Question 1

If GDP increases,then it is possible for all spending shares to increase simultaneously.

Accepted Answer

A) True 
 B)False

Question 2

Suppose,for reasons associated with political stability,international investors decide to increase their demand for dollars.Show what will happen to the net export share of GDP.

Accepted Answer

A stronger dollar will result in net exp

Question 3

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 4

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 5

An increase in the real interest rate will shift the consumption share line to the left because there will be an incentive to save more and consume less.

Accepted Answer

A) True 
 B)False

Question 6

Suppose the government share of GDP is 25 percent and the consumption,investment,and net export shares of GDP are 60,12,and 3 percent,respectively.If the federal government introduces a national sales tax (a federal tax on consumption),then we would expect

Accepted Answer

A) the government share of GDP to increase. 
B) the interest rate to decrease. 
C) the interest rate to increase. 
D) the government share of GDP to decrease. 
E) the net consumption share of GDP to increase. 
A) the government share of GDP to increase. 
B) the interest rate to decrease. 
C) the interest rate to increase. 
D) the government share of GDP to decrease. 
E) the net consumption share of GDP to increase.

Question 7

The spending allocation pertains to the long run because

Accepted Answer

A) it takes time for the government to adjust spending and taxes. 
B) of the way monetary policy works. 
C) exchange rates adjust very slowly to changing market conditions. 
D) it takes time for consumers and businesses to completely respond to changes in interest rates. 
E) it takes time for market interest rates to adjust to changing conditions. 
A) it takes time for the government to adjust spending and taxes. 
B) of the way monetary policy works. 
C) exchange rates adjust very slowly to changing market conditions. 
D) it takes time for consumers and businesses to completely respond to changes in interest rates. 
E) it takes time for market interest rates to adjust to changing conditions.

Question 8

Suppose initially that C = 800,I = 300,G = 200,and X = -100.
(A)What is GDP?
(B)Calculate the four shares of GDP.
(C)Suppose G increases to 300 and GDP increases to 1,500.What is the new government spending share? Draw a diagram to illustrate what happens to the equilibrium interest rate.
(D)Without doing any calculations,explain what happens to each of the three nongovernment shares of GDP after the government spending and GDP increase in (C).
(E)Suppose instead that G increases to 300 and GDP increases to 2,000.What is the new government spending share? Draw a diagram to illustrate what happens to the equilibrium interest rate.
(F)Without doing any calculations,explain what happens to each of the three nongovernment shares of GDP after the government spending and GDP increase in (E).

Accepted Answer

(A) Y = C + I + G + X = 1200 
(B) @#IMG-DLM& 
(C)

Question 9

The sum of all spending shares of GDP is always equal to one.

Accepted Answer

A) True 
 B)False

Question 10

The sum of the consumption,investment,and net exports shares of GDP is called

Accepted Answer

A) the nongovernment share of GDP. 
B) the real-economy share of GDP. 
C) the privately held share of GDP. 
D) None of these 
A) the nongovernment share of GDP. 
B) the real-economy share of GDP. 
C) the privately held share of GDP. 
D) None of these

Question 11

The spending allocation model determines how consumers allocate their income between consumption and saving.

Accepted Answer

A) True 
 B)False

Question 12

The intersection between the sum of the nongovernment shares of GDP and the share of GDP available for nongovernment use determines

Accepted Answer

A) nothing,since the two are the same. 
B) the price level. 
C) GDP. 
D) the optimal level of taxes. 
E) the equilibrium interest rate. 
A) nothing,since the two are the same. 
B) the price level. 
C) GDP. 
D) the optimal level of taxes. 
E) the equilibrium interest rate.

Question 13

All else being equal,if consumption declines as a share of GDP,then

Accepted Answer

A) people must be saving less. 
B) people will consume less in the future. 
C) there must have been an increase in GDP. 
D) people will consume more in the future. 
E) there must have been a decrease in GDP. 
A) people must be saving less. 
B) people will consume less in the future. 
C) there must have been an increase in GDP. 
D) people will consume more in the future. 
E) there must have been a decrease in GDP.

Question 14

All else being equal,an increase in government spending will worsen the trade balance.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) An increase in the consumption share of GDP 
B) A decline in the investment share of GDP 
C) A decline in the net export share of GDP 
D) A decline in the government share of GDP 
E) An increase in the net export share of GDP 
A) An increase in the consumption share of GDP 
B) A decline in the investment share of GDP 
C) A decline in the net export share of GDP 
D) A decline in the government share of GDP 
E) An increase in the net export share of GDP

Question 16

Which of the following situations would best explain why the real long-term interest rate would decline?

Accepted Answer

A) A decrease in wealth 
B) An increase in the consumer confidence index 
C) An increase in public infrastructure investment 
D) A decrease in U.S.demand for foreign products 
E) Optimism about the benefits of investment opportunities 
A) A decrease in wealth 
B) An increase in the consumer confidence index 
C) An increase in public infrastructure investment 
D) A decrease in U.S.demand for foreign products 
E) Optimism about the benefits of investment opportunities

Question 17

The real interest rate affects the incentive to save.

Accepted Answer

A) True 
 B)False

Question 18

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 only thing that affects growth in the system,what will happen to growth?
(B)If the consumption share increased by 5 percent,what must have happened to the government share?
(C)Suppose that when the C/Y line shifted to the right and the government cut spending,the interest rate actually fell.What happened to each of the four shares in this case?

Accepted Answer

(A) Because the investment share schedul

Question 19

Which of the following statements is the most accurate about the spending allocation model?

Accepted Answer

A) Interest rates influence spending. 
B) Spending influences interest rates. 
C) There is no relationship between interest rates and spending. 
D) Interest rates both influence and are influenced by spending. 
E) The relationship between spending and interest rates is too uncertain to be modeled. 
A) Interest rates influence spending. 
B) Spending influences interest rates. 
C) There is no relationship between interest rates and spending. 
D) Interest rates both influence and are influenced by spending. 
E) The relationship between spending and interest rates is too uncertain to be modeled.

Question 20

The consumption share line is

Accepted Answer

A) downward-sloping because an increase in the real interest rate will increase current consumption. 
B) downward-sloping because a decrease in the real interest rate will raise the price of consuming today rather than tomorrow. 
C) downward-sloping because a decrease in the real interest rate will reduce the price of consuming today rather than tomorrow. 
D) upward-sloping because an increase in the real interest rate will increase saving and future consumption. 
E) upward-sloping because an increase in the real interest rate will increase current consumption. 
A) downward-sloping because an increase in the real interest rate will increase current consumption. 
B) downward-sloping because a decrease in the real interest rate will raise the price of consuming today rather than tomorrow. 
C) downward-sloping because a decrease in the real interest rate will reduce the price of consuming today rather than tomorrow. 
D) upward-sloping because an increase in the real interest rate will increase saving and future consumption. 
E) upward-sloping because an increase in the real interest rate will increase current consumption.

Exam 19: The Spending Allocation Model

If GDP increases,then it is possible for all spending shares to increase simultaneously.

Suppose,for reasons associated with political stability,international investors decide to increase their demand for dollars.Show what will happen to the net export share of GDP.

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

Which of the following statements is true?

An increase in the real interest rate will shift the consumption share line to the left because there will be an incentive to save more and consume less.

Suppose the government share of GDP is 25 percent and the consumption,investment,and net export shares of GDP are 60,12,and 3 percent,respectively.If the federal government introduces a national sales tax (a federal tax on consumption),then we would expect

The spending allocation pertains to the long run because

The sum of all spending shares of GDP is always equal to one.

The sum of the consumption,investment,and net exports shares of GDP is called

The spending allocation model determines how consumers allocate their income between consumption and saving.

The intersection between the sum of the nongovernment shares of GDP and the share of GDP available for nongovernment use determines

All else being equal,if consumption declines as a share of GDP,then

All else being equal,an increase in government spending will worsen the trade balance.

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

Which of the following situations would best explain why the real long-term interest rate would decline?

The real interest rate affects the incentive to save.

Which of the following statements is the most accurate about the spending allocation model?

The consumption share line is

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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