Question 1

If a government must run a balanced budget, then tax revenues and government spending:

Accepted Answer

A)  move roughly in opposite directions. 
B)  move exactly in opposite directions. 
C)  move exactly in the same direction. 
D)  move roughly in the same direction. 
A)  move roughly in opposite directions. 
B)  move exactly in opposite directions. 
C)  move exactly in the same direction. 
D)  move roughly in the same direction.

Question 2

Aggregate supply is the same thing as:

Accepted Answer

A)  total national spending. 
B)  total domestic production. 
C)  aggregate demand. 
D)  a supply shock. 
A)  total national spending. 
B)  total domestic production. 
C)  aggregate demand. 
D)  a supply shock.

Question 3

A belief that high-tech companies would be highly profitable led to the boom in Internet companies in the 1990s, which is known as a(n):

Accepted Answer

A)  investment shock. 
B)  investment boom. 
C)  technology surge. 
D)  technology reversal. 
A)  investment shock. 
B)  investment boom. 
C)  technology surge. 
D)  technology reversal.

Question 4

The J curve effect in reference to the trade balance may persist:

Accepted Answer

A)  for up to one year after the depreciation. 
B)  permanently. 
C)  for a few weeks only. 
D)  for up to 10 years after the depreciation. 
A)  for up to one year after the depreciation. 
B)  permanently. 
C)  for a few weeks only. 
D)  for up to 10 years after the depreciation.

Question 5

What are the ultimate impacts of temporary fiscal contraction under floating exchange rates on Y, i, E, and the TB? Briefly explain.

Accepted Answer

The ultimate impacts of temporary fiscal

Question 6

A fall in the real exchange rate (appreciation) will decrease the trade balance in the short run and cause a(n) ________ of the total demand curve.

Accepted Answer

A)  downward shift 
B)  increase in the slope 
C)  upward shift 
D)  decrease in the slope 
A)  downward shift 
B)  increase in the slope 
C)  upward shift 
D)  decrease in the slope

Question 7

The J curve effect means that import prices are higher, thus revenues paid out increase while export prices are lower and incoming revenues decrease. Therefore, after a currency depreciation:

Accepted Answer

A)  the trade balance will improve, then decline, then improve, and then decline, appearing to be a series of J shapes. 
B)  the trade balance will increase, then decrease, then jump higher, which economists call the J curve effect. 
C)  the nation will cut back on imports immediately causing the trade balance to improve, which gives the curve an inverted J shape. 
D)  the trade balance decreases and then increases over time giving the curve a J shape. 
A)  the trade balance will improve, then decline, then improve, and then decline, appearing to be a series of J shapes. 
B)  the trade balance will increase, then decrease, then jump higher, which economists call the J curve effect. 
C)  the nation will cut back on imports immediately causing the trade balance to improve, which gives the curve an inverted J shape. 
D)  the trade balance decreases and then increases over time giving the curve a J shape.

Question 8

Assumptions that output is fixed and factor prices have adjusted to reach the level of full employment are:

Accepted Answer

A)  useful for long-run analysis. 
B)  necessary for short-run analysis. 
C)  unrealistic to the extent that economists should not make such assumptions. 
D)  always true and therefore useful both in the long run and short run. 
A)  useful for long-run analysis. 
B)  necessary for short-run analysis. 
C)  unrealistic to the extent that economists should not make such assumptions. 
D)  always true and therefore useful both in the long run and short run.

Question 9

Data on the relationship between the U.S. multilateral real exchange rate and the U.S. trade balance show:

Accepted Answer

A)  a surprising result that the decrease in the trade balance is correlated with an increase (depreciation) of the U.S. dollar multilateral real exchange rate. 
B)  a predictable result that the increase in the trade balance is correlated with an increase (depreciation) of the U.S. dollar multilateral real exchange rate. 
C)  a correlation that is so weak it cannot be used to support the theory that the trade balance is related to the real effective exchange rate of the U.S. dollar. 
D)  a surprising result that the increase in the U.S. trade balance occurs with a decrease (appreciation) in the real effective exchange rate of the dollar. 
A)  a surprising result that the decrease in the trade balance is correlated with an increase (depreciation) of the U.S. dollar multilateral real exchange rate. 
B)  a predictable result that the increase in the trade balance is correlated with an increase (depreciation) of the U.S. dollar multilateral real exchange rate. 
C)  a correlation that is so weak it cannot be used to support the theory that the trade balance is related to the real effective exchange rate of the U.S. dollar. 
D)  a surprising result that the increase in the U.S. trade balance occurs with a decrease (appreciation) in the real effective exchange rate of the dollar.

Question 10

Increasing the transfers from workers to the unemployed counts as:

Accepted Answer

A)  fiscal policy. 
B)  monetary policy. 
C)  neither fiscal nor monetary policy. 
D)  both fiscal and monetary policy. 
A)  fiscal policy. 
B)  monetary policy. 
C)  neither fiscal nor monetary policy. 
D)  both fiscal and monetary policy.

Question 11

The TB (i.e., X - M) is part of the short-run spending equation. With sticky prices, what would be the effect on the TB with an increase (a real depreciation) of the home nation's exchange rate?

Accepted Answer

A)  Consumers in the home nation would find it more expensive to buy domestic goods compared with foreign goods, and the TB would decrease. 
B)  Consumers in the home nation would cut back on both domestic and foreign goods and the TB would decrease. 
C)  Consumers in the home nation would increase spending on both domestic and foreign goods, and the TB would be unchanged. 
D)  Consumers in the home nation would increase spending on domestic goods and decrease spending on foreign goods, causing the TB to increase. 
A)  Consumers in the home nation would find it more expensive to buy domestic goods compared with foreign goods, and the TB would decrease. 
B)  Consumers in the home nation would cut back on both domestic and foreign goods and the TB would decrease. 
C)  Consumers in the home nation would increase spending on both domestic and foreign goods, and the TB would be unchanged. 
D)  Consumers in the home nation would increase spending on domestic goods and decrease spending on foreign goods, causing the TB to increase.

Question 12

The quantity of real balances demanded varies ____ with the nominal rate of interest because ________.

Accepted Answer

A)  directly; at higher interest rates people want more money 
B)  inversely; at lower interest rates people want less money 
C)  inversely; when people hold more money, they forego interest on other assets 
D)  directly; real balances are independent of inflation and would not be affected by it 
A)  directly; at higher interest rates people want more money 
B)  inversely; at lower interest rates people want less money 
C)  inversely; when people hold more money, they forego interest on other assets 
D)  directly; real balances are independent of inflation and would not be affected by it

Question 13

When exchange rates are fixed, a government, to counter a temporary negative demand shock, should, in part:

Accepted Answer

A)  reduce taxes. 
B)  reduce defense spending. 
C)  reduce the money supply. 
D)  reduce defense spending and the money supply. 
A)  reduce taxes. 
B)  reduce defense spending. 
C)  reduce the money supply. 
D)  reduce defense spending and the money supply.

Question 14

Excessive use of monetary or fiscal policies to achieve stabilization may:

Accepted Answer

A)  require the cooperation of firms and the public in order to be effective. 
B)  backfire if the economy becomes destabilized through erratic application. 
C)  never be necessary as long as the economy can rely on automatic stabilizers. 
D)  be better than weaker measures that may not hit the target. 
A)  require the cooperation of firms and the public in order to be effective. 
B)  backfire if the economy becomes destabilized through erratic application. 
C)  never be necessary as long as the economy can rely on automatic stabilizers. 
D)  be better than weaker measures that may not hit the target.

Question 15

Because a change in consumer spending is positively related to a change in income, the slope of the aggregate demand function is:

Accepted Answer

A) 0. 
B) 1. 
C) equal to the MPC. 
D) equal to the marginal propensity to save. 
A) 0. 
B) 1. 
C) equal to the MPC. 
D) equal to the marginal propensity to save.

Question 16

If domestic and foreign prices rise by the same relative amount, what will happen to the trade balance?

Accepted Answer

A)  It will rise. 
B)  Nothing will happen. 
C)  It will fall. 
D)  Not enough information is provided to answer the question. 
A)  It will rise. 
B)  Nothing will happen. 
C)  It will fall. 
D)  Not enough information is provided to answer the question.

Question 17

The slope of the consumption function relates changes in consumer spending to changes in disposable income received by consumers. This is called:

Accepted Answer

A)  the marginal propensity to consume. 
B)  the average propensity to consume. 
C)  the utility-maximization function. 
D)  the marginal rate of transformation. 
A)  the marginal propensity to consume. 
B)  the average propensity to consume. 
C)  the utility-maximization function. 
D)  the marginal rate of transformation.

Question 18

In order to assess the relationship between the real exchange rate and total exports for any nation, one must construct a real effective exchange rate that measures:

Accepted Answer

A)  a composite of each trading partner's real exchange rate change weighted by the share of trade. 
B)  the exchange rate that would exist with no inflation and balanced trade. 
C)  the average of all nominal exchange rates since we assume no inflation. 
D)  nominal trade adjusted for inflation. 
A)  a composite of each trading partner's real exchange rate change weighted by the share of trade. 
B)  the exchange rate that would exist with no inflation and balanced trade. 
C)  the average of all nominal exchange rates since we assume no inflation. 
D)  nominal trade adjusted for inflation.

Question 19

Which of the following is NOT a reason for the inability to stabilize output?

Accepted Answer

A)  lags between observation and action 
B)  policy actions can immediately take effect 
C)  policy constraints 
D)  preference to maintain long-range goals 
A)  lags between observation and action 
B)  policy actions can immediately take effect 
C)  policy constraints 
D)  preference to maintain long-range goals

Question 20

With a fixed supply of money, as GDP rises, the demand for money ____ and therefore ____ must rise to encourage savers to hold financial assets instead of cash.

Accepted Answer

A)  falls; prices 
B)  rises; incomes 
C)  rises; rates of interest 
D)  falls; taxes 
A)  falls; prices 
B)  rises; incomes 
C)  rises; rates of interest 
D)  falls; taxes

Exam 18: Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies in the Short Run

If a government must run a balanced budget, then tax revenues and government spending:

Aggregate supply is the same thing as:

A belief that high-tech companies would be highly profitable led to the boom in Internet companies in the 1990s, which is known as a(n):

The J curve effect in reference to the trade balance may persist:

What are the ultimate impacts of temporary fiscal contraction under floating exchange rates on Y, i, E, and the TB? Briefly explain.

A fall in the real exchange rate (appreciation) will decrease the trade balance in the short run and cause a(n) ________ of the total demand curve.

The J curve effect means that import prices are higher, thus revenues paid out increase while export prices are lower and incoming revenues decrease. Therefore, after a currency depreciation:

Assumptions that output is fixed and factor prices have adjusted to reach the level of full employment are:

Data on the relationship between the U.S. multilateral real exchange rate and the U.S. trade balance show:

Increasing the transfers from workers to the unemployed counts as:

The TB (i.e., X - M) is part of the short-run spending equation. With sticky prices, what would be the effect on the TB with an increase (a real depreciation) of the home nation's exchange rate?

The quantity of real balances demanded varies ____ with the nominal rate of interest because ________.

When exchange rates are fixed, a government, to counter a temporary negative demand shock, should, in part:

Excessive use of monetary or fiscal policies to achieve stabilization may:

Because a change in consumer spending is positively related to a change in income, the slope of the aggregate demand function is:

If domestic and foreign prices rise by the same relative amount, what will happen to the trade balance?

The slope of the consumption function relates changes in consumer spending to changes in disposable income received by consumers. This is called:

In order to assess the relationship between the real exchange rate and total exports for any nation, one must construct a real effective exchange rate that measures:

Which of the following is NOT a reason for the inability to stabilize output?

With a fixed supply of money, as GDP rises, the demand for money ____ and therefore ____ must rise to encourage savers to hold financial assets instead of cash.

Trade in the Global Economy

Trade and Technology: The Ricardian Model

Gains and Losses From Trade in the Specific-Factors Model

Trade and Resources: the Heckscher-Ohlin Model

Movement of Labor and Capital Between Countries

Increasing Returns to Scale and Monopolistic Competition

Offshoring of Goods and Services

Import Tariffs and Quotas Under Perfect Competition

Import Tariffs and Quotas Under Imperfect Competition

Export Subsidies in Agriculture and High-Technology Industries

International Agreements: Trade, Labor, and the Environment

The Global Macroeconomy

Introduction to Exchange Rates and the Foreign Exchange Market

Exchange Rates I: the Monetary Approach in the Long Run

Exchange Rates II: the Asset Approach in the Short Run

National and International Accounts: Income, Wealth, and the Balance of Payments

Balance of Payments I: the Gains From Financial Globalization

Fixed Versus Floating: International Monetary Experience

Exchange Rate Crises: How Pegs Work and How They Break

The Euro

Topics in International Macroeconomics

Filters

The quantity of real balances demanded varies with the nominal rate of interest because ____.

With a fixed supply of money, as GDP rises, the demand for money and therefore must rise to encourage savers to hold financial assets instead of cash.