Exam 37: Exchange Rates and the Macroeconomy

The reason that higher interest rates reduce aggregate demand in an open economy with capital flows is that investment

If Mexico experiences a period of stable prices while the United States experiences rapid inflation, what will happen in Mexico?

An increase in the U.S.price level relative to the price level of U.S.trading partners will cause the aggregate expenditures function in the United States to

The elimination of the federal budget deficit in the 1990s put downward pressure on real interest rates.

The expected effects of monetary expansion are

A depreciation of the dollar will cause an increase in the Consumer Price Index.

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

Figure 20-6 -In Figure 20-6, which of the following will cause a movement from equilibrium at point D to equilibrium at point B?

In an open economy, the government deficit is 400 and investment exceeds saving by 300, so in equilibrium the trade deficit (IM − X) must be

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

If currency depreciates:

Figure 20-6 -In Figure 20-6, which of the following will cause a movement from equilibrium at point A to equilibrium at point C?

The United States can reduce its trade deficit by limiting imports through tariffs.

Figure 20-6 -In Figure 20-6, which point represents equilibrium at the lowest exchange rate?

In an open economy, aggregate supply consists of domestic production

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

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

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

The principal danger to Japan in 2001 when the yen was appreciating was that this would

A rise in the domestic interest rate leads to capital outflows and makes the currency depreciate.