Macroeconomics
Pre-Test Questions
Course Introduction
Macroeconomics is an introductory course that explores the behavior and performance of an economy as a whole. It examines key aggregate indicators such as GDP, unemployment rates, inflation, and national income, and analyzes how government policies, international trade, and economic cycles impact overall economic growth and stability. Students will learn foundational models and concepts, including aggregate demand and supply, fiscal and monetary policy, and the factors influencing long-term economic development, providing them with a framework to understand broad economic trends and policy debates.
Recommended Textbook
Macroeconomics 2nd Edition by Charles I. Jones
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1883 Verified Questions
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Page 2
Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) The short run is concerned with __________ while the long run is concerned with
A)inflation;unemployment
B)causes of economic fluctuations;inflation
C)causes of economic fluctuations;determinants of economic growth
D)determinants of economic growth;causes of economic fluctuations
E)causes of economic fluctuations;the money supply
Answer: C
Q2) An economic model is an exact replica of the macroeconomy.
A)True
B)False
Answer: False
Q3) What are the steps macroeconomists use to analyze the economy?
Answer: a)Document the problem,identify and ask the question;
b)Develop a framework for analysis,a model;
c)Test the model using empirical analysis orsome other comparable analysis and compareto the observed facts;
d)Apply the model to similar situations and makenother predictions.
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3
Chapter 2: Measuring the Macroeconomy
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Sample Questions
Q1) Nominal GDP means that the value of all goods and services is measured in __________ prices.
A)average
B)last year's
C)the base year's
D)current
E)constant
Answer: D
Q2) If the percent change in real GDP is found to be 4 percent using the Laspeyres index and 3 percent using the Paasche index,the chain-weighted price index will give us a growth rate of 3.5 percent.
A)True
B)False
Answer: True
Q3) The value added for a good produced is equal to the value of the firm's output plus the value of the intermediate goods used to produce that output.
A)True
B)False
Answer: False
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Page 4
Chapter 3: An Overview of Long- Run Economic Growth
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Sample Questions
Q1) Assume that Mexico's average annual per capita GDP growth rate is 3 percent per year,while Argentina's is 2.5 percent.Next,assume that both countries began with an initial per capita GDP of $1,000 in 1950.By 2000,per capita GDP would have been __________ in Mexico and __________ in Argentina.
A)$228;$291
B)$3,437;$4,384
C)$4,515;$3,523
D)$4,384;$3,437
E)Not enough information is given.
Answer: D
Q2) The benefits of economic growth are which of the following?
A)increases in life expectancy
B)reductions in infant mortality
C)higher incomes
D)the gradual release of individuals from physical labor
E)all of the above
Answer: E
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Chapter 4: A Model of Production
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Sample Questions
Q1) The marginal product of labor curve represents the labor supply curve.
A)True
B)False
Q2) Suppose the payments to capital and labor are (w*L*)/Y* = 2/3 and (r*L*)/Y* = 1/3,respectively.One implication of this result is that __________ and profits are
A)w*L* + r*K* = Y*;positive
B)w*L* + r*K* = Y*;equal to zero
C)w*L* + r*K* = Y*;negative
D)(w*L* - r*K*)= Y*;equal to zero
E)(w*L*/Y*)(r*K*/Y*)= 0;negative
Q3) The law of diminishing marginal product to capital means that as we add additional units of capital:
A)and labor,output will increase but at a constant rate.
B)and labor,output will increase but at a decreasing rate.
C)but hold labor constant,output will increase but at an increasing rate.
D)but hold labor constant,output will increase but at a constant rate.
E)but hold labor constant,output will increase but at a decreasing rate.
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6
Chapter 5: The Solow Growth Model
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Sample Questions
Q1) In the Solow model,if we assume that capital depreciation rates are the same across all countries,differences in per capita output can be explained by:
A)the steady-state capital stock.
B)the initial capital stock and saving rates.
C)differences in productivity and saving rates.
D)the labor stock and saving rates.
E)none of the above
Q2) In the Solow model,it is assumed a(n)__________ fraction of capital depreciates each period.
A)zero
B)increasing
C)decreasing
D)constant
E)none of the above
Q3) In the Solow model,if gross investment is greater than capital depreciation,the economy accumulates new capital.
A)True
B)False
Q4) 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) A balanced growth path is defined as a situation in which:
A)the output growth rate is constant.
B)the growth rates of all endogenous variables are variable.
C)the growth rates of some of the endogenous variables are constant.
D)the growth rates of all endogenous variables are constant.
E)All of the above are correct.
Q2) Nonrivalry in the knowledge sector means that:
A)per capita income depends on the total population.
B)per capita income depends on some of the stock of ideas.
C)per capita income depends on the total stock of ideas.
D)labor in the ideas sector also can be used in the output sector.
E)all labor is used in the ideas sector.
Q3) "Growth accounting" endeavors to:
A)measure GDP.
B)measure economic growth rates.
C)determine how capital accumulates.
D)measure what factors,and in what proportion,affect overall economic growth.
E)measure global output and the proportion of global output attributed to each country.
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) Consider the labor market depicted in Figure 7.3.Wage w¯ is called __________ and __________.
A)wage rigidity;reduces unemployment
B)wage rigidity;decreases labor market volatility
C)a flexible wage;increases labor market volatility
D)wage rigidity;increases labor market volatility
E)the market wage;increases unemployment
Q2) By 2002,the college wage premium was about __________ than the wage of the typical worker with a high school education.
A)50 percent more
B)10 percent more
C)100 percent more
D)90 percent more
E)None of the above is correct.
Q3) __________ historically has had the lowest unemployment rate since 1960.
A)The United States
B)Japan
C)France
D)The United Kingdom
E)Germany
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Chapter 8: Inflation
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Sample Questions
Q1) Suppose you put $100 dollars in the bank on January 1,2007.If the annual nominal interest rate is 5 percent and the inflation rate is 2 percent,you will be able to buy __________ on January 1,2008.
A)$93 worth of goods
B)$107 worth of goods
C)$103 worth of goods
D)$105 worth of goods
E)$99 worth of goods
Q2) Money that has no value except as money is called __________ money.
A)bonded
B)commodity
C)fiat
D)intrinsic
E)none of the above
Q3) The Federal Reserve believed that the productivity slowdown in the 1970s was a long-lived recession and therefore increased the supply of money.
A)True
B)False
Q4) Explain how increases in government expenditures can lead to inflation.
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Chapter 9: An Introduction to the Short Run
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Sample Questions
Q1) According to the Phillips curve,short-term changes in inflation are due to
A)changes in interest rates.
B)changes in unemployment.
C)changes in short-term output fluctuations.
D)changes in long-term inflation.
E)changes in long-term output.
Q2) 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
Q3) A decline in long-term productivity implies that an economy requires more resources to produce goods;therefore,as costs of production rise,we should see an acceleration in inflation.
A)True
B)False
Q4) What three premises does the short-run model operate under?
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Chapter 10: The Great Recession: a First Look
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Sample Questions
Q1) Securitization is defined as:
A)bolstering defense spending.
B)making it more difficult to enter the United States illegally.
C)creating incentives for firms to protect proprietary information.
D)disallowing the use of collateral for loans.
E)lumping large numbers of financial instruments together and selling pieces to different types of investors.
Q2) The basic principle of securitization is that bundling a variety of different types of loans into a new asset and selling pieces of that asset to many investors will diversify risk.
A)True
B)False
Q3) Which of the following countries did the financial crisis affect?
A)The United States
B)Germany
C)Japan
D)France
E)all of the above
Q4) Briefly discuss the macroeconomic outcomes of the financial crisis.
Q5) How does "securitization" reduce overall risk?
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Chapter 11: The Is Curve
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Sample Questions
Q1) The implication of Ricardian equivalence is that,if the government increases expenditures without increasing taxes,the increase in government expenditures will be:
A)at least partially offset by a reduction in consumer spending.
B)enhanced by an increase in consumer spending.
C)more than offset by a reduction in firm spending.
D)enhanced by the multiplier effect.
E)none of the above
Q2) You are given the data in Table 11.1,which covers the period 1947-2006."Mean" is the average growth over the period and "St Dev" is the standard deviation of the growth (a measure of volatility)of real output,consumption,investment,government expenditure,and net exports.From this information,you conclude that
A)households smooth their consumption more than other sectors.
B)firms base their decisions on more than the potential GDP.
C)foreigners are fickle consumers.
D)government expenditures are zero.
E)a and b are correct.
Q3) What is the relationship between the real interest rate and the output gap in the IS curve? Explain.
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Page 13
Chapter 12: Monetary Policy and the Phillips Curve
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Sample Questions
Q1) What is the main policy tool available to the Federal Reserve?
A)discount rate
B)federal funds rate
C)government expenditures
D)printing money
E)taxes
Q2) Consider Figure 12.6.You are chairman of the Federal Reserve in 1975.You believe potential output follows the dotted line after 1973,but in actuality,it follows the line denoted "True potential output." The current state of the economy is given by the curve "Actual output." Given the information in the figure,you __________,because you believe the economy is in a __________;but your advice instead __________.
A)lower interest rates;recession;accelerates inflation
B)raise interest rates;recession;accelerates inflation
C)keep interest rates the same;boom;accelerates inflation
D)lower interest rates;boom;increases unemployment
E)Not enough information is given.
Q3) The money demand curve slopes upward with respect to the nominal interest rate.
A)True
B)False
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Page 14
Chapter 13: Stabilization Policy and the Asad Framework
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Sample Questions
Q1) The aggregate supply curve is derived from:
A)Okun's law.
B)the Phillips curve.
C)the Fisher equation.
D)the monetary policy rule.
E)the interaction of the IS and MP curves.
Q2) If m = 1/2 in the simple monetary rule and if inflation rises by 2 percent,interest rates should rise by 2 percent.
A)True
B)False
Q3) According to the Taylor rule,the federal funds rate should rise in positive proportion to the inflation rise.
A)True
B)False
Q4) Combining the IS and monetary policy curves gives us the aggregate supply curve.
A)True
B)False
Q5) Central banks always use monetary rules to dictate monetary policy.
A)True
B)False
15
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Chapter 14: The Great Recession and the Short-Run Model
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Sample Questions
Q1) The risk premium is the:
A)difference between federal funds rate and the interest rate in financial markets.
B)interest rate used in subprime loans.
C)difference between long-run inflation and the actual rate of inflation.
D)result of adding the inflation rate to the unemployment rate.
E)variance of the risk-free interest rate.
Q2) The price-to-earnings ratio is useful in identifying asset bubbles.
A)True
B)False
Q3) According to projections by the Congressional Budget Office,the federal budget deficit will __________ by the end of 2009 from __________ in 2008.
A)grow to 12 percent of GDP;3 percent of GDP
B)equal 92 percent of GDP;120 percent of GDP
C)be -10 percent of GDP;0.2 percent of GDP
D)grow to 120 percent of GDP;-20 percent of debt
E)equal 0;-12 percent of GDP
Q4) Banks which are deemed too big to fail leads to adverse selection.
A)True
B)False
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Chapter 15: Consumption
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Sample Questions
Q1) If the Euler equation did not hold,then:
A)the real interest rate would be zero.
B)a consumer would not spend all her lifetime wealth.
C)a consumer could move consumption from the future to the present and increase lifetime utility.
D)a consumer could move consumption from the present to the future and increase lifetime utility.
E)either c or d
Q2) Consider Figure 15.4 below,which shows the U.S.personal savings rate.A likely explanation for the rise in savings rates after 2009 is the continued strength in stock and housing markets.
A)True
B)False
Q3) Because people can't perfectly foresee income changes over their lifetime,consumption should:
A)be smooth.
B)be predictable.
C)be constant throughout one's lifetime.
D)follow a random walk.
E)rise throughout one's lifetime.
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Chapter 16: Investment
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Sample Questions
Q1) The largest component of physical investment is:
A)nonresidential fixed investment.
B)software.
C)residential investment.
D)changes in inventory.
E)unplanned investment.
Q2) When John Maynard Keynes said,"An investment in knowledge always pays the best interest," he was referring to investing in government spending.
A)True
B)False
Q3) 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
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Chapter 17: The Government and the Macroeconomy
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Q1) The country with the largest annual government spending-to-GDP ratio is:
A)the Euro area.
B)South Korea.
C)the United States.
D)the United Kingdom.
E)Japan.
Q2) Generational accounting implies that,holding the present value of government spending constant,budget deficits will not crowd out investment.
A)True
B)False
Q3) Empirical tests of crowding show strong evidence for crowding out.
A)True
B)False
Q4) The government's intertemporal budget constraint assumes the budget is always balanced.
A)True
B)False
Q5) What is Norway's debt-to-GDP situation? Why? Given this,what is it doing for the future?
Q6) Explain how budget deficits lead to crowding out.Is there evidence of this?
Page 19
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Chapter 18: International Trade
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Sample Questions
Q1) Intertemporal trade deficits and surpluses reflect:
A)international borrowing.
B)international lending and borrowing.
C)movements in money across borders.
D)differences in interest rates.
E)differences in preferences.
Q2) If the United States is running persistent trade deficits now,
A)it must make loans to the rest of world.
B)it is expected to run trade surpluses at some point in the future.
C)it is expected to run trade surpluses now.
D)it must increase its money supply to buy imports.
E)it must run a government budget deficit.
Q3) Consider Table 18.1.With free trade,the __________ specializes in chips,producing 100 percent of the world supply,or __________ kilos.
A)East;8,000
B)West;10,000
C)West;20,000
D)West;10,000.
E)East;24,000
Q4) What has been the trend of trade in the United States since 1950? Explain.
Page 20
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Chapter 19: Exchange Rates and International Finance
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Sample Questions
Q1) The Big Mac index is compiled by:
A)The Financial Times.
B)The Wall Street Journal.
C)The American Economic Review.
D)The Economist.
E)Forbes.
Q2) Consider Figure 19.1,which shows the £UK/$US,$US/ ,and £UK/ exchange rates.During the period 2001-2007,the U.S.dollar __________ relative to the euro and __________ relative to the U.K.pound.
A)appreciated;appreciated
B)depreciated;remained somewhat unchanged
C)appreciated;remained somewhat unchanged
D)depreciated;appreciated
E)Not enough information is given.
Q3) The natural goal(s)of an international monetary system are:
A)a stable exchange rate.
B)monetary policy autonomy.
C)free flow of international finance.
D)all of the above
E)a and b
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Chapter 20: Parting Thoughts
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Sample Questions
Q1) In the long run,the unemployment rate is determined primarily by institutional features of the labor market.
A)True
B)False
Q2) According to the principle of transition dynamics,we should expect China's economy:
A)to grow at a relatively high rate forever.
B)to grow relatively slowly now but speed up over time.
C)to grow relatively fast now but slow down over time.
D)to catch up to the United States in the next 50 years or so.
E)to reach its steady state by the year 2100.
Q3) Which of the following has not contributed to higher standards of living in the long run?
A)the stock of technology
B)investment in physical capital
C)investment in human capital
D)stable monetary policy
E)productivity
Q4) What problems is economics still trying to answer?
Q5) Name three contributing factors to standards of living in the long run.
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