Question 1

Explain how interest rates affect investment expenditures.

Accepted Answer

Changes in the interest rate affect the

Question 2

If the government share of GDP increases by a certain percent,the sum of the other shares of GDP will fall by a greater amount.

Accepted Answer

A) True 
 B)False

Question 3

The interest rate that pertains to the spending allocation model is the

Accepted Answer

A) nominal interest rate. 
B) real interest rate. 
C) federal funds rate. 
D) prime interest rate. 
E) interest rate on government debt. 
A) nominal interest rate. 
B) real interest rate. 
C) federal funds rate. 
D) prime interest rate. 
E) interest rate on government debt.

Question 4

What is the connection between an increase in government purchases and the trade deficit? What are the pros and cons associated with a trade deficit that occurs because of this?

Accepted Answer

An increase in government purchases as a

Question 5

If the dollar appreciates against the Japanese yen ,then imports from Japan to the United States will increase and American exports to Japan will decrease.

Accepted Answer

A) True 
 B)False

Question 6

The consumption share is negatively related to the real interest rate because a higher interest rate today

Accepted Answer

A) makes current consumption more expensive relative to future consumption. 
B) lowers the price of current consumption relative to the future. 
C) makes future consumption more expensive relative to current consumption. 
D) reduces current savings. 
E) increases the government share. 
A) makes current consumption more expensive relative to future consumption. 
B) lowers the price of current consumption relative to the future. 
C) makes future consumption more expensive relative to current consumption. 
D) reduces current savings. 
E) increases the government share.

Question 7

The government purchase share of GDP has no influence on the interest rate.

Accepted Answer

A) True 
 B)False

Question 8

The government purchase share of GDP is not sensitive to changes in the interest rate.

Accepted Answer

A) True 
 B)False

Question 9

An increase in G reduces the national saving rate.

Accepted Answer

A) True 
 B)False

Question 10

Explain why the share of GDP available for nongovernment use does not depend on the interest rate.

Accepted Answer

The share of GDP available for nongovern

Question 11

If the exchange rate measured as yen per dollar increases,the dollar has become more expensive.

Accepted Answer

A) True 
 B)False

Question 12

Explain why a continued stock market rally (that is,a continued increase in stock prices)will lead to an increase in consumption.

Accepted Answer

A rise in stock prices will in

Question 13

The nongovernment share of GDP

Accepted Answer

A) is,for any real interest rate,the sum of the share of net exports,investment,and consumption expenditures. 
B) is,for any interest rate,equal to 1 minus the government spending share of GDP. 
C) is positively related to the real interest rate. 
D) is,for any interest rate,the sum of investment and consumption shares. 
E) is negatively related to the real interest rate. 
A) is,for any real interest rate,the sum of the share of net exports,investment,and consumption expenditures. 
B) is,for any interest rate,equal to 1 minus the government spending share of GDP. 
C) is positively related to the real interest rate. 
D) is,for any interest rate,the sum of investment and consumption shares. 
E) is negatively related to the real interest rate.

Question 14

Which of the following statements is true?

Accepted Answer

A) The observed relationship between the investment share of GDP and the real interest rate is negative,as predicted by theory. 
B) There is no steady relationship between the investment share of GDP and real interest rates,contrary to what is predicted by theory. 
C) The observed relationship between the investment share of GDP and the real interest rate is positive,contrary to what is predicted by theory. 
D) The observed relationship between the investment share of GDP and the real interest rate is positive,as predicted by theory. 
E) The observed relationship between the investment share of GDP and the real interest rate is negative,contrary to what is predicted by theory. 
A) The observed relationship between the investment share of GDP and the real interest rate is negative,as predicted by theory. 
B) There is no steady relationship between the investment share of GDP and real interest rates,contrary to what is predicted by theory. 
C) The observed relationship between the investment share of GDP and the real interest rate is positive,contrary to what is predicted by theory. 
D) The observed relationship between the investment share of GDP and the real interest rate is positive,as predicted by theory. 
E) The observed relationship between the investment share of GDP and the real interest rate is negative,contrary to what is predicted by theory.

Question 15

Suppose foreign demand for U.S.products increases.
(A)Use the saving-investment approach to show what happens to the long-run interest rate.
(B)Use the four-diagram approach to show what happens to the long-run interest rate.
(C)What happens to the four shares of GDP?

Accepted Answer

(A) The @#IMG-DLM& line will shift to the right,an

Question 16

When the real interest rate falls,

Accepted Answer

A) the investment share will not be affected. 
B) people will choose to consume more and investment will fall. 
C) businesses are likely to decrease their purchases of new equipment and production facilities. 
D) businesses are likely to increase their purchases of new equipment and production facilities. 
E) people will choose to consume less and investment will fall. 
A) the investment share will not be affected. 
B) people will choose to consume more and investment will fall. 
C) businesses are likely to decrease their purchases of new equipment and production facilities. 
D) businesses are likely to increase their purchases of new equipment and production facilities. 
E) people will choose to consume less and investment will fall.

Question 17

Suppose there is an increase in the government share of GDP.
(A)Draw a diagram showing the effect this has on the nongovernment share of GDP.What happens to interest rates?
(B)Suppose you observe that,concurrent with the increase in the government share of GDP,a decline in the net export share occurs.Is this a coincidence? Explain.
(C)If the decline in the net export share of GDP is substantial,what might this imply about the interest rate sensitivity of net exports?

Accepted Answer

(A) The effect of the increase in the go

Question 18

All else held constant,interest rates will increase if there is an increase in the nongovernment share of GDP.

Accepted Answer

A) True 
 B)False

Question 19

The real interest rate is equal to the nominal interest rate minus an inflation premium.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following best explains what is meant by the term crowding out?

Accepted Answer

A) An increase in government purchases causes interest rates to rise and results in a decline in investment expenditures. 
B) An increase in government purchases causes interest rates to fall and results in a decline in investment expenditures. 
C) An increase in investment causes interest rates to rise and results in a drop in government purchases. 
D) Increases in consumption expenditures cause interest rates to rise and result in a decline in investment expenditures. 
E) An increase in consumption expenditures causes interest rates to rise and results in a decline in government purchases. 
A) An increase in government purchases causes interest rates to rise and results in a decline in investment expenditures. 
B) An increase in government purchases causes interest rates to fall and results in a decline in investment expenditures. 
C) An increase in investment causes interest rates to rise and results in a drop in government purchases. 
D) Increases in consumption expenditures cause interest rates to rise and result in a decline in investment expenditures. 
E) An increase in consumption expenditures causes interest rates to rise and results in a decline in government purchases.

Exam 19: The Spending Allocation Model

Explain how interest rates affect investment expenditures.

If the government share of GDP increases by a certain percent,the sum of the other shares of GDP will fall by a greater amount.

The interest rate that pertains to the spending allocation model is the

What is the connection between an increase in government purchases and the trade deficit? What are the pros and cons associated with a trade deficit that occurs because of this?

If the dollar appreciates against the Japanese yen ,then imports from Japan to the United States will increase and American exports to Japan will decrease.

The consumption share is negatively related to the real interest rate because a higher interest rate today

The government purchase share of GDP has no influence on the interest rate.

The government purchase share of GDP is not sensitive to changes in the interest rate.

An increase in G reduces the national saving rate.

Explain why the share of GDP available for nongovernment use does not depend on the interest rate.

If the exchange rate measured as yen per dollar increases,the dollar has become more expensive.

Explain why a continued stock market rally (that is,a continued increase in stock prices)will lead to an increase in consumption.

The nongovernment share of GDP

Which of the following statements is true?

Suppose foreign demand for U.S.products increases. (A)Use the saving-investment approach to show what happens to the long-run interest rate. (B)Use the four-diagram approach to show what happens to the long-run interest rate. (C)What happens to the four shares of GDP?

When the real interest rate falls,

All else held constant,interest rates will increase if there is an increase in the nongovernment share of GDP.

The real interest rate is equal to the nominal interest rate minus an inflation premium.

Which of the following best explains what is meant by the term crowding out?

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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