Macroeconomics
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Course Introduction
Macroeconomics is a branch of economics that studies the behavior, performance, and structure of an economy as a whole. This course covers key concepts such as aggregate demand and supply, national income, unemployment, inflation, economic growth, and fiscal and monetary policies. By examining these fundamental topics, students will gain an understanding of how economic policies influence the overall health and stability of national and global economies. The course also explores contemporary issues and challenges facing policymakers, providing analytical tools to interpret real-world economic events and trends.
Recommended Textbook
Macroeconomics 8th Edition by Andrew Abel
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1417 Verified Questions
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Page 2
Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) An economy that doesn't interact economically with the rest of the world is called ________ economy.
A)a closed
B)an open
C)a surplus
D)an authoritarian
Answer: A
Q2) Data on exports and imports for the United States over the period from 1890 to 2008 show that
A)the United States had large trade deficits throughout this entire period.
B)the United States had large trade surpluses throughout this entire period.
C)the percentage of total output exported by U.S.firms fell dramatically during World War I and World War II.
D)a higher percentage of U.S.goods was exported in recent years than in earlier years.
Answer: D
Q3) What are the major factors affecting the long-term growth of the economy's output?
Answer: The major factors are population growth and average labor productivity.
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3
Chapter 2: The Measurement and Structure of the National Economy
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Sample Questions
Q1) The Federal Reserve focuses on the inflation rate based on the ________ rather than the CPI; to measure the underlying trend in inflation,it focuses on the ________.
A)GDP deflator; overall GDP deflator
B)GDP deflator; core GDP deflator
C)PCE price index; core PCE price index
D)PCE price index; overall PCE price index
Answer: C
Q2) Suppose that national saving is $1456 billion,investment is $1945 billion,and private saving is $1590 billion.How much is the current account balance?
A)$489 billion
B)$221 billion
C)-$221 billion
D)-$489 billion
Answer: D
Q3) How are net exports,net factor payments from abroad,and the current account balance related?
Answer: NX + NFP = CA.
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Page 4
Chapter 3: Productivity, Output, and Employment
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Sample Questions
Q1) Which of the following events would lead to an increase in the marginal product of labor for every quantity of labor?
A)An increase in the real wage
B)A decrease in the real wage
C)A favorable supply shock such as a fall in the price of oil
D)An adverse supply shock,such as a reduced supply of raw materials
Answer: C
Q2) A bird flu epidemic causes many people to flee the country,but does not affect labor demand
Significantly because almost all the goods produced within the country are exported.What happens to current employment and the real wage rate?
A)Both employment and the real wage rate would increase.
B)Both employment and the real wage rate would decrease.
C)Employment would increase and the real wage would decrease.
D)Employment would decrease and the real wage would increase.
Answer: D
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Chapter 4: Consumption, Saving, and Investment
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Sample Questions
Q1) What is the marginal propensity to consume,and why is it always less than one?
Q2) What are the economic consequences of reductions in defense spending by the government? What happens to national saving,the interest rate,and investment?
Q3) Three factors that cause interest rates among different financial instruments to vary are
A)default risk,expected inflation,and taxability.
B)default risk,current inflation,and taxability.
C)default risk,maturity,and taxability.
D)default risk,expected inflation,and maturity.
Q4) If the rate of depreciation increases,then user cost ________ and the desired capital stock ________.
A)falls; falls
B)falls; rises
C)rises; rises
D)rises; falls
Q5) Identify two variables that shift the desired investment curve.Is desired investment negatively related or positively related to each of these variables?
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6
Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) A country's capital and financial account balance decreases if
A)its current account balance increases.
B)its income payment inflows on foreign assets decrease.
C)its domestic residents working abroad reduce the income they send home to their families.
D)foreigners increase their purchases of its existing assets.
Q2) When future labor income falls in a small open economy,it causes the current account to ________ and investment to ________.
A)fall; rise
B)rise; remain unchanged
C)fall; remain unchanged
D)rise; rise
Q3) A large open economy's real interest rate will decrease if
A)the expected future marginal product of domestic capital rises.
B)the expected future marginal product of foreign capital rises.
C)there is a temporary positive domestic supply shock.
D)there is a temporary negative domestic supply shock.
Q4) Suppose an economy has output of 2100,government spending of 40,consumption of 1600,and absorption of 1940.Calculate the equilibrium values of investment and net exports.
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Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) Describe the main ideas of endogenous growth theory.What does it have to say about the role of government in economic growth?
Q2) In the Solow model,if f(k)= 2k0.5,s = 0.3,n = 0.05,and d = 0.15,what is the value of k at equilibrium?
A)1
B)3
C)6
D)9
Q3) Government policies to raise the rate of productivity growth include all of the following EXCEPT
A)improving infrastructure.
B)encouraging research and development.
C)reducing the government budget surplus.
D)improving human capital development.
Q4) Use the growth accounting equation to calculate productivity growth,given output growth of 3.5%,capital stock growth of 5%,labor employment growth of 2%,the output elasticity of capital of 0.3,and the output elasticity of labor of 0.7.
Q5) What types of government policies can increase long-run living standards?
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Chapter 7: The Asset Market, Money, and Prices
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Sample Questions
Q1) Money demand is given by Md/P = 1000 + .2Y - 1000i.
Given that P = 200,Y = 2000,and i = .10,real money demand is equal to
A)1,300.
B)1,500.
C)260,000.
D)300,000.
Q2) The idea that investors today compare the returns on bonds with differing times to maturity to see which is expected to give them the highest return is the underlying principle behind the ________ of the term structure of interest rates.
A)expectations theory
B)investors' viewpoint analysis
C)segmented-markets theory
D)yield comparison theory
Q3) Define asset market equilibrium and state the asset market equilibrium condition.
Q4) What function is money playing in each of these situations:
a.You walk into a store in Germany and see that all the prices are in euros.
b.You buy a candy bar for $1.25.
c.Your Aunt Jane keeps $100 bills tucked into many books in her house.
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Chapter 8: Business Cycles
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Sample Questions
Q1) According to classical macroeconomists,prices adjust ________ to shocks,so the government should ________.
A)slowly; do little
B)rapidly; do little
C)rapidly; fight recessions
D)slowly; fight recessions
Q2) A variable that tends to move at the same time as aggregate economic activity is called
A)a leading variable.
B)a coincident variable.
C)a lagging variable.
D)an acyclical variable.
Q3) If you were a member of the NBER business-cycle dating committee,would you declare that the U.S.economy is now in a recession? Why? Describe the major variables that you would look at to determine whether the economy is in a recession or not,and what features of the data you would look for.
Q4) Define the following characteristics of business cycles: recurrence and persistence.
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Chapter 9: The IS-LM/AD-AS Model
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Sample Questions
Q1) Which of the following changes shifts the SRAS curve down?
A)An increase in the labor force
B)An increase in the money supply
C)A decrease in government purchases
D)A decrease in firms' costs
Q2) The short-run aggregate supply curve (in the absence of misperceptions)
A)is vertical.
B)slopes upward.
C)is horizontal.
D)slopes downward.
Q3) An increase in the money supply would cause the IS curve to
A)shift up and to the right.
B)shift down and to the left.
C)remain unchanged.
D)shift up and to the right only if people face borrowing constraints.
Q4) For each outcome below,tell what type of shift must have taken place in either the aggregate demand curve or the long-run aggregate supply curve.
(a)In the short run,the price level is unchanged and output rises.
(b)In the long run,the price level declines and output is unchanged.
(c)In the long run,the price level rises and output declines.
Page 11
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Chapter 10: Classical Business Cycle Analysis
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Sample Questions
Q1) Define real shocks,define nominal shocks,and give an example of each.
Q2) Critics of the RBC approach argue that it's hard to find productivity shocks large enough to cause business cycles.What is the RBC counterargument to this criticism?
A)Business cycles are always and everywhere a monetary phenomenon.
B)Wars and military buildups could be considered productivity shocks.
C)Business cycles could be caused by the accumulation of small productivity shocks.
D)Business cycles are often caused by unobservable productivity shocks,which aren't apparent at the time they occur.
Q3) The theory that real shocks to the economy are the primary cause of business cycles is
A)monetarism.
B)Keynesian theory.
C)real business cycle theory.
D)Hamiltonian theory.
Q4) Analyze the short-run and long-run effects of an unanticipated decrease in the money supply in the misperceptions model.Tell what happens to output,the price level,and the expected price level in both the short run and long run.
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Page 12
Chapter 11: Keynesianism: The Macroeconomics of Wage and Price Rigidity
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Sample Questions
Q1) The 1980s were characterized by ________ monetary policy and ________ fiscal policy.
A)tight; easy
B)tight; tight
C)easy; easy
D)easy; tight
Q2) In the Keynesian model in the long run,a decrease in the money supply will cause
A)a decrease in output and an increase in the real interest rate.
B)an increase in the real interest rate but no change in output.
C)a decrease in the real interest rate and a decrease in output.
D)no change in either the real interest rate or output.
Q3) Keynesians believe that the most important shocks for affecting the business cycle are
A)productivity shocks.
B)aggregate supply shocks.
C)aggregate demand shocks.
D)government spending shocks.
Q4) Why might firms pay an efficiency wage rather than a market-clearing wage?
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Q5) Do Keynesians and classicals agree on the effectiveness and desirability of macroeconomic stabilization? Briefly explain.
Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) Starting on a Phillips curve with expected inflation equal to 5% and unemployment at its natural rate,show what happens to unemployment if the Fed tries to reduce inflation,but has no credibility.As time passes and people realize that the inflation rate is now lower,what happens to the short-run Phillips curve?
Q2) Ball's research on disinflation across different countries found that A)costs of disinflation were smaller for rapid disinflation than for gradual disinflation. B)costs of disinflation were larger for rapid disinflation than for gradual disinflation.
C)costs of disinflation were about the same for both rapid and gradual disinflation.
D)costs of disinflation were smaller when the central bank had a strong inflation-fighting reputation.
Q3) The negative relationship between unemployment and inflation is known as the
A)aggregate supply curve.
B)aggregate demand curve.
C)Phillips curve.
D)efficiency wage line.
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Chapter 13: Exchange Rates,Business Cycles,and
Macroeconomic Policy in the Open Economy
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Sample Questions
Q1) Currency unions are rare because
A)they're to no one's advantage.
B)countries are reluctant to give up having their own currencies.
C)having flexible exchange rates has the same benefits and none of the costs.
D)speculative attacks are likely to occur.
Q2) When the domestic currency strengthens under a fixed-exchange-rate system,this is called
A)a depreciation.
B)an appreciation.
C)a devaluation.
D)a revaluation.
Q3) Purchasing power parity does not hold in the short to medium run because
A)exports don't equal imports.
B)exchange rates fluctuate too much.
C)some goods aren't internationally traded.
D)most business cycles are caused by shocks to aggregate demand.
Q4) Describe how the euro was created.What are the benefits of the monetary union? What are the costs?
Q5) What is purchasing power parity? Why might it not hold?
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Chapter 14: Monetary Policy and the Federal Reserve System
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Sample Questions
Q1) When the Fed alters the types of assets it owns,it is engaging in A)credit easing.
B)forward guidance.
C)quantitative easing.
D)changing the discount rate.
Q2) Policymakers may be uncertain about the structure of the economy because A)initial releases of data may be less accurate than later data releases.
B)they don't know the predominant source of shocks to the economy.
C)they don't know how shocks affect people's expectations.
D)they are not aware of modern macroeconomic modeling techniques.
Q3) The money supply is $10 million,currency held by the nonbank public is $2 million,and the reserve-deposit ratio is 0.2.Bank deposits are equal to A)$1.6 million.
B)$2 million.
C)$4 million.
D)$8 million.
Q4) Use the LR curve to show what happens to output,the real interest rate,and the price level in the short run and in the long run if the government provides a tax credit to people who buy a new home,which leads to an increase in new housing investment.
Page 16
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) The current deficit is
A)the deficit minus government investment.
B)the deficit plus net interest payments.
C)the deficit minus current expenditures.
D)the deficit minus depreciation.
Q2) The type of tax receipts that has shown the slowest growth since World War II has been
A)personal taxes.
B)contributions for social insurance.
C)taxes on production and imports.
D)corporate taxes.
Q3) If the deficit is 0.1 times GDP,the existing debt/GDP ratio is 0.5,and the growth rate of nominal GDP is 0.04,then the change in the debt-GDP ratio is A)+0.08
B)+0.075.
C)0) D)-0.075.
Q4) Why is the Social Security system in crisis at a time when it's running large surpluses? What's the source of the problem? What solutions have been proposed?
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