Chapter Seventeen: GDP in an Open Economy with Government

Question 1

In an open economy with a government which of the following conditions does not hold in equilibrium?

	a)	Y = C + I + G + X - IM
	b)	S + T + IM = I + G + X
	c)	S + (T-G) = I + (X-IM)
	d)	S + I + X = G + T + IM
	e)	(X-IM) = Y - (C+I+G)
Correct.Incorrect. The answer is d) S + I + X = G + T + IMYour answer has been saved.

Question 2

Which one of the following is a correct statement about the net export function (X-IM)?

	a)	Net exports are positively related to GDP as higher production leads to higher overseas sales.
	b)	Net exports are positively related to GDP as higher production leads to lower imports.
	c)	Net exports are negatively related to GDP as an increase in export demand causes lower GDP.
	d)	Net exports are negatively related to GDP as higher domestic incomes lead to greater imports.
	e)	Net exports are positively related to GDP as higher domestic incomes lead to lower imports.
Correct.Incorrect. The answer is d) Net exports are negatively related to GDP as higher domestic incomes lead to greater imports.Your answer has been saved.

Question 3

Using the same notation as in the text, and using the following relationships:
Y = C + I + G + (X - IM)
C = a + b(1-t)Y
IM = mY

What is the value of the multiplier (rounded to two decimal places) when b=0.8; t=0.1 and m = 0.25?

	a)	5
	b)	3.57
	c)	1.89
	d)	1.64
	e)	1.55
Correct.Incorrect. The answer is c) 1.89Your answer has been saved.

Question 4

Using the same notation as in the text, and using the following relationships:
Y = C + I + G + (X - IM)
C = a + b(1-t)Y
IM = mY

What is the value of the multiplier (rounded to two decimal places) when b=0.8; t=0.2 and m = 0.25?

	a)	5
	b)	1.64
	c)	1.89
	d)	3.57
	e)	1.55
Correct.Incorrect. The answer is b) 1.64Your answer has been saved.

Question 5

Which of the following is a correct statement about the size of the multiplier?

	a)	The multiplier will be larger if the propensity to import increases.
	b)	The multiplier will be larger if the propensity to save increases.
	c)	The multiplier will be larger if the rate of income tax increases.
	d)	The multiplier will be smaller if the propensity to import falls.
	e)	The multiplier will be larger if the propensity to consume increases.
Correct.Incorrect. The answer is e) The multiplier will be larger if the propensity to consume increases.Your answer has been saved.

Question 6

Which of the following is not included in G (government consumption expenditure on goods and services)?

	a)	Defence spending
	b)	Public spending on running schools
	c)	The cost of the National Health Service
	d)	Old-age pensions
	e)	The salaries of the police force
Correct.Incorrect. The answer is d) Old-age pensionsYour answer has been saved.