Question 1

What is the natural level of output?

Accepted Answer

The answer of What is the natural level of output?...

Question 2

The aggregate demand curve (AD)for an open economy is derived from the

Accepted Answer

A)  IS curve 
B)  LM curve 
C)  BP curve 
D)  all of the above

Question 3

Which of the following is a correct statement about the effects of monetary and fiscal policies?

Accepted Answer

A)  Monetary policy is effective under a fixed exchange rate regime, but not under flexible rates. 
B)  A monetary shock will shift the aggregate demand curve in the same direction, whether exchange rates are fixed or flexible. 
C)  A real shock will shift the aggregate demand curve under fixed but not flexible exchange rates. 
D)  Monetary policy can always be used to correct real shocks, whether exchange rates are fixed or flexible.

Question 4

A nation's output in the short-run can

Accepted Answer

A)  exceed its natural level 
B)  fall short of its natural level 
C)  equal to its natural level 
D)  any of the above

Question 5

Output in the short run exceeds the natural level of output if expected prices

Accepted Answer

A)  exceed actual prices 
B)  are lower than actual prices 
C)  are equal to actual prices 
D)  any of the above

Question 6

With high short-term international capital flows,fixed exchange rates,and flexible prices

Accepted Answer

A)  monetary policy is effective 
B)  fiscal policy is effective 
C)  both fiscal and monetary policies are effective 
D)  neither fiscal policy nor monetary policies are effective

Question 7

Which of the following statements is false?

Accepted Answer

A)  expansionary fiscal or monetary policy can increase the nation's output temporarily above its natural level 
B)  expansionary fiscal or monetary policy can used to correct a recession but only at the expense of higher prices in the nation 
C)  a recession cannot be eliminated automatically even if domestic prices are flexible downward 
D)  when prices are not flexible downward inflation may be less costly that recession

Question 8

During the last decade the inflation rate in the U.S.has been roughly

Accepted Answer

A)  0% 
B)  3% 
C)  5% 
D)  8%

Question 9

An autonomous improvement in the nation's trade balance under fixed exchange rates will cause the nation's aggregate demand curve to

Accepted Answer

A)  shift to the right 
B)  shift to the left 
C)  remain unchanged 
D)  any of the above

Question 10

Suppose that the economy is in long-run equilibrium,and people in other countries suddenly decide to purchase fewer US goods.Explain the short-run effects on the US economy under both fixed and flexible exchange rates.

Accepted Answer

The answer of Suppose that the economy is in long-run...

Exam 19: Prices and Output in an Open Economy: Aggregate Demand and Aggregate Supply