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Macroeconomics, 6e (Blanchard/Johnson) Appendix 1: An Introduction to National Income and Product Accounts 26.1 Multiple Choice Questions 1) If GDP exceeds GNP, we know with certainty that A) a budget deficit exists. B) a trade surplus exists. C) a trade deficit exists. D) receipts of factor income ...

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Macroeconomics, 6e (Blanchard/Johnson) Appendix 1: An Introduction to National Income and Product Accounts 26.1 Multiple Choice Questions 1) If GDP exceeds GNP, we know with certainty that A) a budget deficit exists. B) a trade surplus exists. C) a trade deficit exists. D) receipts of factor income from the rest of the world exceed payments of factor income to the rest of the world. Answer: D Diff: 1 2) If GDP is less than GNP, we know with certainty that A) a budget deficit exists. B) a trade surplus exists. C) a trade deficit exists. D) none of the above Answer: D Diff: 2 3) Net national product (NNP) is equal to A) personal income minus taxes. B) GNP minus consumption of fixed capital. C) GDP plus consumption of fixed capital. D) national income plus consumption of fixed capital. Answer: B Diff: 2 4) Which of the following is NOT a component of consumption? A) nondurable goods B) purchase of a new condominium C) education expenses D) none of the above Answer: B Diff: 1 5) Changes in business inventories will be positive when A) production exceeds sales. B) production is less than sales. C) a trade surplus exists. D) a budget surplus exists. Answer: A Diff: 2

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6) Suppose exports are greater than imports. Given this information, we know with certainty that A) a trade surplus exists. B) GNP > GDP. C) GNP < GDP. D) the change in business inventories is positive. Answer: A Diff: 1 7) Which of the following is NOT included in National Income? A) indirect taxes B) wages and salaries C) net interest D) rental income of persons Answer: A Diff: 2 8) Which of the following is included in National Income? A) indirect taxes B) consumption of fixed capital C) proprietors' income D) all of the above Answer: C Diff: 2 9) Which of the following is not included in investment? A) the purchase of new equipment by firms B) nondurable goods C) the purchase of a new home D) none of the above Answer: B Diff: 1 10) If GDP is more than GNP, we know with certainty that A) a budget deficit exists. B) a trade surplus exists. C) a trade deficit exists. D) none of the above Answer: D Diff: 2 11) Changes in business inventories will be negative when A) production exceeds sales. B) production is less than sales. C) a trade surplus exists. D) a budget surplus exists. Answer: B Diff: 2 2 Copyright © 2013 Pearson Education, Inc.

12) Suppose exports are less than imports. Given this information, we know with certainty that A) a trade deficit exists. B) GNP > GDP. C) GNP < GDP. D) the change in business inventories is positive. Answer: A Diff: 1

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Macroeconomics, 6e (Blanchard/Johnson) Appendix 3: An Introduction to Econometrics 27.1 Multiple Choice Questions 1) "Ordinary least squares" is a technique that can be used to A) identify the best model. B) determine which variables in a model are endogenous and which are exogenous. C) obtain a bar graph showing successive quarterly increases in output. D) obtain a line describing consumption behavior in the real world. E) determine the direction of causation between consumption and income. Answer: D Diff: 1 2) When we estimate a regression to determine the relationship between changes in consumption and changes in current income, we find that A) there are no residuals. B) the R2 is zero. C) the MPC is larger than one. D) all of the above E) none of the above Answer: E Diff: 1 3) When we use ordinary least squares to determine the relationship between changes in consumption and changes in both current and lagged income, we find that A) only current income influences current consumption. B) current income has no impact on current consumption. C) consumption is not affected by income in any quarter. D) current income, last quarter's income, and income two quarter's ago all have the same impact on current consumption. E) current income has a greater impact on consumption than income lagged one quarter. Answer: E Diff: 1 4) When estimating a regression line, a high R2‚ tells us we have A) a good fit. B) large residuals. C) correctly determined the direction of causation. D) all of the above E) none of the above Answer: A Diff: 1

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5) A large "T-statistic" tell us that A) a tiny change in the independent variable will cause a relatively large change in the dependent variable. B) we do not have enough data to obtain an accurate regression line. C) we can be confident that our estimated coefficient is not zero. D) we should have included more "lags" in our model. E) we have incorrectly switched the dependent and independent variables in our model. Answer: C Diff: 1 6) Which of the following problems would lead an economist to use instrument variable methods? A) the dependent variable has an impact on the independent variable. B) there are too few quarters of data. C) there are too many independent variables. D) the R2 is too high. E) the residuals are too small. Answer: A Diff: 1 7) A key step in using instrument variable methods is to A) find one or more exogenous variables that influence your dependent variable. B) decrease the number of lags in the regression equation. C) conduct interviews to determine how accurate your data really is. D) run the regression on two different computers to see if the results differ. E) eliminate the dependent variable. Answer: A Diff: 1

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Macroeconomics, 6e (Blanchard/Johnson) Chapter 1: A Tour of the World 1.1 Multiple Choice Questions 1) In 2010, output per capita in the United States was approximately equal to A) $15,500. B) $25,800. C) $43,800. D) $47,300. Answer: D Diff: 2 2) The most recent financial crisis started in A) stock market. B) bond market. C) foreign exchange market. D) housing market. Answer: D Diff: 2 3) The standard of living typically refers to A) the rate of unemployment. B) output per capita. C) wealth per capita. D) all of the above Answer: B Diff: 1 4) In 2010 , the U.S. budget deficit as a percentage of U.S. output was approximately equal to A) 1.7%. B) 9%. C) 6%. D) 16.2%. Answer: B Diff: 1 5) In 2010, the unemployment in the U.S. was A) 5%. B) 11%. C) 9.6%. D) 4.6%. Answer: C Diff: 2

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6) Economists have suggested that the relatively higher unemployment in Europe has been caused by which of the following? A) relatively high unemployment benefits B) relatively high level of worker protection C) inadequate macroeconomic policies D) increased labor costs E) all of the above Answer: E Diff: 2 7) Which of the following countries had the lowest level of output per capita in 2010? A) Spain B) France C) Italy D) German Answer: A Diff: 2 8) At what point could the Euro be used as currency? A) January 1, 1998 B) January 1, 1999 C) January 1, 2000 D) January 1, 2002 Answer: D Diff: 2 9) In 2010, output per capita in China was approximately equal to A) $2,100. B) $4,300. C) $22,100. D) $32,100. Answer: B Diff: 2 10) Inflation represents A) an increase in output. B) an increase in the aggregate price level. C) an increase in the unemployment rate. D) a recession. Answer: B Diff: 1

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11) Between 2000 and 2010, the annual rate of output growth in China was approximately equal to A) 2%. B) 5%. C) 10%. D) 20%. Answer: C Diff: 2 12) Which of the following explains the relatively high growth rate of output in China since 1980? A) accumulation of capital B) technological progress C) a transition from central planning to a market economy D) all of the above Answer: C Diff: 2 13) How many countries are in the European Union? A) 27 B) 6 C) 21 D) 17 Answer: A Diff: 2 14) How many countries are in the Euro area? A) 17 B) 27 C) 21 D) 11 Answer: A Diff: 2 15) Most economists believe that the source of European high unemployment in the past two decades is A) labor market institutions. B) tight monetary policy. C) tight fiscal policy. D) financial crisis. Answer: A Diff: 2

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1.2 Essay Questions 1) Briefly explain the disagreement among economists about how and when to reduce U.S. budget deficit. Answer: Some economists argue that deficit reduction should start now and proceed rapidly. Other economists argue that too fast a reduction in deficit would be dangerous. The disagreement on how deficit reduction should be achieved is along political lines. Republicans believe that it should be done primarily through decreases in spending. Democrats are more inclined to do the adjustment through an increase in taxes. 2) Briefly explain why the decline in housing prices led to a major financial crisis. Answer: Many of the mortgage loans that had been given out during earlier expansion were of poor quality. Many of the borrowers had taken too large a loan and were increasingly unable to make mortgage payments. mortgage backed securities were so complex that their value was nearly impossible to assess. Not knowing the quality of the assets that other banks had on their balance sheet, banks became very reluctant to lend to each other for fear that the bank to which they lent might not be able to repay. The credit market froze up. Unable to borrow, and with assets if uncertain value, many banks found them in trouble. The bankruptcy of Lehman Brothers put other banks at risk of going bankrupt as well. The whole financial system was in trouble. 3) Explain how the financial crisis turned into a major economic crisis. Answer: Hit by the decrease in housing prices and the collapse in stock prices, and worried that this might be the beginning of another Great Depression, people sharply cut back consumption. Worried about sales and uncertain about the future, firms sharply cut back investment.. Decreases in consumption and investment led to decrease in demand, which in turn, led to decrease in output. 4) Discuss the types of policies that could be implemented to reduce European unemployment. Answer: There are basically two sets of policies. First, policy makers could reduce labor market rigidities that some economists believe have contributed to the high unemployment. Some examples of labor market rigidities are high unemployment benefits, high minimum wages, and excessive job protection regulations. The second set of policies includes bad labor relations and inadequate macroeconomic policies. 5) Discuss what is meant by labor market rigidities and explain how they might cause the relatively high unemployment in Europe. Answer: Examples of labor market rigidities are: relatively high minimum wage, relatively high unemployment benefits, and relatively high level of worker protection. All three of these are hypothesized to cause a reduction in employment and, therefore, an increase in the unemployment rate.

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6) Discuss some of the potential benefits and costs of the adoption of the Euro. Answer: One of the benefits of the Euro is largely symbolic. Countries that have in the past century been in wars against each other are now using the same currency. There are economic benefits as well. The use of the same currency will eliminate the need to convert currencies when, for example, buying foreign goods from a country that has also adopted the Euro. One of the possible costs of the Euro is that it will force countries to pursue the same monetary policy. No longer will policy makers in these countries pursue independent monetary policy. 7) What are the two primary sources of economic growth in China since 1980? Answer: The relatively high output growth in China has occurred as a result of capital accumulation and technological progress. 8) In addition to capital accumulation and technological progress, what are some of the other possible explanations for recent output growth in China? Answer: There are several additional potential causes of economic growth in China. These are: (1) the transition from central planning to a market economy; (2) the encouragement of joint ventures with foreign firms; and (3) protection of property rights. 9) Explain why the U.S. crisis became a world crisis. Answer: Other countries were affected through two channels. The first channel was trade. As U.S. consumers and firms cut spending, part of the de crease fell on imports f foreign goods. The second channel was financial. U.S. banks, badly needing funds in the United States, repatriated from other countries, creating problems for banks in those countries. The result was not just a U.S., but a world recession. 10) What problems remain in advanced countries after the crisis? Answer: Both in the United States and the Euro area, unemployment remains very high. What is behind this persistently high unemployment is low output growth, and behind this low growth are many factors like declining housing prices and low housing investment. Banks are still not in good shape, and bank lending is still tight. Consumers are cutting consumption. And the crisis has led to a large increase in budget deficits, which have in turn led to a large increase in public debt over time. Countries must now reduce their deficits, and this is proving difficult. In some European countries, governments may not be able to adjust and may default on their debt.

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Macroeconomics, 6e (Blanchard/Johnson) Chapter 2: A Tour of the Book 2.1 Multiple Choice Questions 1) Fill in the blank for the following: GDP is the value of all ________ produced in a given period. A) final and intermediate goods and services produced by the private sector only B) final goods and services C) final and intermediate goods and services, plus raw materials D) all of the above E) none of the above Answer: B Diff: 1 2) When using the income approach to measure GDP, the largest share of GDP generally consists of A) interest income. B) labor income. C) indirect taxes. D) profits. E) capital income. Answer: B Diff: 1 3) For this question, assume that 1980 is the base year. Given macroeconomic conditions in the United States over the past three decades, we know that A) nominal GDP is always smaller than real GDP since 1980. B) real GDP and nominal GDP would be equal for the entire period. C) real GDP is larger than nominal GDP from 2002 to 2008. D) real GDP and nominal GDP were equal in 1980. E) none of the above Answer: D Diff: 2 4) Suppose nominal GDP increased 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 increased and the price level has decreased. Answer: D Diff: 2

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5) Use the following information to answer this question. If nominal GDP rises from $100 trillion to $120 trillion, while the GDP deflator rises from 2.0 to 2.2, the percentage change in real GDP is approximately equal to A) -10%. B) 10%. C) 20%. D) 9.1%. E) 0%. Answer: D Diff: 2 6) Hedonic pricing is A) the way that luxury goods are priced in a market economy. B) the tendency for the inflation rate to rise by greater and greater amounts. C) the tendency for nominal GDP to rise when the price level rises. D) the process of translating nominal GDP into real GDP. E) the process of pricing individual characteristics of a good or service. Answer: E Diff: 1 7) In a given year, suppose a company spends $100 million on intermediate goods and $200 million on wages, with no other expenses. Also assume that its total sales are $800 million. The value added by this company equals A) $200 million. B) $300 million. C) $500 million. D) $700 million. E) $800 million. Answer: D Diff: 2 8) A firm's value added equals A) its revenue minus all of its costs. B) its revenue minus its wages. C) its revenue minus its wages and profit. D) its revenue minus its cost of intermediate goods. E) none of the above Answer: D Diff: 2

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9) Suppose you are provided with the following data for your country for a particular month: 200 million people are working, 20 million are not working but are looking for work, and 40 million are not working and have given up looking for work. The official unemployment rate for that month is A) 7.7%. B) 9.1%. C) 10%. D) 23%. E) 30%. Answer: B Diff: 1 10) In the United States, someone is classified as unemployed if he or she A) does not have a job. B) does not have a job, or else has a job but is looking for a different one while continuing to work. C) does not have a job, has recently looked for work, and is collecting unemployment insurance. D) does not have a job, and is collecting unemployment insurance. E) none of the above Answer: E Diff: 1 11) An individual is said to be a discouraged worker if he or she A) is working, but prefers not to work. B) is working part time, but would prefer a full time job. C) is working in jobs she/he is not suited for. D) wants to work, and is actively searching for a job. E) wants to work, but has given up searching for a job. Answer: E Diff: 1 12) Which of the following tends to occur when the unemployment rate increases? A) a reduction in the labor force participation rate B) a reduction in the number of discouraged workers C) an increase in the number of employed workers D) all of the above E) none of the above Answer: A Diff: 1

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13) Labor income's share in an advanced country is likely to be A) 70%. B) 45%. C) 29%. D) 10%. E) none of the above Answer: A Diff: 2 14) The labor force in the United States is defined as A) the total number of individuals who are employed. B) the sum of the total number of individuals who are employed and the officially unemployed. C) the sum of the total number of individuals who are employed, the officially unemployed, and discouraged workers. D) the total number of individuals who are 16 years old and older, but not retired. E) none of the above Answer: B Diff: 1 Use the information provided below to answer the following questions. Suppose a country using the United States' system of calculating official unemployment statistics has 100 million people, of whom 50 million are working age. Of these 50 million, 20 million have jobs. Of the remainder: 10 million are actively searching for jobs; 10 million would like jobs but are not searching; and 10 million do not want jobs at all. 15) Refer to the information above. The labor force is A) 20 million. B) 40 million. C) 60 million. D) 80 million. E) 100 million. Answer: C Diff: 2 16) Refer to the information above. The labor force participation rate is A) .2. B) .3. C) .4. D) .6. E) .8. Answer: D Diff: 2

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17) Refer to the information above. The official unemployment rate is A) .1. B) .2. C) .33. D) .4. E) .66. Answer: C Diff: 2 18) The GDP deflator provides a measure of which of the following? A) the ratio of GDP to the size of the population B) the ratio of GDP to the number of workers employed C) the ratio of nominal GDP to real GDP D) the price of a typical consumer's basket of goods E) real GDP divided by the aggregate price level Answer: C Diff: 1 19) Which of the following calculations will yield the correct measure of real GDP? A) divide nominal GDP by the consumer price index B) divide the GDP deflator by the consumer price index C) multiply nominal GDP by the consumer price index D) multiply nominal GDP by the GDP deflator E) none of the above Answer: E Diff: 2 20) The prices for which of the following goods are included in both the GDP deflator and the consumer price index? A) goods bought by households B) goods bought by firms C) good bought by governments D) goods bought by foreign households (i.e., exports) E) all of the above Answer: A Diff: 2 21) Suppose we switch the base year from 2000 to 2008. This change in the base year will cause A) nominal GDP in every year to increase. B) nominal GDP in every year to decrease....