Question 1

Given the following import function for a country in a Keynesian income model: M = 15 + 0.10Y

Accepted Answer

A)  At an income level of 100, imports are 10. 
B)  An increase in the 0.10 to a value of 0.15 would, other things equal, increase the size of the country's open-economy multiplier (i.e., autonomous spending multiplier with a foreign sector) 
C)  At an income level of 200, the country's average propensity to import would be 0.175. 
D)  An increase in the 15 to a value of 20 would, other things equal lead to an increase in the country's national income. 
A)  At an income level of 100, imports are 10. 
B)  An increase in the 0.10 to a value of 0.15 would, other things equal, increase the size of the country's open-economy multiplier (i.e., autonomous spending multiplier with a foreign sector) 
C)  At an income level of 200, the country's average propensity to import would be 0.175. 
D)  An increase in the 15 to a value of 20 would, other things equal lead to an increase in the country's national income. C

Question 2

Assume a two-country world (countries I and II) where taxes do not depend on income And where MPSI = 0.2, MPMI = 0.2, MPSII = 0.1, and MPMII = 0.3. In this situation, What is the numerical value of the autonomous spending multiplier that applies to a Change in autonomous investment in country I on country I's income, taking account of Foreign repercussions?

Accepted Answer

A)  1.0 
B)  2.5 
C)  4.0 
D)  5.0 
A)  1.0 
B)  2.5 
C)  4.0 
D)  5.0 C

Question 3

Suppose that, at the equilibrium level of income in a country, the country has a current Account (X-- M) deficit of 60. The country's marginal propensity to consume = 0.7, and the country's marginal propensity to import = 0.2. If contraction in imports by means Of reducing national income is the method to be used to eliminate the current account Deficit, by how much must national income be reduced?

Accepted Answer

A)  30 
B)  60 
C)  120 
D)  300 
A)  30 
B)  60 
C)  120 
D)  300 D

Question 4

If the consumption function in a Keynesian model is C = 60 + 0.7Y, then the associated saving function is __________.

Accepted Answer

A)  S = - 60 + 0.3Y 
B)  S = - 60 + 0.7Y 
C)  S = 40 + 0.3Y 
D)  S = - 40 + 0.3Y 
A)  S = - 60 + 0.3Y 
B)  S = - 60 + 0.7Y 
C)  S = 40 + 0.3Y 
D)  S = - 40 + 0.3Y

Question 5

Other things equal, in a Keynesian income model with a foreign sector, the autonomous spending multiplier that applies to an autonomous increase in the country's investment __________.

Accepted Answer

A)  is larger when "foreign repercussions" are included in the model than when such repercussions are not included in the model 
B)  is of the same size when "foreign repercussions are included in the model as when such repercussions are not included in the model 
C)  is smaller when "foreign repercussions" are included in the model than when such repercussions are not included in the model 
D)  is larger than, is the same as, or is smaller when foreign repercussions are included in the model in comparison to when such repercussions are not included in the model - cannot be determined without more information 
A)  is larger when "foreign repercussions" are included in the model than when such repercussions are not included in the model 
B)  is of the same size when "foreign repercussions are included in the model as when such repercussions are not included in the model 
C)  is smaller when "foreign repercussions" are included in the model than when such repercussions are not included in the model 
D)  is larger than, is the same as, or is smaller when foreign repercussions are included in the model in comparison to when such repercussions are not included in the model - cannot be determined without more information

Question 6

If national income is greater than spending by domestic residents, then the country will Have, in its balance of trade (or balance on current account)

Accepted Answer

A)  a deficit. 
B)  a surplus. 
C)  neither a deficit nor a surplus. 
D)  either a deficit or a surplus - cannot be determined without more information. 
A)  a deficit. 
B)  a surplus. 
C)  neither a deficit nor a surplus. 
D)  either a deficit or a surplus - cannot be determined without more information.

Question 7

Other things equal, an increase in the marginal propensity to save will __________ the size of the "autonomous spending multiplier" (or "the multiplier"); other things equal, an Increase in the marginal tax rate __________ the size of the "autonomous spending multiplier" (or "the multiplier").

Accepted Answer

A)  increase; also will increase 
B)  increase; will decrease 
C)  decrease; will increase 
D)  decrease; also will decrease 
A)  increase; also will increase 
B)  increase; will decrease 
C)  decrease; will increase 
D)  decrease; also will decrease

Question 8

In an open-economy Keynesian income model of the sort used in Chapter 24, at the equilibrium level of income,

Accepted Answer

A)  S + X + T = Y + M + G 
B)  S + I + (T - G) = M - X 
C)  S + M + T = I + X + G 
D)  S + (G - T) - I = (X - M) 
A)  S + X + T = Y + M + G 
B)  S + I + (T - G) = M - X 
C)  S + M + T = I + X + G 
D)  S + (G - T) - I = (X - M)

Question 9

Consider a Keynesian income model without a government sector. In a graph with National income (Y) on the horizontal axis and both (S - I) and (X - M) on the vertical Axis, the graphical relationship between (S - I) and Y would be portrayed as __________, And the graphical relationship between (X - M) and Y would __________.

Accepted Answer

A)  a downward-sloping line; also be portrayed as a downward-sloping line 
B)  a downward-sloping line; be portrayed as an upward-sloping line 
C)  an upward-sloping line; be portrayed as a downward-sloping line 
D)  an upward-sloping line; also be portrayed as an upward-sloping line 
A)  a downward-sloping line; also be portrayed as a downward-sloping line 
B)  a downward-sloping line; be portrayed as an upward-sloping line 
C)  an upward-sloping line; be portrayed as a downward-sloping line 
D)  an upward-sloping line; also be portrayed as an upward-sloping line

Question 10

In a Keynesian income model, if a country's actual level of income is above the Equilibrium income level, then there will be an __________ of inventories of firms and, Consequently, firms will __________ their level of output.

Accepted Answer

A)  unintended depletion; increase 
B)  unintended depletion; decrease 
C)  unintended accumulation; increase 
D)  unintended accumulation; decrease 
A)  unintended depletion; increase 
B)  unintended depletion; decrease 
C)  unintended accumulation; increase 
D)  unintended accumulation; decrease

Question 11

If a country's ratio of imports to national income rises as the country grows over time, this implies, other things equal, that the country's marginal propensity to import is __________ the country's average propensity to import and, consequently, that the country's income elasticity of demand for imports (YEM) is __________.

Accepted Answer

A)  greater than; less than 1.0 
B)  greater than; greater than 1.0 
C)  less than; less than 1.0 
D)  less than; greater than 1.0 
A)  greater than; less than 1.0 
B)  greater than; greater than 1.0 
C)  less than; less than 1.0 
D)  less than; greater than 1.0

Question 12

The income elasticity of demand for imports (YEM) is defined as

Accepted Answer

A)  the change in imports divided by the change in income. 
B)  total imports divided by total income. 
C)  the change in income divided by the change in imports. 
D)  the percentage change in imports divided by the percentage change in income. 
A)  the change in imports divided by the change in income. 
B)  total imports divided by total income. 
C)  the change in income divided by the change in imports. 
D)  the percentage change in imports divided by the percentage change in income.

Question 13

In a Keynesian open economy, suppose that the MPC = 0.8, the MPM = 0.10, and t = 0.25. If it is desired to increase national income by 125 through an increase in private investment, by how much will private investment have to increase in order to generate the 125 increase in income?

Accepted Answer

A)  25 
B)  31.25 
C)  50 
D)  62.5 
A)  25 
B)  31.25 
C)  50 
D)  62.5

Question 14

In the context of a Keynesian open-economy income model for a country, carefully explain the impact of each of the following autonomous events upon equilibrium income in the country and upon the country's current account balance:
(a) an increase in domestic investment;
(b) an increase in exports; and
(c) a simultaneous and equal autonomous increase in exports and imports.

Accepted Answer

In a Keynesian open-economy income model

Question 15

In which one of the following situations is the "multiplier" for a given autonomous change in investment spending the largest?

Accepted Answer

A)  MPS = 0.4, MPM = 0.2, t = 0.25 
B)  MPS = 0.4, t = 0.25 and the economy has no foreign trade. 
C)  MPS = 0.25, MPM = 0.1, t = 0.2 
D)  MPS = 0.25, MPM = 0.1, t = 0.2, and the economy has "foreign "repercussions." 
A)  MPS = 0.4, MPM = 0.2, t = 0.25 
B)  MPS = 0.4, t = 0.25 and the economy has no foreign trade. 
C)  MPS = 0.25, MPM = 0.1, t = 0.2 
D)  MPS = 0.25, MPM = 0.1, t = 0.2, and the economy has "foreign "repercussions."

Question 16

Other things equal, in a Keynesian income model, the autonomous spending multiplier will __________ if there is a decrease in the marginal propensity to consume, and the Autonomous spending multiplier __________ if there is a decrease in the marginal Propensity to import (MPM).

Accepted Answer

A)  decrease; also will decrease 
B)  decrease; will increase 
C)  increase; will decrease 
D)  increase; also will increase 
A)  decrease; also will decrease 
B)  decrease; will increase 
C)  increase; will decrease 
D)  increase; also will increase

Question 17

If a country has a current account deficit, this is often referred to as a situation where the country is "spending beyond its means." What does this phrase mean in terms of the simple Keynesian model? Does the existence of the current account deficit imply that the country as a whole is a dissaver (i.e., that saving is actually negative)? Why or why not?

Accepted Answer

In the simple Keynesian model, the phras

Question 18

(This question pertains to Appendix B material.)In the presence of "foreign repercussions," why is the multiplier for an autonomous increase in home country exports smaller than the multiplier for an autonomous increase in home country investment? Explain in economic terms.

Accepted Answer

The multiplier for an autonomous increas

Question 19

If expansionary aggregate demand-oriented macroeconomic policy is to be used to move The economy towards simultaneous external and internal balance, in which one of the Following situations would the policy indeed move the economy towards the attainment Of both goals?

Accepted Answer

A)  deficit in the current account; unacceptably high unemployment 
B)  deficit in the current account; unacceptably rapid inflation 
C)  surplus in the current account; unacceptably high unemployment 
D)  surplus in the current account; unacceptably high inflation 
A)  deficit in the current account; unacceptably high unemployment 
B)  deficit in the current account; unacceptably rapid inflation 
C)  surplus in the current account; unacceptably high unemployment 
D)  surplus in the current account; unacceptably high inflation

Question 20

Suppose that a Keynesian import function is expressed as M = 20 + 0.25Y. With this Function,

Accepted Answer

A)  if income = 1,000, imports = 250. 
B)  if income = 1,000, the average propensity to import is 0.27. 
C)  the marginal propensity to import is greater at an income level of 1,000 than at an income level of 800. 
D)  the average propensity to import is greater at an income level of 1,000 than at an income level of 800. 
A)  if income = 1,000, imports = 250. 
B)  if income = 1,000, the average propensity to import is 0.27. 
C)  the marginal propensity to import is greater at an income level of 1,000 than at an income level of 800. 
D)  the average propensity to import is greater at an income level of 1,000 than at an income level of 800.

Exam 24: National Income and the Current Account

Given the following import function for a country in a Keynesian income model: M = 15 + 0.10Y

If the consumption function in a Keynesian model is C = 60 + 0.7Y, then the associated saving function is __________.

Other things equal, in a Keynesian income model with a foreign sector, the autonomous spending multiplier that applies to an autonomous increase in the country's investment __________.

If national income is greater than spending by domestic residents, then the country will Have, in its balance of trade (or balance on current account)

Other things equal, an increase in the marginal propensity to save will __________ the size of the "autonomous spending multiplier" (or "the multiplier"); other things equal, an Increase in the marginal tax rate __________ the size of the "autonomous spending multiplier" (or "the multiplier").

In an open-economy Keynesian income model of the sort used in Chapter 24, at the equilibrium level of income,

In a Keynesian income model, if a country's actual level of income is above the Equilibrium income level, then there will be an __________ of inventories of firms and, Consequently, firms will __________ their level of output.

The income elasticity of demand for imports (YEM) is defined as

In a Keynesian open economy, suppose that the MPC = 0.8, the MPM = 0.10, and t = 0.25. If it is desired to increase national income by 125 through an increase in private investment, by how much will private investment have to increase in order to generate the 125 increase in income?

In which one of the following situations is the "multiplier" for a given autonomous change in investment spending the largest?

Other things equal, in a Keynesian income model, the autonomous spending multiplier will __________ if there is a decrease in the marginal propensity to consume, and the Autonomous spending multiplier __________ if there is a decrease in the marginal Propensity to import (MPM).

(This question pertains to Appendix B material.)In the presence of "foreign repercussions," why is the multiplier for an autonomous increase in home country exports smaller than the multiplier for an autonomous increase in home country investment? Explain in economic terms.

If expansionary aggregate demand-oriented macroeconomic policy is to be used to move The economy towards simultaneous external and internal balance, in which one of the Following situations would the policy indeed move the economy towards the attainment Of both goals?

Suppose that a Keynesian import function is expressed as M = 20 + 0.25Y. With this Function,

Early Trade Theories: Mercantilism and the Transition to the Classical World of David Ricardo

The Classical World of David Ricardo and Comparative Advantage

Extensions and Tests of the Classical Model of Trade

Introduction to Neoclassical Trade Theory: Tools to Be Employed

Gains From Trade in Neoclassical Theory

Offer Curves and the Terms of Trade

The Basis for Trade: Factor Endowments and the Heckscher-Ohlin Model

Empirical Tests of the Factor Endowments Approach

Post Heckscher-Ohlin Theories of Trade and Intra-Industry Trade

Economic Growth and International Trade

International Factor Movements

The Instruments of Trade Policy

The Impact of Trade Policies

Arguments for Interventionist Trade Policies

Political Economy and Us Trade Policy

Economic Integration

International Trade and the Developing Countries

The Balance-Of-Payments Accounts

The Foreign Exchange Market

International Financial Markets and Instruments: an Introduction

The Monetary and Portfolio Balance Approaches to External Balance

Price Adjustments and Balance-Of-Payments Disequilibrium

Economic Policy in the Open Economy Under Fixed Exchange Rates

Economic Policy in the Open Economy Under Flexible Exchange Rates

Prices and Output in the Open Economy: Aggregate Supply and Demand

Fixed or Flexible Exchange Rates

The International Monetary System: Past, Present, and Future

Filters

Other things equal, an increase in the marginal propensity to save will the size of the "autonomous spending multiplier" (or "the multiplier"); other things equal, an Increase in the marginal tax rate the size of the "autonomous spending multiplier" (or "the multiplier").

In a Keynesian income model, if a country's actual level of income is above the Equilibrium income level, then there will be an of inventories of firms and, Consequently, firms will their level of output.

Other things equal, in a Keynesian income model, the autonomous spending multiplier will if there is a decrease in the marginal propensity to consume, and the Autonomous spending multiplier if there is a decrease in the marginal Propensity to import (MPM).