Answers to practice questions can be found in the answers section.

  1. Real GDP is defined as
    1.   C + I + G + Exports + Imports.  
    2. C + I + G + Exports + Inventory change.  
    3. C + I + G + Exports – Imports.  
    4. C + I + G + Exports – Inventory change.  
  1. Gross private domestic investment includes newly produced
    1. private autos, houses, and government bonds.  
    2. plant, equipment, and houses.  
    3. plant, equipment, and government bonds.  
    4. plant, houses, and personal autos.  
  1. Aggregate demand would most likely increase after
    1. an income tax increase.  
    2. a bull market that increased stock prices.  
    3. a decision to have a larger government surplus.  
    4. a rise in the value of the dollar.  
  1. Which of the following would not lead to a decrease in aggregate demand?
    1. an income tax reduction  
    2. a decrease in government spending  
    3. consumer confidence declines  
    4. interest rate increases  
  1. An increase in aggregate demand leads to which short-run macroeconomic impacts?
    1. a rise in output and prices  
    2. a decline in output and prices  
    3. a decline in prices and a rise in output  
    4. a decline in output and a rise in prices  
  1. After a time period of rising output and inflation, the government would most likely respond with which policy?
    1. depreciate the value of the dollar  
    2. raise income tax rates  
    3. increase government spending  
    4. increase the money supply  
  1. Real GDP rises in a given year because of changes in
    1.  prices  
    2.  quantities  
    3. prices and quantities
    4. sales of existing homes  
  1. The newspaper announced that the nation’s output decreased.  This implies that
    1. nominal GDP rose proportionately less than prices.  
    2. nominal GDP rose proportionately more than prices.  
    3. nominal GDP rose proportionately the same as prices.  
    4. sales of existing houses probably increased.  
  1. If nominal GDP declined by 4%, but prices fell by 3%, then real GDP
    1. decreased.  
    2. increased at a decreasing rate.  
    3. increased.  
    4. decreased at an increasing rate.  
  1. Which of the following would not be summed to obtain total aggregate demand?
    1. domestic demand  
    2. equity purchases  
    3. net exports  
    4. purchase of new machines  
  1. As net incomes of businesses increase, which component of aggregate demand would be most likely to be affected directly the most?
    1. personal consumption expenditures  
    2. imports of goods and services  
    3. fixed nonresidential investment  
    4. fixed residential investment  
  2. If stock prices rise while the prices of goods and services are constant, one would expect consumer spending to ______ and the aggregate demand curve to shift ______.
    1. increase, rightward  
    2. increase, leftward  
    3. decrease, leftward  
    4.   decrease, rightward