Question 1

Contractionary monetary policy will shift the LM curve to the right.

Accepted Answer

A) True 
 B)False

Question 2

An increase in home country money demand will shift the:

Accepted Answer

A) IS curve to the right. 
B) LM curve to the right. 
C) FE curve to the right. 
D) LM curve to the left. 
A) IS curve to the right. 
B) LM curve to the right. 
C) FE curve to the right. 
D) LM curve to the left.

Question 3

An increase in government spending will:

Accepted Answer

A) shift the IS curve to the left. 
B) shift the IS curve to the right. 
C) increase the slope of the IS curve. 
D) shift the LM curve to the right. 
A) shift the IS curve to the left. 
B) shift the IS curve to the right. 
C) increase the slope of the IS curve. 
D) shift the LM curve to the right.

Question 4

The LM curve will shift to the right if:

Accepted Answer

A) the average price level decreases. 
B) the money supply decreases. 
C) the money demand increases. 
D) the interest rate decreases. 
A) the average price level decreases. 
B) the money supply decreases. 
C) the money demand increases. 
D) the interest rate decreases.

Question 5

The FE curve illustrates all combinations of domestic output levels and interest rates for which:

Accepted Answer

A) the domestic product market is in equilibrium. 
B) the domestic money market is in equilibrium. 
C) there is a zero balance for the country's official settlements balance. 
D) there is full employment. 
A) the domestic product market is in equilibrium. 
B) the domestic money market is in equilibrium. 
C) there is a zero balance for the country's official settlements balance. 
D) there is full employment.

Question 6

An increase in the spending multiplier causes the IS curve to:

Accepted Answer

A) become steeper. 
B) become flatter. 
C) shift temporarily to having a positive slope. 
D) shift to the left. 
A) become steeper. 
B) become flatter. 
C) shift temporarily to having a positive slope. 
D) shift to the left.

Question 7

Perfect capital mobility implies:

Accepted Answer

A) a vertical FE curve. 
B) high domestic interest rates relative to foreign interest rates. 
C) an FE curve that is horizontal. 
D) an FE curve that is steeper than the LM curve. 
A) a vertical FE curve. 
B) high domestic interest rates relative to foreign interest rates. 
C) an FE curve that is horizontal. 
D) an FE curve that is steeper than the LM curve.

Question 8

The IS curve illustrates all combinations of domestic output levels and interest rates for which:

Accepted Answer

A) the domestic product market is in equilibrium. 
B) the domestic money market is in equilibrium. 
C) there is a zero balance in the country's official settlements balance. 
D) there is full employment. 
A) the domestic product market is in equilibrium. 
B) the domestic money market is in equilibrium. 
C) there is a zero balance in the country's official settlements balance. 
D) there is full employment.

Question 9

The intersection of the IS and LM curves shows:

Accepted Answer

A) the balance of payments deficit or surplus. 
B) the short-run equilibrium interest rate and the output level in the economy. 
C) the short-run trade balance. 
D) the long-run equilibrium inflation rate and the natural rate of unemployment in the economy. 
A) the balance of payments deficit or surplus. 
B) the short-run equilibrium interest rate and the output level in the economy. 
C) the short-run trade balance. 
D) the long-run equilibrium inflation rate and the natural rate of unemployment in the economy.

Question 10

An external shock such as a foreign country's devaluation will shift the:

Accepted Answer

A) FE curve to the right. 
B) LM curve to the right. 
C) FE curve to the left. 
D) LM curve to the left. 
A) FE curve to the right. 
B) LM curve to the right. 
C) FE curve to the left. 
D) LM curve to the left.

Question 11

An increase in the domestic price level will:

Accepted Answer

A) shift the IS curve to the right. 
B) shift the LM curve to the right. 
C) shift the FE curve to the left. 
D) lead to a surplus in the balance of payments. 
A) shift the IS curve to the right. 
B) shift the LM curve to the right. 
C) shift the FE curve to the left. 
D) lead to a surplus in the balance of payments.

Question 12

The amount by which imports increase when income goes up by one dollar is called:

Accepted Answer

A) the marginal propensity to consume. 
B) the spending multiplier. 
C) the money multiplier. 
D) the marginal propensity to import. 
A) the marginal propensity to consume. 
B) the spending multiplier. 
C) the money multiplier. 
D) the marginal propensity to import.

Question 13

If the marginal propensity to save is 0.3 and the marginal propensity to import is 0.1, and the government increases expenditures by $10 billion, ignoring foreign-income repercussions, how much will GDP rise?

Accepted Answer

A) $20 billion. 
B) $10 billion. 
C) $25 billion. 
D) $15 billion. 
A) $20 billion. 
B) $10 billion. 
C) $25 billion. 
D) $15 billion.

Question 14

The IS curve has a:

Accepted Answer

A) positive slope because a higher interest rate leads to an increase in foreign investment and thus raises the level of aggregate income. 
B) negative slope because a higher interest rate leads to a decrease in government spending which reduces domestic output level. 
C) negative slope because a higher interest rate leads to a decrease in aggregate demand that results in lowering of domestic production level. 
D) positive slope because a higher interest rate leads to an increase in aggregate savings and thus an increase in domestic real investment. 
A) positive slope because a higher interest rate leads to an increase in foreign investment and thus raises the level of aggregate income. 
B) negative slope because a higher interest rate leads to a decrease in government spending which reduces domestic output level. 
C) negative slope because a higher interest rate leads to a decrease in aggregate demand that results in lowering of domestic production level. 
D) positive slope because a higher interest rate leads to an increase in aggregate savings and thus an increase in domestic real investment.

Question 15

Which of the following is NOT a fundamental objective for the performance of a country's macroeconomy?

Accepted Answer

A) Price stability 
B) Interest rates 
C) Full employment of resources 
D) A reasonable and sustainable balance of payments with the rest of the world 
A) Price stability 
B) Interest rates 
C) Full employment of resources 
D) A reasonable and sustainable balance of payments with the rest of the world

Question 16

The smaller the country, the more its spending tends to affect other countries.

Accepted Answer

A) True 
 B)False

Question 17

With its rapid growth of production and imports, China can be considered as another locomotive economy.

Accepted Answer

A) True 
 B)False

Question 18

The FE curve has a:

Accepted Answer

A) negative slope because an increase in domestic interest rates leads to capital inflows causing a surplus in the official settlements balance.A decrease in output levels is thus needed to reduce that surplus. 
B) positive slope because a decrease in domestic interest rates leads to capital outflows causing a surplus in the official settlements balance.An increase in output levels is thus needed to reduce that surplus. 
C) positive slope because an increase in domestic interest rates leads to capital inflows causing a surplus in the financial account balance.An increase in output levels is thus needed to reduce that surplus. 
D) negative slope because an increase in domestic interest rates leads to capital outflows causing a deficit in the financial account balance.An increase in output levels is thus needed to reduce that deficit. 
A) negative slope because an increase in domestic interest rates leads to capital inflows causing a surplus in the official settlements balance.A decrease in output levels is thus needed to reduce that surplus. 
B) positive slope because a decrease in domestic interest rates leads to capital outflows causing a surplus in the official settlements balance.An increase in output levels is thus needed to reduce that surplus. 
C) positive slope because an increase in domestic interest rates leads to capital inflows causing a surplus in the financial account balance.An increase in output levels is thus needed to reduce that surplus. 
D) negative slope because an increase in domestic interest rates leads to capital outflows causing a deficit in the financial account balance.An increase in output levels is thus needed to reduce that deficit.

Question 19

The demand for money is:

Accepted Answer

A) positively related to nominal GDP and to the level of interest rates available on other financial assets. 
B) negatively related to nominal GDP and to the level of interest rates available on other financial assets. 
C) positively related to nominal GDP and negatively related to the level of interest rates available on other financial assets. 
D) negatively related to nominal GDP and positively related to the level of interest rates available on other financial assets. 
A) positively related to nominal GDP and to the level of interest rates available on other financial assets. 
B) negatively related to nominal GDP and to the level of interest rates available on other financial assets. 
C) positively related to nominal GDP and negatively related to the level of interest rates available on other financial assets. 
D) negatively related to nominal GDP and positively related to the level of interest rates available on other financial assets.

Exam 22: How Does the Open Macroeconomy Work

Contractionary monetary policy will shift the LM curve to the right.

An increase in home country money demand will shift the:

An increase in government spending will:

The LM curve will shift to the right if:

The FE curve illustrates all combinations of domestic output levels and interest rates for which:

An increase in the spending multiplier causes the IS curve to:

Perfect capital mobility implies:

The IS curve illustrates all combinations of domestic output levels and interest rates for which:

The intersection of the IS and LM curves shows:

An external shock such as a foreign country's devaluation will shift the:

An increase in the domestic price level will:

The amount by which imports increase when income goes up by one dollar is called:

If the marginal propensity to save is 0.3 and the marginal propensity to import is 0.1, and the government increases expenditures by $10 billion, ignoring foreign-income repercussions, how much will GDP rise?

The IS curve has a:

Which of the following is NOT a fundamental objective for the performance of a country's macroeconomy?

The smaller the country, the more its spending tends to affect other countries.

With its rapid growth of production and imports, China can be considered as another locomotive economy.

The FE curve has a:

The demand for money is:

International Economics Is Different

The Basic Theory Using Demand and Supply

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Who Gains and Who Loses From Trade

Scale Economies, Imperfect Competition, and Trade

Growth and Trade Part II: Trade Policy

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Multinationals and Migration: International Factor Movements

Payments Among Nations

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

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