International Macroeconomics
Textbook Exam Questions
Course Introduction
International Macroeconomics explores the dynamics of open economies, focusing on the determination of exchange rates, balance of payments, capital flows, and the global interconnectedness of economic policies and shocks. The course examines how countries interact in the global marketplace, the role of international financial institutions, and the impact of fiscal and monetary policies across borders. Key topics include currency markets, international monetary systems, external imbalances, global financial crises, and the transmission of economic policies worldwide, equipping students with analytical tools to understand and assess contemporary macroeconomic issues on an international scale.
Recommended Textbook
Macroeconomics Understanding the Global Economy 3rd Edition by David Miles
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Chapter 1: What Is Macroeconomics
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Q1) Which of the following is not a direct concern of macroeconomists?
A) interest rates
B) the growth rate of output
C) aggregate investment in machines and infrastructure
D) pricing decisions by an individual firm
E) monetary policy
Answer: D
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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Chapter 2: The Language of Macroeconomicsthe National
Income Accounts
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Q1) Countries A and B have the same levels of consumption,investment,and government purchases,but country B sells twice as many exports as buys twice as many imports
As country A. Which country must have a larger GDP?
A) Country A
B) Country B
C) The GDP of country A must equal the GDP of country B
D) The answer depends on whether country A has positive or negative net exports
E) The answer depends on whether country A's imports are greater than its domestic consumption
Answer: D
Q2) In practice initial estimates of GDP
A) are never revised
B) are only revised several years after the initial release
C) are subject to very small revisions that do not influence the measurement of economic growth
D) are subject to significant revision that can alter measured growth
E) are so heavily revised that they give no useful information whatsoever which explains why nobody trusts official statistics.
Answer: D
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Chapter 3: The Wealth of Nationsthe Supply Side
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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) In most countries,the Malthusian predictions have not been realized because A) the marginal product of labor is increasing
B) population is declining
C) technology is improving
D) aggregate demand is declining
E) of governmental regulations unforeseen in Malthus' time
Answer: C
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Chapter 4: Capital Accumulation and Economic Growth
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Q1) In this economy,the steady-state capital stock is
A) 1,000
B) 10,000
C) 20,000
D) 40,000
E) 50,000
Q2) 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
Q3) The experience of Asia from 1960 to the end of the 20<sup>th</sup> century suggests that higher investment rates
A) lead to excess capacity and long-term unemployment
B) can stimulate economic growth until the steady state is reached
C) reduce the rate of economic growth in the short run and increase it in the long run
D) are not influence by domestic saving or interest rates
E) cannot be sustained because they ultimately induce higher depreciation rates
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Chapter 5: Total Factor Productivity, human Capital, and Technology
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Q1) Which of the following is not a measure of human capital?
A) fluency in a foreign language
B) literacy
C) willingness to take risks
D) years of formal education
E) on-the-job training
Q2) A sudden technological advance will generally result in
A) higher output and lower investment
B) higher output and higher investment
C) higher output but no impact on investment
D) no impact on output or investment
E) lower output
Q3) One of the main social factors that encourages economic development is
A) clearly defined property rights
B) a system of price controls to eliminate inflation
C) the separation of Church and State
D) bilingualism
E) freedom of speech and artistic expression
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Chapter 6: Endogenous Growth and Convergence
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Q1) The observation that poorer nations grow more rapidly than richer ones if they share the same steady state,and more slowly if they don't,is known as
A) conditional convergence
B) spillover
C) learning by doing
D) the poverty trap
E) the iron law of convergence
Q2) If the marginal product of capital were increasing in all nations
A) nations would experience a rapid convergence to a steady state in which GDP per capita would be the same across countries
B) poverty traps would be avoided
C) nations with large capital stocks would in vest more than nations with small capital stocks
D) technology would spill over rapidly from rich nations into poor nations
E) the marginal product of labor would also be increasing in all nations
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Chapter 7: Unemployment and the Labor Market
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Q1) Unemployment insurance benefits increase productivity most by
A) shortening the duration of unemployment
B) providing replacement rates that are lower than real wages
C) shifting government funds away from less productive ventures
D) helping to improve the match-up between jobs and workers
E) weakening monopoly power
Q2) Among developed economies,the natural rate of unemployment
A) is a fixed number
B) tends to follow a steady upward trend
C) varies, but less the actual unemployment
D) varies more the actual unemployment
E) tends to follow a steady downward trend
Q3) Which of the following government policies is not likely to reduce unemployment?
A) increasing payroll taxes
B) making loans to the unemployed who wish to start businesses of their own
C) providing retraining subsidies
D) offering relocation assistance to the unemployed who find work out of town
E) providing publicly funded job placement agencies
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Chapter 8: International Trade
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Q1) Which of the following assumptions is common to both New Trade Theory and the model of intra-industry trade?
A) trade is a zero-sum game
B) production exhibits increasing returns to scale
C) firms behave cooperatively rather than competitively
D) exchange rates adjust to offset the effects of tariffs
E) in the long run, exports equal imports
Q2) The price of a country's exports relative to the price of its imports is called
A) the export price ratio
B) the comparative advantage
C) the tariff barrier
D) the terms of trade
E) the mercantile factor
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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Q1) Which of the following is not an observed response of Multinational Enterprises (MNEs) to higher corporation tax in one country
A) Lowering wages in that location
B) Internal restructuring to shift profits to lower tax locations
C) Altering investment plans so as to expand into new, lower tax, locations
D) Altering investment plans so as to scale back in the higher tax location
E) Altering investment plans so as to expand in existing plants that are in a lower tax location
Q2) 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
Q3) When did average Tariff protection peak amongst the major nations?
A) Directly after World War II
B) Just before World War I
C) In the 1950's
D) In the late Nineteeth Century
E) In the 1930's
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Chapter 10: Consumption Investment
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Q1) Which of the following is least likely to induce precautionary saving?
A) the decision to retire from work at age 62
B) the possibility of being laid-off from work
C) the uncertainty of one's lifetime
D) the risk of becoming ill
E) the prospect of a potentially large tax increase in the future
Q2) According to Tobin's q theory of investment,
A) when the stock market undervalues a company, the company should invest in capital expansion
B) when a firm's bond prices rise, the firm should sell off existing assets
C) borrowing funds by issuing bonds is always a less expensive way than issuing stock to raise funds for investment
D) a firm should buy capital when its stock market valuation exceeds the replacement cost of capital
E) firms should invest at a constant rate each month, a practice known as dollar-cost averaging
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Chapter 11: Business Cycles
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Q1) The long run can be distinguished from the short run because in the long run
A) an equilibrium is reached between aggregate supply and aggregate demand
B) resources are no longer scarce
C) firms produce at capacity
D) the inflation rate is zero
E) technological advances come to an end
Q2) 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
Q3) Compared to Keynesians,Real Business Cycle theorists
A) have greater optimism regarding markets
B) give a larger role to stabilization policy
C) believe technology plays a relatively minor role in short run fluctuations
D) are more likely to claim that individuals are unresponsive to price changes
E) are relatively unconcerned with productivity shocks
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Chapter 12: Money and Prices
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Q1) Post-World War II inflation rates,as measured by the CPI
A) are overestimated due to the inability to measure quality improvements
B) are underestimated due to the exclusion of import prices
C) are not comparable across decades due to decennial changes in the base year
D) have tended to move in the opposite direction of inflation rates as measured by the GDP deflator
E) have become increasingly accurate as technology has improved
Q2) The quantity theory of money is most likely to be relevant
A) when money supply growth is 2% or less
B) as a short-term policy prescription
C) for economies on the gold standard
D) as a long run explanation for inflation
E) when the velocity of money is volatile
Q3) Which of the following is not a problem associated with barter?
A) tax rates are generally higher on barter than on monetary transactions
B) the quality of goods used in barter may differ across time and place
C) transporting goods for use in barter is inconvenient
D) goods used in barter may not be easily divisible
E) barter requires a double coincidence of wants
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Page 14
Chapter 13: Monetary Policy
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Sample Questions
Q1) If the nominal interest rate is currently .03 and the central bank follows the rule nominal interest rate = .03 + .5(output gap) + 1.5(inflation rate - .04),
Then it will leave nominal rates unchanged in each of the following cases except
A) full employment with four percent inflation
B) a three percent output gap and three percent inflation
C) a supply shock causing six percent inflation and a negative output gap of six percent
D) a technology jump causing a fifteen percent output gap and one percent deflation
E) a two percent output gap and two percent inflation
Q2) The monetary base consists of
A) gold and silver
B) gold plus currency
C) coins, currency, and demand deposits
D) currency and bank reserves
E) M3 - M1
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Chapter 14: Fiscal Policy and the Role of Government
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Q1) If markets are Pareto efficient,
A) no one benefits from redistribution
B) redistribution is a zero-sum game
C) arbitrage opportunities exist
D) resource allocation is sub-optimal
E) resources are fully utilized but output remains unsold
Q2) In most developed economies,public spending on national defense
A) is the largest component of the government's budget
B) accounts for about 1/3 of GDP
C) is less than spending on transfer payments
D) cannot be distinguished from infrastructure expenditures in the national accounts
E) is financed by a national system of subscriptions
Q3) With a tax of zero dollars,equilibrium occurs at
A) H = 10, W = 100
B) H = 9, W = 90
C) H = 8, W = 80
D) H = 7, W = 70
E) H = 6, W = 60
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Chapter 15: Stabilization Policy
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Q1) A reduction in personal saving would shift
A) the IS curve downward
B) both the IS curve and the aggregate demand curve outward
C) the LM curve inward
D) both the LM curve and the aggregate supply curve inward
E) the aggregate demand curve inward and the aggregate supply curve downward
Q2) Which of the following is true of policy lags?
A) Decision lags are generally longer for fiscal policy than for monetary policy
B) Information lags are usually longer than implementation lags
C) For monetary policy, the decision lag is usually longer than the information lag
D) Altogether, policy lags generally take about 6 months
E) Because they are predictable, implementation lags have no adverse consequences for policy making
Q3) In the long run,the Phillips Curve
A) slopes downward
B) slopes upward
C) shifts outward indefinitely
D) is vertical
E) is horizontal
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Chapter 16: Financial Markets: Equities and Bonds
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Q1) If investors perceive the stock to have become riskier and demand a 9% rate of return,then
A) the share price rises by 1/8
B) the share price falls by 20%
C) the dividend yield declines by 1 percentage point
D) the firm will reduce the dividend by 25%
E) the equity premium declines by 1/9
Q2) If a publicly traded firm wants its share price to rise from $20 to $25 and the required rate of return in the market is 10%,then the firm could
A) begin paying a dividend of $2.50 per year
B) split the stock until the price reaches $25 per share
C) issue 25% more shares
D) sell off its most profitable line of business
E) issue $250 bonds at a 10% discount
Q3) After two years have elapsed,the bond's price should be
A) $898.75
B) $812.00
C) $789.92
D) $715.63
E) $687.94
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Chapter 17: The Banking Sector
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Q1) Shareholders in a bank may encourage excessive risk taking by the bank because
A) shareholders are generally risk neutral
B) shareholders are generally risk averse
C) shareholders are generally risk loving
D) limited liability means that shareholder losses are limited
E) limited liability means that shareholder gains are limited
Q2) A bank is termed 'too big to fail' when
A) it is of such economic importance that the government cannot allow it to fail
B) it is so large and profitable that failure is very unlikely
C) it is spread across so many countries, it cannot fail in any one country
D) it has enough money to pay off all its debts
E) all of the above
Q3) The Bank above suffers a 15% fall in the value of its loans.It is now
A) in a position where none of its creditors will get any of their money back
B) effectively bankrupt and depositors stand to lose money
C) effectively bankrupt but depositors can be paid off
D) effectively bankrupt but depositors and subordinated debt holders can be paid off
E) still a viable enterprise but with dramatically reduced capital
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Chapter 18: Sovereign Debt and Default
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Q1) A credit spread is
A) The cost of borrowing
B) The increase in the cost of borrowing caused by the perceived risk of default
C) The increase in the cost of borrowing during a credit crunch
D) The difference between the cost of borrowing for a developed countries and a developing one
E) The difference in credit ratings between two countries.
Q2) 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
Q3) 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
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Chapter 19: Exchange Rate Determination I the Real
Exchange Rate
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Q1) Generalized to all goods and services,the law of one price becomes known as A) the law of many prices
B) exchange rate pass-through
C) pricing to market
D) purchasing power parity
E) price level equilibration
Q2) Imagine that the dollar appreciates 10% against the Euro and depreciates 10% against the Yen.If dollar trade weights are 75% against the Euro and 25% against the Yen,what has happened to the dollar effective exchange rate?
A) It is unchanged
B) It has appreciated by about 5%
C) It has appreciated by about 10%
D) It has depreciated by about 5%
E) It has depreciated by about 10%
Q3) The real value of US$1 in Canada is then
A) C$0.65
B) C$0.77
C) C$1.30
D) C$1.40
E) C$1.54
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Chapter 20: Exchange Rate Determination Iinominal
Exchange Rates and Asset Markets
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Q1) On the spot market,UIP predicts that the exchange rate should be
A) £1.08 = $1.04
B) £2.16 = $0.96
C) £2.04 = $1.00
D) £1.50 = $2.00
E) £1 = $2.08
Q2) Suppose the spot market exchange rate is currently ¥180 = £1,the one-year risk-free interest rate in Japan is 2% and the one year risk-free interest rate in Great Britain is 5%. Japanese who buy British bonds without covering their transactions with a forward contract must believe
A) that the yen will appreciate more than 3% against the pound sterling
B) that in one year, ¥183.6 will be worth less than £1.05 on the spot market
C) that interest rates will rise in Japan and fall in Great Britain
D) that one-year forward exchange rate is £1 = ¥171
E) that the spot market has undervalued the yen relative to the pound sterling
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Chapter 21: Currency Crises and Exchange Rate Systems
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Q1) A resource-based Sovereign Wealth Funds can benefit a nation by
A) Converting a temporary resource windfall into a longer term income stream
B) Mitigating the 'Dutch disease'
C) Investing the proceeds of persistent FX buying by the Central Bank
D) Both a) and b)
E) Stabilizing the price of the natural resource
Q2) For which of the following countries would dollarization probably have the most potential benefits,based on the four criteria for optimal currency areas?
A) Mexico
B) Poland
C) South Africa
D) Turkey
E) Pakistan
Q3) This strategy will fail to yield the bank a profit if
A) the UK inflation rate exceeds 2% during the year
B) Japan experiences deflation of 2% or more
C) the pound appreciates by 2%
D) the yen appreciates by 2% or more
E) short term interest rates in the UK rise above 8%
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