Question 1

In the long run, the real interest rate is determined by

Accepted Answer

A)  the exchange rate. 
B)  the amount of government spending only. 
C)  the balance between the demand for C, I, and X and the available supply of goods in the economy. 
D)  the rate of inflation. 
E)  a political process. 
A)  the exchange rate. 
B)  the amount of government spending only. 
C)  the balance between the demand for C, I, and X and the available supply of goods in the economy. 
D)  the rate of inflation. 
E)  a political process.

Question 2

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 3

Which of the following statements is true?

Accepted Answer

A)  Recently, the government purchases share of GDP has been close to 50 percent. 
B)  The net export share of GDP can be positive or negative. 
C)  Since World War II, the consumption and investment shares of GDP have moved erratically. 
D)  Recently, the investment share of GDP has been close to 50 percent. 
E)  All four spending shares must be positive and must add up to one. 
A)  Recently, the government purchases share of GDP has been close to 50 percent. 
B)  The net export share of GDP can be positive or negative. 
C)  Since World War II, the consumption and investment shares of GDP have moved erratically. 
D)  Recently, the investment share of GDP has been close to 50 percent. 
E)  All four spending shares must be positive and must add up to one.

Question 4

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.
 (A) If the investment share is the anly thing that affects prowth in the system, what wril happen to growth?
(B) If the cansumption share increased by 5 percent what must heve heppened to the goverrment share?
(C) Suppose that when the C/rline shifted to the right and the government cut spending the interest rate actually fell. What happened to each of the fau shares in this case?

Accepted Answer

(A) Because the investment share schedue

Question 5

According to most estimates, the real interest rate was higher in the 1980s than in the 1970s.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

It is the government's responsibility to ensure that the sum of all four shares of GDP equals 1.

Accepted Answer

A) True 
 B)False

Question 8

In a speech to the House of Commons in the U.K. on June 23, 2016, Chancellor of the Exchequer George Osborne expressed concern about which of the following economic trends of the U.K.?

Accepted Answer

A)  That exports had grown too large compared to imports. 
B)  That inflation was getting dangerously large. 
C)  About the long-run path of the budget deficits. 
D)  About the long-run path of the currency value of the British pound. 
A)  That exports had grown too large compared to imports. 
B)  That inflation was getting dangerously large. 
C)  About the long-run path of the budget deficits. 
D)  About the long-run path of the currency value of the British pound.

Question 9

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 10

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 11

Answer the questions below:
 (A) Using the diagran belaw, fint the equaliariun interest rate when the guvernment share is 25 percent. What is the investment share?
(B) Eoglan what happens to all of the variables if there is an increase in the demand far U. S exyorts.

Accepted Answer

(A) When the gavernment share of GDP is

Question 12

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 13

When the real interest rate falls,

Accepted Answer

A)  the investment share will not be affected. 
B)  people will choose to consume more and investment will fall. 
C)  businesses are likely to decrease their purchases of new equipment and production facilities. 
D)  businesses are likely to increase their purchases of new equipment and production facilities. 
E)  people will choose to consume less and investment will fall. 
A)  the investment share will not be affected. 
B)  people will choose to consume more and investment will fall. 
C)  businesses are likely to decrease their purchases of new equipment and production facilities. 
D)  businesses are likely to increase their purchases of new equipment and production facilities. 
E)  people will choose to consume less and investment will fall.

Question 14

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 15

A decrease in the GDP share of government purchases causes a crowding out of investment in the short run.

Accepted Answer

A) True 
 B)False

Question 16

If the dollar is more expensive, this will reduce U.S. exports.

Accepted Answer

A) True 
 B)False

Question 17

The effect a change in the sales tax has on investment depends, in part, on how sensitive net exports are to changes in the exchange rate.

Accepted Answer

A) True 
 B)False

Question 18

An increase in optimism about the strength of the economy will

Accepted Answer

A)  cause the investment share line to shift to the left. 
B)  cause a leftward movement along the investment share line. 
C)  have no effect on the investment share line. 
D)  cause the investment share line to shift to the right. 
E)  cause a rightward movement along the investment share line. 
A)  cause the investment share line to shift to the left. 
B)  cause a leftward movement along the investment share line. 
C)  have no effect on the investment share line. 
D)  cause the investment share line to shift to the right. 
E)  cause a rightward movement along the investment share line.

Question 19

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 20

The real interest rate can never be negative.

Accepted Answer

A) True 
 B)False

In the long run, the real interest rate is determined by

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

Which of the following statements is true?

According to most estimates, the real interest rate was higher in the 1980s than in the 1970s.

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

It is the government's responsibility to ensure that the sum of all four shares of GDP equals 1.

In a speech to the House of Commons in the U.K. on June 23, 2016, Chancellor of the Exchequer George Osborne expressed concern about which of the following economic trends of the U.K.?

The nongovernment share of GDP equals

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?

Answer the questions below: (A) Using the diagran belaw, fint the equaliariun interest rate when the guvernment share is 25 percent. What is the investment share? (B) Eoglan what happens to all of the variables if there is an increase in the demand far U. S exyorts.

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

When the real interest rate falls,

Which of the following statements is true?

A decrease in the GDP share of government purchases causes a crowding out of investment in the short run.

If the dollar is more expensive, this will reduce U.S. exports.

The effect a change in the sales tax has on investment depends, in part, on how sensitive net exports are to changes in the exchange rate.

An increase in optimism about the strength of the economy will

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 real interest rate can never be negative.

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

In the long run, the real interest rate is determined by

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

Which of the following statements is true?

According to most estimates, the real interest rate was higher in the 1980s than in the 1970s.

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

It is the government's responsibility to ensure that the sum of all four shares of GDP equals 1.

In a speech to the House of Commons in the U.K. on June 23, 2016, Chancellor of the Exchequer George Osborne expressed concern about which of the following economic trends of the U.K.?

The nongovernment share of GDP equals

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?

Answer the questions below: (A) Using the diagran belaw, fint the equaliariun interest rate when the guvernment share is 25 percent. What is the investment share? (B) Eoglan what happens to all of the variables if there is an increase in the demand far U. S exyorts.

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

When the real interest rate falls,

Which of the following statements is true?

A decrease in the GDP share of government purchases causes a crowding out of investment in the short run.

If the dollar is more expensive, this will reduce U.S. exports.

The effect a change in the sales tax has on investment depends, in part, on how sensitive net exports are to changes in the exchange rate.

An increase in optimism about the strength of the economy will

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 real interest rate can never be negative.

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