Question 1

The accounting relationship between the budget deficit and the trade deficit may be expressed as ____.

Accepted Answer

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

Question 2

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 3

A currency depreciation will put upward pressure on the price level.

Accepted Answer

A) True 
 B)False

Question 4

The major difference between a closed economy and an open economy is that a(n)

Accepted Answer

A) closed economy balances budget, while an open economy does not. 
B) open economy is a market economy, while a closed economy relies on planning. 
C) open economy interacts with the rest of the world, while a closed economy does not. 
D) closed economy keeps political affairs secret, while an open economy does not. 
A) closed economy balances budget, while an open economy does not. 
B) open economy is a market economy, while a closed economy relies on planning. 
C) open economy interacts with the rest of the world, while a closed economy does not. 
D) closed economy keeps political affairs secret, while an open economy does not.

Question 5

Expansionary fiscal policy in an open economy

Accepted Answer

A) leads to a balance of trade surplus. 
B) decreases America's capital account surplus and the current account deficit by the same amount. 
C) increases both America's capital account surplus and current account deficit by equal amounts. 
D) increases America's capital account surplus more than it increases the current account deficit. 
A) leads to a balance of trade surplus. 
B) decreases America's capital account surplus and the current account deficit by the same amount. 
C) increases both America's capital account surplus and current account deficit by equal amounts. 
D) increases America's capital account surplus more than it increases the current account deficit.

Question 6

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

Accepted Answer

A) an increase in U.S.imports 
B) an increase in U.S.exports 
C) a decrease in U.S.imports 
D) an increase in U.S.net exports 
A) an increase in U.S.imports 
B) an increase in U.S.exports 
C) a decrease in U.S.imports 
D) an increase in U.S.net exports

Question 7

A sizable appreciation of the U.S.dollar in the mid-1980s

Accepted Answer

A) raised U.S.exports and imports. 
B) raised U.S.exports and reduced imports. 
C) reduced U.S.exports and imports. 
D) reduced U.S.exports and raised imports. 
A) raised U.S.exports and imports. 
B) raised U.S.exports and reduced imports. 
C) reduced U.S.exports and imports. 
D) reduced U.S.exports and raised imports.

Question 8

Assume that Country X and Country Y are trading partners and the exchange rates are fixed.If prices in Country Y fall, which of the following is expected to happen?

Accepted Answer

A) Country X will export more. 
B) Economy of Country X will be depressed. 
C) Net exports will rise for Country X. 
D) Country Y will import more. 
A) Country X will export more. 
B) Economy of Country X will be depressed. 
C) Net exports will rise for Country X. 
D) Country Y will import more.

Question 9

A currency appreciation should

Accepted Answer

A) reduce net exports and therefore increase aggregate demand. 
B) raise net exports and therefore decrease aggregate demand. 
C) reduce net exports and therefore decrease aggregate demand. 
D) raise net exports and therefore increase aggregate demand. 
A) reduce net exports and therefore increase aggregate demand. 
B) raise net exports and therefore decrease aggregate demand. 
C) reduce net exports and therefore decrease aggregate demand. 
D) raise net exports and therefore increase aggregate demand.

Question 10

Figure 20-1
  
-Which of the graphs in Figure 20-1 best illustrates the behavior of exports and imports in relation to U.S.real GDP?

Accepted Answer

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

Question 11

The worst remedy for curing the U.S.trade deficit is to

Accepted Answer

A) increase U.S.personal saving. 
B) reduce the budget deficit. 
C) encourage all nations to lower trade barriers. 
D) limit imports by imposing tariffs, quotas, and other trade restrictions. 
A) increase U.S.personal saving. 
B) reduce the budget deficit. 
C) encourage all nations to lower trade barriers. 
D) limit imports by imposing tariffs, quotas, and other trade restrictions.

Question 12

A favorable supply shock abroad would

Accepted Answer

A) increase U.S.imports and decrease aggregate demand. 
B) decrease U.S.net exports and reduce aggregate supply. 
C) decrease U.S.net exports and decrease national income. 
D) increase U.S.net exports and increase aggregate demand. 
A) increase U.S.imports and decrease aggregate demand. 
B) decrease U.S.net exports and reduce aggregate supply. 
C) decrease U.S.net exports and decrease national income. 
D) increase U.S.net exports and increase aggregate demand.

Question 13

A decline in interest rates tends to expand the economy by

Accepted Answer

A) encouraging private investment and decrease in bank lending. 
B) appreciating the currency and lowering the profitability criterion for investments. 
C) decreasing the cost of capital and reducing net exports. 
D) depreciating the currency and raising net exports. 
A) encouraging private investment and decrease in bank lending. 
B) appreciating the currency and lowering the profitability criterion for investments. 
C) decreasing the cost of capital and reducing net exports. 
D) depreciating the currency and raising net exports.

Question 14

In the 1990s the United States eliminated its budget deficit and expanded the money supply.This should have led to

Accepted Answer

A) lower real interest rates and a depreciation of the dollar. 
B) lower real interest rates and an appreciation of the dollar. 
C) higher real interest rates and a depreciation of the dollar. 
D) higher real interest rates and an appreciation of the dollar. 
A) lower real interest rates and a depreciation of the dollar. 
B) lower real interest rates and an appreciation of the dollar. 
C) higher real interest rates and a depreciation of the dollar. 
D) higher real interest rates and an appreciation of the dollar.

Question 15

Appreciation of the Japanese Yen would lead to

Accepted Answer

A) outward shift in the aggregate supply curve for Japan. 
B) upward shift in the aggregate demand curve for Japan. 
C) downward shift in the aggregate supply curve for Japan. 
D) downward shift in the aggregate demand curve for Japan. 
A) outward shift in the aggregate supply curve for Japan. 
B) upward shift in the aggregate demand curve for Japan. 
C) downward shift in the aggregate supply curve for Japan. 
D) downward shift in the aggregate demand curve for Japan.

Question 16

The appreciation of the dollar in the late 1990s shifted the U.S.aggregate supply curve outward.

Accepted Answer

A) True 
 B)False

Question 17

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 18

If a currency appreciates, a country's net exports

Accepted Answer

A) fall and AD increases. 
B) rise and AD increases. 
C) fall and AD decreases. 
D) rise and AD decreases. 
A) fall and AD increases. 
B) rise and AD increases. 
C) fall and AD decreases. 
D) rise and AD decreases.

Question 19

When the dollar appreciates, the cost to Americans of foreign goods

Accepted Answer

A) rises and the CPI falls. 
B) rises and the CPI rises. 
C) falls and the CPI rises. 
D) falls and the CPI falls. 
A) rises and the CPI falls. 
B) rises and the CPI rises. 
C) falls and the CPI rises. 
D) falls and the CPI falls.

Question 20

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.

Exam 37: Exchange Rates and the Macroeconomy

The accounting relationship between the budget deficit and the trade deficit may be expressed as ____.

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

A currency depreciation will put upward pressure on the price level.

The major difference between a closed economy and an open economy is that a(n)

Expansionary fiscal policy in an open economy

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

A sizable appreciation of the U.S.dollar in the mid-1980s

Assume that Country X and Country Y are trading partners and the exchange rates are fixed.If prices in Country Y fall, which of the following is expected to happen?

A currency appreciation should

Figure 20-1 -Which of the graphs in Figure 20-1 best illustrates the behavior of exports and imports in relation to U.S.real GDP?

The worst remedy for curing the U.S.trade deficit is to

A favorable supply shock abroad would

A decline in interest rates tends to expand the economy by

In the 1990s the United States eliminated its budget deficit and expanded the money supply.This should have led to

Appreciation of the Japanese Yen would lead to

The appreciation of the dollar in the late 1990s shifted the U.S.aggregate supply curve outward.

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

If a currency appreciates, a country's net exports

When the dollar appreciates, the cost to Americans of foreign goods

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

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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