Question 1

A benefit of automatic adjustment mechanisms is that they:

Accepted Answer

A) avoid the possibility of policy mistakes 
B) avoid the time lags associated with adjustment policies 
C) begin to operate as soon as balance of payments disequilibria develop 
D) all of the above 
A) avoid the possibility of policy mistakes 
B) avoid the time lags associated with adjustment policies 
C) begin to operate as soon as balance of payments disequilibria develop 
D) all of the above D

Question 2

Why is the foreign trade multiplier smaller in a large nation relative to small nation?

Accepted Answer

When a large nation increases exports it implies that another nation must be increasing imports.An increase in imports by that nation may occur at the expense of domestic production,leading to a reduction in income and an decrease in imports,which impacts the large nation's ability to sell exports.

Question 3

When considering the impact of foreign repercussions relative to a scenario without such repercussions,for a large nation the foreign trade multiplier will be

Accepted Answer

A) Larger 
B) smaller 
C) exactly the same 
D) any of the above 
A) Larger 
B) smaller 
C) exactly the same 
D) any of the above B

Question 4

The equilibrium level of national income in an open economy is given by:

Accepted Answer

A) I + X = S + M 
B) X - M = S - I 
C) I + (X-M)= S 
D) all of the above 
A) I + X = S + M 
B) X - M = S - I 
C) I + (X-M)= S 
D) all of the above

Question 5

Why is the foreign trade multiplier smaller than the corresponding multiplier in a closed economy?

Accepted Answer

the foreign trade multiplier is smaller

Question 6

The S-I function is upward sloping because:

Accepted Answer

A) rising I are subtracted from constant S 
B) constant I are subtracted from rising S 
C) rising I are subtracted from rising S 
D) constant I are added to falling S 
A) rising I are subtracted from constant S 
B) constant I are subtracted from rising S 
C) rising I are subtracted from rising S 
D) constant I are added to falling S

Question 7

The improvement in a nation's balance of trade and payments resulting from a depreciation of its currency is:

Accepted Answer

A) reinforced by the induced fall in imports 
B) partly neutralized by the induced rise in imports 
C) partly neutralized by the induced fall in imports 
D) any of the above. 
A) reinforced by the induced fall in imports 
B) partly neutralized by the induced rise in imports 
C) partly neutralized by the induced fall in imports 
D) any of the above.

Question 8

By itself,the automatic income adjustment mechanism is likely to bring about:

Accepted Answer

A) incomplete adjustment 
B) complete adjustment 
C) perverse adjustment 
D) any of the above 
A) incomplete adjustment 
B) complete adjustment 
C) perverse adjustment 
D) any of the above

Question 9

When considering the impact of foreign repercussions relative to a scenario without such repercussions,for a small nation the foreign trade multiplier will be

Accepted Answer

A) Larger 
B) smaller 
C) exactly the same 
D) any of the above 
A) Larger 
B) smaller 
C) exactly the same 
D) any of the above

Question 10

When S exceeds I,an open economy has a trade:

Accepted Answer

A) surplus 
B) deficit 
C) equilibrium 
D) any of the above 
A) surplus 
B) deficit 
C) equilibrium 
D) any of the above

Question 11

Of the G-7 industrialized economies,the following nation has the lowest income elasticity of imports

Accepted Answer

A) The U.S. 
B) German 
C) Canada 
D) Japan 
A) The U.S. 
B) German 
C) Canada 
D) Japan

Question 12

In order to isolate the income adjustment mechanism,we assume that:

Accepted Answer

A) the nation operates under a fixed exchange rate system 
B) all prices,wages,and interest rates are constant 
C) the nation operates at less than full employment 
D) all of the above 
A) the nation operates under a fixed exchange rate system 
B) all prices,wages,and interest rates are constant 
C) the nation operates at less than full employment 
D) all of the above

Question 13

.If MPC=0.8 and MPM=0.05,a $100 million increase in exports will lead to:

Accepted Answer

A) a $400 million increase in equilibrium GDP. 
B) a $400 million decrease in equilibrium GDP. 
C) a $500 million increase in equilibrium GDP. 
D) a $500 million increase in equilibrium GDP 
A) a $400 million increase in equilibrium GDP. 
B) a $400 million decrease in equilibrium GDP. 
C) a $500 million increase in equilibrium GDP. 
D) a $500 million increase in equilibrium GDP

Question 14

One disadvantage facing a freely flexible exchange rate system is that is can cause

Accepted Answer

A) overshooting 
B) competitive devaluations 
C) hedging 
D) loss of monetary policy control 
A) overshooting 
B) competitive devaluations 
C) hedging 
D) loss of monetary policy control

Question 15

An autonomous increase in S from a condition of equilibrium in national income and in the trade balance results in the nation's income:

Accepted Answer

A) rising and its trade balance turning into surplus 
B) falling and its trade balance turning into surplus 
C) falling and its trade balance turning into deficit 
D) rising and its trade balance turning into deficit 
A) rising and its trade balance turning into surplus 
B) falling and its trade balance turning into surplus 
C) falling and its trade balance turning into deficit 
D) rising and its trade balance turning into deficit

Question 16

In an open economy,the marginal propensity to consumer is 0.75,and the marginal propensity to import is 0.15.Calculate the change in equilibrium GDP if exports fall by $50 billion.

Accepted Answer

-$100 bill

Question 17

If MPC=0.8 and MPM=0.05,the foreign trade multiplier is:

Accepted Answer

A) 5 
B) 4 
C) 3 
D) 2 
A) 5 
B) 4 
C) 3 
D) 2

Question 18

The marginal propensity to consume measures:

Accepted Answer

A) the ratio of imports to income 
B) the ratio of income to imports 
C) the change in imports over the change in income 
D) the change in income over the change in imports 
A) the ratio of imports to income 
B) the ratio of income to imports 
C) the change in imports over the change in income 
D) the change in income over the change in imports

Question 19

An open economy can be described by the following functions (all figures in millions of dollars):
C = 500 + 0.8Y
I = 600
X = 400
M = 200 + 0.05Y
Calculate equilibrium income and the trade balance.

Accepted Answer

Y= $5,200;(X-M)= 400

Question 20

In the real world,the automatic income,price,and interest adjustment mechanisms,if allowed to operate,are likely to:

Accepted Answer

A) reinforce each other but still result in incomplete adjustment 
B) reinforce each other and result in complete adjustment 
C) work at cross purposes from each other and result in incomplete adjustment 
D) work at cross purposes from each other and result in perverse adjustment 
A) reinforce each other but still result in incomplete adjustment 
B) reinforce each other and result in complete adjustment 
C) work at cross purposes from each other and result in incomplete adjustment 
D) work at cross purposes from each other and result in perverse adjustment

Exam 17: The Income Adjustment Mechanism and Synthesis of Automatic

A benefit of automatic adjustment mechanisms is that they:

Why is the foreign trade multiplier smaller in a large nation relative to small nation?

When considering the impact of foreign repercussions relative to a scenario without such repercussions,for a large nation the foreign trade multiplier will be

The equilibrium level of national income in an open economy is given by:

Why is the foreign trade multiplier smaller than the corresponding multiplier in a closed economy?

The S-I function is upward sloping because:

The improvement in a nation's balance of trade and payments resulting from a depreciation of its currency is:

By itself,the automatic income adjustment mechanism is likely to bring about:

When considering the impact of foreign repercussions relative to a scenario without such repercussions,for a small nation the foreign trade multiplier will be

When S exceeds I,an open economy has a trade:

Of the G-7 industrialized economies,the following nation has the lowest income elasticity of imports

In order to isolate the income adjustment mechanism,we assume that:

.If MPC=0.8 and MPM=0.05,a $100 million increase in exports will lead to:

One disadvantage facing a freely flexible exchange rate system is that is can cause

An autonomous increase in S from a condition of equilibrium in national income and in the trade balance results in the nation's income:

In an open economy,the marginal propensity to consumer is 0.75,and the marginal propensity to import is 0.15.Calculate the change in equilibrium GDP if exports fall by $50 billion.

If MPC=0.8 and MPM=0.05,the foreign trade multiplier is:

The marginal propensity to consume measures:

An open economy can be described by the following functions (all figures in millions of dollars): C = 500 + 0.8Y I = 600 X = 400 M = 200 + 0.05Y Calculate equilibrium income and the trade balance.

In the real world,the automatic income,price,and interest adjustment mechanisms,if allowed to operate,are likely to:

Introduction

The Law of Comparative Advantage

The Standard Theory of International Trade

Demand and Supply, offer Curves, and the Terms of Trade

Factor Endowments and the Heckscher-Ohlin Theory

Economies of Scale, imperfect Competition, and International Trade

Economic Growth and International Trade

Economic Growth and International Trade

Nontariff Trade Barriers and the New Protectionism

Economic Integration: Customs Unions and Free Trade Areas

International Trade and Economic Development

International Resource Movements and Multinational Corporations

Balance of Payments

Foreign Exchange Markets and Exchange Rates

Exchange Rate Determination

The Price Adjustment Mechanism With Flexible and Fixed Exchange

Open-Economy Macroeconomics: Adjustment Policies

Prices and Output in an Open Economy: Aggregate Demand and Aggregate Supply

Flexible Versus Fixed Exchange Rates, the European Monetary System, and Macroeconomic Policy Coordination

The International Monetary System: Past,present,and Future

Filters