(Solution Manual) Macroeconomics

Dornbusch, 11

Business

Solution Manual

11th Edition

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Solution Manual for Macroeconomics, The downloadable file consists of 361 pages, and the total size of the file is 2.14 MB. Purchase now only for highly discounted price.

Author(s): Dornbusch

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1-1 Solution Manual for Macroeconomics 11th Edition by Dornbusch (All 21 Chapters ) 1-2 Chapter 01: Introduction Multiple Choice Questions 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 cha nges 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? Difficulty: Easy 2. Macroeconomics does NOT focus on a. Policies that affect consumption and saving B. Policies that affect the performance of the health care sector c. The determination of changes in wages and prices d. The determination of interest rates e. None of the above, all of them are macroeconomic issues Difficulty: Easy 3. Which of the following is NOT dealt with in microeconomics? a. The effect of agricultural subsidies on the price of milk b. Differences between the market for skilled labor versus the market for unskilled labor c. Issues related to the structure and performance of the health care sector D. Policies that affect the level of aggregate consumption e. Issues related to the deregulation of the telecommunications industry Difficulty: Easy 1-3 4. Which of the economists below most likely advocated activist government policies? a. Milton Friedman B. John Maynard Keynes c. Robert Lucas d. Thomas Sargent e. Adam Smith Difficulty: Easy 5. In studying growth theory, we A. Assume that labor, capital, and raw materials are all used efficiently b. Assume that increased use of inputs cannot lead to a higher living standard c. Assume that technological advances cannot affect living standards d. Try to explain the reasons for recessions and booms e. All of the above Difficulty: Easy 6. Which of the following factors does NOT contribute to economic growth? a. The availability of resources such as labor and capital b. Increases in the size of the population c. The availability of new and better technology d. Increased knowledge gained through education or work experience E. All of the above can increase economic growth Difficulty: Easy 7. Which of the following is a FALSE statement? a. The very long run focuses on the growth of productive capacity b. In the very long run, the productive capacity is assumed to be given c. In the very short run, shifts in aggregate demand determine how much output is produced D. Fluctuations in inflation and unemployment are important long-run issues e. At the full-employment level of output, capital is not used 100 percent Difficulty: Easy 1-4 8. Government intervention into economic activity will NOT lead to a change in the price level A. In the very short -run model b. In the medium -run model c. In the very long -run model d. In the classical model e. Assuming a macro -model that focuses on the growth of productive capacity Difficulty: Easy 9. In the very short run, the level of a. Output is determin ed by both aggregate demand and aggregate supply B. Output is determined by aggregate demand alone c. Prices will change if aggregate demand shifts d. Prices is determined by aggregate demand alone e. Both A and C Difficulty: Easy 10. In the simple macro model of this chapter, the long-run AS-curve is a. Horizontal B. Vertical c. Upward -sloping d. Assumed to be completely price elastic e. Either B or C, depending on how fast prices adjust Difficulty: Easy 11. In the very long-run AD-AS model, if the AD -curve shifts to the left, then a. Prices and output will both decrease b. Prices and output will both increase C. Prices will decrease but output will remain the same d. Output will decrease but prices will remain the same e. Output will increase but prices will decrease Difficulty: Easy 1-5 12. If an increase in aggregate demand causes prices to increase slightly but output to increase significantly, then A. The AS-curve must be very flat b. The AD-curve must be very steep c. The AD- and AS-curves must both be very steep d. We must be looking at the very long -run AD-AS model e. We must be looking at the very short -run AD-AS model Difficulty: Easy 13. 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 Difficulty: Medium 14. If a shift in the AD -curve has no impact on the price level, then a. The unemploy ment rate must be extremely low b. The AD-curve must be vertical C. The AS-curve must be horizontal d. The AS -curve must be vertical e. Both A and D Difficulty: Easy 15. 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 Difficulty: Easy 1-6 16. Which of the following is FALSE in the medium run? a. A change in monetary policy can shift the AD-curve b. A change in fiscal policy can shift the AD-curve c. A change in fiscal policy can change output and prices D. A change in monetary policy can change prices but not output e. A change in labor productivity can shift the AS-curve Difficulty: Medium 17. The position of the AD-curve depends on a. Monetary and fiscal policies b. The level of consumer confidence c. The productive capacity of our economy d. All of the above E. Only A and B Difficulty: Easy 18. The position of the AS-curve depends on a. Fiscal policy b. Monetary policy c. Consumer confidence D. The productive capacity of the economy e. All of the above Difficulty: Easy 19. Nominal GDP is correctly defined as a. The monetary value of all goods and services, final and intermediate, produced in a given Year b. The monetary value of all wealth that is accumulated in a given year c. The national income minus all non-income charges against output D. The monetary value of all final goods and services currently produced in our economy in a given year e. The market value of all goods produced by domestically -owned resources in a given year Difficulty: Easy 1-7 20. Which of the following transactions has a direct and immediate effect on GDP? a. An unemployed work er gets unemployment compensation b. You sell your used car to a friend c. You buy some IBM stock D. A German tourist drinks Canadian beer in a New York City restaurant e. The value of your Enron stock holdings drops drastically Difficulty: Medium 21. Which of the following does NOT directly affect GDP? a. A car dealer liquidates his inventory at a loss of $100 per car b. Wal-Mart buys 100 Korean -made VCRs and sells them in Roanoke, Virginia C. Stock market values drop sharply d. A Canadian tourist visits New York to see the Blue Jays play in Yankee stadium e. Both A and C Difficulty: Easy 22. If nominal GDP, prices, and population all increase but real GDP remains the same then A. Real GDP per capita will decrease b. Real GDP per capita will increase c. We cannot tell what will happen to real GDP per capita d. The standard of living will increase e. The standard of living will remain the same Difficulty: Medium 23. Which of the following statements is FALSE? a. Real GDP is greater than nominal GDP if prices are falling B. Real GDP is greater than nominal GDP if prices are rising c. Real GDP cannot increase if prices are falling d. Real GDP cannot decrease if prices are rising e. Nominal GDP cannot decrease if prices are rising Difficulty: Medium 1-8 24. Assume an economy that is currently at the full-employment level of output. If aggregate demand decreases, what should we expect? a. A decrease in potential GDP and the price level b. An increase in unemployment and the price level c. A decrease in unemployment and the price level D. An increase in unemployment and a decrease in the price level e. A decrease in potential GDP and an increase in unemployment Difficulty: Easy 25. Potential GDP is the value of GDP that can be calculated if we assume that a. There are no measurement errors b. The unemployment rate is zero c. The inflation rate is zero d. GDP has been adjusted for inflation E. The capital stock is working at full capacity and we have full employment Difficulty: Easy 26. The full-employment level of output is defined as A. Actual output plus the output gap b. Potential output plus the output gap c. Potential output minus the output gap d. The level of output at a zero unemployment rate e. Both A and D Difficulty: Easy 27. Which of the following is the most important variable for judging an economy's long-run performance? a. Growth in nominal GDP b. Growth in real GDP C. Growth in real GDP per capita d. Growth in potential GDP e. Growth in the capital stock Difficulty: Medium 1-9 28. Real GDP can grow over time because of a. An increase in the amount of labor used in the production process b. An increase in the capital stock c. Efficiency improvements D. All of the above e. Only A and B Difficulty: Easy 29. The trend path of GDP can change because of efficiency improvements, which can result from a. Decreases in the unemployment rate b. Increases in the rate of capacity utilization C. Changes in knowledge d. Decreases in waste e. All of the above Difficulty: Medium 30. The output gap shows the deviation of actual output from potential output and it A. May be either positive or negative b. Will always be positi ve c. Increases as the unemployment rate decreases d. Becomes negative if the labor force grows faster than actual output e. Increases if inflation increases Difficulty: Easy 31. Which of the following can be responsible for a change in the output gap? a. An increase in potential GDP b. A decrease in actual GDP c. A decrease in aggregate demand D. All of the above e. Only A and B Difficulty: Easy 1-10 32. If real GDP increases from $9.5 trillion one year to $9.6 trillion in the next year, which will be true? a. The GDP gap has probably become smaller B. Economic growth is below the long-term trend rate c. Economic growth is above the long-term trend rate d. Economic growth is about the same as the long-term trend rate e. Both A and C Difficulty: Medium 33. Which of the following countries had the highest average annual per-capita real income growth rate from 1965 to 2004? a. Brazil B. China c. Japan d. United Kingdom e. United States Difficulty: Easy 34. Which of the following countries had the lowest average annual per-capita income growth rate from 1965 to 2004? a. China b. India c. Japan d. Spain E. United States Difficulty: Easy 1-11 35. Japan's average growth rate of real GDP per capita from 1965 to 2004 was a. More than twice as high as that of the U.S. b. About the same as that of the U.S. c. Less than half as high as that of the U.S. D. Higher than that of the U.S. but lower than that of China e. Lower than that of the U.S. but higher than that of China Difficulty: Easy 36. The average growth rate of real U.S. GDP per capita from 1965 to 2004 was about a. 1.7 percent B. 2.1 percent c. 2.6 percent d. 3.1 percent e. 4.2 percent Difficulty: Easy 37. The average growth rate of real U.S. GDP from 1960 to 2005 was about a. 1.7 percent b. 2.5 percent C. 3.4 percent d. 4.4 percent e. 5.8 percent Difficulty: Easy 38. The unemployment rate is defined as a. The number of unemployed divided by total population b. The number of people not looking for jobs divided by the labor force C. The fraction of the labor force that cannot find jobs d. The fraction of total population that cannot find jobs e. Total population minus the number of employed workers Difficulty: Easy 1-12 39. Labor is fully employed when a. Everyone is working eight hours per day five days per week each year B. Everyone who wants to work can find a job within a reasonable amount of time c. The unemployment rate is zero d. The unemployment rate is below 3 percent e. None of the above Difficulty: Easy 40. Looking at how the rate of inflation and unemployment have behaved over the last three decades we can see that a. Unemployment and inflation have always increased together b. Unemployment has always increased when inflation decreased C. There is no simple relationship between unemployment and inflation d. Low unemployment always implies high inflation e. High unemployment always implies high inflation Difficu lty: Easy 41. The Phillips curve is often used to show the relationship between a. The GDP -deflator and unemployment in a year B. The rate of inflation and unemployment over time c. Employment and GDP d. Changes in GDP and the rate of inflation e. Unemployment and GDP growth Difficulty: Easy 42. When the economy goes into a recession, we can generally expect that a. Inflation will decrease while output will increase b. Inflation will increase while unemployment will decrease c. Inflation and output will increase D. Inflation will decrease while unemployment will increase e. None of the above Difficulty: Easy 1-13 43. As the economy enters a boom we can generally expect that a. Inflation will decrease with little change in the unemployment rate b. Unemployment will increase and inflation will decrease c. Nominal GDP will increase but only because of an increase in the price level D. Inflation will increase and the unemployment rate will decrease e. Output will increase with little change in unemployment or inflation Difficulty: Easy 44. Lookin g at the performance of the U.S. economy over the last three decades we realize that A. In the long run, the unemployment rate is largely independent of inflation b. Whenever the unemployment rate has increased, the inflation rate has decreased c. Whenever the inflation rate has decreased, the unemployment rate has also decreased d. Both inflation and unemployment have shown small variations, always moving in opposite directions e. Neither unemployment nor inflation ever exceeded 10 percent Difficulty: Medium 45. Price s usually adjust fairly slowly; the speed of price adjustment can be summarized by A. The Phillips curve b. The AD-curve c. The long-run AS-curve d. The output gap e. The trend path of GDP Difficulty: Easy 1-14 46. The CPI is defined as a. The cost-price index, measuring cost increases to producers b. The cross -price index, measuring the increase in relative prices of two different inputs used in the production process c. A price index that measures the average price increase of all final goods and services produced d. A price index that measures the cost of a given market basket of intermediate goods and raw materials E. A price index that measures the cost of a market basket of goods representing the purchases of a typical urban consumer Difficulty: Easy 47. If we look at the inflatio n rate (as measured by the CPI) in the U.S. from 1960 to 2005, we see that inflation was at its highest in the year a. 1960 b. 1970 C. 1980 d. 1990 e. 2000 Difficulty: Easy 48. Since 1960 the U.S. inflation rate measured by the CPI has a. Increased at a stead y rate b. Remained remarkably constant C. Fluctuated widely and always been positive d. Fluctuated widely and usually been positive although it has occasionally been negative e. Always increased as the unemployment rate has declined Difficulty: Medium Chapter 02 - National Income Accounting 2-1 49. If we look at inflation as measured by the CPI in the U.S. over the last four decades, we realize that the rate of inflation a. Varied much more in the 1960s than in the 1970s or 1980s b. Was much lower in the 1970s than in any other decade c. Varied greatly over time but has continued to decrease on average since 1969 d. Reached an all-time low in 1981 E. None of the above Difficulty: Easy 50. Even small increases in the inflation rate add up. For example, how much would an item you bought for $1.00 in 1960 have cost on average in 2005? a. $3.20 b. $4.30 c. $5.10 D. $6.60 e. $9.60 Difficulty: Easy Chapter 02 - National Income Accounting 2-2 Chapter 02: National Income Accounting Multiple Choice Questions 1. In calculating this year's GDP, national income accountants a. Include any increase in stock values b. Include an estimate for income from illegal activities C. Exclude Social Security payments to retirees d. Exclude the value of any repairs made on existing property e. Exclude the value of new pollution control equipment that is being installed Difficulty: Easy 2. Assume you built a new house, bought a used car, and bought some government bonds. Which of the following is true? a. Consumption and government purchases went up since you bought a used car and government bonds b. Consumption and investment went up since you bought a used car and government bonds c. Investment and government purchases went up since you built a new house and bought government bonds D. Investment went up since you built a new house e. Consumption went up since you built a new house Difficulty: Medium 3. Which of the following is FALSE? a. U.S. GDP underestimates actual economic activity because it does not include underground activity b. An increase in the ratio of currency holdings to bank deposits may be seen as evidence for an increase in underground activity c. If the underground economy grows rapidly, then the rate of economic growth will be underestimated D. If the underground economy grows rapidly, then the standard of living will decline sharply e. Underground activity includes income from services produced at home but not reported, such as typing someone else's term paper Difficulty: Medium Chapter 02 - National Income Accounting 2-3 4. Which of the following statements is true? a. NDP is greater than GDP if prices are falling b. NDP is greater than GDP if prices are rising c. NDP can be greater than GDP but only if the economy is growing D. NDP cannot be greater than GDP e. NDP must always be greater than GDP Difficulty: Easy 5. Increases in unwanted business inventories are counted as a. A decrease in the capital stock b. An increase in consumption C. An increase in investment d. An increase in depreciation e. None of the above Difficulty: Easy 6. The difference between gross domestic investment and net domestic investment is equal to a. Unwanted inventory changes b. The difference between NDP and national income c. The addition to the capital stock D. The difference between GDP and NDP e. None of the above Difficulty: Easy 7. Assume you deplete your savings to buy a new sofa and some government bonds and then take a vacation in a foreign country. Which of the fo llowing is true? A. Consumption will increase b. Net exports will increase c. Government purchases will increase d. Investment will increase e. All of the above Difficulty: Easy Chapter 02 - National Income Accounting 2-4 8. 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 Difficulty: Medium 9. If gross investment were zero, which of the following would be true? a. The existing capital stock would stay the same b. Net investment would be positive C. Net investment would be negative d. Depreciation would be zero e. Depreciation would be negative Difficulty: Easy 10. Depreciation is a. The difference between gross investment and net investment b. The difference between GDP and NDP c. The difference between GNP and NNP d. Another word for capital consumption allowances E. All of the above Difficulty: Easy 11. The difference between gross investment and net investment is a. The same as the difference between GDP and disposable income b. The same as the difference between dispos able income and consumption c. The same as the difference between NDP and national income d. The same as the difference between net and gross exports E. Equal to capital consumption allowances Difficulty: Medium Chapter 02 - National Income Accounting 2-5 12. If we counted the value of autoworkers' salari es, 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 Difficulty: Medium 13. In the United States, annual per-capita GDP in 2005 was around a. $32,000 b. $38,000 C. $42,000 d. $48,000 e. $52,000 Difficult y: Easy 14. As defined in our text, private domestic investment (I) does NOT include a. New residential construction except on farms b. Movable machinery such as trucks or tractors c. Inventory accumulation, unless it was planned or intended D. Investment in labor productivity through education and training e. New additions to existing factories Difficulty: Easy 15. In 1994, U.S. GDP was $6,931, GNP was $6,922, NNP was $6,104, and national income was $5,495 (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 Difficulty: Easy Chapter 02 - National Income Accounting 2-6 16. Assume a U.S. dealer b ought 100 TVs from South Korea for $250 each in 2006. He subsequently sold 80 of them in 2006 for $450 each, and the rest in 2007 for $400 each. By how much was the U.S. GDP affected in 2006? a. $45,000 b. $36,000 c. $19,000 D. $16,000 e. $11,000 Difficu lty: Medium 17. In a simple economy with no depreciation, no government, and no foreign sector, it is correct to say that for any specified time period (say the month of June) a. Y  C b. C - I  S C. Y - C  S d. Y - C  S + I e. Y  C + S - I Difficulty: Medi um 18. Assume that GDP = 4,800, consumption = 3,400, private domestic savings = 400, government purchases = 1,200, and net exports = -120. Which of the following is true? a. Disposable income is 3,800 b. Private domestic investment is 320 c. The budget deficit is 200 D. All of the above e. Only A and C Difficulty: Medium Chapter 02 - National Income Accounting 2-7 19. If private domestic saving is 960, private domestic investment is 780, and the government spends 300 more than it receives in tax revenues, then it follows that A. The trade deficit is 120 b. The trade deficit is 300 c. The trade deficit is 420 d. The trade surplus is 120 e. The trade surplus is 180 Difficulty: Medium 20. Assume that GDP = 8,100, consumption = 5,400, gross private domestic investment = 1,200, government purchases = 1,600. Which of the followin g is true? A. Imports exceed exports by 100 b. Exports exceed imports by 100 c. Depreciation is 100 d. The trade surplus is 100 e. Both B and D Difficulty: Medium 21. Assume exports = 300, imports = 400, tax revenues = 1,100, government purchases = 1,400, private dome stic saving = 900. Then the level of private domestic investment is a. 600 B. 700 c. 900 d. 1,100 e. 1,300 Difficulty: Medium Chapter 02 - National Income Accounting 2-8 22. Assume the budget deficit increases. Which of the following can happen? a. Private domestic saving can increase b. Private domestic investment can decrease c. Imports can increase d. Exports can decrease E. All of the above Difficulty: Medium 23. 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 Difficulty: Medium 24. If private domestic saving in an economy increases, which is the most likely to occur? a. A decrease in the budget deficit b. A decrease in net exports c. An increase in consumption d. An increase in imports E. An increase in private domestic investment Difficulty: Easy 25. If the government increases taxes, which of the following is LEAST likely to occur? a. A decrease in private domestic saving b. A decrease in consumption c. An increase in private domestic investment D. A decrease in net exports e. A decrease in national income Difficulty: Medium Chapter 02 - National Income Accounting 2-9 26. 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 Difficulty: Medium 27. If national income is 5,200, disposable income is 4,400, consumption is 4,100, the trade deficit is 110, and the budget deficit is 150, what is the level of private domestic investment? a. 1,060 b. 540 c. 300 D. 260 e. 40 Difficulty: Medium 28. Assume governm ent purchases = $1,500, the budget deficit = $120, consumption = $4,800, private domestic saving = $1,220, the trade deficit = $90, and transfer payments = $0. Which of the following is true? a. Private domestic investment is $1,190 b. National income is $7,400 c. Disposable income is $6,020 D. All of the above e. Only A and C Difficulty: Difficult Chapter 02 - National Income Accounting 2-10 29. Assume the budget deficit decreased by $15 billion, private domestic saving decreased by $20 billion, exports increased by $10 billion, and imports increased by $15 billion. By how much did private domestic investment change? a. Private domestic investment decreased by $10 billion b. Private domestic investment increased by $10 billion C. Private domestic investment did not change at all d. Private domestic investment decrea sed by $20 billion e. The change in private domestic investment cannot be determined from this information Difficulty: Difficult 30. Assume the size of the budget deficit has decreased but the size of the trade deficit has increased. Which of the following could be true? A. Private domestic saving has decreased but private domestic investment has remained the same b. Private domestic investment has decreased but private domestic saving has remained the same c. Private domestic investment has increased but by less than private domestic saving d. Private domestic saving has decreased but by less than private domestic investment e. None of the above Difficulty: Medium 31. If imports increase by $15 billion, which of the following has to happen for GDP to increase? a. Consumpt ion has to increase by more than $15 billion b. Government purchases have to increase by more than $15 billion c. Private domestic investment has to increase by more than $15 billion d. Private domestic saving has to increase by more than $15 billion E. Either A, B, or C would be sufficient to increase GDP Difficulty: Easy Chapter 02 - National Income Accounting 2-11 32. If the U.S. budget deficit increased substantially while private domestic saving and private domestic investment remained roughly the same, then A. The U.S. imported more than it exported b. The U.S. exported more than it imported c. The U.S. must have experienced a major recession d. There must have been a major drop in U.S. interest rates e. All of the above Difficulty: Medium 33. If we look at the U.S. federal debt as a percentage of GNP over the last century, we realize that A. It sharply increased in the 1980s but decreased again in the 1990s b. It has decreased steadily since World War II c. It has increased steadily since 1960 d. It hasn't ever been lower than 20 percent e. It has never exceeded 100 percent Difficulty: Medium 34. The budget deficits in the early 1980s were largely financed through a. An increase in private domestic saving b. An increase in private domestic investment c. An increase in net exports D. A decrease in net exports e. None of the above Difficu lty: Medium