Global Economic Policy
Mock Exam
Course Introduction
Global Economic Policy examines the frameworks, tools, and processes through which nations design and implement economic strategies in an increasingly interconnected world. The course explores the roles of international institutions such as the International Monetary Fund, World Bank, and World Trade Organization, as well as the impact of emerging economies, trade agreements, and financial crises on global markets. Students will analyze fiscal, monetary, and regulatory policies across different countries, evaluating their effects on economic growth, development, and inequality. Additionally, the course encourages critical assessment of contemporary issues such as globalization, regional integration, and sustainable development within the context of global economic governance.
Recommended Textbook
Macroeconomics Understanding the Global Economy 3rd Edition by David Miles
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Page 2
Chapter 1: What Is Macroeconomics
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Q1) Macroeconomics differs from microeconomics in that
A) microeconomics examines strictly short run questions; macroeconomics examines only long run questions
B) microeconomics examines the domestic economy only; macroeconomics examines the world
C) microeconomics examines production; macroeconomics examines distribution
D) microeconomics examines individual behavior; macroeconomics examines aggregate outcomes
E) microeconomics examines positive issues; macroeconomics examines normative questions
Answer: D
Q2) Which of the following is not a direct concern of macroeconomists?
A) interest rates
B) the growth rate of output
C) aggregate investment in machines and infrastructure
D) pricing decisions by an individual firm
E) monetary policy
Answer: D
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Chapter 2: The Language of Macroeconomicsthe National
Income Accounts
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Q1) Comparing countries' income per head using Purchasing Power Parity exchange rates rather than market exchange rates
A) Exaggerates the difference between rich and poor countries rich countries have greater purchasing power
B) Adjusts for differences in country size
C) Makes income per head calculations more volatile over time
D) Reduces the difference between rich and poor countries because in poor countries a given amount of dollars purchases more goods and services.
E) All of the above
Answer: D
Q2) Firms' unsold inventory
A) is not counted in GDP because it is excluded from consumption
B) is counted as investment
C) is purchased by the government
D) is equal to the difference between imports and exports
E) is the difference between real and nominal GDP
Answer: B
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Chapter 3: The Wealth of Nationsthe Supply Side
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Q1) Pro-Poor growth is defined as
A) growth that raises the incomes of the poor
B) a combination of economic growth and falling inequality
C) a combination of economic growth and rising inequality
D) growth that results in a decline in the number of people living on less than $1 a day
E) immiserizing growth
Answer: B
Q2) If everyone in the population were employed for a fixed number of hours per year,then
A) GDP per capita would equal labor productivity multiplied by hours worked per person
B) GDP would equal labor productivity multiplied by hours worked per person
C) Labor productivity would equal GDP per capita multiplied by hours worked per person
D) GDP per capita would equal GDP divided by hours worked per person
E) Labor productivity times population would equal GDP
Answer: A
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Chapter 4: Capital Accumulation and Economic Growth
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Q1) The difference between "gross" and "net" in the calculation of national income or domestic product reflects
A) an adjustment for taxes
B) an adjustment for capital depreciation
C) the difference between total output and output produced in the private sector
D) the difference between output in a calendar year and output in a fiscal year
E) the difference between what is produced and what is actually sold
Q2) Growth accounting for China demonstrates that
A) Unlike the Asian tiger economies such a Singapore, rapid economic growth has been largely driven by capital accumulation
B) Like the Asian tiger economies such a Singapore, rapid economic growth has been largely driven by capital accumulation
C) Unlike the Asian tiger economies such a Singapore, rapid economic growth has been largely driven by rapid population growth
D) Like the Asian tiger economies such a Singapore, rapid economic growth has been largely driven by rapid population growth
E) Like the Asian tiger economies such a Singapore, low investment rates have held back Chinese growth
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Chapter 5: Total Factor Productivity, human Capital, and Technology
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Q1) The historically slow development of the Chinese economy may be attributable to A) geographical constraints
B) it large markets
C) rent-seeking
D) the size of the labor force
E) lack of usable natural resources
Q2) The most important effect of increased schooling on long run national output is that it
A) keeps teachers employed
B) prevents students from being counted as unemployed
C) increases human capital
D) delays entry into the work force
E) requires the production of more books and other supplies
Q3) Rent-seeking differs from entrepreneurship in that rent-seeking
A) is conducted for profit; entrepreneurship is not
B) involves risk taking; entrepreneurship does not
C) is a zero-sum game; entrepreneurship is not
D) involves innovations; entrepreneurship does not
E) is illegal; entrepreneurship is not
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Chapter 6: Endogenous Growth and Convergence
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Q1) Colonialism affected African growth by
A) fractionalizing the continent ethnically and linguistically
B) extracting rents for repatriation to Europe
C) neglecting development in regions of high mortality
D) establishing exploitative political institutions that persist to the present day
E) all of the above
Q2) Within which of the following groupings has convergence occurred in recent years?
A) the provinces of Canada
B) the 50 US states
C) Japanese prefectures
D) Northern and Southern Italy
E) all of the above
Q3) Ethno-linguistic diversity in Africa is largely the result of
A) immigration from China and India
B) government policies to promote bilingual education
C) heavy reliance on imported technology
D) arbitrary boundaries created by European colonialism
E) study-abroad programs which educate African students in European schools
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Chapter 7: Unemployment and the Labor Market
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Q1) Unemployment insurance benefits increase productivity most by
A) shortening the duration of unemployment
B) providing replacement rates that are lower than real wages
C) shifting government funds away from less productive ventures
D) helping to improve the match-up between jobs and workers
E) weakening monopoly power
Q2) Among developed economies,the natural rate of unemployment
A) is a fixed number
B) tends to follow a steady upward trend
C) varies, but less the actual unemployment
D) varies more the actual unemployment
E) tends to follow a steady downward trend
Q3) The rate of unemployment will be higher (for a given level of labour market coordination)
A) if firms have less monopoly power
B) if workers have less monopoly power
C) if firms have monopoly power but workers have none
D) if both firms and workers have monopoly power
E) if there is no monopoly power
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Chapter 8: International Trade
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Q1) Which of the following would not be predicted by the Hecksher-Ohlin theorem?
A) the US should export capital-intensive and technology-intensive goods
B) India should export labor-intensive goods
C) Canada should have a comparative advantage in forestry
D) Kuwait should specialize in the production of oil
E) Central African Republic should have a comparative advantage in fisheries
Q2) According to New Trade Theory,
A) international trade is not a zero-sum game, but a win-win proposition
B) a nation can create new comparative advantages by subsidizing key industries
C) protectionism is justified in order to allow "infant industries" to mature
D) competitiveness is an inappropriate model for countries to follow in foreign trade
E) trade wars benefit society by raising the level of competitiveness
Q3) The price of a country's exports relative to the price of its imports is called
A) the export price ratio
B) the comparative advantage
C) the tariff barrier
D) the terms of trade
E) the mercantile factor
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Chapter 9: Globalization
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Q1) Which of the following is not assumed by those who believe in the race to the bottom?
A) Corporate taxes would be at appropriate levels without subsidizing MNEs
B) MNEs are easily induced to relocate by government subsidies
C) FDI has spillover benefits that offset subsidies to MNEs
D) Government subsidies to MNEs will force cutbacks n the social safety net
E) Employment at MNEs involves reduced job security
Q2) Regressing GDP per capita on a measure of openness to trade across countries may give biased estimation results because
A) each country measures openness differently
B) without further restrictions, the regression coefficient for openness could be negative
C) openness may capture the effects of omitted variables such as financial reform
D) openness is an index measure, but GDP per capita is measured in monetary units
E) regression is an appropriate econometric methodology only for time series, not for cross-sectional data
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Chapter 10: Consumption Investment
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Q1) A machine will generate after tax revenues of $1331 at the end of each year for 3 years,after which it will be worthless. (Its scrap value will only cover the cost of its removal). The interest rate available to the firm on risk-free bank accounts or bonds is 10 percent. The machine is a worthwhile investment if its purchase price is less than
A) $3,993.00
B) $4,846.17
C) $3,310.00
D) $4,392.30
E) $3,630.00
Q2) If first period consumption is $80,then second period consumption must be
A) 129
B) 131
C) 141
D) 143
E) 201
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Chapter 11: Business Cycles
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Q1) Comparing State economies to that of the US as a whole shows that
A) about half the States are in recession at any point in time
B) when the US enters a recession, about 20% of the States experience economic expansion, and vice versa
C) there is very little correlation between the national and regional economies
D) there is a highly positive correlation between the national economy and most State economies
E) the 12 Federal Reserve districts experience business cycles independently of each other
Q2) All other things being equal,in the absence of public policy,an economy producing more than its sustainable capacity will eventually
A) reduce its long run capacity by wearing out its capital and depleting its natural resources
B) increase its long run capacity to meet the demand
C) experience wage and price increases and cutbacks in supply until output is at capacity
D) export the excess output to other countries
E) exhibit improved technology
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Chapter 12: Money and Prices
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Q1) The value of M2 was
A) $2454.1
B) $3417.8
C) $4019.3
D) $4958.0
E) $5333.0
Q2) The widespread historical use of gold or silver in transactions is an example of
A) barter
B) commodity money
C) fiat money
D) credit
E) paper money
Q3) When depositors transfer funds from savings accounts to checking accounts,
A) M2 falls and M1 rises, while M3 remains constant
B) M1 rises while M2 and M3 remain constant
C) both M1 and M2 increase, while M3 falls
D) M3 falls while M1 and M2 remain constant
E) M1 falls, M3 rises, and M2 remains constant
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Chapter 13: Monetary Policy
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Q1) If a central bank targets the exchange rate,it
A) enhances its ability to achieve full employment
B) raises interest rates whenever the currency appreciates C) reduces interest rates in order to force its currency to appreciate D) achieves the same inflation rate as the target country E) stabilizes GDP by stabilizing net exports
Q2) If the central bank follows the Taylor Rule nominal interest rate = .04 + (output gap) + (inflation rate - .03)
Where = 0 and = 1,then each of the following is true except
A) the real interest rate will remain approximately one percent
B) the central bank has a three percent inflation target
C) the policy rule excludes any consideration of employment and/or GDP
D) the nominal interest rate will be at least four percent
E) in the face of one percent deflation, the central bank would cut its nominal interest rate to zero
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Chapter 14: Fiscal Policy and the Role of Government
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Q1) Balancing the government's budget each year would
A) allow tax rates to remain constant from year to year
B) reduce uncertainty over future tax rates and net income
C) exacerbate recessions
D) stabilize short run GDP
E) generate smaller economic distortions than a policy of countercyclical deficits and surpluses
Q2) Payroll taxes distort the labor market by
A) reducing gross wages
B) shifting the demand curve for labor outward
C) increasing the supply of labor
D) increasing hours of work
E) driving a wedge between wages paid and wages received
Q3) Which of the following is a pure public good?
A) a library book
B) public transportation
C) the judicial system
D) an interstate highway
E) all of the above
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Chapter 15: Stabilization Policy
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Q1) In the absence of stabilization policy,which of the following would most likely occur?
A) the natural rate of unemployment will rise to .07
B) the expected rate of inflation will fall to .02
C) in the long run, the inflation rate will be .04 and the unemployment rate will be .06
D) the Phillips Curve will shift outward over time
E) the inflation rate will rise to .07
Q2) Which of the following creates the least risk that stabilization policy will be either ineffective or counterproductive?
A) Uncertainty regarding the magnitude of the expenditure multiplier
B) The possibility of a Ricardian-equivalence saving response to a tax cut perceived to be temporary
C) The likelihood of crowding out following a tax reduction
D) The decision lag associated with monetary policy
E) The implementation lag associated with fiscal policy
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Chapter 16: Financial Markets: Equities and Bonds
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Q1) Which of the following is not a feature of a standard equity security?
A) It is an ownership claim
B) Dividend payments are made before corporation tax
C) It pays dividends decided by the firm
D) It gives voting rights
E) Equity holders cannot force a firm into bankruptcy
Q2) All else being equal,which of the following would cause nominal bond yields to rise?
A) a reduced risk of default
B) the expectation that the currency in which the bond was issued will depreciate
C) the expectation of price deflation
D) expansionary monetary policy
E) declining coupon rates
Q3) Which of the following may help to explain the equity premium puzzle?
A) sample selection bias
B) self-fulfilling prophecies
C) mismeasured rates of return
D) risk neutrality, or indifference to risk
E) none of the above
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Chapter 17: The Banking Sector
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Q1) A bank is termed 'too big to fail' when
A) it is of such economic importance that the government cannot allow it to fail
B) it is so large and profitable that failure is very unlikely
C) it is spread across so many countries, it cannot fail in any one country
D) it has enough money to pay off all its debts
E) all of the above
Q2) A Credit Crunch is when
A) Central Banks tighten credit conditions too much
B) interest rate are too high
C) borrowers find it hard to access credit due to restricted supply by lenders
D) Central Banks dramatically increase the supply of money
E) several banks fail at once
Q3) The broad credit channel of a credit crunch is when
A) all banks restrict credit to borrowers
B) banks restrict lending to small and medium size firms
C) even large firms find it hard to borrow due to reduced collateral values
D) both firms and households find it hard to borrow
E) Central Banks tighten credit conditions too much
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Chapter 18: Sovereign Debt and Default
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Q1) Foreign lenders are often reluctant to make loans to an emerging market country that are denominated in the country's own currency because
A) of the high risk of default
B) emerging markets suffer from debt intolerance
C) the currency might appreciate before the loan is repaid
D) the banking sector in emerging markets is often underdeveloped
E) the country might print money to repay the debt
Q2) A 'Sudden Stop' is defined as
A) A sudden halt in economic growth
B) An unexpected default
C) A sudden withdrawal of funding by foreign creditors
D) A quick restructuring of government debt
E) A downgrade by a credit rating agency
Q3) Most serial sovereign defaulters (countries that have defaulted more than 5 times since 1800) are in
A) Asia
B) Africa
C) Europe
D) Latin America
E) North America
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Chapter 19: Exchange Rate Determination I the Real
Exchange Rate
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Q1) Then on a trade-weighted basis,North's currency has effectively
A) appreciated by 23%
B) appreciated by 33%
C) appreciated by 110%
D) depreciated by 5%
E) depreciated by 13%
Q2) This country is most likely
A) experiencing a balance of payments crisis
B) accumulating $19 billion in foreign reserves
C) reducing its holding of foreign reserves by $7 billion
D) missing $11 billion in errors and omissions
E) borrowing $4 billion from the IMF
Q3) Which of the following countries has increasingly accumulated net foreign assets over the past 3 decades?
A) US
B) UK
C) Germany
D) Japan
E) Israel
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Chapter 20: Exchange Rate Determination Iinominal
Exchange Rates and Asset Markets
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Q1) A Japanese investor requires a 2% risk premium on US investments. She will acquire US assets if,on the current spot market,$1 can be exchanged for
A) more than ¥103.88
B) between ¥100 and ¥103.88
C) ¥100
D) between ¥96.19 and ¥100
E) less than ¥96.19
Q2) An American investor requires a 2% risk premium on Japanese investments. Under these conditions,the American investor will acquire Japanese assets if,on the current spot market,$1 can be exchanged for
A) more than ¥100
B) between ¥98.10 and ¥100
C) ¥98.10
D) between ¥96.26 and ¥100
E) less than ¥96.26
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Chapter 21: Currency Crises and Exchange Rate Systems
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Q1) The Guidotti-Greenspan rule suggests that foreign exchange reserves a sufficient when they
A) Cover 3 months of imports
B) are equal to 20% of GDP
C) are equal to the value of foreign currency debt
D) are equal to 20% of M2
E) are equal to short term debt of one year maturity or less
Q2) First generation models of currency crises can most reliably explain
A) the dollar crisis of the 1960s
B) Latin American currency crises in the 1970s and 1980s
C) the 1992 crisis in the European Exchange Rate Mechanism (ERM)
D) the Asian crisis of the 1990s
E) none of the above
Q3) Which of the following is true of currency crises?
A) They have become less frequent since 1978
B) They are often caused by slow, steady, capital inflows
C) They generally affect nominal exchange rates but not real exchange rates
D) They generally reduce national income
E) By making exports inexpensive and imports costly, they stimulate GDP
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