Question 1

A current account deficit is

Accepted Answer

A)  good because a country wants to own the others. 
B)  bad because every country should have a surplus. 
C)  good because it allows to smooth consumption. 
D)  it does not matter. 
E)  bad because it permits consumption smoothing. 
A)  good because a country wants to own the others. 
B)  bad because every country should have a surplus. 
C)  good because it allows to smooth consumption. 
D)  it does not matter. 
E)  bad because it permits consumption smoothing. C

Question 2

The key effect of the current account surplus is

Accepted Answer

A)  to smooth consumption for the nation as a whole. 
B)  to destabilize the economy. 
C)  to smooth aggregate output. 
D)  to improve fiscal policy. 
E)  to constrain the central bank. 
A)  to smooth consumption for the nation as a whole. 
B)  to destabilize the economy. 
C)  to smooth aggregate output. 
D)  to improve fiscal policy. 
E)  to constrain the central bank. A

Question 3

For Canada,

Accepted Answer

A)  a small open economy assumption is realistic. 
B)  a small open economy assumption is not realistic. 
C)  small open economy models are irrelevant. 
D)  trade with the rest of the world is negligible. 
E)  trade with the rest of the world has fallen since the 1950s. 
A)  a small open economy assumption is realistic. 
B)  a small open economy assumption is not realistic. 
C)  small open economy models are irrelevant. 
D)  trade with the rest of the world is negligible. 
E)  trade with the rest of the world has fallen since the 1950s. A

Question 4

In a two-period SOE model with production, an increase in domestic government spending

Accepted Answer

A)  increases domestic output and increases the current account surplus. 
B)  increases domestic output and decreases the current account surplus. 
C)  decreases domestic output and increases the current account surplus. 
D)  decreases domestic output and decreases the current account surplus. 
E)  increases domestic output with no change in the current account surplus. 
A)  increases domestic output and increases the current account surplus. 
B)  increases domestic output and decreases the current account surplus. 
C)  decreases domestic output and increases the current account surplus. 
D)  decreases domestic output and decreases the current account surplus. 
E)  increases domestic output with no change in the current account surplus.

Question 5

In the two-period SOE model with production, suppose that the real interest rate if there were no trade is greater than the world real interest rate. If the economy is initially closed, and then becomes open,

Accepted Answer

A)  net exports will be positive. 
B)  output will increase. 
C)  net exports will be negative. 
D)  investment will fall. 
E)  government spending will rise. 
A)  net exports will be positive. 
B)  output will increase. 
C)  net exports will be negative. 
D)  investment will fall. 
E)  government spending will rise.

Question 6

In a two-period SOE model with production, the government expenditure multiplier

Accepted Answer

A)  is larger in an open economy because net exports fall. 
B)  is larger in an open economy because net exports are unaffected. 
C)  is smaller in an open economy because net exports fall. 
D)  is smaller in an open economy because net exports increase. 
E)  is larger in an open economy because net exports increase. 
A)  is larger in an open economy because net exports fall. 
B)  is larger in an open economy because net exports are unaffected. 
C)  is smaller in an open economy because net exports fall. 
D)  is smaller in an open economy because net exports increase. 
E)  is larger in an open economy because net exports increase.

Question 7

An increase in total factor productivity in a closed economy

Accepted Answer

A)  increases labour demand, increases the real wage, increases output and decreases the real interest rate. 
B)  increases labour demand, increases the real wage, increases output and increases the real interest rate. 
C)  increases labour demand, decreases the real wage, decreases output and increases the real interest rate. 
D)  increases labour demand, decreases the real wage, decreases output and decreases the real interest rate. 
E)  decreases labour demand, increases the real wage, increases output and decreases the real interest rate. 
A)  increases labour demand, increases the real wage, increases output and decreases the real interest rate. 
B)  increases labour demand, increases the real wage, increases output and increases the real interest rate. 
C)  increases labour demand, decreases the real wage, decreases output and increases the real interest rate. 
D)  increases labour demand, decreases the real wage, decreases output and decreases the real interest rate. 
E)  decreases labour demand, increases the real wage, increases output and decreases the real interest rate.

Question 8

In the two-period SOE model with production, total gross domestic product is equal to

Accepted Answer

A)  net exports plus investment plus government spending plus consumption. 
B)  investment plus taxes plus disposable income plus the current account surplus. 
C)  consumption minus investment plus government spending plus net exports. 
D)  net exports minus investment plus government spending plus consumption. 
E)  the government surplus plus the current account surplus. 
A)  net exports plus investment plus government spending plus consumption. 
B)  investment plus taxes plus disposable income plus the current account surplus. 
C)  consumption minus investment plus government spending plus net exports. 
D)  net exports minus investment plus government spending plus consumption. 
E)  the government surplus plus the current account surplus.

Question 9

Ricardian equivalence suggests that government budget deficits generated by decreases in current taxes

Accepted Answer

A)  increase the current account surplus. 
B)  decrease the current account surplus. 
C)  have no effect on the current account surplus. 
D)  have unpredictable effects on the current account surplus. 
E)  increase output. 
A)  increase the current account surplus. 
B)  decrease the current account surplus. 
C)  have no effect on the current account surplus. 
D)  have unpredictable effects on the current account surplus. 
E)  increase output.

Question 10

The following are all trade agreements:

Accepted Answer

A)  ECB, Fed, and GM. 
B)  UK, US, and EU. 
C)  GATT, EU, and BU. 
D)  EU, NAFTA, and GATT. 
E)  NAFTA, DNC, and EU. 
A)  ECB, Fed, and GM. 
B)  UK, US, and EU. 
C)  GATT, EU, and BU. 
D)  EU, NAFTA, and GATT. 
E)  NAFTA, DNC, and EU.

Question 11

When a country runs a current account deficit to finance an increase in domestic investment expenditures, it causes

Accepted Answer

A)  taxes to rise. 
B)  an increase in capital stock and future productive capacity. 
C)  consumption smoothing over time. 
D)  a government deficit to occur. 
E)  the real interest rate to increase. 
A)  taxes to rise. 
B)  an increase in capital stock and future productive capacity. 
C)  consumption smoothing over time. 
D)  a government deficit to occur. 
E)  the real interest rate to increase.

Question 12

In the two-period SOE model, if the current account surplus is initially positive and the real interest rate decreases, then

Accepted Answer

A)  the current account deficit may rise or fall. 
B)  the current account surplus must rise. 
C)  the current account deficit must rise. 
D)  the current account surplus must fall. 
E)  the current account deficit must fall. 
A)  the current account deficit may rise or fall. 
B)  the current account surplus must rise. 
C)  the current account deficit must rise. 
D)  the current account surplus must fall. 
E)  the current account deficit must fall.

Question 13

The national present-value budget constraint states that

Accepted Answer

A)  government spending equals taxes in present value terms. 
B)  savings equals investment. 
C)  the credit market clears. 
D)  assets equal liabilities for the central bank. 
E)  the present value of consumption plus the present value of government spending is equal to the present value of total income. 
A)  government spending equals taxes in present value terms. 
B)  savings equals investment. 
C)  the credit market clears. 
D)  assets equal liabilities for the central bank. 
E)  the present value of consumption plus the present value of government spending is equal to the present value of total income.

Question 14

In the two period SOE model with production, if there is good news about future total factor productivity,

Accepted Answer

A)  current output declines. 
B)  current output increases. 
C)  investment declines. 
D)  the current account surplus decreases. 
E)  the current account surplus increases. 
A)  current output declines. 
B)  current output increases. 
C)  investment declines. 
D)  the current account surplus decreases. 
E)  the current account surplus increases.

Question 15

International trade has increased for which of the following reasons?

Accepted Answer

A)  The development of more efficient world financial markets. 
B)  Higher costs of transporting goods between countries. 
C)  More government spending on goods and services. 
D)  Better monetary policy. 
E)  Governments went against mainstream economic ideas. 
A)  The development of more efficient world financial markets. 
B)  Higher costs of transporting goods between countries. 
C)  More government spending on goods and services. 
D)  Better monetary policy. 
E)  Governments went against mainstream economic ideas.

Question 16

In the two-period model with default, if the nation defaults on its debts in the future period

Accepted Answer

A)  there are no consequences. 
B)  it bears a cost v. 
C)  collateral is seized. 
D)  it faces a higher interest rate. 
E)  the central bank must bail out the government. 
A)  there are no consequences. 
B)  it bears a cost v. 
C)  collateral is seized. 
D)  it faces a higher interest rate. 
E)  the central bank must bail out the government.

Question 17

If consumption increases, and government spending decreases by an equal amount, and investment stays the same,

Accepted Answer

A)  absorption goes up. 
B)  absorption stays the same. 
C)  absorption goes down. 
D)  the economy is closed. 
E)  the government surplus must go down. 
A)  absorption goes up. 
B)  absorption stays the same. 
C)  absorption goes down. 
D)  the economy is closed. 
E)  the government surplus must go down.

Question 18

In a two-period SOE model with production, a negative total factor productivity shock abroad

Accepted Answer

A)  increases foreign output and increases domestic output. 
B)  decreases foreign output and decreases domestic output. 
C)  increases foreign output and decreases domestic output. 
D)  decreases foreign output and increases domestic output. 
E)  decreases foreign output and leaves domestic output unchanged. 
A)  increases foreign output and increases domestic output. 
B)  decreases foreign output and decreases domestic output. 
C)  increases foreign output and decreases domestic output. 
D)  decreases foreign output and increases domestic output. 
E)  decreases foreign output and leaves domestic output unchanged.

Question 19

In the two-period SOE model, if the real interest rate decreases and the current account is initially in deficit, then

Accepted Answer

A)  the current account surplus stays the same. 
B)  the current account surplus falls. 
C)  the current account deficit falls. 
D)  the current account surplus rises. 
E)  the current account deficit stays the same. 
A)  the current account surplus stays the same. 
B)  the current account surplus falls. 
C)  the current account deficit falls. 
D)  the current account surplus rises. 
E)  the current account deficit stays the same.

Question 20

An increase in total factor productivity has different effects in an open economy relative to a closed economy because

Accepted Answer

A)  the real interest rate does not change in the open economy. 
B)  the change in the real interest rate involves a substitution effect only in the open economy. 
C)  the real interest rate does not change in the closed economy. 
D)  the real interest rate decreases in the open economy and increases in the closed economy. 
E)  it is a positive income effect in the closed economy and a negative one in the open economy. 
A)  the real interest rate does not change in the open economy. 
B)  the change in the real interest rate involves a substitution effect only in the open economy. 
C)  the real interest rate does not change in the closed economy. 
D)  the real interest rate decreases in the open economy and increases in the closed economy. 
E)  it is a positive income effect in the closed economy and a negative one in the open economy.

A current account deficit is

The key effect of the current account surplus is

For Canada,

In a two-period SOE model with production, an increase in domestic government spending

In the two-period SOE model with production, suppose that the real interest rate if there were no trade is greater than the world real interest rate. If the economy is initially closed, and then becomes open,

In a two-period SOE model with production, the government expenditure multiplier

An increase in total factor productivity in a closed economy

In the two-period SOE model with production, total gross domestic product is equal to

Ricardian equivalence suggests that government budget deficits generated by decreases in current taxes

The following are all trade agreements:

When a country runs a current account deficit to finance an increase in domestic investment expenditures, it causes

In the two-period SOE model, if the current account surplus is initially positive and the real interest rate decreases, then

The national present-value budget constraint states that

In the two period SOE model with production, if there is good news about future total factor productivity,

International trade has increased for which of the following reasons?

In the two-period model with default, if the nation defaults on its debts in the future period

If consumption increases, and government spending decreases by an equal amount, and investment stays the same,

In a two-period SOE model with production, a negative total factor productivity shock abroad

In the two-period SOE model, if the real interest rate decreases and the current account is initially in deficit, then

An increase in total factor productivity has different effects in an open economy relative to a closed economy because

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behaviour: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity among Countries and Endogenous Growth

A Two-Period Model: The Consumption–Savings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters

Exam 16: International Trade in Goods and Assets

A current account deficit is

The key effect of the current account surplus is

For Canada,

In a two-period SOE model with production, an increase in domestic government spending

In the two-period SOE model with production, suppose that the real interest rate if there were no trade is greater than the world real interest rate. If the economy is initially closed, and then becomes open,

In a two-period SOE model with production, the government expenditure multiplier

An increase in total factor productivity in a closed economy

In the two-period SOE model with production, total gross domestic product is equal to

Ricardian equivalence suggests that government budget deficits generated by decreases in current taxes

The following are all trade agreements:

When a country runs a current account deficit to finance an increase in domestic investment expenditures, it causes

In the two-period SOE model, if the current account surplus is initially positive and the real interest rate decreases, then

The national present-value budget constraint states that

In the two period SOE model with production, if there is good news about future total factor productivity,

International trade has increased for which of the following reasons?

In the two-period model with default, if the nation defaults on its debts in the future period

If consumption increases, and government spending decreases by an equal amount, and investment stays the same,

In a two-period SOE model with production, a negative total factor productivity shock abroad

In the two-period SOE model, if the real interest rate decreases and the current account is initially in deficit, then

An increase in total factor productivity has different effects in an open economy relative to a closed economy because

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behaviour: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity among Countries and Endogenous Growth

A Two-Period Model: The Consumption–Savings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters