Question 1

The equation NX = S + (TA - G - TR) - I implies that

Accepted Answer

A) there is always a close correlation between the government budget deficit and the trade deficit 
B) if national saving increases relative to domestic investment, the trade deficit will decrease 
C) a reduction in the government budget deficit is likely to raise the level of saving and/or worsen the trade deficit 
D) an increase in government spending will stimulate exports 
E) a tax decrease can help to create a trade surplus 
A) there is always a close correlation between the government budget deficit and the trade deficit 
B) if national saving increases relative to domestic investment, the trade deficit will decrease 
C) a reduction in the government budget deficit is likely to raise the level of saving and/or worsen the trade deficit 
D) an increase in government spending will stimulate exports 
E) a tax decrease can help to create a trade surplus

Question 2

Under a system of fixed exchange rates, a country experiencing unemployment and a balance of payments surplus should employ

Accepted Answer

A) expansionary monetary policy 
B) expansionary fiscal policy 
C) an income tax cut combined with a devaluation of the currency 
D) open market sales combined with a devaluation of the currency 
E) a combination of restrictive fiscal and expansionary monetary policy 
A) expansionary monetary policy 
B) expansionary fiscal policy 
C) an income tax cut combined with a devaluation of the currency 
D) open market sales combined with a devaluation of the currency 
E) a combination of restrictive fiscal and expansionary monetary policy

Question 3

A country that is unable to service its foreign debt may be forced to

Accepted Answer

A) depreciate its currency 
B) tighten fiscal policy 
C) reduce government regulations and privatize state-owned firms 
D) undergo a major recession before the economy can improve 
E) all of the above 
A) depreciate its currency 
B) tighten fiscal policy 
C) reduce government regulations and privatize state-owned firms 
D) undergo a major recession before the economy can improve 
E) all of the above

Question 4

In a freely floating exchange rate system, exchange rates tend to overshoot after a monetary contraction, since

Accepted Answer

A) interest rates adjust immediately but exchange rates and prices adjust only gradually 
B) prices and interest rates adjust immediately but exchange rates adjust only gradually 
C) exchange rates adjust immediately but prices adjust only gradually 
D) the gain in competitiveness causes a temporary increase in output 
E) none of the above 
A) interest rates adjust immediately but exchange rates and prices adjust only gradually 
B) prices and interest rates adjust immediately but exchange rates adjust only gradually 
C) exchange rates adjust immediately but prices adjust only gradually 
D) the gain in competitiveness causes a temporary increase in output 
E) none of the above

Question 5

Suppose the domestic interest rate is 15%, the foreign interest rate is 11%, and the domestic currency is expected to depreciate by 3%.What is the adjusted interest rate differential?

Accepted Answer

A) 1% in favor of the home country 
B) 1% in favor of the foreign country 
C) 4% in favor of the home country 
D) 4% in favor of the foreign country 
E) 7% in favor of the home country 
A) 1% in favor of the home country 
B) 1% in favor of the foreign country 
C) 4% in favor of the home country 
D) 4% in favor of the foreign country 
E) 7% in favor of the home country

Question 6

The J-curve effect explains that after a currency depreciates in value

Accepted Answer

A) price effects are stronger in the short run; volume effects are stronger in the long run 
B) price effects are outweighed by volume effects in both the short and long runs 
C) volume effects are outweighed by price effects in the long run but not in the short run 
D) net exports do not suffer as the price and volume effects offset each other in the long run 
E) net exports suffer in the long run as the price effects become zero 
A) price effects are stronger in the short run; volume effects are stronger in the long run 
B) price effects are outweighed by volume effects in both the short and long runs 
C) volume effects are outweighed by price effects in the long run but not in the short run 
D) net exports do not suffer as the price and volume effects offset each other in the long run 
E) net exports suffer in the long run as the price effects become zero

Question 7

A country has an internal and external balance when

Accepted Answer

A) it has a trade surplus and a budget surplus 
B) the trade balance is zero and the government budget is balanced 
C) net exports and the inflation rate are both zero 
D) the trade balance and the unemployment rate are both zero 
E) the trade balance is zero and output is at the full-employment level 
A) it has a trade surplus and a budget surplus 
B) the trade balance is zero and the government budget is balanced 
C) net exports and the inflation rate are both zero 
D) the trade balance and the unemployment rate are both zero 
E) the trade balance is zero and output is at the full-employment level

Question 8

Many economists believe that a major shortcoming of a system of flexible exchange rates is

Accepted Answer

A) the inability of central banks to conduct independent monetary policy 
B)  real exchange rate variability caused by relatively sticky wages and prices 
C)  real exchange rate variability caused by supply shocks, fiscal shocks, and changes in trade flows 
D) the fact that domestic interest rates can never deviate from interest rates in other countries 
E) both 
B) and 
C) are often cited, but by different groups of economists 
A) the inability of central banks to conduct independent monetary policy 
B)  real exchange rate variability caused by relatively sticky wages and prices 
C)  real exchange rate variability caused by supply shocks, fiscal shocks, and changes in trade flows 
D) the fact that domestic interest rates can never deviate from interest rates in other countries 
E) both 
B) and 
C) are often cited, but by different groups of economists

Question 9

If real wages are sticky and export demand permanently declines, then

Accepted Answer

A) import prices will fall 
B) the domestic currency will appreciate 
C) a recession will result, but it will be short-lived since nominal wages will adjust immediately 
D) a prolonged period of unemployment will result 
E) the current account will show a surplus 
A) import prices will fall 
B) the domestic currency will appreciate 
C) a recession will result, but it will be short-lived since nominal wages will adjust immediately 
D) a prolonged period of unemployment will result 
E) the current account will show a surplus

Question 10

Which of the following is NOT a method of eliminating a current account deficit?

Accepted Answer

A) levying tariffs 
B) implementing expenditure-switching policies 
C) implementing expenditure-reducing policies 
D) subsidizing imports 
E) reducing government spending 
A) levying tariffs 
B) implementing expenditure-switching policies 
C) implementing expenditure-reducing policies 
D) subsidizing imports 
E) reducing government spending

The equation NX = S + (TA - G - TR) - I implies that

Under a system of fixed exchange rates, a country experiencing unemployment and a balance of payments surplus should employ

A country that is unable to service its foreign debt may be forced to

In a freely floating exchange rate system, exchange rates tend to overshoot after a monetary contraction, since

Suppose the domestic interest rate is 15%, the foreign interest rate is 11%, and the domestic currency is expected to depreciate by 3%.What is the adjusted interest rate differential?

The J-curve effect explains that after a currency depreciates in value

A country has an internal and external balance when

Many economists believe that a major shortcoming of a system of flexible exchange rates is

If real wages are sticky and export demand permanently declines, then

Which of the following is NOT a method of eliminating a current account deficit?

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

International linkages

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

Advanced topics

Filters

Exam 23: International adjustment and interdependence

The equation NX = S + (TA - G - TR) - I implies that

Under a system of fixed exchange rates, a country experiencing unemployment and a balance of payments surplus should employ

A country that is unable to service its foreign debt may be forced to

In a freely floating exchange rate system, exchange rates tend to overshoot after a monetary contraction, since

Suppose the domestic interest rate is 15%, the foreign interest rate is 11%, and the domestic currency is expected to depreciate by 3%.What is the adjusted interest rate differential?

The J-curve effect explains that after a currency depreciates in value

A country has an internal and external balance when

Many economists believe that a major shortcoming of a system of flexible exchange rates is

If real wages are sticky and export demand permanently declines, then

Which of the following is NOT a method of eliminating a current account deficit?

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

International linkages

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

Advanced topics

Filters