Advanced Macroeconomics
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Course Introduction
Advanced Macroeconomics delves into the theoretical frameworks and empirical analysis underlying aggregate economic behavior. The course covers topics such as economic growth, business cycles, consumption and investment functions, monetary and fiscal policy, and the role of expectations and market imperfections. Students will explore dynamic stochastic general equilibrium (DSGE) models, intertemporal optimization, and policy analysis in both closed and open economies. Through rigorous mathematical modeling and critical examination of real-world data, the course equips students with the analytical tools to evaluate contemporary macroeconomic issues and contribute to policy debates.
Recommended Textbook
Macroeconomics Policy and Practice 2nd Edition by Frederic S Mishkin
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Page 2
Chapter 1: The Policy and Practice of Macroeconomics
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Q1) What explains the rise in income in the U.S.between 1900 and 2013?
A)business cycles
B)economic growth
C)recessions
D)depressions
E)the purchasing power of the dollar
Answer: B
Q2) The term "business cycle" refers to ________.
A)the opening and eventual closing down of businesses
B)the rising and later declining of the purchasing power of the dollar
C)the acquiring of raw materials and ultimate selling of a finished product
D)the tendency for rich economies to be inevitably out-paced by other economies
E)the slowing and eventual accelerating of economic growth
Answer: E
Q3) There are no questions for this section.
Answer: As the input statement "There are no questions for this section." suggests that there are no inquiries to address within a particular section, there is no specific question to provide an answer for. If you have any questions or need information on a different topic, feel free to ask, and I'll be happy to help!
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Chapter 2: Measuring Macroeconomic Data
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Q1) The household and establishment surveys sometimes differ on the labor market conditions.This is probably because ________.
A)the establishment survey counts a worker who holds two jobs twice and the household survey does not
B)the establishment survey only counts employees of a company and the household survey also counts the self employed
C)the establishment survey covers more workers than the household survey
D)all of the above
E)none of the above
Answer: D
Q2) Computing the CPI is important because it provides ________.
A)a rough measure of the cost of living
B)it is used as a benchmark in labor negotiations
C)government uses it to index entitlements,such as social security benefits,so that beneficiaries do not lose purchasing power in periods of inflation
D)all of the above
E)none of the above
Answer: D
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Chapter 3: Aggregate Production and Productivity
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Sample Questions
Q1) The classical framework is based on which of the following assumptions?
A)many firms in the economy
B)no single firm can control prices
C)in the long-run the quantity of factors supplied must be equal to the quantity of factors demanded
D)all of the above
E)none of the above
Answer: D
Q2) Profit maximization implies that firms will want to ________.
A)accumulate labor while the MPL is greater than the real wage
B)accumulate capital while the MPK is greater than the rental price of capital
C)not accumulate either input without limit,because of diminishing returns to each factor
D)all of the above
E)none of the above
Answer: D
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Chapter 4: Saving and Investment in Closed and Open Economies
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Q1) In a large open economy ________.
A)the effect of shifts in saving and investment on the trade balance are in the same direction as in a small open economy
B)the effect of shifts in saving and investment on net capital flows are in the same direction as in a small open economy
C)the effect of shifts in saving and investment on the domestic real interest rate and the actual levels of saving and investment are in the same direction as in a closed economy
D)all of the above
E)none of the above
Q2) A small open economy would typically enjoy a higher trade balance if,in the domestic economy,________.
A)autonomous consumption expenditures increase
B)taxes decrease
C)government spending decreases
D)all of the above
E)none of the above
Q3) If taxes are reduced,will most people save more or less than before? Does national saving rise or fall? Explain.
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Chapter 5: Money and Inflation
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Q1) Which of the following is true for the European Central Bank (ECB)?
A)its executive board meets more often than the FOMC
B)each member country's central bank has similar functions to the Federal Reserve Banks
C)it is housed in Frankfurt,Germany
D)all of the above
E)none of the above
Q2) Hyperinflation typically ________.
A)describes periods of extreme price increases of over 50% per month or 1,000% per year
B)is a result of extreme periods of money growth that tend to come from large fiscal imbalances
C)affects both poor and developed economies
D)all of the above
E)none of the above
Q3) How might inflation,even if fully anticipated,prevent the classical dichotomy from holding,even in the long run?
Q4) Credit cards are a popular means of payment.Why are credit card accounts not included in M1 or M2? Are credit cards of no relevance to these money measures?
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Chapter 6: The Sources of Growth and the Solow Model
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Q1) The growth accounting equation suggests that the growth rate of output is equal to the growth rate of ________.
A)total factor productivity plus the contributions of both capital and labor
B)total factor productivity minus the rate of depreciation
C)capital and labor
D)the overall population
Q2) In the Solow model,which of the following is an exogenous variable?
A)productivity
B)the capital-labor ratio
C)consumption per worker
D)investment per worker
Q3) The economic growth of the United States over the last half-century ________.
A)is best understood as the result of high levels of saving and investment
B)is quite unlike the experience of most other economies
C)was driven by rising import purchases
D)has been faster than in any other economy
Q4) There are no questions for this section.
Q5) There are no questions for this section.
6.7 Sources of Economic Growth: Growth Accounting
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Chapter 7: Drivers of Growth: Technology, policy, and Institutions
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Sample Questions
Q1) An example of foreign aid that has improved economic conditions is ________.
A)funding of public health programs
B)funding of the U.S.Interstate Highway System
C)programs to reduce foreign debt
D)the Napoleonic code
Q2) The Coca-Cola Company has chosen to keep its soda formula a secret,________.
A)because soda is a non-rival good
B)to preserve its patent rights
C)because the soda formula is a rival good
D)to reap the benefits of excludability
Q3) An economy of 82 million people has twenty percent of them engaged in research and development,where their productivity is 0.003.The economy is on a balanced growth path,when suddenly the productiveness of R&D rises to 0.004.For the one period that begins with this productivity increase,the growth rate of output is ________.[Refer to the instruction above.]
A)8.7%
B)9.4%
C)6.6%
D)7%
Q4) Use the distinction between rival and nonrival to explain the college premium.
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Chapter 8: Business Cycles: an Introduction
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Q1) Economic globalization has seen ________.
A)a decoupling of the business cycle among many countries
B)financial markets become more integrated over time
C)how international financial disruptions can be more easily contained
D)all of the above
E)none of the above
Q2) Keynesian economists ________.
A)believe that the classical dichotomy does not hold in the long run
B)believe that only the interaction between savings and investment affects the real interest rate
C)observe that prices are "sticky"
D)all of the above
E)none of the above
Q3) Which of these economic variables is procyclical?
A)inflation
B)unemployment
C)the credit spread
D)all of the above
E)none of the above
Q4) There are no questions for this section.
Page 10
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Chapter 9: The Is Curve
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Q1) Given the values in the table above,consumption is ________ when equilibrium output is 15.
A)12.3
B)11.86
C)12.05
D)11.55
E)none of the above
Q2) In the IS equation,which of the following is an exogenous variable?
A)planned investment spending
B)real interest rate
C)consumption
D)all of the above
E)none of the above
Q3) A change in which of the following causes a movement along - not a shift in - the IS curve?
A)autonomous consumption
B)government purchases
C)financial frictions
D)all of the above
E)none of the above
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Chapter 10: Monetary Policy and Aggregate Demand
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Q1) Throughout 2008,inflation and the real interest rate declined together.The cause is a combination of ________.
A)monetary policy easing and declining autonomous spending
B)declining autonomous spending and movement along a fixed MP curve
C)monetary policy tightening and inversion of the MP curve
D)increased government spending and movement along a fixed MP curve
E)none of the above
Q2) Which of the following is true with regard to the supply of money?
A)an open market purchase of government securities will increase liquidity
B)an open market sale of government securities will decrease liquidity
C)liquidity and the money supply are directly related
D)all of the above
E)none of the above
Q3) A movement along the MP curve ________.
A)implies an automatic adjustment of the interest rate
B)implies an autonomous adjustment to the interest rate
C)implies an autonomous adjustment of aggregate demand
D)all of the above
E)none of the above
Q4) When the inflation rate falls,what happens,and why,to the MP,IS,and AD curves?
Page 12
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Chapter 11: Aggregate Supply and the Phillips Curve
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Q1) In the 1960s,the Phillips curve was ________.
A)consistent with a positive relationship between inflation and unemployment
B)suggestive of a temporary trade off between inflation and unemployment
C)a very popular explanation for inflation fluctuations
D)all of the above
E)none of the above
Q2) According to the accelerationist Phillips curve,________.
A)expectations adjust continually to the latest information
B)increases in inflation cause the unemployment gap to widen
C)inflation will change so long as an unemployment gap persists
D)all of the above
E)none of the above
Q3) If expectations about inflation are adaptive,they are ________.
A)formed by looking at the future
B)likely to change rapidly
C)based on past inflation
D)all of the above
E)none of the above
Q4) Why is there no long-run trade-off between unemployment and inflation?
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Chapter 12: The Aggregate Demand and Supply Model
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Q1) As of 2009,China's economy had recovered from the global recession that began in 2008.Use aggregate demand and aggregate supply analysis to explain why,and to explain the likely consequences for China of an increase in the growth rate of the global economy.
Q2) Suppose there is a temporary supply shock because of a war in the Middle East,then,ceteris paribus,the ensuing cost push shock ________.
A)would lead to a temporary increase in prices but a permanent reduction in output
B)would lead to a temporary increase in output but a permanent increase in inflation
C)would lead to a temporary decrease in output but a permanent increase in inflation
D)all of the above
E)none of the above
Q3) Suppose that households and businesses increase autonomous expenditures,driving output well above potential.Describe,in detail,how monetary policy might react to minimize the increase in inflation.
Q4) How does the aggregate demand curve differ from a demand curve for,say,bananas?
Q5) How does the aggregate supply curve differ from a supply curve for,say,bananas?
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Page 14
Chapter 13: Macroeconomic Policy and Aggregate
Demand and Supply Analysis
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Q1) Which is a plausible cause of the movement in Figure 13.1 from point 1 to point 2?
A)a change in expectations that causes a decline in the real interest rate for investments
B)a decrease in expected inflation
C)the economy's self-correcting mechanism
D)the central bank achieves a negative value for the nominal interest rate
E)none of the above
Q2) The time it takes for policymakers to obtain and to understand the data and to change the policy instrument based on that information is known as ________,respectively.
A)the data,recognition,and effectiveness lags
B)the recognition,data,and effectiveness lags
C)the data,recognition,and implementation lags
D)the recognition,implementation,and effectiveness lags
E)the data,implementation,and effectiveness lags
Q3) How might strict adherence to the Taylor rule discourage demand-pull inflation? How might demand-pull inflation occur,nonetheless?
Q4) How might long policy lags impact the divine coincidence?
Q5) Is the Taylor rule of greater use to activist or to nonactivist policy makers?
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Chapter 14: The Financial System and Economic Growth
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Q1) A loan contract that requires the borrower to keep a certain percentage of its assets in cash is an example of ________.
A)screening
B)monitoring
C)a restrictive covenant
D)a patent contract
Q2) If the economy may be likened to a biological organism,then the financial system may be thought of as the ________.
A)brain
B)stomach
C)lungs
D)feet
Q3) Suppose you hear of a great deal on a used car and wonder,"Why is the price so low?" This might be an instance of ________.
A)tyranny of collateral
B)adverse selection
C)the free rider problem
D)moral hazard
Q4) How do commercial banks solve asymmetric information problems?
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Chapter 15: Financial Crises and the Economy
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Q1) The practice of approving mortgages in order to sell them as mortgage-backed securities is known as ________.
A)originate-to-distribute
B)principal-agent engineering
C)predatory lending
D)a credit default swap
Q2) Which of the following best illustrates the problem of moral hazard?
A)a professional baseball team that consistently drafts poor players
B)an individual that is hiding a pre-existing condition from a health insurance provider
C)an increase in the level of one's income will lead to a decrease in demand for inferior goods
D)an economic agent that engages in risky behavior once a loan contract is signed
Q3) An increase in the general level of prices will tend to cause,other things the same
A)an increase in the real value of assets
B)an increase in the real value of liabilities
C)no change in the real value of liabilities
D)a decrease in the real value of liabilities
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Chapter 16: Fiscal Policy and the Government Budget
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Q1) What is the formula for the government budget deficit? Why might it be appropriate for most governments,most of the time,to have a deficit (rather than surplus)?
Q2) According to Ricardian equivalence,the key consequence of an increase in the budget deficit that arises from a tax cut is ________.
A)a decrease in private investment
B)an increase in inflation
C)an increase in the public's holding of government bonds
D)an increase in the supply of money
Q3) As of 2013,the debt of the U.S.government amounted to roughly ________ per person.
A)$50,000
B)$8 million
C)$500,000
D)$800
Q4) Apply the concept of tax smoothing to the debate over tax-based versus spending-based fiscal stimulus.
Q5) Why might the tax multiplier be smaller than the expenditure multiplier? Under what circumstances might the reverse be true?
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Chapter 17: Exchange Rates and International Economic Policy
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Q1) The relative price of one currency in terms of another is known as the ________.
A)nominal exchange rate
B)real exchange rate
C)domestic price level
D)real interest rate
Q2) A decrease in the foreign real interest rate will tend to cause,other things the same
A)a decrease in the return on dollar assets relative to foreign assets
B)an increase in the demand for dollars
C)a depreciation of the domestic currency
D)individuals to hold fewer dollar assets
Q3) If a country chooses to establish fixed exchange rates and an independent monetary policy,it gives up the ability to have ________.
A)free capital mobility
B)an independent fiscal policy
C)capital controls
D)an independent physical policy
Q4) How does the policy trilemma help to explain the failure of Argentina's currency board?
Q5) How is the foreign exchange market similar to the stock market?
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Chapter 18: Consumption and Saving
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Q1) According to the life-cycle hypothesis ________.
A)households consume on the basis of their current income and liabilities
B)household consumption as a percentage of income varies over one's lifetime
C)current income is a function of future income
D)cycling to work everyday allows one to live a longer life
Q2) The optimal level of consumption is achieved when ________.
A)consumption in one period is equal to consumption in the next period
B)utility in one period is equal to utility in the next period
C)all income and wealth has been spent
D)the slope of the indifference curve is equal to the slope of the budget line
Q3) The theory of intertemporal choice was presented by ________.
A)Adam Smith in 1776
B)Alfred Marshall in 1871
C)Irving Fisher in 1930
D)John Maynard Keynes in 1936
Q4) Along any single indifference curve the ________.
A)consumer is equally satisfied with any of the combinations of goods
B)level of current income is unchanged
C)level of future income is unchanged
D)level of current and future income is unchanged
Page 20
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Chapter 19: Investment
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Q1) When Tobin's q is greater than one,________.
A)a unit of a firm's stock (equity)is worth more than a unit of the firm's capital
B)a new unit of capital has more value than a new unit of stock (equity)
C)installed capital is worth less than new capital
D)a unit of capital that a firm owns has more value than a unit it might buy
Q2) The expected real cost of using a unit of capital over a given period of time is known as ________.
A)the real rate of interest
B)the nominal rate of interest
C)depreciation
D)the user cost of capital
Q3) Figure 19.1 shows the actual behavior of inventories.Based on the figure,in which month is the discrepancy between the actual level of inventories and the desired level of inventories likely to have been smallest?
A)March 2012
B)September 2009
C)March 2010
D)September 2010
Q4) Why is residential investment procyclical?
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Chapter 20: The Labor Market, employment, and Unemployment
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Q1) During a recession,when unemployment is rising,the number of new jobs created is,typically,________.
A)large,and higher than the number of jobs lost
B)small,and below the number of jobs lost
C)small,but higher than the number of jobs lost
D)large,and higher than net entrants to the labor force
Q2) Having observed that both the real wage and the quantity of employment are increasing,we may conclude that ________ is not ________.
A)demand;decreasing B)supply;decreasing C)demand;increasing D)supply;increasing
Q3) Unemployment that arises from a lack of skills is known as ________.
A)seasonal unemployment
B)cyclical unemployment
C)discouraged unemployment
D)structural unemployment
Q4) How might the increase in the natural rate of unemployment in Europe be related to the increase in income inequality in the United States?
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Chapter 21: The Role of Expectations in Macroeconomic Policy
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Q1) Adaptive expectations are formed ________.
A)from experience
B)from best guesses about the future
C)as new information becomes available
D)as a weighted average of expert forecasts
Q2) Which of the following is not,in general,an aspect of inflation targeting?
A)institutional commitment to a dual mandate
B)the public announcement of medium-term numerical inflation targets
C)increased accountability of the central bank
D)increased transparency of monetary policy
Q3) The strength of the movement in the short-run aggregate supply schedule,in response to an aggregate demand shock is determined by ________.
A)the price elasticity of demand
B)the credibility of the monetary authorities
C)the underlying state of the economy
D)the choice of nominal anchors
Q4) How does central bank independence cause lower inflation?
Q5) According to the Lucas critique,what is the proper way to evaluate a proposal that reduces government borrowing by raising taxes and reducing government spending?
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Chapter 22: Modern Business Cycle Theory
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Q1) In real business cycle models,a change in willingness to work ________.
A)is associated with productivity shocks
B)causes a shift of the aggregate demand curve
C)would violate the market-clearing assumption
D)has no effect on potential output
Q2) In the real business cycle model,fluctuations in employment are explained by ________.
A)changes in the composition of household assets
B)intertemporal substitution as real wages and real interest rates changes
C)changes in the marginal propensity to consume
D)the impact of a change in price on quantity demand and quantity supplied in goods markets
Q3) The three business cycle models differ mostly in their treatment of ________.
A)aggregate demand
B)short-run aggregate supply
C)long-run aggregate supply
D)productivity shocks
Q4) How do the new Keynesian and real business cycle models differ on the ability of inflationary expectations to affect output?
Q5) In the long run,does it matter whether a policy action was anticipated or not?
Page 24
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