Exam 37: Exchange Rates and the Macroeconomy

What is the impact of expansionary fiscal policy on the exchange rate? Explain the process through which expansionary fiscal policy affects the exchange rate

An expansionary fiscal policy makes the exchange rate appreciate.

The trade deficits of the 1980s and 1990s reflects American desire for foreign

Expansionary fiscal policy in an open economy

Appreciation of the Japanese yen will lead to a significant balance of trade surplus.

The government budget deficit must be equal to the surplus

A recession abroad would

Figure 20-5 -Which of the graphs in Figure 20-5 are consistent with a depreciation of the U.S.dollar and an increase in net exports caused by a decrease in U.S.interest rates?

An increase in the U.S.price level will increase U.S.net exports.

An increase in the U.S.price level relative to the price level of U.S.trading partners will cause the aggregate expenditures function in the United States to

Table 20-2 Domestic GDP Expenditure Exports Imports Total Expenditures ++ +++(-) \ 2,500 \ 3,100 \ 650 \ 250 3,000 3,400 650 300 3,500 3,700 650 350 4,000 4,000 650 400 4,500 4,300 650 450 5,000 4,600 650 500 5,500 4,900 650 550 -In Table 20-2, what is equilibrium GDP?

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

International capital flows tend to strengthen the effects of interest rate changes on aggregate demand.

If a currency appreciates, a country's net exports

The appreciation of the dollar in the late 1990s shifted the U.S.aggregate supply curve outward.

In an open economy, aggregate supply consists of domestic production

Which of the following is correct?

The sequence of events following a contractionary monetary policy would be higher interest rates followed by dollar

The different effects of fiscal and monetary policy in an open economy with mobile capital hinges on their different effect on

Table 20-1 Suppose the economy of Macroland is described by the following: C = 200 + .8DI (DI = disposable income) I = 300 + .2Y - 50r (Y = GDP) (r, the interest rate, is measured in percentage points.For example, a 9 percent interest rate is r = 9). For this economy, assume that the Federal Reserve uses its monetary policy to peg the interest rate at r = 5 G = 750 T = .25Y X = 200 M = 150 + .2Y Hint: DI = Y - T -From Table 20-1, find the budget deficit or surplus for Macroland.