Question 1

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

Accepted Answer

GDP increase means the economy is growing, but the shares of spending (like consumption, investment, government spending, and net exports) are proportions of the total GDP. If all shares were to increase simultaneously, it would imply they are all taking a larger proportion of a larger total, which is mathematically impossible since their total cannot exceed 100% of GDP.

Question 2

The spending allocation model allows economists to determine how GDP is allocated among the major components of spending, which are
A)income, consumption, and savings.
B)consumption, savings, government purchases, and net exports.
C)consumption, investment, government purchases, and net exports.
D)consumption, savings, taxes, and net exports.
E)None of these

Accepted Answer

The major components of spending are consumption, investment, government purchases, and net exports. The spending allocation model allows economists to determine how GDP is allocated among these components, which helps understand the overall economy and make predictions about future trends. Choice A is incorrect because savings is not a major component of spending, but rather a leakage from the circular flow of income. Choice B is close, but omits investment as a major component of spending. Choice D is incorrect because taxes are not a component of spending, but rather a withdrawal from the circular flow of income.

Question 3

In 2015, the government share of GDP was about
A)28 percent.
B)18 percent.
C)7 percent.
D)12 percent.
E)33 percent.

Accepted Answer

B

Question 4

In 2015, the investment share of GDP was about
A)27 percent.
B)17 percent.
C)7 percent.
D)10 percent.
E)68 percent.

Accepted Answer

The answer of In 2015, the investment share of GDP...

Question 5

Between 2000 and 2010, the government purchases share of the GDP of the United States increased from about 17.5 to 20.5 percent, while the investment share decreased from 17.7 to 12.4 percent.

Accepted Answer

According to the statement, the government purchases share of the GDP increased while the investment share decreased between 2000 and 2010, which means that option A is true.

Question 6

Changes in the government spending share of GDP have no effect on the investment share of GDP.

Accepted Answer

Changes in the government spending share of GDP can affect the investment share of GDP since government spending can crowd out private investment, especially if the government competes with the private sector for resources. Additionally, changes in government spending can affect investor confidence and expectations, which can have an impact on investment decisions.

Question 7

The net export share has been negative for the last 30 years.

Accepted Answer

The United States has had a negative net export share for the last 30 years, meaning that it has imported more goods and services than it has exported.

Question 8

The spending allocation model is used to determine
A)how GDP is allocated among its major spending components.
B)how people's spending is allocated to firms.
C)which income class spends the most and which income spends the least.
D)how much the government should spend on different goods and services.
E)how people allocate their spending over their own lifetime.

Accepted Answer

The spending allocation model is used to determine how GDP is allocated among its major spending components - consumption, investment, government spending, and net exports.

Question 9

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

Accepted Answer

Interest rates can influence spending by making it either more expensive or less expensive to borrow money. However, spending can also influence interest rates, as increased spending can lead to inflation and higher demand for credit, driving interest rates up. Therefore, the most accurate statement is that interest rates both influence and are influenced by spending.

Question 10

Net exports for the United States have been negative in the past 25 years, with an increasingly larger difference between imports and exports.

Accepted Answer

The United States has experienced a trade deficit (negative net exports) for the past 25 years, meaning that imports have exceeded exports. This deficit has generally increased over time.

Question 11

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

Accepted Answer

The answer of The spending allocation model determines how consumers...

Question 12

In a speech to the House of Commons in the U.K. on June 23, 2016, Chancellor of the Exchequer George Osborne expressed concern about which of the following economic trends of the U.K.?
A)That exports had grown too large compared to imports.
B)That inflation was getting dangerously large.
C)About the long-run path of the budget deficits.
D)the long-run path of the currency value of the British pound.

Accepted Answer

George Osborne expressed concern about the long-run path of the budget deficits in his speech, highlighting worries about the sustainability of the U.K.'s fiscal policy.

Question 13

Since the late 1980s, the government purchases share has gone up, and the investment and consumption shares have gone down.

Accepted Answer

Since the late 1980s, the share of government purchases in many countries has generally been stable or declining, while the shares of investment and consumption have often increased or remained relatively stable, reflecting changes in economic policy and growth dynamics.

Question 14

Which of the following statements is true?
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.

Accepted Answer

The net export share of GDP can indeed be positive or negative, depending on whether a country exports more than it imports (positive) or imports more than it exports (negative). Statements A, C, and D are all false. Statement E is also false, as the four spending shares do not necessarily have to add up to one (they can add up to less than one if there is a trade deficit) and can be negative (if a country is borrowing from abroad).

Question 15

The spending allocation model is designed to explain
A)short-run (monthly) movements in the economy.
B)movements in the CPI.
C)movements in the GDP deflator.
D)long-run (a period of years) movements in the economy.
E)why the production possibilities frontier is not a relevant concept in macroeconomics.

Accepted Answer

The spending allocation model, also known as the aggregate expenditure model, is used to explain long-run movements in the economy, specifically changes in Gross Domestic Product (GDP). It shows the relationship between the total amount of spending in the economy (consumption, investment, government spending, and net exports) and the level of GDP.

Question 16

The investment share of GDP is expressed as
A)I.
B)I*Y
C)I/Y.
D)I + G.
E)Y - I.

Accepted Answer

The investment share of GDP is expressed as I/Y, as it represents the ratio of investment to the total output or income of an economy.

Question 17

Which of the four spending shares is the largest?
A)Consumption
B)Net exports
C)Government purchases
D)It varies from year to year.
E)Investment

Accepted Answer

Consumption spending is typically the largest share of GDP in most countries. This is because it includes all the spending by households on goods and services, which tends to be much larger than government purchases or investment spending. While net exports can be a large share in some countries heavily reliant on exports, overall consumption spending tends to be the largest spending share in most countries.

Question 18

The spending allocation model applies more to the long run than to the short run.

Accepted Answer

The spending allocation model is designed to help individuals and households plan their spending over the course of many years, rather than focusing on short-term spending decisions. This is because the model takes into account factors such as future income, savings goals, and long-term financial objectives, which are unlikely to change significantly over the course of just a few months or a year. While the model can certainly be used to guide short-term spending decisions, its primary value lies in helping individuals plan for their financial needs over the long term.

Question 19

Which of the following is true?
A)The government purchases share of GDP is currently less than what it was during World War II.
B)The government purchases share of GDP is currently greater than what it was during World War II.
C)The consumption share is currently at the same level it was at during World War II.
D)The net export share of GDP has been positive for the past 25 years.
E)The government purchases share has remained constant over the past 25 years.

Accepted Answer

During World War II, the government purchases share of GDP was significantly high as the government spent heavily to support the war effort. However, currently, the government purchases share of GDP is lower than what it was during World War II, indicating a decrease in government spending in proportion to the overall economy.

Question 20

Which of the following is the correct ordering if we want to rank the four spending shares of U.S. GDP in 2015 in descending (from highest to lowest) order?
A)Consumption, government purchases, investment, net exports
B)Consumption, investment, government purchases, net exports
C)Government purchases, consumption, investment, net exports
D)Consumption, government purchases, net exports, investment
E)Consumption, investment, net exports, government purchases

Accepted Answer

According to the Bureau of Economic Analysis, the four spending shares of U.S. GDP in 2015 were:
- Consumption: 68.5%
- Government purchases: 17.7%
- Investment: 16.0%
- Net exports: -2.2%
Therefore, the correct ordering in descending order (from highest to lowest) would be: 
Consumption (68.5%), government purchases (17.7%), investment (16.0%), and net exports (-2.2%). Choice A matches this ordering.

Quiz 19: The Spending Allocation Model

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

The spending allocation model allows economists to determine how GDP is allocated among the major components of spending, which are

In 2015, the government share of GDP was about

In 2015, the investment share of GDP was about

Between 2000 and 2010, the government purchases share of the GDP of the United States increased from about 17.5 to 20.5 percent, while the investment share decreased from 17.7 to 12.4 percent.

Changes in the government spending share of GDP have no effect on the investment share of GDP.

The net export share has been negative for the last 30 years.

The spending allocation model is used to determine

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

Net exports for the United States have been negative in the past 25 years, with an increasingly larger difference between imports and exports.

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

In a speech to the House of Commons in the U.K. on June 23, 2016, Chancellor of the Exchequer George Osborne expressed concern about which of the following economic trends of the U.K.?

Since the late 1980s, the government purchases share has gone up, and the investment and consumption shares have gone down.

Which of the following statements is true?

The spending allocation model is designed to explain

The investment share of GDP is expressed as

Which of the four spending shares is the largest?

The spending allocation model applies more to the long run than to the short run.

Which of the following is true?

Which of the following is the correct ordering if we want to rank the four spending shares of U.S. GDP in 2015 in descending (from highest to lowest) order?