Question 1

A change in which of the following variables will have no direct effect on the level of domestic demand?

Accepted Answer

A)  Domestic income. 
B)  The real exchange rate. 
C)  Taxes. 
D)  The real interest rate. 
E)  Government spending. 
A)  Domestic income. 
B)  The real exchange rate. 
C)  Taxes. 
D)  The real interest rate. 
E)  Government spending. B

Question 2

A decrease in the budget deficit can be reflected in:

Accepted Answer

A)  a decrease in investment. 
B)  a decrease in saving. 
C)  an increase in net exports. 
D)  Both A and B. 
E)  Both A and C. 
A)  a decrease in investment. 
B)  a decrease in saving. 
C)  an increase in net exports. 
D)  Both A and B. 
E)  Both A and C. E

Question 3

Suppose there is an increase in foreign output. This increase in foreign output will cause which of the following in the domestic country?

Accepted Answer

A)  An increase in consumption. 
B)  An increase in output. 
C)  An increase in net exports. 
D)  All of the above. 
E)  None of the above. 
A)  An increase in consumption. 
B)  An increase in output. 
C)  An increase in net exports. 
D)  All of the above. 
E)  None of the above. D

Question 4

Suppose there is a real exchange rate appreciation. This real appreciation is more likely to cause a decrease in net exports when:

Accepted Answer

A)  foreign output is relatively high. 
B)  imports are not at all sensitive to price changes. 
C)  exports and imports are relatively sensitive to price changes. 
D)  domestic output is relatively low. 
E)  the Marshall- Lerner condition does not hold. 
A)  foreign output is relatively high. 
B)  imports are not at all sensitive to price changes. 
C)  exports and imports are relatively sensitive to price changes. 
D)  domestic output is relatively low. 
E)  the Marshall- Lerner condition does not hold.

Question 5

For an open economy, which of the following expressions represents private saving (S)?

Accepted Answer

A)  I + G - T + NX. 
B)  G - T - NX + I. 
C)  I + T - G + NX. 
D)  I + T - G - NX. 
E)  G - T + NX - I. 
A)  I + G - T + NX. 
B)  G - T - NX + I. 
C)  I + T - G + NX. 
D)  I + T - G - NX. 
E)  G - T + NX - I.

Question 6

Which of the following occurs when the goods market is in equilibrium?

Accepted Answer

A)  Domestic output equals the domestic demand for goods. 
B)  Domestic output equals the demand for domestic goods. 
C)  Demand for domestic goods equals the domestic demand for goods. 
D)  Domestic output equals the domestic demand for foreign goods. 
E)  Net exports equals zero. 
A)  Domestic output equals the domestic demand for goods. 
B)  Domestic output equals the demand for domestic goods. 
C)  Demand for domestic goods equals the domestic demand for goods. 
D)  Domestic output equals the domestic demand for foreign goods. 
E)  Net exports equals zero.

Question 7

Assume that the J- curve exists. Which of the following will occur after a real exchange rate appreciation?

Accepted Answer

A)  The trade deficit will worsen immediately. 
B)  The real exchange rate will fall temporarily before it rises. 
C)  The trade deficit will improve temporarily before it worsens. 
D)  The real exchange rate will rise temporarily before it falls. 
E)  The trade deficit will worsen temporarily before it improves. 
A)  The trade deficit will worsen immediately. 
B)  The real exchange rate will fall temporarily before it rises. 
C)  The trade deficit will improve temporarily before it worsens. 
D)  The real exchange rate will rise temporarily before it falls. 
E)  The trade deficit will worsen temporarily before it improves.

Question 8

Suppose a country is experiencing a situation where output is above the natural level of output and a trade deficit. Further assume that the policy makers' goals are to achieve the natural level of output and balanced trade. Given this information, what type of exchange rate and/or fiscal policy can be used to achieve simultaneously these two goals? Explain.

Accepted Answer

To achieve the dual goals, output (Y) mu

Question 9

In a large country, the effect of a given change in government spending:

Accepted Answer

A)  on output and the trade balance is ambiguous. 
B)  on output is large and the effect on the trade balance is small. 
C)  on output is small and the effect on the trade balance is large. 
D)  on output is large and the effect on the trade balance is large. 
E)  on output is small and the effect on the trade balance is small. 
A)  on output and the trade balance is ambiguous. 
B)  on output is large and the effect on the trade balance is small. 
C)  on output is small and the effect on the trade balance is large. 
D)  on output is large and the effect on the trade balance is large. 
E)  on output is small and the effect on the trade balance is small.

Question 10

An open economy with a low saving rate (private and public) must have:

Accepted Answer

A)  a current account deficit only. 
B)  low investment or a current account surplus. 
C)  low investment only. 
D)  a current account surplus only. 
E)  low investment or a current account deficit. 
A)  a current account deficit only. 
B)  low investment or a current account surplus. 
C)  low investment only. 
D)  a current account surplus only. 
E)  low investment or a current account deficit.

Question 11

Assume the domestic economy is an open economy. Which of the following will make the government spending multiplier smaller?

Accepted Answer

A)  A move towards a more closed economy. 
B)  An increase in the marginal propensity to consume. 
C)  An increase in the marginal propensity to import. 
D)  A decrease in the marginal propensity to import. 
E)  A decrease in foreign output. 
A)  A move towards a more closed economy. 
B)  An increase in the marginal propensity to consume. 
C)  An increase in the marginal propensity to import. 
D)  A decrease in the marginal propensity to import. 
E)  A decrease in foreign output.

Question 12

A decrease in the marginal propensity to import will cause:

Accepted Answer

A)  the multiplier to increase and a given change in government spending to have a larger effect on domestic output. 
B)  the multiplier to increase and a given change in government spending to have a smaller effect on domestic output. 
C)  the multiplier to decrease and a given change in government spending to have a larger effect on domestic output. 
D)  the multiplier to decrease and a given change in government spending to have a smaller effect on domestic output. 
E)  the multiplier to increase and a given change in government spending to have no effect on domestic output. 
A)  the multiplier to increase and a given change in government spending to have a larger effect on domestic output. 
B)  the multiplier to increase and a given change in government spending to have a smaller effect on domestic output. 
C)  the multiplier to decrease and a given change in government spending to have a larger effect on domestic output. 
D)  the multiplier to decrease and a given change in government spending to have a smaller effect on domestic output. 
E)  the multiplier to increase and a given change in government spending to have no effect on domestic output.

Question 13

Suppose there is a decrease in taxes. In an open economy, a tax cut will cause:

Accepted Answer

A)  a decrease in exports. 
B)  a decrease in domestic output. 
C)  a decrease in net exports. 
D)  a decrease in imports. 
E)  a decrease in foreign output. 
A)  a decrease in exports. 
B)  a decrease in domestic output. 
C)  a decrease in net exports. 
D)  a decrease in imports. 
E)  a decrease in foreign output.

Question 14

Policy coordination is difficult because each country:

Accepted Answer

A)  prefers to be the one to increase taxes. 
B)  prefers that other countries increase taxes. 
C)  prefers that other countries increase their demand. 
D)  prefers to be the one to appreciate its currency. 
E)  prefers to be the one to increase demand. 
A)  prefers to be the one to increase taxes. 
B)  prefers that other countries increase taxes. 
C)  prefers that other countries increase their demand. 
D)  prefers to be the one to appreciate its currency. 
E)  prefers to be the one to increase demand.

Question 15

Assume that the Marshall- Lerner condition does not hold. A decrease in the real exchange rate will tend to cause which of the following to occur?

Accepted Answer

A)  A decrease in NX and a decrease in Y. 
B)  A decrease in NX and an increase in Y. 
C)  An increase in NX and an increase in Y. 
D)  An increase in NX and a decrease in Y. 
E)  A decrease in NX and a decrease in Y*. 
A)  A decrease in NX and a decrease in Y. 
B)  A decrease in NX and an increase in Y. 
C)  An increase in NX and an increase in Y. 
D)  An increase in NX and a decrease in Y. 
E)  A decrease in NX and a decrease in Y*.

Question 16

Which of the following would cause a decrease in exports?

Accepted Answer

A)  A decrease in the real exchange rate. 
B)  An increase in foreign output. 
C)  An increase in domestic output. 
D)  An increase in the real exchange rate. 
E)  A decrease in domestic output. 
A)  A decrease in the real exchange rate. 
B)  An increase in foreign output. 
C)  An increase in domestic output. 
D)  An increase in the real exchange rate. 
E)  A decrease in domestic output.

Question 17

The expression, IM, represents the value of imports in terms of:

Accepted Answer

A)  foreign currency. 
B)  foreign goods. 
C)  domestic currency. 
D)  exports. 
E)  domestic goods. 
A)  foreign currency. 
B)  foreign goods. 
C)  domestic currency. 
D)  exports. 
E)  domestic goods.

Question 18

An increase in the marginal propensity to import will cause:

Accepted Answer

A)  the ZZ line to become flatter and a given change in government spending to have a larger effect on domestic output. 
B)  the ZZ line to become flatter and a given change in government spending to have a smaller effect on domestic output. 
C)  the ZZ line to become steeper and a given change in government spending to have a larger effect on domestic output. 
D)  the ZZ line to become steeper and a given change in government spending to have a smaller effect on domestic output. 
E)  the ZZ line to become flatter and a given change in government spending to have no effect on domestic output. 
A)  the ZZ line to become flatter and a given change in government spending to have a larger effect on domestic output. 
B)  the ZZ line to become flatter and a given change in government spending to have a smaller effect on domestic output. 
C)  the ZZ line to become steeper and a given change in government spending to have a larger effect on domestic output. 
D)  the ZZ line to become steeper and a given change in government spending to have a smaller effect on domestic output. 
E)  the ZZ line to become flatter and a given change in government spending to have no effect on domestic output.

Question 19

Which of the following is true when a country is experiencing a trade deficit?

Accepted Answer

A)  Demand for domestic goods is equal to the domestic demand for goods. 
B)  Demand for domestic goods is greater than the domestic demand for goods. 
C)  Demand for domestic goods is less than the domestic demand for goods. 
D)  A budget deficit exists. 
E)  A budget surplus exists. 
A)  Demand for domestic goods is equal to the domestic demand for goods. 
B)  Demand for domestic goods is greater than the domestic demand for goods. 
C)  Demand for domestic goods is less than the domestic demand for goods. 
D)  A budget deficit exists. 
E)  A budget surplus exists.

Question 20

Explain what the Marshall- Lerner condition represents.

Accepted Answer

The Marshall- Lerner condition is the co

Exam 19: The Goods Market

A change in which of the following variables will have no direct effect on the level of domestic demand?

A decrease in the budget deficit can be reflected in:

Suppose there is an increase in foreign output. This increase in foreign output will cause which of the following in the domestic country?

Suppose there is a real exchange rate appreciation. This real appreciation is more likely to cause a decrease in net exports when:

For an open economy, which of the following expressions represents private saving (S)?

Which of the following occurs when the goods market is in equilibrium?

Assume that the J- curve exists. Which of the following will occur after a real exchange rate appreciation?

In a large country, the effect of a given change in government spending:

An open economy with a low saving rate (private and public) must have:

Assume the domestic economy is an open economy. Which of the following will make the government spending multiplier smaller?

A decrease in the marginal propensity to import will cause:

Suppose there is a decrease in taxes. In an open economy, a tax cut will cause:

Policy coordination is difficult because each country:

Assume that the Marshall- Lerner condition does not hold. A decrease in the real exchange rate will tend to cause which of the following to occur?

Which of the following would cause a decrease in exports?

The expression, IM, represents the value of imports in terms of:

An increase in the marginal propensity to import will cause:

Which of the following is true when a country is experiencing a trade deficit?

Explain what the Marshall- Lerner condition represents.

A Tour of the World

A Tour of the Book

The Goods Market

Financial Markets

Goods and Financial Markets: the Islm Model

The Labour Market

Putting All Markets Together: the Asad Model

The Phillips Curve, the Natural Rate of Unemployment and Inflation

The Crisis

The Facts of Growth

Saving, Capital Accumulation and Output

Technological Progress and Growth

Technological Progress: the Short, the Medium and the Long Run

Expectations: the Basic Tools

Financial Markets and Expectations

Expectations, Consumption and Investment

Expectations, Output and Policy

Openness in Goods and Financial Markets

Output, the Interest Rate and the Exchange Rate

Exchange Rate Regimes

Should Policy-Makers Be Restrained

Fiscal Policy: a Summing up

Monetary Policy: a Summing up

Epilogue: the Story of Macroeconomics

Filters