Chapter 13

Government purchases currently take up about A) 20% of US GNP, and this share has not changed much since the late 1950s B) 38% of US GNP, and this share has not changed much since the late 1950s C) 18% of US GNP, and this share has been increasing since the late 1950s D) 18% of US GNP, and this share has been decreasing since the late 1950s E) 25% of US GNP, and this share has been decreasing since the late 1950s

A) 20% of US GNP, and this share has not changed much since the late 1950s

Which one of the following expression is the MOST accurate? A) CA = EX - IM B) CA = IM - EX C) CA = EX = IM D) CA = EX + IM E) CA - IM = EX

A) CA = EX - IM

Government savings, S^g is equal to A) T - G B) T + G C) T = G D) T + G - I E) T - G = I

A) T - G

How do we allocate statistical discrepancy among the current, capital, and financial accounts? A) We have no way of knowing exactly how to allocate this discrepancy B) Depend on the degree of certainty by which we attribute to these accounts C) Divide it evenly amongst the three accounts D) Depend on the convention adopted by the specific financial institution E) Statistical discrepancy signals human errors made when dealing with financial accounts

A) We have no way of knowing exactly how to allocate this discrepancy

The CA is equal to A) Y - (C - I + G) B) Y + (C + I + G) C) Y - (C + I + G) D) Y - (C + I - G) E) Y + (C - I - G)

A) Y - (C - I + G)

A country's current account A) balance equals the change in its net foreign wealth B) balance equals the change in its foreign wealth C) surplus equals the change in its foreign wealth D) deficit equals the change in its foreign wealth E) balance equals its GNP

A) balance equals the change in its net foreign wealth

A US citizen buys a newly issued share of stock in England, paying for his order with a check, which the British company deposits in its own US bank account in New York. How is this transaction accounted for in the balance of payments? A) financial account, US asset export B) current account, US service import C) current account, British good export D) financial account, British asset import E) financial account, US asset import

A) financial account, US asset export

For most macroeconomists A) gross national income and gross national product are the same B) gross national income exceeds gross national product C) gross national product exceeds gross national income D) it is hard to tell whether gross national income equals gross national product E) gross national product is much more important than gross national income

A) gross national income and gross national product are the same

Investment is usually A) more variable than consumption B) less variable than consumption C) as variable as consumption D) it is hard to tell from the data whether investment is more or less variable than consumption E) a larger component of the GNP than consumption

A) more variable than consumption

For most macroeconomists A) national income accounts and national output accounts are equal to each other B) national income accounts exceed national output accounts C) national output accounts exceed national income accounts D) it is impossible to tell whether national income accounts equal to national output accounts E) national income accounts is much more important than national output accounts

A) national income accounts and national output accounts are equal to each other

The official settlements balance or balance of payments is the sum of A) the current account balance, the capital account balance, the non reserve potion of the financial account balance, and the statistical discrepancy B) the current account balance and the capital account balance C) the current account balance, the capital account balance, and the non reserve portion of the financial account balance D) the current account balance and the non reserve portion of the financial account balance E) the current account balance and the interest in all investments

A) the current account balance, the capital account balance, the non reserve portion of the financial account balance, and the statistical discrepancy

A country's gross national product (GNP) is A) the value of all final goods and services produced by its factors of production and sold on the market in a given time period B) the value of all intermediate goods and services produced by its factors of production and sold on the market in a given time period C) the value of all final goods produced by its factors of production and sold on the market in a given time period D) the value of all final goods and services produced by its factors of production and sold on the market E) the value of all final goods and services produced by its factors of production, excluding land, and sold on the market in a given time period

A) the value of all final goods and services produced by its factors of production and sold on the market in a given time period

GDP is supposed to measure A) the volume of production within a country's borders B) the volume of services generated within a country's borders C) the volume of production of a country's output D) GNP plus depreciation E) net unilateral transfers from foreigners

A) the volume of production within a country's borders

In the United States, (gross) investment has fluctuated between _________ of GNP in recent years A) 2 and 12% B) 11 and 22% C) 22 and 32% D) 32 and 42% E) 42 and 52%

B) 11 and 22%

Which one of the following statements is the MOST accurate? A) GNP plus depreciation is called net national product (NNP) B) GNP less depreciation is called net national product (NNP) C) GNP less depreciation is called net factor product (NFP) D) GDP plus depreciation is called net national product (NNP) E) GDP less depreciation is called net national product (NNP)

B) GNP less depreciation is called net national product (NNP)

In a closed economy, private saving, S^P is equal to A) I - (G - T) B) I + (G - T) C) I + (G + T) D) I - (G + T) E) I + (G - T) + C

B) I + (G - T)

For open economies, A) S = I B) S = I + CA C) S = I - CA D) S > I + CA E) S < I + CA

B) S = I + CA

In a closed economy, national saving A) sometimes equals investment B) always equals investment C) is always less than investment D) is always more than investment E) is never equal to investment

B) always equals investment

Movements in GDP A) and GNP usually do not differ greatly B) and GNP usually do not differ greatly, as a practical matter C) and GNP usually do differ greatly D) are usually smaller than those of GNP movements, in practice E) are inversely proportional to movements in GNP

B) and GNP usually do not differ greatly, as a practical matter

The position of the United States current account balance in 2009 was A) lent over 6% of its GNP, resulting in a large current account surplus B) borrowed over 9% of its GNP, leading to a large current account deficit C) achieved a current account balance of zero D) borrowed over 10% of its GNP, leading to a large current account deficit E) borrowed less than 5% of its GNP, leading to a large current account surplus

B) borrowed over 9% of its GNP, leading to a large current account deficit

A closed economy A) can save either by building up its capital stock or by acquiring foreign wealth B) can save only by building up its capital stock C) can save only by acquiring foreign wealth D) cannot save either by building up its capital stock or by acquiring foreign wealth E) can save by avoiding excessive imports

B) can save only by building up its capital stock

Movements in GDP A) differ greatly from movements in GNP B) do not differ greatly from movements in GNP C) are not allowed to differ at all from movements in GNP by definition D) need to be inflation adjusted in order to match movements in GNP E) are not relevant to an examination of national income

B) do not differ greatly from movements in GNP

Purchases of inventories by A) firms are not counted in investment spending B) firms are also counted in investment spending C) households are also counted in investment spending D) households and firms are also counted in investment spending E) foreign consumers are counter in investment spending

B) firms are also counted in investment spending

Government transfer payments like social security and unemployment benefits are A) included in government purchases B) not included in government purchases C) not included in government purchases, but they are included in the consumption component of GNP D) not included in government purchases, but they are part of the investment component of GNP E) included in government purchases but not in the GNP

B) not included in government purchases

In 1929 government purchases accounted for A) only 18.5% of US GNP B) only 8.5% of US GNP C) 28.5% of US GNP D) 38.5% of US GNP E) 48.5% of US GNP

B) only 8.5% of US GNP

Which one of the following statements is the MOST accurate? A) the sale of a used textbook does generate income for factors of production B) the sale of a used textbook does not generate income for any factor of production C) the sale of a used textbook sometimes does and sometimes does not generate income for factors of production D) it is hard to tell whether a sale of a used textbook does or does not generate income for factors of production E) the sale of a used textbook is a part of the GNP

B) the sale of a used textbook does not generate income for any factor of production

Every international transaction automatically enters the balance of payments A) once either as a credit or as a debit B) twice, once as a credit and once as a debit C) once as a credit D) twice, both times as debit E) three times, once as a credit, once as a debit, and once as an exchange

B) twice, once as a credit and once as a debit

Which of the following is TRUE about current cost method and market value method? A) They are used by the BEA to place current values on foreign indirect investments B) These methods lead to the same valuations C) Based on the current cost method, the BEA's 2009 estimate of US net foreign wealth was 2,737.86 billion D) The current cost method is preferred by the BEA E) Foreign direct investments of the US are valued at their original purchase price

C) Based on the current cost method, the BEA's 2009 estimate of US net foreign wealth was 2,737.86 billion

In an open economy, private saving, S^P is equal to A) I - CA + (G - T) B) I + CA - (G - T) C) I + CA + (G - T) D) I - CA - (G - T) E) I + CA + (G + T)

C) I + CA + (G - T)

In 2006, the United States had A) a surplus in the current account B) a balance in the current account C) a deficit in the current account D) From 2006 data, it is too difficult to determine whether a surplus or a deficit existed in the current account E) a positive balance of net financial flows

C) a deficit in the current account

The sale of A) a used textbook does enter GNP B) a used textbook does not enter GNP, but the sale of a used house does C) both a used textbook and a used house do not enter GNP D) a used house does not enter GNP, but the sale of a used book does E) the GNP does not include sale of used items priced below $1000

C) both a used textbook and a used house do not enter GNP

Ricardian equivalence argues that when the government cuts taxes and raises its deficit, A) consumers anticipate that they will face lower taxes to pay for the resulting government debt B) consumers anticipate that they will higher services from the government C) consumers anticipate that they will face higher taxes later to pay for the resulting government debt D) consumers anticipate it will affect their future taxes, in general in the direction of lowering future taxes E) consumers anticipate that the low tax rates will continue

C) consumers anticipate that they will face higher taxes later to pay for the resulting government debt

The German government carries out an official exchange intervention in which it uses dollars held in an American bank to buy French currency from its citizens. How is this accounted for in the balance of payments? A) current account, French good export B) current account, German good import C) financial account, French asset export D) financial account, German asset export E) financial account, German asset import

C) financial account, French asset export

You travel to Paris and pay for a $100 dinner with your credit card. How is this accounted for in the balance of payments? A) current account, French service import B) current account, US good export C) financial account, US asset export D) financial account, US asset import E) financial account, French asset export

C) financial account, US asset export

GDP is different than GNP in that A) it accounts for net unilateral transfers B) it does not account for indirect business taxes C) it does not account for a country's production using services with foreign-owned capital D) it accounts for depreciation E) it is unhelpful when tracking national income

C) it does not account for a country's production using services with foreign-owned capital

In open economies A) saving and investment are necessarily equal B) as in a closed economy, saving and investment are not necessarily equal C) saving and investment are not necessarily equal as they are in a closed economy D) saving and investment are necessarily equal contrary to the case of a closed economy E) investment always refers to the domestic stock market

C) saving and investment are not necessarily equal as they are in a closed economy

Over the 1980s A) there is no question that a large increase in US foreign assets did occur B) there is a question whether a large decrease in US foreign assets did occur C) there is no question that a large decrease in US foreign assets did occur D) there is no question that there was almost no change in US foreign assets E) there is no question that rising exports exceeded US foreign debt

C) there is no question that a large decrease in US foreign assets did occur

The services British capital provides in Spain are a service export from Britain A) therefore they are subtracted from British GDP in calculating British GNP B) therefore they are added to Spanish GDP in calculating Spanish GDP C) therefore they are added to British GDP in calculating British GNP D) therefore they are added to Spanish GNP in calculating Spanish GDP E) therefore they are subtracted from Spanish GNP

C) therefore they are added to British GDP in calculating British GNP

Which of the following statements about the central bank is TRUE? A) Only the central bank may hold foreign reserves and intervene officially in exchange markets B) Central banks have little power to alter macroeconomic conditions C) Today, central banks' reserves consist largely of gold D) The Federal Reserve holds only a small level of official reserve assets other than gold E) Central banks never inject money into the economy

D) The Federal Reserve holds only a small level of official reserve assets other than gold

Government purchases are defined as A) only goods purchased by federal, state, or local governments B) all goods and services purchased by the federal government C) all goods and services purchased by the federal or state government D) all goods and services purchased by the federal, state, or local government E) goods and services purchased from the government

D) all goods and services purchased by the federal, state, or local government

An open economy A) can save only by building up its capital stock B) can save only by acquiring foreign wealth C) cannot save either by building up its capital stock or by acquiring foreign wealth D) can save either by building up its capital stock or by acquiring foreign wealth E) can save by avoiding excessive imports

D) can save either by building up its capital stock or by acquiring foreign wealth

The highest component of GNP is A) the current account B) investment C) government purchases D) consumption E) trade

D) consumption

An example of how GNP accounts for services provided by foreign-owned capital (and GDP does not) is A) earnings of a Spanish factory with British owners counts only in Spain's GDP B) earnings of a Spanish factory with British owners counts only in Britain's GNP C) earnings of a Spanish factory counts in Spain's GNP but are part of Britain's GDP D) earnings of a Spanish factory counts in Spain's GDP but are part of Britain's GNP E) earnings of a Spanish factory counts in Spain's GNP but not in Britain's GDP or GNP

D) earnings of a Spanish factory counts in Spain's GDP but are part of Britain's GNP

The United States issues a $10,000 debt forgiveness to Argentina. How is this accounted for in the balance of payments? A) financial account, US asset import B) current account, Argentina transfer payment C) current account, US service export D) financial account, US asset export E) current account, Argentina good import

D) financial account, US asset export

GNP equals GDP A) minus net receipts of factor income from the rest of the world B) plus receipts of factor income from the rest of the world C) minus receipts of factor income from the rest of the world D) plus net receipts of factor income from the rest of the world E) minus depreciation

D) plus net receipts of factor income from the rest of the world

The earnings of a Spanish factory with British owners are A) counted in Spain's GDP B) part of Britain's GNP C) only counted in Britain's GDP D) only part of Spain's GNP E) counted in Britain's GDP and are part of Spain's GNP

E) *supposedly* but I think GDP and GNP have been reversed

The United States began to report its gross domestic product (GDP) only since A) 1900 B) 1921 C) 1931 D) 1941 E) 1991

E) 1991

In the United States over the past fifty years, the fraction of GNP devoted to consumption has fluctuated in a range of about A) 42 to 49% B) 32 to 39% C) 22 to 29% D) 82 to 89% E) 62 to 70%

E) 62-70%

Which of the following is TRUE? A) A country with a current account surplus is earning more from its exports than it spends on imports B) A country could finance a current account deficit by using previously accumulated foreign wealth to pay for its imports C) A country with a current account deficit must be increasing its net foreign debts by the amount of the deficit D) We can describe the current account surplus as the difference between income and absorption E) All of the above are true of current account balances

E) All of the above are true of current account balances

Which of the following is FALSE about private savings and government savings? A) S^P = Y - T - C B) Unlike private saving decisions, government saving decisions are often made with an eye toward their effect on output and employment C) Total savings (S) = S^P _ S^g D) The national income identity can help us to analyze the channels through which government saving decisions influence macroeconomic conditions E) None of the above; all statements are true

E) None of the above; all statements are true

Net unilateral transfers A) are part of a national income B) are part of a country's product C) must be added to NNP in calculations of national income D) are part of a country's GNP E) Only A and C

E) Only A and C

An American buys a Japanese car, paying by writing a check on an account with a bank in New York. How would this be accounted for in the balance of payments? A) current account, a Japanese good import B) current account, a US good import C) financial account, a US asset import D) financial account, a US asset export E) current account as a US good import, and a financial account as a US asset export

E) current account as a US good import and a financial account as a US asset export

Ricardian equivalence argues that when the government A) increases taxes and raises its deficit, consumers anticipate that they will face higher taxes later to pay for the resulting government debt, thus people will raise their own private saving to offset the fall in government saving B) cuts taxes and decreases its deficit, consumers anticipate that they will face higher taxes later to pay for the resulting government debt, thus people will raise their own private saving to offset the fall in government saving C) cuts taxes and raises its surplus, consumers anticipate that they will face higher taxes later to pay for the resulting government debt, thus people will raise their own private saving to offset the fall in government saving D) cuts taxes and raises its deficit, consumers anticipate that they will face lower taxes later to pay for the resulting government debt, thus people will raise their own private saving to offset the fall in government saving E) cuts taxes and raises its deficit, consumers anticipate that they will face higher taxes later to pay for the resulting government debt, thus people will raise their own private saving to offset the fall in government saving

E) cuts taxes and raises its deficit, consumers anticipate that they will face higher taxes later to pay for the resulting government debt, thus people will raise their own private saving to offset the fall in government saving

National income equals GNP A) less depreciation, less net unilateral transfers, less indirect business taxes B) less depreciation, plus net unilateral transfers, plus indirect business taxes C) less depreciation, less net unilateral transfers, plus indirect business taxes D) plus depreciation, plus net unilateral transfers, less indirect business taxes E) less depreciation, plus net unilateral transfers, less indirect business taxes

E) less depreciation, plus net unilateral transfers, less indirect business taxes

Disposable income is National income A) less taxes collected from households and firms by the government B) plus net taxes collected from households and firms by the government C) less net taxes collected from firms by the government D) less net taxes collected from households by the government E) less net taxes collected from households and firms by the government

E) less net taxes collected from households and firms by the government

Which one of the following statements is FALSE? A) The United States had accumulated substantial foreign wealth by the early 1980s B) The 1980s witnessed a sustained current account deficit of proportions unprecedented in the twentieth century opened up C) In 1987, the country became a net debtor to foreigners for the first time since World War I D) US foreign debt has continued to grow and now stands at 25% GNP E) The US foreign debt was paid off in the 1990s, allowing the US to attain a current account surplus. However, the deficit has returned in recent years.

E) the US foreign debt was paid off in the 1990s, allowing the US to attain a current account surplus. However, the deficit has returned in recent years

Unilateral transfers between countries are A) long-term loans B) only international gifts, never payments that do not correspond to the purchase of any good, service, or asset C) part of the current account but not part of national income D) known for reducing the income of capital owners E) the difference between Y and GNP if the identity Y = C + I + G + CA holds exactly

E) the difference between Y and GNP if the identity Y = C + I + G + CA holds exactly

personal savings formula S^P =

S^P = I + CA + (G - T)

What is the national income identity for a closed economy?

Y = C + I + G

What is the national income identity for an open economy?

Y = C + I + G + EX - IM