Question 1

In the late 1990s, Brazil decided to reduce the value of its currency, the real, in order to boost exports and help the economy to move out of a recession.Argentina, the main trade competitor of Brazil in various products, was immediately affected by Brazil's decision since it would:

Accepted Answer

A) increase Argentina's imports and decrease Argentina's trade deficit. 
B) decrease Argentina's exports and increase Argentina's trade deficit. 
C) decrease Argentina's imports and decrease Argentina's trade deficit. 
D) increase Argentina's exports and decrease Argentina's trade deficit.

Question 2

A country with a trade surplus is:

Accepted Answer

A) consuming more than it produces. 
B) producing more than it consumes. 
C) producing up to the level of desired consumption. 
D) consuming up to the level of potential production.

Question 3

Considering an economy with a current trade deficit and considering only the direct effect on income, an expansionary monetary policy tends to:

Accepted Answer

A) decrease the exchange rate and increase the trade deficit. 
B) increase the exchange rate and increase the trade deficit. 
C) decrease the exchange rate and decrease the trade deficit. 
D) increase the exchange rate and decrease the trade deficit.

Question 4

The U.S.trade deficit is most likely to be harmful in the future if:

Accepted Answer

A) U.S.citizens continue to accumulate foreign assets. 
B) U.S.production continues to exceed U.S.consumption. 
C) the inflow of financial capital associated with it does not finance productive investment. 
D) U.S.citizens refuse to lend to foreigners as a result of it.

Question 5

The desire of governments to be able to use monetary and fiscal policies to pursue domestic goals of stable prices and full employment has been a reason that:

Accepted Answer

A) fixed exchange rates have been replaced with flexible exchange rates. 
B) flexible exchange rates have been replace with fixed exchange rates. 
C) countries have tried to stabilize their exchange rates at a high level. 
D) countries have tried to stabilize their exchange rates at a low level.

Question 6

A country highly linked globally has:

Accepted Answer

A) more flexibility in its monetary and fiscal policy. 
B) more flexibility in its exchange rate policy. 
C) less flexibility in its monetary and fiscal policy. 
D) less flexibility in its exchange rate policy.

Question 7

If Japan adopts an expansionary monetary policy, the value of the dollar would:

Accepted Answer

A) decrease and the U.S.trade deficit would decrease. 
B) decrease and the U.S.trade deficit would increase. 
C) increase and the U.S.trade deficit would decrease. 
D) increase and the U.S.trade deficit would increase.

Question 8

If Japan adopts an expansionary monetary policy, U.S.exports are likely to increase.

Accepted Answer

A) True 
 B)False

Question 9

Considering only its direct effect on income, expansionary monetary policy tends to:

Accepted Answer

A) be ambiguous with respect to the exchange rate, while decreasing the trade deficit. 
B) be ambiguous with respect to the trade deficit, while increasing the exchange rate. 
C) decrease the exchange rate and increase a trade deficit. 
D) increase the exchange rate and decrease a trade deficit.

Question 10

Albania wants to maintain an exchange rate of $0.20 per lek.However, the market for lek per U.S.dollar has determined an exchange rate of $0.14 per lek (depreciation of the lek against the U.S.dollar).The Croatian central bank decides to increase the domestic interest rates through a contractionary monetary policy.This would shift the:

Accepted Answer

A) supply of lek to the left and cause the lek to lose value. 
B) supply of lek to the right and cause the lek to lose value. 
C) demand of lek to the right and cause the lek to gain value. 
D) demand of lek to the left and cause the lek to lose value.

Question 11

As domestic income decreases, the trade balance:

Accepted Answer

A) is likely to improve. 
B) is likely to worsen. 
C) is not likely to change 
D) may improve or worsen depending on the size of the decrease in income.

Question 12

Considering only its direct effect on income, expansionary fiscal policy tends to:

Accepted Answer

A) increase income and imports, shifting the U.S.trade balance in the direction of a deficit. 
B) increase income and imports, shifting the U.S.trade balance in the direction of a surplus. 
C) decrease income and imports, shifting the U.S.trade balance in the direction of a deficit. 
D) decrease income and imports, shifting the U.S.trade balance in the direction of a surplus.

Question 13

What is the primary benefit to the United States of a low price for the dollar in the foreign exchange market?

Accepted Answer

A) It makes foreign goods cheaper, helping consumers. 
B) It encourages exports, helping producers. 
C) It helps keep inflation under control. 
D) There are no benefits to the United States of a low price for the dollar; a higher price is always better.

Question 14

Suppose the U.S.economy is going into a recession.Considering the effect of monetary policy on trade through its impact on income only, the domestic problem calls for:

Accepted Answer

A) contractionary monetary policy, which will increase the U.S.trade deficit. 
B) contractionary monetary policy, which will decrease the U.S.trade deficit. 
C) expansionary monetary policy, which will increase the U.S.trade deficit. 
D) expansionary monetary policy, which will decrease the U.S.trade deficit.

Question 15

For most countries, international goals are generally:

Accepted Answer

A) much more important than domestic goals. 
B) slightly more important than domestic goals. 
C) equally important as domestic goals. 
D) less important than domestic goals.

Question 16

In the 1980s Japan had a significant trade surplus.The G-7 nations wanted Japan to reduce its trade surplus and therefore pressured the Japanese government to:

Accepted Answer

A) devalue the yen. 
B) strengthen the yen. 
C) keep the yen fixed. 
D) control inflation.

Question 17

When a country internationalizes its debt, it:

Accepted Answer

A) reduces current consumption but increases future consumption. 
B) increases current consumption but reduces future consumption. 
C) reduces both current and future consumption. 
D) increases both current and future consumption.

Question 18

A country must adjust its economy to fit its exchange rate when it is using:

Accepted Answer

A) fiscal policy. 
B) flexible exchange rates. 
C) monetary policy. 
D) fixed exchange rates.

Question 19

Suppose the United States is entering a recession at the same time that it has agreed to work toward eliminating its trade deficit.Considering the effect of monetary policy on trade through its impact on income only:

Accepted Answer

A) an expansionary monetary policy would be the appropriate means of achieving both objectives. 
B) a contractionary monetary policy would be the appropriate means of achieving both objectives. 
C) an expansionary monetary policy would be appropriate to eliminate the trade deficit, but contractionary monetary policy is called for to deal with the recession. 
D) a contractionary monetary policy would be appropriate to eliminate the trade deficit, but expansionary monetary policy is called for to deal with the recession.

Question 20

An effective way for a country to keep its currency fixed at a desirable level is to:

Accepted Answer

A) use traditional monetary, fiscal, and trade policies. 
B) demand changes in monetary and fiscal policies of its trade partners. 
C) demand changes in trade policy to its trade partners. 
D) use internationalization of the debt.

Exam 36: Macro Policy in a Global Setting