended Textbook
Macroeconomics 7th Edition by Olivier Blanchard
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1650 Verified Questions
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Page 2
Chapter 1: A Tour of the World
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Sample Questions
Q1) At what point could the Euro be used as currency?
A)January 1, 1998
B)January 1, 1999
C)January 1, 2000
D)January 1, 2002
Answer: D
Q2) Inflation represents
A)an increase in output.
B)an increase in the aggregate price level.
C)an increase in the unemployment rate.
D)a recession.
Answer: B
Q3) Between 2010 and 2014,the annual rate of output growth in China was approximately equal to A)2%.
B)5%.
C)9%.
D)20%.
Answer: C
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Page 3
Chapter 2: A Tour of the Book
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Sample Questions
Q1) Refer to the information above.The labor force participation rate is A) .2.
B) .3.
C) .4.
D) .6.
E) .8.
Answer: D
Q2) Changes in GDP in the medium run are determined primarily by A)demand factors.
B)supply factors.
C)monetary policy.
D)all of the above
Answer: B
Q3) Explain the difference between the unemployment rate and the participation rate.
Answer: The unemployment rate is the percentage of the labor force (those employed and unemployed)that is unemployed.The participation rate is the percentage of the working age population that is in the labor force.
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Chapter 3: The Goods Market
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Sample Questions
Q1) An increase in the desire to save by households will cause
A)a reduction in output.
B)a reduction in investment.
C)an increase in output.
D)no change in investment and no change in output.
Answer: A
Q2) An increase in the marginal propensity to save from .3 to .4 will cause
A)the ZZ line to become steeper and a given change in autonomous consumption (c )to have a smaller effect on output.
B)the ZZ line to become steeper and a given change in autonomous consumption (c )to have a larger effect on output.
C)the ZZ line to become flatter and a given change in autonomous consumption (c ))to have a smaller effect on output.
D)the ZZ line to become flatter and a given change in autonomous consumption (c )to have a larger effect on output.
Answer: B
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5
Chapter 4: Financial Markets
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Sample Questions
Q1) If individuals do not hold currency,we know that
A)M = D.
B)H = R.
C)the money multiplier is 1 / .
D)all of the above
Q2) We would expect which of the following to occur when the central bank pursues expansionary monetary policy?
A)an increase in bond prices and an increase in the interest rate (i)
B)a reduction in bond prices and an increase in i
C)an increase in bond prices and a reduction in i
D)a reduction in bond prices and a reduction in i
E) none of the above
Q3) Which of the following will occur when an economy is faced with a liquidity trap situation?
A)A reduction in the price level will cause a rightward shift in the aggregate demand curve.
B)A reduction in the price level will cause a leftward shift in the aggregate demand curve.
C)The aggregate demand curve is now vertical.
D)The aggregate demand curve is now upward sloping.
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Chapter 5: Goods and Financial Marketsthe Is-Lm Model
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Q1) Which of the following occurs as the economy moves leftward along a given IS curve?
A)An increase in the interest rate causes investment spending to decrease.
B)An increase in the interest rate causes money demand to increase.
C)An increase in the interest rate causes a reduction in the money supply.
D)A reduction in government spending causes a reduction in demand for goods.
E) An increase in taxes causes a reduction in demand for goods.
Q2) Which of the following is the definition for the real supply of money?
A)The stock of money measured in terms of goods, not dollars.
B)The stock of high powered money only.
C)The real value of currency in circulation only.
D)The actual quantity of money, rather than the officially reported quantity.
E) The ratio of the real GDP to the nominal money supply.
Q3) We know with certainty that a tax increase must cause which of the following?
A)an increase in investment
B)a reduction in investment
C)no change in investment
D)none of the above
Q4) Explain in detail what effect a reduction in government spending will have on: (1)the LM curve; and (2)the IS curve.
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Chapter 6: Financial Markets Ii: the Extended Is-Lm Model
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Sample Questions
Q1) Holding large amounts of bank capital helps prevent bank failures because
A)it means that the bank has a higher income.
B)it makes loans easier to sell.
C)it can be used to absorb the losses resulting from bad loans.
D)it makes it easier to call in loans.
Q2) Which of the following statements is false?
A)A bank's assets are its uses of funds.
B)A bank issues liabilities to acquire funds.
C)The bank's assets provide the bank with income.
D)Bank capital is recorded as an asset on the bank balance sheet.
Q3) Because the nominal interest rate is always positive,the discount factor is always A)negative.
B)greater than one.
C)zero.
D)less than one.
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Chapter 7: The Labor Market
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Sample Questions
Q1) Today,about ________ of U.S.workers have their wages set by collective bargaining agreements.
A)10%
B)15%
C)20%
D)25%
Q2) Data on labor-force flows show that
A)almost all separations are due to death.
B)almost all separations are due to serious illness.
C)almost all separations are quits.
D)almost all separations are layoffs.
E) none of the above
Q3) Henry Ford's experiment with efficiency wages resulted in
A)a dramatic drop in productivity.
B)a dramatic increase in the turnover rate.
C)a reduction in the layoff rate.
D)new problems with the work force, like drunkenness and reckless driving.
E) no noticeable effects.
Q4) Explain how a reduction in the unemployment rate will affect bargaining power and nominal wages.
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Chapter 8: The Phillips Curve, the Natural Rate of Unemployment, and Inflation
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Sample Questions
Q1) Which of the following individuals first discovered the relationship between unemployment and inflation for the United States?
A)Solow and Friedman
B)Samuelson and Solow
C)Friedman and Phillips
D)Friedman and Phelps
Q2) How will the crisis affect the natural rate of unemployment?
Q3) For this question,assume that individuals form expectations of inflation according to the following equation t = t .From 1970 on,the value of for this equation
A)increased over time and approached 1.
B)decreased over time and approached zero.
C)remained constant at zero.
D)remained constant at negative one.
E) none of the above
Q4) Based on the 'early incarnation' of the Phillips curve,explain what effect an increase in the unemployment rate will have on the inflation rate.
Q5) Explain the natural unemployment rate and its relationship to inflation rate.
Page 10
Q6) Explain what is meant by the "wage-price" spiral.
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Q1) When the policy rate increases,
A)IS curve does not change.
B)IS curve shifts to the right.
C)IS curve shifts to the left.
D)LM curve shifts upward.
E) LM curve shifts downward.
Q2) If the output is too low,to achieve the medium run equilibrium,the central bank will
A)increases policy rate.
B)reduces policy rate.
C)increase money supply.
D)increases inflation rate.
Q3) Okun's law shows that when the unemployment rate is below the natural rate,
A)inflation is higher than expected.
B)inflation is lower than expected.
C)output is below potential.
D)output is above potential.
Q4) Use the IS-LM-PC model to illustrate how the economy adjusts to an increase in taxes both in the short run and in the medium run.
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Chapter 10: The Facts of Growth
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Sample Questions
Q1) Over the last hundred years,
A)movements in output due to recessions and recoveries dominate the movement caused by long-run growth.
B)output has decreased in as many years as it has increased.
C)U.S. output has approximately doubled.
D)all of the above
E) none of the above
Q2) An upward-sloping straight line on a linear scale will become a (an)________ on a logarithmic scale.
A)upward sloping straight line
B)upward sloping curve that gets continually steeper
C)upward sloping curve that gets continually flatter
D)horizontal line
E) downward sloping straight line
Q3) Briefly explain what effect a reduction in the saving rate will have on growth.
Q4) Suppose the capital stock increases by 10% and the number of employed workers increases by 5%.Given this information,explain what will happen to output and to output per worker.
Q5) Convergence refers to what phenomenon regarding growth theory?
Q6) Briefly explain what effect an increase in the saving rate will have on growth.
Page 12
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Chapter 11: Saving, capital Accumulation, and Output
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Sample Questions
Q1) If endogenous growth models are correct,a lower rate of growth in the long run could occur as a result of which of the following?
A)a lower rate of saving
B)a lower rate of depreciation
C)a redefinition of depreciation
D)a redefinition of the steady state
E) none of the above
Q2) The Social Security system in the United States was introduced in which year?
A)1915
B)1935
C)1945
D)1955
E) none of the above
Q3) Graphically illustrate and explain the effects of an increase in the rate of depreciation ( )on the Solow growth model.In your graph,clearly label all curves and equilibria.
Q4) Suppose there is an increase in the saving rate.Explain what effect this will have on output,output per worker,the rate of growth of output,and the rate of growth of output per worker.
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Chapter 12: Technological Progress and Growth
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Sample Questions
Q1) Refer to the information above.Which of the following represents the level of investment needed to maintain constant capital per effective worker (K / NA)in this economy?
A)0.02K
B)0.03K
C)0.05K
D)0.10K
E) 0.15K
Q2) Which of the following will cause an increase in output per effective worker?
A)an increase in population growth
B)an increase in the rate of depreciation
C)a reduction in the saving rate
D)an increase in the rate of technological progress
E) an increase in the saving rate
Q3) Which of the following countries had the highest rate of growth of output per worker between 1985 and 2014?
A)France
B)Japan
C)United States
D)United Kingdom
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Chapter 13: Technological Progress: the Short, the Medium, and
the Long Run
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Sample Questions
Q1) Suppose the aggregate production function is represented by Y = AN.Which of the following expressions represents the number of additional workers required to increase production by one unit?
A)1 / A
B)Y / N
C)1 / N
D)1 / Y
E) none of the above
Q2) A major explanation for the decline in employment projected in textiles is A)increases in income.
B)social problems in the U.S.
C)shifts in production toward low-wage countries.
D)inaccurate expectations about productivity growth.
E) inaccurate expectations about the price level.
Q3) For this question,assume that expectations of productivity growth adjust slowly.Now,suppose that there is a 3% reduction in productivity.Explain how this 3% reduction in productivity can cause changes in the unemployment rate.
Q4) Explain some of the causes of increased wage inequality.
Q5) Explain how technological change can cause changes in wage inequality.
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Chapter 14: Financial Markets and Expectations
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Sample Questions
Q1) For this question,assume that there is perfect arbitrage in the stock market.Given this assumption,economists believe that A)movements in stock prices can be easily predicted. B)movements in stock prices are largely unpredictable. C)most stocks will diverge from their fundamental value. D)stocks will generally earn a lower rate of return than bonds. E) the rate of return on stocks will be equal to the rate of return on bonds.
Q2) A share of stock will pay a dividend of $25 in one year,and will be sold for an expected price of $500 at that time.If the current one-year interest rate is 5%,the current price of the stock will be approximately equal to A)$100.
B)$475.
C)$500.
D)$525.
E) none of the above
Q3) Suppose individuals expect an increase in future taxes.Explain what effect this expected increase in future taxes will have on the yield curve and on stock prices in the current period.
Q4) Explain what the term structure of interest rates represents.
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Chapter 15: Expectations, consumption, and Investment
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Sample Questions
Q1) What is Tobin's q? How tight is the relation between Tobin's q and investment?
Q2) Explain why current consumption might change even if current income does not change.
Q3) The "life cycle" and "permanent income" theories of consumption share which of the following features?
A)Consumption spending depends on income, rather than wealth.
B)Consumption spending should fluctuate widely from year to year.
C)Consumers look ahead to the future in making current spending decisions.
D)all of the above
E) none of the above
Q4) Investment depends on
A)current profit.
B)present value of of expected future profits.
C)user cost of capital.
D)all of above
E) both A and B
Q5) Explain what decisions and calculations a very foresighted consumer must make to determine her consumption decisions in any period.
Q6) Explain how expectations affect consumption.
Q7) Explain why consumption is less volatile than investment.
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Chapter 16: Expectations, output, and Policy
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Sample Questions
Q1) Suppose fiscal policy makers pass a budget that increases taxes in the current period and are expected to raise taxes in the future.Use the IS-LM model to illustrate graphically and explain the effects of this policy on current output and the current interest rate.
Q2) Which of the following individuals was responsible for introducing rational expectations into macroeconomic models?
A)Keynes
B)Tobin
C)Phillips
D)Solow
E) none of the above
Q3) Explain the three channels economists have identified through which quantitative or credit easing may affect the economy.
Q4) Suppose fiscal policy makers pass a budget that cuts taxes in the current period and are expected to cut taxes in the future.Use the IS-LM model to illustrate graphically and explain the effects of this policy on current output and the current interest rate.
Q5) Explain what effect a reduction in future expected output will have on the IS curve and LM curve in the current period.
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Chapter 17: Openness in Goods and Financial Markets
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Sample Questions
Q1) Discuss what factors could cause a real depreciation.
Q2) Suppose two countries make a credible commitment to fix their bilateral exchange rate.In such a situation,we know that
A)the uncovered interest parity condition no longer holds.
B)the real exchange rate must be constant as well.
C)each country can freely allow its interest rate to diverge from that of the other country.
D)the interest rate in the two countries must be equal.
E) neither country will run a trade deficit.
Q3) From the perspective of the United States,a reduction in the nominal exchange rate will cause which of the following?
A)The dollar becomes more expensive to foreigners.
B)Foreign goods are less expensive to Americans.
C)Foreign currency is less expensive to Americans.
D)American goods are less expensive to foreigners.
E) none of the above
Q4) Explain why a comparison between the interest rates on domestic and foreign bonds might provide misleading information about which bonds yield the highest expected returns.
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Page 19
Chapter 18: The Goods Market in an Open Economy
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Sample Questions
Q1) Which of the following will occur as a result of a tax increase?
A)private saving increases
B)investment increases
C)the trade balance improves
D)the trade balance worsens
E) the budget deficit increases
Q2) A real depreciation will initially cause a reduction in output when which of the following holds?
A)the Marshall-Lerner condition
B)the J-Curve effect
C)net exports are initially zero
D)net exports are initially negative
E) net exports are initially positive
Q3) The Marshall-Lerner condition is less likely to hold when
A)imports and exports are very price-sensitive.
B)the trade deficit is large.
C)the marginal propensity to consume is very large.
D)the marginal propensity to consume if very small.
E) none of the above
Q4) Explain what the Marshall-Lerner condition represents.
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Chapter 19: Output, the Interest Rate, and the Exchange Rate
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Q1) Assume the exchange rate is allowed to fluctuate freely.Using the IS-LM-IP model,graphically illustrate and explain what effect an increase in government spending will have on the domestic economy.In your graphs,clearly label all curves and equilibria.
Q2) Assume the exchange rate is fixed.Using the IS-LM model,graphically illustrate and explain what effect an increase in consumer confidence will have on the domestic economy.In your graphs,clearly label all curves and equilibria.
Q3) Suppose there are two countries that are identical in every way with the following exception.Country A is pursuing a fixed exchange rate regime and country B is pursuing a flexible exchange rate regime.Suppose taxes are increased in both countries rises by the same amount.Given this information,we know that
A)the change in output in A will be greater than in B.
B)the change in output in B will be greater than in A.
C)the change in output will be the same in both countries.
D)the relative output effects are ambiguous.
Q4) For a country pursuing a fixed exchange rate regime,what does the interest parity condition imply about domestic and foreign interest rates? Explain.
Q5) Explain what the IP curve is and why it is upward sloping.
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Chapter 20: Exchange Rate Regimes
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Q1) Does Europe constitute an optimal common currency area? Why?
Q2) When we no longer assume that the exchange rate expected to occur in one year is constant,explain what variables affect the current exchange rate in a flexible exchange rate regime.Include in your answer an explanation of how changes in these variables affect the current exchange rate.
Q3) During the EMS crisis in 1992,
A)all the EMS countries abandoned the system.
B)Germany abandoned the system.
C)England and Italy abandoned the system.
D)France was put in charge of the system.
E) all the EMS countries stood firm, and refused to change central parities.
Q4) A revaluation causes which of the following to occur in the short run in the AS / AD model?
A)a reduction in net exports
B)a reduction in the price level
C)a reduction in output
D)all of the above
E) none of the above
Q5) Explain exchange rate crisis.
Q6) Explain the cases for and against flexible and fixed exchange rate regimes.
Page 22
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Chapter 21: Should Policy Makers Be Restrained
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Q1) Wars of attrition arise in which of the following contexts?
A)fiscal policy
B)deficit reduction
C)hyperinflation
D)all of above
E) A and B
Q2) As uncertainty about the effects of policy on output decreases,we would expect that
A)policy makers would be more frequently implement fine tuning policies.
B)policy makers would implement more active policies.
C)policy makers would implement less active policies.
D)both A and B
E) both A and C
Q3) All of the macroeconometric models currently in use
A)originate in the United States.
B)incorporate rational expectations into their predictions.
C)originate with government or international agencies.
D)originate with commercial firms who sell their forecasts to other firms and governments.
E) none of the above
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Page 23
Chapter 22: Fiscal Policy: a Summing up
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Q1) Explain "haircuts" when a government defaults its debt.
Q2) Very high debt burdens can result in A)fine tuning.
B)automatic stabilizer.
C)the structural deficit.
D)tax smoothing.
E) debt repudiation.
Q3) Which of the following will cause a reduction in the debt-to-GDP ratio?
A)an increase in the real interest rate
B)an increase in the ratio of the primary deficit to GDP
C)an increase in the growth rate of output
D)all of the above
Q4) A higher deficit in the current year will lead to increased debt in the future only if A)the deficit is greater than the previous year's deficit.
B)the deficit-to-GDP ratio is greater than the debt-to-GDP ratio.
C)it causes a drop in private saving.
D)it causes an increase in private saving.
E) none of the above
Q5) Explain fiscal dominance.
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Chapter 23: Monetary Policy: a Summing up
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Q1) In the United States,day-to-day decisions about monetary policy are carried out by
A)the Board of Governors.
B)the Chairman of the Board of Governors.
C)the Federal Open Market Committee.
D)the Open Market desk in New York.
E) none of the above
Q2) Since the 1980s,"NOW" accounts have been included in
A)M1, but not M2.
B)M2, but not M1.
C)both M1 and M2.
D)the monetary base and M1, but not M2.
E) neither M1 nor M2.
Q3) The Humphrey-Hawkins Act requires the Fed to promote A)stable prices.
B)maximum employment.
C)moderate long-term interest rates.
D)all of the above
E) none of the above
Q4) What are some of the questions about the macro prudential tools?
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Chapter 24: Epilogue: the Story of Macroeconomics
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Q1) The theories of consumption were developed by
A)Friedman and Phelps.
B)Hicks and Hansen.
C)Modigliani and Friedman.
D)Lucas and Sargent.
Q2) Which of the following is an implication of rational expectations theory?
A)Deviations of output from the natural rate are likely to be serious and long-lived.
B)The economy is like a complex machine, that needs to be optimally controlled with the proper policy.
C)Macroeconometric models based on past behavior will not be very useful in formulating policy.
D)Wages and prices are set almost entirely at random, so it is pointless to try to model their behavior.
E) Business cycles almost always result from a shift in aggregate demand.
Q3) The main debate during the 1960s was
A)between Keynesians and classicals.
B)between new Keynesians and new classicals.
C)between Keynesians and monetarists.
D)between new Keynesians and monetarists.
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Page 26
Chapter 25: Appendix
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Q1) A key step in using instrument variable methods is to
A)find one or more exogenous variables that influence your dependent variable.
B)decrease the number of lags in the regression equation.
C)conduct interviews to determine how accurate your data really is.
D)run the regression on two different computers to see if the results differ.
E) eliminate the dependent variable.
Q2) Which of the following is not included in investment?
A)the purchase of new equipment by firms
B)nondurable goods
C)the purchase of a new home
D)none of the above
Q3) Changes in business inventories will be positive when
A)production exceeds sales.
B)production is less than sales.
C)a trade surplus exists.
D)a budget surplus exists.
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