Macroeconomics Exam Solutions
Course Introduction
Macroeconomics explores the broad movements and trends within an entire economy, focusing on aggregate indicators such as GDP, inflation, unemployment, and national income. This course examines how governments, central banks, and international organizations use policy tools to stabilize economies and foster sustainable growth. Students will analyze the dynamic interplay between consumption, investment, government spending, and net exports, studying key models and debates concerning fiscal and monetary policy, economic cycles, and long-term development. By engaging with real-world data and case studies, learners will develop critical skills for interpreting economic trends and understanding their societal impacts.
Recommended Textbook
Macroeconomics 2nd Edition by Charles I. Jones
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Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) In the short run,we are concerned with the causes of economic growth.
A)True
B)False
Answer: False
Q2) Which of the following questions should a successful model predict?
i.Why,in general,do Americans have higher incomes than Africans?
ii.How much less unemployment is there during an economic expansion?
iii.Why does the United States have a lower unemployment rate than Europe?
A)i and ii
B)ii only
C)iii only
D)i,ii,and iii
E)i and iii
Answer: D
Q3) An exogenous variable is one that is taken as given,that is,a parameter.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Measuring the Macroeconomy
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Sample Questions
Q1) Since about __________,United States expenditure shares by households,firms,and the government have been relatively __________.
A)1939;constant
B)the Great Depression era;constant
C)1950;variable
D)1950;constant
E)1929 until 1945;constant
Answer: D
Q2) If the percent change in prices is greater than the percent change in the nominal GDP,the real GDP shrinks.
A)True
B)False
Answer: True
Q3) The statistic used by economists to measure the value of economic output is:
A)the unemployment rate.
B)GDP.
C)the CPI.
D)the GDP deflator.
E)the federal funds rate.
Answer: B
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Chapter 3: An Overview of Long- Run Economic Growth
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Sample Questions
Q1) A benefit of economic growth is the release of individuals from physical labor.
A)True
B)False
Answer: True
Q2) If we compress the vertical axis at "key doubling points," we call this:
A)the logarithmic scale.
B)the ratio scale.
C)the exponential scale.
D)the quadratic scale.
E)the geometric scale.
Answer: B
Q3) In dynamic economies,it is true that economic growth may contribute to __________,but it also leads to __________.
A)unemployment;inflation
B)job creation;job destruction
C)job destruction;job creation
D)crime;unemployment
E)pollution;price instability
Answer: C
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Chapter 4: A Model of Production
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Sample Questions
Q1) As a measure for total factor productivity,we can use the quantity of __________ in an economy.
A)computers
B)factories
C)machines
D)kilowatt hours used
E)none of the above
Q2) What are the three sources of total factor productivity discussed in the text? Can you name other possible sources? Explain your answer.
Q3) Which of the following inputs do we generally not consider in a simple production function?
A)capital
B)labor
C)natural resources
D)utilities
E)both c and d
Q4) The marginal product of labor curve represents the labor supply curve.
A)True
B)False
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Chapter 5: The Solow Growth Model
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Sample Questions
Q1) A surprising result of the Solow model is that capital accumulation cannot serve as the engine of growth in the long run.
A)True
B)False
Q2) In the corn farm example,corn can be used as either saving or depreciation.
A)True
B)False
Q3) Among the world as a whole,there is __________ correlation between how poor a country was in 1960 and how fast it __________ from 1960 to 2000.
A)almost no;grew
B)a strong positive;grew
C)a strong positive;contracted
D)a strong negative;contracted
E)almost no;contracted
Q4) In the Solow model,the saving rate is an endogenous variable.
A)True
B)False
Q5) What are the key assumptions of the Solow growth model?
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Chapter 6: Growth and Ideas
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Sample Questions
Q1) If there are large fixed or research and development costs,such as in the pharmaceutical industry,production can characterized by:
A)negative costs.
B)constant returns to scale.
C)decreasing returns to scale.
D)large variable costs.
E)increasing returns to scale.
Q2) In monopolistic competition,the price is equal to the marginal cost.
A)True
B)False
Q3) For the years 1987-2005,output per person in the private sector grew 2.3 percent;capital intensity grew 0.9 percent;and total factor productivity grew 1.1 percent.What was the growth rate of labor composition?
A)1.2 percent
B)2.0 percent
C)0.4 percent
D)4.3 percent
E)Not enough information is given.
Q4) How does the Romer model of economic growth exploit the concept of nonrivalry?
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Chapter 7: The Labor Market,wages,and Unemployment
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Sample Questions
Q1) The causes of increased female participation in the labor market are:
A)changing social norms.
B)technological changes in managing fertility.
C)reduced discrimination.
D)all of the above
E)a and c
Q2) The quote "It's a recession when your neighbor loses his job;it's a depression when you lose yours" is attributed to:
A)Karl Marx.
B)Franklin D.Roosevelt.
C)John Maynard Keynes.
D)Harry S Truman.
E)Alan Greenspan
Q3) Europe's relatively high unemployment rates can be attributed to:
A)adverse shocks.
B)inefficient labor market institutions.
C)strong labor unions.
D)generous unemployment insurance.
E)all of the above
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Page 9
Chapter 8: Inflation
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Sample Questions
Q1) One problem with inflation is that:
A)it steadily erodes real income.
B)it often comes in surprising and unpredictable ways.
C)nominal interest rates are not indexed to inflation.
D)fixed-rate mortgages are not adjusted for inflation.
E)price staggering occurs.
Q2) If a bank offers you a 30-year fixed-rate mortgage,it is passing inflation risk over to you.
A)True
B)False
Q3) A country on the silver standard uses: A)coins.
B)fiat money.
C)bond money.
D)commodity money.
E)none of the above
Q4) If the real interest rate is not constant,it implies that the real interest rate deviates from the marginal product of capital in the short run.
A)True
B)False
Page 10
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Chapter 9: An Introduction to the Short Run
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Sample Questions
Q1) New technology,oil price changes,pork-barrel spending,interest rate changes,changes in planned investment,and disasters are examples of __________.
A)long-term economic shocks
B)short-term economic shocks
C)political unrest
D)monetary policy
E)fiscal policy
Q2) Consider Figure 9.1.The dashed line is potential output and the solid line is current output;therefore,
A)areas a and b are booms.
B)area b represents an economic boom,and area a is a recession.
C)the economy is in neither a recession nor a boom in areas a and b.
D)area a represents an economic boom,and area b is a recession.
Q3) What three premises does the short-run model operate under?
Q4) In Figure 9.5,area b represents an economic boom,and area a is a recession.
A)True
B)False
Q5) How is a recession "officially'' determined?
Q6) What does the Phillips curve represent?
Page 11
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Chapter 10: The Great Recession: a First Look
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Sample Questions
Q1) Subprime loans are loans made to households which do not necessarily meet "standard" lending restrictions.
A)True
B)False
Q2) Which of the following financial institutions was taken over by the federal government?
A)Freddie Mac
B)Bank of America
C)Fannie Mae
D)Merrill Lynch
E)a and c
Q3) A significant cause of the 2008 financial crisis was that financial institutions were
A)unfunded
B)over-leveraged
C)already insolvent
D)nationalized
E)illiquid
Q4) How does "securitization" reduce overall risk?
Q5) Briefly discuss the macroeconomic outcomes of the financial crisis.
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Chapter 11: The Is Curve
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Sample Questions
Q1) If all the economies of the European Union experience a recession,the United States experiences __________ and the IS curve __________.
A)no change;stays constant
B)a positive aggregate demand shock;shifts right
C)a negative aggregate demand shock;shifts left
D)no change;shifts right
E)Not enough information is given.
Q2) Recently,Americans have been increasing their debt.This is an example of:
A)a negative aggregate demand shock.
B)a positive aggregate demand shock.
C)a rightward movement along the IS curve.
D)a positive aggregate supply shock.
E)Not enough information is given.
Q3) The basic IS model embodies the Life Cycle and Permanent Income hypotheses by:
A)setting consumption proportional to potential output.
B)keeping consumption growth constant.
C)setting consumption proportional to the real interest rate.
D)setting consumption equal to past income.
E)a and b are correct.
Q4) Derive Hicks' IS relationship beginning with the national income identity.
Page 13
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Chapter 12: Monetary Policy and the Phillips Curve
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Sample Questions
Q1) Economists who study monetary policy believe that it takes anywhere from __________ for monetary policy to have a substantial effect on economic activity.
A)three to six weeks
B)6 to 18 days
C)6 to 18 months
D)three to six months
E)6 to 18 weeks
Q2) When the Fed targets the interest rate,it adjusts the money supply to maintain that interest-rate target.
A)True
B)False
Q3) The money demand curve slopes upward with respect to the nominal interest rate.
A)True
B)False
Q4) If the Fed mistakenly believes that potential output is higher than it actually is,it might conduct inflationary monetary policy.
A)True
B)False
Q5) Discuss the differences between the ex ante and ex post real interest rate.
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Chapter 13: Stabilization Policy and the Asad Framework
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Sample Questions
Q1) If the United Auto Workers successfully negotiate higher wages,this would cause the AD curve to shift to the left.
A)True
B)False
Q2) When we raise the federal funds rate by 2 percent for every 1 percent increase in the inflation rate,this is an example of:
A)a fiscal policy rule.
B)a monetary policy rule.
C)discretionary monetary policy.
D)discretionary fiscal policy.
E)none of the above
Q3) Consider Figure 13.2.Each of the aggregate demand curves pictured represents a different economy.Which of the four economies' central banks would be most concerned with unemployment rather than inflation?
A)Economy 2
B)Economy 4
C)Economy 3
D)Economy 1
E)Not enough information is given.
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Page 15
Chapter 14: The Great Recession and the Short-Run Model
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Sample Questions
Q1) In the aftermath of the financial crisis that began in 2008,the Fed's assets on its balance sheet:
A)grew to $100 billion.
B)shrank to almost zero.
C)grew to over $2 trillion.
D)stayed more or less the same.
E)grew to about $1 trillion.
Q2) The event which likely caused the risk premium to jump to about 6 percent in September 2008 was the growing unrest in the Middle East.
A)True
B)False
Q3) Consider Figure 14.1 above.The difference between these two curves can be interpreted as:
A)the risk premium.
B)inflation expectations.
C)the risk-free rate.
D)a market imperfection.
E)the prime lending rate.
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16
Chapter 15: Consumption
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Sample Questions
Q1) One of the implications of the intertemporal budget constraint is that:
A)current consumption does not have to equal current income.
B)there are no income transfers between today and the future.
C)lifetime consumption equals total wealth.
D)current and future consumption must be equal.
E)a and c
Q2) In the utility functions in Figure 15.1,curve b exhibits:
A)diminishing marginal utility.
B)economies of scale.
C)risk seeking.
D)satiation.
E)unrealistic behavior.
Q3) In the intertemporal budget constraint wealth is equal to lifetime income.
A)True
B)False
Q4) Individuals who have restricted access to credit markets must rely on transitory income to pay for unexpected expenses.
A)True
B)False
Q5) Are all households homogeneous and rational,at least as defined by economists?
Page 17
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Chapter 16: Investment
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Sample Questions
Q1) Consider Figure 16.1.If there is a decrease in the corporate tax rate,then curve __________ would shift to curve __________.
A)d;c
B)b;a
C)c;d
D)a;b
E)not enough information
Q2) Write down the equation for the user cost of capital.Discuss what happens to the user cost in the following scenarios:
a.the corporate income tax rises;
b.the real interest rises;
c.there is an increase in capital gains.Graphically show what happens to capital investment.
Q3) Over the ten-year period from 1997-2005,real interest rates fell gradually.Given this information,theory suggests that stock prices would rise over that period.
A)True
B)False
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Page 18
Chapter 17: The Government and the Macroeconomy
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Sample Questions
Q1) In the post-World War II U.S.economy,the rapid expansion of federal government debt began during:
A)the oil embargo.
B)the Kennedy administration.
C)the Reagan administration.
D)the collapse of the Bretton Woods system.
E)the Clinton administration.
Q2) If investors begin to doubt the ability to finance spending with __________,markets will demand __________.
A)borrowing;more bonds
B)only taxes;higher interest rates
C)taxes and borrowing;higher interest rates
D)borrowing;less government spending
E)taxes and borrowing;lower interest rates
Q3) Explain how budget deficits lead to crowding out.Is there evidence of this?
Q4) The largest debt-to-GDP ratio is in the United States.
A)True
B)False
Q5) During which period did the United States have the largest debt-to-GDP ratio? Why?
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Chapter 18: International Trade
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Sample Questions
Q1) If Country A runs a trade deficit against Country B one year,then it may continue to run a deficit for all time.
A)True
B)False
Q2) As with new technology,trade can be viewed as a way for:
A)an economy to increase its production possibilities and welfare.
B)an economy to specialize to the detriment of everyone.
C)exporters to benefit at the expense of everyone else.
D)an economy to reduce its aggregate production.
E)none of the above
Q3) There is a "magic level" where foreign debt becomes too large and triggers a crisis.
A)True
B)False
Q4) If a country produces a good at a lower opportunity cost than another country,it has an absolute advantage in the production of that good.
A)True
B)False
Q5) Explain how trade can be used for international risk sharing.
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Chapter 19: Exchange Rates and International Finance
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Sample Questions
Q1) __________ simply states that,in the long run,individual goods must sell for the same price in all countries.
A)Arbitrage
B)Purchasing power parity
C)The law of one price
D)The real exchange rate
E)The quantity theory
Q2) In 200X the United States entered a recession.As seen in the figure below,the U.S.dollar depreciated about 100 percent vis-á-vis the euro between 2001 and 2007.Explain the relationship between the recession and the depreciation of the dollar.What does the short-run model suggest should happen to net exports and the output gap?
Q3) An explanation for the depreciation of the dollar vis-àvis the euro is that inflation in the United States is higher than in the euro area.
A)True
B)False
Q4) Explain why the law of one price may not hold for some classes of goods.Give three examples of these types of goods.
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Page 21
Chapter 20: Parting Thoughts
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Sample Questions
Q1) In the short run,inflation has inertia.
A)True
B)False
Q2) Which of the following has not contributed to higher standards of living in the long run?
A)productivity
B)investment in human capital
C)the stock of technology
D)investment in physical capital
E)none of the above
Q3) Standards of living in the long run have been improved by:
A)investment in physical capital.
B)investment in human capital.
C)higher inflation.
D)lower nominal interest rates.
E)a and b
Q4) In the long run,the unemployment rate is determined primarily by institutional features of the labor market.
A)True
B)False
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