Question 1

The spending allocation model is designed to explain

Accepted Answer

A) short-run (monthly)movements in the economy. 
B) movements in the CPI. 
C) movements in the GDP deflator. 
D) long-run (a period of years)movements in the economy. 
E) why the production possibilities frontier is not a relevant concept in macroeconomics. 
A) short-run (monthly)movements in the economy. 
B) movements in the CPI. 
C) movements in the GDP deflator. 
D) long-run (a period of years)movements in the economy. 
E) why the production possibilities frontier is not a relevant concept in macroeconomics.

Question 2

Which of the following situations best explains a leftward shift in the consumption share line?

Accepted Answer

A) An increase in the consumer confidence index 
B) A decrease in interest rates 
C) An increase in interest rates 
D) A decrease in income tax 
E) A decrease in wealth 
A) An increase in the consumer confidence index 
B) A decrease in interest rates 
C) An increase in interest rates 
D) A decrease in income tax 
E) A decrease in wealth

Question 3

The generation of people who lived through the Great Depression is much more fiscally conservative than the baby boom generation.The baby boomers have tended to spend more freely,amass more debt,and save significantly less than those who lived through the Great Depression.
(A)As those who lived through the Great Depression pass away,they are leaving their accumulated wealth to their baby boom children.What effect will this have on the consumption share line? Please explain.
(B)As the baby boomers continue to spend freely,how might their spending affect consumption expenditures in the future?

Accepted Answer

(A) When people experience increases in

Question 4

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 5

Suppose businesses seriously believe that,within a year,a new generation of computers will be developed that will be more powerful than the current ones but cheaper to run.Assuming everything else held constant,how will the investment share of GDP be affected?

Accepted Answer

Expenditures on computers will decline i

Question 6

In a market economy,the interest rate adjusts to ensure equality among

Accepted Answer

A) the investment,consumption,and net export shares of GDP and the share of GDP available for nongovernment use. 
B) the investment,consumption,and net export shares of GDP and the government share of GDP. 
C) the investment,consumption,and net export shares of GDP and GDP. 
D) imports and exports. 
E) the budget and trade deficits. 
A) the investment,consumption,and net export shares of GDP and the share of GDP available for nongovernment use. 
B) the investment,consumption,and net export shares of GDP and the government share of GDP. 
C) the investment,consumption,and net export shares of GDP and GDP. 
D) imports and exports. 
E) the budget and trade deficits.

Question 7

If a firm expects equipment prices to decline in the future,it will invest more today.

Accepted Answer

A) True 
 B)False

Question 8

Suppose the government increases spending on the war on drugs by one-half a percent of GDP.
(A)Suppose no other policy accompanies this increase in spending.Describe this policy's effect on interest rates and on consumption,investment,and net exports as a share of GDP.
(B)Suppose,because of a balanced budget agreement,the funds for this policy must come from funds initially earmarked for other spending programs.Describe this policy's effect on interest rates and on consumption,investment,and net exports as a share of GDP.
(C)Suppose the government decides to adopt a national sales tax to pay for the higher government spending.Describe this policy's effect on interest rates and on the four shares of GDP.

Accepted Answer

(A) Government spending as a share of GD

Question 9

The spending allocation model allows economists to determine how GDP is allocated among the major components of spending,which are

Accepted Answer

A) income,consumption,and savings. 
B) consumption,savings,government purchases,and net exports. 
C) consumption,investment,government purchases,and net exports. 
D) consumption,savings,taxes,and net exports. 
E) None of these 
A) income,consumption,and savings. 
B) consumption,savings,government purchases,and net exports. 
C) consumption,investment,government purchases,and net exports. 
D) consumption,savings,taxes,and net exports. 
E) None of these

Question 10

The steeper the consumption share line,the less the amount of investment that will be crowded out from an increase in government spending.

Accepted Answer

A) True 
 B)False

Question 11

If an increase in the mortgage rate causes a decline in new home purchases,the consumption share of GDP will fall.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

In a mixed economy,if the government share of GDP is 22 percent,then the sum of the nongovernment shares will,in equilibrium,equal 78 percent because of

Accepted Answer

A) government rules. 
B) adjustments in GDP. 
C) adjustments in the price level. 
D) adjustments in interest rates. 
E) adjustment in the unemployment rate. 
A) government rules. 
B) adjustments in GDP. 
C) adjustments in the price level. 
D) adjustments in interest rates. 
E) adjustment in the unemployment rate.

Question 14

Net exports for the United States have been negative in the past 25 years,with an increasingly larger difference between imports and exports.

Accepted Answer

A) True 
 B)False

Question 15

A higher real interest rate today makes current consumption

Accepted Answer

A) more expensive relative to future consumption because the return on savings is lowered. 
B) more expensive relative to future consumption because the return on savings is increased. 
C) less expensive relative to future consumption because the return on savings is increased. 
D) less expensive relative to future consumption because the return on savings is lowered. 
E) just as expensive as future consumption because the return on saving is uncertain. 
A) more expensive relative to future consumption because the return on savings is lowered. 
B) more expensive relative to future consumption because the return on savings is increased. 
C) less expensive relative to future consumption because the return on savings is increased. 
D) less expensive relative to future consumption because the return on savings is lowered. 
E) just as expensive as future consumption because the return on saving is uncertain.

Question 16

As of 2008,the United States current account deficit is close to 60 percent of GDP.

Accepted Answer

A) True 
 B)False

Question 17

If the exchange rate becomes less sensitive to changes in interest rates,the net export share line will get steeper.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Question 20

Which of the following equations is correct?

Accepted Answer

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

Exam 19: The Spending Allocation Model

The spending allocation model is designed to explain

Which of the following situations best explains a leftward shift in the consumption share line?

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

Suppose businesses seriously believe that,within a year,a new generation of computers will be developed that will be more powerful than the current ones but cheaper to run.Assuming everything else held constant,how will the investment share of GDP be affected?

In a market economy,the interest rate adjusts to ensure equality among

If a firm expects equipment prices to decline in the future,it will invest more today.

The spending allocation model allows economists to determine how GDP is allocated among the major components of spending,which are

The steeper the consumption share line,the less the amount of investment that will be crowded out from an increase in government spending.

If an increase in the mortgage rate causes a decline in new home purchases,the consumption share of GDP will fall.

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

In a mixed economy,if the government share of GDP is 22 percent,then the sum of the nongovernment shares will,in equilibrium,equal 78 percent because of

Net exports for the United States have been negative in the past 25 years,with an increasingly larger difference between imports and exports.

A higher real interest rate today makes current consumption

As of 2008,the United States current account deficit is close to 60 percent of GDP.

If the exchange rate becomes less sensitive to changes in interest rates,the net export share line will get steeper.

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

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

Which of the following equations is correct?

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

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