Principles of Macroeconomics Exam
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Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and theories that explain the behavior of large-scale economic systems. The course examines topics such as national income, inflation, unemployment, economic growth, monetary and fiscal policy, and international trade. Through the analysis of aggregate economic indicators and policies, students will gain an understanding of how governments influence economic performance and address issues such as recessions and booms. Emphasis is placed on the application of models and real-world case studies to illustrate how macroeconomic theory shapes the global and national economy.
Recommended Textbook
Macroeconomics 2nd Edition by Charles
I. Jones
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Page 2
Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) In the long run,we are concerned about the causes economic fluctuations.
A)True
B)False
Answer: False
Q2) Actual GDP is __________ to potential GDP.
A)rarely not equal
B)always equal
C)always not equal
D)rarely equal
E)Not enough information is given.
Answer: D
Q3) Describe the differences between the long and the short run.
Answer: The short run is concerned with the causes of economic fluctuations,the business cycle.In the long run,we are concerned with the determinants of economic growth.Thus,the long run is the trend of output,and the short run represents the fluctuations around the trend.
Q4) An endogenous variable is often called a parameter.
A)True
B)False
Answer: False
Page 3
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Chapter 2: Measuring the Macroeconomy
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Q1) Consider Table 2.3.Using the Laspeyres index,the percent change in real GDP was about:
A)6 percent.
B)5 percent.
C)0 percent.
D)1 percent.
E)Not enough information is given.
Answer: D
Q2) GDP often is used as a "measure" of economic welfare;it includes all factors that contribute to economic wellbeing.
A)True
B)False
Answer: False
Q3) GDP measures all economic activity.
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 both Japan's and the United States' average annual per capita GDP growth rates are 2 percent per year,and both countries began with an initial per capita GDP of $1,000.However,the United States has been growing since 1900 and Japan only since 1950.In 2000,the United States would have been __________ than Japan.
A)0.37 times poorer
B)99 times richer
C)2.69 times richer
D)4,555 times richer
E)0.269 times poorer
Answer: C
Q2) Economic growth is defined as the percentage change in per capita income or GDP. A)True
B)False Answer: True
Q3) Between 1960 and 2000,Burundi was one of the fastest-growing countries in the world.
A)True
B)False
Answer: False
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Page 5
Chapter 4: A Model of Production
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Sample Questions
Q1) The text uses this analogy of the economic model: "As the model-builder,__________ what actions the robots can take and __________ the raw materials that fill the robot world.After constructing the world,you switch on the power source and __________."
A)you determine;you provide;you know what happens
B)reality determines;reality provides;watch what happens
C)reality determines;reality provides;you know what happens
D)you determine;you provide;watch what happens
E)None of the above is correct.
Q2) A firm's profit is simply defined as:
A)zero.
B)revenues plus costs.
C)revenues minus costs.
D)the price of output minus labor costs.
E)the price of output minus labor costs minus capital costs.
Q3) After the Black Death in the fourteenth century,wages in Europe were higher than before the Black Death.
A)True
B)False
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Page 6
Chapter 5: The Solow Growth Model
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Sample Questions
Q1) Consider Figure 5.4,which represents two countries,1 and 2.Country __________ has a higher depreciation rate and,therefore,has a __________ steady state than the other country.
A)1;higher B)1;lower C)2;higher D)2;lower
E)Not enough information is given.
Q2) In the Solow model,the steady-state capital stock is a function of:
A)productivity.
B)the initial capital stock,productivity,and the saving rate.
C)the initial capital stock,productivity,and the depreciation rate.
D)the labor stock and the steady-state level of capital stock.
E)productivity,the depreciation rate,the labor stock,and the savings rate.
Q3) If South Korea's steady-state GDP per worker is higher than that in the Philippines,you might conclude that the investment rate in South Korea is higher than in the Philippines.
A)True
B)False
Q4) What are the key assumptions of the Solow growth model?
Page 7
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Chapter 6: Growth and Ideas
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Sample Questions
Q1) Because there are no diminishing returns in the stock of ideas in the Romer model,
A)old ideas continue to contribute to current economic growth.
B)economic growth can be sustained forever.
C)the economy eventually reaches a steady state.
D)economic growth eventually slows.
E)a and b
Q2) Which of the following are nonrival goods?
A)a TV signal
B)a blueprint
C)national defense
D)a dam
E)all of the above
Q3) Offering inventors prizes is a way of providing an incentive to generate new ideas.
A)True
B)False
Q4) In monopolistic competition,the price is equal to the marginal cost.
A)True
B)False
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Page 8
Chapter 7: The Labor Market,wages,and Unemployment
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Sample Questions
Q1) The idea that you value receiving $1,000 today more than in 10 years in the future is called:
A)real rate of return.
B)compound interest.
C)present discounted value.
D)utility maximization.
E)intertemporal substitution.
Q2) The causes of increased female participation in the labor market are:
A)changing social norms.
B)technological changes in managing fertility.
C)reduced discrimination.
D)all of the above
E)a and c
Q3) Over the course of his or her lifetime,the average American worker will spend __________ hours on the job.
A)40,000
B)1 million
C)90,000
D)100,000
E)35,000
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Chapter 8: Inflation
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Sample Questions
Q1) The costs associated with changing prices in times of inflation are called:
A)inflation risk.
B)price staggering.
C)transaction costs.
D)shoe-leather costs.
E)menu costs.
Q2) According to the classical dichotomy,in the long run,there is:
A)accelerating economic growth.
B)perfect connectivity between the nominal and real sides of the economy.
C)complete separation of the nominal and real sides of the economy.
D)no growth after the economy reaches the steady state.
E)zero inflation.
Q3) Alternative forms of money include:
A)frequent flier miles.
B)gift cards.
C)debit cards.
D)PayPal.
E)all of the above
Q4) Briefly discuss what makes up the monetary base,M1,and M2.
Q5) Briefly explain the cause of the Great Inflation in the 1970s.
Page 10
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Chapter 9: An Introduction to the Short Run
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Sample Questions
Q1) Output fluctuations are defined as __________.
A)the amount of output where inflation is about 2 percent
B)what an economy produces when it is at capacity
C)the percentage difference between current output and potential output
D)the amount of total output if all inputs were utilized at their long-run sustainable levels
E)the amount of output where unemployment is zero
Q2) What three premises does the short-run model operate under?
Q3) What is the best definition of the short term in the short-term model?
A)about two years
B)There is no such thing as the short term.
C)the length of time for short-term deviations to return to their long-run values
D)the length of a recession
E)the amount of time the economy spends at its potential output
Q4) 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
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Chapter 10: The Great Recession: a First Look
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Sample Questions
Q1) According to the data in Table 10.1,when was the recession deepest?
A)2001
B)2003
C)2009
D)2008
E)not enough information
Q2) The acronym "TARP" stands for:
A)Total Assistance for Retired Persons
B)Tax And Revenue Program
C)Troubled Asset Relief Program
D)Treasury Asset Risk Persistence
E)Total Asset Rate Possibility
Q3) Consider Figure 10.2 Which of the series is likely to be inflation? Which is core inflation? What is the cause of the sharp increases and decreases in the line with triangles?
Q4) Bank leverage is equal to a bank's assets minus its liabilities.
A)True
B)False
Q5) How does "securitization" reduce overall risk?
Q6) Briefly discuss the macroeconomic outcomes of the financial crisis.
Page 12
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Chapter 11: The Is Curve
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Sample Questions
Q1) Agency problems occur when:
A)there is no information.
B)both parties have identical information.
C)both parties have limited information.
D)one party in a transaction has information that the other party does not possess.
E)None of the above is correct.
Q2) Consider two countries,the United States and Mexico.Both countries are identical,except that Mexican firms are less responsive to interest changes than U.S.firms.If the interest rate in each country were to rise by 2 percent,the Mexican economy would move further into recession than the U.S.economy.
A)True
B)False
Q3) The fundamental lesson of the Life Cycle and Permanent Income hypotheses is that:
A)individuals smooth their consumption patterns over their lifetime.
B)individuals vary their consumption patterns over their lifetime.
C)individuals' consumption patterns vary as their income changes.
D)individuals' consumption changes with changes in their temporary income.
E)taxes are ineffectual.
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Chapter 12: Monetary Policy and the Phillips Curve
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Q1) The money demand curve:
A)slopes downward with respect to the discount rate.
B)slopes downward with respect to the nominal interest rate.
C)slopes upward with respect to the nominal interest rate.
D)always is flat with respect to the nominal interest rate.
E)is flat with respect to the inflation rate.
Q2) In March and April 1980,inflation in the United States peaked at 14.6 percent.What did then-Fed Chairman Volcker elect to do? What was the impact of his policy?
Q3) Discuss the differences between the ex ante and ex post real interest rate.
Q4) When the Fed targets the federal funds rate,it uses the reserve rate to change the money supply.
A)True
B)False
Q5) The Phillips curve assumes inflation expectations are rational.
A)True
B)False
Q6) When the dot-com bubble burst it pushed the economy toward a recession.Using the IS-MP diagram,design a monetary policy that would return the economy back to the long-run equilibrium.
Page 14
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Chapter 13: Stabilization Policy and the Asad Framework
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Sample Questions
Q1) The advantage of an explicit inflation target is that:
A)it helps anchor inflation expectations.
B)it allows banks to set interest rates.
C)it stabilizes employment.
D)it raises the marginal product of capital.
E)it completely eradicates discretionary monetary policy.
Q2) Under rational expectations,
A)people use all the information at their disposal to make their best forecast of the coming rate of inflation.
B)people use all past rates of inflation to make their best forecast of the coming rate of inflation.
C)people use announcements by the Fed to make their best forecast of the coming rate of inflation.
D)people use only the Fed's inflation target to make their best forecast of the coming rate of inflation.
E)people use the unemployment rate to make their best forecast of the coming rate of inflation.
Q3) How does the simple monetary rule dictate interest responses to a decrease in the rate of inflation?
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Page 15
Chapter 14: The Great Recession and the Short-Run Model
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Q1) In late September 2008,Fed Chairman told a congressional panel:
A)"In the long run we are all dead."
B)"If we don't do this [the Troubled Asset Relief Program],we may not have an economy on Monday."
C)"A recession is when your neighbor loses his job;a depression is when you lose yours."
D)"Inflation is always and everywhere a monetary phenomenon."
E)"We do not believe that more fiscal stimulus will improve economic performance."
Q2) Consider the IS-MP model in Figure 14.2 above.Starting from the long-run equilibrium,the burst of the housing bubble and the appropriate fed response,with a risk premium,can be shown as a movement from point __________ to point __________ and the economy is in __________.
A)d;b;its long-run equilibrium
B)b;a;an expansion
C)d;f;a recession
D)d;c;its long-run equilibrium
E)e;f;a recession
Q3) Briefly discuss the Fed's balance sheet before and after the financial crisis of 2008.
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Page 16
Chapter 15: Consumption
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Sample Questions
Q1) Consider the utility functions in Figure 15.1.Which of the following exhibits diminishing marginal utility?
A)a
B)e
C)d
D)b
E)c
Q2) If we lower taxes today but raise them in the future,and if b = 1,
A)household wealth rises because they save less.
B)households will increase today's consumption.
C)present wealth remains unchanged and consumption does not change.
D)the government can rely on households to spend more today.
E)saving today will fall and lifetime consumption rises.
Q3) Consider Figure 15.3.A possible cause for the change in the saving rate after,about,2007 is:
A)precautionary saving.
B)consumption smoothing.
C)a falling discount factor.
D)rising marginal utility of consumption.
E)the aging of the baby boomers.
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Chapter 16: Investment
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Q1) Consider Figure 16.1 above.If there is an increase in the marginal product of capital,then curve __________ would shift to curve __________.
A)d;c
B)b;a
C)c;d
D)a;b
E)not enough information
Q2) According to the financial asset arbitrage equation,a rise in the capital gain for a stock implies a rise in the real interest rate.
A)True
B)False
Q3) A decline in the corporate income tax will raise the capital user cost and the firm will invest in less capital.
A)True
B)False
Q4) When Tobin's q is equal to zero,the market is signalling a firm should buy more capital.
A)True B)False
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Chapter 17: The Government and the Macroeconomy
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Q1) Consider Figure 17.1,which shows the federal government receipts and outlays for the period 1970-2006,in billions of dollars.The federal government ran a surplus during the period
A)1980-1997.
B)1971-1973.
C)1998-2002.
D)2002-2006.
E)Not enough information is given.
Q2) Consider Figure 17.2,which shows the federal government receipts and outlays for the period 1934-2006,as percent of GDP.Which of the following were periods when the federal government ran a budget surplus?
A)1947-1949
B)1998-2002
C)1955-1958
D)all of the above
E)none of the above
Q3) What are the largest and smallest individual federal government expenditures? Source of revenues?
Q4) Explain how budget deficits lead to crowding out.Is there evidence of this?
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Chapter 18: International Trade
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Sample Questions
Q1) The net flow of goods is associated with a net flow of financial assets in the opposite direction.
A)True
B)False
Q2) Consider Table 18.1.In the West,with autarky,per person fish consumption is __________ and per person chip consumption is __________,assuming people spend half their income on each good.
A)75;7.5
B)50;100
C)100;50
D)200;100
E)Not enough information is given.
Q3) Intertemporal trade allows economies to:
A)smooth risk over time.
B)reduce consumption over time.
C)run trade deficits in any given period.
D)run trade deficits for all periods.
E)a and c are correct.
Q4) Explain how trade can be used for international risk sharing.
Q5) What has been the trend of trade in the United States since 1950? Explain.
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Chapter 19: Exchange Rates and International Finance
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Q1) The reason the real and nominal exchange rates may differ in the short run is:
A)a sticky nominal exchange rate.
B)sticky prices.
C)price and nominal exchange rate stickiness.
D)differences in the nominal interest rate across countries.
E)differences in the inflation rate across countries.
Q2) Consider Table 19.1.The numbers represent:
A)the interest rate.
B)the real exchange rate.
C)purchasing power parity.
D)the nominal exchange rate.
E)the forward exchange rate.
Q3) Which of the following explains why the law of one price might not hold?
A)trade barriers
B)transportation costs
C)institutions
D)differences in preferences
E)all of the above
Q4) Explain why the law of one price may not hold for some classes of goods.Give three examples of these types of goods.
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Chapter 20: Parting Thoughts
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Q1) In the late 1990s,it was likely that:
A)the GDP gap was almost zero.
B)actual GDP grew more slowly than it had in the previous 20 years.
C)the GDP gap was larger than it had been in the previous 20 years.
D)potential GDP grew faster than it had in the previous 20 years.
E)None of the above is correct.
Q2) In the short run,
A)inflation has inertia.
B)the classical dichotomy does not hold.
C)inflation adjusts instantly.
D)inflation is governed only by money.
E)a and b are correct.
Q3) The Asian and Argentinean crises have led China:
A)to rely on inflation taxes.
B)to allow its currency to float.
C)to decrease its domestic investment.
D)to maintain strict capital controls.
E)to keep interest rates close to zero.
Q4) What problems is economics still trying to answer?
Q5) Name three contributing factors to standards of living in the long run.
Page 22
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