## Macroeconomics Final Exam Practice Problems: Government

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NEAS
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Macroeconomics Final Exam Practice Problems: Government

(The attached PDF file has better formatting.)

*Question 1.1: Permanent Increase in Government Expenditures

Government spending may affect private consumption, investment, and interest rates.

Suppose government spending is now \$500 billion.  If the government permanently raises spending to \$600 billion to finance national health insurance, which of the following is true?

 Private Consumption Private Investment Interest Rates A rise rise fall B fall fall rise C no change fall rise D fall no change no change E rise rise no change

Increased government spending makes it harder for private firms to borrow and causes people to consume and invest less.

If the government finances its spending with debt, interest rates rise, and private firms invest less.  Consumers expect to pay higher taxes in later years, so they spend less.

If the government finances its spending with higher taxes, consumers spend less and save less. Interest rates rise, and private firms invest less.

*Question 1.2: Permanent Increase in Government Expenditures

Government spending may affect private consumption, investment, and interest rates.

Suppose government spending is now \$500 billion.  If the government permanently raises spending to \$600 billion to finance national health insurance, which of the following is true?

 Real GDP Private Consumption Private Investment Interest Rates A fall rise rise fall B rise fall fall rise C fall no change fall rise D no change fall no change no change E rise rise rise no change

Increased government spending makes it harder for private firms to borrow and causes people to consume and invest less.

If the government finances its spending with debt, interest rates rise, and private firms invest less.  Consumers expect to pay higher taxes in later years, so they spend less.

If the government finances its spending with higher taxes, consumers spend less and save less. Interest rates rise, and private firms invest less.

*Question 1.3: Cyclicality

The correlation of consumption, investment, and government expenditures with real GDP affects our interpretation of business cycles.

Pro-cyclical   a correlation significantly greater than zero.

Counter-cyclical   a correlation significantly less than zero.

Independent   a correlation not significantly different from zero.

What is the correlation of private consumption, gross domestic investment, and permanent (non-wartime) government expenditures with real GDP?

 Private Consumption Gross Domestic Investment Permanent Government Expenditures A pro-cyclical pro-cyclical counter-cyclical B counter-cyclical counter-cyclical pro-cyclical C independent counter-cyclical pro-cyclical D counter-cyclical independent independent E pro-cyclical pro-cyclical independent

*Question 1.4: Temporary Increase in Government Expenditures

Government spending may affect private consumption, investment, and interest rates.

Suppose government spending is now \$500 billion.  If the government temporarily raises its consumption to \$600 billion to finance a short-term war, which of the following is true?

 Private Consumption Private Investment Interest Rates A rise slightly rise fall B fall slightly fall rise C rise slightly fall rise D fall slightly rise fall E rise slightly rise no change

Increased government spending makes it harder for private firms to borrow and causes people to consume and invest less.

If the government finances its spending with debt, interest rates rise, and private firms invest less.  Consumers expect to pay higher taxes in later years, so they spend less.

If the government finances its spending with higher taxes, consumers spend less and save less. Interest rates rise, and private firms invest less.

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NEAS
Supreme Being

Posts: 4.2K, Visits: 1.2K
NEAS - 6/19/2010 11:52:50 AM

Macroeconomics Final Exam Practice Problems: Government

(The attached PDF file has better formatting.)

*Question 1.1: Permanent Increase in Government Expenditures

Government spending may affect private consumption, investment, and interest rates.

Suppose government spending is now \$500 billion.  If the government permanently raises spending to \$600 billion to finance national health insurance, which of the following is true?

 Private Consumption Private Investment Interest Rates A rise rise fall B fall fall rise C no change fall rise D fall no change no change E rise rise no change

Increased government spending makes it harder for private firms to borrow and causes people to consume and invest less.

If the government finances its spending with debt, interest rates rise, and private firms invest less.  Consumers expect to pay higher taxes in later years, so they spend less.

If the government finances its spending with higher taxes, consumers spend less and save less. Interest rates rise, and private firms invest less.

*Question 1.2: Permanent Increase in Government Expenditures

Government spending may affect private consumption, investment, and interest rates.

Suppose government spending is now \$500 billion.  If the government permanently raises spending to \$600 billion to finance national health insurance, which of the following is true?

 Real GDP Private Consumption Private Investment Interest Rates A fall rise rise fall B rise fall fall rise C fall no change fall rise D no change fall no change no change E rise rise rise no change

Increased government spending makes it harder for private firms to borrow and causes people to consume and invest less.

If the government finances its spending with debt, interest rates rise, and private firms invest less.  Consumers expect to pay higher taxes in later years, so they spend less.

If the government finances its spending with higher taxes, consumers spend less and save less. Interest rates rise, and private firms invest less.

*Question 1.3: Cyclicality

The correlation of consumption, investment, and government expenditures with real GDP affects our interpretation of business cycles.

Pro-cyclical   a correlation significantly greater than zero.

Counter-cyclical   a correlation significantly less than zero.

Independent   a correlation not significantly different from zero.

What is the correlation of private consumption, gross domestic investment, and permanent (non-wartime) government expenditures with real GDP?

 Private Consumption Gross Domestic Investment Permanent Government Expenditures A pro-cyclical pro-cyclical counter-cyclical B counter-cyclical counter-cyclical pro-cyclical C independent counter-cyclical pro-cyclical D counter-cyclical independent independent E pro-cyclical pro-cyclical independent

*Question 1.4: Temporary Increase in Government Expenditures

Government spending may affect private consumption, investment, and interest rates.

Suppose government spending is now \$500 billion.  If the government temporarily raises its consumption to \$600 billion to finance a short-term war, which of the following is true?

 Private Consumption Private Investment Interest Rates A rise slightly rise fall B fall slightly fall rise C rise slightly fall rise D fall slightly rise fall E rise slightly rise no change

Increased government spending makes it harder for private firms to borrow and causes people to consume and invest less.

If the government finances its spending with debt, interest rates rise, and private firms invest less.  Consumers expect to pay higher taxes in later years, so they spend less.

If the government finances its spending with higher taxes, consumers spend less and save less. Interest rates rise, and private firms invest less.

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