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# Macroeconomics Study Set 44

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## Quiz 22 : Adding Government and Trade to the Simple Macro Model

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?
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B

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 .
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C

Government's transfer payments to individuals affect desired aggregate expenditure
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D

In a simple macro model, it is generally assumed that a country's exports
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In a simple macro model with government and demand- determined output, to raise equilibrium national income by $100 billion, G must be Multiple Choice Answer: 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 . Multiple Choice Answer: An increase in foreign income, other things being equal, is assumed to cause the net export (NX)function to Multiple Choice Answer: Consider the following news headline: "Canadian exporters hurt by foreign recession." 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? Multiple Choice Answer: Consider the government's budget balance. Suppose G = 300 and the government's net tax revenue is equal to 0.14Y. When Y = 2000, the government is running a budget . Multiple Choice Answer: firms have excess capacity. Multiple Choice Answer: Consider the following news headline: "Canadians develop a greater taste for foreign vacations." 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? Multiple Choice Answer: Suppose exports are$200 and imports are given by IM = 0.2Y. At what level of national income will net exports equal zero?
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Consider the net export function. An increase in domestic national income, other things being equal, is assumed to cause
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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 .
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When determining the AE function for an open economy with government, it is generally assumed that as real national income
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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 .
Multiple Choice