Question 1

In an open economy,a shift down and to the left of the IS curve could have been caused by

Accepted Answer

A) a decline in the foreign real interest rate. 
B) an increase in the demand for domestic goods relative to foreign goods. 
C) an increase in foreign output. 
D) a decline in domestic output. 
A) a decline in the foreign real interest rate. 
B) an increase in the demand for domestic goods relative to foreign goods. 
C) an increase in foreign output. 
D) a decline in domestic output.

Question 2

Three-wheel cars made in North Edsel are sold for 5000 pounds.Four-wheel cars made in South Edsel are sold for 10,000 marks.The real exchange rate between North and South Edsel is four three-wheel cars for three four-wheel cars.The nominal exchange rate between the two countries is

Accepted Answer

A) 0)50 marks/pound. 
B) 0)66 marks/pound. 
C) 1)50 marks/pound. 
D) 2)00 marks/pound. 
A) 0)50 marks/pound. 
B) 0)66 marks/pound. 
C) 1)50 marks/pound. 
D) 2)00 marks/pound.

Question 3

Compared with a system of fixed exchange rates,currency unions are beneficial because they

Accepted Answer

A) restrict what countries can do with fiscal policy. 
B) allow exchange rates to float. 
C) allow every country to have an independent monetary policy. 
D) eliminate the possibility of speculative attacks. 
A) restrict what countries can do with fiscal policy. 
B) allow exchange rates to float. 
C) allow every country to have an independent monetary policy. 
D) eliminate the possibility of speculative attacks.

Question 4

In the Keynesian model of an open economy,a temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Accepted Answer

A) lower; increase 
B) lower; decrease 
C) raise; increase 
D) raise; decrease 
A) lower; increase 
B) lower; decrease 
C) raise; increase 
D) raise; decrease

Question 5

Describe the effects of contractionary fiscal policy by the domestic government on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model.

Accepted Answer

Domestic country: output falls

Question 6

The rapid depreciation in the dollar from 1985 to 1987 caused net exports during this period

Accepted Answer

A) to rise as the J curve would have predicted, but with a short lag (less than one year). 
B) to rise as the J curve would have predicted, but with a long lag (more than one year). 
C) to fall as the J curve would have predicted, but with a short lag (less than one year). 
D) to fall as the J curve would have predicted, but with a long lag (more than one year). 
A) to rise as the J curve would have predicted, but with a short lag (less than one year). 
B) to rise as the J curve would have predicted, but with a long lag (more than one year). 
C) to fall as the J curve would have predicted, but with a short lag (less than one year). 
D) to fall as the J curve would have predicted, but with a long lag (more than one year).

Question 7

In the short run in the Keynesian model,an increase in the domestic money supply would cause domestic output to ________ and the domestic real interest rate to ________.

Accepted Answer

A) rise; rise 
B) fall; rise 
C) rise; fall 
D) fall; fall 
A) rise; rise 
B) fall; rise 
C) rise; fall 
D) fall; fall

Question 8

When the British pound rises in value relative to other currencies,then

Accepted Answer

A) goods imported into Britain rise in price. 
B) British exports rise in price. 
C) neither British exports nor imports rise in price. 
D) both British exports and imports rise in price. 
A) goods imported into Britain rise in price. 
B) British exports rise in price. 
C) neither British exports nor imports rise in price. 
D) both British exports and imports rise in price.

Question 9

To encourage more investment,Mexico has lowered its tax rates to reduce the user cost of capital.Argentina is unable to pay back its foreign debts,causing its expected future marginal product of capital to fall.Mexico's real exchange rate will ________ and its net exports will ________.

Accepted Answer

A) depreciate; fall 
B) appreciate; rise 
C) depreciate; rise 
D) appreciate; fall 
A) depreciate; fall 
B) appreciate; rise 
C) depreciate; rise 
D) appreciate; fall

Question 10

The currency created by the European Monetary Union,for which notes and coins became available in 2002,is the

Accepted Answer

A) ECU. 
B) euro. 
C) EMU. 
D) pound. 
A) ECU. 
B) euro. 
C) EMU. 
D) pound.

Question 11

If the fundamental value of the exchange rate is ________ than the official (fixed)exchange rate,the country has an ________ problem,and it will gain reserves.

Accepted Answer

A) less; overvaluation 
B) greater; overvaluation 
C) less; undervaluation 
D) greater; undervaluation 
A) less; overvaluation 
B) greater; overvaluation 
C) less; undervaluation 
D) greater; undervaluation

Question 12

A decrease in foreign output would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

Accepted Answer

A) rise; shift up 
B) rise; shift down 
C) fall; shift up 
D) fall; shift down 
A) rise; shift up 
B) rise; shift down 
C) fall; shift up 
D) fall; shift down

Question 13

International businesses like a fixed exchange-rate system because

Accepted Answer

A) they like large swings in currency values when devaluation or revaluation occur. 
B) they profit by speculating on devaluation or revaluation. 
C) they can plan better if they know what the exchange rate will be. 
D) fixed exchange rates are economically efficient. 
A) they like large swings in currency values when devaluation or revaluation occur. 
B) they profit by speculating on devaluation or revaluation. 
C) they can plan better if they know what the exchange rate will be. 
D) fixed exchange rates are economically efficient.

Question 14

An improvement in the quality of U.S.goods would lead to a ________ in the demand for dollars and a ________ in the exchange rate.

Accepted Answer

A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall 
A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall

Question 15

In an open economy,an increase in net exports because of increased demand for domestic products by foreigners should cause the domestic real interest rate to ________ and should cause desired saving minus desired investment to ________.

Accepted Answer

A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall 
A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall

Question 16

When the dollar rises relative to other currencies,

Accepted Answer

A) foreign goods are more expensive in terms of dollars. 
B) foreign currency is more expensive in terms of dollars. 
C) U)S. goods become more expensive to foreigners. 
D) foreign currency is more expensive in the United States, but foreign goods are cheaper. 
A) foreign goods are more expensive in terms of dollars. 
B) foreign currency is more expensive in terms of dollars. 
C) U)S. goods become more expensive to foreigners. 
D) foreign currency is more expensive in the United States, but foreign goods are cheaper.

Question 17

When the nominal exchange rate in terms of dollars per yen rises

Accepted Answer

A) the dollar buys more yen and the dollar has depreciated. 
B) the dollar buys fewer yen and the dollar has depreciated. 
C) the dollar buys more yen and the dollar has appreciated. 
D) the dollar buys fewer yen and the dollar has appreciated. 
A) the dollar buys more yen and the dollar has depreciated. 
B) the dollar buys fewer yen and the dollar has depreciated. 
C) the dollar buys more yen and the dollar has appreciated. 
D) the dollar buys fewer yen and the dollar has appreciated.

Question 18

What happens in the short run in the Keynesian model to the exchange rate and net exports in each of the following cases?
(a)The foreign real interest rate falls.
(b)Foreign output rises.
(c)Foreign demand for domestic goods rises.
(d)Domestic output rises.
(e)The domestic real interest rate falls.

Accepted Answer

(a)Exchange rate rises,net exports fall.

Question 19

A temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Accepted Answer

A) lower; increase 
B) lower; decrease 
C) raise; increase 
D) raise; decrease 
A) lower; increase 
B) lower; decrease 
C) raise; increase 
D) raise; decrease

Question 20

Currency unions are rare because

Accepted Answer

A) they're to no one's advantage. 
B) countries are reluctant to give up having their own currencies. 
C) having flexible exchange rates has the same benefits and none of the costs. 
D) speculative attacks are likely to occur. 
A) they're to no one's advantage. 
B) countries are reluctant to give up having their own currencies. 
C) having flexible exchange rates has the same benefits and none of the costs. 
D) speculative attacks are likely to occur.

In an open economy,a shift down and to the left of the IS curve could have been caused by

Three-wheel cars made in North Edsel are sold for 5000 pounds.Four-wheel cars made in South Edsel are sold for 10,000 marks.The real exchange rate between North and South Edsel is four three-wheel cars for three four-wheel cars.The nominal exchange rate between the two countries is

Compared with a system of fixed exchange rates,currency unions are beneficial because they

In the Keynesian model of an open economy,a temporary decrease in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment)in the economy.

Describe the effects of contractionary fiscal policy by the domestic government on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model.

The rapid depreciation in the dollar from 1985 to 1987 caused net exports during this period

In the short run in the Keynesian model,an increase in the domestic money supply would cause domestic output to and the domestic real interest rate to .

When the British pound rises in value relative to other currencies,then

To encourage more investment,Mexico has lowered its tax rates to reduce the user cost of capital.Argentina is unable to pay back its foreign debts,causing its expected future marginal product of capital to fall.Mexico's real exchange rate will and its net exports will .

The currency created by the European Monetary Union,for which notes and coins became available in 2002,is the

If the fundamental value of the exchange rate is than the official (fixed)exchange rate,the country has an problem,and it will gain reserves.

A decrease in foreign output would cause the domestic country's net exports to and cause the domestic country's IS curve to .

International businesses like a fixed exchange-rate system because

An improvement in the quality of U.S.goods would lead to a in the demand for dollars and a in the exchange rate.

In an open economy,an increase in net exports because of increased demand for domestic products by foreigners should cause the domestic real interest rate to and should cause desired saving minus desired investment to .

When the dollar rises relative to other currencies,

When the nominal exchange rate in terms of dollars per yen rises

What happens in the short run in the Keynesian model to the exchange rate and net exports in each of the following cases? (a)The foreign real interest rate falls. (b)Foreign output rises. (c)Foreign demand for domestic goods rises. (d)Domestic output rises. (e)The domestic real interest rate falls.

A temporary decrease in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment)in the economy.

Currency unions are rare because

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Exam 13: Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

In an open economy,a shift down and to the left of the IS curve could have been caused by

Three-wheel cars made in North Edsel are sold for 5000 pounds.Four-wheel cars made in South Edsel are sold for 10,000 marks.The real exchange rate between North and South Edsel is four three-wheel cars for three four-wheel cars.The nominal exchange rate between the two countries is

Compared with a system of fixed exchange rates,currency unions are beneficial because they

In the Keynesian model of an open economy,a temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Describe the effects of contractionary fiscal policy by the domestic government on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model.

The rapid depreciation in the dollar from 1985 to 1987 caused net exports during this period

In the short run in the Keynesian model,an increase in the domestic money supply would cause domestic output to ________ and the domestic real interest rate to ________.

When the British pound rises in value relative to other currencies,then

To encourage more investment,Mexico has lowered its tax rates to reduce the user cost of capital.Argentina is unable to pay back its foreign debts,causing its expected future marginal product of capital to fall.Mexico's real exchange rate will ________ and its net exports will ________.

The currency created by the European Monetary Union,for which notes and coins became available in 2002,is the

If the fundamental value of the exchange rate is ________ than the official (fixed)exchange rate,the country has an ________ problem,and it will gain reserves.

A decrease in foreign output would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

International businesses like a fixed exchange-rate system because

An improvement in the quality of U.S.goods would lead to a ________ in the demand for dollars and a ________ in the exchange rate.

In an open economy,an increase in net exports because of increased demand for domestic products by foreigners should cause the domestic real interest rate to ________ and should cause desired saving minus desired investment to ________.

When the dollar rises relative to other currencies,

When the nominal exchange rate in terms of dollars per yen rises

What happens in the short run in the Keynesian model to the exchange rate and net exports in each of the following cases? (a)The foreign real interest rate falls. (b)Foreign output rises. (c)Foreign demand for domestic goods rises. (d)Domestic output rises. (e)The domestic real interest rate falls.

A temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Currency unions are rare because

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

In the Keynesian model of an open economy,a temporary decrease in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment)in the economy.

In the short run in the Keynesian model,an increase in the domestic money supply would cause domestic output to and the domestic real interest rate to .

To encourage more investment,Mexico has lowered its tax rates to reduce the user cost of capital.Argentina is unable to pay back its foreign debts,causing its expected future marginal product of capital to fall.Mexico's real exchange rate will and its net exports will .

If the fundamental value of the exchange rate is than the official (fixed)exchange rate,the country has an problem,and it will gain reserves.

A decrease in foreign output would cause the domestic country's net exports to and cause the domestic country's IS curve to .

An improvement in the quality of U.S.goods would lead to a in the demand for dollars and a in the exchange rate.

In an open economy,an increase in net exports because of increased demand for domestic products by foreigners should cause the domestic real interest rate to and should cause desired saving minus desired investment to .

A temporary decrease in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment)in the economy.