International Macroeconomics
Review Questions
Course Introduction
International Macroeconomics explores the economic interactions between countries, focusing on global markets, exchange rates, capital flows, and international policy coordination. The course examines the determinants of exchange rates, the functioning of international monetary systems, the balance of payments, and the impact of macroeconomic policies across borders. Students will analyze real-world issues such as international financial crises, trade imbalances, and the roles of institutions like the International Monetary Fund. Emphasis is placed on theoretical models and empirical evidence that illuminate the complexities of global economic interdependence.
Recommended Textbook
Macroeconomics 4th Edition by Paul Krugman
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Page 2
Chapter 1: First Principles
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Sample Questions
Q1) Beth promises to do Alice's taxes, and in exchange, Alice will set up several spreadsheets for Beth's household budget. This trade will most likely:
A)be beneficial to both individuals.
B)hurt both individuals.
C)help Beth but hurt Alice.
D)help Alice but hurt Beth.
Answer: A
Q2) All children have to be immunized against polio, measles, mumps, and other diseases. If you don't have enough money to pay for the immunizations, they will be provided free at the county health clinic. This statement best represents this economic concept:
A)People usually exploit opportunities to make themselves better off.
B)Resources should be used as efficiently as possible to achieve society's goals.
C)When markets don't achieve efficiency, government intervention can improve society's welfare.
D)Government policies can change spending.
Answer: C
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Chapter 2: Economic Models
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Sample Questions
Q1) In the factor market, firms buy resources.
A)True
B)False
Answer: True
Q2) Mark and Julie are going to sell brownies and cookies for their third annual fundraiser bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15 brownies or 15 cookies. Based on this information, _____ has the comparative advantage in making brownies and _____ has the comparative advantage in making cookies.
A)Mark; Julie
B)Mark; Mark
C)Julie; Mark
D)Julie; Julie
Answer: A
Q3) Because of trade, a country may:
A)consume outside its production possibility frontier.
B)consume inside its production possibility frontier.
C)find its production possibility frontier shifting outward.
D)avoid opportunity costs.
Answer: A
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Chapter 3: Supply and Demand
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Sample Questions
Q1) (Figure: Shifts in Demand and Supply IV) Look at the figure Shifts in Demand and Supply IV. The figure shows how supply and demand might shift in response to specific events. Suppose half of the people in San Diego pack up and move to Colorado Springs. Which panel BEST describes how this will affect the supply of houses in San Diego?
A)panel A
B)panel B
C)panel C
D)panel D
Answer: C
Q2) (Table: Supply of Lemonade) Look at the table Supply of Lemonade. If the price of lemonade is $1 per cup, the total quantity of lemonade supplied will be:
A)50 cups.
B)80 cups.
C)25 cups.
D)90 cups.
Answer: D
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5
Chapter 5: International Trade 5
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Sample Questions
Q1) (Figure: The Market for Computers) Look at the figure The Market for Computers. Assume that P<sub>A</sub> is the autarky price and P<sub>W</sub> is the world price.
Producer surplus with international trade would be area:
A)X + Y + Z.
B)W + X + Y.
C)X + Y.
D)Y.
Q2) (Scenario: The Production of Wheat and Toys) Look at the scenario Production of Wheat and Toys. If each country specializes completely in the good for which it has the comparative advantage, which combination represents a maximum possible amount of total production of the two goods, given the specialization?
A)50 wheat and 100 toys
B)50 wheat and 75 toys
C)25 wheat and 75 toys
D)100 toys and 25 wheat
Q3) Some advocates of trade protection in the domestic market for steel argue that it is needed to protect domestic steelworkers' jobs. Why are economists usually unconvinced by this argument?
Q4) Explain the difference between comparative advantage and absolute advantage.
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Chapter 6: Macroeconomics: the Big Picture
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Sample Questions
Q1) The annual percentage change in the aggregate price level is negative when there is:
A)deflation.
B)disinflation.
C)inflation.
D)spiraling inflation.
Q2) The point on a business cycle when real GDP stops rising and begins falling is a(n): A)peak.
B)trough.
C)expansion.
D)recession.
Q3) (Figure: The Business Cycle) Look at the figure The Business Cycle. Point B on this graph shows a(n): A)peak.
B)trough.
C)expansion. D)recession.
Q4) In a typical business cycle recession, the unemployment rate rises and the inflation rate falls. Explain these two trends.
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Chapter 7: Gdp and Cpi: Tracking the Macroeconomy
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Sample Questions
Q1) Assume that the consumer price index for 2009 was 124.0 and for 2010 was 130.7. What was the inflation rate between the two years?
A)0.95%
B)5.40%
C)6.70%
D)3.20%
Q2) (Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow Model. The total flow of funds into and out of the rest of the world is:
A)$30.
B)$80.
C)$160.
D)$240.
Q3) (Table: Price and Output Data) Look at the table Price and Output Data. Between years 2 and 3, nominal GDP increased by: A)33%.
B)25%.
C)67%.
D)8%.
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8
Chapter 8: Unemployment and Inflation
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Sample Questions
Q1) One factor that raises the natural rate of unemployment is:
A)a population boom that increases the number of young workers joining the labor force.
B)the loss of labor union membership across industries.
C)the loss of retirement funds, so that more people in the baby boom generation continue to work past the typical retirement age.
D)the use of new technology in the workplace that increases labor productivity.
Q2) In a particular labor market, the demand for labor is given by W = 20 - (1 / 100)L, and the supply of labor is given by W = 4 + (1 / 100)L, where W is the wage rate and L is the number of workers. The equilibrium wage is _____, and the equilibrium number of workers is _____.
A)$10; 1,000
B)$12; 800
C)$8; 1,200
D)$20; 1,000
Q3) Minimum wages and efficiency wages are both above the equilibrium market wage. Briefly describe each type of wage. Do they have similar results in the labor market?
Q4) Explain the difference between shoe-leather costs and menu costs of inflation.
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Page 9
Chapter 9: Long-Run Economic Growth
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Sample Questions
Q1) Thomas Malthus:
A)was President Reagan's primary economic adviser.
B)successfully predicted the nationalization of the insurance company AIG.
C)predicted that limited land supplies would prevent large increases in real incomes per capita.
D)wrote The Limits to Growth in 1972.
Q2) Growth accounting estimates the contribution of each major factor in the aggregate production function to economic growth.
A)True
B)False
Q3) Many economists agree that environmental damage from economic growth: A)is minimal and not serious enough to address through economic channels.
B)occurs but can be contained with market-based incentives and concerted government action.
C)results in a lack of growth in some countries.
D)occurs only in poorer countries.
Q4) Sources of funds for investment spending include both foreign and domestic savings.
A)True
B)False
Page 10
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Chapter 10: Savings, Investment Spending, and the Financial System
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Sample Questions
Q1) (Table: Investment Projects) Look at the table Investment Projects. If the market interest rate is 9%, the amount of planned investment spending is:
A)$1,800.
B)$2,000.
C)$4,000.
D)$5,500.
Q2) Which of the following is (are) a task(s) of the financial system?
I. reducing transactions costs
II. reducing risk
III. providing liquidity
A)I only
B)II only
C)III only
D)I, II, and III
Q3) A risk-averse person:
A)considers any risk unacceptable.
B)would never buy a financial asset.
C)has an asymmetric view of the value of losses and gains.
D)would never buy insurance.
Q4) Compare stocks and bonds with respect to risk and return.
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Chapter 13: Fiscal Policy Appendix Taxes and the Multiplier
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Sample Questions
Q1) Consumer spending will likely fall if:
A)government transfers rise.
B)the government raises tax rates.
C)the government lowers tax rates.
D)government transfers rise or tax rates are lowered.
Q2) Changes in the budget balance may be the result of economic policy, or they may be caused by fluctuations in the economy.
A)True
B)False
Q3) If a government has large consecutive budget deficit but its GDP is growing faster than its debt, the ratio of debt to GDP will increase.
A)True
B)False
Q4) Each of the following is an expansionary fiscal policy EXCEPT:
A)an increase in government transfers.
B)an increase in government purchases.
C)an increase in tax rates.
D)a reduction in marginal tax rates.
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Chapter 14: Money, Banking, and the Federal Reserve System
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Sample Questions
Q1) Which of the following is part of M1?
A)gold
B)shares of corporate stock
C)currency in a bank's vault
D)traveler's checks
Q2) The largest monetary aggregate is:
A)M1, because it contains all of the currency in circulation.
B)M2, because it contains currency in circulation, all bank deposits, other deposits, and deposit-like assets.
C)the reserves in the vaults of Federal Reserve banks, because they are the money multiplier.
D)the total volume of stocks and bonds, because they store most of the national wealth.
Q3) When you are looking at a car's price to decide whether you can afford it, you are using money primarily as a:
A)unit of account.
B)store of value.
C)medium of exchange.
D)medium of exchange and a unit of account.
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Chapter 15: Monetary Policy
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Sample Questions
Q1) The chair of the Board of Governors during the 2008 financial crisis was:
A)Barack Obama.
B)Ben Bernanke.
C)J. P. Morgan.
D)John McCain.
Q2) (Scenario: Money and Interest Rates) Look at the scenario Money and Interest Rates. The demand for money will _____, and the supply of money will _____.
A)increase; not change
B)increase; decrease
C)decrease; not change
D)decrease; increase
Q3) Quantitative easing occurs when instead of purchasing only short-term government debt, the Fed buys long-term government debt as well.
A)True
B)False
Q4) The interest rate is determined in the loanable funds market in the short run. A)True
B)False
Q5) Why does a recession, all else equal, decrease the demand for money?
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Chapter 16: Inflation, Disinflation, and Deflation
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Sample Questions
Q1) Politicians have an incentive to push the unemployment rate below the natural rate of unemployment right before their reelection because:
A)the expansionary monetary policy is used to finance the political campaigns.
B)the political benefits are immediate and the economic costs are delayed.
C)the Phillips curve is horizontal in the long run.
D)the opportunistic seignorage gains are very large.
Q2) Suppose an economy's aggregate price level increases and its aggregate level of real GDP decreases. This could arise from a _____ shock.
A)positive demand
B)negative supply
C)positive supply
D)negative demand
Q3) Fiat money is:
A)money backed by gold.
B)money that only the government will accept to pay taxes.
C)paper money with no intrinsic value.
D)used only in the United States as a medium of exchange.
Q4) Explain the political asymmetry associated with policies that can cause or cure inflation.
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Chapter 17: Crises and Consequences
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Sample Questions
Q1) When private lenders refused to lend to the Greek government in 2009, other European countries:
A)also refused to lend money to Greece.
B)forced Greece to abandon the euro and return to the drachma.
C)provided emergency loans to Greece but demanded harsh budget cuts in return.
D)forced Greece to leave the European Union.
Q2) On average the unemployment rate increases by 7% following a severe banking crisis.
A)True
B)False
Q3) Which of the following is intended to prevent bank runs?
A)the Sherman Anti-Trust Act
B)regulation Q, which prohibits banks from paying interest on demand deposits
C)deposit insurance
D)maturity transformation
Q4) Explain the difference between fiscal stimulus and fiscal austerity in dealing with the recessions that occurred in many countries after the 2008 financial crisis.
Q5) What is maturity transformation? Explain the difference between maturity transformation by depository banks and by shadow banks.
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Chapter 18: Events and Ideas
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Sample Questions
Q1) According to the natural rate hypothesis:
A)once inflation is built into expectations, a policy aimed at lowering unemployment below the natural rate would lead to accelerating inflation.
B)the natural rate of unemployment is above the NAIRU.
C)once inflation is embedded in the public's expectations, it will stop accelerating.
D)changes in discretionary policy aimed at increasing GDP will have no impact on inflation expectations.
Q2) The concept of the monetary policy rule is based on the assumption that:
A)discretionary fiscal policy crowds out investment spending.
B)the natural rate of unemployment is constant in the long run.
C)monetary policy lags are shorter than fiscal policy lags.
D)the velocity of money is constant in the short run.
Q3) The school of economics that predominated prior to the Great Depression was the:
A)business cycle theorists.
B)classical school.
C)post-Keynesian school.
D)Marxists.
Q4) Why did the adoption of Keynesian economics come out of the Great Depression?
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Page 17
Chapter 19: Open-Economy Macroeconomics
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Sample Questions
Q1) If the U.S. dollar appreciates relative to currencies in other countries, then U.S. imports will _____ and exports will _____.
A)increase; increase
B)decrease; decrease
C)decrease; increase D)increase; decrease
Q2) If the government wants to increase the value of its currency in foreign exchange markets, it can use expansionary monetary policy.
A)True
B)False
Q3) If a country's currency depreciates, all other things equal, exports _____ and imports _____ .
A)increase; increase B)increase; decrease
C)decrease; increase D)decrease; decrease
Q4) What are the costs of fixing the exchange rate?
Q5) Explain how floating exchange rates in the United States can help insulate the U.S. economy from a recession in Europe.
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Chapter 20: Graphs in Economics
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Sample Questions
Q1) The owner of the Dismal Philosopher, one of the five bookstores on College Road, asks you to make a graph showing each College Road bookstore's share of all five stores' book purchases. A good way to show this information is with a pie chart.
A)True
B)False
Q2) If a supply curve is represented by the equation Q = 10 + 2P, what is its slope?
A)1/2
B)1
C)2
D)5
Q3) (Figure: Hot Drinks Sold and Temperature) Look at the figure Hot Drinks Sold and Temperature. If we move from point K to point L in the figure, the outside temperature has ______ degrees and the number of hot drinks sold has ______.
A)decreased by 30; increased by 30
B)increased by 20; decreased by 20
C)increased by 30; decreased by 30
D)increased by 40; decreased by 40
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Chapter 21: toward a Fuller Understanding of Present Value
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Sample Questions
Q1) If a friend offers to pay you $1 five years from now, when the prevailing annual interest rate is 5%, what is the net present value of that $1 today?
A)$0.95
B)$1.05
C)$0.78
D)$1.50
Q2) You win a prize at your sorority, and you are given the following two payoff options: Option 1 is to receive $100 one year from today and $100 two years from today. Option 2 is to receive $180 today. If the annual interest rate is 10%, the present value of option 1 is:
A)$173.56.
B)$190.91.
C)$182.65.
D)$181.80.
Q3) The present value of a future payment will be smaller the:
A)sooner the payment is due.
B)lower the interest rate.
C)higher the interest rate.
D)higher the interest rate and the later the payment is due.
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