Question 1

If the trade surplus has fallen, which of the following is a possible explanation?

Accepted Answer

A)  The real exchange rate rose. 
B)  Foreign income fell. 
C)  Domestic income fell. 
D)  The foreign price level rose. 
A)  The real exchange rate rose. 
B)  Foreign income fell. 
C)  Domestic income fell. 
D)  The foreign price level rose.

Question 2

The time gap between a nation's decision to implement a corrective economic policy and the actual results of the policy is known as the:

Accepted Answer

A)  inside lag. 
B)  inside lapse. 
C)  outside lag. 
D)  outside lapse. 
A)  inside lag. 
B)  inside lapse. 
C)  outside lag. 
D)  outside lapse.

Question 3

If the government attempts to stimulate the economy under a fixed-rate regime, it must also conduct a parallel expansionary monetary policy. Why? And what impact would there be on the domestic economy?

Accepted Answer

Under a fixed-rate regime, the governmen

Question 4

During the Great Recession, the Polish economy withstood the economic impact by:

Accepted Answer

A)  decreasing the money supply. 
B)  increasing the taxes. 
C)  increasing the money supply. 
D)  appreciating its currency. 
A)  decreasing the money supply. 
B)  increasing the taxes. 
C)  increasing the money supply. 
D)  appreciating its currency.

Question 5

Full pass-through means that a 10% rise in the overseas price of an imported good leads to:

Accepted Answer

A)  a 100% rise in the domestic price. 
B)  a greater than 10% rise in the domestic price. 
C)  a 10% rise in the domestic price. 
D)  a less than 10% rise in the domestic price. 
A)  a 100% rise in the domestic price. 
B)  a greater than 10% rise in the domestic price. 
C)  a 10% rise in the domestic price. 
D)  a less than 10% rise in the domestic price.

Question 6

The trade balance component of aggregate demand is a function of all the following, EXCEPT:

Accepted Answer

A)  foreign disposable income. 
B)  domestic disposable income. 
C)  the real exchange rate. 
D)  consumer spending. 
A)  foreign disposable income. 
B)  domestic disposable income. 
C)  the real exchange rate. 
D)  consumer spending.

Question 7

Factors that shift the IS curve involve:

Accepted Answer

A)  interest rates and levels of GDP. 
B)  the quantity of money and the demand for money. 
C)  the trade balance. 
D)  exogenous variables affecting demand, such as a change in government spending or a change in the exchange rate. 
A)  interest rates and levels of GDP. 
B)  the quantity of money and the demand for money. 
C)  the trade balance. 
D)  exogenous variables affecting demand, such as a change in government spending or a change in the exchange rate.

Question 8

An increase in income in an open economy nation will cause a change in consumer spending on home production, and a(n):

Accepted Answer

A)  increase in taxes. 
B)  decrease in savings. 
C)  increase in foreign production. 
D)  increase in imports if MPCF (marginal propensity to consume foreign goods) is greater than zero. 
A)  increase in taxes. 
B)  decrease in savings. 
C)  increase in foreign production. 
D)  increase in imports if MPCF (marginal propensity to consume foreign goods) is greater than zero.

Question 9

The LM curve will shift to the right, if there is a(n):

Accepted Answer

A)  decrease in money supply. 
B)  increase in real money demand. 
C)  increase in money supply. 
D)  increase in output. 
A)  decrease in money supply. 
B)  increase in real money demand. 
C)  increase in money supply. 
D)  increase in output.

Question 10

In 2002, $1 = 1 euro, and in 2006, $1 = 0.6 euro. If a Ferrari cost $100,000 in 2002, then it should have cost ______ in 2006.

Accepted Answer

A)  $160,000 
B)  $140,000 
C)  $166,666 
D)  $60,000 
A)  $160,000 
B)  $140,000 
C)  $166,666 
D)  $60,000

Question 11

A series of stories in the popular press in early 2004 reflected the effect of the depreciation of the U.S. dollar vis-à-vis other currencies. Describe some of these effects. Should the United States be worried? What about trading partners of the United States?

Accepted Answer

The depreciation of the U.S. dollar in e

Question 12

The relationship between the quantity of real balances demanded and the rate of interest (called the demand for money curve) will ____ when GDP increases because _____.

Accepted Answer

A)  increase (shift right); more transactions balances are needed to make purchases and to hold between pay periods 
B)  increase (shift right); more asset balances are needed for saving or precautionary reasons 
C)  decrease (shift left); fewer transactions balances are needed to make purchases and to hold between pay periods 
D)  decrease (shift left); lower asset balances are needed for saving or precautionary reasons 
A)  increase (shift right); more transactions balances are needed to make purchases and to hold between pay periods 
B)  increase (shift right); more asset balances are needed for saving or precautionary reasons 
C)  decrease (shift left); fewer transactions balances are needed to make purchases and to hold between pay periods 
D)  decrease (shift left); lower asset balances are needed for saving or precautionary reasons

Question 13

Which of the following is a general rule for how demand shocks affect the IS curve?

Accepted Answer

A)  Demand shocks will always show up as changes in the expected real exchange rate. 
B)  Demand shocks are usually rare and have little effect. 
C)  When any exogenous variable works to increase demand, IS shifts to the right and, conversely, when any exogenous variable works to decrease demand, IS shifts to the left. 
D)  When any exogenous variable works to increase demand, IS shifts to the left and conversely, when any exogenous variable works to decrease demand, IS shifts to the right. 
A)  Demand shocks will always show up as changes in the expected real exchange rate. 
B)  Demand shocks are usually rare and have little effect. 
C)  When any exogenous variable works to increase demand, IS shifts to the right and, conversely, when any exogenous variable works to decrease demand, IS shifts to the left. 
D)  When any exogenous variable works to increase demand, IS shifts to the left and conversely, when any exogenous variable works to decrease demand, IS shifts to the right.

Question 14

The functional relationship between the trade balance and the real exchange rate is:

Accepted Answer

A)  a negative, or decreasing, function. 
B)  a positive, or increasing, function. 
C)  a parabolic function. 
D)  impossible to quantify because there are so many unknown variables. 
A)  a negative, or decreasing, function. 
B)  a positive, or increasing, function. 
C)  a parabolic function. 
D)  impossible to quantify because there are so many unknown variables.

Question 15

In addition to government purchases or changes in taxes, demand shocks in the economy can increase or decrease GDP, leading to a fall or rise in the trade balance. Which of the following would NOT represent a demand shock?

Accepted Answer

A)  a change in household wealth leading to a rise in consumption expenditures 
B)  a rise in inflation 
C)  a change in the marginal propensity to import, causing imports to rise 
D)  an increase in technology, causing investment spending to rise 
A)  a change in household wealth leading to a rise in consumption expenditures 
B)  a rise in inflation 
C)  a change in the marginal propensity to import, causing imports to rise 
D)  an increase in technology, causing investment spending to rise

Question 16

The LM curve shows equilibrium in the _______ market at various levels of interest rates and GDP.

Accepted Answer

A)  forex 
B)  goods 
C)  equities 
D)  money 
A)  forex 
B)  goods 
C)  equities 
D)  money

Question 17

Explain the J curve.

Accepted Answer

The J curve is a concept used in economi

Question 18

Consider the following information for a family. The income for the family is $58,000; if the MPC is 0.6, and income increases by $13,000, then the increase in savings for the family is:

Accepted Answer

A)  $5,400. 
B)  $5,200. 
C)  $420. 
D)  $7,800. 
A)  $5,400. 
B)  $5,200. 
C)  $420. 
D)  $7,800.

Question 19

A set of combinations of nominal interest rates and GDP, for which the demand for money is equal to the supply of money, is the:

Accepted Answer

A)  IS curve. 
B)  aggregate expenditure line. 
C)  supply curve. 
D)  LM curve. 
A)  IS curve. 
B)  aggregate expenditure line. 
C)  supply curve. 
D)  LM curve.

Question 20

Suppose the MPC is 0.8 in Canada and the MPC is 0.55 at Home. If income increases by $100 million in Canada, then the increase in consumption of domestic goods will be:

Accepted Answer

A)  $25 million. 
B)  $80 million. 
C)  $55 million. 
D)  $35 million. 
A)  $25 million. 
B)  $80 million. 
C)  $55 million. 
D)  $35 million.

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

If the trade surplus has fallen, which of the following is a possible explanation?

The time gap between a nation's decision to implement a corrective economic policy and the actual results of the policy is known as the:

If the government attempts to stimulate the economy under a fixed-rate regime, it must also conduct a parallel expansionary monetary policy. Why? And what impact would there be on the domestic economy?

During the Great Recession, the Polish economy withstood the economic impact by:

Full pass-through means that a 10% rise in the overseas price of an imported good leads to:

The trade balance component of aggregate demand is a function of all the following, EXCEPT:

Factors that shift the IS curve involve:

An increase in income in an open economy nation will cause a change in consumer spending on home production, and a(n):

The LM curve will shift to the right, if there is a(n):

In 2002, $1 = 1 euro, and in 2006, $1 = 0.6 euro. If a Ferrari cost $100,000 in 2002, then it should have cost ______ in 2006.

A series of stories in the popular press in early 2004 reflected the effect of the depreciation of the U.S. dollar vis-à-vis other currencies. Describe some of these effects. Should the United States be worried? What about trading partners of the United States?

The relationship between the quantity of real balances demanded and the rate of interest (called the demand for money curve) will ____ when GDP increases because _____.

Which of the following is a general rule for how demand shocks affect the IS curve?

The functional relationship between the trade balance and the real exchange rate is:

In addition to government purchases or changes in taxes, demand shocks in the economy can increase or decrease GDP, leading to a fall or rise in the trade balance. Which of the following would NOT represent a demand shock?

The LM curve shows equilibrium in the _______ market at various levels of interest rates and GDP.

Explain the J curve.

Consider the following information for a family. The income for the family is $58,000; if the MPC is 0.6, and income increases by $13,000, then the increase in savings for the family is:

A set of combinations of nominal interest rates and GDP, for which the demand for money is equal to the supply of money, is the:

Suppose the MPC is 0.8 in Canada and the MPC is 0.55 at Home. If income increases by $100 million in Canada, then the increase in consumption of domestic goods will be:

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

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The relationship between the quantity of real balances demanded and the rate of interest (called the demand for money curve) will when GDP increases because _.