Question 1

Which of the following is true?

Accepted Answer

A)  The government purchases share of GDP is currently less than what it was during World War II. 
B)  The government purchases share of GDP is currently greater than what it was during World War II. 
C)  The consumption share is currently at the same level it was at during World War II. 
D)  The net export share of GDP has been positive for the past 25 years. 
E)  The government purchases share has remained constant over the past 25 years. 
A)  The government purchases share of GDP is currently less than what it was during World War II. 
B)  The government purchases share of GDP is currently greater than what it was during World War II. 
C)  The consumption share is currently at the same level it was at during World War II. 
D)  The net export share of GDP has been positive for the past 25 years. 
E)  The government purchases share has remained constant over the past 25 years.

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

Ceteris paribus, a rise in U.S. interest rates

Accepted Answer

A)  will cause international investors to decrease their demand for dollar-denominated assets. 
B)  has no effect on international investors. 
C)  will cause international investors to increase their demand for dollar-denominated assets 
D)  will have no effect on dollar-denominated assets but will cause an increase in the demand for yen-denominated assets. 
E)  will have an uncertain effect on dollar-denominated assets. 
A)  will cause international investors to decrease their demand for dollar-denominated assets. 
B)  has no effect on international investors. 
C)  will cause international investors to increase their demand for dollar-denominated assets 
D)  will have no effect on dollar-denominated assets but will cause an increase in the demand for yen-denominated assets. 
E)  will have an uncertain effect on dollar-denominated assets.

Question 4

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 5

Which of the following is the best definition of the exchange rate?

Accepted Answer

A)  The price at which the government translates the currency of another country 
B)  The price at which imports are traded for imports in the stock exchange 
C)  The price of one currency in terms of another in the foreign exchange market 
D)  None of these 
A)  The price at which the government translates the currency of another country 
B)  The price at which imports are traded for imports in the stock exchange 
C)  The price of one currency in terms of another in the foreign exchange market 
D)  None of these

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

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 8

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 9

A tax cut has the same long-run effect on the economy as the long-run effect of an increase in government purchases.

Accepted Answer

A) True 
 B)False

Question 10

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 11

As a result of changes in the tax laws in the late 1980s, interest payments on consumer loans were no longer deductible. How should this change in the tax law affect the consumption expenditure line, assuming everything else held equal?

Accepted Answer

As shown in the figure below, consumptio

Question 12

The sum of all spending shares of GDP is always equal to one.

Accepted Answer

A) True 
 B)False

Question 13

As the import share of GDP increases relative to the export share of GDP, the sum of the consumption, investment, and government shares of GDP will decline.

Accepted Answer

A) True 
 B)False

Question 14

The spending allocation model determines how consumers allocate their income between consumption and saving.

Accepted Answer

A) True 
 B)False

Question 15

The share of GDP available for nongovernment use

Accepted Answer

A)  is, for any interest rate, the sum of the share of investment and consumption expenditures. 
B)  is the sum of the share of net exports, investment, and consumption expenditures at any given interest rate. 
C)  is equal to 1 minus the government share of GDP. 
D)  varies depending on the interest rate. 
E)  None of these 
A)  is, for any interest rate, the sum of the share of investment and consumption expenditures. 
B)  is the sum of the share of net exports, investment, and consumption expenditures at any given interest rate. 
C)  is equal to 1 minus the government share of GDP. 
D)  varies depending on the interest rate. 
E)  None of these

Question 16

The investment share line will become flatter if investment becomes more sensitive to changes in the real interest rate.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following would cause the national saving rate to decline for any given interest rate?

Accepted Answer

A)  A decline in consumer confidence 
B)  A decline in the government share of GDP 
C)  A decline in the investment tax credit 
D)  An increase in the level of wealth 
E)  An increase in the net export share of GDP 
A)  A decline in consumer confidence 
B)  A decline in the government share of GDP 
C)  A decline in the investment tax credit 
D)  An increase in the level of wealth 
E)  An increase in the net export share of GDP

Question 18

An increase in the real interest rate leads to

Accepted Answer

A)  an upward movement along the consumption share line. 
B)  a rightward shift in the consumption share line. 
C)  a downward movement along the consumption share line. 
D)  a leftward shift in the consumption share line. 
E)  an ambiguous effect on the consumption share line. 
A)  an upward movement along the consumption share line. 
B)  a rightward shift in the consumption share line. 
C)  a downward movement along the consumption share line. 
D)  a leftward shift in the consumption share line. 
E)  an ambiguous effect on the consumption share line.

Question 19

The real interest rate, in the long run, is determined by

Accepted Answer

A)  the exchange rate. 
B)  the level of taxes. 
C)  the balancing of the total spending with the supply of goods and services in the economy. 
D)  the budget deficit. 
E)  the rate of inflation. 
A)  the exchange rate. 
B)  the level of taxes. 
C)  the balancing of the total spending with the supply of goods and services in the economy. 
D)  the budget deficit. 
E)  the rate of inflation.

Question 20

Which of the following is an appropriate definition of the national saving rate?

Accepted Answer

A)  The real interest rate that applies to the whole country 
B)  The interest rate that makes people save 
C)  The percentage of GDP that is not consumed or part of government expenditures 
D)  The percentage of GDP that is consumed through banking transactions 
E)  All of these 
A)  The real interest rate that applies to the whole country 
B)  The interest rate that makes people save 
C)  The percentage of GDP that is not consumed or part of government expenditures 
D)  The percentage of GDP that is consumed through banking transactions 
E)  All of these

Which of the following is true?

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

Ceteris paribus, a rise in U.S. interest rates

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.

Which of the following is the best definition of the exchange rate?

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?)

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.

When the government share of GDP increases,

A tax cut has the same long-run effect on the economy as the long-run effect of an increase in government purchases.

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.

As a result of changes in the tax laws in the late 1980s, interest payments on consumer loans were no longer deductible. How should this change in the tax law affect the consumption expenditure line, assuming everything else held equal?

The sum of all spending shares of GDP is always equal to one.

As the import share of GDP increases relative to the export share of GDP, the sum of the consumption, investment, and government shares of GDP will decline.

The spending allocation model determines how consumers allocate their income between consumption and saving.

The share of GDP available for nongovernment use

The investment share line will become flatter if investment becomes more sensitive to changes in the real interest rate.

Which of the following would cause the national saving rate to decline for any given interest rate?

An increase in the real interest rate leads to

The real interest rate, in the long run, is determined by

Which of the following is an appropriate definition of the national saving rate?

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 is true?

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

Ceteris paribus, a rise in U.S. interest rates

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.

Which of the following is the best definition of the exchange rate?

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?)

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.

When the government share of GDP increases,

A tax cut has the same long-run effect on the economy as the long-run effect of an increase in government purchases.

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.

As a result of changes in the tax laws in the late 1980s, interest payments on consumer loans were no longer deductible. How should this change in the tax law affect the consumption expenditure line, assuming everything else held equal?

The sum of all spending shares of GDP is always equal to one.

As the import share of GDP increases relative to the export share of GDP, the sum of the consumption, investment, and government shares of GDP will decline.

The spending allocation model determines how consumers allocate their income between consumption and saving.

The share of GDP available for nongovernment use

The investment share line will become flatter if investment becomes more sensitive to changes in the real interest rate.

Which of the following would cause the national saving rate to decline for any given interest rate?

An increase in the real interest rate leads to

The real interest rate, in the long run, is determined by

Which of the following is an appropriate definition of the national saving rate?

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