Macroeconomics 5th Edition by Olivier Blanchard

Exercise 7

Using the information in this chapter, label each of the following statements true, false, or uncertain. Explain briefly.
a. The largest component of GDP is consumption.
b. Government spending, including transfers, was equal to 20.4% of GDP in 2010.
c. The propensity to consume has to be positive, but otherwise it can take on any positive value.
d. Fiscal policy describes the choice of government spending and taxes and is treated as exogenous in our goods market model.
e. The equilibrium condition for the goods market states that consumption equals output.
f. An increase of one unit in government spending leads to an increase of one unit in equilibrium output. g. An increase in the propensity to consume leads to a decrease in output.