Question 1

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.

Question 2

A currency appreciation should _______ net exports, and, therefore, _________aggregate demand.

Accepted Answer

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

Question 3

In an open economy, aggregate supply consists of domestic production plus imports.

Accepted Answer

A) True 
 B)False

Question 4

Appreciation 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)  downward 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)  downward shift in the aggregate demand curve for Japan.

Question 5

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 6

To eliminate the trade deficits in the late 1990s would have required, in addition to the reduction of the federal budget deficit, an increase in

Accepted Answer

A)  investment spending. 
B)  the exchange value of the dollar. 
C)  the U.S. price level. 
D)  the saving rate. 
A)  investment spending. 
B)  the exchange value of the dollar. 
C)  the U.S. price level. 
D)  the saving rate.

Question 7

International trade tends to lower the value of the multiplier because

Accepted Answer

A)  imports fall as GDP increases. 
B)  net exports fall as GDP increases. 
C)  net exports tend to rise as GDP increases. 
D)  exports fall as GDP increases. 
A)  imports fall as GDP increases. 
B)  net exports fall as GDP increases. 
C)  net exports tend to rise as GDP increases. 
D)  exports fall as GDP increases.

Question 8

Figure 36 -9
 
Figure 36-9 shows aggregate expenditures when net exports are fixed and aggregate expenditures are variable. The autonomous spending multiplier is

Accepted Answer

A)  smaller when net exports are fixed. 
B)  smaller when net exports are variable. 
C)  larger when net exports are variable. 
D)  the same whether net exports are fixed or variable. 
A)  smaller when net exports are fixed. 
B)  smaller when net exports are variable. 
C)  larger when net exports are variable. 
D)  the same whether net exports are fixed or variable.

Question 9

Currency appreciation should reduce net exports and, therefore, decrease aggregate demand.

Accepted Answer

A) True 
 B)False

Question 10

If European economies experience a strong economic recovery, 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 11

A decline in interest rates tends to expand the economy by

Accepted Answer

A)  encouraging private investment and decrease in bank lending. 
B)  appreciating the currency and lowering the profitability criterion for investments. 
C)  decreasing the cost of capital and reducing net exports. 
D)  depreciating the currency and raising net exports. 
A)  encouraging private investment and decrease in bank lending. 
B)  appreciating the currency and lowering the profitability criterion for investments. 
C)  decreasing the cost of capital and reducing net exports. 
D)  depreciating the currency and raising net exports.

Question 12

The U.S. trade deficits of the 1980s and 1990s may represent a problem because they will require

Accepted Answer

A)  higher consumption in the future in order to increase imports. 
B)  lower consumption in the future in order to repay interest and principal to foreigners. 
C)  lower consumption in the future in order to finance increased investment. 
D)  higher budget deficits in the future in order to increase the trade surplus. 
A)  higher consumption in the future in order to increase imports. 
B)  lower consumption in the future in order to repay interest and principal to foreigners. 
C)  lower consumption in the future in order to finance increased investment. 
D)  higher budget deficits in the future in order to increase the trade surplus.

Question 13

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 14

Under a floating exchange rate system with mobile international capital, it is always true that current account

Accepted Answer

A)  deficit + capital account surplus = trade deficit. 
B)  surplus − capital account surplus = trade deficit. 
C)  surplus + capital account deficit = 0. 
D)  surplus − capital account surplus = 0. 
A)  deficit + capital account surplus = trade deficit. 
B)  surplus − capital account surplus = trade deficit. 
C)  surplus + capital account deficit = 0. 
D)  surplus − capital account surplus = 0.

Question 15

The government budget deficit must be equal to the surplus

Accepted Answer

A)  of saving over investment. 
B)  in the current account in international trade. 
C)  of saving over consumption. 
D)  of saving over investment plus the trade deficit. 
A)  of saving over investment. 
B)  in the current account in international trade. 
C)  of saving over consumption. 
D)  of saving over investment plus the trade deficit.

Question 16

Assume that Country X and Country Y are trading partners and the exchange rates are fixed. If prices in Country Y fall, which of the following is expected to happen?

Accepted Answer

A)  Country X will export more. 
B)  Economy of Country X will be depressed. 
C)  Net exports will rise for Country X. 
D)  Country Y will import more. 
A)  Country X will export more. 
B)  Economy of Country X will be depressed. 
C)  Net exports will rise for Country X. 
D)  Country Y will import more.

Question 17

A currency depreciation would _____ net exports, and therefore ___________ aggregate demand.

Accepted Answer

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

Question 18

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

Accepted Answer

A)  shift up. 
B)  shift down. 
C)  get flatter. 
D)  get steeper. 
A)  shift up. 
B)  shift down. 
C)  get flatter. 
D)  get steeper.

Question 19

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 budget deficit or surplus for Macroland.

Accepted Answer

A)  125.50 
B)  −93.75 
C)  −126.25 
D)  −154.75 
A)  125.50 
B)  −93.75 
C)  −126.25 
D)  −154.75

Question 20

Suppose that the Fed decides to increase the growth rate of the money supply in the United States. What is most likely to happen to the U.S. trade deficit and to GDP?

Accepted Answer

A)  The trade deficit will fall; GDP will fall. 
B)  The trade deficit will rise; GDP will rise. 
C)  The trade deficit will fall; GDP will rise. 
D)  The trade deficit will rise; GDP will fall. 
A)  The trade deficit will fall; GDP will fall. 
B)  The trade deficit will rise; GDP will rise. 
C)  The trade deficit will fall; GDP will rise. 
D)  The trade deficit will rise; GDP will fall.

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

A currency appreciation should _ net exports, and, therefore, ___aggregate demand.

In an open economy, aggregate supply consists of domestic production plus imports.

Appreciation of the Japanese yen would lead to

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

To eliminate the trade deficits in the late 1990s would have required, in addition to the reduction of the federal budget deficit, an increase in

International trade tends to lower the value of the multiplier because

Figure 36 -9 Figure 36-9 shows aggregate expenditures when net exports are fixed and aggregate expenditures are variable. The autonomous spending multiplier is

Currency appreciation should reduce net exports and, therefore, decrease aggregate demand.

If European economies experience a strong economic recovery, U.S. net exports will

A decline in interest rates tends to expand the economy by

The U.S. trade deficits of the 1980s and 1990s may represent a problem because they will require

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

Under a floating exchange rate system with mobile international capital, it is always true that current account

The government budget deficit must be equal to the surplus

Assume that Country X and Country Y are trading partners and the exchange rates are fixed. If prices in Country Y fall, which of the following is expected to happen?

A currency depreciation would _ net exports, and therefore _______ aggregate demand.

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

Suppose that the Fed decides to increase the growth rate of the money supply in the United States. What is most likely to happen to the U.S. trade deficit and to GDP?

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

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 Us Economy

Filters

Exam 36: Exchange Rates and the Macroeconomy

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

A currency appreciation should _______ net exports, and, therefore, _________aggregate demand.

In an open economy, aggregate supply consists of domestic production plus imports.

Appreciation of the Japanese yen would lead to

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

To eliminate the trade deficits in the late 1990s would have required, in addition to the reduction of the federal budget deficit, an increase in

International trade tends to lower the value of the multiplier because

Figure 36 -9 Figure 36-9 shows aggregate expenditures when net exports are fixed and aggregate expenditures are variable. The autonomous spending multiplier is

Currency appreciation should reduce net exports and, therefore, decrease aggregate demand.

If European economies experience a strong economic recovery, U.S. net exports will

A decline in interest rates tends to expand the economy by

The U.S. trade deficits of the 1980s and 1990s may represent a problem because they will require

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

Under a floating exchange rate system with mobile international capital, it is always true that current account

The government budget deficit must be equal to the surplus

Assume that Country X and Country Y are trading partners and the exchange rates are fixed. If prices in Country Y fall, which of the following is expected to happen?

A currency depreciation would _____ net exports, and therefore ___________ aggregate demand.

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

Suppose that the Fed decides to increase the growth rate of the money supply in the United States. What is most likely to happen to the U.S. trade deficit and to GDP?

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

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 Us Economy

Filters

A currency appreciation should _ net exports, and, therefore, ___aggregate demand.

A currency depreciation would _ net exports, and therefore _______ aggregate demand.