Exam 36: Exchange Rates and the Macroeconomy

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

A currency appreciation should

Assume that Country X and Country Y are trading partners and the exchange rates are fixed. If prices in Country Y rise, all of the following are expected to happen except

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

A fall in the domestic interest rate leads to capital outflows, which make the exchange rate depreciate. The monetary expansion of the mid-1990s was expected to lead to a currency appreciation.

A rise in the relative prices of a country's exports will decrease that country's net exports and reduce GDP.

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

In an open economy, aggregate supply consists of domestic production

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

What are some of the suggested remedies for the U.S. trade deficits? What remedies have been attempted? What remedies are left to try?

Figure 36-7 In Figure 36-7, 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?

The U.S. trade deficits of the late 1990s were due primarily to low saving rates.

Define the following terms and explain their importance to the study of macroeconomics: a. open economy b. closed economy c. budget deficits and trade deficits d. international capital flows

A reduction in G or an increase in T would lead to lower real interest rates in the United States, a depreciating dollar, and, eventually, a smaller trade deficit..

Table 36-1 Suppose the economy of Macroland is described by the following: C = 200 + 0.8 DI (DI = disposable income) I = 300 + 0.2 Y − 50 r ( 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 = 0.25 Y X = 200 M = 150 + 0.2 Y Hint: DI = Y − T From Table 36-1, find the trade deficit or surplus.

When the dollar appreciates, the prices of imported inputs

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

For a major country with extensive capital flows, what is the effect of a decrease in interest rates?

When the dollar depreciates, the prices of imported inputs rise, and the U.S. aggregate supply curve, therefore, shifts inward, pushing up the prices of American-made goods and services.

The U.S. trade deficit must be cured by some combination of lower budget deficits, higher savings, and lower investment.