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1 These are some practice questions for CHAPTER 23. Each question should have a single answer. But be careful. There may be errors in the answer key! 67. Public saving is equal 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. 68. Suppose G = 300 and the income-tax rate is 14 percent. When Y = 2000, public saving is, denoting a budget. a. 20; surplus b. 20; deficit c. -20; surplus d. -20; deficit e. 0; balance 69. An upward shift in the net export 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. d. a decrease in the exchange rate. e. a decrease in foreign prices. 70. A rise in Canadian dollar price of foreign currencies causes Canada's net export curve to shift and become. a. upward; flatter b. upward; steeper c. downward; flatter d. downward; steeper 71. Given a marginal propensity to consume out of disposable income of 0.9 and a tax rate of 10 percent of national income, the marginal response of consumption to changes in national income is. a b c d e If (S+T+IM) exceeds (I+G+X), injections leakages and national output will toward its equilibrium level. a. exceed; rise b. exceed; fall c. are less than; rise d. are less than; fall

2 73. We have the following macro model: C = Y, I = 400, G = 700, T = 0, X = 130, IM = 0.08Y. Equilibrium national income is. a b c d e. 17, We have the following macro model: C = Y, I = 400, G = 700, T = 0, X = 130, IM = 0.08Y. Consumption expenditure at equilibrium national income is. a b c d e We have the following macro model: C = Y, 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 We have the following macro model: C = Y, I = 300, G = 520, T = 0, X = 180, IM = 0.12Y. The vertical intercept of the AE curve is. a. 120 b. 420 c. 600 d e Consider the following macro model: C = Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y. A national income of 1200 yields desired aggregate expenditure of. a b c d. 926 e. 560

3 78. Consider the following macro model: C = Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y. The trade balance at equilibrium national income is. a. a deficit of b. a deficit of c. a surplus of d. a surplus of e. zero 79. An economy with positive net exports is, and so is trading off. a. accumulating foreign assets; future claims on services to gain more services in the present b. accumulating foreign assets; present claims on services to gain more services in the future c. transferring assets to foreigners; future claims on services to gain more services in the present d. transferring assets to foreigners; present claims on services to gain more services in the future e. maintaining a constant level of foreign assets; nothing 80. An expression for national asset formation is a. I + G + NX. b. I + (X - IM). c. X + IM - I. d. X - (IM - I). e. I + X. 81. Suppose: S = Y, I = 170, G = 320, T = 0.24Y, X = 90, and IM = 0.06Y. When national income is 2000, desired national saving desired national asset formation, so equilibrium GDP must lie a. exceeds; above b. exceeds; below c. falls short of; above d. falls short of; below 82. In a macro model where the marginal propensity to consume out of disposable income is 0.8, the marginal income-tax rate is 0.25, and the marginal propensity to import is 0.12, the multiplier will be. a b c d e. 0.48

4 83. In a simple macro model with government, to raise equilibrium national income by \$100 billion, G must be a. raised by \$100 billion times the multiplier. b. raised by \$100 billion divided by the multiplier. c. lowered by \$100 billion times the multiplier. d. lowered by \$100 billion divided by the multiplier. 84. Using Figure 23-2, the rotation from AE1 to AE0 is caused by a. higher tax rates. b. lower tax rates. c. higher government spending. d. lower government spending. e. a balanced budget.

5 85. The main lesson from the balanced budget multiplier is that a. equal increases in taxes and government spending have no effect on equilibrium income because they cancel each other out. b. changes in government spending have, dollar for dollar, a greater effect on equilibrium income than do changes in taxes. c. equal increases in taxes and government spending reduce equilibrium income. d. equilibrium income depends only on the absolute size of the change in government spending or taxes, and not on the multiplier. e. positive changes to national income can only occur when starting from a balanced budget. Answers 67. a 68. d 69. b 70. a 71. c 72. d 73. b 74. d 75. b 76. e 77. c 78. d 79. b 80. b 81. b 82. a 83. b 84. a 85. b

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