Izmir University of Economics
Department of Economics
ECON 102 - Principles of Macroeconomics
PROBLEM SET 1
Multiple Choice Questions
1) Which of the following is a topic studied in Macroeconomics?
a. Output growth
b. Unemployment
c. Inflation
d. All of the above
2) The term business cycle refers to the
a. short-term ups and downs in the price level.
b. long-term trends in the price level.
c. short-term ups and downs in the level of economic activity.
d. long-term trends in the level of economic activity.
3) Refer to the figure below. During which period of time is the economy in an expansion in
this business cycle?
a.
b.
c.
d.
From C to D
From C to E
From A to C
From D to F
1
Izmir University of Economics
Department of Economics
ECON 102 - Principles of Macroeconomics
4) Refer to the figure below. Which of the following money flows corresponds to imports?
a. A
b. B
c. H
d. G
5) The total market value of all final goods and services produced within a given period by
factors of production located within a country is
a. Gross Domestic Product (GDP)
b. Gross National Product (GNP)
c. Net National Product (NNP)
d. Net National Income (NNI)
6) Which of the following is included in both the U.S. GDP and GNP?
a. The value of all cars produced by Ford in Mexico.
b. The value of all cars produced by General Motors in the US
c. The value of all cars produced by Toyota in the US
d. The value of cars produced by Nissan in Japan and the US
7) Profits earned in the United States by foreign-owned companies are included in the US
a. GDP but not GNP.
b. neither GDP nor GNP.
c. GNP but not GDP.
d. both GDP and GNP.
2
Izmir University of Economics
Department of Economics
ECON 102 - Principles of Macroeconomics
8) The equation for GDP using the expenditure approach is
a. GDP = C + I + G + EX - IM
b. GDP = C + I + G + (IM - EX)
c. GDP = C + I + G + EX + IM
d. GDP = C + I + G - EX - IM
9) Given the following data for an economy, compute the investment component of GDP:
Consumption expenditures-1000
Imports-600
Government purchases-700
Construction of new homes and flats-500
Sales of existing homes and flats-600
Exports-500
Government payments to retirees-200
Household purchases of durable goods-300
Beginning-of-year inventories-500
End-of-year inventories – Beginning-of-year invertories
End-of-year inventories-600
Business fixed investment-300
a. 300
b. 400
c. 800
d. 900
Essay Questions
1) Which of the following items are included in GDP? For those items not included, explain
why they are not included in GDP.
a. Jane buys newly issued shares of stock in Macro.com, Inc. Not Included: Financial
Transaction
b. Ross buys a new pair of jeans at a local department store. Included
c. Joey has his mustache trimmed at his hair salon. Included
d. Rachel buys an antique chest at a resale shop. Not Included: Previously produced output
e. Monica makes her own pasta sauce in her apartment. Not included: No market value
f. Cars produced by General Motors in Mexico Included in Mexico’s GDP and US’ GNP
2) In the nation of Timmyland, three goods are produced: toys, PBJ sandwiches, and apple
juice. For three years, production and prices have been as follows:
3
Izmir University of Economics
Department of Economics
ECON 102 - Principles of Macroeconomics
year
toys
P
Q
PBJ
P
sandwiches
Q
apple juice
P
Q
1998
$5.00
200
$1.00
1000
$1.65
100
1999
$5.35
210
$1.05
1200
$1.80
105
2000
$5.70
220
$1.10
1250
$2.00
115
a. Calculate the nominal GDP for all three years.
b. Using 1998 as the base year, calculate the real GDP for all three years.
c. By what percent has the real and nominal GDP grown between the years of 1998-1999?
What accounts for this difference?
a. 1998: (5*200) + (1*1000) + (1.65*100) = 2165
1999: (5.35*210) + (1.05*1200) + (1.8*105) = 2572.5
2000: (5.7*220) + (1.1*1250) + (2*115) = 2859
b. 1998: (5*200) + (1*1000) + (1.65*100) = 2165
1999: (5*210) + (1*1200) + (1.65*105) = 2423.25
2000: (5*220) + (1*1250) + (1.65*115) = 2539.75
c. Nominal GDP Growth:
Real GDP Growth:
2572.5  2165
* 100 = 18.8
2165
2423.25  2165
* 100 = 11.9
2165
Nominal GDP growth reflects both increases in prices and output; whereas, real
GDP growth reflects only increase in output (the prices of the base year is taken).
4