Test Bank - Principles of Macroeconomics, 3rd Edition by Betsey Stevenson & Wolfers
Appendix A
Indicate the answer choice that best completes the statement or answers the question.
1. You read that the result of a $100 billion spending bill is a $500 billion increase in GDP. What is the marginal
propensity to consume?
a. 0.2
b. 0.8
c. 1.25
d. 5
ANSWER: b
2. You are an analyst at American Tourister Luggage. Your output last year of Fieldbrook II luggage sets was
100,000 sets, based on estimates that sales would equal 100,000 at an average price of $56.84. Total sales
were, however, 85,000. As a result:
a. planned inventories fell by $852,600.
b. planned inventories rose by $852,600.
c. unplanned inventories fell by $852,600.
d. unplanned inventories rose by $852,600.
ANSWER: d
3. You work at the Department of Commerce and determine that inventories in Mexico and Canada, the United
States’ two largest export targets, grew by about $37 billion in the second quarter of 2022. In your report,
you express:
a. concern that Mexico and Canada may be stockpiling and inventorying imports from the United States.
b. concern that Mexico and Canada may be moving toward recession, which would have a negative impact on
the U.S. net exports and aggregate expenditure curve.
c. confidence that the increase in inventories in Mexico and Canada reflect improved business optimism which
would have a positive impact on the U.S. aggregate expenditure curve.
d. concern for the possibility of recessions in Mexico and Canada, but no concern that recessions there would
impact the United States.
ANSWER: b
4. You make friends with international students Indra, from Asia, and Ade, from Africa. You start to discuss your
economies, and Indra mentions that the marginal propensity to consume in her country is about .5, whereas
Ade says it is about .8 in his country. Based on these observations, which statement is TRUE?
a. The multiplier in Indra’s country must be larger than the multiplier in Ade’s country.
b. Indra’s country must be closer to macroeconomic equilibrium than Ade’s.
c. The unemployment rate in Ade’s country must be higher than in Indra’s.
d. The same amount of stimulus spending will have a bigger impact in Ade’s country than in Indra’s.
ANSWER: d
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,Name: Class: Date:
Appendix A
5. Your job at Lodge Cookware involves tracking economic trends. You notice inventories of cast iron pans
have been falling, and after some research discover that inventories are falling across the country. You suggest
to your boss that the company _____ production because it looks like the economy is going _____.
a. increase; to grow faster
b. increase; into recession
c. reduce; to grow faster
d. reduce; into recession
ANSWER: a
6. Your U.S. senators announce a $750 billion stimulus spending bill, saying that the additional $750 billion in
GDP will bring the country closer to full employment. You wonder if you will vote for their reelection, because:
a. that initial spending will go through the multiplier process and add more than that amount to GDP.
b. government spending has no impact on GDP.
c. it would have been better to cut government spending so private-sector expenditures would rise.
d. there will be much less impact on equilibrium GDP than $750 billion.
ANSWER: a
7. You are an analyst for Indeed.com and read a report that consumer expenditures in the country fell
considerably. You warn your boss that:
a. it’s likely aggregate expenditure will fall, leading to less hiring by businesses.
b. it’s likely aggregate expenditure will rise, leading to more hiring by businesses.
c. aggregate expenditure will not change because there’s no sign the components other than consumption
changed.
d. it’s impossible to predict if hiring will rise or fall in the near future.
ANSWER: a
8. You read an article online that says there has been a change in consumer behavior: previously people spent on
average $0.70 of each extra dollar they earned, but now they spend $0.80. What does this mean for the
economy?
a. The multiplier fell from 1.43 to 1.25.
b. The multiplier increased from 3.33 to 5.
c. Aggregate expenditure no longer equals real GDP in equilibrium.
d. The slope of the aggregate consumption function fell.
ANSWER: b
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,Name: Class: Date:
Appendix A
9. Prashant, an exchange student, tells you that unemployment is low in his home country because output always
exceeds aggregate expenditures, leading to excess demand for labor. You respond that:
a. if output exceeds expenditures, businesses will increase output and unemployment will drop to zero.
b. if expenditures exceed output, businesses will cut back on output and unemployment will rise.
c. if output exceeds expenditures, businesses will cut back on output and unemployment will rise.
d. it’s income that matters, not real output or aggregate expenditures.
ANSWER: c
10. You read that the $20 trillion economy grew by $400 billion last year and consumption spending grew by
$300 billion. Based on these data, what is the multiplier?
a. 1.33
b. 0.25
c. 0.75
d. 4
ANSWER: d
11. Doing research as part of your job at the Department of Commerce, you learn that in the first half of 2022
inventories in the United States rose by around $270 billion. This raises concerns that:
a. the economy may be heading into a recession.
b. the economy may be developing a positive output gap.
c. the unemployment rate may fall below its equilibrium rate.
d. the aggregate expenditure curve may shift up.
ANSWER: a
12. You are an analyst at American Tourister Luggage. Your output last year of Fieldbrook II luggage sets was
100,000 sets, based on estimates that sales would equal 100,000 at an average price of $56.84. American
Tourister tries to maintain inventory at 10,000 sets. Actual sales of the luggage last year were 105,000, which
meant that:
a. American Tourister’s planned investment was higher than its total investment by $284,200.
b. American Tourister’s planned investment was lower than its total investment by $284,200.
c. American Tourister’s planned investment was higher than its total investment by $5,684,000.
d. American Tourister’s total investment $568,400.
ANSWER: a
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, Name: Class: Date:
Appendix A
13. You are an analyst at American Tourister Luggage. Your output last year of Fieldbrook II luggage sets was
100,000 sets, based on estimates that sales would equal 100,000 at an average price of $56.84. American
Tourister tries to maintain inventory at 10,000 sets. Actual sales of the luggage last year were 105,000.
Considering only this result:
a. aggregate expenditure was equal to GDP.
b. aggregate expenditure was less than GDP.
c. aggregate expenditure was greater than GDP.
d. aggregate expenditure is always equal to GDP, so these sales results are irrelevant.
ANSWER: c
14. Reiko contends that, if aggregate expenditure is greater than real GDP, the aggregate expenditure curve will
shift down to the 45-degree line to reach equilibrium. Chemali disagrees, arguing that the curve will not shift
but there will be movement along the aggregate expenditure curve as real GDP rises. You agree with:
a. Chemali, because managers will see inventories fall and increase production.
b. Reiko, because output must equal income, which determines aggregate expenditure.
c. neither, because without some sort of government intervention the economy will not reach equilibrium.
d. Chemali in the short run but Reiko in the long run.
ANSWER: a
15. You work as an economist for the Honda factory in Marysville, Ohio. Honda decides it will build a new $8
billion factory there. You are asked to help draft a press release to announce the plan. If the marginal
propensity to consume is 0.75, what impact will this new factory have on the U.S. economy?
a. It will change GDP by $6 billion.
b. It will increase GDP by $8 billion.
c. It will increase GDP by $32 billion.
d. U.S. GDP will not change since Honda is a Japanese company.
ANSWER: c
16. You hear the host of a podcast complain that the government spends too much time worrying about
macroeconomic issues because markets always move to equilibrium and that’s all that matters. You consider
this and conclude:
a. the short run equilibrium reached may involve unacceptably high unemployment or inflation.
b. the host is correct. Markets do move to equilibrium.
c. markets don’t move to equilibrium unless the government pushes them in that direction.
d. microeconomic markets move to equilibrium, but the macroeconomy does not.
ANSWER: a
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Appendix A
Indicate the answer choice that best completes the statement or answers the question.
1. You read that the result of a $100 billion spending bill is a $500 billion increase in GDP. What is the marginal
propensity to consume?
a. 0.2
b. 0.8
c. 1.25
d. 5
ANSWER: b
2. You are an analyst at American Tourister Luggage. Your output last year of Fieldbrook II luggage sets was
100,000 sets, based on estimates that sales would equal 100,000 at an average price of $56.84. Total sales
were, however, 85,000. As a result:
a. planned inventories fell by $852,600.
b. planned inventories rose by $852,600.
c. unplanned inventories fell by $852,600.
d. unplanned inventories rose by $852,600.
ANSWER: d
3. You work at the Department of Commerce and determine that inventories in Mexico and Canada, the United
States’ two largest export targets, grew by about $37 billion in the second quarter of 2022. In your report,
you express:
a. concern that Mexico and Canada may be stockpiling and inventorying imports from the United States.
b. concern that Mexico and Canada may be moving toward recession, which would have a negative impact on
the U.S. net exports and aggregate expenditure curve.
c. confidence that the increase in inventories in Mexico and Canada reflect improved business optimism which
would have a positive impact on the U.S. aggregate expenditure curve.
d. concern for the possibility of recessions in Mexico and Canada, but no concern that recessions there would
impact the United States.
ANSWER: b
4. You make friends with international students Indra, from Asia, and Ade, from Africa. You start to discuss your
economies, and Indra mentions that the marginal propensity to consume in her country is about .5, whereas
Ade says it is about .8 in his country. Based on these observations, which statement is TRUE?
a. The multiplier in Indra’s country must be larger than the multiplier in Ade’s country.
b. Indra’s country must be closer to macroeconomic equilibrium than Ade’s.
c. The unemployment rate in Ade’s country must be higher than in Indra’s.
d. The same amount of stimulus spending will have a bigger impact in Ade’s country than in Indra’s.
ANSWER: d
Page 1
,Name: Class: Date:
Appendix A
5. Your job at Lodge Cookware involves tracking economic trends. You notice inventories of cast iron pans
have been falling, and after some research discover that inventories are falling across the country. You suggest
to your boss that the company _____ production because it looks like the economy is going _____.
a. increase; to grow faster
b. increase; into recession
c. reduce; to grow faster
d. reduce; into recession
ANSWER: a
6. Your U.S. senators announce a $750 billion stimulus spending bill, saying that the additional $750 billion in
GDP will bring the country closer to full employment. You wonder if you will vote for their reelection, because:
a. that initial spending will go through the multiplier process and add more than that amount to GDP.
b. government spending has no impact on GDP.
c. it would have been better to cut government spending so private-sector expenditures would rise.
d. there will be much less impact on equilibrium GDP than $750 billion.
ANSWER: a
7. You are an analyst for Indeed.com and read a report that consumer expenditures in the country fell
considerably. You warn your boss that:
a. it’s likely aggregate expenditure will fall, leading to less hiring by businesses.
b. it’s likely aggregate expenditure will rise, leading to more hiring by businesses.
c. aggregate expenditure will not change because there’s no sign the components other than consumption
changed.
d. it’s impossible to predict if hiring will rise or fall in the near future.
ANSWER: a
8. You read an article online that says there has been a change in consumer behavior: previously people spent on
average $0.70 of each extra dollar they earned, but now they spend $0.80. What does this mean for the
economy?
a. The multiplier fell from 1.43 to 1.25.
b. The multiplier increased from 3.33 to 5.
c. Aggregate expenditure no longer equals real GDP in equilibrium.
d. The slope of the aggregate consumption function fell.
ANSWER: b
Page 2
,Name: Class: Date:
Appendix A
9. Prashant, an exchange student, tells you that unemployment is low in his home country because output always
exceeds aggregate expenditures, leading to excess demand for labor. You respond that:
a. if output exceeds expenditures, businesses will increase output and unemployment will drop to zero.
b. if expenditures exceed output, businesses will cut back on output and unemployment will rise.
c. if output exceeds expenditures, businesses will cut back on output and unemployment will rise.
d. it’s income that matters, not real output or aggregate expenditures.
ANSWER: c
10. You read that the $20 trillion economy grew by $400 billion last year and consumption spending grew by
$300 billion. Based on these data, what is the multiplier?
a. 1.33
b. 0.25
c. 0.75
d. 4
ANSWER: d
11. Doing research as part of your job at the Department of Commerce, you learn that in the first half of 2022
inventories in the United States rose by around $270 billion. This raises concerns that:
a. the economy may be heading into a recession.
b. the economy may be developing a positive output gap.
c. the unemployment rate may fall below its equilibrium rate.
d. the aggregate expenditure curve may shift up.
ANSWER: a
12. You are an analyst at American Tourister Luggage. Your output last year of Fieldbrook II luggage sets was
100,000 sets, based on estimates that sales would equal 100,000 at an average price of $56.84. American
Tourister tries to maintain inventory at 10,000 sets. Actual sales of the luggage last year were 105,000, which
meant that:
a. American Tourister’s planned investment was higher than its total investment by $284,200.
b. American Tourister’s planned investment was lower than its total investment by $284,200.
c. American Tourister’s planned investment was higher than its total investment by $5,684,000.
d. American Tourister’s total investment $568,400.
ANSWER: a
Page 3
, Name: Class: Date:
Appendix A
13. You are an analyst at American Tourister Luggage. Your output last year of Fieldbrook II luggage sets was
100,000 sets, based on estimates that sales would equal 100,000 at an average price of $56.84. American
Tourister tries to maintain inventory at 10,000 sets. Actual sales of the luggage last year were 105,000.
Considering only this result:
a. aggregate expenditure was equal to GDP.
b. aggregate expenditure was less than GDP.
c. aggregate expenditure was greater than GDP.
d. aggregate expenditure is always equal to GDP, so these sales results are irrelevant.
ANSWER: c
14. Reiko contends that, if aggregate expenditure is greater than real GDP, the aggregate expenditure curve will
shift down to the 45-degree line to reach equilibrium. Chemali disagrees, arguing that the curve will not shift
but there will be movement along the aggregate expenditure curve as real GDP rises. You agree with:
a. Chemali, because managers will see inventories fall and increase production.
b. Reiko, because output must equal income, which determines aggregate expenditure.
c. neither, because without some sort of government intervention the economy will not reach equilibrium.
d. Chemali in the short run but Reiko in the long run.
ANSWER: a
15. You work as an economist for the Honda factory in Marysville, Ohio. Honda decides it will build a new $8
billion factory there. You are asked to help draft a press release to announce the plan. If the marginal
propensity to consume is 0.75, what impact will this new factory have on the U.S. economy?
a. It will change GDP by $6 billion.
b. It will increase GDP by $8 billion.
c. It will increase GDP by $32 billion.
d. U.S. GDP will not change since Honda is a Japanese company.
ANSWER: c
16. You hear the host of a podcast complain that the government spends too much time worrying about
macroeconomic issues because markets always move to equilibrium and that’s all that matters. You consider
this and conclude:
a. the short run equilibrium reached may involve unacceptably high unemployment or inflation.
b. the host is correct. Markets do move to equilibrium.
c. markets don’t move to equilibrium unless the government pushes them in that direction.
d. microeconomic markets move to equilibrium, but the macroeconomy does not.
ANSWER: a
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