Introduction to Macroeconomics
Exam Materials
Course Introduction
Introduction to Macroeconomics provides an overview of the key principles and concepts that govern the functioning of entire economies. The course explores fundamental topics such as national income accounting, economic growth, unemployment, inflation, and fiscal and monetary policy. Students will learn how governments and central banks influence economic activity, the role of aggregate demand and supply, and how macroeconomic models are used to analyze economic issues. By examining real-world data and policy debates, students gain critical insight into how macroeconomic factors impact societies at both national and global levels.
Recommended Textbook
Macroeconomics 9th Edition by Andrew B. Abel
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15 Chapters
1566 Verified Questions
1566 Flashcards
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Page 2
Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) Classical economists argue that
A)the government should have an active role in the economy.
B)government policies will be ineffective and counterproductive.
C)the government should actively intervene in the economy to eliminate business cycles.
D)wages and prices don't adjust quickly, so the economy is slow to return to equilibrium.
Answer: B
Q2) Before World War II,the average level of prices in the United States usually
A)fell during wartime and rose during peacetime.
B)fell during wartime and fell during peacetime.
C)rose during wartime and fell during peacetime.
D)rose during wartime and rose during peacetime.
Answer: C
Q3) The inflation rate is the
A)percent increase in the average level of prices over a year.
B)percent increase in output over a year.
C)percent increase in the unemployment rate over a year.
D)price level divided by the level of output.
Answer: A
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Page 3
Chapter 2: The Measurement and Structure of the National Economy
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110 Flashcards
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Sample Questions
Q1) In a given year,a country's GDP = $3843,net factor payments from abroad = $191,taxes = $893,transfers received from the government = $422,interest payments on the government's debt = $366,consumption = $3661,and government purchases = $338.Calculate the values of private saving,government saving,and national saving.
Answer: Private saving = Y + NFP - T + TR + INT - C = $3843 + $191 - $893 + $422 + $366$3661 = $268.Government saving = T -TR - INT - G = $893 - $422 - $366 - $338 = -$233.National saving = Y + NFP - C - G = $3843 + $191 - $3661 - $338 = $35.
Q2) Two years ago,the GDP deflator for Old York was 300,and today it is 330.75.Based on this information the annual average inflation rate for the two years was A)5%.
B)5)125%.
C)10%.
D)10.25%.
Answer: A
Q3) How are net exports,net factor payments from abroad,and the current account balance related?
Answer: NX + NFP = CA.
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Page 4
Chapter 3: Productivity, output, and Employment
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Sample Questions
Q1) Assume that the full-employment level of output is $5000 billion and the natural unemployment rate is 5%.Suppose the current unemployment rate is 8%.What would be the current level of output according to Okun's law (when the Okun's law coefficient is 2)?
A)$4500 billion
B)$4700 billion
C)$4900 billion
D)$5000 billion
Answer: B
Q2) The tendency of workers to supply more labor in response to a larger reward for working is called the ________ of a higher real wage on the quantity of labor supplied.
A)homogeneous labor supply effect
B)negative correlation effect
C)income effect
D)substitution effect
Answer: D
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Chapter 4: Consumption, saving, and Investment
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Sample Questions
Q1) Any change in the economy that reduces desired national saving for a given value of the real interest rate will shift the desired national saving curve to
A)the right and increase the real interest rate.
B)the right and decrease the real interest rate.
C)the left and increase the real interest rate.
D)the left and decrease the real interest rate.
Q2) If an investor has a tax rate on interest income of 25% and the inflation rate is 4%,which bond has the lowest expected real after-tax interest rate?
A)A Treasury bond paying 9%
B)A corporate bond paying 8%
C)A Treasury bond paying 7%
D)A municipal bond paying 6%
Q3) Draw a diagram showing the determination of a firm's optimal capital stock,showing the relationship between the user cost of capital and the future marginal product of capital.Suppose the real interest rate declines.Show what happens to the firm's optimal capital stock.What happens to the firm's desired investment?
Q4) What is the marginal propensity to consume,and why is it always less than one?
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Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) When future labor income falls in a small open economy,it causes the current account to ________ and investment to ________.
A)fall; rise
B)rise; remain unchanged
C)fall; remain unchanged
D)rise; rise
Q2) A large open economy increases its desired saving.This causes the world real interest rate to ________ and the country's current account balance to ________. A)fall; fall
B)remain unchanged; rise
C)fall; rise
D)remain unchanged; fall
Q3) What were the principal causes of the U.S.government budget deficits of the 1980s? How did these budget deficits lead to the twin deficits? According to the Ricardian equivalence proposition,should twin deficits arise as a result of tax cuts?
Q4) How did the United States become a net debtor in the 1980s? Is our foreign debt a significant problem? Explain.
Q5) What determines the interest rate in a small open economy?
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Page 7
Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) What types of government policies can increase long-run living standards?
Q2) In a steady state
A)both consumption per worker and the capital-labor ratio are constant.
B)consumption per worker is constant, but the capital-labor ratio can change.
C)capital and labor, by definition, are inversely related to one another.
D)consumption per worker can change, but the capital-labor ratio is constant.
Q3) Why do some people think that the productivity slowdown since 1973 is just a return to normalcy after fast productivity growth during the previous 25 years?
A)Productivity growth of the previous 25 years was abnormally low.
B)The Great Depression and World War II had prevented technological opportunities from being exploited.
C)The United States is the only country to face the slowdown, due to poor regulatory decisions.
D)The United States has allowed countries like Japan to steal its technological breakthroughs.
Q4) Briefly explain the shape of the per-worker production curve in the Solow model.If investment per worker initially exceeds saving per worker,how is the steady-state capital-labor ratio achieved?
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Page 8
Chapter 7: The Asset Market, money, and Prices
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Sample Questions
Q1) Suppose the real money demand function is M<sup>d</sup>/P = 2400 + 0.2Y - 10,000 (r + <sup>e</sup>).
Assume M = 5000, <sup>e</sup> = .03,and Y = 5000.If the price level were to decrease from 2.5 to 2.0,then the real interest rate would decrease by how many percentage points (assuming M<sup>d</sup>, <sup>e</sup>,and Y are unchanged)?
A)4
B)5
C)9
D)14
Q2) The set of assets that a holder of wealth chooses to own is called
A)an asset assortment.
B)a wealth strategy.
C)a portfolio.
D)an investment envelope.
Q3) M2 includes
A)large-denomination time deposits.
B)institutional MMMFs.
C)commercial paper.
D)M1.
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Page 9
Chapter 8: Business Cycles
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Sample Questions
Q1) Business cycles all display the following characteristics except
A)a period of expansion followed by one of contraction.
B)comovement of many economic variables.
C)rising prices during an expansion and falling prices during the contraction.
D)they last a period of one to twelve years.
Q2) Which of the following macroeconomic variables would you exclude from an index of leading economic indicators?
A)Money supply
B)Industrial production
C)Inventory investment
D)Residential investment
Q3) According to research by Stock and Watson,the recent decline in volatility in many macroeconomic variables was a
A)sudden drop that occurred around 1984.
B)gradual decline throughout the 1980s.
C)sudden drop that occurred around 1990.
D)gradual decline throughout the 1990s.
Q4) How has the severity and duration of business cycles changed over time in the United States?
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Chapter 9: The Is-Lmad-As Model
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Sample Questions
Q1) A decrease in the money supply would cause the IS curve to ________ and the LM curve to ________.
A)shift down and to the left; be unchanged
B)shift down and to the left; shift up and to the left
C)be unchanged; shift up and to the left
D)be unchanged; shift down and to the right
Q2) The aggregate demand curve
A)is vertical.
B)slopes upward.
C)is horizontal.
D)slopes downward.
Q3) In classical IS-LM analysis,the effects of a decline in desired investment include
A)a decline in output.
B)an increase in the price level.
C)a decline in the real interest rate.
D)an increase in unemployment.
Q4) Describe the differences between classical and Keynesian economists in terms of their views about monetary neutrality.
Q5) Describe what happens to the FE line if government purchases increase.
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Chapter 10: Classical Business Cycle Analysis
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Sample Questions
Q1) The theory of rational expectations suggests that
A)people never make forecast errors.
B)people make intelligent use of available information.
C)people make systematic forecast errors.
D)people are slow to incorporate new information into their forecasts.
Q2) According to classical economists,the increase in the unemployment rate in recessions occurs because
A)aggregate demand is insufficient.
B)the time needed to find a job rises in recessions.
C)labor unions prevent firms from cutting wages.
D)firms will replace workers by machines.
Q3) Describe,in general terms,how an economist calibrates a macroeconomic model.What statistics can be usefully examined to see how well the model corresponds to the data?
Q4) According to classical economists,the increase in unemployment in recessions is caused by
A)slack aggregate demand.
B)the failure of wages to adjust to restore equilibrium in the labor market.
C)the power of labor unions, which prevent firms from cutting wages.
D)a mismatch of workers and jobs.
Page 12
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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,short-run equilibrium occurs
A)where the IS and LM curves intersect.
B)where the IS curve, LM curve, and FE lines intersect.
C)where the IS curve intersects the FE line.
D)where the LM curve intersects the FE line.
Q2) You are the liaison between the Federal Reserve Board and the U.S.Treasury Department.Your goal is to coordinate policy efforts to achieve full-employment output in the economy while keeping a fixed real interest rate.You must recommend tightening or easing both monetary and fiscal policies to do this.What would your recommendation be in each of the following situations?
(a)People decide to increase saving.
(b)Expected inflation declines.
(c)The future marginal productivity of capital declines.
(d)There's an adverse oil price shock in which the LM curve moves farther to the left than does the FE line.
Q3) Do the real effects of aggregate demand shocks differ in the short run and long run in the Keynesian sticky-price model from the effects of these shocks in the classical model of perfectly flexible prices? Briefly explain.
Q4) Why might firms pay an efficiency wage rather than a market-clearing wage?
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Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) Phillips's research looked at British data on
A)unemployment and inflation.
B)unemployment and nominal wage growth.
C)inflation and nominal wage growth.
D)unemployment and output.
Q2) Can macroeconomic policy be used systematically to create unanticipated inflation?
A)Yes, according to Keynesian economists.
B)Yes, according to classical economists.
C)No, according to Keynesian economists.
D)Yes, according to classical economists, if Ricardian equivalence holds.
Q3) In the extended classical model,an unanticipated increase in the money supply would cause output to ________ and the price level to ________ in the short run.
A)increase; increase
B)decrease; remain unchanged
C)remain unchanged; increase
D)decrease; decrease
Q4) What are the pros and cons of using cold turkey disinflation compared to a policy of gradualism?
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Chapter 13: Exchange Rates, business Cycles, and
Macroeconomic Policy in the Open Economy
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Sample Questions
Q1) Suppose the dollar-euro exchange rate falls.Then
A)French firms will import more from the United States into France.
B)U)S. firms will export less to France.
C)the dollar is less valuable relative to the euro.
D)the euro is more valuable relative to the dollar.
Q2) An increase in the U.S.money supply would cause the value of the dollar to ________ and U.S.net exports to ________ in the short run using a Keynesian model.
A)fall; fall
B)fall; rise
C)rise; rise
D)rise; fall
Q3) Three-wheel cars made in North Edsel are sold for 5000 pounds.Four-wheel cars made in South Edsel are sold for 10,000 marks.The real exchange rate between North and South Edsel is four three-wheel cars for three four-wheel cars.The nominal exchange rate between the two countries is
A)0)50 marks/pound.
B)0)66 marks/pound.
C)1)50 marks/pound.
D)2)00 marks/pound.
Page 15
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Chapter 14: Monetary Policy and the Federal Reserve System
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Sample Questions
Q1) Monetarists suggest doing which of the following?
A)Maintain a steady growth rate of the money supply.
B)Use fiscal policy to combat unemployment in the short run.
C)Use monetary policy to combat unemployment in the long run.
D)Use fiscal policy to combat inflation in the long run.
Q2) Describe,in general terms,the strategy of monetary policy,explaining how monetary-policy tools are used to achieve the goals of monetary policy.What intermediate stages are important in going from tools to goals? What are the links between the different stages? How does the Federal Reserve use this strategy today?
Q3) Suppose the Federal Reserve wanted to reduce the money supply without using open-market operations.It could try to get the public to ________ their currency-deposit ratio and ________ banks' reserve requirements,which would in turn change the banks' reserve-deposit ratio.
A)decrease; lower
B)decrease; raise
C)increase; lower
D)increase; raise
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Page 16
Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) Suppose that all workers place a value on their leisure of 40 goods per day.The production function relating output per day Y to the number of people working per day N is Y = 200N - N<sup>2</sup>
And the marginal product of labor is MPN = 200 - 2N.
A 20% tax is levied on wages.In terms of lost output,what is the cost of the distortion introduced by this tax?
A)25
B)75
C)150
D)225
Q2) Compared with other countries in the OECD,French government spending relative to GDP is
A)among the highest.
B)about average.
C)slightly below average. D)among the lowest.
Q3) What are the main reasons (give at least three)that Ricardian equivalence might not hold?
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Page 17