Intermediate Macroeconomics
Exam Solutions
Course Introduction
Intermediate Macroeconomics builds upon the foundational principles introduced in introductory macroeconomics, offering a deeper exploration of the economys aggregate performance and long-term growth. The course covers critical topics such as national income determination, unemployment, inflation, economic fluctuations, fiscal and monetary policy, and the open economy. Emphasis is placed on modern macroeconomic models, including IS-LM, AD-AS, and growth frameworks such as Solow and endogenous growth theories. Through analysis of real-world case studies and quantitative methods, students develop the analytical skills necessary to evaluate current macroeconomic issues, policy decisions, and their broader implications for societies and global markets.
Recommended Textbook
Macroeconomics 9th Edition by Andrew B. Abel
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15 Chapters
1566 Verified Questions
1566 Flashcards
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Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) If the theory behind an economic model fits the data poorly,you would probably want to
A)use the theory to predict what would happen if the economic setting or economic policies change.
B)start from scratch with a new model.
C)enrich the model with additional assumptions.
D)restate the research question.
Answer: B
Q2) The main reason that the United States has such a high standard of living is
A)low unemployment.
B)high average labor productivity.
C)low inflation.
D)high government budget deficits.
Answer: B
Q3) A country has a trade surplus when
A)imports exceed exports.
B)imports equal exports.
C)exports exceed imports.
D)imports equal zero.
Answer: C
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Chapter 2: The Measurement and Structure of the National Economy
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110 Flashcards
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Sample Questions
Q1) The uses-of-saving identity shows that if the government budget deficit rises,then one of the following must happen.
A)Private saving must rise, investment must fall, and/or the current account must fall.
B)Private saving must rise, investment must fall, and/or the current account must rise.
C)Private saving must rise, investment must rise, and/or the current account must fall.
D)Private saving must fall, investment must rise, and/or the current account must rise.
Answer: A
Q2) The uses-of-saving identity says that an economy's private saving is used for A)investment, interest expenses, and the government budget deficit.
B)investment, the government budget deficit, and the current account.
C)investment, interest expenses, the government budget deficit, and the current account.
D)investment, interest expenses, the government budget deficit, transfer payments, and the current account.
Answer: B
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Page 4
Chapter 3: Productivity, output, and Employment
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111 Flashcards
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Sample Questions
Q1) A decrease in the real wage would result in a
A)movement along the labor demand curve, causing an increase in the number of workers hired by the firm.
B)shift of the labor demand curve, causing an increase in the number of workers hired by the firm.
C)movement along the labor demand curve, causing a decrease in the number of workers hired by the firm.
D)shift of the labor demand curve, causing a decrease in the number of workers hired by the firm.
Answer: A
Q2) In the production function Y = AF(K,N),A is ________,K is ________,and N is
A)total factor productivity; the capital stock; the number of workers employed
B)total factor productivity; investment; the number of workers employed
C)the productivity of labor; the capital stock; the size of the labor force
D)the productivity of labor; investment; the size of the labor force
Answer: A
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Page 5
Chapter 4: Consumption, saving, and Investment
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Sample Questions
Q1) If the government cuts taxes today,issuing debt today and repaying the debt plus interest next year,a rational taxpayer will
A)spend the full amount of the tax cut today and reduce consumption next year.
B)increase consumption today, before taxes go up next year.
C)increase saving today, leaving consumption unchanged.
D)leave a smaller gross bequest to her or his heirs.
Q2) Onerous regulations on businesses that take effect next year (in a closed economy)reduce businesses' expected future marginal product of capital.As a result,the real interest rate ________ and saving ________.
A)falls; declines
B)falls; increases
C)rises; increases
D)rises; declines
Q3) Draw a diagram showing the determination of a firm's optimal capital stock,showing the relationship between the user cost of capital and the future marginal product of capital.Suppose the real interest rate declines.Show what happens to the firm's optimal capital stock.What happens to the firm's desired investment?
Q4) What is the marginal propensity to consume,and why is it always less than one?
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Page 6
Chapter 5: Saving and Investment in the Open Economy
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118 Flashcards
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Sample Questions
Q1) Consider a large open economy.What are the effects,in equilibrium,on the world real interest rate,domestic national saving,domestic investment,the domestic current account balance,foreign national saving,foreign investment,and the foreign current account balance in each of the following scenarios? Show a diagram to illustrate your results.
(a)current income rises in the foreign country
(b)the future marginal product of capital rises in the domestic country
(c)wealth rises in the foreign country
Q2) The difference between the current account balance and net exports is
A)the capital account.
B)net unilateral transfers plus net factor payments from abroad.
C)adjustments in net foreign assets.
D)income receipts from foreign assets.
Q3) When future labor income falls in a small open economy,it causes the current account to ________ and investment to ________.
A)fall; rise
B)rise; remain unchanged
C)fall; remain unchanged
D)rise; rise
Q4) What determines the interest rate in a small open economy?
Page 7
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Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) A decrease in population growth will lead to a ________ in the steady-state capital-labor ratio and a ________ in output per worker.
A)fall; fall
B)fall; rise
C)rise; rise
D)rise; fall
Q2) Greenwood and Yorukoglu view the post-1973 productivity slowdown as resulting from
A)the information technology revolution.
B)high oil prices.
C)measurement errors.
D)technological depletion.
Q3) The Golden Rule capital-labor ratio is the level of the capital-labor ratio that,in the steady state,
A)maximizes output per worker.
B)maximizes investment per worker.
C)maximizes consumption per worker.
D)maximizes capital per worker.
Q4) 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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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) Velocity is defined as
A)nominal money stock/nominal GDP.
B)nominal GDP/nominal money stock.
C)real money stock/real GDP.
D)mc<sup>2</sup>.
Q2) Assume that prices and wages adjust rapidly so that the markets for labor,goods,and assets are always in equilibrium.What are the effects of each of the following on output,the expected real interest rate,and the current price level?
(a)a temporary increase in taxes
(b)a reduction in the effective tax rate on capital
(c)an increase in expected inflation
Q3) The uncertainty about the return an asset will earn is
A)liquidity.
B)risk.
C)time to maturity.
D)stochastic dominance.
Q4) Define asset market equilibrium and state the asset market equilibrium condition.
Q5) Give five examples of factors that could reduce the demand for money.
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Chapter 8: Business Cycles
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107 Flashcards
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Sample Questions
Q1) Economists use the term shocks to mean
A)unexpected government actions that affect the economy.
B)typically unpredictable forces that have major impacts on the economy.
C)sudden rises in oil prices.
D)the business cycle.
Q2) Describe the major features of the business cycle.Be sure to discuss what variables are affected by the cycle,a description of the key features that are apparent in the data,how variables are related to one another,how regular the cycle is,and how predictable the cycle is.
Q3) An increase in consumer spending caused by an increase in consumer confidence would cause
A)the aggregate demand curve to shift up and to the right.
B)the aggregate demand curve to shift down and to the left.
C)a movement down and to the right along the aggregate demand curve.
D)a movement up and to the left along the aggregate demand curve.
Q4) The Great Recession began in ________ and ended in ________.
A)December 2007; June 2009
B)December 2007; December 2011
C)October 2008; June 2009
D)October 2008; December 2011
Page 10
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Chapter 9: The Is-Lmad-As Model
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109 Flashcards
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Sample Questions
Q1) Classical economists believe that a market economy will normally
A)suffer from extended periods of sustained unemployment.
B)achieve full-employment output.
C)degenerate into pure monopolies in most industries.
D)eliminate the problem of economic scarcity.
Q2) A decrease in money supply causes the real interest rate to ________ and the price level to ________ in general equilibrium.
A)rise; rise
B)remain unchanged; fall
C)remain unchanged; rise
D)fall; fall
Q3) An increase in the expected future marginal product of capital would cause the IS curve to
A)shift up and to the right.
B)shift down and to the left.
C)remain unchanged.
D)remain unchanged if firms face borrowing constraints; otherwise, shift down and to the left.
Q4) Identify changes in three variables that would cause the FE line to shift to the right.
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Chapter 10: Classical Business Cycle Analysis
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106 Flashcards
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Sample Questions
Q1) The primary reason that short-lived shocks can have long-run effects is
A)the nonneutrality of money.
B)misperceptions by the public over the actual price level and the expected price level.
C)the presence of rational expectations among the public.
D)the presence of propagation mechanisms.
Q2) You and a friend are arguing over the issue of the nonneutrality of money.You believe that money is not neutral,and to prove your point you would cite all of the following except
A)large gold discoveries that increased the money supply preceded an economic boom.
B)a change in monetary institutions preceded a boom or recession.
C)a change in the leadership of the Fed and its policy was followed by noticeable changes in the money supply and a recession or inflation.
D)the fact that every recession was preceded by a drop in the money supply.
Q3) Analyze the short-run and long-run effects of an unanticipated decrease in the money supply in the misperceptions model.Tell what happens to output,the price level,and the expected price level in both the short run and long run.
Q4) Define real shocks,define nominal shocks,and give an example of each.
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Chapter 11: Keynesianism: the Macroeconomics of Wage and Price Rigidity
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Sample Questions
Q1) Because of price stickiness in the Keynesian model,a decline in investment demand will not cause the
A)LM curve to shift down and to the right in the short run.
B)LM curve to shift in the long run.
C)IS curve to shift down and to the left in the short run.
D)IS curve to shift in the long run.
Q2) A firm is a price taker if it
A)always sells its output at the industry-determined price.
B)takes consumer demand into consideration in setting its price.
C)takes its production costs into consideration in setting its price.
D)uses a pricing strategy to gain market share.
Q3) In the Keynesian model in the long run,an increase in taxes causes the price level to ________ and the real interest rate to ________.
A)fall; rise
B)fall; fall
C)rise; rise
D)rise; fall
Q4) In the Keynesian model,what are the effects (on output,the real interest rate,and the price level)of an adverse productivity (i.e.,aggregate supply)shock?
Page 13
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Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) Many central banks around the world target an inflation rate of about ________,because of upward bias in measured inflation and to reduce the risk of deflation.
A)-2%.
B)0%.
C)2%.
D)5%.
Q2) Suppose expected inflation in the economy is 5%.Banks set nominal interest rates so they'll earn a 2% expected real return.Employers set nominal wages based on a 2% expected real wage increase.Suppose the nominal interest rate and nominal wages are determined this way,but actual inflation turns out to differ from the expected inflation rate.Calculate the actual real interest rate and the percent increase in the real wage for each of the following actual inflation rates: a)2%; b)5%; c)10%.
Q3) The Phillips curve is a negative empirical relationship between A)bond prices and interest rates.
B)unemployment and output.
C)inflation and the real interest rate.
D)unemployment and inflation.
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Chapter 13: Exchange Rates, business Cycles, and
Macroeconomic Policy in the Open Economy
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106 Flashcards
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Sample Questions
Q1) A depreciation of the dollar causes
A)a decrease in U.S. exports.
B)an increase in U.S. imports.
C)an increase in the prices of U.S. imports.
D)an increase in the prices of U.S. exports.
Q2) Under a system of fixed exchange rates,what happens if a country's currency is overvalued?
A)The central bank loses official reserve assets.
B)The central bank gains official reserve assets.
C)The currency appreciates.
D)The exchange rate rises.
Q3) Suppose the euro-yen exchange rate falls while the dollar-yen exchange rate rises.What happens to the price of goods imported into Japan?
A)European goods become more expensive while U.S. goods become cheaper.
B)European goods become cheaper while U.S. goods become more expensive.
C)Both European and U.S. goods become more expensive.
D)Both European and U.S. goods become cheaper.
Q4) What is purchasing power parity? Why might it not hold?
Page 15
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Chapter 14: Monetary Policy and the Federal Reserve System
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Sample Questions
Q1) From 2007 to 2015,the amount of assets owned by the Fed approximately A)doubled.
B)tripled.
C)quadrupled.
D)quintupled.
Q2) Describe the strategy of inflation targeting.Why have many countries begun to use this strategy instead of targeting money growth? What are the advantages and disadvantages of inflation targeting?
Q3) The Fed first announced an inflation target of 2% in A)1979.
B)2005.
C)2012.
D)2015.
Q4) In a fractional reserve banking system with no currency where res is the ratio of reserves to deposits,the money multiplier is A)1 - res.
B)1 + res. C)1/res.
D)res<sup>2</sup>
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) The largest source of tax receipts for the government is
A)personal taxes.
B)contributions for social insurance.
C)taxes on production and imports.
D)corporate taxes.
Q2) Why is the Social Security system in crisis at a time when it's running large surpluses? What's the source of the problem? What solutions have been proposed?
Q3) The three main categories of government outlays are
A)net interest payments, government investment, and government consumption expenditures.
B)net government subsidies, the government deficit, and government purchases.
C)government purchases, transfer payments, and net interest payments.
D)government consumption expenditures, government investment, and transfer payments.
Q4) The current deficit minus net interest is called the A)primary deficit.
B)net current deficit.
C)current surplus.
D)primary current deficit.
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