Question 1

Explain how it is possible for the sum of government, consumption, and investment expenditure shares of GDP to exceed one.

Accepted Answer

This can occur if there is a t

Question 2

The intersection between the sum of the nongovernment shares of GDP and the share of GDP available for nongovernment use determines

Accepted Answer

A)  nothing, since the two are the same. 
B)  the price level. 
C)  GDP. 
D)  the optimal level of taxes. 
E)  the equilibrium interest rate. 
A)  nothing, since the two are the same. 
B)  the price level. 
C)  GDP. 
D)  the optimal level of taxes. 
E)  the equilibrium interest rate.

Question 3

An increase in taxes will not affect the relationship between consumption and real interest rates.

Accepted Answer

A) True 
 B)False

Question 4

Suppose the government's share of GDP declines by 10 percent. Draw a diagram to show what the I/Y and X/Y curves will look like if there is very little change in the interest rate. Does this mean that nongovernment spending is not sensitive to changes in the interest rate? Explain.

Accepted Answer

The decline in the government spending s

Question 5

The consumption share is negatively related to the real interest rate because a higher interest rate today

Accepted Answer

A)  makes current consumption more expensive relative to future consumption. 
B)  lowers the price of current consumption relative to the future. 
C)  makes future consumption more expensive relative to current consumption. 
D)  reduces current savings. 
E)  increases the government share. 
A)  makes current consumption more expensive relative to future consumption. 
B)  lowers the price of current consumption relative to the future. 
C)  makes future consumption more expensive relative to current consumption. 
D)  reduces current savings. 
E)  increases the government share.

Question 6

If the exchange rate becomes less sensitive to changes in interest rates, the net export share line will get steeper.

Accepted Answer

A) True 
 B)False

Question 7

An increase in a sales tax could lead to an increase in investment.

Accepted Answer

A) True 
 B)False

Question 8

When the real interest rate falls,

Accepted Answer

A)  the investment share will not be affected. 
B)  people will choose to consume more and investment will fall. 
C)  businesses are likely to decrease their purchases of new equipment and production facilities. 
D)  businesses are likely to increase their purchases of new equipment and production facilities. 
E)  people will choose to consume less and investment will fall. 
A)  the investment share will not be affected. 
B)  people will choose to consume more and investment will fall. 
C)  businesses are likely to decrease their purchases of new equipment and production facilities. 
D)  businesses are likely to increase their purchases of new equipment and production facilities. 
E)  people will choose to consume less and investment will fall.

Question 9

In 2010, the investment share of GDP was about

Accepted Answer

A)  27 percent. 
B)  12 percent. 
C)  7 percent. 
D)  10 percent. 
E)  33 percent. 
A)  27 percent. 
B)  12 percent. 
C)  7 percent. 
D)  10 percent. 
E)  33 percent.

Question 10

The effect a change in the sales tax has on investment depends, in part, on how sensitive net exports are to changes in the exchange rate.

Accepted Answer

A) True 
 B)False

Question 11

If net exports become less sensitive to changes in the exchange rate, the net export share of GDP will get steeper.

Accepted Answer

A) True 
 B)False

Question 12

If the real interest rate increases and businesses expect that new equipment will significantly reduce their production costs in the future, then the investment share could increase, decrease, or stay the same.

Accepted Answer

A) True 
 B)False

Question 13

Which of the four spending shares is the largest?

Accepted Answer

A)  Consumption 
B)  Net exports 
C)  Government purchases 
D)  It varies from year to year. 
E)  Investment 
A)  Consumption 
B)  Net exports 
C)  Government purchases 
D)  It varies from year to year. 
E)  Investment

Question 14

In a market economy, if the sum of the consumption, investment, and net export shares of GDP is greater than 1 minus the government share of GDP, market forces will result in

Accepted Answer

A)  GDP contracting. 
B)  an increase in interest rates. 
C)  GDP expanding. 
D)  a decrease in interest rates. 
E)  an increase in the price level. 
A)  GDP contracting. 
B)  an increase in interest rates. 
C)  GDP expanding. 
D)  a decrease in interest rates. 
E)  an increase in the price level.

Question 15

Suppose the government share of GDP is 25 percent and the consumption, investment, and net export shares of GDP are 60, 15, and 3 percent, respectively. Under these circumstances, we would expect

Accepted Answer

A)  the government share of GDP to increase. 
B)  the interest rate to increase. 
C)  the interest rate to remain constant. 
D)  the interest rate to decrease. 
E)  net exports to increase. 
A)  the government share of GDP to increase. 
B)  the interest rate to increase. 
C)  the interest rate to remain constant. 
D)  the interest rate to decrease. 
E)  net exports to increase.

Question 16

The spending allocation model applies more to the long run than to the short run.

Accepted Answer

A) True 
 B)False

Question 17

In a speech before the National Press Club in February of 2011, Federal Reserve Chairman Ben Bernanke expressed concern about which of the following U.S. economic trends?

Accepted Answer

A)  That exports had grown too large compared to imports. 
B)  That inflation was getting dangerously large. 
C)  About the long-run path of the budget deficits. 
D)  About the long-run path of the value of the U.S. dollar. 
A)  That exports had grown too large compared to imports. 
B)  That inflation was getting dangerously large. 
C)  About the long-run path of the budget deficits. 
D)  About the long-run path of the value of the U.S. dollar.

Question 18

If the exchange rate between the dollar and the euro is equal to €0.76 per $1.00, then what is the U.S. dollar cost of a German-made Porsche costing €39,000?

Accepted Answer

A)  $29,640 
B)  $51,316 
C)  $39,000 
D)  $297 
E)  None of these 
A)  $29,640 
B)  $51,316 
C)  $39,000 
D)  $297 
E)  None of these

Question 19

The spending allocation model allows economists to determine how GDP is allocated among the major components of spending, which are

Accepted Answer

A)  income, consumption, and savings. 
B)  consumption, savings, government purchases, and net exports. 
C)  consumption, investment, government purchases, and net exports. 
D)  consumption, savings, taxes, and net exports. 
E)  None of these 
A)  income, consumption, and savings. 
B)  consumption, savings, government purchases, and net exports. 
C)  consumption, investment, government purchases, and net exports. 
D)  consumption, savings, taxes, and net exports. 
E)  None of these

Question 20

If the government share of GDP increases by a certain percent, the sum of the other shares of GDP will fall by a greater amount.

Accepted Answer

A) True 
 B)False

Exam 7: The Spending Allocation Model

Explain how it is possible for the sum of government, consumption, and investment expenditure shares of GDP to exceed one.

The intersection between the sum of the nongovernment shares of GDP and the share of GDP available for nongovernment use determines

An increase in taxes will not affect the relationship between consumption and real interest rates.

Suppose the government's share of GDP declines by 10 percent. Draw a diagram to show what the I/Y and X/Y curves will look like if there is very little change in the interest rate. Does this mean that nongovernment spending is not sensitive to changes in the interest rate? Explain.

The consumption share is negatively related to the real interest rate because a higher interest rate today

If the exchange rate becomes less sensitive to changes in interest rates, the net export share line will get steeper.

An increase in a sales tax could lead to an increase in investment.

When the real interest rate falls,

In 2010, the investment share of GDP was about

The effect a change in the sales tax has on investment depends, in part, on how sensitive net exports are to changes in the exchange rate.

If net exports become less sensitive to changes in the exchange rate, the net export share of GDP will get steeper.

If the real interest rate increases and businesses expect that new equipment will significantly reduce their production costs in the future, then the investment share could increase, decrease, or stay the same.

Which of the four spending shares is the largest?

In a market economy, if the sum of the consumption, investment, and net export shares of GDP is greater than 1 minus the government share of GDP, market forces will result in

Suppose the government share of GDP is 25 percent and the consumption, investment, and net export shares of GDP are 60, 15, and 3 percent, respectively. Under these circumstances, we would expect

The spending allocation model applies more to the long run than to the short run.

In a speech before the National Press Club in February of 2011, Federal Reserve Chairman Ben Bernanke expressed concern about which of the following U.S. economic trends?

If the exchange rate between the dollar and the euro is equal to €0.76 per $1.00, then what is the U.S. dollar cost of a German-made Porsche costing €39,000?

The spending allocation model allows economists to determine how GDP is allocated among the major components of spending, which are

If the government share of GDP increases by a certain percent, the sum of the other shares of GDP will fall by a greater amount.

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