Question 1

What are the economic effects of a currency appreciation?

Accepted Answer

A)  It will decrease aggregate demand and aggregate supply, so that output will certainly fall, and prices may fall as well. 
B)  It will increase aggregate demand and aggregate supply, so that output will certainly rise, and prices may rise as well. 
C)  It will increase aggregate demand and decrease aggregate supply, so that prices will certainly rise and output may rise as well. 
D)  It will decrease aggregate demand and increase aggregate supply, so that prices will certainly fall and output may fall as well. 
A)  It will decrease aggregate demand and aggregate supply, so that output will certainly fall, and prices may fall as well. 
B)  It will increase aggregate demand and aggregate supply, so that output will certainly rise, and prices may rise as well. 
C)  It will increase aggregate demand and decrease aggregate supply, so that prices will certainly rise and output may rise as well. 
D)  It will decrease aggregate demand and increase aggregate supply, so that prices will certainly fall and output may fall as well. D

Question 2

A rise in net exports shifts the aggregate

Accepted Answer

A)  demand curve inward. 
B)  demand curve outward. 
C)  supply curve outward. 
D)  supply curve inward. 
A)  demand curve inward. 
B)  demand curve outward. 
C)  supply curve outward. 
D)  supply curve inward. B

Question 3

Figure 20-2
  
-Which of the following explains the movements in Figure 20-2?

Accepted Answer

A)  an increase in U.S.imports 
B)  a decrease in U.S.exports 
C)  an increase in U.S.exports 
D)  a decrease in U.S.net exports 
A)  an increase in U.S.imports 
B)  a decrease in U.S.exports 
C)  an increase in U.S.exports 
D)  a decrease in U.S.net exports C

Question 4

Figure 20-8
  
-Which of the graphs in Figure 20-8 illustrates the AD-AS shifts associated with a currency depreciation?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 5

Compare the effectiveness of monetary policy in an open economy with mobile international capital to monetary policy in a closed economy.Why is it different? Use an appropriate diagram to illustrate your answer.

Accepted Answer

An appropriate diagram should resemble F

Question 6

A sizable appreciation of the U.S.dollar in the mid-1980s

Accepted Answer

A)  raised U.S.exports and imports. 
B)  raised U.S.exports and reduced imports. 
C)  reduced U.S.exports and imports. 
D)  reduced U.S.exports and raised imports. 
A)  raised U.S.exports and imports. 
B)  raised U.S.exports and reduced imports. 
C)  reduced U.S.exports and imports. 
D)  reduced U.S.exports and raised imports.

Question 7

Figure 20-4
  
-Which of the situations illustrated in Figure 20-4 shows a currency depreciation leading to inflation?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 8

If U.S.interest rates rise while foreign interest rates remain unchanged,

Accepted Answer

A)  GDP will not change since the shift in aggregate supply cancels the positive effects on aggregate demand. 
B)  the dollar will depreciate and thus reduce prices and output. 
C)  foreign capital will be attracted to the United States and the dollar will appreciate. 
D)  net exports will increase and the economy will expand. 
A)  GDP will not change since the shift in aggregate supply cancels the positive effects on aggregate demand. 
B)  the dollar will depreciate and thus reduce prices and output. 
C)  foreign capital will be attracted to the United States and the dollar will appreciate. 
D)  net exports will increase and the economy will expand.

Question 9

A reduction in net exports shifts the aggregate

Accepted Answer

A)  demand curve inward. 
B)  demand curve outward. 
C)  supply curve outward. 
D)  supply curve inward. 
A)  demand curve inward. 
B)  demand curve outward. 
C)  supply curve outward. 
D)  supply curve inward.

Question 10

The main international repercussion of either a fiscal expansion or monetary contraction is to

Accepted Answer

A)  raise interest rates and the exchange rate, thereby crowding out net exports. 
B)  raise interest rates and lower the exchange rate, thereby crowding in net exports. 
C)  lower interest rates and the exchange rate, thereby crowding in net exports. 
D)  lower interest rates and raise the exchange rate, thereby crowding out net exports. 
A)  raise interest rates and the exchange rate, thereby crowding out net exports. 
B)  raise interest rates and lower the exchange rate, thereby crowding in net exports. 
C)  lower interest rates and the exchange rate, thereby crowding in net exports. 
D)  lower interest rates and raise the exchange rate, thereby crowding out net exports.

Question 11

The expected effect of the Bush tax cuts would be a(n)

Accepted Answer

A)  lower real interest rate. 
B)  exchange rate depreciation. 
C)  increased current account deficit. 
D)  All of the above are correct. 
A)  lower real interest rate. 
B)  exchange rate depreciation. 
C)  increased current account deficit. 
D)  All of the above are correct.

Question 12

Under a floating exchange rate system with mobile international capital, it is always true that current account

Accepted Answer

A)  deficit + capital account surplus = trade deficit. 
B)  surplus - capital account surplus = trade deficit. 
C)  surplus + capital account deficit = 0. 
D)  surplus - capital account surplus = 0. 
A)  deficit + capital account surplus = trade deficit. 
B)  surplus - capital account surplus = trade deficit. 
C)  surplus + capital account deficit = 0. 
D)  surplus - capital account surplus = 0.

Question 13

The monetary expansion of the mid-1990s was expected to lead to a currency appreciation.

Accepted Answer

A) True 
 B)False

Question 14

What does macroeconomic theory predict as the main economic effect of a reduction in the budget deficit?

Accepted Answer

A)  lower real interest rates 
B)  a drop in the exchange rate 
C)  an increase in net exports 
D)  All of the above are correct. 
A)  lower real interest rates 
B)  a drop in the exchange rate 
C)  an increase in net exports 
D)  All of the above are correct.

Question 15

When the U.S.dollar appreciates,

Accepted Answer

A)  U.S.exports rise. 
B)  U.S.imports decline. 
C)  aggregate demand shifts inward. 
D)  aggregate demand shifts outward. 
A)  U.S.exports rise. 
B)  U.S.imports decline. 
C)  aggregate demand shifts inward. 
D)  aggregate demand shifts outward.

Question 16

If the government budget is balanced, and saving is greater than investment, then the

Accepted Answer

A)  current account must be in surplus. 
B)  current account must be in deficit. 
C)  current account balance must be zero. 
D)  capital account must be in surplus. 
A)  current account must be in surplus. 
B)  current account must be in deficit. 
C)  current account balance must be zero. 
D)  capital account must be in surplus.

Question 17

Which of the following usually leads to currency appreciation?

Accepted Answer

A)  galloping inflation 
B)  relatively low interest rates 
C)  declining real GDP 
D)  fixed exchange rates 
A)  galloping inflation 
B)  relatively low interest rates 
C)  declining real GDP 
D)  fixed exchange rates

Question 18

An exchange rate depreciation appears to consumers as a markdown on foreign products.

Accepted Answer

A) True 
 B)False

Question 19

What are the results of a contractionary monetary policy in an open economy with floating exchange rates and internationally mobile capital?

Accepted Answer

A)  The dollar appreciates, which leads to an increase in exports and a decrease in imports.The country therefore winds up with a deficit in capital and a surplus in its balance of trade. 
B)  The dollar appreciates, which attracts foreign capital.Also, imports rise and exports decline.The country therefore winds up with a surplus in capital and an increase in its trade deficit. 
C)  The dollar depreciates, which attracts foreign capital.Also, exports rise and imports decline.The country therefore winds up with a deficit in capital and a surplus in its balance of trade. 
D)  The dollar depreciates, which leads to a larger real GDP and a larger trade surplus. 
A)  The dollar appreciates, which leads to an increase in exports and a decrease in imports.The country therefore winds up with a deficit in capital and a surplus in its balance of trade. 
B)  The dollar appreciates, which attracts foreign capital.Also, imports rise and exports decline.The country therefore winds up with a surplus in capital and an increase in its trade deficit. 
C)  The dollar depreciates, which attracts foreign capital.Also, exports rise and imports decline.The country therefore winds up with a deficit in capital and a surplus in its balance of trade. 
D)  The dollar depreciates, which leads to a larger real GDP and a larger trade surplus.

Question 20

A currency depreciation

Accepted Answer

A)  reduces aggregate demand and increases aggregate supply. 
B)  reduces aggregate demand and aggregate supply. 
C)  increases aggregate demand and reduces aggregate supply. 
D)  increases aggregate demand and aggregate supply. 
A)  reduces aggregate demand and increases aggregate supply. 
B)  reduces aggregate demand and aggregate supply. 
C)  increases aggregate demand and reduces aggregate supply. 
D)  increases aggregate demand and aggregate supply.

Exam 37: Exchange Rates and the Macroeconomy

What are the economic effects of a currency appreciation?

A rise in net exports shifts the aggregate

Figure 20-2 -Which of the following explains the movements in Figure 20-2?

Figure 20-8 -Which of the graphs in Figure 20-8 illustrates the AD-AS shifts associated with a currency depreciation?

Compare the effectiveness of monetary policy in an open economy with mobile international capital to monetary policy in a closed economy.Why is it different? Use an appropriate diagram to illustrate your answer.

A sizable appreciation of the U.S.dollar in the mid-1980s

Figure 20-4 -Which of the situations illustrated in Figure 20-4 shows a currency depreciation leading to inflation?

If U.S.interest rates rise while foreign interest rates remain unchanged,

A reduction in net exports shifts the aggregate

The main international repercussion of either a fiscal expansion or monetary contraction is to

The expected effect of the Bush tax cuts would be a(n)

Under a floating exchange rate system with mobile international capital, it is always true that current account

The monetary expansion of the mid-1990s was expected to lead to a currency appreciation.

What does macroeconomic theory predict as the main economic effect of a reduction in the budget deficit?

When the U.S.dollar appreciates,

If the government budget is balanced, and saving is greater than investment, then the

Which of the following usually leads to currency appreciation?

An exchange rate depreciation appears to consumers as a markdown on foreign products.

What are the results of a contractionary monetary policy in an open economy with floating exchange rates and internationally mobile capital?

A currency depreciation

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

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