Question 1

Which of the following would lower the amount of investment crowded out by an increase in government purchases?

Accepted Answer

A)  A less interest-rate-sensitive exchange rate 
B)  Imports becoming less exchange-rate sensitive 
C)  A more interest-rate-sensitive exchange rate 
D)  Government purchases becoming less interest-rate sensitive 
E)  Exports becoming less exchange-rate sensitive 
A)  A less interest-rate-sensitive exchange rate 
B)  Imports becoming less exchange-rate sensitive 
C)  A more interest-rate-sensitive exchange rate 
D)  Government purchases becoming less interest-rate sensitive 
E)  Exports becoming less exchange-rate sensitive

Question 2

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 3

The interest rate that pertains to the spending allocation model is the

Accepted Answer

A)  nominal interest rate. 
B)  real interest rate. 
C)  federal funds rate. 
D)  prime interest rate. 
E)  interest rate on government debt. 
A)  nominal interest rate. 
B)  real interest rate. 
C)  federal funds rate. 
D)  prime interest rate. 
E)  interest rate on government debt.

Question 4

All else being equal, an increase in government spending will worsen the trade balance.

Accepted Answer

A) True 
 B)False

Question 5

Since the late 1980s, the government purchases share has gone up, and the investment and consumption shares have gone down.

Accepted Answer

A) True 
 B)False

Question 6

The real interest rate is the only factor that affects the consumption share of GDP.

Accepted Answer

A) True 
 B)False

Question 7

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 8

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 9

The equilibrium interest rate is determined where

Accepted Answer

A)   
B)    
C)    
D)    
E)   
A)   
B)    
C)    
D)    
E)

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 12

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 13

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.

Question 14

A higher interest rate

Accepted Answer

A)  causes the exchange rate to increase, which causes the share of net exports to rise. 
B)  causes the exchange rate to fall, which results in a decline in the share of net exports. 
C)  causes the exchange rate to fall, which causes the share of net exports to rise. 
D)  causes the exchange rate to increase, which results in a decline in the share of net exports. 
E)  has an uncertain effect on both exchange rates and the share of net exports. 
A)  causes the exchange rate to increase, which causes the share of net exports to rise. 
B)  causes the exchange rate to fall, which results in a decline in the share of net exports. 
C)  causes the exchange rate to fall, which causes the share of net exports to rise. 
D)  causes the exchange rate to increase, which results in a decline in the share of net exports. 
E)  has an uncertain effect on both exchange rates and the share of net exports.

Question 15

National saving in 2015 was

Accepted Answer

A)  14.1 percent of GDP. 
B)  1.4 percent of GDP. 
C)  20.2 percent of GDP. 
D)  31.3 percent of GDP. 
E)  41.6 percent of GDP. 
A)  14.1 percent of GDP. 
B)  1.4 percent of GDP. 
C)  20.2 percent of GDP. 
D)  31.3 percent of GDP. 
E)  41.6 percent of GDP.

Question 16

The government purchase share of GDP has no influence on the interest rate.

Accepted Answer

A) True 
 B)False

Question 17

A decline in the investment share of GDP due to an increase in government purchases is known as

Accepted Answer

A)  investment blackout. 
B)  disinvestment. 
C)  crowding out. 
D)  None of these 
A)  investment blackout. 
B)  disinvestment. 
C)  crowding out. 
D)  None of these

Question 18

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 19

Draw a production possibilities frontier with the government spending share on the horizontal axis and the nongovernment share of GDP on the vertical axis. All else being equal, assume there is an increase in government purchases.
 (A) Use the prochuction possibilites frantier to show what happens.
(B) Daes yaur answer ta part (A) carrespand to what the spenfing allacation madel wauld predict?
(C) Campared to the production passibilities curve analysis, what adritional insight does the spending macation model intradce?

Accepted Answer

(A)
See graph below. The increase in gov

Question 20

A decrease in the United States interest rate relative to the Japanese interest rate will cause the exchange rate, measured in yen per dollar, to ____ as international investors ____ their demand for dollar-denominated assets.

Accepted Answer

A)  rise; increase 
B)  fall; increase 
C)  rise; decrease 
D)  None of these are correct because only the government can change the exchange rate. 
E)  fall; decrease 
A)  rise; increase 
B)  fall; increase 
C)  rise; decrease 
D)  None of these are correct because only the government can change the exchange rate. 
E)  fall; decrease

Which of the following would lower the amount of investment crowded out by an increase in government purchases?

The consumption share line is

The interest rate that pertains to the spending allocation model is the

All else being equal, an increase in government spending will worsen the trade balance.

Since the late 1980s, the government purchases share has gone up, and the investment and consumption shares have gone down.

The real interest rate is the only factor that affects the consumption share of GDP.

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

The spending allocation model is used to determine

The equilibrium interest rate is determined where

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

A decrease in real interest rates will cause

The share of GDP available for nongovernment use is

The spending allocation pertains to the long run because

A higher interest rate

National saving in 2015 was

The government purchase share of GDP has no influence on the interest rate.

A decline in the investment share of GDP due to an increase in government purchases is known as

The spending allocation model is designed to explain

A decrease in the United States interest rate relative to the Japanese interest rate will cause the exchange rate, measured in yen per dollar, to as international investors their demand for dollar-denominated assets.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

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

Capital and Financial Markets

Economic Growth Around the World

International Trade

International Finance

Filters

Exam 7: The Spending Allocation Model

Which of the following would lower the amount of investment crowded out by an increase in government purchases?

The consumption share line is

The interest rate that pertains to the spending allocation model is the

All else being equal, an increase in government spending will worsen the trade balance.

Since the late 1980s, the government purchases share has gone up, and the investment and consumption shares have gone down.

The real interest rate is the only factor that affects the consumption share of GDP.

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

The spending allocation model is used to determine

The equilibrium interest rate is determined where

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

A decrease in real interest rates will cause

The share of GDP available for nongovernment use is

The spending allocation pertains to the long run because

A higher interest rate

National saving in 2015 was

The government purchase share of GDP has no influence on the interest rate.

A decline in the investment share of GDP due to an increase in government purchases is known as

The spending allocation model is designed to explain

A decrease in the United States interest rate relative to the Japanese interest rate will cause the exchange rate, measured in yen per dollar, to ____ as international investors ____ their demand for dollar-denominated assets.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

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

Capital and Financial Markets

Economic Growth Around the World

International Trade

International Finance

Filters

A decrease in the United States interest rate relative to the Japanese interest rate will cause the exchange rate, measured in yen per dollar, to as international investors their demand for dollar-denominated assets.