Macroeconomics
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Course Introduction
Macroeconomics is a branch of economics that focuses on the behavior and performance of an economy as a whole. This course explores key concepts such as gross domestic product (GDP), inflation, unemployment, economic growth, and fiscal and monetary policy. Students will analyze how aggregate demand and aggregate supply interact, examine the factors influencing national income, and study the policy tools governments and central banks use to stabilize the economy. Through theoretical frameworks and real-world examples, the course equips students with the skills to understand and interpret macroeconomic trends and to evaluate economic policies at both the national and international levels.
Recommended Textbook MandB 3 3rd Edition by Dean Croushore
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Chapter 1: Money and the Financial System
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Q1) Which of the following is NOT a financial policymaker?
A)Securities and Exchange Commission (SEC)
B)Federal Deposit Insurance Corporation (FDIC)
C)Consumer Financial Protection Bureau (CFPB)
D)Federal Reserve System (the Fed)
Answer: C
Q2) The Federal Reserve creates money by
A)printing bills and circulating them in public meetings.
B)giving dollar bills to banks to circulate.
C)changing a number in its computer system.
D)spending money on government purchases.
Answer: C
Q3) The percentage by which real gross domestic product is above or below its potential level is called the
A)inflation rate
B)output gap
C)real interest rate
D)rate of compounding
Answer: A
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Chapter 2: The Financial System and the Economy
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Q1) A risk averse investor will choose an investment
A)with the lowest standard deviation
B)with the highest standard deviation
C)with the highest return and highest risk
D)with the lowest capitalgains yield
Answer: A
Q2) In the event that a firm goes bankrupt and is liquidated, who is paid off first, second, and third between workers, debt holders, and stockholders?
A)(1) debt holders; (2) workers; (3) stockholders
B)(1) stockholders; (2) workers; (3) debt holders
C)(1) workers; (2) debt holders; (3) stockholders
D)(1) workers; (2) stockholders; (3) debt holders
Answer: C
Q3) Risk that can be eliminated by diversification is
A)unsystematic risk.
B)systematic risk.
C)default risk.
D)interest-rate risk.
Answer: A
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Chapter 3: Money and Payments
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Q1) Why did M1 grow so rapidly in the early 1990s, whereas M2 did not?
Answer: M1 grew rapidly because of demand for U.S.currency by people in Eastern Europe.M2 grew slowly because the economy was growing slowly.The difference in growth rates is possible because currency is a much larger fraction of M1 than it is of M2.
Q2) A measure of the total supply of money in the economy is referred to as A)monetary aggregate.
B)liquidity total.
C)the velocity of money.
D)inside money.
Answer: A
Q3) When you buy something one day and pay for it later, the repayment you make is denoted in terms of money.In this case, money is serving the role of a A)medium of exchange.
B)unit of account.
C)store of value.
D)standard of deferred payment.
Answer: D
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Chapter 4: Present Value
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Q1) Consider a one-year discount bond that pays $2,000 one year from now.If the annual rate of discount is 3 percent, calculate the present value of the bond.
Q2) A rise in the annual interest rates will cause
A)the principal amount of a bond to increase.
B)the principal amount of a bond to decrease.
C)the present value of a bond to decrease.
D)the present value of a bond to increase.
Q3) The process in which the principal amount of a security is repaid gradually over time is referred to as
A)securitization.
B)depreciation.
C)amortization.
D)discounting.
Q4) Consider a bond that has a present value of $1,000.If the annual rate of interest is 7 percent, the future value of the bond after a year is
A)$930.00.
B)$934.58.
C)$1,000.00.
D)$1,070.00.
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Chapter 5: The Structure of Interest Rates
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Q1) Term spread is the interest rate on a long-term debt security_____the interest rate on a short-term debt security.
A)minus
B)plus
C)times
D)divided by the interest rate on a short-term debt
Q2) According to the expectations theory of the term structure of interest rates, if the interest rate on a one-year bond today is 3.0 percent, the expected interest rate on a one-year bond one year from now is 4.0 percent, and the expected interest rate on a one-year bond two years from now is 4.5 percent, then the interest rate on a two-year bond today is
A)3.00 percent.
B)3.50 percent.
C)3.83 percent.
D)4.00 percent.
Q3) Which of the following is true of shortterm interest rates?
A)Short-term interest rates decline when long-term interest rates increase.
B)Shortterm interest rates are more volatile than longterm interest rates.
C)Shortterm interest rates are higher than longterm interest rates.
D)Shortterm interest rates are less volatile than longterm interest rates.
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Chapter 6: Real Interest Rates
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Q1) The real interest rate is the nominal interest rate adjusted for expected or actual
A)unemployment.
B)production.
C)income growth.
D)inflation.
Q2) If you expect inflation to be 3 percent next year and you buy a one-year bond paying 4 percent interest, what is your after-tax expected real interest rate if you face a tax rate of 30 percent?
A) 0.2 percent
B)0.0 percent
C)0.3 percent
D)1.0 percent
Q3) In recessions, the short-term expected real interest rate usually
A)rises by about 4 percentage points.
B)rises by about 2 percentage points.
C)declines by about 2 percentage points.
D)declines by about 4 percentage points.
Q4) Explain why inflation risk is a problem for investors.
Q5) How can the expected inflation rate be measured?
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Chapter 7: Stocks and Other Assets
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Q1) An investor buys stock for $10,000 at the beginning of the year.She earns dividends of $300 during the course of the year.At the end of the year, the stock is worth $10,800.The tax rate on dividends and capital gains is 15 percent. The inflation rate is 3 percent.What is the investor's after tax real return if she sells the stock at the end of the year?
A)6.35 percent.
B)6.95 percent.
C)7.55 percent.
D)8.15 percent.
Q2) If sales of a firm exactly equals investor expectations, stock price of the firm
A)is expected to increase.
B)is expected to decrease.
C)is expected to remain the same.
D)can increase or decrease depending on the volume of stocks being traded.
Q3) Write a formula for the equity premium.
Q4) If the stock market is efficient and investors are risk neutral, then
A)capital gains are always positive.
B)stock prices are predictable.
C)the CAPM model works perfectly.
D)stock prices follow a random walk.
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Chapter 8: How Banks Work
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Q1) A bank offers credit cards with a 25 percent interest rate, when its competitors' cards have just a 15 percent interest rate.Despite the high rate, the bank finds itself losing money because many of its customers fail to repay the balances on their cards.The bank's losses are most likely to have occurred because of
A)bad management.
B)the lock-in effect.
C)redlining.
D)adverse selection.
Q2) A bank is said to have_____ when its average costs decline as its volume of sales increases.
A)economies of scope.
B)economies of scale.
C)cost diminution.
D)decreasing returns to scale.
Q3) The main problems caused by asymmetric information are
A)irrational expectations and moral hazard.
B)imperfect credibility and adverse selection.
C)adverse selection and irrational expectations.
D)adverse selection and moral hazard.
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Chapter 9: Governments Role in Banking
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Q1) The agreement concluded in 2010 imposed higher capital requirements on banks all over the world.
A)Basel III.
B)Basel II.
C)Basel I.
D)Basel IV.
Q2) Which of the following is an example of a solvent bank?
A)A bank that is out of funds to meet the demand of customers
B)A bank with negative equity capital
C)A bank that has high default risk on debt issue
D)A bank with positive equity capital
Q3) Suppose three banks in a banking market have market shares of 42 percent, 33 percent, and 25 percent.Calculate the HHI of the banking industry.
A)100
B)1,356
C)3,478
D)4,320
Q4) What is the Basel III Accord?
Q5) Describe the moral hazard problem of deposit insurance.
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Chapter 10: Economics Growth and Business Cycles
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Q1) Suppose a country has a population of 76 million, of which 53 million are in the working-age population.Of those, 3 million are unemployed and 46 million are employed.
a.Calculate the number of people who are in the labor force.
b.Calculate the number of people who are not in the labor force.
c.Calculate the labor-force participation rate.
d.Calculate the unemployment rate.
Q2) Country Z is passing through a recession.Which group of economists is likely to believe that a shift of the aggregate demand curve has caused the recession?
A)Keynesians
B)Monetarists
C)Real Business Cycle theorists
D)Neoclassicists
Q3) If output grew 2.8 percent last year and labor productivity grew 1.1 percent, then by how much did hours worked grow over the year?
A)1.1 percent
B)1.3 percent
C)1.7 percent
D)3.9 percent
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Chapter 11: Modeling Money
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Q1) In the liquidity-preference model, a decline in prices causes the
A)money supply curve to shift to the right.
B)money supply curve to shift to the left.
C)money demand curve to shift to the left.
D)money demand curve to shift to the right.
Q2) A function that summarizes the relationship between the real demand for money, real income, and the nominal interest rate is called the ____function.
A)real money-demand
B)nominal money-demand
C)interest-income
D)real income-demand
Q3) Describe three different changes in the ATM model that would increase the time between ATM visits and increase the quantity of money demanded.
Q4) A variable that is determined within a model is called
A)a dynamic variable.
B)a static variable.
C)an endogenous variable.
D)an exogenous variable.
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Chapter 12: The Aggregate-Demandaggregate-Supply Model
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Q1) Consumption spending is about_____ of aggregate demand.
A)2/3
B)1/2
C)3/4
D)5/6
Q2) Describe what monetary policymakers should do if they want to keep the price level in an economy permanently low.?
Q3) The total amount of physical capital in all firms and households is called the
A)human capital.
B)capital stock.
C)household income.
D)physical product.
Q4) The_____ believe that it takes a long time for prices and wages to change to restore equilibrium in an economy.
A)Keynesians
B)classical economists
C)monetarists
D)institutional economists
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Chapter 13: Modern Macroeconomic Models
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Q1) The view that a change in the timing of taxes does not affect people's consumption is known as the
A)tax equalization postulate.
B)fiscal policy equality law.
C)Lucas critique.
D)Ricardian equivalence proposition.
Q2) In the two-period model, suppose a household's income in period one is $30,000 and its income in period two is $40,000.Also assume that the household face the real interest rate of 25 percent.What is the present value of the Household's income?
A)$62,000
B)$46,000
C)$20,000
D)$30,000
Q3) A model that focuses on what is happening at just one point in time is known as A)a dynamic model.
B)a static model.
C)a general-equilibrium model.
D)a partial-equilibrium model.
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Chapter 14: Economic Interdependence
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Q1) International investors believe that when a country gets into financial trouble, the IMF will rescue the country, thus reducing the investors' risk.As a result, investors take greater risks than they would otherwise.This is an example of
A)a risk premium.
B)a lender of last resort.
C)adverse selection.
D)moral hazard.
Q2) What are the two major drawbacks of the International Monetary Fund that prevents it from bailing out countries in crises?
Q3) When a country's currency appreciates,
A)the prices of its exports and imports both rise.
B)the price of its exports rise, and the price of its imports fall.
C)the prices of its exports and imports both fall.
D)the price of its exports fall and the price of its imports rise.
Q4) How should a country respond when foreign investors withdraw investments from that country?
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Chapter 15: The Federal Reserve System
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Q1) What are the central banking functions that a Federal Reserve Bank performs?
Q2) When monetary policy eases before elections to favor incumbent politicians, it is referred to as
A)a liquidity trap.
B)an expectations trap.
C)political creative destruction.
D)a political business cycle.
Q3) The Federal Reserve publication that discusses forecasts for the economy is known as the
A)Redbook.
B)Beigebook.
C)Bluebook.
D)Greenbook.
Q4) Describe the Beigebook, the Greenbook, and the Bluebook.
Q5) Are there any benefits to having both banking supervisors and economic researchers working together at a Reserve bank?
Q6) What step does the Board of governors of the Fed take to ensure that the Fed does not built itself into an inefficient bureaucracy?
Q7) Why are the deliberations of the FOMC kept secret?
Page 17
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Chapter 16: Monetary Control
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Q1) During the holiday season in December, people use more currency than usual.To offset this increase in demand for money, the Fed increases the money supply through A)defensive open-market operations.
B)dynamic open-market operations.
C)discount loans for profit.
D)discount loans for business needs.
Q2) If the excess reserves held by banks increase, the money multiplier is likely to A)rise.
B)fall.
C)remain unchanged.
D)rise at first, then decline later.
Q3) The main liability on the Federal Reserve's balance sheet is A)discount loans. B)securities.
C)the monetary base.
D)capital.
Q4) What are the nontraditional policies suggested by Ben Bernanke for a central bank caught in a liquidity trap?
Q5) Since the 2008 financial crisis, what has happened to the M1 and M2 multipliers?
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Chapter 17: Monetary Policy: Goals and Tradeoffs
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Q1) In an economy, the actual inflation rate is increasing while the ideal inflation rate is constant.In such a case, the inflation gap in the economy will
A)increase over time.
B)decrease over time.
C)stay the same.
D)initially decrease then increase.
Q2) Describe the three major costs of unanticipated inflation and give an example of each.
Q3) In the U.S., the output gap is equal to
A)1 time the unemployment gap.
B)2 times the unemployment gap.
C)1 time the unemployment gap.
D)2 times the unemployment gap.
Q4) If potential output is $22.7 trillion and the output gap is 12.8%, then actual output is
A)14.2 trillion.
B)16 trillion.
C)19.8 trillion.
D)20.6 trillion.
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Chapter 18: Rules for Monetary Policy
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Q1) Which of the following best describes the reason why policymakers do not generally like to commit to following a rule for monetary policy?
A)Because changes to the economy's structure will prevent any rule from working well for long
B)Because rules do not effectively prevent time-inconsistency
C)Because rules without credibility are worse than discretion
D)Because central bankers like to feel important
Q2) Total spending divided by the money supply equals
A)the reserve requirement.
B)the transactions demand for money.
C)the money multiplier.
D)the velocity of money.
Q3) Taylor originally picked ______as the equilibrium real federal funds rate, which was equal to its historical average.
A)1 percent
B)2 percent
C)3 percent
D)4 percent
Q4) How does a central bank establish credibility?
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