Intermediate Macroeconomics
Exam Bank
Course Introduction
Intermediate Macroeconomics delves into the core theories and analytical tools needed to understand the workings of national economies. The course explores topics such as economic growth, business cycles, inflation, unemployment, government fiscal and monetary policy, and the determinants of aggregate demand and supply. By building on introductory macroeconomic concepts, students develop a deeper understanding of how different sectors of the economy interact, the behavior of output and prices at the aggregate level, and the role of public policy in stabilizing economic fluctuations. Through the use of mathematical models and real-world applications, the course prepares students to critically analyze current economic issues and policy debates.
Recommended Textbook
Macroeconomics 9th Edition by Andrew B. Abel
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Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) A central bank is an institution that
A)pays for government expenditures.
B)controls a nation's monetary policy.
C)runs a country's stock market.
D)determines a nation's fiscal policy.
Answer: B
Q2) If a city has 3293 unemployed people and 69,884 employed people,then the city's unemployment rate equals
A)45.0%.
B)4)5%.
C)4)3%.
D)0)45%.
Answer: B
Q3) Keynes was motivated to create a macroeconomic theory different from classical theory because
A)he believed in government intervention in the economy.
B)he believed in the idea of the invisible hand.
C)monetary policy was more important than the classicals acknowledged.
D)classical theory was inconsistent with the data in the Great Depression.
Answer: D
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Chapter 2: The Measurement and Structure of the National Economy
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Sample Questions
Q1) Two years ago,the GDP deflator for Old York was 300,and today it is 330.75.Based on this information the annual average inflation rate for the two years was A)5%.
B)5)125%.
C)10%.
D)10.25%.
Answer: A
Q2) National saving equals private saving plus government saving,which in turn equals A)C + S + T.
B)GDP + C + G.
C)GDP + NFP.
D)GDP + NFP - C - G.
Answer: D
Q3) A disadvantage of chain-weighting is that
A)past inflation rates change whenever the base year changes.
B)past growth rates of real GDP change whenever the base year changes.
C)it causes output growth to slow.
D)the components of real GDP don't sum to real GDP.
Answer: D
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Chapter 3: Productivity, output, and Employment
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Sample Questions
Q1) Suppose a firm's hourly marginal product of labor is given by MPN = A (200 - N).
(a)If A = 0.2 and the real wage rate is $10 per hour,how much labor will the firm want to hire?
(b)Suppose the real wage rate rises to $20 per hour.How much labor will the firm want to hire?
(c)With the real wage rate at $10 per hour,how much labor will the firm want to hire if A rises to 0.5?
Answer: (a)The firm will hire labor such that w = MPN,or 10 = 0.2(200 - N),so N = 150.
(b)Now 20 = 0.2(200 - N),so N = 100.The firm's labor demand falls when the wage rate rises.
(c)Now 10 = 0.5(200 - N),so N = 180.The increase in productivity increases labor demand.
Q2) In the production function Y = AF(K,N),total factor productivity is A)Y/A.
B)A)
C)K/N.
D)Y/N. Answer: B
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Chapter 4: Consumption, saving, and Investment
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Sample Questions
Q1) What is the difference between gross investment and net investment?
A)Net investment = gross investment minus taxes
B)Net investment = gross investment minus net factor payments
C)Net investment = gross investment minus inventory accumulation
D)Net investment = gross investment minus depreciation
Q2) In the goods market equilibrium condition for a closed economy,the total demand for goods equals
A)C<sup>d</sup> + I<sup>d</sup>
B)C<sup>d</sup> + I<sup>d </sup>+ G
C)C<sup>d</sup> + I<sup>d</sup> - G
D)C<sup>d</sup> + G - I<sup>d</sup>
Q3) With a nominal interest rate of 4%,an expected inflation rate of 1%,and interest income taxed at a rate of 25%,what is the expected real after-tax interest rate?
A)3%
B)2%
C)1%
D)0%
Q4) What is the marginal propensity to consume,and why is it always less than one?
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Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) If the United States sells computers to Russia,and uses the proceeds to buy shares of stock in Russian companies,the U.S.trade balance ________ and the U.S.financial account balance ________.
A)rises; rises
B)rises; falls C)falls; falls D)falls; rises
Q2) Assume that an increase in Costa Rica's government budget deficit reduced desired national saving by 10 million colon.Assuming Costa rice is a small open economy,you would expect the government's action to
A)increase the current account balance by exactly 10 million colon.
B)increase the current account balance by less than 10 million colon.
C)reduce the current account balance by exactly 10 million colon.
D)reduce the current account balance by more than 10 million colon.
Q3) In a small open economy,describe what happens when an increase in wealth causes national saving to decline.Explain the impact on the real interest rate,saving,investment,net exports,and absorption in equilibrium.
Q4) How did the United States become a net debtor in the 1980s? Is our foreign debt a significant problem? Explain.
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Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) In the steady-state diagram of the Solow model,an increase in saving per worker is shown by
A)shifting the saving-per-worker curve down, resulting in a lower steady-state capital-labor ratio.
B)shifting the saving-per-worker curve up, resulting in a higher steady-state-capital-labor ratio.
C)shifting the saving-per-worker curve up, resulting in a lower steady-state capital-labor ratio.
D)shifting the saving-per-worker curve down, resulting in a higher steady-state capital-labor ratio.
Q2) Steady-state investment per worker is positively related to the capital-labor ratio because the higher the capital-labor ratio
A)the lower the capital depreciation rate.
B)the greater the amount of resources available for capital investment.
C)the more investment per worker is required to replace depreciating capital.
D)the less the economy needs to equip new workers with the same high level of capital.
Q3) What types of government policies can increase long-run living standards?
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Chapter 7: The Asset Market, money, and Prices
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Sample Questions
Q1) The use of money is more efficient than barter because the introduction of money
A)reduces the need for economic specialization.
B)reduces the need to exchange goods.
C)reduces the need for other stores of value.
D)reduces transaction costs.
Q2) If the nominal money supply grows 6%,real income rises 2%,and the inflation rate is 5%,then the income elasticity of money demand is A)0)5.
B)0)75.
C)1)0.
D)1)5.
Q3) Suppose a new law imposes a tax on all trades of bonds and stock.What is the likely effect on money demand?
A)Money demand declines first, then rises when inflation increases.
B)Money demand rises.
C)The overall effect is ambiguous.
D)Money demand declines.
Q4) What are the major components of M1? What are the major components of M2? Describe each component.
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Chapter 8: Business Cycles
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Sample Questions
Q1) The worst recessions after World War II occurred
A)during 1945-1946 and 1973-1975.
B)during 1957-1958 and 1973-1975.
C)during 1973-1975 and 1981-1982.
D)during 1945-1946 and 1981-1982.
Q2) Which of the following macroeconomic variables would you include in an index of leading economic indicators?
A)Employment
B)Inflation
C)Real interest rates
D)Residential investment
Q3) According to Keynesian macroeconomists,prices adjust ________ to shocks,so the government should ________.
A)slowly; do little
B)rapidly; do little
C)rapidly; fight recessions
D)slowly; fight recessions
Q4) What are some of the problems with using the leading indicators to forecast recessions? If you were a policymaker,would you rely on them?
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Chapter 9: The Is-Lmad-As Model
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Sample Questions
Q1) The aggregate supply curve shows the relation between
A)the real interest rate and the aggregate amount of output that firms supply.
B)the price level and the aggregate amount of output that firms supply.
C)the supply of goods by firms and the price of goods relative to the price of nonmonetary assets.
D)the inflation rate and the unemployment rate.
Q2) At a given output level,a temporary reduction in government purchases will
A)increase desired saving, causing the IS curve to shift down and to the left.
B)increase desired saving, causing the IS curve to shift up and to the right.
C)decrease desired saving, causing the IS curve to shift down and to the left.
D)decrease desired saving, causing the IS curve to shift up and to the right.
Q3) Identify changes in three variables that would cause the FE line to shift to the right.
Q4) When the money supply declines by 10%,in the long run,output ________ and the price level ________.
A)is unchanged; is unchanged
B)declines; falls
C)is unchanged; falls
D)declines; is unchanged
Q5) Describe what happens to the FE line if government purchases increase.
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Chapter 10: Classical Business Cycle Analysis
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Sample Questions
Q1) Assuming that money is neutral,an increase in the nominal money supply would cause
A)an excess supply for goods.
B)an increase in the real money supply.
C)a fall in the price level.
D)a rise in nominal wages.
Q2) The basic classical model can account for the procyclical behavior of money if there
A)are real business cycles caused by productivity shocks.
B)is reverse causation from future output to money.
C)are rational expectations among the public.
D)are propagation mechanisms in the economy.
Q3) Research on productivity shocks has shown that
A)productivity shocks have only nominal effects.
B)there have been no identifiable productivity shocks in the U.S. economy since World War II.
C)small productivity shocks can explain large business cycle fluctuations.
D)large productivity shocks produce only small deviations in aggregate output.
Q4) According to the real business cycle theory,what is the principal cause of business cycle fluctuations?
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Chapter 11: Keynesianism: the Macroeconomics of Wage and Price Rigidity
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Sample Questions
Q1) In the efficiency wage model,if the real wage is higher than the market-clearing wage so that there is an excess supply of labor
A)firms will hire new workers at lower wages.
B)firms will replace high-paid workers with low-paid, formerly unemployed workers.
C)employers will not hire workers who are willing to work for a lower wage.
D)firms will demand a higher level of effort from existing employees.
Q2) Do the real effects of aggregate demand shocks differ in the short run and long run in the Keynesian sticky-price model from the effects of these shocks in the classical model of perfectly flexible prices? Briefly explain.
Q3) In the Keynesian model,firms are best characterized as
A)perfectly competitive.
B)irrational.
C)price takers.
D)monopolistically competitive.
Q4) Describe the effects of an oil price shock in a Keynesian model; why are such supply shocks difficult to handle using macroeconomic stabilization policies?
Q5) Why might firms pay an efficiency wage rather than a market-clearing wage?
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Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) Can macroeconomic policy be used systematically to create unanticipated inflation?
A)No, according to Keynesian economists.
B)Yes, according to classical economists.
C)No, according to classical economists.
D)Yes, according to Keynesian economists, if Ricardian equivalence holds.
Q2) The origin of the idea of a trade-off between inflation and unemployment was a 1958 article by
A)A)W. Phillips.
B)Edmund Phelps.
C)Milton Friedman.
D)Robert Gordon.
Q3) What are the pros and cons of using cold turkey disinflation compared to a policy of gradualism?
Q4) Examining data on cyclical unemployment plotted against unanticipated inflation shows
A)a positive relationship.
B)a negative relationship.
C)no significant relationship.
D)a relationship only during the 1960s.
Page 14
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Chapter 13: Exchange Rates, business Cycles, and
Macroeconomic Policy in the Open Economy
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Q1) In an open economy,an increase in foreign output would cause the IS curve to shift ________ and a decrease in the foreign real interest rate would cause the IS curve to shift ________.
A)down; down
B)down; up
C)up; down D)up; up
Q2) In the Keynesian model of an open economy,a temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.
A)lower; increase B)lower; decrease C)raise; increase
D)raise; decrease
Q3) Purchasing power parity does not hold in the short to medium run because A)exports don't equal imports.
B)exchange rates fluctuate too much.
C)some goods aren't internationally traded.
D)most business cycles are caused by shocks to aggregate demand.
Page 15
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Chapter 14: Monetary Policy and the Federal Reserve System
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Sample Questions
Q1) In response to an unanticipated tightening of monetary policy,the price level ________ at first,then ________ after a year.
A)rises; returns most of the way to its original value
B)falls; returns most of the way to its original value
C)remains roughly unchanged; begins to rise
D)remains roughly unchanged; begins to fall
Q2) The primary purpose of the discount window is to
A)influence the nation's money supply.
B)fulfill the bank's lender of last resort role.
C)control banks' excess reserves.
D)influence the amount of loans that banks provide to the public.
Q3) In the Keynesian model,suppose the Fed sets a target for the real interest rate.If the IS curve shifts up and to the right,and the Fed wants to keep output unchanged in the short run and the price level unchanged in the long run,it will
A)shift the LR curve up.
B)not shift the LR curve.
C)shift the LR curve down.
D)shift the IS curve up and to the right.
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) Which of the following would not act as an automatic stabilizer?
A)Unemployment insurance
B)Government purchases
C)Personal income taxes
D)Corporate income taxes
Q2) Social Security benefits could be reduced in each of the following ways except
A)cutting the promised monthly benefit.
B)increasing the retirement age.
C)investing the trust fund in the stock market.
D)reducing the degree to which benefits are adjusted for inflation.
Q3) If the deficit is 0.08 times GDP,the existing debt-GDP ratio is 0.8,and the growth rate of nominal GDP is 0.05,then the change in the debt-GDP ratio is
A)+0.08
B)+0.04.
C)0)
D)-0.08.
Q4) Suppose that real GDP is 10,000 and remains constant,nominal GDP is initially 30,000,inflation is 3%,and the debt-GDP ratio is 0.7.Find the largest nominal deficit that the government can run without raising the debt-GDP ratio.
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