Question 1

Compared to a closed economy,expansionary fiscal policy in an open economy has a smaller effect on aggregate demand because

Accepted Answer

A)  it may increase interest rates and reduce domestic investment spending. 
B)  the government may borrow abroad and decrease foreign capital inflows. 
C)  it may increase interest rates and reduce net exports. 
D)  it may increase government spending on imports. 
A)  it may increase interest rates and reduce domestic investment spending. 
B)  the government may borrow abroad and decrease foreign capital inflows. 
C)  it may increase interest rates and reduce net exports. 
D)  it may increase government spending on imports.

Question 2

Net foreign investment is a measure of net capital outflows,equal to capital outflows minus capital inflows in a given period of accounting.

Accepted Answer

A) True 
 B)False

Question 3

What factors are most important for determining exchange rate fluctuations in the long run?

Accepted Answer

A)  Relative price levels across countries 
B)  Relative rates of productivity growth across countries 
C)  Preferences for domestic and foreign goods across countries 
D)  All of these options are correct 
A)  Relative price levels across countries 
B)  Relative rates of productivity growth across countries 
C)  Preferences for domestic and foreign goods across countries 
D)  All of these options are correct

Question 4

If interest rates in Australia rise,ceteris paribus,the value of the Australian dollar will

Accepted Answer

A)  rise as foreign investors increase their holdings of Australian investments. 
B)  rise as foreign investors decrease their holdings of Australian investments. 
C)  fall as foreign investors increase their holdings of Australian investments. 
D)  fall as foreign investors decrease their holdings of Australian investments. 
A)  rise as foreign investors increase their holdings of Australian investments. 
B)  rise as foreign investors decrease their holdings of Australian investments. 
C)  fall as foreign investors increase their holdings of Australian investments. 
D)  fall as foreign investors decrease their holdings of Australian investments.

Question 5

Exchange rates will equalise purchasing power parity in the long run unless

Accepted Answer

A)  all products can be traded internationally. 
B)  products do not differ across countries. 
C)  countries practise free trade. 
D)  countries impose barriers to trade, such as tariffs and quotas. 
A)  all products can be traded internationally. 
B)  products do not differ across countries. 
C)  countries practise free trade. 
D)  countries impose barriers to trade, such as tariffs and quotas.

Question 6

With a common currency such as the euro,

Accepted Answer

A)  trade barriers between countries using the currency are increased. 
B)  individual countries using the currency are no longer able to run independent monetary policies. 
C)  the prices of goods across countries using the currency must always be the same, regardless of consumer preferences for goods across countries. 
D)  individual countries using the currency are no longer able to run independent fiscal policies. 
A)  trade barriers between countries using the currency are increased. 
B)  individual countries using the currency are no longer able to run independent monetary policies. 
C)  the prices of goods across countries using the currency must always be the same, regardless of consumer preferences for goods across countries. 
D)  individual countries using the currency are no longer able to run independent fiscal policies.

Question 7

If Australians increase their level of saving,explain how this is demonstrated using the saving and investment equation.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The saving and investment equation shows

Question 8

If a firm in Thailand borrows dollars from a US bank,its interest payments on the loan in Thai baht will decrease if the baht appreciates against the dollar.

Accepted Answer

A) True 
 B)False

Question 9

Describe the four determinants of exchange rates in the long run.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

One determinant of exchange rates in the

Question 10

If a currency's par rate (defined as US dollars per unit of foreign currency)was ________ the equilibrium rate and this persisted,then under the Bretton Woods System,the country would be allowed a currency ________.

Accepted Answer

A)  above; devaluation 
B)  equal to; devaluation 
C)  below; devaluation 
D)  above; overvaluation 
A)  above; devaluation 
B)  equal to; devaluation 
C)  below; devaluation 
D)  above; overvaluation

Question 11

'Private saving' is equal to

Accepted Answer

A)  national income plus consumption plus taxes. 
B)  national income minus consumption plus taxes. 
C)  national income minus consumption minus taxes. 
D)  national income plus consumption minus taxes. 
A)  national income plus consumption plus taxes. 
B)  national income minus consumption plus taxes. 
C)  national income minus consumption minus taxes. 
D)  national income plus consumption minus taxes.

Question 12

According to the 'theory of purchasing power parity',if the inflation rate in the United States is greater than the inflation rate in Australia,explain what should happen to the exchange rate between the US dollar and the Australian dollar.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The value of the US dollar sho

Question 13

Refer to Figure 20.1 for the following questions.
Figure 20.1  
-Refer to Figure 20.1.Which of the following events cause the shifts in the supply and demand curves in the market for dollars against the British pound shown in the graph above?

Accepted Answer

A)  Interest rates rise in England 
B)  Interest rates rise in Australia 
C)  Real income rises in Australia 
D)  Real income falls in England 
A)  Interest rates rise in England 
B)  Interest rates rise in Australia 
C)  Real income rises in Australia 
D)  Real income falls in England

Question 14

The Bretton Woods System was a system of ________ exchange rates against the US dollar.

Accepted Answer

A)  flexible 
B)  variable 
C)  floating 
D)  fixed 
A)  flexible 
B)  variable 
C)  floating 
D)  fixed

Question 15

The Chinese were reluctant to allow the value of the yuan to rise against the US dollar because it would

Accepted Answer

A)  decrease exports to the United States. 
B)  increase the value of the large holdings of US dollars that China had accumulated. 
C)  raise the price of imported goods from the United States. 
D)  make Chinese exported goods less expensive in the United States. 
A)  decrease exports to the United States. 
B)  increase the value of the large holdings of US dollars that China had accumulated. 
C)  raise the price of imported goods from the United States. 
D)  make Chinese exported goods less expensive in the United States.

Question 16

Which of the following will cause the Australian dollar to depreciate against the Japanese yen?

Accepted Answer

A)  Prices in Japan rise faster than prices in Australia. 
B)  The average productivity of Japanese firms is higher than Australian firms. 
C)  Australian consumers decrease their preferences for Japanese goods. 
D)  A quota is placed on Australian products. 
A)  Prices in Japan rise faster than prices in Australia. 
B)  The average productivity of Japanese firms is higher than Australian firms. 
C)  Australian consumers decrease their preferences for Japanese goods. 
D)  A quota is placed on Australian products.

Question 17

Which of the following is not included in the financial account?

Accepted Answer

A)  An increase in private Australian asset holdings in foreign countries 
B)  An increase in foreign government asset holdings in foreign countries 
C)  An increase in foreign private asset holdings in Australia 
D)  Income received from investments made overseas 
A)  An increase in private Australian asset holdings in foreign countries 
B)  An increase in foreign government asset holdings in foreign countries 
C)  An increase in foreign private asset holdings in Australia 
D)  Income received from investments made overseas

Question 18

During the Chinese experience with pegging the yuan to the US dollar,the yuan was ________.As a result,there was a ________ of US dollars on the market and the Chinese government had to purchase US dollars to maintain the peg.

Accepted Answer

A)  overvalued; shortage 
B)  undervalued; surplus 
C)  overvalued; surplus 
D)  undervalued; shortage 
A)  overvalued; shortage 
B)  undervalued; surplus 
C)  overvalued; surplus 
D)  undervalued; shortage

Question 19

Hypothetically,what would a report that argues that the dollar is 'undervalued' mean? How would foreign exchange markets respond to this information? Support your answer graphically.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

If the dollar is 'undervalued',this mean

Question 20

The 'current account' includes records of a country's

Accepted Answer

A)  net exports. 
B)  net primary income. 
C)  net secondary income. 
D)  All of the above are included in an economy's current account. 
A)  net exports. 
B)  net primary income. 
C)  net secondary income. 
D)  All of the above are included in an economy's current account.

Compared to a closed economy,expansionary fiscal policy in an open economy has a smaller effect on aggregate demand because

Net foreign investment is a measure of net capital outflows,equal to capital outflows minus capital inflows in a given period of accounting.

What factors are most important for determining exchange rate fluctuations in the long run?

If interest rates in Australia rise,ceteris paribus,the value of the Australian dollar will

Exchange rates will equalise purchasing power parity in the long run unless

With a common currency such as the euro,

If Australians increase their level of saving,explain how this is demonstrated using the saving and investment equation. _ _

If a firm in Thailand borrows dollars from a US bank,its interest payments on the loan in Thai baht will decrease if the baht appreciates against the dollar.

Describe the four determinants of exchange rates in the long run. _ _

If a currency's par rate (defined as US dollars per unit of foreign currency)was the equilibrium rate and this persisted,then under the Bretton Woods System,the country would be allowed a currency .

'Private saving' is equal to

According to the 'theory of purchasing power parity',if the inflation rate in the United States is greater than the inflation rate in Australia,explain what should happen to the exchange rate between the US dollar and the Australian dollar. _ _

Refer to Figure 20.1 for the following questions. Figure 20.1 -Refer to Figure 20.1.Which of the following events cause the shifts in the supply and demand curves in the market for dollars against the British pound shown in the graph above?

The Bretton Woods System was a system of ________ exchange rates against the US dollar.

The Chinese were reluctant to allow the value of the yuan to rise against the US dollar because it would

Which of the following will cause the Australian dollar to depreciate against the Japanese yen?

Which of the following is not included in the financial account?

During the Chinese experience with pegging the yuan to the US dollar,the yuan was .As a result,there was a of US dollars on the market and the Chinese government had to purchase US dollars to maintain the peg.

Hypothetically,what would a report that argues that the dollar is 'undervalued' mean? How would foreign exchange markets respond to this information? Support your answer graphically. _ _

The 'current account' includes records of a country's

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Filters

Exam 20: Macroeconomics in an Open Economy

Compared to a closed economy,expansionary fiscal policy in an open economy has a smaller effect on aggregate demand because

Net foreign investment is a measure of net capital outflows,equal to capital outflows minus capital inflows in a given period of accounting.

What factors are most important for determining exchange rate fluctuations in the long run?

If interest rates in Australia rise,ceteris paribus,the value of the Australian dollar will

Exchange rates will equalise purchasing power parity in the long run unless

With a common currency such as the euro,

If a firm in Thailand borrows dollars from a US bank,its interest payments on the loan in Thai baht will decrease if the baht appreciates against the dollar.

Describe the four determinants of exchange rates in the long run. _____________________________________________________________________________________________ _____________________________________________________________________________________________

If a currency's par rate (defined as US dollars per unit of foreign currency)was ________ the equilibrium rate and this persisted,then under the Bretton Woods System,the country would be allowed a currency ________.

'Private saving' is equal to

Refer to Figure 20.1 for the following questions. Figure 20.1 -Refer to Figure 20.1.Which of the following events cause the shifts in the supply and demand curves in the market for dollars against the British pound shown in the graph above?

The Bretton Woods System was a system of ________ exchange rates against the US dollar.

The Chinese were reluctant to allow the value of the yuan to rise against the US dollar because it would

Which of the following will cause the Australian dollar to depreciate against the Japanese yen?

Which of the following is not included in the financial account?

During the Chinese experience with pegging the yuan to the US dollar,the yuan was ________.As a result,there was a ________ of US dollars on the market and the Chinese government had to purchase US dollars to maintain the peg.

The 'current account' includes records of a country's

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Filters

Describe the four determinants of exchange rates in the long run. _ _

If a currency's par rate (defined as US dollars per unit of foreign currency)was the equilibrium rate and this persisted,then under the Bretton Woods System,the country would be allowed a currency .

During the Chinese experience with pegging the yuan to the US dollar,the yuan was .As a result,there was a of US dollars on the market and the Chinese government had to purchase US dollars to maintain the peg.