Principles of Macroeconomics Exam
Materials
Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and models used to analyze the performance and structure of entire economies. The course covers topics such as national income determination, unemployment, inflation, economic growth, and the roles of government fiscal and monetary policy. Students explore how these macroeconomic indicators are measured and interpreted, and examine issues such as international trade, exchange rates, and globalization. Through theory, real-world examples, and data analysis, this course provides a solid foundation for understanding how broad economic forces and policy decisions impact societies and individual well-being.
Recommended Textbook
Macroeconomics 7th Edition by Andrew Abel
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15 Chapters
1223 Verified Questions
1223 Flashcards
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Page 2
Chapter 1: Introduction to Macroeconomics
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59 Verified Questions
59 Flashcards
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Sample Questions
Q1) When national output rises,the economy is said to be in A)an expansion.
B)a deflation.
C)an inflation.
D)a recession.
Answer: A
Q2) From 1800 to 1940,the price level in the United States
A)trended neither upward nor downward.
B)fluctuated wildly.
C)declined slowly.
D)increased slowly.
Answer: A
Q3) Short-run contractions and expansions in economic activity are called A)recessions.
B)expansions.
C)deficits.
D)the business cycle.
Answer: D
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Chapter 2: The Measurement and Structure of the National Economy
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Sample Questions
Q1) In a given year,a country's GDP = $9841,net factor payments from abroad = $889,taxes = $869,transfers received from the government = $296,interest payments on the government's debt = $103,consumption = $8148,and government purchases = $185.The country had private saving equal to A)$285.
B)$3850.
C)$2397.
D)$2112.
Answer: D
Q2) In a given year,a country's GDP = $9841,net factor payments from abroad = $889,taxes = $869,transfers received from the government = $296,interest payments on the government's debt = $103,consumption = $8148,and government purchases = $185.The country had private saving equal to A)$285.
B)$3850.
C)$2397.
D)$2112.
Answer: C
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Page 4
Chapter 3: Productivity, Output, and Employment
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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.If a supply shock increases the marginal product of labor by 10 (to MPN = 210 - 0.5 N),by how much does employment increase?
A)0
B)4
C)8
D)16
Answer: D
Q2) The two main characteristics of the production function are
A)it slopes downward from left to right,and the slope becomes flatter as the input increases.
B)it slopes upward from left to right,and the slope becomes steeper as the input increases.
C)it slopes upward from left to right,and the slope becomes flatter as the input increases.
D)it slopes downward from left to right,and the slope becomes steeper as the input increases.
Answer: C
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Chapter 4: Consumption, Saving, and Investment
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83 Flashcards
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Sample Questions
Q1) Use a saving-investment diagram to explain what happens to saving,investment,and the real interest rate in each of the following scenarios in a closed economy.
(a)In an agricultural economy,great weather this year promises a bumper crop next year,leading citizens to expect higher income next year.
(b)Government regulations going into effect next year will reduce the marginal product of capital.
(c)The government increases lump-sum taxes on citizens.
Q2) Draw a diagram showing the determination of a firm's optimal capital stock,showing the relationship between the user cost of capital and the future marginal product of capital.Suppose the real interest rate declines.Show what happens to the firm's optimal capital stock.What happens to the firm's desired investment?
Q3) A temporary supply shock,such as a drought,would
A)increase the marginal product of capital and increase desired investment.
B)decrease the marginal product of capital and decrease desired investment.
C)have little or no effect on desired investment.
D)decrease both the marginal product of capital and the marginal product of labor in the long-term future.
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Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) Suppose output is $1000 billion,government purchases are $200 billion,desired consumption is $700 billion,and desired investment is $150 billion.Net foreign lending would be equal to
A)-$150 billion.
B)-$50 billion.
C)$50 billion.
D)$150 billion.
Q2) If a U.S.company imports 10 Toyotas from Japan at $15,000 each,and the Japanese company buys airline tickets on a U.S.airline with the money,how does this affect the U.S.balance of payments accounts?
A)debit: merchandise trade; credit:capital and financial account
B)debit: capital and financial account; credit: merchandise trade
C)debit: merchandise trade; credit: services
D)debit: services; credit: merchandise trade
Q3) Due to a change in the regulatory structure of a small open economy,the desired capital stock becomes higher for both private investment and government investment.Increased government investment spending is financed by borrowing,not by higher taxes.If both desired investment and government spending rise at the same time,will there be "twin deficits"?
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Page 7
Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) Country A has a capital-labor ratio that is initially twice as big as that of country B,but neither is yet in a steady state.Both countries have the same production function,f(k)= 6k<sup>1/2</sup>.Country A has a 10% saving rate,10% population growth rate,and 5% depreciation rate,while country B has a 20% saving rate,10% population growth rate,and 20% depreciation rate.
(a)Calculate the steady-state capital-labor ratio for each country.Does the initial capital-labor ratio affect your results?
(b)Calculate output per worker and consumption per worker for each country.Which country has the highest output per worker? The highest consumption per worker?
Q2) 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%
Q3) 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) Suppose your bank raises its minimum-balance requirement for free checking on checking accounts by $500.You take $500 out of your passbook savings account and put it in your checking account.What is the overall effect on M1 and M2?
A)M1 rises by $500,M2 falls by $500.
B)M1 is unchanged,M2 is unchanged.
C)M1 rises by $500,M2 is unchanged.
D)M1 is unchanged,M2 falls by $500.
Q2) For something to satisfy the medium-of-exchange function of money,it must be A)backed by gold.
B)readily exchangeable for other goods.
C)issued by a central bank.
D)an inherently valuable commodity.
Q3) Suppose velocity is constant at 4,real output is 10,and the price level is 2.From this initial situation,the government increases the nominal money supply to 6.If velocity and output remain unchanged,by how much will the price level increase?
A)2.4%
B)20%
C)24%
D)50%
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Page 9
Chapter 8: Business Cycles
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Sample Questions
Q1) The long boom occurred in the
A)1920s and 1930s.
B)1940s and 1950s.
C)1960s and 1970s.
D)1980s and 1990s.
Q2) The longest contraction in American history occurred
A)during the 1870s.
B)in the years right before World War I began.
C)during the 1930s.
D)during the 1970s.
Q3) Which of the following macroeconomic variables is acyclical?
A)Real interest rates
B)Unemployment
C)Money supply
D)Consumption
Q4) Peaks and troughs of the business cycle are known collectively as
A)volatility.
B)turning points.
C)equilibrium points.
D)real business cycle events.
Page 10
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Chapter 9: The Is-Lmad-As Model
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Sample Questions
Q1) Classical economists think general equilibrium is attained relatively quickly because
A)the real interest rate adjusts quickly.
B)the level of output adjusts quickly.
C)the real wage rate adjusts quickly.
D)the price level adjusts quickly.
Q2) The FE line shows the level of output at which the ________ market is in equilibrium.
A)Goods
B)Asset
C)Labor
D)Money
Q3) A decrease in the effective tax rate on capital would cause the IS curve to A)shift up and to the right.
B)shift down and to the left.
C)remain unchanged.
D)remain unchanged if taxes are fully deductible from income; otherwise,shift up and to the right.
Q4) Describe the differences between classical and Keynesian economists in terms of their views about monetary neutrality.
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Chapter 10: Classical Business Cycle Analysis
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78 Flashcards
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Sample Questions
Q1) How is the Solow residual measured? What problems arise in its measurement when resource utilization varies over the business cycle? What implications do these measurement issues have for evidence supporting the RBC model?
Q2) A temporary increase in government purchases in the classical model would
A)shift the production function to the right.
B)shift the marginal product of labor curve to the left.
C)shift the labor demand curve to the right.
D)shift the labor supply curve to the right.
Q3) 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 cumulation of small productivity shocks.
D)Business cycles are often caused by unobservable productivity shocks,which aren't apparent at the time they occur.
Q4) Why do many economists believe that money affects output? What is the empirical evidence in support of that belief?
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Page 12
Chapter 11: Keynesianism: The Macroeconomics of Wage and Price Rigidity
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Sample Questions
Q1) 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.
Q2) According to the efficiency wage model,firms will pay the real wage that
A)maximizes workers' marginal productivity.
B)maximizes the marginal productivity of capital and the marginal productivity of labor together.
C)maximizes effort per dollar of real wage.
D)minimizes hiring and training costs to the firm.
Q3) Assuming no change in the effort curve of employees,the efficiency wage model implies that
A)the real wage is rigid and equals the efficiency wage.
B)the real wage exceeds the marginal productivity of labor.
C)an increase in the marginal productivity of capital will increase the real wage.
D)the real wage is procyclical.
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Page 13
Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) Historically,Brazil has suffered higher and more variable rates of inflation than Venezuela.You would expect the short-run aggregate supply curve of Brazil to be ________ than that of Venezuela,and the Phillips curve of Brazil to be ________ than that of Venezuela.
A)flatter; flatter
B)flatter; steeper
C)steeper; flatter
D)steeper; steeper
Q2) If the expected inflation rate is unchanged,a fall in the natural rate of unemployment would
A)shift the Phillips curve to the right.
B)not shift the Phillips curve.
C)shift the Phillips curve to the left.
D)shift the Phillips curve to the left and shift the long-run Phillips curve to the right.
Q3) The long-run Phillips curve is
A)vertical.
B)horizontal.
C)upward sloping.
D)downward sloping.
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Chapter 13: Exchange Rates,business Cycles,and
Macroeconomic Policy in the Open Economy
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85 Flashcards
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Sample Questions
Q1) The Japanese real interest rate declines relative to the German real interest rate.German net exports ________ and the German exchange rate ________.
A)increase; rises
B)increase; falls
C)decrease; rises
D)decrease; falls
Q2) An exchange-rate system in which the nominal exchange rate is set by the government is known as
A)a flexible-exchange-rate system.
B)a floating-exchange-rate system.
C)a fixed-exchange-rate system.
D)an exchange-rate union.
Q3) Compared with a system of fixed exchange rates,currency unions are beneficial because they
A)restrict what countries can do with fiscal policy.
B)allow exchange rates to float.
C)allow every country to have an independent monetary policy.
D)eliminate the possibility of speculative attacks.
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) Describe,in general terms,the strategy of monetary policy,explaining how monetary-policy tools are used to achieve the goals of monetary policy.What intermediate stages are important in going from tools to goals? What are the links between the different stages? How does the Federal Reserve use this strategy today?
Q2) If a bank borrows from a Federal Reserve Bank,the interest rate is called
A)the prime rate.
B)the discount rate.
C)the Fed funds rate.
D)the reserve availability rate.
Q3) Bernanke suggested methods for monetary policy to deal with the lower bound,including all of the following except:
A)affecting interest rate expectations.
B)altering the composition of assets held by the central bank.
C)tightening monetary policy more aggressively.
D)expanding the size of the central bank balance sheet.
Q4) Describe the Taylor rule.If the Fed were following the rule,what would the nominal Fed funds rate be if inflation over the past year were 4% and output were 1% below its full-employment level?
Page 16
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) In an all-currency economy in which real output and the real interest rate are fixed and the rates of money growth and inflation are constant,the inflation rate equals
A)the real interest rate.
B)the nominal interest rate.
C)the growth rate of the nominal money supply.
D)the level of real seignorage revenue.
Q2) Real money demand in the economy is given by
L = 0.3Y - 600i, where Y is real income and i is the nominal interest rate.In equilibrium,real money demand L equals real money supply M/P.Suppose that Y equals 2000 and the real interest rate is 5%.
(a)At what rate of inflation is seignorage maximized?
(b)What is the maximum amount of seignorage revenue?
Q3) In which case would you be most likely to expect inflation to occur?
A)The government runs a sustained government deficit by lowering taxes.
B)The government runs a sustained government deficit by increasing purchases.
C)The government runs a sustained primary deficit by increasing purchases.
D)The government funds its sustained deficit by increasing the money supply.
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