Course Introduction
Monetary Economics
Exam Bank
Monetary Economics explores the role and impact of money and financial institutions on the economy. The course examines the behavior of central banks, the creation and management of money, and the mechanisms through which monetary policy influences inflation, interest rates, and economic growth. Students analyze the theoretical foundations of money demand and supply, study the tools of monetary policy, and evaluate the transmission of policy decisions through markets and the banking system. The course also considers current issues such as digital currencies, financial crises, and the challenges of managing stable prices and employment in a global context.
Recommended Textbook
Macroeconomics 8th Edition by Andrew Abel
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Page 2
Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) In analyzing macroeconomic data during the past year,you have discovered that average labor productivity fell,but total output increased.What was most likely to have caused this?
A)There is nothing unusual in this outcome because this is what normally occurs.
B)The capital/output ratio probably rose.
C)There was an increase in labor input.
D)Unemployment probably increased.
Answer: C
Q2) Which of the statements below is primarily normative in nature?
A)There is an unequal distribution of income in the United States.
B)The distribution of income is more unequal in the United States than it is in Japan.
C)The inequality of income that exists in the United States is partly caused by an unequal distribution of wealth.
D)The distribution of income in the United States should be more equal than it is.
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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Chapter 2: The Measurement and Structure of the National Economy
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Sample Questions
Q1) In 2008,inflation exceeded expected inflation.In 2009,expected inflation exceeded inflation.Therefore the real interest rate was ________ than the expected real interest rate in 2008 and the real interest rate was ________ than the expected real interest rate in 2009.
A)less; less B)less; greater C)greater; less D)greater; greater
Answer: B
Q2) What is the main conceptual difference between GDP and GNP? How different are GDP and GNP for the United States? For countries with many citizens who work abroad? Answer: GDP represents output produced within a country,while GNP represents output produced by a country's factors of production; the difference is net factor payments from abroad.For the United States there's little difference,but for countries that have many citizens working abroad,there may be a big difference.
Q3) How are net exports,net factor payments from abroad,and the current account balance related?
Answer: NX + NFP = CA.
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Chapter 3: Productivity, Output, and Employment
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Sample Questions
Q1) Changes in the capital stock occur ________,and changes in the amount of labor that firms employ occur ________.
A)quickly; quickly
B)slowly; slowly
C)slowly; quickly
D)quickly; slowly
Answer: C
Q2) The ________ is the number of unemployed divided by the labor force and the ________ is the number of employed divided by the adult population.
A)unemployment rate; employment rate
B)unemployment rate; employment ratio
C)unemployment ratio; participation rate
D)discouraged worker ratio; employment rate
Answer: B
Q3) State the growth rate form of Okun's Law and define the variables in the equation. Answer: The growth rate form of Okun's law is ?Y/Y = 3 - 2?u,where ?Y/Y is the growth rate of output,3 is the growth rate of full-employment output,and ?u is the change in the unemployment rate.
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Chapter 4: Consumption, Saving, and Investment
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Sample Questions
Q1) Onerous regulations on businesses that take effect next year (in a closed economy)reduce businesses' expected future marginal product of capital.As a result,the real interest rate ________ and saving ________.
A)falls; declines
B)falls; increases
C)rises; increases
D)rises; declines
Q2) Suppose your company is in equilibrium,with its capital stock at its desired level.A permanent increase in the depreciation rate now has what effect on your desired capital stock?
A)Raises it,because the future marginal productivity of capital is higher
B)Lowers it,because the future marginal productivity of capital is lower
C)Raises it,because the user cost of capital is now lower
D)Lowers it,because the user cost of capital is now higher
Q3) An increase in the expected real interest rate will
A)increase the desired capital stock.
B)decrease the desired capital stock.
C)have no effect on the desired capital stock.
D)have the same effect on the desired capital stock as a decrease in corporate taxes.
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Page 6
Chapter 5: Saving and Investment in the Open Economy
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Q1) If business taxes rise in a large open economy,it causes the current account to ________ and saving to ________.
A)fall; fall
B)rise; remain unchanged
C)fall; remain unchanged
D)rise; fall
Q2) Consider a small open economy that is in equilibrium with a current account surplus.
(a)Draw a diagram showing this situation.
(b)Now suppose that future income increases.Show what happens in your diagram.What happens to the world real-interest rate and the equilibrium quantities of saving,investment,and the current-account balance?
(c)Repeat parts (a)and (b)for the case of a large open economy,showing a situation in which the home country initially has a current account surplus.Draw a diagram and describe how the rise in future income in the home country affects all four variables (the world real interest rate and the equilibrium quantities of saving,investment,and the current-account balance)in both countries.
Q3) What determines the interest rate in a small open economy?
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Chapter 6: Long-Run Economic Growth
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Q1) The level of the capital-labor ratio that maximizes consumption per worker in the steady state is known as the
A)Solow residual capital-labor ratio.
B)Golden Rule capital-labor ratio.
C)q theory capital-labor ratio.
D)dynamically efficient capital-labor ratio.
Q2) In the textbook model of endogenous growth,long-run output growth would increase if there were either a ________ in the saving rate or a ________ in the depreciation rate.
A)rise; rise
B)rise; fall
C)fall; rise
D)fall; fall
Q3) Over the past year,output grew 6%,capital grew 2%,and labor grew 4%.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,how
much did productivity grow?
A)2)0%
B)2)6%
C)3)0%
D)3)3%
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Chapter 7: The Asset Market, Money, and Prices
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Sample Questions
Q1) The least liquid asset on this list is
A)money.
B)bonds.
C)houses.
D)stocks.
Q2) Why do people keep currency in their pockets when bank deposits pay interest?
A)Because banks might steal your money.
B)Because currency is more liquid.
C)Because bank deposits lose value due to inflation.
D)Because bank deposits lose value due to changes in interest rates.
Q3) 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.
Q4) The number of units of one good that trade for one unit of alternative goods can be determined most easily when
A)there is one unit of account.
B)the goods all weigh about the same.
C)the goods are all new.
D)the goods are actively traded through barter.
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Chapter 8: Business Cycles
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Sample Questions
Q1) Christina Romer argued that
A)measured properly,GNP before 1929 varied substantially less over time than the official statistics showed.
B)measured properly,GNP after 1929 varied substantially more over time than the official statistics showed.
C)measured properly,economic expansions after 1929 were shorter than the official statistics showed.
D)measured properly,economic expansions before 1929 were shorter than the official statistics showed.
Q2) An economic variable that moves in the opposite direction as aggregate economic activity (down in expansions,up in contractions)is called
A)procyclical.
B)countercyclical.
C)acyclical.
D)a leading variable.
Q3) Suppose labor supply declined.Would this affect the aggregate demand curve or the aggregate supply curve? What would be the effect on output and the price level?
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Chapter 9: The IS-LM/AD-AS Model
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Q1) The Fed has announced that it plans to lower the rate of monetary growth from 10% per year to 2% per year.You would expect this announcement to directly
A)increase money demand,shifting the LM curve up and to the left.
B)increase money demand,shifting the LM curve down and to the right.
C)decrease money demand,shifting the LM curve up and to the left.
D)decrease money demand,shifting the LM curve down and to the right.
Q2) Which of the following would shift the FE line to the left?
A)A beneficial supply shock
B)An increase in labor supply
C)A decrease in the capital stock
D)A decrease in the future marginal productivity of capital
Q3) Which of the following changes shifts the SRAS curve up?
A)A decrease in the labor force
B)A decrease in the money supply
C)An increase in government purchases
D)An increase in firms' costs
Q4) Describe the effects,in both the short run and the long run,of an increase in the money supply.Explain what happens to real output and the price level.
Q5) Describe what happens to the FE line if government purchases increase.
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Chapter 10: Classical Business Cycle Analysis
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Sample Questions
Q1) Which of the following is an example of a productivity shock?
A)The introduction of new management techniques
B)A change in taxes on corporate profits
C)A change in the level of government transfer programs
D)An increase in the money supply
Q2) One important reason why the Solow residual may be strongly procyclical even if the actual technology used in production doesn't change is that
A)employment is procyclical.
B)resource utilization is procyclical.
C)demand shocks are the dominant force determining the business cycle.
D)the coefficients (a and 1 - a)on capital and labor in the production function are procyclical.
Q3) A temporary decrease in government purchases in the classical model would
A)shift the production function to the left.
B)shift the marginal product of labor curve to the right.
C)shift the labor demand curve to the left.
D)shift the labor supply curve to the left.
Q4) According to the real business cycle theory,what is the principal cause of business cycle fluctuations?
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Chapter 11: Keynesianism: The Macroeconomics of Wage and Price Rigidity
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Sample Questions
Q1) In the efficiency wage model with the efficiency wage above the market-clearing wage,the level of employment depends on
A)the intersection of labor supply and labor demand.
B)the marginal productivity of capital and the marginal productivity of labor.
C)labor demand alone.
D)labor supply alone.
Q2) Suppose the government decided to ease monetary policy,then increase taxes.In the short run in the Keynesian model,the effect of these policies would be to ________ the real interest rate and ________ the level of output.
A)lower; increase
B)lower; decrease
C)lower; have an ambiguous effect on
D)have an ambiguous effect on; increase
Q3) In the Keynesian model in the short run,what is likely to happen to employment after each of the following shocks?
(a)An increase in taxes
(b)An increase in consumer spending generated by a reduced desire for saving
(c)An increase in the money supply
Q4) Why might firms pay an efficiency wage rather than a market-clearing wage?
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Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) A rapid and decisive reduction in the rate of growth of the money supply for the purpose of disinflation is called
A)a salt water policy.
B)a cold shower policy.
C)gradualism.
D)a cold turkey policy.
Q2) The relationship between inflation and unemployment is given by ? = ?e - 3(u - 0.06).
(a)Graph the long-run Phillips curve and three short-run Phillips curves.
(b)What is the value of the natural rate of unemployment?
(c)If actual inflation is 0.02 and expected inflation is 0.05,what is the unemployment rate?
(d)If actual inflation is 0.08 and expected inflation is 0.05,what is the unemployment rate?
Q3) The origin of the idea of a trade-off between inflation and unemployment was a 1958 article by
A)A)W.Phillips.
B)Edmund Phelps.
C)Milton Friedman.
D)Robert Gordon.
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Chapter
Macroeconomic Policy in the Open Economy
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Q1) The idea that similar foreign and domestic goods,or baskets of goods,should have the same price when priced in terms of the same currency is called
A)equity.
B)purchasing power parity.
C)efficiency.
D)the tragedy of the commons.
Q2) An increase in foreign output would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.
A)rise; shift up
B)rise; shift down
C)fall; shift up
D)fall; shift down
Q3) In the short run in the Keynesian model,an increase in the domestic money supply would cause domestic output to ________ and the domestic real interest rate to
A)rise; rise
B)fall; rise
C)rise; fall
D)fall; fall
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Chapter 14: Monetary Policy and the Federal Reserve System
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Q1) According to the Taylor rule,if the inflation rate in the last year was 2% and output was equal to its full-employment level,the nominal Fed funds rate should be A)3%.
B)4%.
C)5%.
D)6%.
Q2) When the Fed signals how long it expects interest rates to remain at a low level,it is said to be engaging in
A)credit easing.
B)forward guidance.
C)quantitative easing.
D)a maturity extension program.
Q3) Fractional reserve banking is the system that
A)allows banks not to insure their deposits.
B)allows banks not to join the Federal Reserve System.
C)limits banks' activities from crossing state lines.
D)allows banks to keep smaller reserves than their deposits.
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) Whether real seignorage revenue increases when the rate of money growth increases depends on whether
A)the rise in real money holdings outweighs the decline in inflation.
B)the rise in inflation outweighs the decline in real money holdings.
C)the rise in inflation ratio outweighs the decline in the real supply of currency.
D)the rise in the real supply of currency outweighs the decline in inflation.
Q2) How is real seignorage revenue related to inflation? How does the quantity of real seignorage revenue change as inflation rises from zero to a positive level,to still higher levels?
Q3) The revenue that a government raises by printing money is called
A)seignorage.
B)monetary revenue.
C)currency credit.
D)currency inflation.
Q4) According to the Ricardian equivalence proposition,current deficits
A)will not affect consumption or national saving.
B)will affect consumption but not national saving.
C)will affect national saving but not consumption.
D)will affect both consumption and national saving.
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