Question 1

If the exchange rate between the dollar and the euro is equal to €0.8 per $1.00, then what is the U.S. dollar cost of a German-made Porsche costing €45,000?

Accepted Answer

A) $36,000 
B) $39,000 
C) $45,000 
D) $56,250 
E) None of these 
A) $36,000 
B) $39,000 
C) $45,000 
D) $56,250 
E) None of these

Question 2

In 2015, the government share of GDP was about

Accepted Answer

A) 28 percent. 
B) 18 percent. 
C) 7 percent. 
D) 12 percent. 
E) 33 percent. 
A) 28 percent. 
B) 18 percent. 
C) 7 percent. 
D) 12 percent. 
E) 33 percent.

Question 3

Which of the following statements is true?

Accepted Answer

A) The observed relationship between the investment share of GDP and the real interest rate is negative, as predicted by theory. 
B) There is no steady relationship between the investment share of GDP and real interest rates, contrary to what is predicted by theory. 
C) The observed relationship between the investment share of GDP and the real interest rate is positive, contrary to what is predicted by theory. 
D) The observed relationship between the investment share of GDP and the real interest rate is positive, as predicted by theory. 
E) The observed relationship between the investment share of GDP and the real interest rate is negative, contrary to what is predicted by theory. 
A) The observed relationship between the investment share of GDP and the real interest rate is negative, as predicted by theory. 
B) There is no steady relationship between the investment share of GDP and real interest rates, contrary to what is predicted by theory. 
C) The observed relationship between the investment share of GDP and the real interest rate is positive, contrary to what is predicted by theory. 
D) The observed relationship between the investment share of GDP and the real interest rate is positive, as predicted by theory. 
E) The observed relationship between the investment share of GDP and the real interest rate is negative, contrary to what is predicted by theory.

Question 4

According to the spending allocation model, which of the following statements is correct?

Accepted Answer

A) Tax cuts and increases in government purchases have the same effect on the economy. 
B) Tax cuts cause the real interest rate to fall and increases in government purchases cause the interest rate to rise. 
C) Tax cuts cause the real interest rate to rise and increases in government purchases cause the interest rate to fall. 
D) All else held equal, a tax cut has no effect on the nongovernment share of GDP. 
E) All else held equal, an increase in government purchases has no effect on the nongovernment share of GDP. 
A) Tax cuts and increases in government purchases have the same effect on the economy. 
B) Tax cuts cause the real interest rate to fall and increases in government purchases cause the interest rate to rise. 
C) Tax cuts cause the real interest rate to rise and increases in government purchases cause the interest rate to fall. 
D) All else held equal, a tax cut has no effect on the nongovernment share of GDP. 
E) All else held equal, an increase in government purchases has no effect on the nongovernment share of GDP.

Question 5

What is the connection between an increase in government purchases and the trade deficit? What are the pros and cons associated with a trade deficit that occurs because of this?

Accepted Answer

An increase in government purchases as a

Question 6

Explain how increased investment in Eastern Europe as well as in other developing countries can result in a decline in U.S. investment. (Hint: What will happen to the demand for foreign currency by international investors relative to their demand for dollars?)

Accepted Answer

Demand for foreign currency will increas

Question 7

The national saving rate, S/Y, is equal to 1 minus the government share.

Accepted Answer

A) True 
 B)False

Question 8

If the share of government spending decreases by 5 percentage points, the consumption share will most likely

Accepted Answer

A) increase by 5 percentage points. 
B) increase by less than 5 percentage points. 
C) decrease by less than 5 percentage points. 
D) increase by more than 5 percentage points. 
E) decrease by more than 5 percentage points. 
A) increase by 5 percentage points. 
B) increase by less than 5 percentage points. 
C) decrease by less than 5 percentage points. 
D) increase by more than 5 percentage points. 
E) decrease by more than 5 percentage points.

Question 9

Explain how the interest rate behaves like a price in the sense that it serves as both a signal and an incentive.

Accepted Answer

If the share of nongovernment expenditur

Question 10

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 11

The consumption share line is

Accepted Answer

A) downward-sloping because an increase in the real interest rate will increase current consumption. 
B) downward-sloping because a decrease in the real interest rate will raise the price of consuming today rather than tomorrow. 
C) downward-sloping because a decrease in the real interest rate will reduce the price of consuming today rather than tomorrow. 
D) upward-sloping because an increase in the real interest rate will increase saving and future consumption. 
E) upward-sloping because an increase in the real interest rate will increase current consumption. 
A) downward-sloping because an increase in the real interest rate will increase current consumption. 
B) downward-sloping because a decrease in the real interest rate will raise the price of consuming today rather than tomorrow. 
C) downward-sloping because a decrease in the real interest rate will reduce the price of consuming today rather than tomorrow. 
D) upward-sloping because an increase in the real interest rate will increase saving and future consumption. 
E) upward-sloping because an increase in the real interest rate will increase current consumption.

Question 12

Suppose the government decides to reduce the tax rate for firms that increase their investment. Use the four-diagram approach to show what happens to the interest rate and the shares of GDP in the long run.

Accepted Answer

This will increase the incentive for fir

Question 13

The nongovernment share of GDP equals

Accepted Answer

A) saving as a share of GDP. 
B) the sum of the consumption and investment shares of GDP. 
C) 1 minus the government share of GDP. 
D) the sum of the investment and net export shares of GDP. 
E) the sum of the consumption and net export shares of GDP. 
A) saving as a share of GDP. 
B) the sum of the consumption and investment shares of GDP. 
C) 1 minus the government share of GDP. 
D) the sum of the investment and net export shares of GDP. 
E) the sum of the consumption and net export shares of GDP.

Question 14

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 15

A decrease in the share of government purchases will ____ the share of GDP available for nongovernment purchases and ____ the interest rate in the long run.

Accepted Answer

A) increase; increase 
B) increase; have no effect on 
C) increase; decrease 
D) decrease; decrease 
E) decrease; increase 
A) increase; increase 
B) increase; have no effect on 
C) increase; decrease 
D) decrease; decrease 
E) decrease; increase

Question 16

In a mixed economy, if the government share of GDP is 20 percent, then the sum of the nongovernment shares will, in equilibrium, equal 80 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 17

The initial effect of an increase in the share of government purchases is

Accepted Answer

A) a decline in the share of GDP available for nongovernment purchases. 
B) an increase in the share of GDP available for nongovernment purchases. 
C) a decrease in interest rates. 
D) an increase in interest rates. 
E) a decrease in the nongovernment share of GDP. 
A) a decline in the share of GDP available for nongovernment purchases. 
B) an increase in the share of GDP available for nongovernment purchases. 
C) a decrease in interest rates. 
D) an increase in interest rates. 
E) a decrease in the nongovernment share of GDP.

Question 18

In the spending allocation model, the government share of GDP is assumed to be unaffected by the real exchange rate, being instead directly determined by government officials.

Accepted Answer

A) True 
 B)False

Question 19

An increase in the real interest rate will shift the consumption share line to the left because there will be an incentive to save more and consume less.

Accepted Answer

A) True 
 B)False

Question 20

Suppose the exchange rate in the year 2010 was 1 euro per dollar, and in 2017 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 2017 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

Exam 19: The Spending Allocation Model

If the exchange rate between the dollar and the euro is equal to €0.8 per $1.00, then what is the U.S. dollar cost of a German-made Porsche costing €45,000?

In 2015, the government share of GDP was about

Which of the following statements is true?

According to the spending allocation model, which of the following statements is correct?

What is the connection between an increase in government purchases and the trade deficit? What are the pros and cons associated with a trade deficit that occurs because of this?

Explain how increased investment in Eastern Europe as well as in other developing countries can result in a decline in U.S. investment. (Hint: What will happen to the demand for foreign currency by international investors relative to their demand for dollars?)

The national saving rate, S/Y, is equal to 1 minus the government share.

If the share of government spending decreases by 5 percentage points, the consumption share will most likely

Explain how the interest rate behaves like a price in the sense that it serves as both a signal and an incentive.

Which of the following statements is true?

The consumption share line is

Suppose the government decides to reduce the tax rate for firms that increase their investment. Use the four-diagram approach to show what happens to the interest rate and the shares of GDP in the long run.

The nongovernment share of GDP equals

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.

A decrease in the share of government purchases will ____ the share of GDP available for nongovernment purchases and ____ the interest rate in the long run.

In a mixed economy, if the government share of GDP is 20 percent, then the sum of the nongovernment shares will, in equilibrium, equal 80 percent because of

The initial effect of an increase in the share of government purchases is

In the spending allocation model, the government share of GDP is assumed to be unaffected by the real exchange rate, being instead directly determined by government officials.

An increase in the real interest rate will shift the consumption share line to the left because there will be an incentive to save more and consume less.

Suppose the exchange rate in the year 2010 was 1 euro per dollar, and in 2017 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 2017 would be ____ and imports of German sweaters would ____.

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

Filters

A decrease in the share of government purchases will the share of GDP available for nongovernment purchases and the interest rate in the long run.

Suppose the exchange rate in the year 2010 was 1 euro per dollar, and in 2017 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 2017 would be and imports of German sweaters would .