Exam 19: The Spending Allocation Model

A decrease in the United States interest rate relative to the Japanese interest rate will cause the exchange rate, measured in yen per dollar, to ____ as international investors ____ their demand for dollar-denominated assets.

If the nongovernment share of GDP shifts to the right and the government share of GDP remains constant, then

All else held constant, interest rates will increase if there is an increase in the nongovernment share of GDP.

If the dollar appreciates against the Chinese yuan , then Chinese exports to the United States will increase and American exports to China will decrease.

Which of the following best describes the relationship between real interest rates and net exports?

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

If GDP increases, then it is possible for all spending shares to increase simultaneously.

The steeper the consumption share line, the less the amount of investment that will be crowded out from an increase in government spending.

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

Consumption is less sensitive than investment to changes in the real interest rate.

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

Which of the four spending shares is the largest?

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

A higher interest rate

Suppose foreign demand for U.S. products increases.

The share of GDP available for nongovernment use

A higher real interest rate today makes current consumption

The real interest rate is equal to the nominal interest rate minus an inflation premium.

The real interest rate is equal to the nominal interest rate

Which of the following would cause the national saving rate to increase for any given interest rate?