Question 1

If an increase in national income has a negative effect on the trade balance, we should expect that

Accepted Answer

A) domestic interest rates will rise, attracting foreign funds 
B) domestic interest rates will fall, causing an outflow of funds 
C) domestic assets will become more expensive 
D) the central bank will expand money supply 
E) the central bank will buy foreign currency thus increasing its reserves 
A) domestic interest rates will rise, attracting foreign funds 
B) domestic interest rates will fall, causing an outflow of funds 
C) domestic assets will become more expensive 
D) the central bank will expand money supply 
E) the central bank will buy foreign currency thus increasing its reserves

Question 2

In an IS-LM model with fixed exchange rates and perfect capital mobility, a cut in government spending shifts the IS-curve to the left

Accepted Answer

A) without affecting the LM-curve 
B) but then back to the right again because of the resulting increase in net exports 
C) but then the central bank is forced to restrict the money supply, so the LM-curve also shifts to the left 
D) but then the central bank is forced to expand money supply, so the LM-curve shifts to the right 
E) but then a capital inflow from abroad results, forcing the government to reverse its policy 
A) without affecting the LM-curve 
B) but then back to the right again because of the resulting increase in net exports 
C) but then the central bank is forced to restrict the money supply, so the LM-curve also shifts to the left 
D) but then the central bank is forced to expand money supply, so the LM-curve shifts to the right 
E) but then a capital inflow from abroad results, forcing the government to reverse its policy

Question 3

A country following a beggar-thy-neighbor policy is

Accepted Answer

A) inducing an exchange rate depreciation to increase domestic output 
B) inducing an exchange rate appreciation to create unemployment in other countries 
C) imposing a tax on goods that are exported 
D) imposing tariffs on imports 
E) asking other nations for foreign aid 
A) inducing an exchange rate depreciation to increase domestic output 
B) inducing an exchange rate appreciation to create unemployment in other countries 
C) imposing a tax on goods that are exported 
D) imposing tariffs on imports 
E) asking other nations for foreign aid

Question 4

Which of the following is TRUE in a free market economy with perfect capital mobility?

Accepted Answer

A) a nation's exchange rate will tend to equalize the cost of buying traded goods at home with the cost of buying the same goods abroad 
B) a nation's exchange rate will tend to equalize the interest rate received on a government bond at home and a similar bond abroad 
C) exchange rates are influenced by differentials in the inflation rates of different countries 
D) exchange rates are influenced by interest rate differentials among countries and the resulting capital flow 
E) all of the above 
A) a nation's exchange rate will tend to equalize the cost of buying traded goods at home with the cost of buying the same goods abroad 
B) a nation's exchange rate will tend to equalize the interest rate received on a government bond at home and a similar bond abroad 
C) exchange rates are influenced by differentials in the inflation rates of different countries 
D) exchange rates are influenced by interest rate differentials among countries and the resulting capital flow 
E) all of the above

Question 5

If the real exchange rate is 1.80, the U.S.price level is 120, and the foreign price level is 240, what is the dollar price of foreign exchange?

Accepted Answer

A) 3)6 
B) 2)0 
C) 0)9 
D) 0)8 
E) 0)5 
A) 3)6 
B) 2)0 
C) 0)9 
D) 0)8 
E) 0)5

Question 6

Which of the following targets were specified in the 1991 Maastricht Treaty to create a convergence process to a common currency for the countries of the European Community?

Accepted Answer

A) an inflation rate of no more than 1.5% above the average of the other countries 
B) a budget deficit of less than 3% of GDP 
C) an income-debt ratio of less than 60% 
D) all of the above 
E) none of the above 
A) an inflation rate of no more than 1.5% above the average of the other countries 
B) a budget deficit of less than 3% of GDP 
C) an income-debt ratio of less than 60% 
D) all of the above 
E) none of the above

Question 7

The record of international trade in goods and services and international transfer payments is called

Accepted Answer

A) the balance of payments 
B) the capital account 
C) the current account 
D) the foreign account 
E) the exchange rate account 
A) the balance of payments 
B) the capital account 
C) the current account 
D) the foreign account 
E) the exchange rate account

Question 8

The balance of payments measures

Accepted Answer

A) the amount of foreign exchange intervention needed from the central banks 
B) exports minus imports 
C) the record of exchange in goods and services 
D) the value of a representative basket of foreign currencies in terms of the dollar 
E) none of the above 
A) the amount of foreign exchange intervention needed from the central banks 
B) exports minus imports 
C) the record of exchange in goods and services 
D) the value of a representative basket of foreign currencies in terms of the dollar 
E) none of the above

Question 9

If the U.S.real exchange rate is greater than 1, we can expect that

Accepted Answer

A) goods in the U.S., on average, are more expensive than goods abroad 
B) goods abroad, on average, are more expensive than goods in the U.S. 
C) foreigners are less likely to buy more U.S. goods 
D) the exchange rate should increase 
E) domestic prices should decrease 
A) goods in the U.S., on average, are more expensive than goods abroad 
B) goods abroad, on average, are more expensive than goods in the U.S. 
C) foreigners are less likely to buy more U.S. goods 
D) the exchange rate should increase 
E) domestic prices should decrease

Question 10

If the real exchange rate is 1.0, the price level of U.S.goods is 120, and the dollar price of foreign exchange is 0.8, what is the price level of foreign goods?

Accepted Answer

A) 75 
B) 80 
C) 100 
D) 120 
E) 150 
A) 75 
B) 80 
C) 100 
D) 120 
E) 150

Question 11

If the dollar price of foreign goods increases, we can expect that

Accepted Answer

A) U)S. imports and U.S. exports will both increase 
B)  U.S. imports will decrease and U.S. exports will increase 
C)  U.S. imports will increase and U.S. exports will decrease 
D) U)S. imports will increase and U.S. exports will stay the same 
E) U)S. net exports will decrease 
A) U)S. imports and U.S. exports will both increase 
B)  U.S. imports will decrease and U.S. exports will increase 
C)  U.S. imports will increase and U.S. exports will decrease 
D) U)S. imports will increase and U.S. exports will stay the same 
E) U)S. net exports will decrease

Question 12

In a model with perfect capital mobility and flexible exchange rates, an increase in exports

Accepted Answer

A) has no lasting effect on the equilibrium output level 
B) leads to an inflow of funds from abroad 
C) leads to a currency appreciation and an increase in imports 
D) temporarily increases domestic interest rates 
E) all of the above 
A) has no lasting effect on the equilibrium output level 
B) leads to an inflow of funds from abroad 
C) leads to a currency appreciation and an increase in imports 
D) temporarily increases domestic interest rates 
E) all of the above

Question 13

In an IS-LM model with flexible exchange rates and perfect capital mobility, a restriction in money supply will

Accepted Answer

A) decrease the level of output permanently but increase the interest rate only temporarily 
B)  decrease both the level of output and the interest rate but only temporarily 
C)  temporarily decrease the level of output and temporarily increase the interest rate 
D) shift the LM-curve first to the left and then back to the right as the central bank is forced to buy foreign currency reserves 
E) both C and D 
A) decrease the level of output permanently but increase the interest rate only temporarily 
B)  decrease both the level of output and the interest rate but only temporarily 
C)  temporarily decrease the level of output and temporarily increase the interest rate 
D) shift the LM-curve first to the left and then back to the right as the central bank is forced to buy foreign currency reserves 
E) both C and D

Question 14

If a French citizen buys 100 shares of IBM stock on the New York Stock Exchange, the transaction will be recorded as

Accepted Answer

A) a surplus item in the capital account 
B) a deficit item in the capital account 
C) a surplus item in the current account 
D) a deficit item in the current account 
E) a decrease in France's GDP 
A) a surplus item in the capital account 
B) a deficit item in the capital account 
C) a surplus item in the current account 
D) a deficit item in the current account 
E) a decrease in France's GDP

Question 15

If the price level of U.S.goods is 200, the price level of foreign goods is 125, and the dollar price of foreign currency is 1.20, what is the real exchange rate?

Accepted Answer

A) 1)92 
B) 1)60 
C) 1)04 
D) 0)75 
E) 0)63 
A) 1)92 
B) 1)60 
C) 1)04 
D) 0)75 
E) 0)63

Question 16

If capital is perfectly mobile internationally, then

Accepted Answer

A) significant differences in interest rates across countries can persist over a long time 
B) one country's interest rates can be substantially higher than the world interest rate over the long run 
C) countries with interest rates much lower than in the rest of the world will experience an outflow of capital 
D) an increase in U.S. interest rates will worsen the U.S. balance of payments since U.S. banks are more willing to lend internationally 
E) all of the above 
A) significant differences in interest rates across countries can persist over a long time 
B) one country's interest rates can be substantially higher than the world interest rate over the long run 
C) countries with interest rates much lower than in the rest of the world will experience an outflow of capital 
D) an increase in U.S. interest rates will worsen the U.S. balance of payments since U.S. banks are more willing to lend internationally 
E) all of the above

Question 17

In which exchange rate system do central banks always stand ready to buy and sell their currency at a predetermined price?

Accepted Answer

A) a floating exchange rate system 
B) a flexible exchange rate system 
C) a managed exchange rate system 
D) a fixed exchange rate system 
E) a dirty floating exchange rate system 
A) a floating exchange rate system 
B) a flexible exchange rate system 
C) a managed exchange rate system 
D) a fixed exchange rate system 
E) a dirty floating exchange rate system

Question 18

In an open economy IS-LM model with flexible exchange rates and perfect capital mobility, a decrease in the income tax rate will

Accepted Answer

A) initially stimulate the economy but in the end not change the equilibrium level of output 
B) increase the domestic interest rate but only temporarily 
C) cause a change in the composition of output 
D) cause an inflow of funds that will lead to an appreciation of the domestic currency 
E) all of the above 
A) initially stimulate the economy but in the end not change the equilibrium level of output 
B) increase the domestic interest rate but only temporarily 
C) cause a change in the composition of output 
D) cause an inflow of funds that will lead to an appreciation of the domestic currency 
E) all of the above

Question 19

A beggar-thy-neighbor policy is a policy that

Accepted Answer

A) creates domestic employment at the expense of other countries 
B) uses fiscal expansion in an effort to increase net exports, output, and employment 
C) is intended to appreciate a country's currency and stimulate demand for foreign goods 
D) combines export subsidies with cuts in corporate income taxes 
E) uses monetary restriction to raise interest rates in an effort to attract foreign capital 
A) creates domestic employment at the expense of other countries 
B) uses fiscal expansion in an effort to increase net exports, output, and employment 
C) is intended to appreciate a country's currency and stimulate demand for foreign goods 
D) combines export subsidies with cuts in corporate income taxes 
E) uses monetary restriction to raise interest rates in an effort to attract foreign capital

Question 20

An increase in government spending in Japan should

Accepted Answer

A) affect the U.S. GDP in the same way as a devaluation of the yen 
B) affect the U.S. GDP in the same way as an increase in Japanese money supply 
C) increase the U.S. GDP by a smaller amount than Japan's GDP 
D) cause a fall in the U.S. GDP 
E) not affect the U.S. GDP at all 
A) affect the U.S. GDP in the same way as a devaluation of the yen 
B) affect the U.S. GDP in the same way as an increase in Japanese money supply 
C) increase the U.S. GDP by a smaller amount than Japan's GDP 
D) cause a fall in the U.S. GDP 
E) not affect the U.S. GDP at all

Exam 13: International linkages

If an increase in national income has a negative effect on the trade balance, we should expect that

In an IS-LM model with fixed exchange rates and perfect capital mobility, a cut in government spending shifts the IS-curve to the left

A country following a beggar-thy-neighbor policy is

Which of the following is TRUE in a free market economy with perfect capital mobility?

If the real exchange rate is 1.80, the U.S.price level is 120, and the foreign price level is 240, what is the dollar price of foreign exchange?

Which of the following targets were specified in the 1991 Maastricht Treaty to create a convergence process to a common currency for the countries of the European Community?

The record of international trade in goods and services and international transfer payments is called

The balance of payments measures

If the U.S.real exchange rate is greater than 1, we can expect that

If the real exchange rate is 1.0, the price level of U.S.goods is 120, and the dollar price of foreign exchange is 0.8, what is the price level of foreign goods?

If the dollar price of foreign goods increases, we can expect that

In a model with perfect capital mobility and flexible exchange rates, an increase in exports

In an IS-LM model with flexible exchange rates and perfect capital mobility, a restriction in money supply will

If a French citizen buys 100 shares of IBM stock on the New York Stock Exchange, the transaction will be recorded as

If the price level of U.S.goods is 200, the price level of foreign goods is 125, and the dollar price of foreign currency is 1.20, what is the real exchange rate?

If capital is perfectly mobile internationally, then

In which exchange rate system do central banks always stand ready to buy and sell their currency at a predetermined price?

In an open economy IS-LM model with flexible exchange rates and perfect capital mobility, a decrease in the income tax rate will

A beggar-thy-neighbor policy is a policy that

An increase in government spending in Japan should

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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