Exam 37: Exchange Rates and the Macroeconomy

Table 20-2 Domestic GDP Expenditure Exports Imports Total Expenditures ++ +++(-) \ 2,500 \ 3,100 \ 650 \ 250 3,000 3,400 650 300 3,500 3,700 650 350 4,000 4,000 650 400 4,500 4,300 650 450 5,000 4,600 650 500 5,500 4,900 650 550 -In Table 20-2, assume that exports rise to $900.What is the new equilibrium GDP?

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

A depreciating currency makes foreign inputs cheaper and shifts the aggregate supply curve outward.

International capital flows strengthen

Following an expansionary monetary policy, we would expect lower interest rates, dollar

International capital flows tend to reduce the impact of monetary policy.

An economic boom in the United States would cause the aggregate demand curve in other countries to shift outward.

The U.S.trade deficits of the late 1990s were due primarily to low saving rates.

The reason that higher interest rates reduce aggregate demand in an open economy with capital flows is that investment

The elimination of the federal budget deficit in the 1990s put downward pressure on real interest rates.

A currency appreciation

Which of the following would be cures for the U.S.trade deficit?

Despite the elimination of the federal budget deficit in the late 1990s, the trade deficit increased due to

If European economies experience a period of sustained recession and the United States does not, what will happen in the United States?

Table 20-2 Domestic GDP Expenditure Exports Imports Total Expenditures ++ +++(-) \ 2,500 \ 3,100 \ 650 \ 250 3,000 3,400 650 300 3,500 3,700 650 350 4,000 4,000 650 400 4,500 4,300 650 450 5,000 4,600 650 500 5,500 4,900 650 550 -From Table 20-2, what can you conclude about net exports as GDP rises?

Explain how and why economic events in the U.S.affected the economies of Thailand, South Korea, and Indonesia and vice-versa.

Because monetary stimulus overwhelmed fiscal contraction in the United States during the 1992- 2000 period,

Despite the monetary expansion of the 1992-2000 period, the inflation rate

If the federal government has a deficit, and the current account is in balance, then

When the dollar appreciates, the prices of imported inputs