1) Suppose nominal GDP increases in a given year. Based on this information, we know with certainty that: A) real output has increased. B) the price level (GDP deflator) has increased. C) real output and the price level (GDP deflator) have both increased. D) either real output or the price level (GDP deflator) have increased. E) real output has decreased and the price level has increased. Answer: D 2) If nominal GDP rises from $10 trillion to $12 trillion, while the GDP deflator rises from 2.0 to 2.2, the percentage change in real GDP is: A) -10%. B) 10%. C) 1.1%. D) 9.1%. E) 20%. Answer: D 3) Suppose that for the year 2003, a company spends $200 million on intermediate goods and $400 million on wages, with no other expenses. Also assume that its total sales are $900 million. The value added by this company is: A) $200 million. B) $300 million. C) $500 million. D) $700 million. E) $800 million. Answer: D 4) Suppose nominal GDP in 2003 increased by 6% (over its previous level in 2002). Given this information, we know with certainty that: A) real GDP increased during 2003.
B) the GDP deflator increased during 2003. C) both the GDP deflator and real GDP increased during 2003. D) More information is needed to answer this question. Answer: D 5) When disposable income is zero, we know that: A) consumption must be zero. B) saving must be zero. C) saving equals investment. D) saving is negative. E) the marginal propensity to consume must be zero. Answer: D 6) If C = 100 + .5Y D , what increase in government spending would raise GDP by 1000? A) 500 B) 1000 C) 1500 D) 2000 E) 2500 Answer: A 7) An increase in the marginal propensity to consume from .5 to .7 will cause: A) the ZZ line to become steeper and a given change in government spending (G) to have a smaller effect on output. B) the ZZ line to become steeper and a given change in government spending (G) to have a larger effect on output. C) the ZZ line to become flatter and a given change in government spending (G) to have a smaller effect on output. D) the ZZ line to become flatter and a given change in government spending (G) to have a larger effect on output.
Answer: B 8) When C = c0 + c 1 Y D , an increase in c0 will cause which of the following to increase? A) equilibrium income B) equilibrium disposable income C) equilibrium saving D) all of the above E) none of the above Answer: D 9) The interest rate will increase as a result of which of the following events? A) a decrease in income B) an open market purchase of bonds by the central bank C) an increase in income D) all of the above E) none of the above Answer: C 10) Suppose the central bank wishes to conduct expansionary monetary policy. Given this, we would expect which of the following to occur? A) a central bank purchase of bonds and an increase in the interest rate
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