Question 1

What important lesson did American economists learn in the 1980s and again in 2001-2003?

Accepted Answer

A)  Large tax cuts can lead to a balance of trade surplus. 
B)  Large government budget deficits can crowd out consumption. 
C)  Large government budget deficits can bankrupt the nation. 
D)  Large government budget deficits can crowd out net exports. 
A)  Large tax cuts can lead to a balance of trade surplus. 
B)  Large government budget deficits can crowd out consumption. 
C)  Large government budget deficits can bankrupt the nation. 
D)  Large government budget deficits can crowd out net exports.

Question 2

Since the U.S. economy expanded rapidly from 1992 to 2000, it must be true that

Accepted Answer

A)  fiscal contraction overwhelmed monetary expansion. 
B)  monetary expansion overwhelmed fiscal contraction. 
C)  monetary expansion exactly offset fiscal contraction. 
D)  monetary contraction overwhelmed fiscal expansion. 
A)  fiscal contraction overwhelmed monetary expansion. 
B)  monetary expansion overwhelmed fiscal contraction. 
C)  monetary expansion exactly offset fiscal contraction. 
D)  monetary contraction overwhelmed fiscal expansion.

Question 3

An expansionary fiscal policy will lead to

Accepted Answer

A)  higher interest rates, an appreciated dollar, and reduced net exports. 
B)  higher interest rates, an appreciated dollar, and increased net exports. 
C)  reduced interest rates, an appreciated dollar, and reduced net exports. 
D)  reduced interest rates, an appreciated dollar, and increased net exports. 
A)  higher interest rates, an appreciated dollar, and reduced net exports. 
B)  higher interest rates, an appreciated dollar, and increased net exports. 
C)  reduced interest rates, an appreciated dollar, and reduced net exports. 
D)  reduced interest rates, an appreciated dollar, and increased net exports.

Question 4

Which of the following is correct?

Accepted Answer

A)  IM + X = G − T 
B)  I + G + T = S + X − M 
C)  I + G + X = S + T + IM 
D)  I + T + G = S − X − IM 
A)  IM + X = G − T 
B)  I + G + T = S + X − M 
C)  I + G + X = S + T + IM 
D)  I + T + G = S − X − IM

Question 5

If the federal government has a deficit, and the current account is in balance, then

Accepted Answer

A)  I = S . 
B)  I > S . 
C)  S > I . 
D)  S + I = 0. 
A)  I = S . 
B)  I > S . 
C)  S > I . 
D)  S + I = 0.

Question 6

The sum of current account surplus and capital account surplus is zero.

Accepted Answer

A) True 
 B)False

Question 7

Figure 36 -8
 
Which of the graphs in Figure 36-8 illustrates the AD-AS shifts associated with an expansionary monetary policy?

Accepted Answer

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

Question 8

If European economies experience a period of sustained recession and the United States does not, what will happen in the United States?

Accepted Answer

A)  An increase in aggregate supply 
B)  A decrease in aggregate supply 
C)  A decrease in aggregate demand 
D)  An increase in aggregate demand 
A)  An increase in aggregate supply 
B)  A decrease in aggregate supply 
C)  A decrease in aggregate demand 
D)  An increase in aggregate demand

Question 9

Suppose that the Fed decides to decrease 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.

Question 10

International capital flows increase the power of monetary policy.

Accepted Answer

A) True 
 B)False

Question 11

A reduction 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

Figure 36 -8
 
Which of the graphs in Figure 36-8 represents the effects of a currency appreciation?

Accepted Answer

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

Question 13

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 14

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 15

An appreciation of the Japanese yen would shift the Japanese aggregate demand curve inward.

Accepted Answer

A) True 
 B)False

Question 16

The expected effect of the Bush tax cuts would be a(n)

Accepted Answer

A)  lower real interest rate. 
B)  exchange rate depreciation. 
C)  increased current account deficit. 
D)  All of these responses are correct. 
A)  lower real interest rate. 
B)  exchange rate depreciation. 
C)  increased current account deficit. 
D)  All of these responses are correct.

Question 17

If the demand effect dominates during a currency depreciation, then

Accepted Answer

A)  real GDP should fall. 
B)  real GDP should increase. 
C)  the price level should fall. 
D)  net exports should decrease. 
A)  real GDP should fall. 
B)  real GDP should increase. 
C)  the price level should fall. 
D)  net exports should decrease.

Question 18

Following an expansionary monetary policy, we would expect lower interest rates, dollar

Accepted Answer

A)  depreciation, and an increase in the current account deficit. 
B)  depreciation, and a decrease in the current account deficit. 
C)  appreciation, and an increase in the current account deficit. 
D)  appreciation, and a decrease in the current account deficit. 
A)  depreciation, and an increase in the current account deficit. 
B)  depreciation, and a decrease in the current account deficit. 
C)  appreciation, and an increase in the current account deficit. 
D)  appreciation, and a decrease in the current account deficit.

Question 19

Figure 36-2
 
Which of the following explains the movements in Figure 36-2?

Accepted Answer

A)  An increase in the U.S. price level 
B)  A decrease in the U.S. price level 
C)  An appreciation of the U.S. dollar 
D)  An expansionary monetary policy 
A)  An increase in the U.S. price level 
B)  A decrease in the U.S. price level 
C)  An appreciation of the U.S. dollar 
D)  An expansionary monetary policy

Question 20

Figure 36-5
 
Which of the graphs in Figure 36-5 are consistent with an appreciation of the U.S. dollar caused by an increase in U.S. interest rates?

Accepted Answer

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

Exam 36: Exchange Rates and the Macroeconomy

What important lesson did American economists learn in the 1980s and again in 2001-2003?

Since the U.S. economy expanded rapidly from 1992 to 2000, it must be true that

An expansionary fiscal policy will lead to

Which of the following is correct?

If the federal government has a deficit, and the current account is in balance, then

The sum of current account surplus and capital account surplus is zero.

Figure 36 -8 Which of the graphs in Figure 36-8 illustrates the AD-AS shifts associated with an expansionary monetary policy?

If European economies experience a period of sustained recession and the United States does not, what will happen in the United States?

Suppose that the Fed decides to decrease 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?

International capital flows increase the power of monetary policy.

A reduction in net exports shifts the aggregate

Figure 36 -8 Which of the graphs in Figure 36-8 represents the effects of a currency appreciation?

Because of their effect on interest rates,

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

An appreciation of the Japanese yen would shift the Japanese aggregate demand curve inward.

The expected effect of the Bush tax cuts would be a(n)

If the demand effect dominates during a currency depreciation, then

Following an expansionary monetary policy, we would expect lower interest rates, dollar

Figure 36-2 Which of the following explains the movements in Figure 36-2?

Figure 36-5 Which of the graphs in Figure 36-5 are consistent with an appreciation of the U.S. dollar caused by an increase in U.S. interest rates?

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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