Question 1

The share of GDP purchases is determined by
A) the rate of growth of real GDP.
B) the rate of interest.
C) the willingness of consumers to save.
D) the political process.
E) the exchange rate.

Accepted Answer

The share of GDP purchases is largely determined by the political process, as government spending and taxation policies are decided through political negotiations and decision-making. Other factors, such as economic growth, interest rates, consumer savings, and exchange rates, can also influence GDP purchases, but to a lesser extent compared to political factors.

Question 2

If the sum of the consumption and investment shares of GDP is 78 percent, the government share of GDP has to be less than or equal to 22 percent.

Accepted Answer

The statement does not account for net exports (exports minus imports), which can be positive or negative, affecting the total GDP composition and allowing the government share of GDP to be potentially higher or lower than 22 percent.

Question 3

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, all else held constant, businesses become more optimistic about the benefits of investment, then
A) investment spending as a share of GDP increases.
B) the nongovernment share of GDP remains constant.
C) the rate of interest increases.
D) the government share of GDP remains at 25 percent.
E) All of these

Accepted Answer

The answer of Suppose the government share of GDP is...

Question 4

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

Accepted Answer

The interest rate adjusts to ensure equality among the investment, consumption, and net export shares of GDP and GDP because in a market economy, the interest rate affects investment decisions and consumption decisions, which in turn affect the level of net exports. If the interest rate is high, it discourages investment and consumption, which leads to lower GDP and lower net exports. On the other hand, if the interest rate is low, it encourages investment and consumption, which leads to higher GDP and higher net exports. Therefore, the interest rate adjusts to ensure equilibrium among the investment, consumption, and net export shares of GDP and GDP.

Question 5

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

Accepted Answer

The answer of The intersection between the sum of the...

Question 6

The sum of the consumption, investment, and net exports shares of GDP is called
A) the nongovernment share of GDP.
B) the real-economy share of GDP.
C) the privately held share of GDP.
D) None of these

Accepted Answer

The answer of The sum of the consumption, investment, and...

Question 7

All else being constant, an increase in the government share of GDP would result in
A) an increase in net exports.
B) a higher dollar exchange rate.
C) the interest rate remaining constant.
D) a lower interest rate.
E) a higher interest rate.

Accepted Answer

An increase in government share of GDP means higher government spending, which will increase demand for loanable funds and thus increase interest rates.

Question 8

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 dollar exchange rate increases, then we would expect
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 export share of GDP to increase.

Accepted Answer

The answer of Suppose the government share of GDP is...

Question 9

In the spending allocation model, the government share of GDP is assumed to be unaffected by the real exchange rate, being instead directly determined by government officials.

Accepted Answer

The spending allocation model assumes that the government share of GDP is determined by government officials and is not impacted by the real exchange rate.

Question 10

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

Accepted Answer

The answer of All else held constant, interest rates will...

Question 11

The share of GDP available for nongovernment use is
A) negatively related to the nominal interest rate.
B) not dependent on the interest rate.
C) negatively related to the real interest rate.
D) positively related to the nominal interest rate.
E) positively related to the real interest rate.

Accepted Answer

The share of GDP available for nongovernment use, also known as private sector output or private sector GDP, is not dependent on the interest rate. Private sector output is determined by factors such as technology, labor productivity, capital accumulation, and the availability of natural resources. The interest rate may affect investment and consumption decisions, but it does not directly determine the level of private sector output.

Question 12

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

Accepted Answer

The answer of In a mixed economy, if the government...

Question 13

Suppose the government share of GDP is 25 percent and the consumption, investment, and net export shares of GDP are 60, 15, and 3 percent, respectively. Under these circumstances, we would expect
A) the government share of GDP to increase.
B) the interest rate to increase.
C) the interest rate to remain constant.
D) the interest rate to decrease.
E) net exports to increase.

Accepted Answer

Given the shares of GDP components, the total exceeds 100% (25% government + 60% consumption + 15% investment + 3% net exports = 103%). This implies an economy operating at or beyond its capacity, likely leading to increased demand for funds for investment, consumption, and government spending, which can drive up interest rates.

Question 14

Which share is not sensitive to changes in the real interest rate?
A) All four shares are sensitive to changes in the real interest rate.
B) Consumption
C) Investment
D) Government purchases
E) Net exports

Accepted Answer

Government purchases are typically policy-driven and not directly sensitive to changes in the real interest rate, unlike consumption, investment, and net exports, which are more directly influenced by changes in borrowing costs and economic conditions.

Question 15

The nongovernment share of GDP equals
A) saving as a share of GDP.
B) the sum of the consumption and investment shares of GDP.
C) 1 minus the government share of GDP.
D) the sum of the investment and net export shares of GDP.
E) the sum of the consumption and net export shares of GDP.

Accepted Answer

The nongovernment share of GDP is essentially the portion of GDP not accounted for by government spending. Therefore, it can be calculated as 1 minus the government share of GDP, as this subtracts the government's contribution from the total GDP, leaving the portion of GDP that is not related to government spending.

Question 16

If the nongovernment share of GDP shifts to the right and the government share of GDP remains constant, then
A) there must be an increase in taxes.
B) the dollar exchange rate must weaken.
C) there must be a decrease in taxes.
D) the interest rate decreases.
E) the interest rate increases.

Accepted Answer

The answer of If the nongovernment share of GDP shifts...

Question 17

It is the government's responsibility to ensure that the sum of all four shares of GDP equals 1.

Accepted Answer

The sum of all four shares of GDP (consumption, investment, government spending, and net exports) does not equal 1. GDP is measured in currency units (e.g., dollars), not as a proportion where the total would equal 1.

Question 18

In a market economy, if the sum of the consumption, investment, and net export shares of GDP is greater than 1 minus the government share of GDP, market forces will result in
A) GDP contracting.
B) an increase in interest rates.
C) GDP expanding.
D) a decrease in interest rates.
E) an increase in the price level.

Accepted Answer

The answer of In a market economy, if the sum...

Question 19

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
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.

Accepted Answer

The answer of Suppose the government share of GDP is...

Question 20

Which of the following statements is true?
A) A decrease in the interest rate will cause the nongovernment share of GDP to decline.
B) A decrease in the interest rate will cause the government purchases share to decrease.
C) A decrease in the interest rate will cause the share of GDP available for nongovernment use to decline.
D) A decrease in the interest rate will cause the nongovernment share of GDP to increase.
E) A decrease in the interest rate will cause GDP to decrease.

Accepted Answer

A decrease in the interest rate will cause consumption and investment to increase, leading to an increase in the nongovernment share of GDP. This is because lower interest rates make borrowing cheaper, which leads to increased spending by households and businesses. Choice A is incorrect because a decline in interest rates would increase consumption and investment, leading to an increase in the nongovernment share of GDP. Choice B is incorrect because a decrease in the interest rate could lead to an increase in government purchases if it leads to more economic growth. Choice C is incorrect because a decrease in the interest rate would lead to more spending and economic growth, which would increase the share of GDP available for both government and nongovernment use. Choice E is incorrect because a decrease in the interest rate would lead to increased spending and economic growth, which would cause GDP to increase, not decrease.

Quiz 7: The Spending Allocation Model

The share of GDP purchases is determined by

If the sum of the consumption and investment shares of GDP is 78 percent, the government share of GDP has to be less than or equal to 22 percent.

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, all else held constant, businesses become more optimistic about the benefits of investment, then

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

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

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

All else being constant, an increase in the government share of GDP would result in

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 dollar exchange rate increases, then we would expect

In the spending allocation model, the government share of GDP is assumed to be unaffected by the real exchange rate, being instead directly determined by government officials.

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

The share of GDP available for nongovernment use is

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

Suppose the government share of GDP is 25 percent and the consumption, investment, and net export shares of GDP are 60, 15, and 3 percent, respectively. Under these circumstances, we would expect

Which share is not sensitive to changes in the real interest rate?

The nongovernment share of GDP equals

If the nongovernment share of GDP shifts to the right and the government share of GDP remains constant, then

It is the government's responsibility to ensure that the sum of all four shares of GDP equals 1.

In a market economy, if the sum of the consumption, investment, and net export shares of GDP is greater than 1 minus the government share of GDP, market forces will result in

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

Which of the following statements is true?