Intermediate Macroeconomics
Final Exam
Course Introduction
Intermediate Macroeconomics builds upon foundational economic principles to explore the factors influencing aggregate economic activity at a national and international level. The course delves into models of income determination, consumption, investment, and economic growth, examining how government policies affect output, employment, inflation, and public debt. Topics such as monetary and fiscal policy, business cycles, financial markets, open economy macroeconomics, and contemporary macroeconomic issues are analyzed through theoretical frameworks and real-world applications. Students develop analytic skills to interpret economic indicators and evaluate policy debates using mathematical and graphical tools.
Recommended Textbook
Macroeconomics Understanding the Global Economy 3rd Edition by David Miles
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21 Chapters
704 Verified Questions
704 Flashcards
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Chapter 1: What Is Macroeconomics
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Sample Questions
Q1) A general definition of economics is the study of A) money
B) the allocation of resources
C) the distribution of income
D) the production of goods
E) the role of government in society
Answer: B
Q2) Modern market economies allocate resources primarily through
A) carefully planned staffing policies
B) coordination among government agencies
C) price signals
D) long-term contracts
E) internet-based bartering
Answer: C
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3
Chapter 2: The Language of Macroeconomicsthe National
Income Accounts
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Sample Questions
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) Most of the world's economic output is produced by
A) China and Russia
B) China and Japan
C) the U.S. and Japan
D) the U.S. and the European Union
E) Russia and the European Union
Answer: D
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Chapter 3: The Wealth of Nationsthe Supply Side
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Sample Questions
Q1) Consider an economy with a Cobb-Douglas production function in which capital and labor receive equal shares of national income and labor input is constant. If the capital stock grows by 2% and output grows by 4%,then the most likely explanation is
A) the marginal product of labor is increasing
B) the production function exhibits decreasing returns to scale
C) total factor productivity has increased by 3%
D) TFP has grown by 2%
E) There is a 2% change in the capital account balance
Answer: C
Q2) The "business cycle" refers to which of the following?
A) the long run trend in GDP
B) seasonal changes in output from spring to summer to autumn to winter
C) alternating periods of recession and expansion
Answer: C
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Chapter 4: Capital Accumulation and Economic Growth
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35 Flashcards
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Sample Questions
Q1) Depreciation in the national income accounts
A) allows for decreases in the international exchange rate of the currency
B) adjusts for the loss of purchasing power due to inflation
C) is an allowance for the capital worn out in production
D) measures the depletion of natural resources
E) adjusts for the time value of money, as measured by the interest rate
Q2) If the saving and investing rate rose to 20% of income,in the long run,this economy's GDP would
A) increase by 10%
B) decrease by 10%
C) double
D) stay the same
E) rise by a factor of 10
Q3) Convergence refers to
A) the reunification of formerly divided countries such as East and West Germany
B) an equality between a country's imports and exports
C) an economy reaching a steady state
D) poorer countries growing more rapidly than rich countries
E) agreement between economic historians of different political persuasions
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Page 6
Chapter 5: Total Factor Productivity, human Capital, and Technology
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26 Flashcards
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Sample Questions
Q1) Which of the following is not measured by the World Bank as an indicator of institutional quality or governance?
A) civil liberties
B) political stability
C) corruption
D) government effectiveness
E) income redistribution
Q2) Social capital includes
A) rent seeking
B) corruption
C) public infrastructure
D) the internet
E) civic mindedness
Q3) Generally speaking year of schooling are
A) Rising over time and higher in developed countries than developing
B) Rising over time and higher in developing countries than developed
C) Falling over time and higher in developed countries than developing
D) Falling over time and higher in developing countries than developed
E) Unchanged over time and higher in developed countries than developed
Page 7
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Chapter 6: Endogenous Growth and Convergence
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Sample Questions
Q1) The capital stock of this economy
A) is constant
B) will grow by 2% per year
C) will grow by 3% per year
D) will grow by 5% per year
E) will grow by 6% per year
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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Sample Questions
Q1) Long term unemployment causes all of the following except
A) depreciation of human capital
B) reduced probability of reemployment
C) reduced intensity of job search
D) increased unemployment insurance replacement rates
E) discouraged worker effects and labor market withdrawal
Q2) If firms seek an average markup of 25% over labor costs,and this is consistent with labor demands at the natural rate,then in the long run
A) real wages will be 25% of the price level
B) prices will be 4 times greater than wages
C) wages will rise 80 cents for every $1 increase in prices
D) wages will fall 25 cents for every $1 increase in prices
E) prices will rise 25 cents for every $1 increase in wages
Q3) The marginal product of labour is defined as
A) the amount of output produced by a given labour force
B) the minimum amount of workers required to produce a given level of output
C) the increase in productivity of the marginal worker if capital is increased
D) the amount of output one more worker could produce given other factors of production are fixed
E) the cost of employing another worker
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Chapter 8: International Trade
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Sample Questions
Q1) Differences between trade partners in real hourly wage rates for unskilled labor illustrate
A) the fallacy of the factor-price equalization theorem
B) the importance of different capital endowments
C) discrepancies between nations in accounting procedures
D) the principle of comparative advantage
E) the disequilibria created by international trade
Q2) Governments are most likely to adopt trade restrictions because
A) of nationalistic motives and prejudice against other countries
B) protectionist policies benefit society as a whole
C) tariffs are the primary source of government revenue
D) those whom trade hurts are more cohesive and vocal than those whom trade benefits
E) trade weakens the government's ability to conduct stabilization policy
Q3) Which of the following industries accounts for the largest share of world trade?
A) agriculture
B) mining
C) manufacturing
D) construction
E) services
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Chapter 9: Globalization
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Sample Questions
Q1) Trade liberalization
A) reduces poverty wherever it increases real GDP per capita
B) increases inequality in theory but not in practice
C) reduces inequality and poverty if the poor work in expanding sectors
D) has no effect on the distribution of income within a country
E) redistributes income from the rich to the poor even as overall GDP declines
Q2) In regressing GDP on openness,a potential solution to the simultaneity problem is to
A) use geographical proximity to foreign markets to predict trade flows
B) use tariffs as an inverse measure of openness
C) run a limited-dependent variables regression
D) exclude financial reform as an independent variable
E) lag the dependent variable
Q3) Which of the following has not been suggested as a benefit of free trade?
A) consumers gain from low import prices
B) the labor force gains from outsourcing of production
C) trade partners are less likely to engage in warfare
D) international trade promotes both short run and long run economic growth
E) international trade reduces poverty rates
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11
Chapter 10: Consumption Investment
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Sample Questions
Q1) A firm that can afford to buy capital out of retained earnings without borrowing
A) is indifferent to interest rates
B) invests more as interest rates rise
C) invests less as interest rates rise
D) is indifferent to the marginal product of capital
E) has an increasing marginal product of capital
Q2) The marginal propensity to consume is difficult to estimate because
A) it depends on expectations of future income
B) it depends on perceptions regarding the permanence of changes in income
C) it depends on credit and borrowing constraints
D) it declines as uncertainty increases
E) all of the above
Q3) Empirical evidence suggests that the relationship between a firm's investment and its stock prices is
A) strongly negative
B) weakly negative
C) nonexistent; the two variables are independent
D) weakly positive
E) strongly positive
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Page 12
Chapter 11: Business Cycles
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46 Flashcards
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Sample Questions
Q1) Business cycles are
A) seasonal changes in output
B) quarterly profit and loss fluctuations around a company's fiscal-year average
C) long run trends upward or downward in employment
D) medium-term fluctuations of aggregate output around its long term trend
E) gyrations of share prices on the stock market
Q2) A large negative output gap
A) represents a shortage of goods due to excessive demand for output
B) is the result of overtime work by the labor force
C) creates inflation
D) means the business cycle is at a peak
E) implies excessive unemployment
Q3) In the long run,
A) nominal wages rise more slowly than prices
B) output is independent of the price level
C) real wages are higher than money wages
D) a higher price level elicits a sustained increase in production
E) the aggregate demand curve is perfectly horizontal
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13
Chapter 12: Money and Prices
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Sample Questions
Q1) Suppose a sunken ship containing $1000 in currency is dredged out of Lake Erie. The currency is still legal tender,but interest rates are high so no one wants to hold onto the currency; the owners therefore deposit it in a bank. If the reserve requirement is 20% and the banks hold no excess reserves,the eventual result will be
A) the money supply decreases by $200
B) the money supply increases by $1000
C) the money supply increases by $2000
D) the money supply increases by $5000
E) the money supply remains unchanged
Q2) Which of the following is characteristic of a hyperinflation?
A) the government runs a large budget surplus by raising taxes
B) households increase their savings
C) government finances expenditures by printing money
D) the real stock of money rises by more than 50% per month
E) currency is issued according to a gold standard
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14
Chapter 13: Monetary Policy
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Sample Questions
Q1) For an economy at full employment with an inflation rate of .04,the central bank will set its nominal interest rate equal to
A) .03
B) .05
C) .06
D) .065
E) .09
Q2) Targeting interest rates and targeting the money supply are equivalent if
A) money demand is stable
B) banks hold no excess reserves
C) exchange rates are fixed
D) central banks practice inflation targeting
E) consumers exhibit rational expectations
Q3) Quantitative Easing refers to
A) A dramatic increase in M2 when interest rates are at or close to zero
B) Cutting interest rates to zero
C) Printing cash to finance government expenditure
D) A dramatic increase in M0 when interest rates are at or close to zero
E) Printing cash to finance tax cuts
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Page 15
Chapter 14: Fiscal Policy and the Role of Government
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Sample Questions
Q1) 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
Q2) Which of the following government functions most clearly prevents rent-seeking behavior from leading to a socially inefficient Nash equilibrium?
A) provision of national defense
B) operation of Social Security
C) provision of public education
D) issuance of patents
E) establishing municipal rent control on urban apartments
Q3) If the tax doubles to $24,the distortion
A) declines
B) remains the same
C) doubles
D) triples
E) quadruples
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Page 16
Chapter 15: Stabilization Policy
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Sample Questions
Q1) Suppose the economy is initially operating at its long run equilibrium. In the absence of stabilization policy,a sudden sharp reduction in exports due to recession overseas would cause
A) an inward shift of aggregate supply, followed by a slow outward shift of aggregate demand
B) an inward shift of aggregate demand, followed by an inward shift of aggregate supply
C) an outward shift of aggregate demand, followed by a slow inward shift of aggregate supply
D) a recession accompanied by inflation
E) a relatively short recession followed by a long, slow recovery
Q2) A balanced budget rule which precluded a deficit in any fiscal year would
A) stabilize short- and medium-term GDP
B) exacerbate recessions
C) be equivalent to handing fiscal policy to an independent agency, just as monetary policy is handled by an independent central bank
D) create a more predictable environment conducive to investment
E) cause the national debt to rise at the same rate as inflation
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Chapter 16: Financial Markets: Equities and Bonds
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Sample Questions
Q1) Critics of the efficient markets hypothesis attribute stock price volatility to A) speculative bubbles
B) herding behavior
C) extrapolation of recent trends
D) rumors
E) all of the above
Q2) The dividend yield is currently
A) 1.17%
B) 5.83%
C) 7.00%
D) 20.00%
E) 27.00%
Q3) When assets are known to be overvalued but the price continues to rise,the market exhibits
A) a random walk with drift
B) a speculative asset bubble
C) mean reversion
D) an equity premium puzzle
E) sample selection bias
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Page 18
Chapter 17: The Banking Sector
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Sample Questions
Q1) The tendency for a bank run at one bank to increase the likelihood at another is called
A) economies of scale
B) effective monitoring
C) contagion
D) moral hazard
E) Nash Equilibrium
Q2) 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
Q3) 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
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Page 19
Chapter 18: Sovereign Debt and Default
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Sample Questions
Q1) Government borrowing tends to ________ in recessions and _______ in booms ?
A) Decrease, increase
B) Increase, decrease
C) Remain the same, remain the same
D) Increase, increase
E) Decrease, decrease
Q2) The debt relief Laffer curve implies that
A) Expected debt repayments always rise with the level of debt
B) Expected debt repayments always fall with the level of debt
C) Expected debt repayments first rise and then fall with the level of debt
D) Expected debt repayments first fall and then rise with the level of debt
E) Expected debt repayments and the level of debt are unrelated
Q3) A structural budget deficit is
A) The budget deficit adjusted for business cycle effects
B) The budget deficit excluding interest payments
C) The budget deficit that is sustainable in the long run
D) A budget deficit that cannot be eradicated
E) A budget deficit that occurs after a cut in taxes
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Chapter 19: Exchange Rate Determination I the Real
Exchange Rate
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Sample Questions
Q1) Which of the following would be subtracted from Italy's financial account?
A) Ford Motor Company builds a factory in Rome
B) 1.2 million Ford autos are imported by Italy
C) an Italian bank buys $0.5 million in Ford Motor Co. bonds
D) Ford opens a Eurodollar account at an Italian bank
E) Ford repatriates $1 million in profits to the US from its Italian operations
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) For most currencies,the nominal bilateral exchange rate is defined as
A) the amount of domestic currency needed to buy one dollar
B) the amount of domestic currency needed to buy 1 unit of foreign currency
C) the amount of foreign currency for which 1 unit of domestic currency can be sold
D) the domestic currency price of the pound sterling
E) the quantity of gold that can be purchased for one unit of domestic currency
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Chapter 20: Exchange Rate Determination Iinominal
Exchange Rates and Asset Markets
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Sample Questions
Q1) If there is a 4% one-year forward premium on the US dollar relative to the Canadian dollar,this implies
A) Canadian interest rates on one year accounts are approximately 4 percentage points above US rates
B) The US dollar is expected to be worth C$1.04 in one year from now
C) Short term interest rates are about 4% lower in the US than one-year rates
D) US bonds are roughly 4% riskier than Canadian bonds
E) The US dollar is expected to depreciate by 4% over the next 12 months
Q2) Suppose American prices are twice as high as British prices,but there is no inflation occurring or expected in either country. In the short run,the US interest rate is 10% and the British interest rate is 5%. Then on the spot market,according to UIP,
A) £1 = $0.60 and the pound will depreciate to $0.50
B) £1 = $2.10 and the pound will depreciate to $2.00
C) £1 = $1.91 and the pound will appreciate to $2.00
D) £1 = $2.05 and the pound will depreciate to $2.00
E) £1 = $0.45 and the pound will appreciate to $0.50
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Page 22
Chapter 21: Currency Crises and Exchange Rate Systems
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Sample Questions
Q1) When a country experiences a currency crisis,the IMF
A) provides loans and grants to the government to purchase and distribute food and other necessities
B) purchases the country's currency, to signal international confidence in the currency
C) lends foreign reserves to the country's central bank
D) makes loans to public and private institutions within the country on a long term basis with relatively few restrictions
E) lends funds to neighboring countries, which can then purchase exports from the country experiencing the crisis
Q2) 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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