Question 1

A large tax cut in the United States should lead to an increase in the trade deficit.

Accepted Answer

A) True 
 B)False

Question 2

If the dollar rises in value compared to other currencies, what will happen in the United States?

Accepted Answer

A) an increase in aggregate demand 
B) an increase in aggregate supply 
C) a decrease in aggregate supply 
D) an increase in the U.S.price level 
A) an increase in aggregate demand 
B) an increase in aggregate supply 
C) a decrease in aggregate supply 
D) an increase in the U.S.price level

Question 3

Booms and recessions are transmitted to other countries.

Accepted Answer

A) True 
 B)False

Question 4

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 5

A currency appreciation

Accepted Answer

A) reduces aggregate demand and increases aggregate supply. 
B) reduces aggregate demand and aggregate supply. 
C) increases aggregate demand and reduces aggregate supply. 
D) increases aggregate demand and aggregate supply. 
A) reduces aggregate demand and increases aggregate supply. 
B) reduces aggregate demand and aggregate supply. 
C) increases aggregate demand and reduces aggregate supply. 
D) increases aggregate demand and aggregate supply.

Question 6

Figure 20-2
  
-Which of the following explains the movements in Figure 20-2?

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 7

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

Accepted Answer

Interest rate differentials and capital

Question 8

The monetary expansion of the mid-1990s was expected to lead to a currency appreciation.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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 11

A depreciating currency makes foreign inputs cheaper and shifts the aggregate supply curve outward.

Accepted Answer

A) True 
 B)False

Question 12

When the U.S.dollar appreciates,

Accepted Answer

A) U.S.exports rise. 
B) U.S.imports decline. 
C) aggregate demand shifts inward. 
D) aggregate demand shifts outward. 
A) U.S.exports rise. 
B) U.S.imports decline. 
C) aggregate demand shifts inward. 
D) aggregate demand shifts outward.

Question 13

-In Table 20-2, what is equilibrium GDP?

Accepted Answer

A) $2,500 
B) $3,500 
C) $4,500 
D) $5,500 
A) $2,500 
B) $3,500 
C) $4,500 
D) $5,500

Question 14

Figure 20-5
  
-Which of the graphs in Figure 20-5 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

Question 15

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

Question 16

Appreciation of the dollar will make imported goods more expensive and shift the aggregate demand curve outward.

Accepted Answer

A) True 
 B)False

Question 17

Suppose that the Fed decides to increase 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 18

One of the principal factors behind the U.S.trade deficits of the 1990s has been

Accepted Answer

A) slow growth and recession in many important trading partners. 
B) rapid growth and inflation in many important trading partners. 
C) significant depreciation of the dollar. 
D) rising real interest rates in the United States. 
A) slow growth and recession in many important trading partners. 
B) rapid growth and inflation in many important trading partners. 
C) significant depreciation of the dollar. 
D) rising real interest rates in the United States.

Question 19

The expected effects of an increased budget deficit are

Accepted Answer

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

Question 20

Figure 20-9
  
-In Figure 20-9, the C + I + G + (X − IM)1 line is flatter than the C + I + G + (X − IM)0 line because the

Accepted Answer

A) (X − IM)1 line indicates that net exports decline as GDP rises. 
B) (X − IM)1 line indicates that net exports rise as GDP rises. 
C) multiplier is greater for the (X − IM)1 line. 
D) (X − IM)1 line indicates that tariffs, quotas, and other trade barriers are keeping net exports below their full potential. 
A) (X − IM)1 line indicates that net exports decline as GDP rises. 
B) (X − IM)1 line indicates that net exports rise as GDP rises. 
C) multiplier is greater for the (X − IM)1 line. 
D) (X − IM)1 line indicates that tariffs, quotas, and other trade barriers are keeping net exports below their full potential.

Exam 37: Exchange Rates and the Macroeconomy

A large tax cut in the United States should lead to an increase in the trade deficit.

If the dollar rises in value compared to other currencies, what will happen in the United States?

Booms and recessions are transmitted to other countries.

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.

A currency appreciation

Figure 20-2 -Which of the following explains the movements in Figure 20-2?

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

The monetary expansion of the mid-1990s was expected to lead to a currency appreciation.

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

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

A depreciating currency makes foreign inputs cheaper and shifts the aggregate supply curve outward.

When the U.S.dollar appreciates,

-In Table 20-2, what is equilibrium GDP?

Figure 20-5 -Which of the graphs in Figure 20-5 are consistent with an appreciation of the U.S.dollar caused by an increase in U.S.interest rates?

The expected effects of fiscal contraction are

Appreciation of the dollar will make imported goods more expensive and shift the aggregate demand curve outward.

Suppose that the Fed decides to increase 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?

One of the principal factors behind the U.S.trade deficits of the 1990s has been

The expected effects of an increased budget deficit are

Figure 20-9 -In Figure 20-9, the C + I + G + (X − IM)1 line is flatter than the C + I + G + (X − IM)0 line because the

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

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

He 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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