Question 1

Transfer payments made by the government affect its net tax revenues

Accepted Answer

A) directly. 
B) indirectly through government purchases. 
C) indirectly through net exports. 
D) indirectly through the investment function. 
E) indirectly through the consumption function. 
A) directly. 
B) indirectly through government purchases. 
C) indirectly through net exports. 
D) indirectly through the investment function. 
E) indirectly through the consumption function.

Question 2

FIGURE 22-5
-Refer to Figure 22-5.Diagram 2 illustrates an economy that is experiencing a(n)________ gap.The goal of stabilization policy would be to ________ national income until it is equal to ________.

Accepted Answer

A) recessionary; increase; actual national income 
B) inflationary; reduce; potential GDP 
C) inflationary; reduce; actual national income 
D) inflationary; increase; potential GDP 
E) recessionary; increase; potential GDP 
A) recessionary; increase; actual national income 
B) inflationary; reduce; potential GDP 
C) inflationary; reduce; actual national income 
D) inflationary; increase; potential GDP 
E) recessionary; increase; potential GDP

Question 3

A rise 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

Question 4

Suppose Y=400 and the government's net tax rate is 10%.If we are told that the government has a budget surplus,then government purchases must be

Accepted Answer

A) greater than 30. 
B) less than 30. 
C) greater than 40. 
D) less than 40. 
E) Not enough information to know. 
A) greater than 30. 
B) less than 30. 
C) greater than 40. 
D) less than 40. 
E) Not enough information to know.

Question 5

Consider a simple macro model with demand-determined output.Suppose the level of exports decreases unexpectedly by $6 billion.If the government wants to restore the initial equilibrium level of output it could,all other things equal

Accepted Answer

A) increase its purchases by more than $6 billion. 
B) increase its net tax revenues by $6 billion. 
C) increase its net tax revenues by less than $6 billion. 
D) increase its purchases by $6 billion. 
E) decrease its purchases by $6 billion. 
A) increase its purchases by more than $6 billion. 
B) increase its net tax revenues by $6 billion. 
C) increase its net tax revenues by less than $6 billion. 
D) increase its purchases by $6 billion. 
E) decrease its purchases by $6 billion.

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
-Refer to Figure 22-2.Which of the following correctly describes the consumption function for this economy?

Accepted Answer

A) C = (0.6)YD 
B) Y = 250 + (0.75)YD 
C) C = 75 + (0.75)YD 
D) Y = 250 + (0.75)Y 
E) C = 250 + (0.6)Y 
A) C = (0.6)YD 
B) Y = 250 + (0.75)YD 
C) C = 75 + (0.75)YD 
D) Y = 250 + (0.75)Y 
E) C = 250 + (0.6)Y

Question 7

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 total autonomous expenditure?

Accepted Answer

A) $0 
B) $75 
C) $100 
D) $175 
E) $250 
A) $0 
B) $75 
C) $100 
D) $175 
E) $250

Question 8

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.The vertical intercept of the AE function is

Accepted Answer

A) 120.0. 
B) 420.0. 
C) 600.0. 
D) 828.8. 
E) 1120.0. 
A) 120.0. 
B) 420.0. 
C) 600.0. 
D) 828.8. 
E) 1120.0.

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 value of the simple multiplier in this model is

Accepted Answer

A) 0.37. 
B) 1.59. 
C) 2.04. 
D) 2.32. 
E) 2.70. 
A) 0.37. 
B) 1.59. 
C) 2.04. 
D) 2.32. 
E) 2.70.

Question 10

The simple macro model that is considered in Chapters 21 and 22 of the textbook is characterized by

Accepted Answer

A)  a given (constant) price level, and equilibrium national income determined by demand and supply. 
B)  an endogenous price level, and national income that is solely demand determined. 
C)  a given (constant) price level, and national income that is solely demand determined. 
D)  an endogenous price level, and equilibrium national income determined by demand and supply. 
E)  an open economy with an endogenous exchange rate. 
A)  a given (constant) price level, and equilibrium national income determined by demand and supply. 
B)  an endogenous price level, and national income that is solely demand determined. 
C)  a given (constant) price level, and national income that is solely demand determined. 
D)  an endogenous price level, and equilibrium national income determined by demand and supply. 
E)  an open economy with an endogenous exchange rate.

Question 11

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.Equilibrium national income is

Accepted Answer

A) 560.00. 
B) 888.89. 
C) 1142.85. 
D) 1302.33. 
E) 1513.50. 
A) 560.00. 
B) 888.89. 
C) 1142.85. 
D) 1302.33. 
E) 1513.50.

Question 12

Suppose that real national income (Y)is equal to 800 and that government purchases are equal to 200.If the government's net tax revenues are equal to tY,where t is the net tax rate,then what is the value of t necessary for the government to have a balanced budget?

Accepted Answer

A) 20% 
B) 25% 
C) 30% 
D) 35% 
E) 40% 
A) 20% 
B) 25% 
C) 30% 
D) 35% 
E) 40%

Question 13

An increase in foreign income,other things being equal,is assumed to cause the net export (NX)function to

Accepted Answer

A) shift parallel upward. 
B) shift parallel downward. 
C) pivot downward. 
D) pivot upward. 
E) remain stationary. 
A) shift parallel upward. 
B) shift parallel downward. 
C) pivot downward. 
D) pivot upward. 
E) remain stationary.

Question 14

Why are government expenditures such as Old Age Security payments,employment insurance payments,or welfare benefits paid to individuals not considered part of G,the government component of aggregate expenditure?

Accepted Answer

A) These are transfer payments and place no direct demand on Canada's total output. 
B) These payments are directly included as part of C,consumption,because they become consumption expenditure for the recipient. 
C) Since the revenues from which these payments are made did not originate from tax collection,they are not considered part of G. 
D) Since these expenditures are transfers from recipients to taxpayers,they are not included in G. 
E) These payments are included in G only when the payments are made directly by the federal government. 
A) These are transfer payments and place no direct demand on Canada's total output. 
B) These payments are directly included as part of C,consumption,because they become consumption expenditure for the recipient. 
C) Since the revenues from which these payments are made did not originate from tax collection,they are not considered part of G. 
D) Since these expenditures are transfers from recipients to taxpayers,they are not included in G. 
E) These payments are included in G only when the payments are made directly by the federal government.

Question 15

FIGURE 22-4
-Refer to Figure 22-4.Autonomous expenditures ________ as the AE curve rotates from AE1 to AE0 and equilibrium national income ________.

Accepted Answer

A) decrease; decreases 
B) increase; decreases 
C) remain constant; increases 
D) remain constant; decreases 
E) remain constant; remains constant 
A) decrease; decreases 
B) increase; decreases 
C) remain constant; increases 
D) remain constant; decreases 
E) remain constant; remains constant

Question 16

The diagram below shows desired aggregate expenditure for a hypothetical economy.Assume the following features of this economy:
∙ marginal propensity to consume (mpc)= 0.80
∙ net tax rate (t)= 0.15
∙ no foreign trade
∙ fixed price level
∙ all expenditure and income figures are in billions of dollars.   FIGURE 22-3
-Refer to Figure 22-3.What is the marginal propensity to spend (z)in this economy?

Accepted Answer

A) 0.45 
B) 0.48 
C) 0.65 
D) 0.68 
E) 0.80 
A) 0.45 
B) 0.48 
C) 0.65 
D) 0.68 
E) 0.80

Question 17

Consider the government's budget balance.Suppose G = 500 and the government's net tax revenue is equal to 0.25Y.When Y = 2920,the government is running a budget

Accepted Answer

A) deficit of 730. 
B) surplus of 230. 
C) balance. 
D) deficit of 230. 
E) surplus of 730. 
A) deficit of 730. 
B) surplus of 230. 
C) balance. 
D) deficit of 230. 
E) surplus of 730.

Question 18

FIGURE 22-5
-Refer to Figure 22-5.Diagram 1 illustrates an economy that is experiencing a(n)________ gap.The goal of stabilization policy would be to ________ national income until it is equal to ________.

Accepted Answer

A) recessionary; increase; actual national income 
B) inflationary; reduce; potential GDP 
C) inflationary; reduce; actual national income 
D) inflationary; increase; potential GDP 
E) recessionary; increase; potential GDP 
A) recessionary; increase; actual national income 
B) inflationary; reduce; potential GDP 
C) inflationary; reduce; actual national income 
D) inflationary; increase; potential GDP 
E) recessionary; increase; potential GDP

Question 19

The diagrams below show the import,export,and net export functions for an economy.   FIGURE 22-1
-Refer to Figure 22-1.If actual national income is equal to $2000,then imports are equal to

Accepted Answer

A) $0. 
B) $200. 
C) $400. 
D) $450. 
E) $1000. 
A) $0. 
B) $200. 
C) $400. 
D) $450. 
E) $1000.

Question 20

FIGURE 22-5
-Refer to Figure 22-5,Diagram 1.Which of the following fiscal policy measures could the government implement to return national income to the full-employment level of GDP (potential output,Y*)?

Accepted Answer

A) reduce government spending 
B) increase transfer payments 
C) reduce taxes 
D) increase government spending 
E) increase disposable income 
A) reduce government spending 
B) increase transfer payments 
C) reduce taxes 
D) increase government spending 
E) increase disposable income

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

Transfer payments made by the government affect its net tax revenues

FIGURE 22-5 -Refer to Figure 22-5.Diagram 2 illustrates an economy that is experiencing a(n)________ gap.The goal of stabilization policy would be to ________ national income until it is equal to ________.

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

Suppose Y=400 and the government's net tax rate is 10%.If we are told that the government has a budget surplus,then government purchases must be

Consider a simple macro model with demand-determined output.Suppose the level of exports decreases unexpectedly by $6 billion.If the government wants to restore the initial equilibrium level of output it could,all other things equal

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.The vertical intercept of the AE function is

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 value of the simple multiplier in this model is

The simple macro model that is considered in Chapters 21 and 22 of the textbook is characterized by

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.Equilibrium national income is

Suppose that real national income (Y)is equal to 800 and that government purchases are equal to 200.If the government's net tax revenues are equal to tY,where t is the net tax rate,then what is the value of t necessary for the government to have a balanced budget?

An increase in foreign income,other things being equal,is assumed to cause the net export (NX)function to

Why are government expenditures such as Old Age Security payments,employment insurance payments,or welfare benefits paid to individuals not considered part of G,the government component of aggregate expenditure?

FIGURE 22-4 -Refer to Figure 22-4.Autonomous expenditures ________ as the AE curve rotates from AE1 to AE0 and equilibrium national income ________.

Consider the government's budget balance.Suppose G = 500 and the government's net tax revenue is equal to 0.25Y.When Y = 2920,the government is running a budget

FIGURE 22-5 -Refer to Figure 22-5.Diagram 1 illustrates an economy that is experiencing a(n)________ gap.The goal of stabilization policy would be to ________ national income until it is equal to ________.

The diagrams below show the import,export,and net export functions for an economy. FIGURE 22-1 -Refer to Figure 22-1.If actual national income is equal to $2000,then imports are equal to

FIGURE 22-5 -Refer to Figure 22-5,Diagram 1.Which of the following fiscal policy measures could the government implement to return national income to the full-employment level of GDP (potential output,Y*)?

Economic Issues and Concepts

Economic Theories,Data,and Graphs

Demand, Supply, and Price

Elasticity

Price Controls and Market Efficiency

Consumer Behaviour

Producers in the Short Run

Producers in the Long Run

Competitive Markets

Monopoly, cartels, and Price Discrimination

Imperfect Competition and Strategic Behaviour

Economic Efficiency and Public Policy

How Factor Markets Work

Labour Markets and Income Inequality

Interest Rates and the Capital Market

Market Failures and Government Intervention

The Economics of Environmental Protection

Taxation and Public Expenditure

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Output and Prices in the Short Run

From the Short Run to the Long Run: The Adjustment of Factor Prices

Long-Run Economic Growth

Money and Banking

Money, Interest Rates, and Economic Activity

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

FIGURE 22-5 -Refer to Figure 22-5.Diagram 2 illustrates an economy that is experiencing a(n) gap.The goal of stabilization policy would be to national income until it is equal to .

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

FIGURE 22-4 -Refer to Figure 22-4.Autonomous expenditures as the AE curve rotates from AE₁ to AE₀and equilibrium national income .

FIGURE 22-5 -Refer to Figure 22-5.Diagram 1 illustrates an economy that is experiencing a(n) gap.The goal of stabilization policy would be to national income until it is equal to .