Question 1

If a firm expects equipment prices to decline in the future, it will invest more today.

Accepted Answer

A) True 
 B)False

Question 2

Which share is not sensitive to changes in the real interest rate?

Accepted Answer

A) All four shares are sensitive to changes in the real interest rate. 
B) Consumption 
C) Investment 
D) Government purchases 
E) Net exports 
A) All four shares are sensitive to changes in the real interest rate. 
B) Consumption 
C) Investment 
D) Government purchases 
E) Net exports

Question 3

The real interest rate affects the incentive to save.

Accepted Answer

A) True 
 B)False

Question 4

If the exchange rate measured as yen per dollar increases, the dollar has become more expensive.

Accepted Answer

A) True 
 B)False

Question 5

Suppose that, as a result of a financial crisis in Asia, there is a large decline in the demand for U.S. exports.

Accepted Answer

The answer of Suppose that, as a result of a...

Question 6

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 7

If an increase in the mortgage rate causes a decline in new home purchases, the consumption share of GDP will fall.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Explain how interest rates affect investment expenditures.

Accepted Answer

Changes in the interest rate affect the

Question 10

Which of the following events is most likely to cause the investment share line to shift to the right?

Accepted Answer

A) The release of a government report demonstrating that new computer equipment will lower future business costs 
B) A decrease in the investment tax credit 
C) A rise in real interest rates 
D) An increase in pessimism 
E) A decline in interest rates 
A) The release of a government report demonstrating that new computer equipment will lower future business costs 
B) A decrease in the investment tax credit 
C) A rise in real interest rates 
D) An increase in pessimism 
E) A decline in interest rates

Question 11

Suppose the C/Y line shifts to the right because of a change in attitude about the future. At the same time, because of political pressure, the government share of GDP declines, with the result that the interest rate stays constant.

Accepted Answer

The answer of Suppose the C/Y line shifts to the...

Question 12

All else being equal, an increase in the rate of interest

Accepted Answer

A) causes a downward movement to the right along the nongovernment share line. 
B) causes an upward movement to the left along the nongovernment share line. 
C) shifts the nongovernment share line to the right. 
D) shifts the nongovernment share line to the left. 
E) has no effect on the nongovernment share of GDP. 
A) causes a downward movement to the right along the nongovernment share line. 
B) causes an upward movement to the left along the nongovernment share line. 
C) shifts the nongovernment share line to the right. 
D) shifts the nongovernment share line to the left. 
E) has no effect on the nongovernment share of GDP.

Question 13

The sum of the consumption, investment, and net exports shares of GDP is called

Accepted Answer

A) the nongovernment share of GDP. 
B) the real-economy share of GDP. 
C) the privately held share of GDP. 
D) of these 
A) the nongovernment share of GDP. 
B) the real-economy share of GDP. 
C) the privately held share of GDP. 
D) of these

Question 14

Which of the following statements is the most accurate about the spending allocation model?

Accepted Answer

A) Interest rates influence spending. 
B) Spending influences interest rates. 
C) There is no relationship between interest rates and spending. 
D) Interest rates both influence and are influenced by spending. 
E) The relationship between spending and interest rates is too uncertain to be modeled. 
A) Interest rates influence spending. 
B) Spending influences interest rates. 
C) There is no relationship between interest rates and spending. 
D) Interest rates both influence and are influenced by spending. 
E) The relationship between spending and interest rates is too uncertain to be modeled.

Question 15

All three nongovernment shares of GDP are negatively related to the interest rate.

Accepted Answer

A) True 
 B)False

Question 16

The United States currently runs two large deficits, one on its budget account and one on its current account.

Accepted Answer

A) True 
 B)False

Question 17

When the government share of GDP increases,

Accepted Answer

A) there is a downward movement along the national saving rate line. 
B) the national saving rate line shifts to the right. 
C) the national saving rate line shifts to the left. 
D) there is an upward movement along the national saving rate line. 
E) the national saving rate is unaffected. 
A) there is a downward movement along the national saving rate line. 
B) the national saving rate line shifts to the right. 
C) the national saving rate line shifts to the left. 
D) there is an upward movement along the national saving rate line. 
E) the national saving rate is unaffected.

Question 18

If the real interest rate increases and the investment tax credit is abolished, the investment share will increase.

Accepted Answer

A) True 
 B)False

Question 19

Between 2000 and 2010, the government purchases share of the GDP of the United States increased from about 17.5 to 20.5 percent, while the investment share decreased from 17.7 to 12.4 percent.

Accepted Answer

A) True 
 B)False

Question 20

The spending allocation pertains to the long run because

Accepted Answer

A) it takes time for the government to adjust spending and taxes. 
B) of the way monetary policy works. 
C) exchange rates adjust very slowly to changing market conditions. 
D) it takes time for consumers and businesses to completely respond to changes in interest rates. 
E) it takes time for market interest rates to adjust to changing conditions. 
A) it takes time for the government to adjust spending and taxes. 
B) of the way monetary policy works. 
C) exchange rates adjust very slowly to changing market conditions. 
D) it takes time for consumers and businesses to completely respond to changes in interest rates. 
E) it takes time for market interest rates to adjust to changing conditions.

Exam 19: The Spending Allocation Model

If a firm expects equipment prices to decline in the future, it will invest more today.

Which share is not sensitive to changes in the real interest rate?

The real interest rate affects the incentive to save.

If the exchange rate measured as yen per dollar increases, the dollar has become more expensive.

Suppose that, as a result of a financial crisis in Asia, there is a large decline in the demand for U.S. exports.

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

If an increase in the mortgage rate causes a decline in new home purchases, the consumption share of GDP will fall.

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.

Explain how interest rates affect investment expenditures.

Which of the following events is most likely to cause the investment share line to shift to the right?

Suppose the C/Y line shifts to the right because of a change in attitude about the future. At the same time, because of political pressure, the government share of GDP declines, with the result that the interest rate stays constant.

All else being equal, an increase in the rate of interest

The sum of the consumption, investment, and net exports shares of GDP is called

Which of the following statements is the most accurate about the spending allocation model?

All three nongovernment shares of GDP are negatively related to the interest rate.

The United States currently runs two large deficits, one on its budget account and one on its current account.

When the government share of GDP increases,

If the real interest rate increases and the investment tax credit is abolished, the investment share will increase.

Between 2000 and 2010, the government purchases share of the GDP of the United States increased from about 17.5 to 20.5 percent, while the investment share decreased from 17.7 to 12.4 percent.

The spending allocation pertains to the long run because

The Central Idea

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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

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The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

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Economic Growth Around the World

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