Intermediate Macroeconomics Exam
Review
Course Introduction
Intermediate Macroeconomics delves into the core theories and models that explain aggregate economic behavior, building on the fundamentals of introductory macroeconomics. This course explores topics such as national income determination, economic growth, unemployment, inflation, fiscal and monetary policy, business cycles, and international macroeconomic relationships. Emphasis is placed on the development and application of modern macroeconomic models, including the IS-LM and AD-AS frameworks, to analyze real-world economic issues and policy debates. By the end of the course, students will develop analytical tools for evaluating the impact of various macroeconomic policies and understanding the dynamic nature of national and global economies.
Recommended Textbook
Macroeconomics 5th Edition by Stephen D. Williamson
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Chapter 1: Introduction
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Q1) Government debt is different from individual debt because A) the government can always tax to reduce it.
B) the government cannot declare bankruptcy.
C) the government does not need to pay interest.
D) the government can decide the interest rate.
Answer: A
Q2) Unemployment,at the aggregate level., A) is avoidable.
B) is part of a well-functioning economy.
C) is always a sign of market failure.
D) would not happen with good policy.
Answer: B
Q3) An increase in energy prices is a likely cause of A) Great Depression.
B) Korean War inflation.
C) the recession in 1973-1975.
D) the Great Moderation.
Answer: C
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Chapter 2: Measurement
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Q1) The income components of GDP include all of the following except A) wage income.
B) foreign income.
C) net interest income.
D) after-tax profits.
Answer: B
Q2) If Year 1 is the base year,the CPI for Year 2 is approximately
A) 100.0.
B) 126.3.
C) 131.3.
D) 181.0.
Answer: C
Q3) Suppose we have the following information about a car manufacturer: car sales
$1000M,steal purchases $600M,wages $300M,interest on business loans $50M,and profits $50M. What is its contribution to GDP using the product approach?
A) $1000M
B) $600M
C) $400M
D) $350M
Answer: C
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Chapter 3: Business Cycle Measurement
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Q1) An example of a leading variable in the US is
A) GDP.
B) investment is structures.
C) the consumer price index.
D) housing starts.
Answer: D
Q2) Which of the following is not a correct characterization of the U.S. business cycle?
A) Investment is procyclical.
B) Consumption is procyclical.
C) Investment is highly variable.
D) Consumption is highly variable.
Answer: D
Q3) A time series is
A) the length of a business cycle.
B) a macroeconomic aggregate that does not lead or lag the business cycle.
C) data that is subject to revision.
D) a sequence of dated measurements.
Answer: D
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Chapter 4: Consumer and Firm Behavior: The Work-Leisure
Decision and Profit Maximization
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Q1) When the wage increases,the substitution effect in the household's choices leads to
A) a decrease in consumption and leisure.
B) a decrease in consumption and an increase in leisure.
C) an increase in consumption and a decrease in leisure.
D) an increase in consumption and leisure.
Q2) A utility function
A) needs to measure the absolute level of happiness.
B) needs to measure relative amounts of happiness for a single individual.
C) helps compare the relative happiness of two separate consumers.
D) is most useful if it can be influenced by others.
Q3) In a one-period economy,real consumption
A) is always less than disposable income.
B) is typically greater than disposable income.
C) is exactly equal to disposable income.
D) can be greater than, less than, or equal to disposable income.
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Chapter 5: A Closed-Economy One-Period Macroeconomic
Model
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Q1) In the model of public goods,when the government chooses public goods provision optimally
A) there is no public goods production.
B) public goods are provided in an amount equal to private goods.
C) the marginal rate of substitution of private goods for public goods equals the marginal rate of transformation.
D) GDP is maximized.
Q2) How does an increase in the proportional labor income tax modify the consumer's budget constraint?
A) a parallel move up
B) a parallel move down
C) the slope decreases (constraint gets steeper)
D) the slope increases (constraint gets flatter)
Q3) An increase in government spending
A) increases consumption and output.
B) increases consumption, decreases output.
C) decreases consumption, increases output.
D) decreases consumption and output.
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Chapter 6: Search and Unemployment
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Q1) If N is the working-age population,Q is the labor force,and U is the number of unemployed,then the participation rate is measured as
A) U/N
B) Q/U
C) Q/N
D) (Q-U)/N
Q2) In the DMP model
A) the market wage is equal to the marginal product of labor.
B) the market wage is equal to the marginal rate of substitution of leisure for consumption.
C) the wage is equal to the marginal rate of transformation.
D) the wage is determined by bargaining between the firm and the worker.
Q3) In the DMP model,a decrease in productivity
A) decreases the unemployment rate.
B) reduces the vacancy rate.
C) increases the unemployment rate.
D) increases the size of the labor force.
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Chapter 7: Economic Growth: Malthus and Solow
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Q1) In the Solow growth model,the law of motion of capital takes into account
A) the residential nature of houses.
B) the mobility of capital.
C) the depreciation of old capital.
D) the cost of shipping and installing capital.
Q2) In Solow's exogenous growth model,the economy reaches a stable steady state because
A) the marginal return of capital is decreasing.
B) capital is growing at a constant rate.
C) the substitution effect is stronger than the income effect.
D) conditional convergence holds.
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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Q1) Schooling is subsidized in the United States in part A) so that the golden rule capital level can be reached. B) because otherwise people would not get educated.
C) because there is a constitutional right to education.
D) because there is a positive externality from schooling.
Q2) Human capital is knowledge in A) books.
B) people.
C) firms.
D) government.
Q3) Barriers to Riches,by S. Parente and E. Prescott,emphasizes the importance of A) barriers to technological adoption.
B) barriers to the development of natural resources.
C) public education.
D) endogenous growth.
Q4) 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.
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Chapter 9: A Two-Period Model: The Consumption-Savings
Decision and Credit Markets
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Q1) Why is it important that consumers respond differently to temporary and permanent increases in their incomes?
A) This implies that consumption will be highly sensitive to temporary changes in income.
B) This implies that a temporary tax cut will have a larger effect than a permanent one on current consumption.
C) this tells us that the timing of income increases for consumers is irrelevant.
D) this has implications for the relative effects of temporary and permanent tax cuts.
Q2) Intertemporal decisions involve economic decisions
A) made within a given period of time.
B) made in between two periods of time.
C) involving trade-offs across periods of time.
D) that ignore concerns about the future.
Q3) In the data,which of the following is most volatile?
A) real GDP
B) consumption of durables
C) consumption of nondurables
D) consumption of services
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Chapter 10: Credit Market Imperfections: Credit Frictions,
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Q1) The negative impact of the loss of value of collateralized assets is due to A) asymmetric information.
B) Ricardian Equivalence.
C) limited commitment.
D) financial intermediation through banks.
Q2) In the two-period model,the budget constraint is kinked for all of these reasons,except
A) the real interest rate is greater than zero.
B) there are costs to banks from lending and borrowing.
C) there is asymmetric information in the credit market.
D) there is limited commitment in the credit market.
Q3) If there is limited commitment and the government is no better at collecting on its debts than is the private sector,then
A) Ricardian equivalence holds.
B) the private sector can benefit from a government loan program.
C) Ricardian equivalence does not hold.
D) the Fisher relation does not hold.
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Chapter 11: A Real Intertemporal Model with Investment
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Q1) The equilibrium effects of a prospective future increase in total factor productivity include
A) an increase in the real wage and an increase in the real interest rate.
B) an increase in the real wage and a decrease in the real interest rate.
C) a decrease in the real wage and an increase in the real interest rate.
D) a decrease in the real wage and a decrease in the real interest rate.
Q2) The marginal cost of investment for the firm is equal to A) 1.
B) -1.
C) MP'K.
D) -MP'K.
Q3) In the real intertemporal model,if future total factor productivity increases,this captures the effects of A) intemporal substitution.
B) Ricardian equivalence.
C) the government expenditure multiplier.
D) news shocks.
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Chapter 12: Money, Banking, Prices, and Monetary Policy
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Q1) The current demand for money increases when
A) current real income decreases.
B) future real income decreases.
C) the nominal rate of interest decreases.
D) none of the above.
Q2) If an increase in the level of money supply leads to a proportionate increase in prices with no effect on real variables ,we say that
A) the Fisher relationship holds.
B) money is neutral.
C) money is superneutral.
D) money is a medium of exchange.
Q3) The introduction of sweep accounts
A) was an open market purchase.
B) was a failure.
C) had no effect.
D) caused a reduction in the demand for money.
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Chapter 13: Business Cycle Models with Flexible Prices and Wages
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Q1) In the real business cycle model,a persistent increase in total factor productivity
A) has no effect on the real interest rate.
B) unambiguously increases the real interest rate.
C) unambiguously decreases the real interest rate.
D) has a theoretically ambiguous effect on the real interest rate.
Q2) Real business cycle theory was introduced by
A) Milton Friedman and Robert Lucas.
B) Milton Friedman and Anna Schwartz.
C) Thomas Cooley and Gary Hansen.
D) Finn Kydland and Edward Prescott.
Q3) Extraneous events that are completely unrelated to economic fundamentals are called
A) moonbeams.
B) black holes.
C) sunspots.
D) time warps.
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Chapter 14: New Keynesian Economics: Sticky Prices
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Q1) Consider two alternative worlds: (i)the world works according the real business cycle model,and the central bank acts to stabilize the price level; (ii)the world works according to the New Keynesian sticky price model,and the central bank acts to make the output gap zero. Which is correct?
A) We would prefer to live in world (ii).
B) We would prefer to live in world (i).
C) The data cannot tell us whether we are living in world (i) or world (ii).
D) in either world, the central bank is irrelevant.
Q2) Suppose that there is an increase in the demand for money. What is the appropriate monetary policy response in the New Keynesian sticky price model?
A) an increase in the interest rate target
B) no change in the interest rate target
C) a decrease in the interest rate target
D) an increase in government spending
Q3) If prices in the New Keynesian model were perfectly flexible,then
A) there would be a role for monetary policy.
B) the output gap would be positive.
C) the equilibrium real interest rate would be the natural rate of interest.
D) the output gap would be negative.
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Chapter 15: International Trade in Goods and Assets
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Q1) In a two-period model,holding everything else constant,an increase in current taxes
A) unambiguously increases the current account surplus.
B) unambiguously decreases the current account surplus.
C) has an uncertain effect on the current account surplus.
D) has no effect on the current account surplus, as long as Ricardian equivalence holds.
Q2) A current account deficit is
A) good because a country wants to own the others.
B) bad because every country should have a surplus.
C) good because it allows to smooth consumption.
D) it does not matter.
Q3) 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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Q1) In the monetary small open-economy model with a fixed exchange rate,a devaluation of the domestic currency in the absence of any other shocks
A) increases the current account surplus and has no effect on the domestic money supply.
B) decreases the current account surplus and has no effect on the domestic money supply.
C) increases the domestic money supply and has no effect on the current account surplus.
D) decreases the domestic money supply and has no effect on the current account surplus.
Q2) The acquisition of a domestic financial asset by a foreign resident is called
A) foreign direct investment.
B) foreign capital investment.
C) a portfolio inflow.
D) a portfolio outflow.
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Chapter 17: Money, Inflation, and Banking
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Q1) Banks in the Diamond-Dybvig model can offer depositors increased liquidity because
A) both individual depositors' liquidity needs and average depositor liquidity needs are predictable.
B) while individual depositors' liquidity needs are unpredictable, average depositor liquidity needs are predictable.
C) while individual depositors' liquidity needs are predictable, average depositor liquidity needs are unpredictable.
D) neither individual depositors' liquidity needs nor average depositor liquidity needs are predictable.
Q2) Circulating private bank notes
A) have never been used in the United States.
B) were widely used in the Free Banking Era.
C) were widely used in the United States during the Great Depression.
D) are still currently in use in Canada.
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Chapter 18: Inflation, the Phillips Curve, and Central Bank Commitment
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Q1) In the Friedman-Lucas money surprise model
A) productivity growth causes real GDP to fluctuate.
B) a Phillips curve relationship does not arise.
C) workers are perfectly informed.
D) an increase in money growth increases aggregate output because workers interpret an increase in nominal wages as an increase in real wages.
Q2) The rational expectations hypothesis means that
A) economic agents can predict the future.
B) economic agents do not make systematic errors.
C) everyone expects everyone else to act rationally.
D) economic agents reason with expectations.
Q3) 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.
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