Quantitative Macroeconomics
Chapter Exam Questions
Course Introduction
Quantitative Macroeconomics introduces students to the analytical tools and computational methods used to study aggregate economic phenomena through rigorous modeling and data analysis. The course covers dynamic macroeconomic models, such as the neoclassical growth model and stochastic dynamic programming, to examine issues like economic growth, business cycles, fiscal and monetary policy, and wealth distribution. Emphasis is placed on solving models using numerical techniques, calibration, and simulation to interpret real-world macroeconomic patterns and inform policy design. By combining theory with quantitative applications, students develop skills necessary to conduct research and critically evaluate empirical findings in modern macroeconomics.
Recommended Textbook
Macroeconomics 12th Edition by Michael Parkin
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Chapter 1: What Is Economics?
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Q1) Graphing the data in the above table with the number of workers on the horizontal axis and the average cost on the vertical axis, the graph would show
A) first a negative and then a positive relationship.
B) a horizontal line.
C) no relationship.
D) a linear relationship.
Answer: A
Q2) Studying the determination of prices in individual markets is primarily a concern of A) positive economics.
B) negative economics.
C) macroeconomics.
D) microeconomics.
Answer: D
Q3) Which of the following is a normative statement?
A) Low rents will restrict the supply of housing.
B) Low rents are good because they make apartments more affordable.
C) Housing costs are rising.
D) Owners of apartment buildings are free to charge whatever rent they want.
Answer: B
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Chapter 2: The Economic Problem
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Q1) Tom takes 20 minutes to cook an egg and 5 minutes to make a sandwich. Jerry takes 15 minutes to cook an egg and 3 minutes to make a sandwich. Tom has a comparative advantage in ________ and Jerry has a comparative advantage in ________.
A) cooking eggs; making sandwiches
B) making sandwiches; cooking eggs
C) neither of these activities; both activities
D) both activities; neither of these activities
Answer: A
Q2) The table above lists six points on the production possibilities frontier for grain and cars. From this information you can conclude that production is inefficient if this economy produces
A) 6 tons of grain and 18 cars.
B) 4 tons of grain and 26 cars.
C) 2 tons of grain and 27 cars.
D) 8 tons of grain and 10 cars.
Answer: C
Q3) Explain how the production possibilities frontier illustrates scarcity.
Answer: The PPF illustrates scarcity because we cannot attain the points outside the frontier.
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Chapter 3: Demand and Supply
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Q1) If the demand curve for bottled water shifts rightward and the supply curve of bottled water shifts rightward, the equilibrium
A) price of bottled water definitely increases.
B) price of bottled water definitely decreases.
C) quantity of bottled water definitely increases.
D) quantity of bottled water definitely decreases.
Answer: C
Q2) In 2014, the price of peanuts was rising, which led peanut butter sellers and peanut butter buyers to expect the price of peanut butter would rise in the future. Suppose the effect on the buyers was larger than the effect on the sellers. Consequently, in the current market for peanut butter there is a ________ in the price of peanut butter and ________ in the quantity of peanut butter.
A) rise; an increase
B) rise; a decrease
C) fall; a decrease
D) fall; an increase
Answer: A
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Chapter 4: Measuring GDP and Economic Growth
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Q1) ________ refers to a period when the ________ decreases.
A) Recession; growth rate of nominal GDP
B) Recession; growth rate of output per person
C) Productivity growth slowdown; growth rate of real GDP
D) Productivity growth slowdown; growth rate of output per person
Q2) An U.S. firm buys a new industrial sewing machine from a company located in France. Which of the following is TRUE?
I.U.S. net exports decrease.
II.U.S. investment increases.
A) only I
B) only II
C) both I and II
D) neither I nor II
Q3) All economic activity in the underground economy represents the production of illegal goods and services.
A)True
B)False
Q4) Is every product produced in the United States included in U.S. gross domestic product?
Q5) Can nominal GDP ever be less than real GDP?
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Chapter 5: Monitoring Jobs and Inflation
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Q1) If the population is 300 million, with 70 million under the age of 16 and institutionalized, another 70 million not in the labor force, 10 million unemployed and 150 million employed, the labor force participation rate is
A) 69.6 percent.
B) 23.3 percent.
C) 6.67 percent.
D) 50 percent.
Q2) If the CPI was 122.3 at the end of last year and 124.5 at the end of this year, the inflation rate over these two years was
A) 1.8 percent.
B) 2.5 percent.
C) 22.5 percent.
D) 18.0 percent.
Q3) The natural unemployment rate is the unemployment rate that exists when there is no
A) structural unemployment.
B) frictional unemployment.
C) cyclical unemployment.
D) cyclical or structural unemployment.
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Chapter 6: Economic Growth
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Q1) If the real wage rate is such that the quantity of labor supplied equals the quantity of labor demanded
A) a full-employment equilibrium occurs.
B) actual GDP equals potential GDP.
C) the supply curve of labor is vertical.
D) Both answers A and B are correct.
Q2) Suppose there is a rise in the price level, but no change in the money wage rate. As a result, the quantity of labor demanded
A) increases.
B) decreases.
C) does not change because there is no change in the real wage rate.
D) decreases only if the money wage rate also decreases.
Q3) A key feature of the new growth theory is the assumption of A) diminishing returns to labor.
B) diminishing returns to knowledge.
C) no diminishing returns to knowledge.
D) no diminishing returns to labor.
Q4) Define the aggregate production function. Discuss why the aggregate production function exhibits diminishing returns.
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Chapter 7: Finance, Saving, and Investment
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Q1) The Ricardo-Barro effect says that
A) government budget deficits have no crowding out effect because taxpayers increase their savings to match the quantity of loanable funds demanded by the government.
B) government budget deficits crowd out private investment and thereby lower the real interest rate.
C) government budget deficits resulting from an increase in government expenditure have no effect on investment but government deficits resulting from a decrease in taxes crowd out investment.
D) government budget deficits cause households to save more in anticipation of higher taxes, which causes higher real interest rates.
Q2) According to the Ricardo-Barro effect
A) the government budget has no effect on the real interest rate.
B) a government budget deficit crowds out private investment.
C) financing government spending with taxes has a smaller effect on private investment than financing through government borrowing.
D) None of the above answers are correct.
Q3) How does expected future income affect saving supply?
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Chapter 8: Money, the Price Level, and Inflation
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Q1) Which of the following is NOT a monetary policy tool of the Federal Reserve?
A) changes in required reserves
B) last resort loans
C) deposit insurance
D) open market operations
Q2) If actual reserves are 100 when deposits are 400, then definitely the desired reserve ratio is 0.25.
A)True
B)False
Q3) How has growth in M2 minus the growth in real GDP compared to the inflation rate in the United States?
Q4) A commercial bank puts the funds it receives from various sources into
A) securities, cash assets and loans.
B) loans, notes and coins in the bank's vault and deposits.
C) reserves, deposits and loans.
D) securities, cash assets and deposits.
Q5) "A bank can only use its excess reserves to make loans, while required reserves can only be used to buy U.S. government securities." Explain whether the previous statement is correct or incorrect.
Q6) What are the three functions of money?
Page 10
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) If a country has a capital and financial account surplus, that country's stock of international indebtedness is
A) increasing.
B) decreasing.
C) constant.
D) zero.
Q2) In part, a country's current account measures
A) its current debt as opposed to its long-term debt.
B) borrowing and lending activity between the country's residents and foreigners.
C) net increases and decreases in a country's holdings of foreign currency.
D) receipts from the sale of goods and services to foreigners and payments for goods and services bought from foreigners.
Q3) If the Fed raises the U.S. interest rate, the demand for dollars ________ and the exchange rate ________.
A) increases; rises
B) increases; falls C) decreases; rises D) decreases; falls
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) At long-run macroeconomic equilibrium, ________.
A) an inflationary gap exists
B) real GDP equals potential GDP
C) a recessionary gap exists
D) real GDP is less than potential GDP but is as close as it is possible to be
Q2) The U.S. aggregate demand curve shifts leftward if
A) the economic conditions in Europe improve so that European incomes increase.
B) there is a tax cut.
C) the Federal Reserve increases the interest rate.
D) the exchange rate falls.
Q3) In long-run macroeconomic equilibrium, the
A) real wage rate has adjusted so that the economy is on the short-run aggregate supply curve but not on the long-run aggregate supply curve.
B) long-run aggregate supply curve has shifted in response to a money wage rate increase so that potential GDP equals real GDP.
C) aggregate demand curve adjusts to the point where the long-run aggregate supply curve and the short-run aggregate supply curve intersect.
D) None of the above answers is correct.
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Chapter 11: Expenditure Multipliers
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Q1) What is the relationship between the slope of the aggregate expenditure curve and the multiplier?
Q2) Between 2012 and 2013 real GDP increased by $600 billion and imports increased by $90 billion. Based on these data, the marginal propensity to import equals
A) 0.15.
B) 0.25.
C) 0.90
D) 6.67.
Q3) If aggregate planned expenditure is less than real GDP then
A) consumers increase their planned expenditure until aggregate planned expenditure increases to equal real GDP.
B) firms increase their planned expenditure until aggregate planned expenditure increases to equal real GDP.
C) firms' inventories will increase and real GDP will decrease as production falls.
D) firms' inventories will decrease and real GDP will decrease as production falls.
Q4) List and explain factors that influence consumption expenditure.
Q5) What is unplanned investment? How does it occur?
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Chapter 12: The Business Cycle, Inflation, and Deflation
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Q1) The figure above shows the initial aggregate demand curve, AD?, the initial short-run aggregate supply curve, SAS?, and the long-run aggregate supply curve, LAS. The points in the figure show possible combinations of real GDP and the price level at which the economy of Atlantia is in macroeconomic equilibrium. The economy is initially at point A. Atlantia's Central Bank then increases the quantity of money year after year. Draw the necessary curves in the figure to show the effects of this on Atlantia's real GDP and price level.
a)What happens to Atlantia's potential GDP?
b)In the short run, what happens to aggregate supply and aggregate demand?
c)What are the new short-run equilibrium real GDP and price level?
d)In the long run, what happens to aggregate supply and aggregate demand?
e)In the long run, what process is unfolding?
Q2) The long-run Phillips curve is
A) vertical at potential GDP.
B) the horizontal sum of the short-run Phillips curves.
C) vertical at the natural unemployment rate.
D) the vertical sum of the short-run Phillips curves.
Q3) What are sources that can start a demand-pull inflation?
Q4) What is the Phillips curve? Discuss both the short-run and long-run Phillips curve.
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Chapter 13: Fiscal Policy
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Q1) Tax revenues
A) are autonomous.
B) are independent of real GDP.
C) vary with real GDP.
D) are fixed over time.
Q2) When the economy is hit by spending fluctuations, the government can try to minimize the effects by
A) changing government expenditures on goods.
B) changing taxes.
C) changing government expenditures on services.
D) all of the above
Q3) The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 4?
A) -$20 billion (The government has net saving rather than debt.)
B) $35 billion
C) $5 billion
D) $320 billion
Q4) What are some of the limitations of fiscal policy? Briefly discuss them.
Q5) How does a tax on labor income affect potential GDP?
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Chapter 14: Monetary Policy
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Q1) The key aim of monetary policy is to
A) change government spending to spur innovation.
B) maintain price stability.
C) change tax rates to boost investment.
D) change tax rates to boost saving.
Q2) In the short run, if the Fed wants to fight a recession, should it buy or sell government securities? Why?
Q3) Why does the Fed pursue price stability as its ultimate goal?
Q4) Explain the ripple effects of a sale of securities in an open market operation.
Q5) If the Fed is concerned about inflation, in the short run what is the proper monetary policy to restore price stability? What actions can the Fed undertake to restore price stability?
Q6) Monetary policy produces ripple effects, some of which happen quickly and some that can take years to produce change. Which of the following changes immediately?
A) exchange rate
B) real GDP growth rate
C) inflation rate
D) monetary base
Q7) Describe how open market operations change the quantity of money.
Page 16
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Chapter 15: International Trade Policy
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Q1) Define comparative advantage and discuss its role in international trade.
Q2) In the figure above, with international trade Americans buy ________ million shirts per year.
A) 48
B) 32
C) 16
D) 24
Q3) Suppose the country of Mooland imposes tariffs on imported beef from the country of Aqualand. As a result of the tariffs, the
A) price of beef in Mooland falls.
B) quantity of beef exported by Mooland increases.
C) quantity of beef imported by Mooland decreases.
D) quantity of beef imported by Mooland increases.
Q4) A tariff is imposed on a good. The tariff will ________ quantity supplied, ________ quantity demanded, and ________ the price of the good in the home country.
A) increase; decrease; increase
B) increase; leave unchanged; leave unchanged
C) increase; increase; increase
D) increase; decrease; decrease
Page 17
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