Question 1

Our country's net exports will increase if

Accepted Answer

A) there is an increase in domestic income 
B) there is a decrease in the real exchange rate 
C) there is an increase in domestic inflation 
D) many of our trade partners experience inflation 
E) domestic interest rates rise due to expansionary fiscal policy 
A) there is an increase in domestic income 
B) there is a decrease in the real exchange rate 
C) there is an increase in domestic inflation 
D) many of our trade partners experience inflation 
E) domestic interest rates rise due to expansionary fiscal policy D

Question 2

A fixed exchange rate system is in effect

Accepted Answer

A) a free market system 
B) an open market system 
C) a price support system 
D) an international transactions system 
E) an international transfer system 
A) a free market system 
B) an open market system 
C) a price support system 
D) an international transactions system 
E) an international transfer system C

Question 3

If the real exchange rate is equal to 1,

Accepted Answer

A) currencies are at purchasing power parity 
B) the relative demand for domestically produced goods will rise 
C) the relative demand for domestically produced goods will fall 
D) foreign investors will try to buy more domestic assets 
E) net exports is equal to zero 
A) currencies are at purchasing power parity 
B) the relative demand for domestically produced goods will rise 
C) the relative demand for domestically produced goods will fall 
D) foreign investors will try to buy more domestic assets 
E) net exports is equal to zero A

Question 4

A real depreciation of the domestic currency will

Accepted Answer

A) improve the trade balance and increase aggregate demand 
B) improve the trade balance and lower aggregate demand 
C) improve the trade balance but not affect aggregate demand 
D) lower the trade balance and aggregate demand 
E) lower the trade balance and increase aggregate demand 
A) improve the trade balance and increase aggregate demand 
B) improve the trade balance and lower aggregate demand 
C) improve the trade balance but not affect aggregate demand 
D) lower the trade balance and aggregate demand 
E) lower the trade balance and increase aggregate demand

Question 5

Assume the Japanese yen has appreciated relative to the U.S.dollar.Which of the following is true?

Accepted Answer

A) each dollar can now buy more yen 
B) each yen can now buy more dollars 
C) each dollar can now buy more Japanese goods 
D) the Japanese central bank is forced to sell dollars 
E) both A  and C 
A) each dollar can now buy more yen 
B) each yen can now buy more dollars 
C) each dollar can now buy more Japanese goods 
D) the Japanese central bank is forced to sell dollars 
E) both A  and C

Question 6

In a flexible exchange rate system with perfect capital mobility, if restrictive fiscal policy is implemented, we will see

Accepted Answer

A) a shift of the IS-curve to the left followed by a depreciation of the currency and a subsequent shift of the IS-curve back to its original position 
B) a shift of the IS-curve to the left followed by a depreciation of the currency and a subsequent shift of the LM-curve to the left, leaving the domestic interest rate unchanged 
C) a shift of the IS-curve to the left followed by an appreciation of the currency 
D) a shift of the LM-curve to the left followed by an appreciation of the currency and a subsequent shift of the LM-curve back to its original position 
E) a temporary decrease in the interest rate but a long-term decrease in the level of output 
A) a shift of the IS-curve to the left followed by a depreciation of the currency and a subsequent shift of the IS-curve back to its original position 
B) a shift of the IS-curve to the left followed by a depreciation of the currency and a subsequent shift of the LM-curve to the left, leaving the domestic interest rate unchanged 
C) a shift of the IS-curve to the left followed by an appreciation of the currency 
D) a shift of the LM-curve to the left followed by an appreciation of the currency and a subsequent shift of the LM-curve back to its original position 
E) a temporary decrease in the interest rate but a long-term decrease in the level of output

Question 7

If a country has a balance-of-payments surplus, we know for sure that

Accepted Answer

A) the current account shows a surplus 
B) the capital account shows a surplus 
C) the sum of the current and capital accounts shows a surplus 
D) net exports are positive 
E) all of the above have to be true 
A) the current account shows a surplus 
B) the capital account shows a surplus 
C) the sum of the current and capital accounts shows a surplus 
D) net exports are positive 
E) all of the above have to be true

Question 8

If exchange rates are flexible, capital is perfectly mobile, and central banks do not intervene in foreign exchange markets, then

Accepted Answer

A) balance-of-payments deficits of debtor nations will tend to worsen 
B) any current account deficit must be financed by the outflow of capital 
C) each nation's balance of payments will be zero 
D) there is a strong link between the balance of payment and the domestic money supply 
E) none of the above 
A) balance-of-payments deficits of debtor nations will tend to worsen 
B) any current account deficit must be financed by the outflow of capital 
C) each nation's balance of payments will be zero 
D) there is a strong link between the balance of payment and the domestic money supply 
E) none of the above

Question 9

The ease with which international investors can shift their assets around the world affects

Accepted Answer

A) real exchange rates 
B) the ability of central banks to control interest rates 
C) national incomes 
D) the ability of central banks to conduct monetary policy 
E) all of the above 
A) real exchange rates 
B) the ability of central banks to control interest rates 
C) national incomes 
D) the ability of central banks to conduct monetary policy 
E) all of the above

Question 10

In 2012, imports of goods and services to the U.S.was approximately what percentage of total U.S.GDP?

Accepted Answer

A) 4% 
B) 6% 
C) 12% 
D) 14% 
E) 18% 
A) 4% 
B) 6% 
C) 12% 
D) 14% 
E) 18%

Question 11

Under a flexible exchange rate system, expansionary fiscal policy

Accepted Answer

A) cannot change the level of consumption 
B) is very effective because crowding out cannot occur 
C) has no effect on the trade balance 
D) will cause a deterioration of the trade balance 
E) always has to be supplemented by restrictive monetary policy 
A) cannot change the level of consumption 
B) is very effective because crowding out cannot occur 
C) has no effect on the trade balance 
D) will cause a deterioration of the trade balance 
E) always has to be supplemented by restrictive monetary policy

Question 12

A country's balance of payments can be affected by changes in

Accepted Answer

A) domestic income 
B) foreign income 
C) the real exchange rate 
D) the differential between domestic and foreign interest rates 
E) all of the above 
A) domestic income 
B) foreign income 
C) the real exchange rate 
D) the differential between domestic and foreign interest rates 
E) all of the above

Question 13

When financial investors use the forward exchange rate to eliminate the risk of exchange rate fluctuations, it leads to a condition that is called

Accepted Answer

A) covered interest rate parity 
B) uncovered interest rate parity 
C)  purchasing power parity 
D) managed floating 
E) external balance 
A) covered interest rate parity 
B) uncovered interest rate parity 
C)  purchasing power parity 
D) managed floating 
E) external balance

Question 14

What were the side effects of the German government's fiscal expansion which was designed to help the economy of the five new states (former East Germany) after the German re-unification?

Accepted Answer

A) Germany's trade surplus increased 
B) the German mark depreciated relative to the currencies of non-European trade partners 
C) there was a massive inflow of foreign funds 
D) other European countries were forced to raise their interest rates 
E) both C and D 
A) Germany's trade surplus increased 
B) the German mark depreciated relative to the currencies of non-European trade partners 
C) there was a massive inflow of foreign funds 
D) other European countries were forced to raise their interest rates 
E) both C and D

Question 15

In a model with perfect capital mobility and flexible exchange rates, an increase in government purchases will

Accepted Answer

A) increase net exports but decrease private domestic investment 
B) be totally crowded by a decrease in private domestic investment of the same magnitude 
C) crowd out net exports due to an exchange rate appreciation 
D) increase net exports due to a depreciation of the exchange rate 
E) increase consumption and net exports but decrease private domestic saving 
A) increase net exports but decrease private domestic investment 
B) be totally crowded by a decrease in private domestic investment of the same magnitude 
C) crowd out net exports due to an exchange rate appreciation 
D) increase net exports due to a depreciation of the exchange rate 
E) increase consumption and net exports but decrease private domestic saving

Question 16

The reason for the slow adjustment of the real exchange rate toward purchasing power parity is that

Accepted Answer

A) there are always transportation costs involved in the movement of goods across borders 
B) governments may have imposed tariffs on foreign goods 
C) certain goods cannot be traded 
D) people in different countries do not necessarily consume the same market basket of goods 
E) all of the above 
A) there are always transportation costs involved in the movement of goods across borders 
B) governments may have imposed tariffs on foreign goods 
C) certain goods cannot be traded 
D) people in different countries do not necessarily consume the same market basket of goods 
E) all of the above

Question 17

In a model with flexible exchange rates and capital mobility, expansionary fiscal policy is likely to cause

Accepted Answer

A) a currency depreciation 
B) an increase in the current account surplus 
C) a reduction in net exports 
D) a decrease in imports 
E) an outflow of funds 
A) a currency depreciation 
B) an increase in the current account surplus 
C) a reduction in net exports 
D) a decrease in imports 
E) an outflow of funds

Question 18

Expansionary monetary policy by the U.S.Fed most likely will

Accepted Answer

A) raise U.S. GDP 
B) lower the value of the U.S. dollar 
C) increases the U.S. trade balance 
D) lower U.S. interest rates 
E) all of the above 
A) raise U.S. GDP 
B) lower the value of the U.S. dollar 
C) increases the U.S. trade balance 
D) lower U.S. interest rates 
E) all of the above

Question 19

In a flexible exchange rate system with perfect capital mobility

Accepted Answer

A) expansionary monetary policy will appreciate the domestic currency 
B) fiscal expansion is very effective in stimulating aggregate demand 
C) fiscal expansion causes a depreciation of the domestic currency 
D) the domestic interest rate can't substantially deviate from the world interest rate for very long 
E) all of the above 
A) expansionary monetary policy will appreciate the domestic currency 
B) fiscal expansion is very effective in stimulating aggregate demand 
C) fiscal expansion causes a depreciation of the domestic currency 
D) the domestic interest rate can't substantially deviate from the world interest rate for very long 
E) all of the above

Question 20

Which of the following items are deficit items in the balance of payments for the United States?

Accepted Answer

A) a German citizen buys a U.S. Treasury bill 
B) a U.S. citizen buys a vacation home in Mexico 
C) a U.S. citizen makes a deposit in a Swiss bank 
D) all of the above 
E) only B and C 
A) a German citizen buys a U.S. Treasury bill 
B) a U.S. citizen buys a vacation home in Mexico 
C) a U.S. citizen makes a deposit in a Swiss bank 
D) all of the above 
E) only B and C

Exam 13: International linkages

Our country's net exports will increase if

A fixed exchange rate system is in effect

If the real exchange rate is equal to 1,

A real depreciation of the domestic currency will

Assume the Japanese yen has appreciated relative to the U.S.dollar.Which of the following is true?

In a flexible exchange rate system with perfect capital mobility, if restrictive fiscal policy is implemented, we will see

If a country has a balance-of-payments surplus, we know for sure that

If exchange rates are flexible, capital is perfectly mobile, and central banks do not intervene in foreign exchange markets, then

The ease with which international investors can shift their assets around the world affects

In 2012, imports of goods and services to the U.S.was approximately what percentage of total U.S.GDP?

Under a flexible exchange rate system, expansionary fiscal policy

A country's balance of payments can be affected by changes in

When financial investors use the forward exchange rate to eliminate the risk of exchange rate fluctuations, it leads to a condition that is called

What were the side effects of the German government's fiscal expansion which was designed to help the economy of the five new states (former East Germany) after the German re-unification?

In a model with perfect capital mobility and flexible exchange rates, an increase in government purchases will

The reason for the slow adjustment of the real exchange rate toward purchasing power parity is that

In a model with flexible exchange rates and capital mobility, expansionary fiscal policy is likely to cause

Expansionary monetary policy by the U.S.Fed most likely will

In a flexible exchange rate system with perfect capital mobility

Which of the following items are deficit items in the balance of payments for the United States?

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Inflation

Policy preview

Income and spending

Money, interest, and income

Monetary and fiscal policy

Consumption and saving

Investment spending

The demand for money

The fed, money, and credit

Policy

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

Advanced topics

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