Question 1

The growing federal budget deficit in the 1980s was accompanied by a

Accepted Answer

A)  growing trade surplus. 
B)  growing trade deficit. 
C)  shrinking trade deficit. 
D)  shrinking capital account surplus. 
A)  growing trade surplus. 
B)  growing trade deficit. 
C)  shrinking trade deficit. 
D)  shrinking capital account surplus.

Question 2

A depreciation of the dollar will cause an increase in the Consumer Price Index.

Accepted Answer

A) True 
 B)False

Question 3

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 4

Expansionary fiscal policy in an open economy

Accepted Answer

A)  leads to a balance of trade surplus. 
B)  decreases America's capital account surplus and the current account deficit by the same amount. 
C)  increases both America's capital account surplus and current account deficit by equal amounts. 
D)  increases America's capital account surplus more than it increases the current account deficit. 
A)  leads to a balance of trade surplus. 
B)  decreases America's capital account surplus and the current account deficit by the same amount. 
C)  increases both America's capital account surplus and current account deficit by equal amounts. 
D)  increases America's capital account surplus more than it increases the current account deficit.

Question 5

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 6

Figure 36-1
 
Which of the graphs in Figure 36-1 best illustrates the behavior of exports and imports in relation to U.S. real GDP?

Accepted Answer

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

Question 7

If a currency depreciates, a country's net exports

Accepted Answer

A)  fall and AD increases. 
B)  rise and AD increases. 
C)  fall and AD decreases. 
D)  rise and AD decreases. 
A)  fall and AD increases. 
B)  rise and AD increases. 
C)  fall and AD decreases. 
D)  rise and AD decreases.

Question 8

A country's trade surplus is the excess of its exports over its imports.

Accepted Answer

A) True 
 B)False

Question 9

Because monetary stimulus overwhelmed fiscal contraction in the United States during the 1992-2000 period,

Accepted Answer

A)  real GDP grew. 
B)  real GDP decreased. 
C)  the rate of inflation increased. 
D)  the budget deficit increased. 
A)  real GDP grew. 
B)  real GDP decreased. 
C)  the rate of inflation increased. 
D)  the budget deficit increased.

Question 10

The sequence of events following an increase in the federal deficit would be higher interest rates, a(n)

Accepted Answer

A)  depreciating dollar, and a larger current account deficit. 
B)  depreciating dollar, and a smaller current account deficit. 
C)  appreciating dollar, and a larger current account deficit. 
D)  appreciating dollar, and a smaller current account deficit. 
A)  depreciating dollar, and a larger current account deficit. 
B)  depreciating dollar, and a smaller current account deficit. 
C)  appreciating dollar, and a larger current account deficit. 
D)  appreciating dollar, and a smaller current account deficit.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

If U.S. interest rates rise while foreign interest rates remain unchanged,

Accepted Answer

A)  GDP will not change since the shift in aggregate supply cancels the positive effects on aggregate demand. 
B)  the dollar will depreciate and thus reduce prices and output. 
C)  foreign capital will be attracted to the United States and the dollar will appreciate. 
D)  net exports will increase and the economy will expand. 
A)  GDP will not change since the shift in aggregate supply cancels the positive effects on aggregate demand. 
B)  the dollar will depreciate and thus reduce prices and output. 
C)  foreign capital will be attracted to the United States and the dollar will appreciate. 
D)  net exports will increase and the economy will expand.

Question 13

The expected effects of fiscal contraction are

Accepted Answer

A)  higher real interest rates. 
B)  exchange rate depreciation. 
C)  increased trade deficit. 
D)  All of these responses are correct. 
A)  higher real interest rates. 
B)  exchange rate depreciation. 
C)  increased trade deficit. 
D)  All of these responses are correct.

Question 14

The expected effects of monetary expansion are

Accepted Answer

A)  lower real interest rates. 
B)  exchange rate depreciation. 
C)  higher inflation. 
D)  All of these responses are correct. 
A)  lower real interest rates. 
B)  exchange rate depreciation. 
C)  higher inflation. 
D)  All of these responses are correct.

Question 15

International capital flows are purchases and sales of ____ across national borders.

Accepted Answer

A)  goods 
B)  financial assets 
C)  services 
D)  commodities 
A)  goods 
B)  financial assets 
C)  services 
D)  commodities

Question 16

An open economy is one that trades with other nations in goods and services, and perhaps also trades in financial assets.

Accepted Answer

A) True 
 B)False

Question 17

International capital inflows reduce the power of fiscal policy.

Accepted Answer

A) True 
 B)False

Question 18

The U.S. trade deficit is made possible, in part, because of foreigners' demand for U.S. financial assets.

Accepted Answer

A) True 
 B)False

Question 19

A closed economy is one that does not trade with other nations in either goods or assets.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 36: Exchange Rates and the Macroeconomy

The growing federal budget deficit in the 1980s was accompanied by a

A depreciation of the dollar will cause an increase in the Consumer Price Index.

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

Expansionary fiscal policy in an open economy

A fall in the domestic interest rate leads to capital

Figure 36-1 Which of the graphs in Figure 36-1 best illustrates the behavior of exports and imports in relation to U.S. real GDP?

If a currency depreciates, a country's net exports

A country's trade surplus is the excess of its exports over its imports.

Because monetary stimulus overwhelmed fiscal contraction in the United States during the 1992-2000 period,

The sequence of events following an increase in the federal deficit would be higher interest rates, a(n)

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

If U.S. interest rates rise while foreign interest rates remain unchanged,

The expected effects of fiscal contraction are

The expected effects of monetary expansion are

International capital flows are purchases and sales of ____ across national borders.

An open economy is one that trades with other nations in goods and services, and perhaps also trades in financial assets.

International capital inflows reduce the power of fiscal policy.

The U.S. trade deficit is made possible, in part, because of foreigners' demand for U.S. financial assets.

A closed economy is one that does not trade with other nations in either goods or assets.

Protectionism may fail to reduce a current account deficit because it

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

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