Chap 3: 1. The largest component of GDP is consumption 2.

The equilibrium condition for the goods market states that consumption equals output 3. An increase of one unit in government spending leads to an increase of one unit in equilibrium output 4. An increase in the propensity to consumes leads to a decrease in output Chap 4: 1. Income and financial wealth are both examples of stock variables 2. The term investment refers to the purchase of bonds and shares of stock 3. The demand for money does not depend on the interest rate because only bonds earn interest 4. The central bank can increase the supply of money by selling bonds in the market for bonds 5. The Fed can determine the money supply, but it cannot determine the interest rates- not even the federal funds rate- because interest rates are determined by the private sector 6. Bond prices and interest rates always move in opposite directions Chap 5: 1. The main determinants of investment are the level of sales and the interest rate 2. If all the exogenous variables in the IS relation are constant, then a higher level of output can be achieved only by lowering interest rates 3. The IS curve is downward sloping because goods market equilibrium implies that an increase in the taxes leads to a lower level of output 4. If government spending and taxes increase by the same amount, the IS curve does not shift 5. The LM curve is upward sloping because a higher level in the money supply is needed to increase output 6. An increase in gov spending leads to a decrease in investment 7. Gov policy can increase output without changing the interest rate oly if both monetary and fiscal policy variables change Chap 6: 1. The unemployment rate tends to be high in recessions and low in expansions 2. Most workers are typically paid their reservation wage 3. Workers who do not belong to unions have no bargaining power 4. It may be in the best interest of employers to pay wages higher than their workers reservation wages 5. The natural rate of unemployment is unaffected by the policy changes Chap 7: 1. The aggregate supply relation implies that an increase in output leads to an increase in price level 2. The natural level of output can be determined by looking at the aggregate supply relation alone

3. The aggregate demand relation slopes down because at a higher price level, consumers wish to purchase fewer goods 4. In the absence of changes in fiscal and monetary policy, the economy will always remain at the natural level of output 5. Expansionary monetary policy has no effect on the level of output in the medium run 6. Fiscal policy cannot affect investment in the medium run because it always returns back to its natural level 7. In the medium run, output and the price level always return to the same level. Chap 8: 1. The original Phillips curve is the negative relation between unemployment and inflation first observed in the UK 2. The original Phillips curve relation has proven to be very stable across countries over time 3. Policy makers can exploit the inflation-unemployment trade-off only temporarily 4. The expectations-augmented Phillips curve is consistant with workers and firms adapting their expectations after the macro experience in the 1960s Chap 9: 1. Many firms prefer to keep workers around when demand is low (rather than lay them off) even if the workers are underutilized 2. The behavior of Okuns law across countries and across decades is consistent with our knowledge of firms behavior and labor market regulations 3. There is a reliable negative relation between the rate of inflation and the growth of output 4. According to the Phillips curve, the sacrifice ratio is independent of the speed of disinflation