Question 1

In an open economy, the government deficit is 600 and saving exceeds investment by 500, so in equilibrium the trade deficit (IM − X) must be

Accepted Answer

A) 100 
B) 200 
C) 300 
D) 700 
A) 100 
B) 200 
C) 300 
D) 700

Question 2

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 3

Figure 36-8
​  
-Which of the graphs in Figure 36-8 illustrates the AD-AS shifts associated with a currency depreciation?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 4

If the government budget is balanced, and saving is greater than investment, then the

Accepted Answer

A) current account must be in surplus. 
B) current account must be in deficit. 
C) current account balance must be zero. 
D) capital account must be in surplus. 
A) current account must be in surplus. 
B) current account must be in deficit. 
C) current account balance must be zero. 
D) capital account must be in surplus.

Question 5

An economic boom in the United States would cause the aggregate demand curve in other countries to shift outward.

Accepted Answer

A) True 
 B)False

Question 6

What are the results of a contractionary monetary policy in an open economy with floating exchange rates and internationally mobile capital?

Accepted Answer

A) The dollar appreciates, which leads to an increase in exports and a decrease in imports.The country therefore winds up with a deficit in capital and a surplus in its balance of trade. 
B) The dollar appreciates, which attracts foreign capital.Also, imports rise and exports decline.The country therefore winds up with a surplus in capital and an increase in its trade deficit. 
C) The dollar depreciates, which attracts foreign capital.Also, exports rise and imports decline.The country therefore winds up with a deficit in capital and a surplus in its balance of trade. 
D) The dollar depreciates, which leads to a larger real GDP and a larger trade surplus. 
A) The dollar appreciates, which leads to an increase in exports and a decrease in imports.The country therefore winds up with a deficit in capital and a surplus in its balance of trade. 
B) The dollar appreciates, which attracts foreign capital.Also, imports rise and exports decline.The country therefore winds up with a surplus in capital and an increase in its trade deficit. 
C) The dollar depreciates, which attracts foreign capital.Also, exports rise and imports decline.The country therefore winds up with a deficit in capital and a surplus in its balance of trade. 
D) The dollar depreciates, which leads to a larger real GDP and a larger trade surplus.

Question 7

A currency appreciation is disinflationary and contractionary if the

Accepted Answer

A) inward shift of the aggregate demand curve due to the fall in exports exceeds the outward shift of the aggregate supply curve due to lower input prices. 
B) outward shift of the aggregate demand curve due to the rise in exports exceeds the outward shift of the aggregate supply curve due to lower input prices. 
C) outward shift of the aggregate demand curve due to the fall in exports exceeds the inward shift of the aggregate supply curve due to higher input prices. 
D) inward shift of the aggregate demand curve due to lower input prices exceeds the outward shift of the aggregate supply curve due to the rise in exports. 
A) inward shift of the aggregate demand curve due to the fall in exports exceeds the outward shift of the aggregate supply curve due to lower input prices. 
B) outward shift of the aggregate demand curve due to the rise in exports exceeds the outward shift of the aggregate supply curve due to lower input prices. 
C) outward shift of the aggregate demand curve due to the fall in exports exceeds the inward shift of the aggregate supply curve due to higher input prices. 
D) inward shift of the aggregate demand curve due to lower input prices exceeds the outward shift of the aggregate supply curve due to the rise in exports.

Question 8

International capital inflows reduce the power of fiscal policy.

Accepted Answer

A) True 
 B)False

Question 9

Because of their effect on interest rates,

Accepted Answer

A) capital flows weaken monetary policy but strengthen fiscal policy. 
B) capital flows strengthen monetary policy but weaken fiscal policy. 
C) the initial effects of a fiscal expansion on aggregate demand are strengthened. 
D) the initial effects of a monetary contraction are weakened. 
A) capital flows weaken monetary policy but strengthen fiscal policy. 
B) capital flows strengthen monetary policy but weaken fiscal policy. 
C) the initial effects of a fiscal expansion on aggregate demand are strengthened. 
D) the initial effects of a monetary contraction are weakened.

Question 10

A fall in the relative prices of a country's exports tends to ________________ that country's net exports, and thereby, to ____ its real GDP.

Accepted Answer

A) increase; raise 
B) decrease; raise 
C) decrease; decrease 
D) None of the above is correct. 
A) increase; raise 
B) decrease; raise 
C) decrease; decrease 
D) None of the above is correct.

Question 11

A rise in net exports shifts the aggregate

Accepted Answer

A) demand curve inward. 
B) demand curve outward. 
C) supply curve outward. 
D) supply curve inward. 
A) demand curve inward. 
B) demand curve outward. 
C) supply curve outward. 
D) supply curve inward.

Question 12

Table 36-2
​  
-In Table 36-2, assume that exports rise to $900.What is the new equilibrium GDP?

Accepted Answer

A) $5,000 
B) $4,500 
C) $4,000 
D) $3,500 
A) $5,000 
B) $4,500 
C) $4,000 
D) $3,500

Question 13

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 14

Which of the following would be cures for the U.S.trade deficit?

Accepted Answer

A) Americans saving less and spending more 
B) A severe recession in Europe and Asia 
C) A severe recession in the United States 
D) A tax cut 
E) All of these responses are correct. 
A) Americans saving less and spending more 
B) A severe recession in Europe and Asia 
C) A severe recession in the United States 
D) A tax cut 
E) All of these responses are correct.

Question 15

The main international repercussion of either a fiscal expansion or monetary contraction is to

Accepted Answer

A) raise interest rates and the exchange rate, thereby crowding out net exports. 
B) raise interest rates and lower the exchange rate, thereby crowding in net exports. 
C) lower interest rates and the exchange rate, thereby crowding in net exports. 
D) lower interest rates and raise the exchange rate, thereby crowding out net exports. 
A) raise interest rates and the exchange rate, thereby crowding out net exports. 
B) raise interest rates and lower the exchange rate, thereby crowding in net exports. 
C) lower interest rates and the exchange rate, thereby crowding in net exports. 
D) lower interest rates and raise the exchange rate, thereby crowding out net exports.

Question 16

When the U.S.dollar appreciates,

Accepted Answer

A) U.S.exports rise. 
B) U.S.imports decline. 
C) aggregate demand shifts inward. 
D) aggregate demand shifts outward. 
A) U.S.exports rise. 
B) U.S.imports decline. 
C) aggregate demand shifts inward. 
D) aggregate demand shifts outward.

Question 17

Depreciation of the Japanese yen would lead to

Accepted Answer

A) outward shift in the aggregate supply curve for Japan. 
B) upward shift in the aggregate demand curve for Japan. 
C) downward shift in the aggregate supply curve for Japan. 
D) inward shift in the aggregate demand curve for Japan. 
A) outward shift in the aggregate supply curve for Japan. 
B) upward shift in the aggregate demand curve for Japan. 
C) downward shift in the aggregate supply curve for Japan. 
D) inward shift in the aggregate demand curve for Japan.

Question 18

The saving rate in the United States fell to nearly zero in the early 2000s.One of the contributing factors to this development was the

Accepted Answer

A) decrease in consumer confidence in the late 1990s. 
B) declining real incomes of most American households. 
C) increased housing wealth. 
D) rising real interest rates in the United States. 
A) decrease in consumer confidence in the late 1990s. 
B) declining real incomes of most American households. 
C) increased housing wealth. 
D) rising real interest rates in the United States.

Question 19

As the international value of the dollar rises, AS shifts outward and AD shifts inward.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) price levels. 
B) interest rates. 
C) the money supply. 
D) real GDP. 
A) price levels. 
B) interest rates. 
C) the money supply. 
D) real GDP.

Exam 36: Exchange Rates and the Macroeconomy

In an open economy, the government deficit is 600 and saving exceeds investment by 500, so in equilibrium the trade deficit (IM − X) must be

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

Figure 36-8 ​ -Which of the graphs in Figure 36-8 illustrates the AD-AS shifts associated with a currency depreciation?

If the government budget is balanced, and saving is greater than investment, then the

An economic boom in the United States would cause the aggregate demand curve in other countries to shift outward.

What are the results of a contractionary monetary policy in an open economy with floating exchange rates and internationally mobile capital?

A currency appreciation is disinflationary and contractionary if the

International capital inflows reduce the power of fiscal policy.

Because of their effect on interest rates,

A fall in the relative prices of a country's exports tends to ________________ that country's net exports, and thereby, to ____ its real GDP.

A rise in net exports shifts the aggregate

Table 36-2 ​ -In Table 36-2, assume that exports rise to $900.What is the new equilibrium GDP?

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

Which of the following would be cures for the U.S.trade deficit?

The main international repercussion of either a fiscal expansion or monetary contraction is to

When the U.S.dollar appreciates,

Depreciation of the Japanese yen would lead to

The saving rate in the United States fell to nearly zero in the early 2000s.One of the contributing factors to this development was the

As the international value of the dollar rises, AS shifts outward and AD shifts inward.

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

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

Filters

Figure 36-8 -Which of the graphs in Figure 36-8 illustrates the AD-AS shifts associated with a currency depreciation?

A fall in the relative prices of a country's exports tends to ____________ that country's net exports, and thereby, to its real GDP.

Table 36-2 -In Table 36-2, assume that exports rise to $900.What is the new equilibrium GDP?