Question 1

Which of the following is the best definition of the exchange rate?

Accepted Answer

A) The price at which the government translates the currency of another country 
B) The price at which imports are traded for imports in the stock exchange 
C) The price of one currency in terms of another in the foreign exchange market 
D) of these 
A) The price at which the government translates the currency of another country 
B) The price at which imports are traded for imports in the stock exchange 
C) The price of one currency in terms of another in the foreign exchange market 
D) of these

Question 2

Which of the following best explains what will happen if the government purchases share of GDP falls?

Accepted Answer

A) The net export share of GDP will fall with it. 
B) The consumption share of GDP will fall with it. 
C) The investment, consumption, and/or net export share of GDP will rise. 
D) The investment share of GDP will fall with it. 
E) It is not clear whether any of the other shares will change since we don't know what happens to GDP. 
A) The net export share of GDP will fall with it. 
B) The consumption share of GDP will fall with it. 
C) The investment, consumption, and/or net export share of GDP will rise. 
D) The investment share of GDP will fall with it. 
E) It is not clear whether any of the other shares will change since we don't know what happens to GDP.

Question 3

The Democrats and Republicans are having their annual argument about the size of the government. The Republicans want to cut taxes for consumers and firms and cut government spending. The Democrats want to keep taxes and spending where they are. Use the four-diagram approach to show that while both plans could result in the same level of the interest rate in the long run, there would be differences in the level of the shares of GDP.

Accepted Answer

Assume initially that the economy is whe

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

If the dollar is more expensive, this will reduce U.S. exports.

Accepted Answer

A) True 
 B)False

Question 6

The spending allocation model is designed to explain

Accepted Answer

A) short-run (monthly) movements in the economy. 
B) movements in the CPI. 
C) movements in the GDP deflator. 
D) long-run (a period of years) movements in the economy. 
E) why the production possibilities frontier is not a relevant concept in macroeconomics. 
A) short-run (monthly) movements in the economy. 
B) movements in the CPI. 
C) movements in the GDP deflator. 
D) long-run (a period of years) movements in the economy. 
E) why the production possibilities frontier is not a relevant concept in macroeconomics.

Question 7

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

Accepted Answer

A) A decline in consumer confidence 
B) A decline in the government share of GDP 
C) A decline in the investment tax credit 
D) An increase in the level of wealth 
E) An increase in the net export share of GDP 
A) A decline in consumer confidence 
B) A decline in the government share of GDP 
C) A decline in the investment tax credit 
D) An increase in the level of wealth 
E) An increase in the net export share of GDP

Question 8

Saving by households can be thought of as

Accepted Answer

A) investment plus consumption. 
B) future consumption. 
C) income plus consumption. 
D) investment plus future consumption. 
E) GDP less investment. 
A) investment plus consumption. 
B) future consumption. 
C) income plus consumption. 
D) investment plus future consumption. 
E) GDP less investment.

Question 9

In the long run, the real interest rate is determined by

Accepted Answer

A) the exchange rate. 
B) the amount of government spending only. 
C) the balance between the demand for C, I, and X and the available supply of goods in the economy. 
D) the rate of inflation. 
E) a political process. 
A) the exchange rate. 
B) the amount of government spending only. 
C) the balance between the demand for C, I, and X and the available supply of goods in the economy. 
D) the rate of inflation. 
E) a political process.

Question 10

The nongovernment share of GDP

Accepted Answer

A) is, for any real interest rate, the sum of the share of net exports, investment, and consumption expenditures. 
B) is, for any interest rate, equal to 1 minus the government spending share of GDP. 
C) is positively related to the real interest rate. 
D) is, for any interest rate, the sum of investment and consumption shares. 
E) is negatively related to the real interest rate. 
A) is, for any real interest rate, the sum of the share of net exports, investment, and consumption expenditures. 
B) is, for any interest rate, equal to 1 minus the government spending share of GDP. 
C) is positively related to the real interest rate. 
D) is, for any interest rate, the sum of investment and consumption shares. 
E) is negatively related to the real interest rate.

Question 11

Suppose initially that C = 800, I = 300, G = 200, and X = -100.

Accepted Answer

The answer of Suppose initially that C = 800, I...

Question 12

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

Question 13

To understand how the shares of GDP are allocated in a market economy, which of the following factors needs to be understood?

Accepted Answer

A) The rate of growth of potential GDP 
B) The rate of growth of aggregate demand 
C) The real rate of interest 
D) The rate of growth of the labor force 
E) The rate of inflation 
A) The rate of growth of potential GDP 
B) The rate of growth of aggregate demand 
C) The real rate of interest 
D) The rate of growth of the labor force 
E) The rate of inflation

Question 14

Which of the following statements is true?

Accepted Answer

A) Recently, the government purchases share of GDP has been close to 50 percent. 
B) The net export share of GDP can be positive or negative. 
C) Since World War II, the consumption and investment shares of GDP have moved erratically. 
D) Recently, the investment share of GDP has been close to 50 percent. 
E) All four spending shares must be positive and must add up to one. 
A) Recently, the government purchases share of GDP has been close to 50 percent. 
B) The net export share of GDP can be positive or negative. 
C) Since World War II, the consumption and investment shares of GDP have moved erratically. 
D) Recently, the investment share of GDP has been close to 50 percent. 
E) All four spending shares must be positive and must add up to one.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

The sum of all spending shares of GDP is always equal to one.

Accepted Answer

A) True 
 B)False

Question 17

The government purchase share of GDP is not sensitive to changes in the interest rate.

Accepted Answer

A) True 
 B)False

Question 18

Suppose the government share of GDP is 20 percent and the consumption, investment, and net export shares of GDP are 60, 15, and 5 percent, respectively. If, all else held constant, businesses become more optimistic about the benefits of investment, then

Accepted Answer

A) investment spending as a share of GDP increases. 
B) the nongovernment share of GDP remains constant. 
C) the rate of interest increases. 
D) the government share of GDP remains at 20 percent. 
E) All of these 
A) investment spending as a share of GDP increases. 
B) the nongovernment share of GDP remains constant. 
C) the rate of interest increases. 
D) the government share of GDP remains at 20 percent. 
E) All of these

Question 19

In 2015, the investment share of GDP was about

Accepted Answer

A) 27 percent. 
B) 17 percent. 
C) 7 percent. 
D) 10 percent. 
E) 68 percent. 
A) 27 percent. 
B) 17 percent. 
C) 7 percent. 
D) 10 percent. 
E) 68 percent.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 19: The Spending Allocation Model

Which of the following is the best definition of the exchange rate?

Which of the following best explains what will happen if the government purchases share of GDP falls?

The share of GDP available for nongovernment use is

If the dollar is more expensive, this will reduce U.S. exports.

The spending allocation model is designed to explain

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

Saving by households can be thought of as

In the long run, the real interest rate is determined by

The nongovernment share of GDP

Suppose initially that C = 800, I = 300, G = 200, and X = -100.

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

To understand how the shares of GDP are allocated in a market economy, which of the following factors needs to be understood?

Which of the following statements is true?

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

The sum of all spending shares of GDP is always equal to one.

The government purchase share of GDP is not sensitive to changes in the interest rate.

Suppose the government share of GDP is 20 percent and the consumption, investment, and net export shares of GDP are 60, 15, and 5 percent, respectively. If, all else held constant, businesses become more optimistic about the benefits of investment, then

In 2015, the investment share of GDP was about

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

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

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

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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