Intermediate Macroeconomics
Study Guide Questions
Course Introduction
Intermediate Macroeconomics builds upon foundational economic principles to provide students with a deeper understanding of the aggregate behavior of economies. The course explores essential macroeconomic models and theories related to national income, long-run economic growth, unemployment, inflation, and monetary and fiscal policy. Emphasis is placed on dynamic macroeconomic frameworks, the role of expectations in shaping economic outcomes, and the impact of government interventions in stabilizing the economy. Through theoretical analysis, real-world case studies, and data interpretation, students gain the analytical tools necessary to assess macroeconomic trends and policy debates in both domestic and global contexts.
Recommended Textbook
Macroeconomics 7th Edition by Andrew Abel
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1223 Verified Questions
1223 Flashcards
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Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) Following World War I and World War II,the United States had a
A)small trade surplus.
B)small trade deficit.
C)large trade deficit.
D)large trade surplus.
Answer: D
Q2) Why were the U.S.government budget deficits of the 1980s and early 1990s so unusual from a historical point of view?
A)It was the first time the U.S.government had ever run deficits.
B)In the past,deficits were usually that large only in wartime.
C)It was the first time that deficits were accompanied by very high rates of inflation.
D)It was the first time that deficits diverted funds from other productive uses,such as investment in modern equipment.
Answer: B
Q3) Why is wage and price flexibility crucial to the idea of the "invisible hand?"
Answer: Wage and price flexibility is crucial because in a free-market system,changes in wages and prices are the signals that coordinate the actions of people and businesses in the economy.
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Chapter 2: The Measurement and Structure of the National Economy
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Sample Questions
Q1) The uses-of-saving identity says that an economy's private saving is used for A)investment,interest expenses,and the government budget deficit.
B)investment,the government budget deficit,and the current account.
C)investment,interest expenses,the government budget deficit,and the current account. D)investment,interest expenses,the government budget deficit,transfer payments,and the current account.
Answer: B
Q2) If the price index was 100 in 2000 and 120 in 2010,and nominal GDP was $360 billion in 2000 and $480 billion in 2010,then the value of 2010 GDP in terms of 2000 dollars would be
A)$300 billion.
B)$384 billion.
C)$400 billion.
D)$424 billion.
Answer: C
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Chapter 3: Productivity, Output, and Employment
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Sample Questions
Q1) A person is more likely to increase labor supply in response to an increase in the real wage,the ________ is the income effect and the ________ is the substitution effect.
A)larger; larger
B)larger; smaller
C)smaller; larger
D)smaller; smaller
Answer: C
Q2) An invention that speeds up the Internet is an example of A)an income effect.
B)an increase in labor.
C)a substitution effect.
D)a supply shock.
Answer: D
Q3) Firms hire labor at the point where the
A)nominal wage rate equals the marginal product of labor.
B)real wage rate equals the marginal revenue product of labor.
C)nominal wage rate equals the marginal revenue product of labor.
D)real wage rate equals the marginal revenue product of capital.
Answer: C
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Chapter 4: Consumption, Saving, and Investment
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Sample Questions
Q1) Suppose the government provides a tax cut today that is matched by a tax increase in the future that's equal in present value to the tax cut.This causes a consumer's saving to
A)decrease.
B)increase.
C)remain unchanged.
D)increase if the person was a lender and decrease if the person was a borrower.
Q2) Calculate the user cost of capital of a machine that costs $100,000 and depreciates at a rate of 25%,when the nominal interest rate is 4% and the expected inflation rate is 1%.
A)$3,000
B)$25,000
C)$28,000
D)$29,000
Q3) When a person receives an increase in wealth,what is likely to happen to consumption and saving?
A)Consumption increases and saving increases.
B)Consumption increases and saving decreases.
C)Consumption decreases and saving increases.
D)Consumption decreases and saving decreases.
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Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) When there are two large open economies,the world real interest rate will be such that
A)desired international lending by one country equals desired international borrowing by the other country.
B)desired international lending will be the same in both countries.
C)desired international borrowing will be the same in both countries.
D)desired international lending and borrowing will be zero in both countries.
Q2) Total spending by domestic residents,businesses,and governments is called A)investment.
B)net domestic purchases.
C)absorption.
D)GDP.
Q3) A large country imposes capital controls that prohibit foreign borrowing and lending by domestic residents.The country is currently running a capital and financial account surplus.The imposition of the capital controls will cause
A)net exports to decrease.
B)real domestic interest rates to rise.
C)real world interest rates to rise.
D)desired national saving to fall.
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Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) Greenwood and Yorukoglu view the post-1973 productivity slowdown as resulting from
A)the information technology revolution.
B)high oil prices.
C)measurement errors.
D)technological depletion.
Q2) If capital and labor each grow 5% in a year,the elasticities of output with respect to capital and labor sum to one,and productivity grows 2% in the year,by how much does output grow during the year?
A)2%
B)3%
C)5%
D)7%
Q3) Between 1870 and 2006,among the United States,Germany,Japan,and Australia,________ grew at the fastest rate and ________ grew at the slowest rate.
A)United States; Germany
B)Germany; United States
C)Australia; Japan
D)Japan; Australia
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Chapter 7: The Asset Market, Money, and Prices
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Sample Questions
Q1) Which of the following is most likely to lead to an increase of 1% in the nominal demand for money?
A)An increase in real income of 0.5%
B)A decrease in real income of 0.5%
C)A decline of 1% in the price level
D)An increase of 1% in the price level
Q2) If the quantity of money demanded exceeds the quantity of money supplied,then
A)the quantity of nonmonetary assets demanded exceeds the quantity supplied.
B)the quantity of nonmonetary assets supplied exceeds the quantity demanded.
C)the quantity of nonmonetary assets demanded will still equal the quantity supplied,all else being equal.
D)you can make no conclusions about the relative supply and demand of nonmonetary assets.
Q3) Money demand is given by M<sup>d</sup>/P = 1000 + .2Y - 1000i.
Given that P = 200,Y = 2000,and i = .10,real money demand is equal to A)1,300.
B)1,500.
C)260,000.
D)300,000.
Q4) Give five examples of factors that could reduce the demand for money.
Page 9
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Chapter 8: Business Cycles
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Sample Questions
Q1) According to classical macroeconomists,prices adjust ________ to shocks,so the government should ________.
A)slowly; do little
B)rapidly; do little
C)rapidly; fight recessions
D)slowly; fight recessions
Q2) You want to invest in a firm whose profits show large fluctuations throughout the business cycle.Which of the following would you invest in?
A)A corporation that depends heavily on business fixed investment
B)A corporation that depends heavily on consumer services
C)A corporation that depends heavily on consumer nondurables
D)A corporation that depends heavily on government purchases
Q3) The trough of a business cycle occurs when ________ hits its lowest point. A)inflation.
B)the money supply.
C)aggregate economic activity.
D)the unemployment rate.
Q4) When a recession occurs,do economists expect it to be a temporary phenomenon? Or is there some degree of permanence? What is the empirical evidence?
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Chapter 9: The Is-Lmad-As Model
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Sample Questions
Q1) Describe the effects,in both the short run and the long run,of an increase in the money supply.Explain what happens to real output and the price level.
Q2) An increase in the money supply would cause the IS curve to
A)shift up and to the right.
B)shift down and to the left.
C)remain unchanged.
D)shift up and to the right only if people face borrowing constraints.
Q3) Any change that reduces desired saving relative to desired investment (for a given level of output)causes the real interest rate to ________ and shifts the IS curve
A)increase; down and to the left
B)increase; up and to the right
C)decrease; down and to the left
D)decrease; up and to the right
Q4) Keynesian economists think general equilibrium is not attained quickly because
A)the real interest rate adjusts slowly.
B)the level of output adjusts slowly.
C)the real wage rate adjusts slowly.
D)the price level adjusts slowly.
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Chapter 10: Classical Business Cycle Analysis
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Sample Questions
Q1) According to classical economists,unemployment rises in recessions due to an increase in ________ unemployment,not ________ unemployment.
A)cyclical; frictional and structural
B)frictional and cyclical; structural
C)structural; frictional and cyclical
D)frictional and structural; cyclical
Q2) The idea that expected future increases in output cause increases in the current money supply and that expected future decreases in output cause decreases in the current money supply,rather than the other way around,is known as
A)Granger causality.
B)money neutrality.
C)nominal adjustment.
D)reverse causation.
Q3) Use the classical (RBC)IS-LM-FE model to show the effects on the economy of a temporary beneficial supply shock-for example,a decrease in the price of oil.You should show the impact on the real wage,employment,output,the real interest rate,consumption,investment,and the price level.
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Chapter 11: Keynesianism: The Macroeconomics of Wage and Price Rigidity
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Sample Questions
Q1) In the Keynesian model,which curve is vertical?
A)LRAS
B)SRAS
C)AD
D)NS
Q2) In the efficiency wage model,an increase in productivity will cause
A)no change in the real wage.
B)an increase in the real wage.
C)a decrease in the real wage.
D)an increase in both the real wage and the level of employment.
Q3) According to the menu cost theory,firms will be slow in changing their prices because
A)if prices changed frequently,individuals would reduce their demand for that good because of uncertainty.
B)frequent price changes would be a sign of monopolistic behavior.
C)the cost of changing the price might exceed the additional revenue the price change would generate.
D)demand for their product would fall because consumers would purchase goods from firms that had not raised their prices.
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Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) When actual inflation is greater than expected inflation
A)unemployment falls,according to Phillips-curve analysis.
B)cyclical unemployment falls,according to Phillips-curve analysis.
C)there are transfers from borrowers to lenders.
D)there are transfers from lenders to borrowers.
Q2) The Phillips curve appeared to fit the data well for the United States in the A)1960s.
B)1970s.
C)1980s.
D)1990s.
Q3) An increase in the expected rate of inflation would
A)shift the Phillips curve upward.
B)shift the Phillips curve downward.
C)shift the long-run Phillips curve to the right.
D)shift the long-run Phillips curve to the left.
Q4) Keynesians prefer a disinflation policy of A)cold turkey.
B)stabilization.
C)gradualism.
D)aggregate demand management.
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Chapter 13: Exchange Rates,business Cycles,and
Macroeconomic Policy in the Open Economy
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Sample Questions
Q1) If the nominal exchange rate rises 5%,domestic inflation is 2%,and foreign inflation is 3%,what is the percent change in the real exchange rate?
A)8%
B)6%
C)4%
D)2%
Q2) In an open economy,a decrease in net exports because of reduced 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
Q3) Monetary policy in the European Monetary Union is determined by A)the Bundesbank.
B)the European Union Senate.
C)the European Central Bank.
D)None of the above.
Q4) What is purchasing power parity? Why might it not hold?
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Chapter 14: Monetary Policy and the Federal Reserve System
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Sample Questions
Q1) The primary purpose of the discount window is to
A)influence the nation's money supply.
B)fulfill the bank's lender of last resort role.
C)control banks' excess reserves.
D)influence the amount of loans that banks provide to the public.
Q2) Vault cash is equal to $2 million,deposits by depository institutions at the central bank are $1 million,the monetary base is $15 million,and bank deposits are $35 million.Currency held by the nonbank public is
A)$3 million.
B)$12 million.
C)$15 million.
D)$20 million.
Q3) Which of the following might the Fed rely on as an intermediate target?
A)The monetary base
B)The discount rate
C)M2
D)The exchange rate of the dollar
Q4) Describe the difference between a primary credit discount rate and the secondary credit discount rate,including who can borrow at which rate and how such lending is managed by the Fed.
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) Assume that the lost output due to tax distortions is proportional to the square of the tax rate.If the average cost of the distortion created by taxes is currently $1000,and the tax rate is increased from 40% to 50%,the average cost of the distortion created by taxes will increase to
A)$383.33.
B)$450.00.
C)$640.
D)$1562.50.
Q2) The total value of government bonds outstanding at any particular time is called the A)government debt.
B)government deficit.
C)seignorage revenue.
D)yield curve.
Q3) The amount by which government purchases and transfers exceed tax revenues is known as the
A)primary surplus.
B)primary deficit.
C)primary current deficit.
D)government debt.
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