Question 1

The spending allocation model is used to determine

Accepted Answer

A) how GDP is allocated among its major spending components. 
B) how people's spending is allocated to firms. 
C) which income class spends the most and which income spends the least. 
D) how much the government should spend on different goods and services. 
E) how people allocate their spending over their own lifetime. 
A) how GDP is allocated among its major spending components. 
B) how people's spending is allocated to firms. 
C) which income class spends the most and which income spends the least. 
D) how much the government should spend on different goods and services. 
E) how people allocate their spending over their own lifetime.

Question 2

Which of the following best explains what is meant by the term crowding out?

Accepted Answer

A) An increase in government purchases causes interest rates to rise and results in a decline in investment expenditures. 
B) An increase in government purchases causes interest rates to fall and results in a decline in investment expenditures. 
C) An increase in investment causes interest rates to rise and results in a drop in government purchases. 
D) Increases in consumption expenditures cause interest rates to rise and result in a decline in investment expenditures. 
E) An increase in consumption expenditures causes interest rates to rise and results in a decline in government purchases. 
A) An increase in government purchases causes interest rates to rise and results in a decline in investment expenditures. 
B) An increase in government purchases causes interest rates to fall and results in a decline in investment expenditures. 
C) An increase in investment causes interest rates to rise and results in a drop in government purchases. 
D) Increases in consumption expenditures cause interest rates to rise and result in a decline in investment expenditures. 
E) An increase in consumption expenditures causes interest rates to rise and results in a decline in government purchases.

Question 3

If the dollar gets stronger because international investors have more confidence in the U.S. economy, then the share of net exports line will shift to the right.

Accepted Answer

A) True 
 B)False

Question 4

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 5

A decrease in the GDP share of government purchases causes a crowding out of investment in the short run.

Accepted Answer

A) True 
 B)False

Question 6

Show that the nongovernment share of GDP influences only the interest rate and not the share of GDP available for nongovernment use.

Accepted Answer

In the figure below, SANG is the share o

Question 7

Which of the following situations would best explain why the real long-term interest rate would decline?

Accepted Answer

A) A decrease in wealth 
B) An increase in the consumer confidence index 
C) An increase in public infrastructure investment 
D) A decrease in U.S.demand for foreign products 
E) Optimism about the benefits of investment opportunities 
A) A decrease in wealth 
B) An increase in the consumer confidence index 
C) An increase in public infrastructure investment 
D) A decrease in U.S.demand for foreign products 
E) Optimism about the benefits of investment opportunities

Question 8

Suppose the government is deciding between either a reduction in income taxes or an increase in government purchases.

Accepted Answer

The answer of Suppose the government is deciding between either...

Question 9

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 10

Suppose, for reasons associated with political stability, international investors decide to increase their demand for dollars. Show what will happen to the net export share of GDP.

Accepted Answer

A stronger dollar will result in net exp

Question 11

As of 2015, the United States current account deficit is close to 60 percent of GDP.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is true?

Accepted Answer

A) A decrease in the interest rate will cause the nongovernment share of GDP to decline. 
B) A decrease in the interest rate will cause the government purchases share to decrease. 
C) A decrease in the interest rate will cause the share of GDP available for nongovernment use to decline. 
D) A decrease in the interest rate will cause the nongovernment share of GDP to increase. 
E) A decrease in the interest rate will cause GDP to decrease. 
A) A decrease in the interest rate will cause the nongovernment share of GDP to decline. 
B) A decrease in the interest rate will cause the government purchases share to decrease. 
C) A decrease in the interest rate will cause the share of GDP available for nongovernment use to decline. 
D) A decrease in the interest rate will cause the nongovernment share of GDP to increase. 
E) A decrease in the interest rate will cause GDP to decrease.

Question 13

The consumption share line is very sensitive to changes in inflation.

Accepted Answer

A) True 
 B)False

Question 14

An increase in optimism about the strength of the economy will

Accepted Answer

A) cause the investment share line to shift to the left. 
B) cause a leftward movement along the investment share line. 
C) have no effect on the investment share line. 
D) cause the investment share line to shift to the right. 
E) cause a rightward movement along the investment share line. 
A) cause the investment share line to shift to the left. 
B) cause a leftward movement along the investment share line. 
C) have no effect on the investment share line. 
D) cause the investment share line to shift to the right. 
E) cause a rightward movement along the investment share line.

Question 15

Suppose the government increases spending on the war on drugs by one-half a percent of GDP.

Accepted Answer

The answer of Suppose the government increases spending on the...

Question 16

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 17

A decrease in real interest rates will cause

Accepted Answer

A) a rightward shift in the investment share line. 
B) a downward movement along the investment share line. 
C) a leftward shift in the investment share line. 
D) an upward movement along the investment share line. 
E) the investment share line to become steeper. 
A) a rightward shift in the investment share line. 
B) a downward movement along the investment share line. 
C) a leftward shift in the investment share line. 
D) an upward movement along the investment share line. 
E) the investment share line to become steeper.

Question 18

If the government share of GDP equals 25 percent of GDP and the nongovernment share of GDP equals 85 percent of GDP, then

Accepted Answer

A) interest rates will increase until the government share of GDP declines to 20 percent. 
B) nothing will happen unless the government reduces its share of purchases. 
C) interest rates will decrease, resulting in a decrease in the investment, consumption, and net export shares. 
D) interest rates will increase, resulting in a decline in the investment, consumption, and net export shares. 
E) GDP will increase, shrinking each share until the sum of all shares equals 1. 
A) interest rates will increase until the government share of GDP declines to 20 percent. 
B) nothing will happen unless the government reduces its share of purchases. 
C) interest rates will decrease, resulting in a decrease in the investment, consumption, and net export shares. 
D) interest rates will increase, resulting in a decline in the investment, consumption, and net export shares. 
E) GDP will increase, shrinking each share until the sum of all shares equals 1.

Question 19

Explain why the share of GDP available for nongovernment use does not depend on the interest rate.

Accepted Answer

The share of GDP available for nongovern

Question 20

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.

Exam 19: The Spending Allocation Model

The spending allocation model is used to determine

Which of the following best explains what is meant by the term crowding out?

If the dollar gets stronger because international investors have more confidence in the U.S. economy, then the share of net exports line will shift to the right.

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.

A decrease in the GDP share of government purchases causes a crowding out of investment in the short run.

Show that the nongovernment share of GDP influences only the interest rate and not the share of GDP available for nongovernment use.

Which of the following situations would best explain why the real long-term interest rate would decline?

Suppose the government is deciding between either a reduction in income taxes or an increase in government purchases.

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

Suppose, for reasons associated with political stability, international investors decide to increase their demand for dollars. Show what will happen to the net export share of GDP.

As of 2015, the United States current account deficit is close to 60 percent of GDP.

Which of the following statements is true?

The consumption share line is very sensitive to changes in inflation.

An increase in optimism about the strength of the economy will

Suppose the government increases spending on the war on drugs by one-half a percent of GDP.

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

A decrease in real interest rates will cause

If the government share of GDP equals 25 percent of GDP and the nongovernment share of GDP equals 85 percent of GDP, then

Explain why the share of GDP available for nongovernment use does not depend on the interest rate.

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

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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