Question 1

A decrease in the value of the simple multiplier can be caused by

Accepted Answer

A)  a decrease in the net tax rate. 
B)  a decrease in the marginal propensity to import. 
C)  an increase in the marginal propensity to consume. 
D)  an increase in the marginal propensity to save. 
E)  an increase in the marginal propensity to spend. 
A)  a decrease in the net tax rate. 
B)  a decrease in the marginal propensity to import. 
C)  an increase in the marginal propensity to consume. 
D)  an increase in the marginal propensity to save. 
E)  an increase in the marginal propensity to spend.

Question 2

Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 120 + 0.86Y, I = 300, G = 520, T = 0, X = 180, IM = 0.12Y. Desired consumption expenditure at equilibrium national income is

Accepted Answer

A)  3113.5. 
B)  3307.7. 
C)  3824.6. 
D)  4250. 
E)  Not enough information to determine 
A)  3113.5. 
B)  3307.7. 
C)  3824.6. 
D)  4250. 
E)  Not enough information to determine

Question 3

FIGURE 22-4
-Refer to Figure 22-4. The rotation from AE0 to AE1 implies that the marginal propensity to spend and the value of the simple multiplier .

Accepted Answer

A)  increases; decreases 
B)  increases; increases 
C)  remains the same; increases 
D)  decreases; increases 
E)  decreases, decreases 
A)  increases; decreases 
B)  increases; increases 
C)  remains the same; increases 
D)  decreases; increases 
E)  decreases, decreases

Question 4

In our simple macro model with government, which statement correctly describes the following equation: YD
= 0)75)Y?

Accepted Answer

A)  If disposable income increases by $0.75, then national income increases by $1.00 and total tax revenue rises by $0.75. 
B)  Net tax revenue is equal to 75% of national income. 
C)  If national income increases by $1.00, then disposable income increases by $0.75 and net tax revenue increases by $0.25. 
D)  Net tax revenue is equal to 25% of disposable income. 
E)  If national income increases by $1.00, then disposable income increases by $0.25 and net tax revenue increases by $0.75. 
A)  If disposable income increases by $0.75, then national income increases by $1.00 and total tax revenue rises by $0.75. 
B)  Net tax revenue is equal to 75% of national income. 
C)  If national income increases by $1.00, then disposable income increases by $0.75 and net tax revenue increases by $0.25. 
D)  Net tax revenue is equal to 25% of disposable income. 
E)  If national income increases by $1.00, then disposable income increases by $0.25 and net tax revenue increases by $0.75.

Question 5

The diagram below shows desired aggregate expenditure for a hypothetical economy. Assume the following features of this economy:
· marginal propensity to consume mpc) = 0.75
· net tax rate t) = 0.20
· no foreign trade
· fixed price level
· all expenditure and income figures are in billions of dollars.
   FIGURE 22-2
-Refer to Figure 22-2. What is the marginal propensity to spend z) in this economy?

Accepted Answer

A)  0.15 
B)  0.20 
C)  0.40 
D)  0.60 
E)  0.75 
A)  0.15 
B)  0.20 
C)  0.40 
D)  0.60 
E)  0.75

Question 6

The diagram below shows desired aggregate expenditure for a hypothetical economy. Assume the following features of this economy:
· marginal propensity to consume mpc) = 0.75
· net tax rate t) = 0.20
· no foreign trade
· fixed price level
· all expenditure and income figures are in billions of dollars.
   FIGURE 22-2
-Consider the following news headline: ʺCanadians develop a greater taste for foreign vacations.ʺ Assuming that aggregate output is demand-determined, what effect will this have, all other things equal, on the AE function and on equilibrium national income?

Accepted Answer

A)  The AE function will shift down parallel to itself and equilibrium national income will fall. 
B)  The AE function will rotate upward become steeper) and equilibrium national income will rise. 
C)  The AE function will rotate downward become flatter) and national income will fall. 
D)  The AE function will shift up parallel to itself and equilibrium national income will rise. 
E)  There will be no change in the AE function or in equilibrium national income. 
A)  The AE function will shift down parallel to itself and equilibrium national income will fall. 
B)  The AE function will rotate upward become steeper) and equilibrium national income will rise. 
C)  The AE function will rotate downward become flatter) and national income will fall. 
D)  The AE function will shift up parallel to itself and equilibrium national income will rise. 
E)  There will be no change in the AE function or in equilibrium national income.

Question 7

When compared to a simple macroeconomic model with only consumption and investment), adding government and foreign trade to the AE function causes

Accepted Answer

A)  the autonomous component of AE to increase. 
B)  the autonomous component of AE to fall. 
C)  the AE function to become downward sloping. 
D)  the AE function to become perfectly horizontal. 
E)  no change in the AE function. 
A)  the autonomous component of AE to increase. 
B)  the autonomous component of AE to fall. 
C)  the AE function to become downward sloping. 
D)  the AE function to become perfectly horizontal. 
E)  no change in the AE function.

Question 8

Consider the governmentʹs budget balance. Suppose G = 2500 and the governmentʹs net tax revenue is equal to 0.2Y. When Y = 11 000, the government is running a budget

Accepted Answer

A)  deficit of 1500. 
B)  surplus of 300. 
C)  balance. 
D)  deficit of 300. 
E)  surplus of 1500. 
A)  deficit of 1500. 
B)  surplus of 300. 
C)  balance. 
D)  deficit of 300. 
E)  surplus of 1500.

Question 9

Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 60 + 0.43Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y. The trade balance at equilibrium national income is

Accepted Answer

A)  a deficit of 36.67. 
B)  a deficit of 21.43. 
C)  zero. 
D)  a surplus of 21.43. 
E)  a surplus of 36.67. 
A)  a deficit of 36.67. 
B)  a deficit of 21.43. 
C)  zero. 
D)  a surplus of 21.43. 
E)  a surplus of 36.67.

Question 10

A fall in the Canadian-dollar price of foreign currency, other things being equal, causes Canadaʹs net export NX) function to shift and .

Accepted Answer

A)  upward; become flatter 
B)  upward; become steeper 
C)  downward; become flatter 
D)  downward; keep the same slope 
E)  downward; become steeper 
A)  upward; become flatter 
B)  upward; become steeper 
C)  downward; become flatter 
D)  downward; keep the same slope 
E)  downward; become steeper

Question 11

Consider a model with demand-determined output and a constant price level. A decrease in the net tax rate causes in autonomous spending and a in the simple multiplier.

Accepted Answer

A)  a rise; rise 
B)  a rise; fall 
C)  no change; rise 
D)  no change; fall 
E)  a fall; fall 
A)  a rise; rise 
B)  a rise; fall 
C)  no change; rise 
D)  no change; fall 
E)  a fall; fall

Question 12

A fall in domestic prices relative to foreign prices, other things being equal, causes the net export NX) function to shift and .

Accepted Answer

A)  upward; become flatter 
B)  upward; become steeper 
C)  downward; become flatter 
D)  downward; keep the same slope 
E)  downward; become steeper 
A)  upward; become flatter 
B)  upward; become steeper 
C)  downward; become flatter 
D)  downward; keep the same slope 
E)  downward; become steeper

Exam 22: Adding Government and Trade to the Simple Macro Model

A decrease in the value of the simple multiplier can be caused by

Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 120 + 0.86Y, I = 300, G = 520, T = 0, X = 180, IM = 0.12Y. Desired consumption expenditure at equilibrium national income is

FIGURE 22-4 -Refer to Figure 22-4. The rotation from AE0 to AE1 implies that the marginal propensity to spend and the value of the simple multiplier .

In our simple macro model with government, which statement correctly describes the following equation: YD = 0)75)Y?

When compared to a simple macroeconomic model with only consumption and investment), adding government and foreign trade to the AE function causes

Consider the governmentʹs budget balance. Suppose G = 2500 and the governmentʹs net tax revenue is equal to 0.2Y. When Y = 11 000, the government is running a budget

Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 60 + 0.43Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y. The trade balance at equilibrium national income is

A fall in the Canadian-dollar price of foreign currency, other things being equal, causes Canadaʹs net export NX) function to shift and .

Consider a model with demand-determined output and a constant price level. A decrease in the net tax rate causes in autonomous spending and a in the simple multiplier.

A fall in domestic prices relative to foreign prices, other things being equal, causes the net export NX) function to shift and .

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