Intermediate Macroeconomics
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Course Introduction
Intermediate Macroeconomics builds upon foundational macroeconomic principles to explore the behavior and performance of economies as a whole. This course delves into key topics such as national income determination, economic growth, unemployment, inflation, monetary and fiscal policy, and international macroeconomic relations. Students engage with theoretical models including the IS-LM, AD-AS, and Solow growth models to understand how policy decisions and external shocks impact economic stability and long-term development. Real-world data and recent economic events are integrated to illustrate concepts and enhance practical analytical skills.
Recommended Textbook Macroeconomics 5th Edition by Stephen
D. Williamson
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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) A likely explanation for the 2008-2009 recession is
A) an increase in energy prices.
B) financial market problems.
C) a drastic reduction in government expenses.
D) an increase in taxes.
Answer: B
Q3) According to the Lucas critique,changes in economic policy are likely to have important effects on
A) the available amounts of natural resources.
B) the behavior of consumers and firms.
C) the preferences of consumers.
D) none of the above.
Answer: B
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Page 3
Chapter 2: Measurement
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Sample Questions
Q1) The income-expenditure identity is best paraphrased as A) all spending generates income.
B) all profits are used for investment spending.
C) on average, consumers cannot save.
D) on average, government can spend no more than what it collects in income taxes.
Answer: A
Q2) If a particular measure of real GDP consistently underestimates growth in real GDP,then the rate of inflation as measured by the GDP deflator
A) will be biased upward.
B) will be biased downward.
C) will be unbiased.
D) cannot be calculated.
Answer: A
Q3) Real GDP values current production at A) current year prices.
B) the best estimate of next year's prices.
C) the average of price levels over the entire sample period.
D) base year prices.
Answer: D
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Page 4
Chapter 3: Business Cycle Measurement
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Sample Questions
Q1) One example of a Phillips Curve would be 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: C
Q2) The weight of empirical evidence suggests that in the United States,the real wage rate is
A) acyclical.
B) bicyclical.
C) procyclical.
D) countercyclical.
Answer: C
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Page 5
Chapter 4: Consumer and Firm Behavior: The Work-Leisure
Decision and Profit Maximization
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Sample Questions
Q1) As the quantity of labor increases,the marginal product of labor A) is constant.
B) increases.
C) decreases.
D) may either increase or decrease.
Q2) The fact that indifference curves are downward sloping A) is not true.
B) follows from the fact that more is preferred to less.
C) follows from the property that the consumer likes diversity in his or her consumption bundle.
D) follows from the property that consumption and leisure are normal goods.
Q3) An increase in total factor productivity shifts the production function
A) upward and increases the marginal product of labor.
B) upward and decreases the marginal product of labor.
C) downward and increases the marginal product of labor.
D) downward and decreases the marginal product of labor.
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6
Chapter 5: A Closed-Economy One-Period Macroeconomic Model
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Sample Questions
Q1) Proportional income taxation is distorting because
A) people do all they can to avoid paying taxes.
B) the competitive equilibrium is not Pareto optimal.
C) firms do all they can to avoid paying taxes.
D) the government budget constraint does not hold.
Q2) In a general equilibrium model
A) all markets but one clear.
B) there are no fluctuations.
C) all prices are exogenous.
D) all prices are endogenous.
Q3) In the model of public goods
A) government spending is pure waste
B) private consumption and government spending are equal.
C) consumers benefit from private goods and public goods.
D) the government provides goods at no cost to the public.
Q4) The PPF determines
A) all possible outcomes for a given wage.
B) the set of feasible outcomes.
C) given leisure, how much consumption a household wants.
D) the share of consumption in output.
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Chapter 6: Search and Unemployment
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Sample Questions
Q1) The participation rate is
A) countercyclical
B) more variable than GDP
C) procyclical
D) a leading variable
Q2) In the DMP model,an increase in the unemployment insurance benefit does not,under any circumstances
A) increase the vacancy rate.
B) increase the unemployment rate.
C) reduce labor market tightness.
D) reduce the size of the labor force.
Q3) In the Keynesian DMP model,if the wage is high then A) the vacancy rate is low.
B) the unemployment rate is low.
C) labor market tightness is high.
D) the labor force must be low.
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Chapter 7: Economic Growth: Malthus and Solow
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Sample Questions
Q1) In Solow's exogenous growth model,the principal obstacle to continuous growth in output per capita is due to
A) the declining marginal product of labor.
B) the declining marginal product of capital.
C) limits in the ability of government policymakers.
D) too little savings.
Q2) In the Malthusian model,improvements in health care lead to
A) higher population and higher per-capita production.
B) higher population and lower per-capita production.
C) lower population and higher per-capita production.
D) lower population and lower per-capita production.
Q3) If an epidemic hits a Malthusian economy,the immediate consequence is
A) an increase in the standard of living.
B) a reduction in the standard of living.
C) no change in the standard of living.
D) dependent on the population growth rate.
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Chapter 8: Income Disparity Among Countries and Endogenous Growth
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Sample Questions
Q1) Endogenous growth theory is about
A) the welfare of indigenous people.
B) explaining growth.
C) studying fertility choices.
D) giving more importance to capital accumulation.
Q2) In the endogenous growth model presented in the text,suppose that u represents the fraction of time spent working (as opposed to accumulating human capital)and b represents the efficiency of human capital accumulation. The growth rate of human capital equals
A) u(1 - b) - 1.
B) 1 + b(1 - u).
C) (1 + b)(1 - u).
D) b(1 - u) - 1.
Q3) If there are human capital externalities,then
A) human capital should be taxed.
B) convergence in per capita incomes occurs.
C) differences in human capital across countries can persist.
D) pollution is a problem.
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Chapter 9: A Two-Period Model: The Consumption-Savings
Decision and Credit Markets
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Sample Questions
Q1) Why don't consumers work in the two-period model?
A) It's a convenient simplification.
B) It would make no difference to the model if consumers could work.
C) People who participate in real-world credit markets do not work.
D) We don't know how to include workers in the model.
Q2) For a lender in a (c,c')graph,the optimal consumption bundle is
A) to the left of the endowment point.
B) to the right of the endowment point.
C) on the endowment point.
D) dependent on other factors.
Q3) If current income increases as much as future income decreases
A) current consumption decreases.
B) current consumption stays the same.
C) current consumption increases.
D) We do not know.
Q4) Ricardian equivalence implies
A) that when the government borrows more, the market real interest rate goes up.
B) that if the government saves less, then the nation saves less.
C) that when taxes are cut people consume more.
D) that consumers will save their tax cuts to pay their future taxes.
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Sample Questions
Q1) Why do consumers benefit from pay-as-you-go social security?
A) It keeps inflation in check as money is redistributed.
B) It is a better way than taxes to finance the government.
C) It forces people to save more than they would otherwise.
D) With sufficiently high population growth, many young contribute to the benefits of the old.
Q2) 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.
Q3) In the two-period model with asymmetric information,a bank
A) creates money.
B) keeps money safely.
C) multiplies reserves.
D) borrows and lends.
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Page 12
Chapter 11: A Real Intertemporal Model with Investment
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Sample Questions
Q1) In response to a temporary increase in government spending,the representative consumer consumes
A) more and takes more leisure.
B) more and takes less leisure.
C) less and takes more leisure.
D) less and takes less leisure.
Q2) When drawn against the real interest rate,output demand increases if
A) current government expenses increase.
B) future government expenses increase.
C) current taxes increase.
D) future taxes increase.
Q3) 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.
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13
Chapter 12: Money, Banking, Prices, and Monetary Policy
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Sample Questions
Q1) The Taylor rule
A) is a rule stating that money should grow at a constant rate.
B) is not considered to be a practical policy rule for central banks to follow.
C) dictates that the central bank's target interest rate be responsive to real economic activity and to inflation.
D) dictates that the nominal interest rate stay constant in the long run.
Q2) The money supply is vertical because
A) prices are indeterminate.
B) prices have no real impact.
C) the money supply is set by policy.
D) prices are counter-cyclical.
Q3) The money supply is
A) endogenous.
B) determined by policy.
C) irrelevant.
D) indeterminate.
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14
Chapter 13: Business Cycle Models with Flexible Prices and Wages
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Sample Questions
Q1) For the coordination failure model to work,it must be the case that the aggregate labor demand curve must be
A) upward sloping and steeper than the labor supply curve.
B) upward sloping and flatter than the labor supply curve.
C) downward sloping and steeper than the labor supply curve.
D) downward sloping and flatter than the labor supply curve.
Q2) Business cycle models with flexible prices
A) are all non-Keynesian models.
B) were first introduced in the General Theory of Employment, Interest, and Money.
C) the only business cycle models in use.
D) none of the above.
Q3) A model with coordination failures has
A) agents that do not act rationally.
B) multiple equilibria.
C) a government that is too large.
D) a tax rate that is too high.
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15
Chapter 14: New Keynesian Economics: Sticky Prices
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Sample Questions
Q1) Total factor productivity shocks are not a good explanation of economic fluctuations in the New Keynesian model for all the following reasons except
A) they do not generate output fluctuations.
B) employment drops when TFP increases.
C) the real wage drops when TFP increases.
D) they do not generate price fluctuations.
Q2) 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.
Q3) Stabilization policy is policy that seeks to
A) get zero inflation.
B) eliminate fluctuations.
C) eradicate unemployment.
D) maximize output.
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Page 16
Chapter 15: International Trade in Goods and Assets
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Sample Questions
Q1) In a two-period model with default,the nation defaults on its debt in the current period if
A) the market interest rate is high, the cost of defaulting is low, and national debt is high.
B) the market interest rate is low, the cost of defaulting is low, and national debt is high.
C) the market interest rate is high, the cost of defaulting is high, and national debt is low.
D) the market interest rate is low, the cost of defaulting is high, and national debt is low.
Q2) 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.
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Chapter 16: Money in the Open Economy
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Sample Questions
Q1) The nominal exchange rate is the
A) domestic currency price of foreign currency.
B) foreign currency price of domestic currency.
C) price of domestic goods in terms of foreign goods.
D) price of foreign goods in terms of domestic goods.
Q2) In the monetary small open-economy model with a fixed exchange rate,an increase in the domestic price level has which impact on domestic money demand?
A) It increases it.
B) It decreases it.
C) It has no impact.
D) It depends.
Q3) If purchasing power parity holds,the exchange rate (e)can be expressed as a function of the domestic price (P)and the foreign price (P*)as
A) e = P - P*.
B) e = P* - P.
C) e = P* + P.
D) e = P/P*.
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18
Chapter 17: Money, Inflation, and Banking
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Sample Questions
Q1) Which of the following properties must a good have to be used as money?
A) It should be a durable good.
B) It should be issued by a government of central bank.
C) It should have intrinsic value.
D) It should be shiny.
Q2) The major disadvantage of commodity money is that A) anybody can issue it and walk away.
B) its value fluctuates with the scarcity of the commodity.
C) it is subject to dollarization.
D) the central bank cannot be prevented from issuing too much of it.
Q3) A double coincidence of wants problem can be overcome by A) commodity money.
B) fiat money.
C) banks.
D) all of the above.
Q4) If money is superneutral,
A) a one-time change in the money supply has no real impact.
B) a one-time change in the money supply has a real impact.
C) a change in the money growth rate has no real impact.
D) a change in the money growth rate has a real impact.
Page 19
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Chapter 18: Inflation, the Phillips Curve, and Central Bank Commitment
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Sample Questions
Q1) A)W. Phillips' study of unemployment and inflation in the United Kingdom specifically looked at the empirical relationship between the unemployment rate and the
A) rate of change in prices.
B) rate of change in nominal wages.
C) rate of change in real wages.
D) level of nominal wages.
Q2) The original work on the application of the time inconsistency problem in macroeconomics is due to
A) Milton Friedman and Robert Lucas.
B) Michael Hutchinson and Carl Walsh.
C) Finn Kydland and Edward Prescott.
D) Robert Barro and Donald Gordon.
Q3) Time inconsistency means
A) taking different decisions at different times despite facing the same situation.
B) making policy choices that violate the intertemporal budget constraint.
C) deciding to do something tomorrow, and then doing something different tomorrow.
D) adding a random factor to decisions.
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Page 20