Global Economic Perspectives
Exam Review
Course Introduction
Global Economic Perspectives offers an analytical overview of the structures, institutions, and processes shaping the modern world economy. The course explores the interdependence of national economies, examining topics such as globalization, trade policies, international finance, development economics, and the impact of emerging markets. Students will evaluate the roles of key global organizations, analyze current economic challenges, and consider diverse perspectives on issues such as inequality, sustainable growth, and technological transformation. Through case studies and data analysis, the course fosters a critical understanding of how economic forces interact across borders and influence societies worldwide.
Recommended Textbook
Macroeconomics 7th Edition by Olivier Blanchard
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Page 2
Chapter 1: A Tour of the World
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Q1) Which of the following explains the relatively high growth rate of output in China since 1980?
A)accumulation of capital
B)technological progress
C)a transition from central planning to a market economy
D)all of the above
Answer: C
Q2) Explain why the U.S.crisis became a world crisis.
Answer: Other countries were affected through two channels.The first channel was trade.As U.S.consumers and firms cut spending,part of the decrease fell on imports of foreign goods.The second channel was financial.U.S.banks,badly needing funds in the United States,repatriated from other countries,creating problems for banks in those countries.The result was not just a U.S.,but a world recession.
Q3) What are the two primary sources of economic growth in China since 1980?
Answer: The relatively high output growth in China has occurred as a result of capital accumulation and technological progress.
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Chapter 2: A Tour of the Book
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Q1) The Okun's law shows the relationship between
A)inflation and unemployment rate.
B)output growth and unemployment.
C)inflation and output growth.
D)output growth and money supply.
Answer: B
Q2) Explain what factors cause changes in output in: (1)the short run; (2)medium run; and (3)long run.
Answer: In the short run,demand factors primarily cause changes in output.In the medium run,factors such as the technology,amount of capital,and the skill and size of the labor force (supply factors)affect output.And in the long run,the education system,saving rate,and role of government affect economic activity.
Q3) Explain the Phillips curve.
Answer: It shows the negative relationship between inflation rate and unemployment rate.After 1970s,it was redefined as the relationship between the change in the rate of inflation and the unemployment rate.
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Chapter 3: The Goods Market
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Q1) Suppose the consumption equation is represented by the following: C = 250 + .75YD.The multiplier in this economy is
A) .25.
B) .75.
C) 1.
D) 4.
E) 5.
Answer: D
Q2) Suppose the United States economy is represented by the following equations:
Z = C + I + G C = 500 + .5YD T = 600 I = 300
YD = Y - T G = 2000
a.Given the above variables,calculate the equilibrium level of output.
b.Now,assume that government spending decreases from 2000 to 1900.What is the new equilibrium level of output? How much does income change as a result of this event? What is the multiplier for this economy?
Answer: a.Y = 5000
b.Y = 4800,multiplier = 2.
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Chapter 4: Financial Markets
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Q1) Which of the following will occur when the central bank pursues expansionary monetary policy?
A)a leftward shift in the money demand curve and a leftward shift in the money supply curve
B)a rightward shift in the money demand curve and a leftward shift in the money supply curve.
C)a leftward shift in the money demand curve and a rightward shift in the money supply curve.
D)a rightward shift in the money demand curve and a rightward shift in the money supply curve.
E) none of the above
Q2) Which of the following is a component of money?
A)bonds
B)saving
C)income
D)stocks
E) none of the above
Q3) Discuss the tools of the Federal Reserve and explain how each can be used to change the money supply and equilibrium interest rate.
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Chapter 5: Goods and Financial Marketsthe Is-Lm Model
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Q1) Assume that investment does not depend on the interest rate.A reduction in the money supply will cause which of the following for this economy?
A)no change in the interest rate
B)no change in output
C)a reduction in investment
D)an increase in investment
Q2) Based on your understanding of the IS-LM model,graphically illustrate and explain what effect a reduction in consumer confidence will have on output,the interest rate,and investment.
Q3) Based on our understanding of the IS-LM model that takes into account dynamics,we know that a reduction in government spending will cause
A)an immediate drop in Y and immediate increase in i.
B)an immediate reduction in i and no initial change in Y.
C)a gradual reduction in i and gradual reduction in Y.
D)a gradual reduction in i and an immediate reduction in Y.
Q4) Explain in detail what effect a Fed purchase of bonds will have on: (1)the LM curve; and (2)the IS curve.
Q5) What is the IS relation? Explain why IS curve is downward sloping.
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Chapter 6: Financial Markets Ii: the Extended Is-Lm Model
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Q1) Channeling funds from individuals with surplus funds to those desiring funds when the saver does not purchase the borrower's security is known as A)barter.
B)redistribution.
C)financial intermediation.
D)taxation.
Q2) Which of the following are reported as liabilities on a bank's balance sheet? A)reserves
B)checkable deposits
C)consumer loans
D)deposits with other banks
Q3) Although the FDIC was created to prevent bank failures,its existence encourages banks to
A)take too much risk.
B)hold too much capital.
C)open too many branches.
D)buy too much stock.
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Chapter 7: The Labor Market
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Q1) Which of the following individuals would be considered unemployed?
A)an individual who works only part-time
B)an individual who works full-time in a family business, but is not paid
C)an individual who is not working and is not looking for work
D)all of the above
E) none of the above
Q2) The natural rate of unemployment is the rate of unemployment
A)that occurs when the money market is in equilibrium.
B)that occurs when the markup of prices over costs is zero.
C)where the markup of prices over costs is equal to its historical value.
D)that occurs when both the goods and financial markets are in equilibrium.
E) none of the above
Q3) A reduction in unemployment benefits will tend to cause which of the following?
A)an upward shift in the WS curve
B)a downward shift in the WS curve
C)an upward shift in the PS curve
D)a downward shift in the PS curve
E) none of the above
Q4) Explain what effect a reduction in the unemployment rate will have on the real wage based on: (1)the WS relation; and (2)the PS relation.
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Chapter 8: The Phillips Curve, the Natural Rate of Unemployment, and Inflation
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Q1) Which of the following will most likely cause a change in the natural rate of unemployment?
A)changes in monetary policy
B)changes in fiscal policy
C)changes in expected inflation
D)all of the above
E) none of the above
Q2) Which of the following does not represent a "labor market rigidity" to which critics refer when discussing unemployment in Europe?
A)generous unemployment insurance
B)restrictive monetary and fiscal policies
C)a high degree of employment protection
D)relatively high minimum wages
E) none of the above
Q3) Which of the following situations generally exists when deflation occurs?
A)Inflation and unemployment are both increasing.
B)Inflation and unemployment are both decreasing.
C)The price level is decreasing.
D)The rate of inflation is falling from, for example, 10% to 3%.
E) The natural rate of unemployment is zero.
Page 10
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Q1) When a government reduces its deficits by increasing taxes,in the medium run,
A)output returns to potential.
B)output increases.
C)interest rate is higher.
D)IS curve shifts inward to the left.
Q2) What is the major reason for oil price to go up in the 2000s?
A)formation of the OPEC
B)fast of growth of emerging economies
C)new energy
D)higher demand from the US
Q3) An increase in the price of oil will cause which of the following in the medium run?
A)no change in the level of output
B)no change in the price level
C)an increase in the unemployment rate
D)a reduction in the interest rate
E) none of the above
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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Q1) Between 1950 and 2004,standards of living in the OECD countries
A)did not change at all.
B)were converging.
C)all increased at the same rate.
D)decreased at the same rate.
E) decreased, but at different rates.
Q2) Which of the following countries experienced the lowest level of output per capita in 2011?
A)United States
B)France
C)Japan
D)United Kingdom
Q3) Briefly explain what effect an increase in the saving rate will have on growth.
Q4) Over the last half-century,which of the following countries has had the highest growth rate of output per capita?
A)Japan
B)France
C)United Kingdom
D)United States
Q5) Briefly explain what effect a reduction 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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Q1) In the absence of technological progress,a decrease in the saving rate will cause which of the following?
A)decrease temporarily the growth of output per worker
B)decrease the steady state growth of output per worker
C)increase temporarily the growth of output per worker
D)increase the steady state growth of output per worker
E) have an ambiguous effect on the growth of output per worker
Q2) Suppose depreciation per worker is less than saving per worker.Given this situation,explain what will happen to each of the following variables over time: capital per worker,output per worker,saving per worker,and consumption per worker.
Q3) An increase in the saving rate will affect which of the following variables in the long run?
A)output per worker
B)capital per worker
C)the level of investment
D) all of the above
Q4) Explain the difference between fully funded social security system and pay-as-you-go social security system.
Q5) Explain the relationship among output,saving,and investment.
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Chapter 12: Technological Progress and Growth
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Q1) 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
Q2) Assume that an economy experiences both positive population growth and technological progress.Once the economy has achieved balanced growth,we know that the output per worker ratio (K / N)is
A)constant.
B)growing at a rate of gA - gN.
C)growing at a rate of gN.
D)growing at a rate of gA.
E) growing at a rate of + gA + gN.
Q3) Which of the following represents the fertility of research?
A)the protection given to new products by the law
B)how R&D spending translates into new ideas
C)the extent to which firms benefit from the results of their own R&D spending
D)the rate of technological progress
E) both B and C
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Chapter 13: Technological Progress: the Short, the Medium, and
the Long Run
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Q1) Suppose workers' and firms' expectations of the price level and productivity are accurate.In this case,an increase in productivity will cause which of the following?
A)an increase in both the real wage and the natural rate of unemployment
B)a decrease in both the real wage and the natural rate of unemployment
C)an increase in the real wage and no change in the natural rate of unemployment
D)a decrease in the real wage and an increase in the natural rate of unemployment
E) none of the above
Q2) Some commentators will argue that increases in productivity may have no effect or even a negative effect on employment in the short run.Explain what must occur for an increase in productivity to have no effect or even a negative effect on employment in short run.
Q3) For this question,assume expectations of P and A are correct.Now suppose that there is a 3% reduction in A.Given this information,which of the following will occur?
A)The PS relation will shift up by 2%.
B)The WS relation will shift down by less than 2%.
C)The WS relation will shift down by 2%.
D)There will be no change in the real wage.
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Chapter 14: Financial Markets and Expectations
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Q1) 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.
Q2) 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.
Q3) The yield curve indicates that the two-year interest rate will be a function of what variables? Include in your answer an explanation of how changes in these variables will affect the two-year interest rate.
Q4) An expected increase in the money supply will tend to cause
A)an increase in stock prices.
B)a reduction in stock prices.
C)no change in stock prices.
D)an ambiguous effect on stock prices.
Q5) Explain what is meant by the fundamental value of a share of stock.
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Chapter 15: Expectations, consumption, and Investment
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Q1) Discuss the various components of wealth.
Q2) Which of the following events would likely cause the largest increase in current consumption?
A)a permanent increase in annual salary of $2000
B)a one-time tax cut of $4000
C)a one-time increase in income (e.g. a bonus)of $4000
D)both B and C
Q3) Investment accounts for ________ of US GDP.
A)15%
B)20%
C)50%
D)70%
Q4) Explain how expectations affect consumption.
Q5) Which of the following statements about consumption and investment is correct?
A)Consumption is more volatile than investment.
B)Investment and consumption exhibit approximately the same degree of volatility.
C)A permanent change in income will have a relatively larger effect on consumption than on investment.
D)none of the above
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Chapter 16: Expectations, output, and Policy
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Q1) Explain why the new IS curve that takes into account expectations is likely steeper than the original IS curve that ignored expectations.
Q2) Suppose the central bank implements a monetary contraction in the current period and is expected to continue this monetary contraction 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.
Q3) Suppose the central bank implements a monetary expansion in the current period and is expected to continue this monetary expansion 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.
Q4) Suppose the Fed increases the money supply in the current period with no other policy change implemented or anticipated.This policy action will cause which of the following shifts in the IS and / or LM curves in the current period?
A)IS left; LM up
B)IS right; LM up
C)no shift in IS; LM down
D)IS left; LM down
E) IS right; LM down
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Chapter 17: Openness in Goods and Financial Markets
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Q1) Suppose the domestic interest rate is 3% and that the foreign interest rate is 6%.And finally,assume that the domestic currency is expected to appreciate by 4% during the coming year.Given this information,we know that
A)individuals will only hold domestic bonds.
B)individuals will only hold foreign bonds.
C)individuals will be indifferent about holding domestic or foreign bonds.
D)the interest parity condition holds.
Q2) Discuss what factors could cause a real depreciation.
Q3) For this question,assume the interest parity conditions holds.Also assume that the domestic interest rate is 9% and that the foreign interest rate is 5%.Given this information,we would expect that
A)individuals will only hold foreign bonds.
B)individuals will only hold domestic bonds.
C)the domestic currency is expected to appreciate by 4%.
D)the domestic currency is expected to depreciate by 4%.
Q4) Suppose the interest parity condition holds.Also assume that the one-year interest rate in the United States is 6% and that the one-year interest rate in Canada is 5%.What does this imply about the current versus future expected exchange rate (for the U.S.and Canadian dollars)? Explain.
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Chapter 18: The Goods Market in an Open Economy
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Q1) Which of the following is true when a country is experiencing a trade surplus (NX > 0)?
A)Demand for domestic goods is equal to the domestic demand for goods.
B)Demand for domestic goods is greater than the domestic demand for goods.
C)Demand for domestic goods is less than the domestic demand for goods.
D)A budget surplus exists.
Q2) In November 2008,the leaders of the ________ met in an emergency meeting in Washington to coordinate their responses in terms of both macroeconomic and financial policies.
A)G20
B)G7
C)OECD countries
D)G8
Q3) Explain the difference between: (1)the demand for domestic goods; and (2)the domestic demand for goods.
Q4) Explain what the J-curve is and why it occurs.
Q5) Using the ZZ / Y and NX graphs,illustrate graphically and explain what effect an increase in foreign output (Y*)will have on output,exports,imports,and net exports.Clearly label all curves and clearly label the initial and final equilibria.
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Chapter
19: Output, the Interest Rate, and the Exchange Rate
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Q1) Under a fixed exchange rate regime,contractionary fiscal policy will tend to cause which of the following?
A)a reduction in imports
B)a reduction in net exports
C)an increase in investment
D)all of the above
Q2) For this question,assume that there is a simultaneous tax increase and monetary expansion.In a flexible exchange rate regime,we know with certainty that
A)the exchange rate and output would both increase.
B)the exchange rate would increase and output would decrease.
C)the exchange rate would decrease.
D)the exchange rate would decrease and output would increase.
E) none of the above
Q3) A real depreciation will tend to cause
A)a reduction in exports.
B)an increase in imports.
C)a reduction in net exports.
D)an increase in demand for domestic goods.
E) none of the above
21
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Chapter 20: Exchange Rate Regimes
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Q1) According to Mundell,countries to constitute an optimal currency area need to satisfy one of the two conditions.Explain these conditions.
Q2) For this question,assume that policy makers are pursuing a fixed exchange rate regime and that output is initially greater than the natural level of output.The economy will tend to move toward the natural level of output when which of the following occur?
A)an increase in the price level
B)a devaluation of the currency
C)a reduction in the domestic interest rate
D)an increase in the foreign price level
E) none of the above
Q3) Euro coins and bank notes were introduced in January A)2002.
B)2001.
C)2000.
D)1999.
Q4) Explain why exchange rates are more volatile than is suggested by the relatively simply interest parity condition presented earlier in the course.
Q5) Explain the cases for and against flexible and fixed exchange rate regimes.
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Chapter 21: Should Policy Makers Be Restrained
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Q1) Which of the following was one of the main rules in the 1990 "Budget Enforcement Act"?
A)flat tax rate
B)spending caps
C)indexation of income tax brackets
D)consumption tax
E) none of the above
Q2) What are the new rules of the Euro Plus Pact adopted in 2011?
Q3) Which of the following best defines time inconsistency?
A)the increasing inaccuracy of econometric models as the time horizon becomes longer
B)the tendency for the rise in output to be greater in the early years of a president's term, and smaller in the later years
C)the effects of political electoral cycles on the business cycle
D)the tendency for policy makers to deviate from a pre-announced optimal policy once agents in the economy have adjusted their behavior and expectations based on the pre-announced policy
E) the effect of economic uncertainty on short-run stabilization policy
Q4) What are the main rules of the Budget Enforcement Act of 1990?
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Chapter 22: Fiscal Policy: a Summing up
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Q1) What are the primary causes of hyperinflations? Explain.
Q2) When the budget deficit is financed entirely through money creation,the real budget deficit is equal to which of the following?
A) H
B) H - P
C)( H)/ P
D)( H)/ H
E) P[( H) / H]
Q3) Very high debt burdens can result in
A)fine tuning.
B)automatic stabilizer.
C)the structural deficit.
D)tax smoothing.
E) debt repudiation.
Q4) When the economy is in a liquidity trap,which of the following is not correct?
A)A reduction in the interest rate can be used to increase output.
B)Fiscal policy is more important.
C)Interest rate is zero.
D)Large increases in spending and cuts in taxes were not enough to avoid the recession.
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Chapter 23: Monetary Policy: a Summing up
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Q1) What are the factors that will determine the optimal inflation rate?
Q2) For this question,assume that the Fed sets monetary policy according to the Taylor rule.Suppose current U.S.macroeconomic conditions are represented by the following: < ?* and u > un.Given this information,we would expect that the Fed will
A)implement a monetary contraction.
B)implement a monetary expansion.
C)maintain its current stance of monetary policy.
D)more information is need to answer this question.
Q3) Until the 1990s,how was monetary policy typically conducted in advanced countries?
Q4) An economy is said to be in the liquidity trap when the short-term ________ is down to zero.
A)real interest rate on corporate bonds
B)nominal interest rate on government bonds
C)nominal interest rate on corporate bonds
D)real interest rate on government bonds
Q5) First,write out the equation that represents the Taylor rule.Second,discuss how the Taylor rule is used to explain the implementation of monetary policy.
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Chapter 24: Epilogue: the Story of Macroeconomics
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Q1) Explain the menu cost explanation of output fluctuations.
Q2) In the 1960s,the monetarist school of thought held that
A)monetary and fiscal policy could explain most of the output fluctuations in U.S. history.
B)there is a long-run tradeoff between inflation and unemployment.
C)efforts to fine-tune the economy are likely to do more harm than good.
D)all of the above
E) none of the above
Q3) Those economists who attempt to explain why wages and prices do not freely adjust would most likely be
A)real business cycle theorists.
B)new classical economists.
C)new Keynesian economists.
D)new growth theorists.
E) none of the above
Q4) Discuss the consensus on the adjustment process after the crisis.
Q5) Recent research up to the crisis proceeded mainly on three fronts.Discuss each of them.
Q6) Discuss new classical economics and real business cycle theory.
Q7) Explain what is meant by liquidity preference.
Page 26
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Chapter 25: Appendix
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Q1) When estimating a regression line,a high R² tells us we have A)a good fit.
B)large residuals.
C)correctly determined the direction of causation.
D)all of the above
E) none of the above
Q2) When we estimate a regression to determine the relationship between changes in consumption and changes in current income,we find that A)there are no residuals.
B)the R² is zero.
C)the MPC is larger than one.
D)all of the above
E) none of the above
Q3) "Ordinary least squares" is a technique that can be used to A)identify the best model.
B)determine which variables in a model are endogenous and which are exogenous.
C)obtain a bar graph showing successive quarterly increases in output.
D)obtain a line describing consumption behavior in the real world.
E) determine the direction of causation between consumption and income.
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