Question 1

The real interest rate is equal to the nominal interest rate

Accepted Answer

A) minus the rate of expected inflation. 
B) plus the rate of expected inflation. 
C) minus the unemployment rate. 
D) plus the unemployment rate. 
A) minus the rate of expected inflation. 
B) plus the rate of expected inflation. 
C) minus the unemployment rate. 
D) plus the unemployment rate.

Question 2

The equilibrium interest rate is determined where

Accepted Answer

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

Question 3

Between 2000 and 2010,the government purchases share of the GDP of the United States increased from about 17.5 to 20.5 percent,while the investment share decreased from 17.7 to 12.4 percent.

Accepted Answer

A) True 
 B)False

Question 4

Suppose the exchange rate in the year 2001 was 1 euro per dollar,and in 2010 the exchange rate increased to 2 euros per dollar.If the price of a German sweater was 50 euros in both years,the new dollar price in 2010 would be ____ and imports of German sweaters would ____.

Accepted Answer

A) $25; increase 
B) $25; decrease 
C) $100; increase 
D) $100; decrease 
E) $50; remain constant 
A) $25; increase 
B) $25; decrease 
C) $100; increase 
D) $100; decrease 
E) $50; remain constant

Question 5

The consumption share will increase if there is a decrease in the real interest rate.

Accepted Answer

A) True 
 B)False

Question 6

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 production possibilities frontier to show what happens.
(B)Does your answer to part (A)correspond to what the spending allocation model would predict?
(C)Compared to the production possibilities curve analysis,what additional insight does the spending allocation model introduce?

Accepted Answer

(A) See graph below.The increase in gove

Question 7

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 8

Which of the following equations is correct?

Accepted Answer

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

Question 9

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 10

A decrease in the share of government purchases will ____ the share of GDP available for nongovernment purchases and ____ the interest rate in the long run.

Accepted Answer

A) increase; increase 
B) increase; have no effect on 
C) increase; decrease 
D) decrease; decrease 
E) decrease; increase 
A) increase; increase 
B) increase; have no effect on 
C) increase; decrease 
D) decrease; decrease 
E) decrease; increase

Question 11

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 12

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 13

Suppose the government is deciding between either a reduction in income taxes or an increase in government purchases.
(A)According to the spending allocation model,all else held constant,what effect will the reduction in income taxes have on the interest rate?
(B)According to the spending allocation model,all else held constant,what effect will the increase in government purchases have on the interest rate?
(C)Consider the following statement and explain whether it is correct or incorrect.Because the reduction in income taxes and the increase in government purchases have the same effect on the interest rate,the two policies have the same effect on the economy.

Accepted Answer

(A) Assuming the government share of GDP

Question 14

Changes in the government spending share of GDP have no effect on the investment share of GDP.

Accepted Answer

A) True 
 B)False

Question 15

Consumption is less sensitive than investment to changes in the real interest rate.

Accepted Answer

A) True 
 B)False

Question 16

All else being constant,an increase in the government share of GDP would result in

Accepted Answer

A) an increase in net exports. 
B) a higher dollar exchange rate. 
C) the interest rate remaining constant. 
D) a lower interest rate. 
E) a higher interest rate. 
A) an increase in net exports. 
B) a higher dollar exchange rate. 
C) the interest rate remaining constant. 
D) a lower interest rate. 
E) a higher interest rate.

Question 17

An increase in taxes will not affect the relationship between consumption and real interest rates.

Accepted Answer

A) True 
 B)False

Question 18

If state governments decide to cut both taxes and government spending,what will happen to the national saving rate and interest rates?

Accepted Answer

The effect on the saving rate cannot be

Question 19

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 20

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

Exam 19: The Spending Allocation Model

The real interest rate is equal to the nominal interest rate

The equilibrium interest rate is determined where

Between 2000 and 2010,the government purchases share of the GDP of the United States increased from about 17.5 to 20.5 percent,while the investment share decreased from 17.7 to 12.4 percent.

Suppose the exchange rate in the year 2001 was 1 euro per dollar,and in 2010 the exchange rate increased to 2 euros per dollar.If the price of a German sweater was 50 euros in both years,the new dollar price in 2010 would be ____ and imports of German sweaters would ____.

The consumption share will increase if there is a decrease in the real interest rate.

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

Which of the following equations is correct?

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?)

A decrease in the share of government purchases will ____ the share of GDP available for nongovernment purchases and ____ the interest rate in the long run.

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.

Which of the following is true?

Changes in the government spending share of GDP have no effect on the investment share of GDP.

Consumption is less sensitive than investment to changes in the real interest rate.

All else being constant,an increase in the government share of GDP would result in

An increase in taxes will not affect the relationship between consumption and real interest rates.

If state governments decide to cut both taxes and government spending,what will happen to the national saving rate and interest rates?

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

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

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors,price Ceilings,and Elasticity

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, transfers, and Income Distribution

Public Goods, externalities, and Government Behavior

Capital and Financial Markets

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

Economic Growth and Globalization

International Trade

International Finance

Reading,understanding,and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Present Discounted Value

The Miracle of Compound Growth

Deriving the Growth Accounting Formula

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

Filters

Suppose the exchange rate in the year 2001 was 1 euro per dollar,and in 2010 the exchange rate increased to 2 euros per dollar.If the price of a German sweater was 50 euros in both years,the new dollar price in 2010 would be and imports of German sweaters would .

A decrease in the share of government purchases will the share of GDP available for nongovernment purchases and the interest rate in the long run.