Question 1

Protectionism may fail to reduce a current account deficit because it

Accepted Answer

A)  depreciates the dollar. 
B)  invites retaliation, which hurts exports. 
C)  encourages exports. 
D)  does not reduce imports. 
A)  depreciates the dollar. 
B)  invites retaliation, which hurts exports. 
C)  encourages exports. 
D)  does not reduce imports.

Question 2

Currently, the United States imports more than it exports.

Accepted Answer

A) True 
 B)False

Question 3

If Asian economies suffer a serious economic slump, U.S.net exports will

Accepted Answer

A)  increase and AD will shift outward. 
B)  increase and AD will shift inward. 
C)  decrease and AD will shift inward. 
D)  decrease and AD will shift outward. 
A)  increase and AD will shift outward. 
B)  increase and AD will shift inward. 
C)  decrease and AD will shift inward. 
D)  decrease and AD will shift outward.

Question 4

A main reason why the U.S.trade deficit grew so large from 1997 to 2000 was that

Accepted Answer

A)  Congress removed all tariffs and trade restrictions on imports. 
B)  NAFTA was introduced and Mexican exports flooded the United States. 
C)  the international value of the dollar fell during the 1990s, which encouraged U.S.exports. 
D)  the international value of the dollar rose in the last half of the 1990s, which encouraged U.S.imports and damaged U.S.exports. 
A)  Congress removed all tariffs and trade restrictions on imports. 
B)  NAFTA was introduced and Mexican exports flooded the United States. 
C)  the international value of the dollar fell during the 1990s, which encouraged U.S.exports. 
D)  the international value of the dollar rose in the last half of the 1990s, which encouraged U.S.imports and damaged U.S.exports.

Question 5

Figure 20-6
  
-In Figure 20-6, which of the following will cause a movement from equilibrium at point D to equilibrium at point B?

Accepted Answer

A)  an appreciation of the dollar 
B)  a depreciation of the dollar 
C)  a depreciation of the Japanese yen 
D)  an increase in the U.S.price level 
A)  an appreciation of the dollar 
B)  a depreciation of the dollar 
C)  a depreciation of the Japanese yen 
D)  an increase in the U.S.price level

Question 6

Figure 20-6
  
-In Figure 20-6, an expansive monetary policy in a closed economy results in an equilibrium at point E.In our open economy, allowing for the induced change in the currency exchange rate, the final equilibrium will be at a point like

Accepted Answer

A)  B. 
B)  F. 
C)  J. 
D)  H. 
A)  B. 
B)  F. 
C)  J. 
D)  H.

Question 7

The combined effects of a fiscal contraction and a monetary expansion are

Accepted Answer

A)  higher real interest rates. 
B)  exchange rate depreciation. 
C)  increased current account deficit. 
D)  All of the above are correct. 
A)  higher real interest rates. 
B)  exchange rate depreciation. 
C)  increased current account deficit. 
D)  All of the above are correct.

Question 8

From 1992, America's trade performance was marked by a(n)

Accepted Answer

A)  reduced current account deficit. 
B)  increased current account deficit. 
C)  reduced capital account surplus. 
D)  increase in the growth of exports. 
A)  reduced current account deficit. 
B)  increased current account deficit. 
C)  reduced capital account surplus. 
D)  increase in the growth of exports.

Question 9

When the dollar depreciates, the prices of imported inputs

Accepted Answer

A)  fall and aggregate supply shifts outward. 
B)  fall and aggregate supply shifts inward. 
C)  rise and aggregate supply shifts outward. 
D)  rise and aggregate supply shifts inward. 
A)  fall and aggregate supply shifts outward. 
B)  fall and aggregate supply shifts inward. 
C)  rise and aggregate supply shifts outward. 
D)  rise and aggregate supply shifts inward.

Question 10

Why is fiscal policy less effective in an open economy than in a closed economy?

Accepted Answer

A)  Expansionary fiscal policy raises demand for imports, which reduces aggregate demand. 
B)  Expansionary fiscal policy raises interest rates, which raises the value of the currency, and reduces aggregate demand. 
C)  Expansionary fiscal policy raises the value of the currency, which reduces demand for exports. 
D)  Expansionary fiscal policy has all the above effects. 
A)  Expansionary fiscal policy raises demand for imports, which reduces aggregate demand. 
B)  Expansionary fiscal policy raises interest rates, which raises the value of the currency, and reduces aggregate demand. 
C)  Expansionary fiscal policy raises the value of the currency, which reduces demand for exports. 
D)  Expansionary fiscal policy has all the above effects.

Question 11

Figure 20-7
  
-In Figure 20-7, there are three aggregate expenditure functions (C + I + G + X - IM) for an open economy.Which of the following would cause a movement from A to B?

Accepted Answer

A)  an increase in interest rates 
B)  an appreciation of the dollar 
C)  a depreciation of the dollar 
D)  an increase in the U.S.price level 
A)  an increase in interest rates 
B)  an appreciation of the dollar 
C)  a depreciation of the dollar 
D)  an increase in the U.S.price level

Question 12

A fall in the domestic interest rate leads to capital

Accepted Answer

A)  outflows and exchange rate appreciation. 
B)  outflows and exchange rate depreciation. 
C)  inflows and exchange rate depreciation. 
D)  inflows and exchange rate appreciation. 
A)  outflows and exchange rate appreciation. 
B)  outflows and exchange rate depreciation. 
C)  inflows and exchange rate depreciation. 
D)  inflows and exchange rate appreciation.

Question 13

One of the principal factors behind the U.S.trade deficits of the 1990s has been

Accepted Answer

A)  slow growth and recession in many important trading partners. 
B)  rapid growth and inflation in many important trading partners. 
C)  significant depreciation of the dollar. 
D)  rising real interest rates in the United States. 
A)  slow growth and recession in many important trading partners. 
B)  rapid growth and inflation in many important trading partners. 
C)  significant depreciation of the dollar. 
D)  rising real interest rates in the United States.

Question 14

If Mexico experiences a period of stable prices while the United States experiences rapid inflation, what will happen in the United States?

Accepted Answer

A)  an increase in U.S.imports 
B)  an increase in U.S.exports 
C)  a decrease in U.S.imports 
D)  an increase in U.S.net exports 
A)  an increase in U.S.imports 
B)  an increase in U.S.exports 
C)  a decrease in U.S.imports 
D)  an increase in U.S.net exports

Question 15

One unpleasant cure for the U.S.trade deficit of the 1990s would be for foreigners who hold U.S.financial assets to demand

Accepted Answer

A)  lower interest rates to stimulate U.S.growth rates. 
B)  higher interest rates and generate a recession in the United States. 
C)  higher interest rates and generate an appreciation of the dollar. 
D)  lower interest rates and generate a depreciation of the dollar. 
A)  lower interest rates to stimulate U.S.growth rates. 
B)  higher interest rates and generate a recession in the United States. 
C)  higher interest rates and generate an appreciation of the dollar. 
D)  lower interest rates and generate a depreciation of the dollar.

Question 16

Figure 20-7
  
-In Figure 20-7, there are three aggregate expenditure functions (C + I + G + X - IM) for an open economy.Which of the following would cause a movement from A to B?

Accepted Answer

A)  a European economic expansion 
B)  a decrease in the money supply 
C)  an increase in the interest rate 
D)  an increase in the U.S.price level 
A)  a European economic expansion 
B)  a decrease in the money supply 
C)  an increase in the interest rate 
D)  an increase in the U.S.price level

Question 17

A currency appreciation reduces aggregate demand and increases aggregate supply.

Accepted Answer

A) True 
 B)False

Question 18

If the dollar depreciates, both the aggregate demand curve and the aggregate supply curve shift inward.

Accepted Answer

A) True 
 B)False

Question 19

The sum of capital inflows and the trade balance must be zero.

Accepted Answer

A) True 
 B)False

Question 20

An expansionary fiscal policy will lead to

Accepted Answer

A)  higher interest rates, an appreciated dollar, and reduced net exports. 
B)  higher interest rates, an appreciated dollar, and increased net exports. 
C)  reduced interest rates, an appreciated dollar, and reduced net exports. 
D)  reduced interest rates, an appreciated dollar, and increased net exports. 
A)  higher interest rates, an appreciated dollar, and reduced net exports. 
B)  higher interest rates, an appreciated dollar, and increased net exports. 
C)  reduced interest rates, an appreciated dollar, and reduced net exports. 
D)  reduced interest rates, an appreciated dollar, and increased net exports.

Exam 37: Exchange Rates and the Macroeconomy

Protectionism may fail to reduce a current account deficit because it

Currently, the United States imports more than it exports.

If Asian economies suffer a serious economic slump, U.S.net exports will

A main reason why the U.S.trade deficit grew so large from 1997 to 2000 was that

Figure 20-6 -In Figure 20-6, which of the following will cause a movement from equilibrium at point D to equilibrium at point B?

Figure 20-6 -In Figure 20-6, an expansive monetary policy in a closed economy results in an equilibrium at point E.In our open economy, allowing for the induced change in the currency exchange rate, the final equilibrium will be at a point like

The combined effects of a fiscal contraction and a monetary expansion are

From 1992, America's trade performance was marked by a(n)

When the dollar depreciates, the prices of imported inputs

Why is fiscal policy less effective in an open economy than in a closed economy?

Figure 20-7 -In Figure 20-7, there are three aggregate expenditure functions (C + I + G + X - IM) for an open economy.Which of the following would cause a movement from A to B?

A fall in the domestic interest rate leads to capital

One of the principal factors behind the U.S.trade deficits of the 1990s has been

If Mexico experiences a period of stable prices while the United States experiences rapid inflation, what will happen in the United States?

One unpleasant cure for the U.S.trade deficit of the 1990s would be for foreigners who hold U.S.financial assets to demand

Figure 20-7 -In Figure 20-7, there are three aggregate expenditure functions (C + I + G + X - IM) for an open economy.Which of the following would cause a movement from A to B?

A currency appreciation reduces aggregate demand and increases aggregate supply.

If the dollar depreciates, both the aggregate demand curve and the aggregate supply curve shift inward.

The sum of capital inflows and the trade balance must be zero.

An expansionary fiscal policy will lead to

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

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