Question 1

Consider a macro model with a constant price level and demand -determined output. A rise in the net tax rate
The simple multiplier and equilibrium national income.

Accepted Answer

A)  lowers; has no effect on 
B)  lowers; lowers 
C)  lowers; raises 
D)  raises; raises 
E)  raises; has no effect on

Question 2

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

Accepted Answer

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

Question 3

The diagram below shows desired aggregate expenditure for a hypothetical economy. Assume the following features of this economy:
· marginal propensity to consume mpc) = 0.75
· net tax rate t) = 0.20
· no foreign trade
· fixed price level
· all expenditure and income figures are in billions of dollars.
  FIGURE 22-2
-Consider the following news headline: ʺChina signs deal to buy more Canadian wheat.ʺ Assuming that aggregate output is demand-determined, what effect will this have, all other things equal, on the AE function and on equilibrium national income?

Accepted Answer

A)  The AE function will shift down parallel to itself and equilibrium national income will fall. 
B)  The AE function will rotate upward become steeper) and equilibrium national income will rise. 
C)  The AE function will rotate downward become flatter) and national income will fall. 
D)  The AE function will shift up parallel to itself and equilibrium national income will rise. 
E)  There will be no change in the AE function or in equilibrium national income.

Question 4

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

Accepted Answer

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

Question 5

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

Accepted Answer

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

Question 6

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

Accepted Answer

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.

Question 7

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
)

Accepted Answer

A)  MPC; MPC1 - t) 
B)  MPC1 - t); MPC 
C)  MPC1 - t) - m; MPC1 - t) 
D)  MPC; MPC1 - t) - m 
E)  MPC1 - t); MPC1 - t) - m

Question 8

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

Accepted Answer

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

Question 9

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

Accepted Answer

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 10

The diagram below shows desired aggregate expenditure for a hypothetical economy. Assume the following features of this economy:
· marginal propensity to consume mpc) = 0.80
· net tax rate t) = 0.15
· no foreign trade
· fixed price level
· all expenditure and income figures are in billions of dollars.
  FIGURE 22-3
-Refer to Figure 22-3. What is the marginal propensity to spend z) in this economy?

Accepted Answer

A)  0.45 
B)  0.48 
C)  0.65 
D)  0.68 
E)  0.80

Question 11

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

Accepted Answer

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 12

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

Accepted Answer

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 13

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 .

Accepted Answer

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 14

The diagram below shows desired aggregate expenditure for a hypothetical economy. Assume the following features of this economy:
· marginal propensity to consume mpc) = 0.75
· net tax rate t) = 0.20
· no foreign trade
· fixed price level
· all expenditure and income figures are in billions of dollars.
  FIGURE 22-2
-Consider the following news headline: ʺGovernment follows through on election promise cuts income-tax rate by 5 percentage points.ʺ Assuming that aggregate output is demand-determined, what will be the effect of this action, all other things equal, on the AE function and on equilibrium national income?

Accepted Answer

A)  The AE function will shift down parallel to itself and equilibrium national income will fall. 
B)  The AE function will rotate upward become steeper) and equilibrium national income will rise. 
C)  The AE function will rotate downward become flatter) and national income will fall. 
D)  The AE function will shift up parallel to itself and equilibrium national income will rise. 
E)  There will be no change in the AE function or in equilibrium national income.

Question 15

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

Accepted Answer

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

Question 16

Consider a model in which output is demand-determined. If the marginal propensity to spend out of national income is 0.4, then a $0.6 billion decrease in government purchases will cause equilibrium national income to
By approximately .

Accepted Answer

A)  decrease; $1.50 billion 
B)  decrease; $1.00 billion 
C)  decrease; $0.24 billion 
D)  increase; $1.00 billion 
E)  increase; $1.50 billion

Question 17

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

Accepted Answer

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

Question 18

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

Accepted Answer

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

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

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

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

Consider a macro model with a constant price level and demand -determined output. A rise in the net tax rate The simple multiplier and equilibrium national income.