Question

13) Consumption

a.         makes up about two-thirds of GDP in a typical year       

b.         exceeds GDP in years when net exports are negative     

c.         is much more volatile than investment, especially during recession years

d.         is much more volatile than investment, especially during expansion years

e.         has declined as a fraction of GDP over time

14) A household's net wealth is the value of

a.         its current income minus the value of all its liabilities    

b.         all its assets minus their tax liabilities   

c.         all its assets minus the value of all its liabilities

d.         all its assets minus its income   

e.         its current income minus its tax liabilities

15) An increase in the value of the U.S. dollar relative to other currencies will

a.         shift the autonomous net export function upward

b.         shift the autonomous net export function downward      

c.         cause a rightward movement along the autonomous net export function  

d.         cause a leftward movement along the autonomous net export function    

e.         show no movement along or shift of the autonomous net export function

16) If the U.S. price level decreases, other things equal, U.S. net exports will

a.         increase          

b.         decrease          

c.         remain constant, since net exports are assumed to be constant    

d.         increase only if the marginal propensity to import also increases

e.         increase only if there is inflation abroad

Answer 1

Ques 13.

Consumption expenditure is the largest component of the US GDP. It accounts for an average of two-thirds of GDP in the United States in a year.

Ans. (A)

Ques 14.

The net wealth/ net worth of a household is the difference between the total value of its assets (financial and non-financial) and the total value of its outstanding liabilities.

Ans (C)

Ques 15.

An increase in the value of US dollars relative to other currencies, known as the appreciation of the currency, makes exports more expensive and imports cheaper. This results in a fall in net exports. Thus, the net exports function shifts downwards.

Ans. (B)

Ques 16.

Given, Net exports = Exports - Imports, an increase in the US price level leads to an increase in imports and a decrease in exports, since imports are now cheaper, thus resulting in a fall in net exports.

Ans, (B)