MACROECONOMICS BY OLIVIER BLANCHARD
ALL CHAPTERS 1 TO 24 FINAL PAPER 2026
TESTED QUESTIONS WITH FULL SOLUTION
GRADED A+
◉ Cost-Push Inflation. Answer: Inflation resulting from a decrease in
AS (from higher wage rates and raw material prices, such as the
price of oil) and accompanied by a decrease in real output and
employment. Also reffered to as "stagflation" or "adverse aggregate
supply shock".
◉ Crowding-Out Effect. Answer: The rise in interest rates and the
resulting decrease in investment spending in the economy caused by
increased government borrowing in the loanable funds market. Seen
as a disadvantageous side effect of expansionary fiscal policy.
◉ Current Account. Answer: Measures the balance of trade in goods
and services and the flow on income between one nation and all
other nations.
Equal to a country's net exports (its exports minus its imports).
◉ Cyclical Unemployment. Answer: Unemployment caused by a fall
in aggregate demand in a nation. Not included in the natural rate of
,unemployment. When a nation is in a recession, there will be cyclical
unemployment.
◉ Demand Deposit. Answer: A deposit in a commercial bank against
which checks may be written. Also known as a "checkable deposit".
◉ Depreciation. Answer: A decrease in the value of one currency
relative to another, resulting from a decrase in demand for or an
increase in the supply of the currency on the foreign exchange
market.
◉ Devaluation. Answer: When a government intervenes in the
market for its own currency to weaken it relative to another
currency.
◉ Discount Rate. Answer: One of the three tools of monetary policy,
it is the interest rate that the federal government charges on the
loans it makes to commercial banks.
◉ Economic Growth. Answer: An increase in the potential output of
goods and services in a nation over time.
◉ Economic Resources. Answer: Land, labor, capital, and
entrepreneurial ability that are used in the production of goods and
services. They are "economic" resources because they are scarce
, (limited in supply and desired). Also known as "factors of
production".
◉ Excess Reserves. Answer: The amount by which a bank's actual
reserves exceed its required reserves. Banks can lend excess
reserves; when they do, they expand the money supply. The amount
of excess reserves in the banking system determines equilibrium
interest rate.
◉ Exchange Rate:. Answer: The price of one currency in terms of
another currency, determined in the forex market.
◉ Exports. Answer: The spending by foreigners on domestically
produced goods and services. Counts as an injection into a nation's
circular flow of income.
◉ Federal Funds Rate. Answer: The interest rate banks charge one
another on overnight loans made out of their excess reserves. The
FFR is the interest rate targeted by the Fed Res Bank through it's
open market operations.
◉ Fiscal Policy. Answer: Changes in government spending and tax
collections implemented by government with the aim of either
increasing or decreasing aggregate demand to achieve the
macroeconomic objectives of full employment and price-level
stability.
ALL CHAPTERS 1 TO 24 FINAL PAPER 2026
TESTED QUESTIONS WITH FULL SOLUTION
GRADED A+
◉ Cost-Push Inflation. Answer: Inflation resulting from a decrease in
AS (from higher wage rates and raw material prices, such as the
price of oil) and accompanied by a decrease in real output and
employment. Also reffered to as "stagflation" or "adverse aggregate
supply shock".
◉ Crowding-Out Effect. Answer: The rise in interest rates and the
resulting decrease in investment spending in the economy caused by
increased government borrowing in the loanable funds market. Seen
as a disadvantageous side effect of expansionary fiscal policy.
◉ Current Account. Answer: Measures the balance of trade in goods
and services and the flow on income between one nation and all
other nations.
Equal to a country's net exports (its exports minus its imports).
◉ Cyclical Unemployment. Answer: Unemployment caused by a fall
in aggregate demand in a nation. Not included in the natural rate of
,unemployment. When a nation is in a recession, there will be cyclical
unemployment.
◉ Demand Deposit. Answer: A deposit in a commercial bank against
which checks may be written. Also known as a "checkable deposit".
◉ Depreciation. Answer: A decrease in the value of one currency
relative to another, resulting from a decrase in demand for or an
increase in the supply of the currency on the foreign exchange
market.
◉ Devaluation. Answer: When a government intervenes in the
market for its own currency to weaken it relative to another
currency.
◉ Discount Rate. Answer: One of the three tools of monetary policy,
it is the interest rate that the federal government charges on the
loans it makes to commercial banks.
◉ Economic Growth. Answer: An increase in the potential output of
goods and services in a nation over time.
◉ Economic Resources. Answer: Land, labor, capital, and
entrepreneurial ability that are used in the production of goods and
services. They are "economic" resources because they are scarce
, (limited in supply and desired). Also known as "factors of
production".
◉ Excess Reserves. Answer: The amount by which a bank's actual
reserves exceed its required reserves. Banks can lend excess
reserves; when they do, they expand the money supply. The amount
of excess reserves in the banking system determines equilibrium
interest rate.
◉ Exchange Rate:. Answer: The price of one currency in terms of
another currency, determined in the forex market.
◉ Exports. Answer: The spending by foreigners on domestically
produced goods and services. Counts as an injection into a nation's
circular flow of income.
◉ Federal Funds Rate. Answer: The interest rate banks charge one
another on overnight loans made out of their excess reserves. The
FFR is the interest rate targeted by the Fed Res Bank through it's
open market operations.
◉ Fiscal Policy. Answer: Changes in government spending and tax
collections implemented by government with the aim of either
increasing or decreasing aggregate demand to achieve the
macroeconomic objectives of full employment and price-level
stability.
