Question 1

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 2

Table 20-2
  
-From Table 20-2,what can you conclude about net exports as GDP rises?

Accepted Answer

A)  Net exports rise and then fall as GDP rises. 
B)  Net exports are constant as GDP rises. 
C)  Net exports rise as GDP rises. 
D)  Net exports fall as GDP rises. 
A)  Net exports rise and then fall as GDP rises. 
B)  Net exports are constant as GDP rises. 
C)  Net exports rise as GDP rises. 
D)  Net exports fall as GDP rises.

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

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

Accepted Answer

A)  Trade deficits affect exchange rates, which can offset adverse interest rate effects. 
B)  Borrowers can choose to use foreign capital, so that interest rate effects are stronger than expected. 
C)  Interest rate changes affect exchange rates, so that capital flows reinforce the effect of monetary policy. 
D)  Banks can choose to lend to foreigners, so that interest rate effects are essentially nullified. 
A)  Trade deficits affect exchange rates, which can offset adverse interest rate effects. 
B)  Borrowers can choose to use foreign capital, so that interest rate effects are stronger than expected. 
C)  Interest rate changes affect exchange rates, so that capital flows reinforce the effect of monetary policy. 
D)  Banks can choose to lend to foreigners, so that interest rate effects are essentially nullified.

Question 5

A recession abroad would cause U.S.net exports to rise.

Accepted Answer

A) True 
 B)False

Question 6

Because the United States is highly integrated with the international capital market,international capital flows tend to

Accepted Answer

A)  counteract the negative effect on aggregate demand of lower interest rates. 
B)  counteract the positive effect on aggregate demand of higher interest rates. 
C)  strengthen the negative effects on aggregate demand of higher interest rates. 
D)  strengthen the negative effects on aggregate demand of lower interest rates. 
A)  counteract the negative effect on aggregate demand of lower interest rates. 
B)  counteract the positive effect on aggregate demand of higher interest rates. 
C)  strengthen the negative effects on aggregate demand of higher interest rates. 
D)  strengthen the negative effects on aggregate demand of lower interest rates.

Question 7

An exchange rate appreciation will shift the aggregate demand curve inward.

Accepted Answer

A) True 
 B)False

Question 8

Theoretically,when a currency depreciates one can predict that

Accepted Answer

A)  the price level will rise and real GDP will rise. 
B)  the price level will fall and real GDP will fall. 
C)  real GDP will rise, but price change is not predictable. 
D)  the price level will rise, but real GDP change is not predictable. 
A)  the price level will rise and real GDP will rise. 
B)  the price level will fall and real GDP will fall. 
C)  real GDP will rise, but price change is not predictable. 
D)  the price level will rise, but real GDP change is not predictable.

Question 9

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

Accepted Answer

A)  increases and tighter monetary policy. 
B)  increases and looser monetary policy. 
C)  reductions and looser monetary policy. 
D)  reductions and tighter monetary policy. 
A)  increases and tighter monetary policy. 
B)  increases and looser monetary policy. 
C)  reductions and looser monetary policy. 
D)  reductions and tighter monetary policy.

Question 10

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

Accepted Answer

A)  current account must be in surplus. 
B)  current account must be in deficit. 
C)  current account balance must be zero. 
D)  capital account must be in surplus. 
A)  current account must be in surplus. 
B)  current account must be in deficit. 
C)  current account balance must be zero. 
D)  capital account must be in surplus.

Question 11

Figure 20-6
  
-In Figure 20-6,an expansive monetary policy in a closed economy results in an equilibrium at point E.In our open economy,allowing for the induced change in the currency exchange rate,the final equilibrium will be at a point like

Accepted Answer

A)  B. 
B)  F. 
C)  J. 
D)  H. 
A)  B. 
B)  F. 
C)  J. 
D)  H.

Question 12

An exchange rate depreciation appears to consumers as a markdown on foreign products.

Accepted Answer

A) True 
 B)False

Question 13

Figure 20-4
  
-Which of the situations illustrated in Figure 20-4 shows a currency depreciation leading to inflation?

Accepted Answer

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

Question 14

The principal reason why Thailand,Indonesia,and South Korea feared the effects of appreciation of the U.S.dollar in 1995-1997 was that

Accepted Answer

A)  it would increase exports from these countries and worsen Japanese. 
B)  it would increase exports from these countries and worsen unemployment. 
C)  it would decrease exports from these countries since their currencies were tied to the dollar. 
D)  it would decrease imports to these countries since their currencies were tied to the dollar. 
A)  it would increase exports from these countries and worsen Japanese. 
B)  it would increase exports from these countries and worsen unemployment. 
C)  it would decrease exports from these countries since their currencies were tied to the dollar. 
D)  it would decrease imports to these countries since their currencies were tied to the dollar.

Question 15

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

Accepted Answer

An appropriate diagram should resemble F

Question 16

Figure 20-3
  
-Which of the situations illustrated in Figure 20-3 shows the effects of a currency appreciation leading to real GDP growth?

Accepted Answer

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

Question 17

The dramatic rise in the dollar between 1981 and 1986 was the result of a(n)

Accepted Answer

A)  a tight monetary and a tight fiscal policy. 
B)  an expansive monetary and an expansive fiscal policy. 
C)  an expansive monetary and a tight fiscal policy. 
D)  a tight monetary and an expansive fiscal policy. 
A)  a tight monetary and a tight fiscal policy. 
B)  an expansive monetary and an expansive fiscal policy. 
C)  an expansive monetary and a tight fiscal policy. 
D)  a tight monetary and an expansive fiscal policy.

Question 18

In an open economy,aggregate supply consists of domestic production

Accepted Answer

A)  plus imports. 
B)  plus exports. 
C)  minus imports. 
D)  minus exports. 
A)  plus imports. 
B)  plus exports. 
C)  minus imports. 
D)  minus exports.

Question 19

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 20

Table 20-2
  
-In Table 20-2,assume that exports rise to $900.How large is the multiplier?

Accepted Answer

A)  5 
B)  4 
C) 2.5 
D)  2 
A)  5 
B)  4 
C) 2.5 
D)  2

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

Table 20-2 -From Table 20-2,what can you conclude about net exports as GDP rises?

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

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

A recession abroad would cause U.S.net exports to rise.

Because the United States is highly integrated with the international capital market,international capital flows tend to

An exchange rate appreciation will shift the aggregate demand curve inward.

Theoretically,when a currency depreciates one can predict that

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

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

Figure 20-6 -In Figure 20-6,an expansive monetary policy in a closed economy results in an equilibrium at point E.In our open economy,allowing for the induced change in the currency exchange rate,the final equilibrium will be at a point like

An exchange rate depreciation appears to consumers as a markdown on foreign products.

Figure 20-4 -Which of the situations illustrated in Figure 20-4 shows a currency depreciation leading to inflation?

The principal reason why Thailand,Indonesia,and South Korea feared the effects of appreciation of the U.S.dollar in 1995-1997 was that

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

Figure 20-3 -Which of the situations illustrated in Figure 20-3 shows the effects of a currency appreciation leading to real GDP growth?

The dramatic rise in the dollar between 1981 and 1986 was the result of a(n)

In an open economy,aggregate supply consists of domestic production

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

Table 20-2 -In Table 20-2,assume that exports rise to $900.How large is the multiplier?

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?

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Exam 20: Exchange Rates and the Macroeconomy

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

Table 20-2 -From Table 20-2,what can you conclude about net exports as GDP rises?

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

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

A recession abroad would cause U.S.net exports to rise.

Because the United States is highly integrated with the international capital market,international capital flows tend to

An exchange rate appreciation will shift the aggregate demand curve inward.

Theoretically,when a currency depreciates one can predict that

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

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

Figure 20-6 -In Figure 20-6,an expansive monetary policy in a closed economy results in an equilibrium at point E.In our open economy,allowing for the induced change in the currency exchange rate,the final equilibrium will be at a point like

An exchange rate depreciation appears to consumers as a markdown on foreign products.

Figure 20-4 -Which of the situations illustrated in Figure 20-4 shows a currency depreciation leading to inflation?

The principal reason why Thailand,Indonesia,and South Korea feared the effects of appreciation of the U.S.dollar in 1995-1997 was that

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

Figure 20-3 -Which of the situations illustrated in Figure 20-3 shows the effects of a currency appreciation leading to real GDP growth?

The dramatic rise in the dollar between 1981 and 1986 was the result of a(n)

In an open economy,aggregate supply consists of domestic production

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

Table 20-2 -In Table 20-2,assume that exports rise to $900.How large is the multiplier?

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?

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