Question 1

Discuss the two sets of issues that dominated the agenda of European macroeconomists and macroeconomic policy makers in 2012.

Accepted Answer

The first issue is the relatively high unemployment rate in Europe. Specifically, what has caused this high unemployment (e.g. labour market rigidities, wage explosion, and/or inadequate macro policies) and, therefore, what can be done to reduce it? The second issue deals with the effects of the adoption of the Euro. The benefits of using the same currency will be the reduced costs and uncertainty from eliminating nominal exchange rate uncertainty. The cost of adopting a common currency is losing the ability of using monetary policy for the domestic economy. Instead, a common monetary policy decision is handed down from the European Central Bank (ECB) to the member states. Since it is likely that member countries experience different phases of the business cycles (e.g. some may experience a recession and wish for monetary loosening and others may prefer monetary tightening to slow the economy down), there are costs associated with the Euro when countries are faced with country- specific shocks.

Question 2

What was the Fed's policy response to lower consumption and falling firm investment?

Accepted Answer

A)  Having a press conference. 
B)  Cutting interest rates all the way down to zero. 
C)  Raising interest rates to 10%. 
D)  Staying put with the same interest rates. 
E)  None of the above. 
A)  Having a press conference. 
B)  Cutting interest rates all the way down to zero. 
C)  Raising interest rates to 10%. 
D)  Staying put with the same interest rates. 
E)  None of the above. B

Question 3

Briefly explain the factors behind the low output growth that contributes to the persistently high unemployment in advanced economies.

Accepted Answer

Despite the bounceback in output growth from negative territory since 2009, many problems continue to keep output growth low. For a start, housing prices are still declining, which continues to depress the level of housing investment. Banks have not recuperated fully and the credit line is not yet flowing freely to consumers and firms. As a result, consumer spending and firm investment remain subdued. With reduced tax revenue and facing the need to prop up the economy through high levels of spending, many governments in the advanced world are struggling with high budget deficits, and are struggling to find a balanced approach to reducing the deficits without jeopardising output growth.

Question 4

Economists have suggested that the relatively higher unemployment in Europe has been caused by which of the following?

Accepted Answer

A)  Inadequate macroeconomic policies. 
B)  Relatively high unemployment benefits. 
C)  Increased labour costs. 
D)  Relatively high levels of worker protection. 
E)  All of the above. 
A)  Inadequate macroeconomic policies. 
B)  Relatively high unemployment benefits. 
C)  Increased labour costs. 
D)  Relatively high levels of worker protection. 
E)  All of the above.

Question 5

What are the labour market rigidties that some economists suggest should be eliminated to lower unemployment in Europe?

Accepted Answer

A)  Relatively high levels of worker protection. 
B)  Relatively high unemployment benefits. 
C)  Relatively high costs of hiring workers. 
D)  All of the above. 
E)  None of the above. 
A)  Relatively high levels of worker protection. 
B)  Relatively high unemployment benefits. 
C)  Relatively high costs of hiring workers. 
D)  All of the above. 
E)  None of the above.

Question 6

Which of the following is an economic advantage of having a common currency?

Accepted Answer

A)  No more changes in relative prices of goods and services. 
B)  No more need to change currencies when crossing national borders. 
C)  No more changes in the relative price of currencies. 
D)  Both A and B. 
E)  Both B and C. 
A)  No more changes in relative prices of goods and services. 
B)  No more need to change currencies when crossing national borders. 
C)  No more changes in the relative price of currencies. 
D)  Both A and B. 
E)  Both B and C.

Question 7

What is the main argument put forward by economists who are in favour of a slow and steady reduction of the US budget deficit?

Accepted Answer

A)  It eases the pain of lower demand and lower growth, at a time when unemployment is still very high. 
B)  It eases the pain of a lower exchange rate and lower growth, at a time when unemployment is still very high. 
C)  It eases the pain of a lower bond rate and a lower exchange rate, at a time when unemployment is still very high. 
D)  It eases the pain of lower demand and lower exports, at a time when unemployment is still very high. 
E)  It eases the pain of a lower exchange rate and a lower interest rate, at a time when unemployment is still very high. 
A)  It eases the pain of lower demand and lower growth, at a time when unemployment is still very high. 
B)  It eases the pain of a lower exchange rate and lower growth, at a time when unemployment is still very high. 
C)  It eases the pain of a lower bond rate and a lower exchange rate, at a time when unemployment is still very high. 
D)  It eases the pain of lower demand and lower exports, at a time when unemployment is still very high. 
E)  It eases the pain of a lower exchange rate and a lower interest rate, at a time when unemployment is still very high.

Question 8

What method do macroeconomists use to accurately correct for relative standard of living between two countries?

Accepted Answer

A)  Interest power parity. 
B)  Purchasing power parity. 
C)  Output power parity. 
D)  Income power parity. 
E)  Expenditure power parity. 
A)  Interest power parity. 
B)  Purchasing power parity. 
C)  Output power parity. 
D)  Income power parity. 
E)  Expenditure power parity.

Question 9

Discuss the three variables on which macroeconomists generally focus.

Accepted Answer

The three variables are: output growth,

Question 10

Which group of economies had higher output growth on average between 2000 and 2012?

Accepted Answer

A)  Emerging and developing economies. 
B)  The advanced economies. 
C)  All the economies in the world. 
D)  Economies that are member states of the International Monetary Fund. 
E)  Economies that belong to the Association of the Southeast Asian Nations. 
A)  Emerging and developing economies. 
B)  The advanced economies. 
C)  All the economies in the world. 
D)  Economies that are member states of the International Monetary Fund. 
E)  Economies that belong to the Association of the Southeast Asian Nations.

Question 11

Which basic variable do macroeconomists focus on about the health of an economy?

Accepted Answer

A)  Unemployment. 
B)  Inflation. 
C)  Output growth. 
D)  All of the above. 
E)  None of the above. 
A)  Unemployment. 
B)  Inflation. 
C)  Output growth. 
D)  All of the above. 
E)  None of the above.

Question 12

Which of the following is an economic cost of having a common currency?

Accepted Answer

A)  Loss of independence in setting an independent fiscal policy. 
B)  Loss of independence in setting an independent exchange rate policy. 
C)  Loss of independence in setting an independent monetary policy. 
D)  All of the above. 
E)  None of the above. 
A)  Loss of independence in setting an independent fiscal policy. 
B)  Loss of independence in setting an independent exchange rate policy. 
C)  Loss of independence in setting an independent monetary policy. 
D)  All of the above. 
E)  None of the above.

Question 13

What is the main argument put forward by economists who are in favour of reducing the US budget deficit now and quickly?

Accepted Answer

A)  The quick action instills credibility and helps to stabilise the interest rate. 
B)  The quick action instills credibility and helps to stabilise the bond rate. 
C)  The quick action instills credibility and helps to stabilise the level of debt. 
D)  The quick action instills credibility and helps to stabilise the current account. 
E)  The quick action instills credibility and helps to stabilise the exchange rate. 
A)  The quick action instills credibility and helps to stabilise the interest rate. 
B)  The quick action instills credibility and helps to stabilise the bond rate. 
C)  The quick action instills credibility and helps to stabilise the level of debt. 
D)  The quick action instills credibility and helps to stabilise the current account. 
E)  The quick action instills credibility and helps to stabilise the exchange rate.

Question 14

What is the Republican Party's prescription for reducing the US budget deficit?

Accepted Answer

A)  The reduction is to be achieved through decreases in the bond rate. 
B)  The reduction is to be achieved through decreases in interest rates. 
C)  The reduction is to be achieved through decreases in the exchange rate. 
D)  The reduction is to be achieved through decreases in spending. 
E)  The reduction is to be achieved through decreases in taxes. 
A)  The reduction is to be achieved through decreases in the bond rate. 
B)  The reduction is to be achieved through decreases in interest rates. 
C)  The reduction is to be achieved through decreases in the exchange rate. 
D)  The reduction is to be achieved through decreases in spending. 
E)  The reduction is to be achieved through decreases in taxes.

Question 15

When comparing output per capita between China and the U.S.:

Accepted Answer

A)  The comparison is more accurate in Euro. 
B)  The comparison is most accurate in U.S. dollars. 
C)  The comparison is more accurate in Australian dollars. 
D)  The comparison is more accurate when the PPP method is used. 
E)  The comparison is most accurate in Chinese yuan. 
A)  The comparison is more accurate in Euro. 
B)  The comparison is most accurate in U.S. dollars. 
C)  The comparison is more accurate in Australian dollars. 
D)  The comparison is more accurate when the PPP method is used. 
E)  The comparison is most accurate in Chinese yuan.

Question 16

At what point did the Euro currency come into existence?

Accepted Answer

A)  January 1, 2001. 
B)  January 1, 1999. 
C)  January 1, 1998. 
D)  January 1, 2002. 
E)  January 1, 2000. 
A)  January 1, 2001. 
B)  January 1, 1999. 
C)  January 1, 1998. 
D)  January 1, 2002. 
E)  January 1, 2000.

Question 17

Australia managed to avert the worst effects of the global crisis because of:

Accepted Answer

A)  expansionary monetary and fiscal policy. 
B)  the latest mining boom. 
C)  the rising level of productivity. 
D)  both A and B. 
E)  both A and C. 
A)  expansionary monetary and fiscal policy. 
B)  the latest mining boom. 
C)  the rising level of productivity. 
D)  both A and B. 
E)  both A and C.

Question 18

What is the Democratic Party's prescription for reducing the US budget deficit?

Accepted Answer

A)  The reduction is to be achieved through increases in the exchange rate. 
B)  The reduction is to be achieved through increases in interest rates. 
C)  The reduction is to be achieved through increases in the bond rate. 
D)  The reduction is to be achieved through increases in spending. 
E)  The reduction is to be achieved through increases in taxes. 
A)  The reduction is to be achieved through increases in the exchange rate. 
B)  The reduction is to be achieved through increases in interest rates. 
C)  The reduction is to be achieved through increases in the bond rate. 
D)  The reduction is to be achieved through increases in spending. 
E)  The reduction is to be achieved through increases in taxes.

Question 19

What is the main reason for the persistently high unemployment in the US and the Euro area since the crisis?

Accepted Answer

A)  Low consumption growth. 
B)  Low unemployment benefits. 
C)  Low output growth. 
D)  High output growth. 
E)  High consumption growth. 
A)  Low consumption growth. 
B)  Low unemployment benefits. 
C)  Low output growth. 
D)  High output growth. 
E)  High consumption growth.

Question 20

The institution that is in charge of implementing monetary policy in Australia is:

Accepted Answer

A)  the Reserve Bureau of Australia. 
B)  the Reserve Committee of Australia. 
C)  the Federal Reserve Bank of Australia. 
D)  the Commonwealth Bank of Australia. 
E)  the Reserve Bank of Australia. 
A)  the Reserve Bureau of Australia. 
B)  the Reserve Committee of Australia. 
C)  the Federal Reserve Bank of Australia. 
D)  the Commonwealth Bank of Australia. 
E)  the Reserve Bank of Australia.

Exam 1: A Tour of the World

Discuss the two sets of issues that dominated the agenda of European macroeconomists and macroeconomic policy makers in 2012.

What was the Fed's policy response to lower consumption and falling firm investment?

Briefly explain the factors behind the low output growth that contributes to the persistently high unemployment in advanced economies.

Economists have suggested that the relatively higher unemployment in Europe has been caused by which of the following?

What are the labour market rigidties that some economists suggest should be eliminated to lower unemployment in Europe?

Which of the following is an economic advantage of having a common currency?

What is the main argument put forward by economists who are in favour of a slow and steady reduction of the US budget deficit?

What method do macroeconomists use to accurately correct for relative standard of living between two countries?

Discuss the three variables on which macroeconomists generally focus.

Which group of economies had higher output growth on average between 2000 and 2012?

Which basic variable do macroeconomists focus on about the health of an economy?

Which of the following is an economic cost of having a common currency?

What is the main argument put forward by economists who are in favour of reducing the US budget deficit now and quickly?

What is the Republican Party's prescription for reducing the US budget deficit?

When comparing output per capita between China and the U.S.:

At what point did the Euro currency come into existence?

Australia managed to avert the worst effects of the global crisis because of:

What is the Democratic Party's prescription for reducing the US budget deficit?

What is the main reason for the persistently high unemployment in the US and the Euro area since the crisis?

The institution that is in charge of implementing monetary policy in Australia is:

A Tour of the Book

The Goods Market

Financial Markets

Goods and Financial Markets: the Islm Model

The Labour Market

Putting All Markets Together: the Asad Model

The Phillips Curve, the Natural Rate of Unemployment and Inflation

The Crisis

The Facts of Growth

Saving, Capital Accumulation and Output

Technological Progress and Growth

Technological Progress: the Short, the Medium and the Long Run

Expectations: the Basic Tools

Financial Markets and Expectations

Expectations, Consumption and Investment

Expectations, Output and Policy

Openness in Goods and Financial Markets

The Goods Market

Output, the Interest Rate and the Exchange Rate

Exchange Rate Regimes

Should Policy-Makers Be Restrained

Fiscal Policy: a Summing up

Monetary Policy: a Summing up

Epilogue: the Story of Macroeconomics

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