International Macroeconomics
Study Guide Questions
Course Introduction
International Macroeconomics explores the economic interactions among nations, focusing on issues such as exchange rates, balance of payments, international capital flows, and the effects of globalization on macroeconomic policy. Students will examine how monetary and fiscal policies operate in an open economy, the causes and consequences of currency crises, and the role of international financial institutions. The course integrates theoretical frameworks with real-world case studies to provide a comprehensive understanding of how global economic forces shape national economies and inform policy decisions.
Recommended Textbook
Macroeconomics 5th Edition by R. Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Q1) The term "market" refers only to trading arrangements that have been approved by the government.
A)True
B)False
Answer: False
Q2) Describe what has happened to state obesity rates in the United States since 1994.
Answer: There has been a dramatic increase in obesity between 1994 and 2011.In 1994,in a majority of states between 10 percent and 14 percent of the adult population was obese,and in no state was more than 20 percent of the adult population obese.By 2011,in every state at least 20 percent of the adult population was obese,and in about three-quarters of the states,at least 25 percent of the adult population was obese.
Q3) Economic models
A)make no assumptions in order to remain as accurate as possible.
B)are simplified versions of reality.
C)can not be used to analyze real-world issues.
D)magnify the complexity of economic issues in order to provide useful data.
Answer: B
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Chapter 2: Trade-Offs,comparative Advantage,and the Market System
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Q1) Refer to Figure 2-13.Which two arrows in the diagram depict the following transaction: Lizzie Haxem hires "The Paint Pros," a professional painting company,to paint her home.
A)J and M
B)K and G
C)K and M
D)J and G
Answer: B
Q2) Refer to Figure 2-8.What is the opportunity cost of producing 1 ton of pineapples in Costa Rica?
A)3/8 of a ton of coconuts
B)2/3 of a ton of coconuts
C)1 1/2 tons of coconuts
D)100 tons of coconuts
Answer: C
Q3) In the circular flow model,households supply resources such as labor services in the product market.
A)True
B)False
Answer: False
4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) Would a change in the price of in-line skates cause a change in the supply of in-line skates? Why or why not?
Answer: No,a change in the price of in-line skates would not cause a change in the supply of in-line skates.Rather,it would cause a change in the quantity supplied.Supply changes only when there is a change in any variable other than the price that would affect the supply of the good in question.
Q2) At a product's equilibrium price
A)anyone who needs the product will be able to buy the product,regardless of ability to pay.
B)the federal government will provide the product to anyone who cannot afford it.
C)not all sellers who are willing to accept the price will find buyers for their products.
D)any buyer who is willing and able to pay the price will find a seller for the product.
Answer: D
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Q1) Refer to Figure 4-1.If the market price is $3.50,what is the consumer surplus on the first ice cream cone?
A)$0
B)$0.50
C)$3.50
D)$9.00
Q2) Refer to Table 4-7.The equations above describe the demand and supply for Pauline's Pickled Pomegranates.The equilibrium price and quantity for Pauline's Pickled Pomegranates are $30 and 15 thousand units.What is the value of economic surplus in this market?
A)$50 thousand
B)$112.5 thousand
C)$225 thousand
D)$337.5 thousand
Q3) Refer to Figure 4-5.What is the area that represents the producer surplus after the imposition of the ceiling?
A)F + G
B)F
C)D + F + G
D)A + B + D + F + G
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Chapter 5: The Economics of Health Care
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Q1) The provision of the Patient Protection and Affordable Care Act (ACA)Insurance companies are required to participate in a high-risk pool that will insure individuals with pre-existing medical conditions who have been unable to buy health insurance for at least six months is the ________ provision.
A)employer mandate
B)state health exchanges
C)individual mandate
D)regulation of health insurance
Q2) In 2013,health care's share of gross domestic product in the United States was about
A)6.5 percent.
B)17.3 percent.
C)45 percent.
D)62.5 percent.
Q3) Refer to Figure 5-1.Marginal private benefit is represented by which curve?
A)D<sub>1</sub>
B)D<sub>2</sub>
C)Supply
D)All of the above represent marginal private benefit.
Q4) What is health insurance?
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Chapter 6: Firms,the Stock Market,and Corporate Governance
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Q1) Unlike firms that sell stock in financial markets,which are known as ________ firms,companies which do not sell stock in financial markets are known as ________ firms.
A)public; private
B)open; closed
C)corporate; proprietary
D)stock market; bond market
Q2) When an investor buys a corporate bond,
A)the investor becomes part owner of the corporation.
B)the principal of the bond is a loan to the corporation.
C)the interest made on the bond represents the bondholder's limited liability in the company.
D)the face value of the bond is equal to what the investor paid for the bond.
Q3) Which type of business has the most government rules and regulations affecting it?
A)sole proprietorship
B)partnership
C)corporation
D)They all have the same set of rules and regulations affecting them.
Q4) How do unlimited and limited liability differ?
Page 8
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Chapter 7: Comparative Advantage and the Gains From International Trade
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Q1) Your roommate Hansen argues that American producers cannot compete with foreign producers because wages are lower in foreign countries than in the United States.Hansen
A)is incorrect.Free trade raises living standards by increasing economic efficiency.
B)is right in asserting the need to protect high wages if the United States wishes to maintain its high standard of living.
C)is correct in arguing that the high wages of U.S.workers make it impossible to compete with workers in low-wage countries.
D)is advancing the anti-dumping argument for protectionism.
Q2) Refer to Figure 7-3.Without the quota,the domestic price of peanuts equals the world price which is $2.00 per pound.What is the quantity of peanuts demanded by domestic consumers in the absence of a quota?
A)10 million pounds
B)28 million pounds
C)30 million pounds
D)40 million pounds
Q3) What are three primary reasons for the growth of international trade over the past 50 years?
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Chapter 8: GDP: Measuring Total Production and Income
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Q1) Refer to Table 8-26.Given the information above,calculate the GDP deflator for both 2012 and 2013.What does the value of the deflator in the year 2012 tell you about that year with respect to the base year? What happened to prices in 2013 as compared to 2012?
Q2) Investment spending includes spending on A)stocks.
B)food.
C)changes in business inventories.
D)transfer payments.
Q3) Refer to the Article Summary.In China,________ is (are)the main driver of economic growth,while in the United States,________ is the main driver of economic growth.
A)consumption; investment
B)net exports; government purchases
C)investment; consumption
D)consumption; net exports
Q4) The Bureau of Economic Analysis divides it's statistics on GDP into four major categories.List the categories of expenditures and define each.
Q5) Give two reasons why GDP does not reflect total production in an economy.
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Chapter 9: Unemployment and Inflation
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Q1) Refer to Table 9-4.Assume the market basket for the consumer price index has two products - meat and potatoes - with the following values in 2006 and 2013 for price and quantity: The Consumer Price Index for 2013 equals A)125.
B)129.
C)135.
D)141.
Q2) An advantage of the household survey over the establishment survey of the labor market is that the household survey
A)is based on actual payrolls,rather than on unverified answers.
B)includes the number of self-employed persons.
C)includes the number of discouraged workers.
D)omits persons employed at newly opened firms.
Q3) If the number of unemployed workers is 200 million,and the number in the labor force is 500 million,what is the unemployment rate?
A)0.4%
B)4%
C)14%
D)40%
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Chapter 10: Economic Growth, the Financial System, and Business Cycles
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Q1) If GDP is currently $13 trillion and is growing at a rate of 2.3% per year,how long will it take GDP to reach $26 trillion?
A)about 15 years
B)about 17 years
C)about 25 years
D)about 30 years
Q2) Labor productivity is
A)the quantity of output produced in one hour by several workers.
B)the quantity of capital one worker can produce in one day.
C)the quantity of output produced by one worker or by one hour of work.
D)the quantity of output produced in one hour by one machine.
Q3) In an open economy,the relationship between GDP (Y)and expenditures is Y = C + I + G.
A)True
B)False
Q4) Since 1900,real GDP in the United States has grown
A)more rapidly than the population.
B)more slowly than the population.
C)as rapidly as the population.
D)in a random unpredictable manner relative to the population.
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Chapter 11: Long-Run Economic Growth: Sources and Policies
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Q1) Unemployment insurance is usually available to workers in ________ for a shorter period of time than it is in ________.
A)the United States; Canada
B)Canada and some Western European countries; the United States
C)Canada; some Western European countries
D)some Western European countries; the United States
Q2) The opportunity cost of being unemployed tends to be the highest in which of the following countries?
A)Canada
B)the United States
C)France
D)the United Kingdom
Q3) Globalization is positively associated with A)poverty.
B)declining rates of investment.
C)declining standards of living.
D)economic growth.
Q4) Describe the process of "creative destruction" using a specific example.
Q5) List four types of government policies which can aid economic growth.
Q6) How do government policies that enforce property rights affect economic growth? Page 13
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Chapter 12: Aggregate Expenditure and Output in the Short Run
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Q1) If planned aggregate expenditure is above potential GDP and planned aggregate expenditure equals GDP,then
A)actual inventory investment will be less than planned inventory investment.
B)actual inventory investment will be greater than planned inventory investment.
C)the economy is in an expansion.
D)the economy is at full employment.
Q2) If an increase in autonomous consumption spending of $10 million results in a $50 million increase in equilibrium real GDP,then
A)the MPC is 0.5.
B)the MPC is 0.75.
C)the MPC is 0.8.
D)the MPC is 0.9.
Q3) Which of the following is true?
A)National income = Consumption + Savings - Taxes
B)National income = Consumption - Savings - Taxes
C)National income = Consumption + Savings + Taxes
D)National income = Consumption - Savings + Taxes
Q4) If the multiplier is 10,the marginal propensity to consume must be 0.1.
A)True
B)False
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Chapter 13: Aggregate Demand and Aggregate Supply Analysis
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Q1) All of the following are assumptions made by the dynamic model of aggregate demand and aggregate supply except
A)aggregate demand and potential real GDP decrease continuously.
B)the aggregate demand curve shifts to the right during most periods.
C)potential real GDP increases continuously.
D)the short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages.
Q2) Explain how the static aggregate demand and aggregate supply model gives us misleading results about the price level,particularly with respect to decreases in aggregate demand.Describe how the aggregate demand curve is different in the dynamic model as compared to the static model.Describe how potential GDP is different in the dynamic model as compared to the static model.
Q3) The recession of 2007-2009 made many consumers pessimistic about their future incomes.How does this increased pessimism affect the aggregate demand curve?
A)This will move the economy up along a stationary aggregate demand curve.
B)This will move the economy down along a stationary aggregate demand curve.
C)This will shift the aggregate demand curve to the left.
D)This will shift the aggregate demand curve to the right.
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Chapter 14: Money, banks, and the Federal Reserve System
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Q1) Among potential stores of value,money
A)offers the highest rate of return.
B)increases in value during periods of inflation.
C)has the advantage of being the most liquid asset.
D)provides more services than the other assets.
Q2) Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent.If the Federal Reserve reduces the required reserve ratio to 8 percent,then the bank can make a maximum loan of A)$0.
B)$2 million.
C)$8 million.
D)$10 million.
Q3) When a grocery store accepts your $5 bill in exchange for bread and milk,the $5 bill serves as a
A)medium of exchange.
B)unit of account.
C)store of value.
D)standard of deferred payment.
Q4) What is the principle monetary policy tool used by the Fed.Why?
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Chapter 15: Monetary Policy
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Q1) In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was the creation of the Term Securities Lending Facility,under which the Fed will loan up to $200 billion of treasury securities in exchange for
A)stock.
B)mortgage-backed securities.
C)corporate bonds.
D)required bank reserves.
Q2) If the Fed raises the interest rate,this will ________ inflation and ________ real GDP in the short run.
A)reduce; raise B)increase; lower
C)increase; raise D)reduce; lower
Q3) The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates.
A)True
B)False
Q4) What problems can high inflation rates cause for the economy?
Q5) List the Fed's four main monetary goals.
18
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Chapter 16: Fiscal Policy
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Q1) During most of the years of the Great Depression,the actual federal budget was in ________,and the cyclically adjusted budget was in ________.
A)deficit; surplus
B)surplus; surplus
C)deficit; deficit
D)surplus; deficit
Q2) Government deficits tend to increase during A)recessions and booms.
B)periods of war and recession.
C)periods of below- or above-average growth.
D)periods of increased financial uncertainty.
Q3) It is ________ difficult to effectively time fiscal policy than monetary policy because ________.
A)more; fiscal policy can be quickly decided and changed
B)more; fiscal policy takes longer to implement
C)less; monetary policy takes longer to decide and change
D)less; monetary policy takes longer to implement
Q4) President Bush lowered taxes on capital gains and dividends in 2003.Explain how this might increase aggregate supply.
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Chapter 17: Inflation, unemployment, and Federal Reserve Policy
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Q1) If unemployment persists for a long period of time,the natural rate of unemployment rises.
A)True
B)False
Q2) Refer to Figure 17-2.At which point are inflation expectations equal to the actual inflation rate?
A)A
B)B
C)C
D)all of the above
Q3) If changes in inflation are higher than expected,
A)the short-run Phillips curve will be positively sloped,but not vertical.
B)the short-run Phillips curve will be negatively sloped.
C)the short-run Phillips curve will be vertical.
D)the long-run Phillips curve will be negatively sloped.
Q4) What is the relationship between the short-run Phillips curve and the long-run Phillips curve?
Q5) When will an increase in aggregate demand not result in lower unemployment rates in the short run?
Q6) What does it mean to say that workers and firms have rational expectations? Page 20
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Chapter 18: Macroeconomics in an Open Economy
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Q1) Based on the following information,what is the balance on the current account?
Exports of goods and services = $5 billion
Imports of goods and services= $3 billion
Net income on investments = -$2 billion
Net transfers = -$2 billion
Increase in foreign holdings of assets in the United States = $4 billion
Increase in U.S.holdings of assets in foreign countries = -$1 billion
A)-$2 billion
B)$1 billion
C)$3 billion
D)$4 billion
Q2) Monetary policy has a ________ effect on aggregate demand in a(n)________ economy,and fiscal policy has a ________ effect on aggregate demand in a(n)________ economy.
A)weaker; open; weaker; open
B)weaker; closed; weaker; closed
C)stronger; open; weaker; open
D)stronger; closed; weaker; open
Q3) What's the difference between the nominal exchange rate and the real exchange rate?
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Chapter 19: The International Financial System
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Q1) A decrease in a fixed exchange rate from $1.75 per pound to $1.60 per pound is called a(n)________ of the pound.
A)devaluation
B)depreciation
C)appreciation
D)revaluation
Q2) If the U.S.government places tariffs on imports from countries that have been accused of deliberately undervaluing their currencies,the price of these imports will ________ and the demand for the undervalued currency will ________.
A)rise; rise
B)rise; fall
C)fall; rise
D)fall; fall
Q3) Which of the following would increase the value of the dollar in the long run?
A)an increase in inflation in the United States relative to other countries
B)an increase in the demand for American goods relative to goods from other countries
C)a decrease in U.S.tariffs on foreign goods
D)an increase in the supply of dollars on the foreign exchange market
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