Exam 36: Exchange Rates and the Macroeconomy

Figure 36 -8 Which of the graphs in Figure 36-8 illustrates the AD-AS shifts induced by the foreign sector following an increase in the U.S. federal deficit?

If the dollar appreciates, American consumers will buy more foreign goods and services.

A rise in interest rates tends to contract the economy by appreciating the currency and reducing net exports. Provide the reasoning behind this conclusion.

An appreciation of the dollar makes imported inputs cheaper and shifts the U.S. aggregate supply curve outward, thus pushing American prices down.

Why is monetary policy more effective in an open economy than in a closed economy?

If currency depreciates,

How does a budget deficit lead to a trade deficit?

A currency depreciation is inflationary and probably also expansionary.

A closed economy is one that

Figure 36-4 Which of the situations illustrated in Figure 36-4 shows a currency depreciation leading to inflation?

If (X − IM)

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

Following the economic crisis in 1994-1995, the Mexican peso fell sharply in value. What will be the main economic effects in Mexico of such an exchange rate change?

Compare the effectiveness of fiscal policy in an open economy with mobile international capital to fiscal policy in a closed economy. Why is it different? Use an appropriate diagram to illustrate your answer.

Explain how and why economic events in the United States affected the economies of Thailand, South Korea, and Indonesia and vice-versa.

Despite the monetary expansion of the 1992-2000 period, the inflation rate

In the mid-1990s, real interest rates fell in the United States. This was the result of budget deficit

Booms or recessions in one country tend to be transmitted to other countries through international trade in goods and services.

How do the fluctuations in the exchange rate influence the domestic price level?

The accounting relationship between the budget deficit and the trade deficit may be expressed as ____.