Question 1

All else being equal, if consumption rises as a share of GDP, then

Accepted Answer

A)  future consumption will fall. 
B)  people must be saving more. 
C)  there must have been an increase in GDP. 
D)  people must have experienced an increase in wealth. 
E)  there will be less available to consume in the future. 
A)  future consumption will fall. 
B)  people must be saving more. 
C)  there must have been an increase in GDP. 
D)  people must have experienced an increase in wealth. 
E)  there will be less available to consume in the future.

Question 2

Which of the following statements is true?

Accepted Answer

A)  A higher exchange rate means cheaper exports and cheaper imports. 
B)  A higher exchange rate means more expensive exports and more expensive imports. 
C)  A higher exchange rate means more expensive exports and cheaper imports. 
D)  A higher exchange rate means cheaper exports and more expensive imports. 
E)  A higher exchange rate has no effect on the price of exports and imports. 
A)  A higher exchange rate means cheaper exports and cheaper imports. 
B)  A higher exchange rate means more expensive exports and more expensive imports. 
C)  A higher exchange rate means more expensive exports and cheaper imports. 
D)  A higher exchange rate means cheaper exports and more expensive imports. 
E)  A higher exchange rate has no effect on the price of exports and imports.

Question 3

The share of GDP purchases is determined by

Accepted Answer

A)  the rate of growth of real GDP. 
B)  the rate of interest. 
C)  the willingness of consumers to save. 
D)  the political process. 
E)  the exchange rate. 
A)  the rate of growth of real GDP. 
B)  the rate of interest. 
C)  the willingness of consumers to save. 
D)  the political process. 
E)  the exchange rate.

Question 4

The share of GDP available for nongovernment use is

Accepted Answer

A)  negatively related to the nominal interest rate. 
B)  not dependent on the interest rate. 
C)  negatively related to the real interest rate. 
D)  positively related to the nominal interest rate. 
E)  positively related to the real interest rate. 
A)  negatively related to the nominal interest rate. 
B)  not dependent on the interest rate. 
C)  negatively related to the real interest rate. 
D)  positively related to the nominal interest rate. 
E)  positively related to the real interest rate.

Question 5

Suppose the exchange rate in the year 2001 was 1 euro per dollar, and in 2010 the exchange rate increased to 2 euros per dollar. If the price of a German sweater was 50 euros in both years, the new dollar price in 2010 would be ____ and imports of German sweaters would ____.

Accepted Answer

A)  $25; increase 
B)  $25; decrease 
C)  $100; increase 
D)  $100; decrease 
E)  $50; remain constant 
A)  $25; increase 
B)  $25; decrease 
C)  $100; increase 
D)  $100; decrease 
E)  $50; remain constant

Question 6

According to the 1994 Economic Report of the President, how would market forces enable a cut in government expenditures to lead to an increase in investment expenditures?

Accepted Answer

A)  Through lower taxes 
B)  Through increased taxes 
C)  Through lower interest rates 
D)  Through government regulation 
E)  Through increased interest rates 
A)  Through lower taxes 
B)  Through increased taxes 
C)  Through lower interest rates 
D)  Through government regulation 
E)  Through increased interest rates

Question 7

A tax cut has the same long-run effect on the economy as the long-run effect of an increase in government purchases.

Accepted Answer

A) True 
 B)False

Question 8

The consumption share will increase if there is a decrease in the real interest rate.

Accepted Answer

A) True 
 B)False

Question 9

A higher interest rate

Accepted Answer

A)  causes the exchange rate to increase, which causes the share of net exports to rise. 
B)  causes the exchange rate to fall, which results in a decline in the share of net exports. 
C)  causes the exchange rate to fall, which causes the share of net exports to rise. 
D)  causes the exchange rate to increase, which results in a decline in the share of net exports. 
E)  has an uncertain effect on both exchange rates and the share of net exports. 
A)  causes the exchange rate to increase, which causes the share of net exports to rise. 
B)  causes the exchange rate to fall, which results in a decline in the share of net exports. 
C)  causes the exchange rate to fall, which causes the share of net exports to rise. 
D)  causes the exchange rate to increase, which results in a decline in the share of net exports. 
E)  has an uncertain effect on both exchange rates and the share of net exports.

Question 10

All else being constant, an increase in the government share of GDP would result in

Accepted Answer

A)  an increase in net exports. 
B)  a higher dollar exchange rate. 
C)  the interest rate remaining constant. 
D)  a lower interest rate. 
E)  a higher interest rate. 
A)  an increase in net exports. 
B)  a higher dollar exchange rate. 
C)  the interest rate remaining constant. 
D)  a lower interest rate. 
E)  a higher interest rate.

Question 11

All else being equal, an increase in government spending will worsen the trade balance.

Accepted Answer

A) True 
 B)False

Question 12

Suppose the share of government purchases increases by 2 percentage points. Why should we predict that the resulting decline in investment will be less than 2 percent?

Accepted Answer

The increase in the share of government

Question 13

The exchange rate can be defined as the price of one currency in terms of another, and it is determined in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following would lower the amount of investment crowded out by an increase in government purchases?

Accepted Answer

A)  A less interest-rate-sensitive exchange rate 
B)  Imports becoming less exchange-rate sensitive 
C)  A more interest-rate-sensitive exchange rate 
D)  Government purchases becoming less interest-rate sensitive 
E)  Exports becoming less exchange-rate sensitive 
A)  A less interest-rate-sensitive exchange rate 
B)  Imports becoming less exchange-rate sensitive 
C)  A more interest-rate-sensitive exchange rate 
D)  Government purchases becoming less interest-rate sensitive 
E)  Exports becoming less exchange-rate sensitive

Question 15

In a mixed economy, if the government share of GDP is 22 percent, then the sum of the nongovernment shares will, in equilibrium, equal 78 percent because of

Accepted Answer

A)  government rules. 
B)  adjustments in GDP. 
C)  adjustments in the price level. 
D)  adjustments in interest rates. 
E)  adjustment in the unemployment rate. 
A)  government rules. 
B)  adjustments in GDP. 
C)  adjustments in the price level. 
D)  adjustments in interest rates. 
E)  adjustment in the unemployment rate.

Question 16

The net export share has been negative for the last 25 years.

Accepted Answer

A) True 
 B)False

Question 17

It is the government's responsibility to ensure that the sum of all four shares of GDP equals 1.

Accepted Answer

A) True 
 B)False

Question 18

Suppose businesses seriously believe that, within a year, a new generation of computers will be developed that will be more powerful than the current ones but cheaper to run. Assuming everything else held constant, how will the investment share of GDP be affected?

Accepted Answer

Expenditures on computers will decline i

Question 19

Which of the following situations best explains a leftward shift in the consumption share line?

Accepted Answer

A)  An increase in the consumer confidence index 
B)  A decrease in interest rates 
C)  An increase in interest rates 
D)  A decrease in income tax 
E)  A decrease in wealth 
A)  An increase in the consumer confidence index 
B)  A decrease in interest rates 
C)  An increase in interest rates 
D)  A decrease in income tax 
E)  A decrease in wealth

Question 20

To determine the long-run interest rate, you can use either the four-diagram approach or the saving-investment approach.

Accepted Answer

A) True 
 B)False

Exam 7: The Spending Allocation Model

All else being equal, if consumption rises as a share of GDP, then

Which of the following statements is true?

The share of GDP purchases is determined by

The share of GDP available for nongovernment use is

Suppose the exchange rate in the year 2001 was 1 euro per dollar, and in 2010 the exchange rate increased to 2 euros per dollar. If the price of a German sweater was 50 euros in both years, the new dollar price in 2010 would be ____ and imports of German sweaters would ____.

According to the 1994 Economic Report of the President, how would market forces enable a cut in government expenditures to lead to an increase in investment expenditures?

A tax cut has the same long-run effect on the economy as the long-run effect of an increase in government purchases.

The consumption share will increase if there is a decrease in the real interest rate.

A higher interest rate

All else being constant, an increase in the government share of GDP would result in

All else being equal, an increase in government spending will worsen the trade balance.

Suppose the share of government purchases increases by 2 percentage points. Why should we predict that the resulting decline in investment will be less than 2 percent?

The exchange rate can be defined as the price of one currency in terms of another, and it is determined in the foreign exchange market.

Which of the following would lower the amount of investment crowded out by an increase in government purchases?

In a mixed economy, if the government share of GDP is 22 percent, then the sum of the nongovernment shares will, in equilibrium, equal 78 percent because of

The net export share has been negative for the last 25 years.

It is the government's responsibility to ensure that the sum of all four shares of GDP equals 1.

Suppose businesses seriously believe that, within a year, a new generation of computers will be developed that will be more powerful than the current ones but cheaper to run. Assuming everything else held constant, how will the investment share of GDP be affected?

Which of the following situations best explains a leftward shift in the consumption share line?

To determine the long-run interest rate, you can use either the four-diagram approach or the saving-investment approach.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Capital and Financial Markets

Economic Growth and Globalization

International Trade

International Finance

Reading, Understanding, and Creating Graphs

the Miracle of Compound Growth

Present Discounted Value

Deriving the Growth Accounting Formula

Filters

Suppose the exchange rate in the year 2001 was 1 euro per dollar, and in 2010 the exchange rate increased to 2 euros per dollar. If the price of a German sweater was 50 euros in both years, the new dollar price in 2010 would be and imports of German sweaters would .