Macroeconomics
Final Exam Questions
Course Introduction
Macroeconomics is a branch of economics that examines the behavior, structure, and performance of an entire economy rather than individual markets. This course explores key concepts such as gross domestic product (GDP), inflation, unemployment, economic growth, fiscal and monetary policy, and international trade. Students will learn how economic indicators are measured and interpreted, how government policies impact economic activity, and how macroeconomic theory explains real-world issues like recessions, expansions, and globalization. By analyzing models and data, students gain a foundational understanding of how economies operate at the national and global levels.
Recommended Textbook
Macroeconomics Policy and Practice 2nd Edition by Frederic S Mishkin
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Page 2
Chapter 1: The Policy and Practice of Macroeconomics
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Q1) Raising household savings could be beneficial because ________.
A)it translates into higher investment
B)severe economic downturns can be "better-weathered"
C)it provides a cushion to avoid bankruptcies
D)all of the above
E)none of the above
Answer: D
Q2) Macroeconomic models particularly focus on the following three economic data series.
A)endogenous variables,exogenous variables,and taxes
B)inflation,unemployment,and business cycles
C)nominal GDP,the employment rate,and budget deficits
D)bankruptcies,the unemployment rate,and depressions
E)none of the above
Answer: E
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Chapter 2: Measuring Macroeconomic Data
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Q1) Which of the following is typically not counted in GDP?
A)any nonmarket good and services
B)income generated from apartment rentals
C)illegal drug sales
D)all of the above
E)none of the above
Answer: C
Q2) An increase in the expected rate of inflation is most likely to cause an increase in
A)the ex post real interest rate
B)the ex ante real interest rate
C)the nominal interest rate
D)the expected real interest rate
E)none of the above
Answer: C
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Chapter 3: Aggregate Production and Productivity
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Q1) An economy's total labor income is $2 trillion,and total capital income is $1 trillion.In the Cobb-Douglas production function,the exponent on capital is ________.
A)two-thirds
B)one-half
C)one-third
D)0.3
E)none of the above
Answer: C
Q2) Assume that an economy is in equilibrium when there occurs an increase in the supply of capital.The available quantity of labor remains fixed.Once the economy has adjusted to its new equilibrium,which of the following has increased?
A)the real wage
B)the rental price of capital
C)the share of capital income in national income
D)all of the above
E)none of the above
Answer: A
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Chapter 4: Saving and Investment in Closed and Open Economies
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Q1) ________ typically lead to increases in ________.
A)decreases in interest rates;investment
B)increases in disposable income;consumption
C)increases in autonomous investment;investment
D)all of the above
E)none of the above
Q2) "Crowding out" refers to the decrease in ________ that may result from an increase in government spending.
A)private investment
B)imports
C)private saving
D)all of the above
E)none of the above
Q3) A small open economy would typically enjoy a higher trade balance if,in the domestic economy,________.
A)autonomous consumption expenditures decrease
B)taxes go up
C)government spending decreases
D)all of the above
E)none of the above
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Chapter 5: Money and Inflation
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Q1) M1 differs from M2 because ________.
A)M2 includes components that are less liquid than any component of M1
B)M1 does not include savings deposits and M2 does
C)M1 is included in M2 but M2 has more components
D)all of the above
E)none of the above
Q2) The FOMC ________.
A)meets four times a year to decide on how to conduct open market operations that influence the money supply
B)meets six times a year to decide on how to conduct open market operations that influence the money supply and interest rates
C)meets eight times a year to decide on how to conduct open market operations that influence the money supply and interest rates
D)meets twelve times a year to decide on how to conduct open market operations that influence interest rates
E)none of the above
Q3) How might inflation,even if fully anticipated,prevent the classical dichotomy from holding,even in the long run?
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Chapter 6: The Sources of Growth and the Solow Model
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Q1) Evidence of a negative correlation between income per capita and population growth rates ________.
A)implies that birth control is most effective in low-income countries
B)has not been found in the available data
C)is consistent with the Solow model
D)suggests that population growth stimulates technological progress
Q2) A higher rate of saving at the national level will,in the long-run ________.
A)cause a decrease in levels of capital and output
B)have no effect on levels of capital and output
C)lead to an increase in population growth
D)cause an increase in levels of capital and output
Q3) The Solow model suggests that economies with the same aggregate production function,ratio of workers to the total population and saving rates will ________.
A)trade with one another
B)start with different initial levels of per capita income
C)possess the same rate of depreciation
D)experience convergence
Q4) There are no questions for this section.
6.7 Sources of Economic Growth: Growth Accounting
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Chapter 7: Drivers of Growth: Technology, policy, and Institutions
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Q1) The knowledge and skills that workers have built up through education and training programs is known as ________.
A)the college premium
B)human capital
C)productivity
D)financial torsion
Q2) The amount of foreign aid provided by the United States ________.
A)constitutes a major proportion of federal government outlays
B)is the highest in percentage terms for any developed market economy
C)averages about 2.7 percent of U.S.income per year
D)is a very small percentage of gross national income
Q3) Because original ideas are likely to become known and used by others,without the inventor's knowledge or consent,________.
A)technology is the key driver of economic growth
B)new ideas contribute little to economic growth
C)we refer to ideas as rival
D)technology is inherently exogenous
Q4) Because old ideas are an input in the production of new ideas,nothing prevents the growth rate of output per person from rising without limit.Comment.
Page 9
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Chapter 8: Business Cycles: an Introduction
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Q1) The U.S.economy of the 1970s is typically referred to as ________.
A)"The Great Depression"
B)"The Great Inflation"
C)"The Great Moderation"
D)all of the above
E)none of the above
Q2) Interest rates spreads between long-term and short-term Treasury bills ________.
A)are procyclical
B)are not a good predictor of recessions
C)are a lagging indicator
D)all of the above
E)none of the above
Q3) Why is the credit spread countercyclical and coincident?
Q4) In the 1970s,the U.S.economy ________.
A)grew at a faster pace than in the previous decade
B)experienced low inflation
C)experienced increases in unemployment
D)all of the above
E)none of the above
Q5) Do you think that prices are more or less sticky today than 50 years ago? Why?
Page 10
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Chapter 9: The Is Curve
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Sample Questions
Q1) On the graph above,the amount of inventory depletion will be greatest if the economy is moving from point ________ to point ________.
A)A;D
B)D;A
C)D;C
D)B;A
E)B;C
Q2) Only when the goods market is in equilibrium is it true that ________.
A)actual expenditure equals output
B)the amount of goods and services produced equals actual expenditure
C)planned expenditure equals the amount of goods and services produced
D)demand for foreign goods equals foreigners' demand for domestic goods
E)none of the above
Q3) If planned expenditure is below output,as the economy approaches equilibrium,________.
A)planned expenditure is falling
B)output is rising
C)saving is rising
D)all of the above
E)none of the above
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Chapter 10: Monetary Policy and Aggregate Demand
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Q1) A shift of the MP curve ________.
A)implies an automatic adjustment of the interest rate
B)implies a direct policy action of the Federal Reserve
C)does not alter the relationship between inflation and the interest rate
D)all of the above
E)none of the above
Q2) On the graph above,which pair of points best represents a scenario in which the nominal interest rate and expected inflation decline equally?
A)I to H
B)G to K
C)I to J
D)K to F
E)J to H
Q3) An increase in autonomous spending leads to higher ________.
A)inflation
B)output
C)real interest rate
D)all of the above
E)none of the above
Q4) When the inflation rate falls,what happens,and why,to the MP,IS,and AD curves?
Page 12
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Chapter 11: Aggregate Supply and the Phillips Curve
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Q1) According to the short-run aggregate supply curve,if output minus potential output equals zero,then ________.
A)unemployment might be zero
B)inflation might be stable
C)expected inflation must be stable
D)price shocks must be zero
E)none of the above
Q2) The Phillips curve was ________.
A)adopted by economic policy teams in the Kennedy and Johnson administrations
B)influential in efforts to bring the unemployment rate down to low levels
C)discredited in the 1970s,when both inflation and unemployment were relatively high
D)all of the above
E)none of the above
Q3) How do you suppose most people form an expectation of future inflation? Is that method consistent with the assumption of adaptive expectations?
Q4) Suppose the government lowers unemployment by hiring more government workers.How does it matter whether wages and prices are sticky?
Q5) Why is there no long-run trade-off between unemployment and inflation?
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Chapter 12: The Aggregate Demand and Supply Model
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Q1) On the graph above,consider a point A on the aggregate demand curve and above the aggregate supply curve.At this point,________.
A)quantity demanded equals output,but the inflation rate will fall,so output will rise
B)quantity demanded is greater than quantity supplied,so the inflation rate will rise
C)output is greater than the quantity demanded,so output will fall
D)the aggregate demand curve will shift to the right until quantity demanded is equal to quantity supplied
E)none of the above
Q2) On the graph above,a movement from point ________ to point ________ might represent a positive supply shock.
A)F;I
B)H;G
C)H;F
D)F;G
E)none of the above
Q3) How does the aggregate supply curve differ from a supply curve for,say,bananas?
Q4) How does the aggregate demand curve differ from a demand curve for,say,bananas?
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Page 14
Chapter 13: Macroeconomic Policy and Aggregate
Demand and Supply Analysis
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Q1) Nonconventional monetary policy attempts to reduce financial frictions by ________.
A)reversing the expansion of the central bank's balance sheet that has made it costly for businesses to invest
B)purchasing short-term assets,which raises their price and reduces the credit spread
C)increasing the expected future short-term interest rate
D)all of the above
E)none of the above
Q2) If higher inflation ensues from a temporary negative supply shock,and in response,the central bank raises interest rates,then ________.
A)it is likely adopting a policy to stabilize inflation in the short run
B)short-run inflation will fluctuate around (first go higher then go lower than)the long run level of inflation
C)it will need to lower interest rates back to their original values to ensure that inflation returns to its original rate
D)all of the above
E)none of the above
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Chapter 14: The Financial System and Economic Growth
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Q1) Deposit insurance can lead to ________.
A)an increase in adverse selection
B)a decrease in bank costs
C)a decrease in bank lending rates
D)an increase in risks banks take on
Q2) In the United States,commercial banks supply about ________% of total credit to nonfinancial businesses.
A)20
B)75
C)50
D)90
Q3) Suppose you hear of a great deal on a used car and wonder,"Why is the price so low?" This might be an instance of ________.
A)tyranny of collateral
B)adverse selection
C)the free rider problem
D)moral hazard
Q4) What problem is addressed by a government safety net for the banking system? What problem is caused by the safety net?
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Chapter 15: Financial Crises and the Economy
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Q1) How did international policy coordination contribute to the avoidance of an economic depression in 2008 - 2010?
Q2) The notion that lenders must select from a pool of bad credit risks,because the most undesirable borrowers are those that most actively seek out a loan is known as the ________.
A)moral hazard problem
B)ornamental torsion problem
C)adverse selection problem
D)asymmetric innovation problem
Q3) How can improvements in statistical analysis of financial data cause the amount of information in financial markets to decline?
Q4) In the period from 1929 through 1933,there were successive ________ in aggregate demand and ________ in short-run aggregate supply.
A)increases;decreases
B)decreases;increases
C)decreases;no change
D)increases;increases
Q5) How is a financial crisis like a power blackout?
Q6) How is asymmetric information related to asset-price bubbles?
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Chapter 16: Fiscal Policy and the Government Budget
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Q1) Monetizing the debt occurs when ________.
A)government securities are issued
B)government securities are sold by the central bank
C)government securities are bought by the central bank
D)tax revenues fall short of government expenditures
Q2) Fiscal policy is the responsibility of ________.
A)the Federal Reserve System
B)the Comptroller of the Currency
C)the President and U.S.Congress
D)High Commissioner for Refugees
Q3) A(n)________ in aggregate demand will result from a decrease in ________.
A)decrease;inflation
B)increase;taxes
C)increase;the budget deficit
D)increase;government purchases
Q4) In the postwar era,the federal budget has typically been ________.
A)balanced
B)in surplus
C)in deficit
D)the largest component of Gross Domestic Product
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Chapter 17: Exchange Rates and International Economic Policy
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Q1) One purpose of the currency board adopted in Argentina in 1991 was to ________.
A)encourage capital mobility
B)make monetary policy more effective
C)stabilize the exchange rate between the Argentine peso and the currencies of Argentina's major trading partners
D)put an end to speculative attacks on the Argentine peso
Q2) A decline in the value of net exports in the U.S.is most likely to result from an increase in ________.
A)foreign income
B)U.S.exports
C)foreign real interest rates
D)the value of the U.S.dollar
Q3) In a fixed exchange rate regime,the value of a currency is pegged to ________.
A)an anchor currency
B)a currency board
C)a dirty float
D)an interest rate standard such as the Treasury bill rate in the U.S.
Q4) Suppose an "emerging market" economy becomes attractive to foreign investors.What are the likely consequences for the economy's currency and,thus,the macroeconomy?
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Chapter 18: Consumption and Saving
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Q1) A theory of saving is necessarily a theory of consumption,because ________.
A)by definition,any unit of disposable income that is not a consumption expenditure is a unit of saving
B)consumption decisions are made after saving has occurred
C)private saving is equal to private investment
D)the goal of consumption choices is to achieve the desired level of savings
Q2) In the Keynesian consumption function,if current income is equal to zero,consumption spending is equal to ________.
A)the marginal propensity to consume
B)the average propensity to save
C)autonomous consumption
D)exogenous consumption
Q3) During the 2007-2009 financial crisis,many households found themselves with debts to repay.How might this explain the consumer response to the 2008 Tax Rebate?
Q4) Gross income net of taxes is known as ________.
A)Gross Domestic Product,or GDP
B)disposable income
C)Gross Domestic Product per capita
D)retained earnings
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Chapter 19: Investment
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Q1) In many economies,a substantial fraction of investment is by multinational corporations (MNCs)whose stock value is determined on global markets.Based on Tobin's q theory,how might we expect MNC investment to affect the volatility of aggregate investment in an economy?
Q2) An increase in the desired stock of housing would be caused by ________.
A)an increase in household formation
B)higher residential consumption
C)a decrease in expected future income
D)an increase in home prices
Q3) A decline in real mortgage rates will lead,other things the same,to ________.
A)lower demand for housing
B)tighter financing constraints
C)an increase in residential investment
D)a lower relative price of housing
Q4) Which of the following is a component part of investment spending?
A)the purchase of a new microwave by a fast food restaurant
B)the purchase of 500 shares of corporate stock
C)the sale of 500 shares of corporate stock
D)all of the above
Q5) Why is residential investment procyclical?
Page 21
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Chapter 20: The Labor Market, employment, and Unemployment
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Q1) An increase in labor supply will cause,other things the same ________.
A)real wages and employment to rise
B)real wages to fall and employment to rise
C)real wages to rise and employment to fall
D)real wages and employment to fall
Q2) Since 1980,the share of temporary workers in total U.S.employment has ________.
A)declined
B)increased
C)remained essentially unchanged
D)been impossible to determine
Q3) Unemployment related to job search is known as ________.
A)cyclical unemployment
B)frictional unemployment
C)structural unemployment
D)tertiary unemployment
Q4) The label "discouraged worker" refers to a change of status from ________.
A)employed to actively seeking employment
B)unemployed to employed
C)unemployed to not in the labor force
D)not in the labor force to unemployed
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Chapter 21: The Role of Expectations in Macroeconomic Policy
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Q1) Expectations about the future will always be accurate if formed under ________.
A)rational expectations
B)adaptive expectations
C)natural selection
D)none of the above
Q2) The strength of the movement in the short-run aggregate supply schedule,in response to an aggregate demand shock is determined by ________.
A)the price elasticity of demand
B)the credibility of the monetary authorities
C)the underlying state of the economy
D)the choice of nominal anchors
Q3) Rational expectations theory suggests that ________.
A)policy announcements can impact behavior
B)policy announcements have no impact on behavior
C)unannounced policies have no impact on behavior
D)the optimal forecast is identical to the announced policy
Q4) Evidence suggests that,with rare exceptions,economic policies are not manipulated in an effort to influence electoral outcomes.Use the Lucas critique to explain why not.
Q5) How does central bank independence cause lower inflation?
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Chapter 22: Modern Business Cycle Theory
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Q1) If output begins to grow substantially faster than capital and labor inputs,then the real business cycle model predicts,ceteris paribus,________.
A)an increase in inflation
B)a decrease in employment
C)a decrease in investment
D)a business cycle expansion
Q2) According to real business cycle theory,an increase in financial frictions might lead to ________,if ________.
A)a decrease in output;the rise in the credit spread causes a leftward shift of aggregate demand
B)a decrease in inflation;the disruption of capital markets results in a leftward shift of long-run aggregate supply
C)a decrease in output;the disruption of capital markets results in a leftward shift of long-run aggregate supply
D)a decrease in output;a decline in expected output causes a leftward shift of aggregate demand
Q3) What insights into the macroeconomic consequences of financial frictions arise from the new Keynesian model?
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