Question 1

In the market clearing model without government borrowing, the net effect of government on households is an increase in funds of:

Accepted Answer

A)  transfer payments times taxes.
B)  transfer payments plus taxes.
C)  taxes less transfer payments.
D)  transfer payments less taxes.E) None of the above
F) A) and B)

Question 2

The model predicts a permanent decrease in government purchases leads to:

Accepted Answer

A)  an increase in capital utilization.
B)  a decrease in the supply of capita services.
C)  an increase in the demand for capital services.
D)  no change in the real rate of interest.E) A) and B)
F) None of the above

Question 3

According to the model a permanent decrease in government purchases does not decrease the real interest rate according to the market clearing model because:

Accepted Answer

A)  the supply of capital services and demand for capital services decrease about the same amount.
B)  neither demand for capital services nor supply of capital services shift due to the permanent increase in government purchases.
C)  the demand for capital services is downward sloping.
D)  the supply of capital services is upward sloping.E) A) and B)
F) None of the above

Question 4

A temporary increase in government purchases does not increase the real wage according to the market clearing model because:

Accepted Answer

A)  labour supply and labour demand increase about the same amount.
B)  labour supply is fixed.
C)  labour demand is downward sloping.
D)  neither labour demand nor labour supply shift due to the permanent increase in government purchases.E) All of the above
F) None of the above

Question 5

People might work more during a war time temporary increase in government purchases because of:

Accepted Answer

A)  a military draft or voluntary enlistment takes away some primary household earners and to maintain consumption as the model predicts, those households may have other members work who did not previously.
B)  the increase in the MPL leading to an increase in the demand for labour and increased capital utilization as the model predicts.
C)  increased investment leading to hire capital stocks that increase the demand for labour as the model predicts.
D)  all of the above.E) A) and B)
F) C) and D)

Question 6

Among the government's sources of funds are;

Accepted Answer

A)  transfer payments.
B)  government purchases.
C)  real revenue from printing money.
D)  all of the above.E) A) and B)
F) A) and C)

Question 7

In the market clearing model a permanent increase in government purchases does not increase the real interest rate because:

Accepted Answer

A)  the supply of capital services and demand for capital services increase about the same amount.
B)  neither demand for capital services nor supply of capital services shift due to the permanent increase in government purchases.
C)  the demand for capital services is downward sloping.
D)  the supply of capital services is upward sloping.E) A) and B)
F) A) and C)

Question 8

A permanent increase in government purchases causes an increase in the real rate of interest.

Accepted Answer

A) True 
 B)False

Question 9

Since the end of the Korean war, US permanent government spending has:

Accepted Answer

A)  increased as GDP has increased.
B)  decreased as GDP has increased.
C)  had little relationship to fluctuations in real GDP.
D)  decreased when GDP decreased.E) B) and C)
F) A) and B) C

Question 10

In the market clearing model a permanent increase in government purchases does not increase the real wage because:

Accepted Answer

A)  labour supply and labour demand increase about the same amount.
B)  labour supply is fixed.
C)  labour demand is downward sloping.
D)  neither labour demand nor labour supply shift due to the permanent increase in government purchases.E) None of the above
F) C) and D)

Question 11

If there is no revenue from money growth, then the government's budget constraint without borrowing is:

Accepted Answer

A)  Gt + Vt = Tt.
B)  Gt = Vt + Tt.
C)  Gt = Vt - Tt
D)  all of the above.E) None of the above
F) All of the above A

Question 12

The model predicts that a temporary increase in government purchases causes:

Accepted Answer

A)  an increase in consumption.
B)  a reduction in real GDP.
C)  a reduction in gross investment.
D)  all of the above.E) B) and C)
F) A) and C)

Question 13

With a temporary change in government purchases the model predicts investment is:

Accepted Answer

A)  acyclical.
B)  procyclical.
C)  countercylical.
D)  exogenous.E) A) and B)
F) B) and D)

Question 14

The fastest growing part of the Eurozone government during the Great Recession in 2008-09 is:

Accepted Answer

A)  interest payments on the debt.
B)  defense spending.
C)  social protection.
D)  infrastructure.E) A) and B)
F) A) and C)

Question 15

A temporary increase in government purchases does not increase the real interest rate according to the market clearing model because:

Accepted Answer

A)  the supply of capital services and demand for capital services increase about the same amount.
B)  neither demand for capital services nor supply of capital services shift due to the permanent increase in government purchases.
C)  the demand for capital services is downward sloping.
D)  the supply of capital services is upward sloping.E) B) and C)
F) A) and D)

Question 16

According to the model a permanent decrease in government purchases does not increase the real wage according to the market clearing model because:

Accepted Answer

A)  labour supply and labour demand decrease about the same amount.
B)  labour supply is fixed.
C)  labour demand is downward sloping.
D)  neither labour demand nor labour supply shift due to the permanent increase in government purchases.E) A) and B)
F) A) and C) D

Question 17

The real wage increase in the data during war time might be overstated as:

Accepted Answer

A)  price controls lead to understating the price level.
B)  labour demand is so high in war time.
C)  because capital utilization falls in war time.
D)  all of the above.E) B) and C)
F) None of the above

Question 18

The government budget constraint is:

Accepted Answer

A)  government purchases less transfer payments equal revenue from money growth less taxes.
B)  government purchases plus transfer payments equal taxes plus revenue from money growth.
C)  government purchases plus taxes equal transfer payment plus revenue from money creation.
D)  government purchases times transfer payment equals taxes times revenue from money creation.E) A) and C)
F) A) and B)

Question 19

According to the market clearing model a permanent increase in government purchases causes:

Accepted Answer

A)  a decrease in consumption.
B)  an increases in the real interest rate.
C)  an increases in real GDP.
D)  all of the above.E) A) and B)
F) B) and D)

Question 20

What are the effects of a permanent increase in government purchases in the market clearing model?

Accepted Answer

If government purchases go up permanentl...

Exam 13: Government Expenditure

In the market clearing model without government borrowing, the net effect of government on households is an increase in funds of:

Correct AnswerverifiedShow Answer

The model predicts a permanent decrease in government purchases leads to:

Correct AnswerverifiedShow Answer

According to the model a permanent decrease in government purchases does not decrease the real interest rate according to the market clearing model because:

Correct AnswerverifiedShow Answer

A temporary increase in government purchases does not increase the real wage according to the market clearing model because:

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People might work more during a war time temporary increase in government purchases because of:

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Among the government's sources of funds are;

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In the market clearing model a permanent increase in government purchases does not increase the real interest rate because:

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A permanent increase in government purchases causes an increase in the real rate of interest.

Correct AnswerverifiedShow Answer

Since the end of the Korean war, US permanent government spending has:

Correct AnswerverifiedC

In the market clearing model a permanent increase in government purchases does not increase the real wage because:

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If there is no revenue from money growth, then the government's budget constraint without borrowing is:

Correct AnswerverifiedA

The model predicts that a temporary increase in government purchases causes:

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With a temporary change in government purchases the model predicts investment is:

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The fastest growing part of the Eurozone government during the Great Recession in 2008-09 is:

Correct AnswerverifiedShow Answer

A temporary increase in government purchases does not increase the real interest rate according to the market clearing model because:

Correct AnswerverifiedShow Answer

According to the model a permanent decrease in government purchases does not increase the real wage according to the market clearing model because:

Correct AnswerverifiedD

The real wage increase in the data during war time might be overstated as:

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The government budget constraint is:

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According to the market clearing model a permanent increase in government purchases causes:

Correct AnswerverifiedShow Answer

What are the effects of a permanent increase in government purchases in the market clearing model?

Correct AnswerverifiedIf government purchases go up permanentl...View AnswerShow Answer

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C

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A

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D

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If government purchases go up permanentl...
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