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

Question 1

Consider the governmentʹs budget balance.Suppose G = 500 and the governmentʹs net tax revenue is equal to 0.2Y.The government budget is balanced when Y equals

A)2000.
B)2200.
C)2400.
D)2500.
E)2800.

Answer 1

2500.

Question 2

Consider the governmentʹs budget balance.Suppose G = 2500 and the governmentʹs net tax revenue is equal to 0.2Y.When Y = 11 000,the government is running a budget

A)deficit of 1500.
B)surplus of 300.
C)balance.
D)deficit of 300.
E)surplus of 1500.

Answer 2

deficit of 300.

Question 3

Transfer payments made by the government affect its net tax revenues

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

Answer 3

directly.

Question 4

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

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

Question 5

Consider the governmentʹs budget balance.Suppose G = 300 and the governmentʹs net tax revenue is equal to 0.12Y.The government budget is balanced when Y equals

A)350.
B)1000.
C)2000.
D)2500.
E)3600.

Question 6

When economists use the term ʺbudget surplusʺ they are referring to

A)net tax revenues minus government purchases.
B)national income minus transfer payments.
C)national income minus consumption.
D)disposable income minus consumption.
E)net tax revenues minus transfer payments.

Question 7

Consider the governmentʹs budget balance.Suppose G = 2500 and the governmentʹs net tax revenue is equal to 0.2Y.The government budget is balanced when Y equals

A)9500.
B)10 500.
C)11 500.
D)12 500.
E)13 500.

Question 8

Consider a simple macro model with a constant price level and demand-determined output.The inclusion of government in such a model affects desired aggregate expenditure directly through ________ and indirectly through ________.

A)the net taxes; the government purchases of goods and services
B)the net taxes; its affect on disposable income
C)the government purchases of goods and services; its effect on net exports
D)the government purchases of goods and services; its effect on disposable income
E)the government purchases of goods and services; its effect on investment

Question 9

Consider the net tax rate,denoted by t.Which of the following correctly defines the net tax rate?

A)it is total tax revenue minus transfer payments
B)it is the sum of the federal income tax rate plus an average of provincial income tax rates
C)it is the increase in net tax revenue when national income rises by one dollar
D)it is the sum of all government tax revenues
E)both A and C are correct

Question 10

Governmentʹs transfer payments to individuals affect desired aggregate expenditure

A)directly.
B)through the consumption function.
C)through the investment function.
D)through net exports.
E)through the governmentʹs budget deficit.

Question 11

The G and T components in the national-income accounts measure purchases and net taxes collected by

A)all levels of government.
B)only provincial governments and the federal government.
C)only the federal government.
D)only provincial governments.
E)only local governments.

Question 12

Consider the governmentʹs budget balance.Suppose G = 300 and the governmentʹs net tax revenue is 0.3Y.The government budget is in surplus only when Y is

A)less than 350.
B)less than 1000.
C)greater than 1000.
D)greater than 2500.
E)greater than 3000.

Question 13

Exports are treated as autonomous expenditure in our simple macro model because

A)exports typically do not change as a result of a change in Canadian national income.
B)exports are always constant in dollar terms.
C)they are a component of net exports,which is autonomous in our model.
D)exports are a small component in the Canadian economy and are not significant in the model.
E)exports are a function of Canadian national income,which is autonomous in our model.

Question 14

If the governmentʹs net tax rate increases,then for a given level of national income disposable income will________ and net tax revenue will ________.

A)decrease; decrease
B)decrease; increase
C)increase; increase
D)increase; decrease
E)not change; increase

Question 15

Consider the governmentʹs budget balance.Suppose G = 400 and the governmentʹs net tax revenue is 20% of national income (Y).Government saving is negative for all values of Y

A)above 10 000.
B)above 8000.
C)above 2000.
D)below 8000.
E)below 2000.

Question 16

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

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

Question 17

Consider the governmentʹs budget balance.Suppose G = 600 and the governmentʹs net tax revenue is 10% of Y.The government budget is balanced when Y equals

A)660.
B)1320.
C)3000.
D)4500.
E)6000.

Question 18

Consider the governmentʹs budget balance.Suppose G = 300 and the governmentʹs net tax revenue is equal to 0.14Y.When Y = 2000,the government is running a budget

A)deficit of 20.
B)surplus of 20.
C)balance.
D)deficit of -20.
E)surplus of 40.

Question 19

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?

A)These are transfer payments and place no direct demand on Canadaʹs 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 20

Suppose that real national income (Y)is equal to 800 and that government purchases are equal to 200.If the governmentʹs 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?

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

Question 21

An upward shift and flattening of the net export (NX)function can be caused by

A)an increase in domestic national income.
B)a decrease in foreign national income.
C)a decrease in domestic prices relative to foreign prices.
D)an increase in the Canadian-dollar price of foreign currency.
E)both C and D are correct

Question 22

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

A)upward; become flatter
B)upward; become steeper
C)downward; become flatter
D)downward; keep the same slope
E)downward; become steeper

Question 23

A rise in the Canadian-dollar price of foreign currency,other things being equal,causes Canadaʹs net export (NX)function to shift ________ and ________.

A)upward; become flatter
B)upward; become steeper
C)downward; become flatter
D)downward; keep the same slope
E)downward; become steeper

Question 24

A fall in the Canadian-dollar price of foreign currency,other things being equal,causes Canadaʹs net export (NX)function to shift ________ and ________.

A)upward; become flatter
B)upward; become steeper
C)downward; become flatter
D)downward; keep the same slope
E)downward; become steeper

Question 25

Suppose exports are $200 and imports are given by IM = 0.2Y.At what level of national income will net exports equal zero?

A)$0
B)$200
C)$250
D)$1000
E)$1250

Question 26

A decrease in domestic national income will cause a ________ the net exports (NX)function.

A)movement to the left along
B)parallel downward shift of
C)parallel upward shift of
D)rotation upward in
E)rotation downward in

Question 27

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

A)upward; become flatter
B)upward; become steeper
C)downward; become flatter
D)downward; keep the same slope
E)downward; become steeper

Question 28

Suppose exports are $1850 and imports are given by IM = 0.13Y.At what level of national income will net exports equal zero?

A)$0
B)$277
C)$1573
D)$14 231
E)$27 750

Question 29

A movement along the net export (NX)function can be caused by a change in

A)domestic national income.
B)foreign national income.
C)domestic prices.
D)the exchange rate.
E)foreign prices.

Question 30

When determining the AE function for an open economy with government,it is generally assumed that as real national income

A)increases,exports will decrease.
B)increases,net exports will decrease.
C)increases,imports will decrease.
D)decreases,net exports will decrease.
E)decreases,exports will decrease.

Question 31

A downward shift and steepening of the net export (NX)function can be caused by

A)an increase in domestic national income.
B)a decrease in foreign national income.
C)an increase in domestic prices relative to foreign prices.
D)a decrease in the Canadian-dollar price of foreign currency.
E)both C and D are correct.

Question 32

The net export (NX)function crosses the horizontal axis at a level of national income where the

A)X and IM curves intersect.
B)X curve reaches the horizontal axis.
C)IM curve reaches the horizontal axis.
D)X and IM curves are at their farthest distance apart.
E)X curve reaches its maximum.

Question 33

In a simple macro model,the net export (NX)function indicates a ________ relationship between net exports and ________.

A)positive; exports
B)positive; domestic national income
C)negative; imports
D)negative; domestic national income
E)negative; foreign national income

Question 34

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

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

Question 35

In a simple macro model,it is generally assumed that a countryʹs exports

A)and imports are autonomous.
B)and imports are induced.
C)are autonomous whereas imports are induced.
D)are induced whereas imports are autonomous.
E)are always equal to investment.

Question 36

A parallel downward shift in the net export (NX)function can be caused by

A)an increase in domestic national income.
B)a decrease in foreign national income.
C)a decrease in domestic prices.
D)an increase in the Canadian-dollar price of foreign currency.
E)a decrease in foreign prices.

Question 37

A parallel upward shift in the net export (NX)function can be caused by

A)an increase in domestic national income.
B)an increase in foreign national income.
C)an increase in domestic prices relative to foreign prices.
D)a decrease in the Canadian-dollar price of foreign currency.
E)a decrease in foreign prices relative to domestic prices.

Question 38

Consider the net export function.An increase in domestic national income,other things being equal,is assumed to cause

A)the net export function to shift upward.
B)the net export function to pivot upward.
C)movement to the right along the net export function.
D)the net export function to pivot downward.
E)no effect on net exports.

Question 39

Suppose exports (X)=100,Y=500,and imports are equal to mY,where m is the marginal propensity to import.Net exports would be equal to zero if the marginal propensity to import were

A)1%.
B)5%.
C)10%.
D)20%.
E)50%.

Question 40

Suppose exports are $940 and imports are given by IM = 0.1Y.At what level of national income will net exports equal zero?

A)$0
B)$9400
C)$15 730
D)$94
E)$27 750

Question 41

Consider the general form of the consumption function in a simple macro model.Once government and taxes are included in the model,desired consumption can be expressed as ________,where a = autonomous consumption,t = net tax rate,Y = national income,YD = disposable income,and MPC = marginal propensity to consume.

A)C = a + MPC(1 - t)YD
B)C = a - (1 - t)YD
C)C = a + MPC ∙ Y
D)C = a + MPC ∙ t ∙ YD
E)C = a + MPC(1 - t)Y

Question 42

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.Total autonomous spending in this model is

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

Question 43

Consider a simple macro model with a constant price level and demand-determined output.The marginal propensity to spend out of national income,z,can be expressed as ________ (where t = net tax rate and m = marginal propensity to import).

A)z = MPC(1 - t - m)
B)z = tY - mY
C)z = MPC - (1 - t- m)Y
D)z = MPC - (1 - t - m)
E)z = MPC(1 - t)- m

Question 44

Consider the simplest macro model with demand-determined output.The equations are: C = 150 + 0.8Yd,Yd = Y-T,I = 400,G = 700,T = .2Y,X = 130,and IM = 0.14Y.Autonomous expenditures in this model are

A)1120.
B)1350.
C)1380.
D)2700.
E)5400.

Question 45

In our simple macro model with government and foreign trade, the marginal propensity to consume out of disposable income is ________ whereas the marginal propensity to consume out of national income is ________.

A)MPC; MPC(1 - t)
B)MPC(1 - t); MPC
C)MPC(1 - t)- m; MPC(1 - t)
D)MPC; MPC(1 - t)- m
E)MPC(1 - t); MPC(1 - t)- m

Question 46

Consider a consumption function in a simple macro model with government and taxes.Given a marginal propensity to consume out of disposable income of 0.9 and a net tax rate of 10% of national income,the marginal propensity to consume out of national income is

A)0.09.
B)0.72.
C)0.81.
D)0.90.
E)1.00.

Question 47

Consider a consumption function in a simple macro model with government and taxes.Given a marginal propensity to consume out of disposable income of 0.7 and a net tax rate of 30% of national income,the marginal propensity to consume out of national income is

A)0.49.
B)0.58.
C)0.70.
D)0.90.
E)1.00.

Question 48

Consider the simplest macro model with demand-determined output.The equations are: C = 150 + 0.8Yd,Yd = Y -T,I = 400,G = 700,T = .2Y,X = 130,and IM = 0.14Y.The marginal propensity to spend on national income in this model is

A)0.50.
B)0.54.
C)0.64.
D)0.84.
E)0.86.

Question 49

In our simple macro model with government,which statement is correct regarding the following equation: T = (0.2)Y?

A)Total tax revenues are equal to 20% of disposable income.
B)Total tax revenues are equal to 20% of real GDP.
C)Net tax revenues are equal to 20% of disposable income.
D)If national income increases by $1.00,then net tax revenue increases by $0.20.
E)If total tax revenue increases by $0.20,then national income increases by $1.00.

Question 50

The AE function for an open economy with government can be written as

A)AE = C + I - G + (X - IM).
B)AE = C + I + G - (X - IM).
C)AE = C + I - G - (X + IM).
D)AE = C + I + S + (X + IM).
E)AE = C + I + G + (X - IM).

Question 51

When compared to a simple macroeconomic model (with only consumption and investment),adding government and foreign trade to the AE function causes

A)the autonomous component of AE to increase.
B)the autonomous component of AE to fall.
C)the AE function to become downward sloping.
D)the AE function to become perfectly horizontal.
E)no change in the AE function.

Question 52

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.If national income is 2400,then desired aggregate expenditure is

A)1120.
B)1776.
C)2896.
D)3184.
E)3472.

Question 53

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.The marginal propensity to spend on national income,z,is

A)0.655.
B)0.760.
C)0.773.
D)0.840.
E)0.920.

Question 54

In our simple macro model with government,which statement correctly describes the following equation: YD = (0.75)Y?

A)If disposable income increases by $0.75,then national income increases by $1.00 and total tax revenue rises by $0.75.
B)Net tax revenue is equal to 75% of national income.
C)If national income increases by $1.00,then disposable income increases by $0.75 and net tax revenue increases by $0.25.
D)Net tax revenue is equal to 25% of disposable income.
E)If national income increases by $1.00,then disposable income increases by $0.25 and net tax revenue increases by $0.75.

Question 55

Consider the simplest 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 marginal propensity to spend on national income,z,is

A)0.06.
B)0.37.
C)0.43.
D)0.49.
E)0.63.

Question 56

In a simple macro model with a constant price level,a decrease in the net tax rate causes the AE curve to

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

Question 57

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 vertical intercept of the AE function is

A)60.0.
B)210.0.
C)300.0.
D)414.4.
E)560.0.

Question 58

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

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

Question 59

Consider a consumption function in a simple macro model with government and taxes.Given a marginal propensity to consume out of disposable income of 0.8 and a net tax rate of 20% of national income,the marginal propensity to consume out of national income is

A)0.36.
B)0.64.
C)0.80.
D)0.90.
E)1.00.

Question 60

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.A national income of 1200 results in desired aggregate expenditure of

A)560.
B)926.
C)1004.
D)1016.
E)1148.

Question 61

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.Desired consumption expenditure at equilibrium national income is

A)3113.5.
B)3307.7.
C)3824.6.
D)4250.
E)Not enough information to determine

Question 62

Consider the following macro model with demand-determined output: C = 150 + 0.9Yd,Yd= 0.8Y,I = 400,G = 700,T = (0.2)Y,X = 130,IM = (0.08)Y.Equilibrium national income is

A)1380.00.
B)1916.67.
C)2156.25.
D)3833.33.
E)4928.57.

Question 63

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.Equilibrium national income is

A)2037.48.
B)3615.24.
C)4000.00.
D)4307.70.
E)8000.00.

Question 64

Consider a macro model with demand-determined output.The equations are: C = 150 + 0.8Yd,Yd = Y-T,I = 400,G = 700,T = 0.2Y,X = 130,and IM = 0.14Y.Equilibrium national income in this model is

A)1120.
B)1350.
C)2240.
D)2760.
E)5400.

Question 65

Suppose that the marginal propensity to consume out of disposable income is 0.6 and the marginal propensity to import is 0.14.If the net tax rate is 0.1,then what is the marginal propensity to spend in this economy?

A)0.30
B)0.40
C)0.46
D)0.50
E)0.60

Question 66

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.Desired consumption expenditure at equilibrium national income is

A)1675.44.
B)4060.04.
C)4830.00.
D)4980.00.
E)6815.40.

Question 67

Consider a simple macro model with a constant price level and demand-determined output.When national income falls short of desired aggregate expenditures,unplanned inventory ________ will induce firms to________ the rate of output production.

A)depletion; lower
B)depletion; raise
C)buildup; lower
D)buildup; raise
E)at zero; maintain the current

Question 68

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

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

Question 69

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

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 70

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.Equilibrium national income is

A)1816.
B)5750.
C)7307.
D)7935.
E)17 250.

Question 71

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 trade balance at equilibrium national income is

A)a deficit of 36.67.
B)a deficit of 21.43.
C)zero.
D)a surplus of 21.43.
E)a surplus of 36.67.

Question 72

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,X = 130,IM = 0.08Y,T = 0.Equilibrium national income is 5000 when G is equal to

A)-40.
B)520.
C)580.
D)740.
E)812.

Question 73

In the simple macro model that is considered in Chapters 21 and 22 of the textbook,

A)the economy is always in equilibrium.
B)there is no government or foreign trade.
C)the price level is determined within the model.
D)there are no supply-side influences on national income.
E)the simple multiplier is always equal to 1.

Question 74

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.The trade balance at equilibrium national income is a

A)deficit of 504.8.
B)deficit of 460.0.
C)deficit of 330.0.
D)surplus of 125.0.
E)surplus of 15.3.