Question 1

Consider the following news headline: "China signs deal to buy more Canadian wheat." 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

The news headline suggests an increase in exports, which will increase net exports (X-M) and thus increase the aggregate expenditure (AE) function. The AE function will shift up parallel to itself, resulting in an increase in equilibrium national income.

Question 2

Consider the following macro model with demand- determined output: C = 150 + 0.9Y_d, Y_d= 0.8Y, I = 400, G = 700, T = (0.2)Y, X = 130, IM = (0.08)Y. Equilibrium national income is

Accepted Answer

The answer of Consider the following macro model with demand-...

Question 3

In a simple macro model with government and demand- determined output, to reduce equilibrium national income by $100 billion, G must be

Accepted Answer

In a demand-determined model, the change in national income is determined by the simple multiplier. The simple multiplier is calculated as 1/(1-MPC) where MPC (marginal propensity to consume) is the proportion of an additional dollar of income spent on consumption. Therefore, to reduce equilibrium national income by $100 billion, we need to lower G by $100 billion divided by the simple multiplier. This is because a decrease in G will lead to a decrease in aggregate demand, which will be multiplied by the simple multiplier to determine the change in national income.

Question 4

Consider the government's budget balance. Suppose G = 400 and the government's net tax revenue is 20 percent of national income (Y). Government saving is negative for all values of Y

Accepted Answer

The answer of Consider the government's budget balance. Suppose G...

Question 5

Transfer payments made by the government affect its net tax revenues

Accepted Answer

Transfer payments made by the government directly affect its net tax revenues. Transfer payments are transfers of income from the government to individuals or other entities without any corresponding goods or services being received by the government in return. These payments include social security payments, unemployment benefits, and welfare payments, among others. The government's net tax revenues are the total amount of tax revenue collected minus any transfer payments made. Therefore, transfer payments directly affect net tax revenues.

Question 6

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

Accepted Answer

The answer of In a simple macro model with a...

Question 7

If the government's net tax rate increases, then for a given level of national income disposable income will but net tax revenue will .

Accepted Answer

An increase in the net tax rate reduces disposable income because individuals and businesses have less after-tax income. However, net tax revenue increases because the government collects more taxes from the same level of national income.

Question 8

A decrease in the value of the simple multiplier can be caused by

Accepted Answer

The simple multiplier is calculated as 1 divided by the marginal propensity to save. Therefore, an increase in the marginal propensity to save will decrease the value of the multiplier.

Question 9

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

Accepted Answer

The answer of A fall in domestic prices relative to...

Question 10

In an open economy with government and demand- determined output, an increase in the equilibrium level of national income could be caused by

Accepted Answer

In a demand-determined output setting, an increase in desired consumption or investment would increase the equilibrium level of national income. Similarly, a decrease in desired saving would increase spending and therefore increase the equilibrium level of national income. Choices A, C, D, and E would all decrease spending and dampen economic activity, so they would not increase the equilibrium level of national income.

Question 11

Consider the following news headline: "Minister of Defence announces $2 billion purchase of fighter aircraft." Assuming that aggregate output is demand- determined, and that the aircraft are purchased domestically, what will be the effect of this action, all other things equal, on the AE function and equilibrium national income?

Accepted Answer

The purchase of fighter aircraft will increase government spending, which will shift the AE function up parallel to itself. This will lead to an increase in equilibrium national income.

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

Consider the following news headline: "China signs deal to buy more Canadian wheat." 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?

Consider the following macro model with demand- determined output: C = 150 + 0.9Y_d, Y_d= 0.8Y, I = 400, G = 700, T = (0.2) Y, X = 130, IM = (0.08) Y. Equilibrium national income is

In a simple macro model with government and demand- determined output, to reduce equilibrium national income by $100 billion, G must be

Consider the government's budget balance. Suppose G = 400 and the government's net tax revenue is 20 percent of national income (Y) . Government saving is negative for all values of Y

Transfer payments made by the government affect its net tax revenues

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

If the government's net tax rate increases, then for a given level of national income disposable income will but net tax revenue will .

A decrease in the value of the simple multiplier can be caused by

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

In an open economy with government and demand- determined output, an increase in the equilibrium level of national income could be caused by

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

Consider the following news headline: "China signs deal to buy more Canadian wheat." 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?

Consider the following macro model with demand- determined output: C = 150 + 0.9Yd, Yd= 0.8Y, I = 400, G = 700, T = (0.2) Y, X = 130, IM = (0.08) Y. Equilibrium national income is

In a simple macro model with government and demand- determined output, to reduce equilibrium national income by $100 billion, G must be

Consider the government's budget balance. Suppose G = 400 and the government's net tax revenue is 20 percent of national income (Y) . Government saving is negative for all values of Y

Transfer payments made by the government affect its net tax revenues

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

If the government's net tax rate increases, then for a given level of national income disposable income will but net tax revenue will .

A decrease in the value of the simple multiplier can be caused by

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

In an open economy with government and demand- determined output, an increase in the equilibrium level of national income could be caused by

Consider the following macro model with demand- determined output: C = 150 + 0.9Y_d, Y_d= 0.8Y, I = 400, G = 700, T = (0.2) Y, X = 130, IM = (0.08) Y. Equilibrium national income is