Chapter 1

1. Which of the following is NOT a central issue in macroeconomics?

A) How should the central bank of a country fight inflation?

B) What is responsible for high and persistent unemployment?

C) How do tax changes influence consumers' choices of what to buy?

D) What factors determine economic growth?

E) What can or should the government do to stabilize the economy?

2. In the very long-run AD-AS model,

A) only fiscal policy can affect both output and prices

B) only monetary policy can affect both output and prices

C) monetary policy can affect output but not prices

D) active stabilization policy is ineffective in changing output

E) the unemployment rate is always assumed to be zero

3. In the medium run, if GDP goes down but the price level goes up,

A) the AD-curve must have shifted to the right

B) the AD-curve must have shifted to the left

C) the AS-curve must have shifted to the right

D) the AS-curve must have shifted to the left

E) the AD-curve and the AS-curve must have both shifted to the right

4. A change in which of the following will shift the AD-curve?

A) monetary or fiscal policy

B) the level of consumer confidence

C) the productive capacity of our economy

D) all of the above

E) only A and B

Chapter 2

5. Assume you built a new house, bought a used car, and bought some government bonds. Which of the following statements is true of the components of aggregate demand?

A) consumption and government purchases went up since you bought a used car and government bonds

B) investment went up since you built a new house

C) investment and government purchases went up since you built a new house and bought government bonds

D) consumption and investment went up since you bought a used car and government bonds

E) consumption went up since you built a new house

6. Assume nominal GDP increased by 4.2% in the U.S. but by only 3.4% in Germany. We can definitely conclude that

A) the standard of living of the people in the U.S. went up more than the standard of living of the people in Germany

B) real economic growth in the U.S. was higher than in Germany

C) inflation in the U.S. was 0.8% higher than in Germany

D) productivity growth in the U.S. was higher than in Germany

E) none of the above

7. If we counted the value of autoworkers' salaries, wheels, tires, steel, body parts, and final car sales in calculating GDP, then we would be

A) understating GDP by overlooking car dealers' profits

B) ignoring the contribution of capital to output

C) overstating GDP through double counting

D) using the value-added technique for calculating GDP

E) calculating GDP correctly only if we excluded any imported cars

8. In 1994, U.S. GDP was $6,931, GNP was $6,922, and NNP was $6,104 (all numbers are in billions of dollars). We can conclude that

A) depreciation was $818 billion

B) depreciation was $1,436 billion

C) the addition to the capital stock was $1,436 billion

D) the addition to the capital stock was $1,427 billion

E) indirect business taxes were $9 billion

9. For a simple economy with no depreciation, no government, and no foreign sector, which of the following identities would be correct?

A) Y C

B) C - I S

C) Y - C S

D) Y - C S + I

E) Y C + S - I

10. Which of the following identities is FALSE?

A) Y C + I + G + NX

B) YD Y - TA + TR

C) BS TA - TR - G

D) I - S (G - TA + TR) + NX

E) S + TA - TR I + G + NX

11. Assume exports = 300, imports = 400, tax revenues = 1,100, government purchases = 1,400, private domestic saving = 900. Then the level of private domestic investment is

A) 600

B) 700

C) 900

D) 1,100

E) 1,300

12. If private domestic saving exceeds private domestic investment by $220 billion and government spending exceeds tax revenue by $340 billion, then

A) the trade deficit is $560 billion

B) the trade surplus is $560 billion

C) the trade deficit is $120 billion

D) the trade surplus is $120 billion

E) the trade deficit is $340 billion