Course Introduction
Monetary Economics
Test Preparation
Monetary Economics explores the role of money and financial institutions in the economy, examining how monetary policy, central banking, and the money supply influence inflation, interest rates, and overall economic activity. The course covers fundamental concepts such as the demand and supply of money, theories of money, the transmission mechanisms of monetary policy, and the interaction between the monetary sector and the real economy. Through theoretical frameworks and empirical analysis, students develop an understanding of the effectiveness and limitations of monetary policy in achieving macroeconomic objectives such as price stability, full employment, and economic growth.
Recommended Textbook
Macroeconomics 9th Edition by Andrew
B. Abel
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15 Chapters
1566 Verified Questions
1566 Flashcards
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Page 2
Chapter 1: Introduction to Macroeconomics
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73 Verified Questions
73 Flashcards
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Sample Questions
Q1) The inflation rate is the
A)percent increase in the average level of prices over a year.
B)percent increase in output over a year.
C)percent increase in the unemployment rate over a year.
D)price level divided by the level of output.
Answer: A
Q2) The number of unemployed divided by the labor force equals
A)the inflation rate.
B)the labor force participation rate.
C)the unemployment rate.
D)the misery index.
Answer: C
Q3) Keynes assumed that wages and prices were slow to adjust in order to explain A)persistently high unemployment.
B)high inflation.
C)the high level of interest rates.
D)why inflation fell in recessions.
Answer: A
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3
Chapter 2: The Measurement and Structure of the National Economy
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110 Flashcards
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Sample Questions
Q1) Government statisticians adjust GDP figures to include estimates of A)the value of homemaking (work done within the home).
B)the underground economy.
C)child-rearing services provided by stay-at-home parents.
D)the costs of pollution to society.
Answer: B
Q2) If C = $400,I = $100,G = $50,NX = $30,and NFP = $5,how much is GDP?
A)$580
B)$575
C)$585
D)$550
Answer: A
Q3) The value of a household's assets minus the value of its liabilities is called A)wealth.
B)income.
C)debt.
D)stock.
Answer: A
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Chapter 3: Productivity, output, and Employment
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) Suppose the marginal product of labor is MPN = 200 - 0.5N Where N is aggregate employment.The aggregate quantity of labor supplied is 300 + 8w,where w is the real wage.What is the equilibrium quantity of employment?
A)12
B)190
C)380
D)760
Answer: C
Q2) A tremendous flood along the Mississippi River destroys thousands of factories,reducing the nation's capital stock by 5%.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: B
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Chapter 4: Consumption, saving, and Investment
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Sample Questions
Q1) You are trying to figure out how much capacity to add to your factory.You will increase capacity as long as
A)the expected marginal product of capital is positive.
B)the expected marginal product of capital is greater than or equal to the marginal product of capital.
C)the expected marginal product of capital is greater than or equal to the expected marginal product of labor.
D)the expected marginal product of capital is greater than or equal to the user cost of capital.
Q2) David consumes 200 in the current period and 330 in the future period.The real interest rate is 10% per period.David's present value of lifetime consumption is A)500.
B)530.
C)550.
D)563.
Q3) 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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118 Flashcards
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Sample Questions
Q1) 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.
Q2) Consider a large open economy.What are the effects,in equilibrium,on the world real interest rate,domestic national saving,domestic investment,the domestic current account balance,foreign national saving,foreign investment,and the foreign current account balance in each of the following scenarios? Show a diagram to illustrate your results.
(a)current income rises in the foreign country
(b)the future marginal product of capital rises in the domestic country
(c)wealth rises in the foreign country
Q3) A large open economy increases its desired saving.This causes the world real interest rate to ________ and the country's current account balance to ________.
A)fall; fall
B)remain unchanged; rise
C)fall; rise
D)remain unchanged; fall
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Page 7
Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) Over the past year,output grew 4%,capital grew 2%,and labor grew 1%.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)7%
C)3)0%
D)3)3%
Q2) In the Solow model,if f(k)= 2k<sup>0.5</sup>,s = 0.1,n = 0.1,and d = 0.05,what is the value of f(k)at equilibrium?
A)2/3
B)4/3
C)2
D)8/3
Q3) A new pollution law requires businesses to pay for inspections of their plants by independent pollution-monitoring firms.What effect is this likely to have?
A)Increase productivity
B)Increase the capital stock
C)Reduce productivity
D)Increase the demand for labor in those firms
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Page 8
Chapter 7: The Asset Market, money, and Prices
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) When the real quantity of money supplied equals the real quantity of money demanded,there is said to be
A)goods market equilibrium.
B)asset market equilibrium.
C)monetary neutrality.
D)money illusion.
Q2) Mr.Pierpont has wealth of $200,000.He wants to keep at least $80,000 in bonds at all times,and will shift $10,000 into bonds from his checking account for each percentage point that the interest rate on bonds exceeds the interest rate on his checking account.If the interest rate on checking accounts is 4% and the interest rate on bonds is 9%,how much does Mr.Pierpont keep in his checking account?
A)$50,000
B)$70,000
C)$130,000
D)$150,000
Q3) Give five examples of factors that could reduce the demand for money.
Q4) What are the major components of M1? What are the major components of M2?
Describe each component.
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Page 9
Chapter 8: Business Cycles
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Sample Questions
Q1) By 1937,when a new recession began in the midst of the Great Depression, A)GDP had almost recovered to its 1929 level, but unemployment was still above the 1929 level.
B)unemployment had almost fallen back to its 1929 level, but GDP had yet to recover to its 1929 level.
C)neither GDP nor unemployment had returned to near their 1929 levels. D)both GDP and unemployment had returned to near their 1929 levels.
Q2) The job finding rate is defined as
A)the probability that someone who has been unemployed for over a year will find a job in the next month.
B)the probability that someone who is not in the labor force will enter the labor force in the next month.
C)the probability that someone who is employed will change jobs in the next month. D)the probability that someone who is unemployed will find a job in the next month.
Q3) Define the following characteristics of business cycles: recurrence and persistence.
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Chapter 9: The Is-Lmad-As Model
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Sample Questions
Q1) The IS-LM model predicts that a temporary beneficial supply shock
A)increases output, national saving, and investment, but not the real interest rate.
B)increases output, national saving, and the real interest rate, but not investment.
C)increases the real interest rate, investment, and output, but not national saving.
D)increases output, national saving, investment, and the real interest rate.
Q2) Suppose the Federal Reserve's short-run response to any change in the economy is to change the money supply to maintain the existing real interest rate.What would happen to money supply if there were a reduction in government purchases? Given the Fed's policy,what would happen in the very short run (before general equilibrium is restored)to output and the real interest rate? What must happen to the LM curve and the price level to restore general equilibrium?
Q3) Under an assumption of monetary neutrality,a change in the nominal money supply has
A)no effect on the price level.
B)a less than proportionate effect on the price level.
C)a proportionate effect on the price level.
D)a more than proportionate effect on the price level.
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11
Chapter 10: Classical Business Cycle Analysis
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Sample Questions
Q1) An adverse supply shock would directly ________ labor productivity by changing the amount of output that can be produced with any given amount of capital and labor.It would also indirectly ________ average labor productivity through changes in the level of employment.
A)increase; increase
B)increase; decrease
C)decrease; increase D)decrease; decrease
Q2) In the classical model,a temporary decrease in government spending would cause a decrease in
A)output, the real interest rate, real wages, and the price level.
B)employment, the real interest rate, real wages, and the price level.
C)output, employment, the real interest rate, and the price level.
D)output, employment, real wages, and the price level.
Q3) According to classical economists,the government should increase government purchases when
A)the benefits of the spending exceed the costs.
B)the economy is in a recession.
C)the economy is likely to go into a recession in the next six months to a year.
D)inflation is lower than its targeted level.
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Chapter 11: Keynesianism: the Macroeconomics of Wage and Price Rigidity
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Sample Questions
Q1) A model in which workers won't be concerned about the possibility of being fired if they don't work hard,because their wage is so low,is called
A)a cost-benefit model.
B)a job-stress model.
C)a gift-exchange model.
D)a shirking model.
Q2) In an economy where firms in most industries are purely competitive firms,individual firms in each industry would produce ________ products and have a ________ share of industry output.
A)differentiated; large
B)differentiated; small
C)standardized; large
D)standardized; small
Q3) 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.
Page 13
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Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) Suppose Okun's law holds and a one percentage point increase in the unemployment rate reduces real output by 2% of full-employment output.The expectations-augmented Phillips curve is given by = <sup>e</sup> - 2.5 (u - 0.04).
Suppose = 0.08 and <sup>e</sup> = 0.03.
(a)What is the natural rate of unemployment?
(b)What is the actual rate of unemployment?
(c)How much is actual GDP compared with full-employment GDP?
Q2) In years when teenagers become a greater percentage of the labor force,
A)the natural rate of unemployment falls.
B)the natural rate of unemployment rises.
C)the inflation rate rises.
D)the inflation rate falls.
Q3) The long-run Phillips curve is
A)vertical.
B)horizontal.
C)upward sloping.
D)downward sloping.
Q4) What are the pros and cons of using cold turkey disinflation compared to a policy of gradualism?
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Chapter 13: Exchange Rates, business Cycles, and
Macroeconomic Policy in the Open Economy
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Europe may not be an optimum currency area because A)people speak different languages.
B)fiscal transfers are weak.
C)the countries do not trade very much with each other.
D)financial markets are weak.
Q2) Europe may not be an optimum currency area because A)people speak different languages.
B)workers are not very mobile.
C)the countries do not trade very much with each other.
D)financial markets are weak.
Q3) In an open economy,an increase in net exports because of increased demand for domestic products by foreigners should cause the domestic real interest rate to ________ and should cause desired saving minus desired investment to ________.
A)rise; rise
B)rise; fall
C)fall; rise
D)fall; fall
Q4) What is purchasing power parity? Why might it not hold?
Page 15
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Chapter 14: Monetary Policy and the Federal Reserve System
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Sample Questions
Q1) The primary criticism by Keynesians of the credibility argument for rules is that
A)reputations are a less costly method of gaining credibility.
B)reputations are a less costly method of maintaining credibility.
C)the cost of losing flexibility over policy choices may exceed the cost of gaining credibility.
D)rules that reduce presidential and congressional influence over monetary policy could ultimately be harmful to the economy.
Q2) According to the Taylor rule,if output is above its full-employment level and inflation is less than 2%
A)the Fed should raise the Fed funds rate above 4%.
B)the Fed should reduce the Fed funds rate below 4%.
C)the Fed should make the Fed funds rate exactly 4%.
D)what the Fed should do is ambiguous.
Q3) The Federal Reserve is
A)a Kentucky bourbon.
B)a wild game preserve.
C)an express mail service.
D)the central bank of the United States.
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) Social Security benefits could be reduced in each of the following ways except
A)cutting the promised monthly benefit.
B)increasing the retirement age.
C)investing the trust fund in the stock market.
D)reducing the degree to which benefits are adjusted for inflation.
Q2) The stimulus package of 2009 had the effect of
A)causing higher rates of inflation to occur.
B)giving new foreign aid to help less developed countries.
C)significantly raising the debt to GDP ratio.
D)reducing the primary government deficit.
Q3) The marginal tax rate is
A)the fraction of an additional dollar of income that must be paid in taxes.
B)the total amount of taxes paid divided by after-tax income.
C)the total amount of taxes paid divided by before-tax income.
D)the average amount of government spending that is financed by taxes.
Q4) What are the main reasons (give at least three)that Ricardian equivalence might not hold?
Q5) 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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