MACROECONOMICS QUESTIONS AND PROBLEMS

CHAPTER 1. QUESTIONS AND PROBLEMS

1. The rate of unemployment in 2012 is 10%, in period 2012 to 2014 the rate of growth
of potential output is 7% and rate of growth of actual output is 9%. Using Okun’s law,
calculate the rate of unemployment in 2014.
2. The natural rate of unemployment in 2014 is 5%, the potential output is $4,900
billion and the actual output is $4,700 billion, find the unemployment rate.
3. What are the differences between CPI and GDP deflator? Which index is better in
calculating the rate of inflation? When government planning the wage and salary policy,
which index is used by planners?
4. A person lost his job last year because his skills were not suitable for current state of
technology, this is the case of
a) structural unemployment
b) temporary unemployment
c) cyclical unemployment
d) none of above
5. An economy produces final goods and services as follows:
Product Year 2010 Year 2011
Qo Po Q1 P1
Foods 20 5 21 6
Clothing 30 8 35 7
a. Calculate the nominal GDP and real GDP of each year using based year as 2010.
b. Calculate the CPI and GDPdeflator of the year 2011 using based year as 2010.
c. Calculate the rate of growth between two years using 2010 as base year.
d. Calculate the rates of inflation using CPI and GDPdeflator and using 2010 as base year.
6. The following statements are true or false? Explain
a) GDPdeflator is always greater than CPI
b) We should keep the rates of unemployment and inflation at zero.
c) If inflation is high, then the rate of growth may be negative while the rate of
growth of nominal GDP may be very high.

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CHAPTER 2. QUESTIONS AND PROBLEMS

1. How many approaches can be used in measuring GDP, describe the basic formula of each
approach.
2. Can the following transactions be included in GDP computing? Why?
a) A company buys an old house
b) Paying the rent of a house by a person
c) The money used for buying steel by a automobile manufacturer.
d) The money used for buying motorbike by households.
e) The money paid to a housemaid each month.
f) The housework done by a family member.
g) The money paid by tourists to a travelling company.
3. Do you think that Vietnam’s GDP is greater than GNP currently?
4. Given the items in System of National Accounts as follows:
Wages and salaries: $900; Money paid for renting workshop: 300; Money paid for renting
land: 400; Dividends paid to stockholders: 250; Interests: 100; Investment: 600; depreciation:
100; Tax on profits: 200; unpaid dividends used for increasing business capital: 100;
Entrepreneurs’ profit: 150; Value Added Tax:100; Special consumption tax: 120; Import –
export tax: 130; Factor income of Vietnameses abroad: 200; Factor income of foreigners in
Vietnam: 220.
a) Calculate factor cost GDP:
b) Calculate market price GDP:
c) Calculate factor cost GNP and market price GNP.
5. Per capita GDP is a perfect measure of the living standard of a country, is this statement
correct?

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CHAPTER 3. QUESTIONS AND PROBLEMS

1. Consumption is 250 at disposable income 210. Consumption is 259 at disposable

income 220. Marginal propensity to consume (mpc) is:
a. 0.59
b. 0.9
c. 0.84
d. none of above
2. If tax depends on income then the multiplier is smaller compared to the case in which
tax is independent of income, is this correct?
3. In a closed economy and without government, given:

Y 0 200 400 600 800

C 100 240 380 520 660
S
a. Fill in blank spaces in above table
b. Determine the consumption and saving functions.
c. Draw the C and S in a graph, determine the self-sufficient point.
4. In a closed economy and without government, given:
C = 100 + 0.75Yd I = 200
a. Find equilibrium level of output
b. Draw C, I, AE in a graph
c. Find the multipliers of autonomous consumption and autonomous investment.
5. A closed economy has following data:
C = 100 + 0.75Yd, I = 100, G = 100, T = 100
a) Find equilibrium level of output
b) If current output is 800, what happens to the goods market?
c) If current output is 1000 what happens to the goods market?
d) Find the multipliers of C0, I0, G0 and To
6. An economy has following data:
C = 100 + 0.75Yd I = 100 G = 100 T = 0.2Y
a) Find equilibrium level of output
b) Find the available multipliers
c) Calculate Yd, C, S, T at equilibrium
7. An economy has following data:
C = 100 + 0.75Yd I = 100 G = 100 T = 100 + 0.2Y
a) Find equilibrium level of output
b) Find the available multipliers
c) Calculate Yd, C, S, T at equilibrium
d) find the value of budget surplus (BS = T – G)
8: An economy has following data:
C = 100 + 0.75Yd I = 100 G = 200 T = 100 + 0.2Y
X = 150 M = 100 + 0.05Y
a) Find equilibrium level of output
b) Find the available multipliers
c) Calculate Yd, C, S, T at equilibrium.
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 d) Find the value of trade balance at equilibrium (NX = X – M)
e) If potential output Yp = 1000, what government should do with its spending to drive
the actual output to its potential level.
f) If government want to change the autonomous tax (and keep its spending unchanged)
how much autonomous tax should be changed to reach the potential output.
g) If government want to achieve the potential output by changing the marginal tax
rate, find the new tax rate the government want to apply.
h) To reach potential output by changing government spending and autonomous tax by
an equal amount, how much government spending and tax should be changed.
9. An economy has a following data:
C = 100 + 0.75Yd I = 100
a) Find equilibrium level of output
b) If investment increases by 50, find new value of equilibrium output.
c) If mpc increases to 0.8, find equilibrium level of output.
d) If investment increases by 50, find new value of equilibrium output.
e) Compare the effects on output between cases b and d. In which case we have a
stronger effect of investment on output?
10. An economy has a following data: C = 100 + 0.75Yd I = 100 G = 20
T = 100 + 0.2Y X = 150 M = 100 + 0.05Y
a) If the government increase G by 20, this 20 is financed by increasing autonomous tax,
what is the new level of output ?
b) Does budget surplus change? If yes, how much ?
11. The following statements are true or false, why?
a) mps + mpc = 1
b) When mps changes, the slope of C line also changes
c) The change in marginal tax rate leads to the change in the slope of C line.
d) When autonomous consumption changes, the slope of the saving line also changes
e) For a closed economy and without government, the investment is equal to saving at
equilibrium
12. The disposable income is the
a. Final income that households can use for consumption
b. Income of the firms after paying tax
c. Total household’s income
d. None of above
13. The higher the marginal propensity to consume:
a. The lower the marginal propensity to save
b. The higher the value of aggregate multiplier
c. The steeper the AE line
d. All of above

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 CHAPTER 4. QUESTIONS AND PROBLEMS

1. What happens to money supply M1 if:

a. Households want to hold cash more than deposits
b. The FED buys in the treasury bills from money banks
c. Money banks borrow at discount rate from central bank
d. Central bank reduces the required reserve ratio
e. A money bank pays off the loan to the FED
f. Central bank raises the required reserve ratio
g. The FED reduces the discount rate
2. The money demand curve shifts to the left because of:
a. An increase in market interest rate
b. An increase in public demand of holding cash
c. A decline in population income
d. All of above
3. Which of followings shifts the money supply to the right:
a. A decrease in interest rate
b. The population want to hold more cash
c. The FED raises the discount rate
d. The FED buys the treasury bills
4. The following statements are true or false, why?
a. The development of banking system increases the money multiplier.
b. If d = 0, the money multiplier is infinity (extremely high)
c. The higher the discount rate, the lower the money supply (M1)
d. A person borrows money and uses it for consumption, this makes money supply
unchanged.
5. How does high power money (M0) change in following circumstances:
a. The FED sells $2000 billion of treasury bills to money banks
b. The FED helps government to sell $2000 billion of treasury bills to money banks
c. The FED raises the required reserve ratio from 10% to 20%
d. The ratio of cash over deposit falls from 30% to 20%
6. The central bank buys $10.000 million of treasury bills from money banks
a. How much does money supply (M1) change if d = 20% and c = 19%
b. If d = 15% how much treasury bills the FED should buy to achieve the result as in case a)
7. Central bank reduces the required reserve ratio from 20% to 10%, given c = 10% and
money base M0 = 20.000, how much does money supply change?

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 CHAPTER 5. QUESTIONS AND PROBLEMS

1. Which of following best describes the IS curve:

a. It includes combinations of interest rates and incomes that equate the money quantity
demanded and money supply.
b. It includes combinations of interest rates and incomes that equate aggregate expenditure and
output.
c. It includes combinations of interest rates and incomes that equate aggregate expenditure and
output when the economy produces at natural level of output (Yn).
2. Policymakers believe that current output is below the natural output. To drive the economy to
natural output, the policymakers should
a. Increase the money supply
b. Raise tax
c. Reduce government expenditure
d. None of above
3. An increase in tax leads to
a. A rightward shift of IS curve
b. A leftward shift of LM curve
c. A rightward shift of LM curve
d. A leftward shift of IS curve
4. An increase in money supply leads to
a. A rightward shift of IS curve
b. A leftward shift of LM curve
c. A rightward shift of LM curve
d. A leftward shift of IS curve
5. An increase in government spending causes
a. A rightward shift of IS curve
b. A leftward shift of LM curve
c. A rightward shift of LM curve
d. A leftward shift of IS curve
6. In IS - LM model, a decrease in tax leads to
a. An increase in output and an increase in interest rate
b. A decrease in output and an increase interest rate
c. An increase in output and a decrease in interest rate
d. A decrease in output and a decrease in interest rate
7. In IS - LM model, a decrease in government spending leads to
a. An increase in output and an increase in interest rate
b. A decrease in output and an increase interest rate
c. An increase in output and a decrease in interest rate
d. A decrease in output and a decrease in interest rate
8. In IS - LM model, an increase in money supply leads to
a. An increase in output and an increase in interest rate
b. A decrease in output and an increase interest rate
c. An increase in output and a decrease in interest rate
d. A decrease in output and a decrease in interest rate
9. If investment is only dependent on interest rate, an increase in government spending leads to
a. A fall in investment
b. An unchanged investment
c. An increase in investment
d. An uncertain effect

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10. How does IS curve change if
a. Investment becomes more sensitive to interest rate (d↑)
b. An increase in marginal propensity to save (mps↑)
c. An increase in marginal propensity to consume (mpc)
d. An increase in marginal tax rate (t)
e. An increase in autonomous tax (To)
11. How does LM curve change if
a. Money demand is more sensitive to interest rate (h↑)
b. Money demand is more sensitive to income (k↑)
c. An increase in nominal money supply
d. An increase in price level (P↑)
12. How does the LM curve look like if money demand does not depend on the interest rate (h ≈ 0)
13. An economy has following data:
C = 15 + 0.95Yd TN = 10 + 0.1Y G = 50 X=20
S d
M = 0.05Y I= 30 -10.i M /P=120 M = L = 160 +0.1Y-20.i
a. Write the IS and LM relations
b. Find the equilibrium output and interest rate
c. Graph the equilibrium
d. If government increases its spending by 10, how do Y and i change?
e. If real money supply increases by 30, how do Y and i change?
14. An economy has following data:
C = 100+0.9Yd TN = 0.1Y G = 200 X= 100
S d
M=0.1Y I=200-30.i M /P=270 M = L = 370+0.2Y-50.i
Un = 5% Yp = 800
a. Write the IS and LM relations
b. Find the equilibrium output and interest rate
c. Graph the equilibrium
d. Calculate the unemployment rate
e. If government increases spending by 120 and autonomous tax by 120, how do Y and i change?
f. Calculate the unemployment rate after above policies (in e)
g. From the result of question e, if central bank reduces real money supply by 15 how do Y and i
change?
15. An economy has following data:
S = -150+0.2Yd T = 0.2Y G=200 X=50
S
M=0.04Y I=400-80.i M /P=800 Md=L= 900 + 0.25Y-100.i
a. Write the IS and LM relations
b. Find the equilibrium output and interest rate
c. If policymakers want to drive the economy to Y = 1000 and i = 5%, how do they change their
policies?
16. An economy has following data:
C = 50+0.8Yd T = 0.2Y G = 450 X= 100
S
M = 0.1Y I=680-80.i M /P=370 Md = L = 720-100.i
Un = 5% Yp = 2500
a. Write the IS and LM relations
b. Find the equilibrium output and interest rate
c. If Ms/P increases by 30, find new values of interest rate and income
d. Find new value of unemployment rate
e. If policymakers want to drive the economy to potential output, how do central bank do with
real money supply?

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 CHAPTER 6. QUESTIONS AND PROBLEMS
1. What happens to AD curve if:
a. Government raises tax
b. Government reduces tax and central bank increases money supply to keep interest rate
unchanged
c. An increase in price level
d. A sharp decrease in investment due to domestic war
2. The economy is producing the potential output, if there is a change in AD (for example, an increase
in government spending), the change in the medium run will be:
a. An increase in output
b. Increases in both price and output
c. An increase in price level
d. None of above
3. A change in money supply leads to:
a. A shift in the LM curve and unchange in AD curve
b. A shift in the LM curve and a shift in AD curve
c. A shift in the IS curve and unchange in AD curve
d. A shift in the IS curve and a shift in AD curve
4. A change in government spending leads to:
a. A shift in the LM curve and unchange in AD curve
b. A shift in the LM curve and a shift in AD curve
c. A shift in the IS curve and unchange in AD curve
d. A shift in the IS curve and a shift in AD curve
5. If the short run aggregate supply curve is upward sloping, the change in AD will:
a. Affect the price level but does not affect the output
b. Affect the price level and the output
c. Does not affect the price level but affect the output
d. Does not affect both the price level and the output
6. The economy is in medium run equilibrium. If central bank reduces the money supply, how does
this policy affect the output and interest rate in the short run? In the medium run?
7. Nominal wages and price indices are given as follows

Year 2008 2011 2012 2013

Nominal wage 800,000 1,200,000 1,300,000 1,500,000
Price index 100 160 180 200
a. How do nominal wage and price change over time?
b. Calculate the real wages for each year, how does it change over time?
c. Calculate the rates of growth of price and nominal wage using 2008 as base year

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 CHAPTER 7. QUESTIONS AND PROBLEMS

1. Central bank is conducting fixed exchange rate regime, if there is an increase in demand for foreign
currency, how does nominal money supply change:
a) Increases
b) Decreases
c) Surplus of foreign currency in foreign exchange market
d) None of above
2. The exchange rate of Pound and USD is 0.6 USD/pound, if you have $2, how much Pound can you
buy?
3. A decrease in real exchange rate is due to:
a) Domestic currency appreciation
b) Foreign currency depreciation
c) Domestic currency appreciation and foreign currency depreciation
d) All of above
4. Real exchange rate between Vietnam and US can be written as:
a) e = (VND/USD)PUS/PVN
b) e = (VND/USD)PVN/PUS
c) e = (USD/VND)PUS/PVN
d) e = (USD/VND)PVN/PUS
5. Real exchange rate between Vietnam and US, the price of US goods in terms of Vietnamese goods,
increases when:
a) VND appreciates
b) USD depreciates
c) US GDPdf increases
d) Vietnam’s GDPdf increases
6. A real depreciation, from a Vietnamese view, reflects:
a) The price of Vietnamese goods in terms of US goods increases
b) The price of US goods in terms of Vietnamese goods decreases
c) A reduction in real exchange rate between Vietnam and US
d) None of above
7. Assume that the net investment income is zero, and net transfer received is zero. If exports (X) are
greater than imports (M):
a) There is a deficit of current account
b) There is a deficit of capital account
c) There is a deficit of Balance of Payment
d) There is a surplus of Balance of Payment
8. Country Utopia have its BOP as follows:
Exports $120 million
Imports $180 million
Investment income received $213 million
Investment income paid $260 million
Net transfers received -$30 million
Increase in foreign holdings of domestic assets $600 million
Increase in domestic holdings of foreign assets $450 million
a) Calculate the balances of current accout (CA) and capital account (KA)
b) Find the statistical discrepancy (statistical error)
9. The current exchange rate between VND and USD is 16, 000 VND/$, annual interest rate on US
bonds is 5%, if expected exchange rate for the next year is 16,500 VND/$, if a Vienamese wants to
hold US bonds with value of VND 100 million, how much the interest he expects to get in VND?
10. The current exchange rate between VND and USD is 16, 000 VND/$, and expected exchange rate
for the next year is 16,500 VND/$, annual interest rate on Vienamese bonds is 5%, if the interest rate
parity condition holds, what is interest rate of the US bonds?

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11. If foreign exchange market expects VND will appreciate in the next year, the interest rate parity
condition implies:
a) If interest rate in Vietnam is unchanged, the US interest rate will increase
b) If interest rate in Vietnam is unchanged, the US interest rate will decrease
c) If US interest rate is unchanged, the interest rate in Vietnam will increase
d) Interest rates in both Vietnam and US are unchanged
12. If inflation rates are the same in both countries:
a) The change in real exchange rate is determined by the change in nominal exchange rate
b) The change in real exchange rate is independent of the change in nominal exchange rate
c) There is no change in nominal exchange rate
d) There is no change in real exchange rate
13. If you expect VND will depreciate in the next year, other things equal, then:
a) The relative attractiveness of US bonds over Vietnamese bonds is unchanged
b) US bonds become more attractive than Vietnamese bonds
c) US bonds become less attractive than Vietnamese bonds
d) Vietnamese bonds become more attractive than US bonds
14. The interest rate parity condition holds that:
a) Vietnamese interest rate equals to US interest rate plus expected rate of depreciation of USD
b) Vietnamese interest rate equals to US interest rate plus expected rate of depreciation of VND
c) Vietnamese interest rate equals to US interest rate minus expected rate of depreciation of USD
d) Vietnamese interest rate equals to US interest rate minus expected rate of depreciation of VND
15. If financial market expect that VND will appreciate to USD in the coming year:
a) Vietnamese interest rate is greater than US interest rate
b) Vietnamese interest rate will increase in the future
c) Vietnamese interest rate is less than US interest rate
d) Vietnamese interest rate will increase compared to US interest rate in the future
16. An increase in the real exchange rate leads to:
a) Foreign goods become less expensive compared to domestic goods
b) Foreign goods become less expensive compared to domestic goods and imports increase
c) Foreign goods become more expensive compared to domestic goods
d) Foreign goods become more expensive compared to domestic goods and imports increase
17. The price of Coke in US is $2, and in Vietnam is VND 5000. If current exchange rate is 20,000
VND/$, what is the price of US Coke in terms Vietnamese Coke?

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