Question 1

If the dollar depreciates, both the aggregate demand curve and the aggregate supply curve shift inward.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) rose due to adverse supply shocks. 
B) rose due to large increases in aggregate demand. 
C) fell despite adverse supply shocks. 
D) fell due to favorable supply shocks. 
A) rose due to adverse supply shocks. 
B) rose due to large increases in aggregate demand. 
C) fell despite adverse supply shocks. 
D) fell due to favorable supply shocks.

Question 3

Discuss the opposing points of view on U.S.trade deficit.

Accepted Answer

Those who worry about trade deficits poi

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

The main input into the production of Starbuck's coffee is imported coffee beans.If the dollar depreciates, how will this affect the U.S.retail coffee market?

Accepted Answer

A) Input prices will fall and supply will decrease. 
B) Input prices will fall and supply will increase. 
C) Input prices will rise and supply will decrease. 
D) Input prices will rise and supply will increase. 
A) Input prices will fall and supply will decrease. 
B) Input prices will fall and supply will increase. 
C) Input prices will rise and supply will decrease. 
D) Input prices will rise and supply will increase.

Question 6

The saving rate in the United States fell to nearly zero in the early 2000s.One of the contributing factors to this development was the

Accepted Answer

A) decrease in consumer confidence in the late 1990s. 
B) declining real incomes of most American households. 
C) increased housing wealth. 
D) rising real interest rates in the United States. 
A) decrease in consumer confidence in the late 1990s. 
B) declining real incomes of most American households. 
C) increased housing wealth. 
D) rising real interest rates in the United States.

Question 7

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.

Accepted Answer

An appropriate diagram should resemble F

Question 8

How does a budget deficit lead to a trade deficit?

Accepted Answer

A) The trade deficit triggers higher interest rates, which increase the budget deficit. 
B) The budget deficit leads to higher interest rates and exchange rates, which shrink net exports. 
C) The trade deficit causes lower interest rates, which leads to economic recession and a budget deficit. 
D) The budget deficit causes lower exchange rates, which decrease net exports. 
A) The trade deficit triggers higher interest rates, which increase the budget deficit. 
B) The budget deficit leads to higher interest rates and exchange rates, which shrink net exports. 
C) The trade deficit causes lower interest rates, which leads to economic recession and a budget deficit. 
D) The budget deficit causes lower exchange rates, which decrease net exports.

Question 9

A recession abroad would

Accepted Answer

A) increase U.S.net exports and increase aggregate demand. 
B) increase U.S.net exports and increase aggregate supply. 
C) reduce U.S.net exports and reduce aggregate demand. 
D) reduce U.S.net exports and increase aggregate demand. 
A) increase U.S.net exports and increase aggregate demand. 
B) increase U.S.net exports and increase aggregate supply. 
C) reduce U.S.net exports and reduce aggregate demand. 
D) reduce U.S.net exports and increase aggregate demand.

Question 10

A closed economy is one that

Accepted Answer

A) uses tariffs. 
B) uses quotas to restrict trade. 
C) uses exchange controls. 
D) does not trade with other nations. 
A) uses tariffs. 
B) uses quotas to restrict trade. 
C) uses exchange controls. 
D) does not trade with other nations.

Question 11

If the demand effect dominates during a currency depreciation, then

Accepted Answer

A) real GDP should fall. 
B) real GDP should increase. 
C) the price level should fall. 
D) net exports should decrease. 
A) real GDP should fall. 
B) real GDP should increase. 
C) the price level should fall. 
D) net exports should decrease.

Question 12

The combined effects of a fiscal contraction and a monetary expansion are

Accepted Answer

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

Question 13

An increase in the price level in Japan relative to the price level in the United States would

Accepted Answer

A) increase U.S.net exports and increase aggregate demand. 
B) increase U.S.net exports and increase aggregate supply. 
C) reduce U.S.net exports and reduce aggregate demand. 
D) reduce U.S.net exports and increase aggregate demand. 
A) increase U.S.net exports and increase aggregate demand. 
B) increase U.S.net exports and increase aggregate supply. 
C) reduce U.S.net exports and reduce aggregate demand. 
D) reduce U.S.net exports and increase aggregate demand.

Question 14

A rise in the domestic interest rate leads to capital

Accepted Answer

A) outflows and exchange rate appreciation. 
B) outflows and exchange rate depreciation. 
C) inflows and exchange rate depreciation. 
D) inflows and exchange rate appreciation. 
A) outflows and exchange rate appreciation. 
B) outflows and exchange rate depreciation. 
C) inflows and exchange rate depreciation. 
D) inflows and exchange rate appreciation.

Question 15

Table 20-1
Suppose the economy of Macroland is described by the following:
C = 200 + .8DI (DI = disposable income)
I = 300 + .2Y − 50r (Y = GDP)
(r, the interest rate, is measured in percentage points.For example, a 9 percent interest rate is r = 9).
For this economy, assume that the Federal Reserve uses its monetary policy to peg the interest rate at
r = 5
G = 750
T = .25Y
X = 200
M = 150 + .2Y
Hint: DI = Y − T
-From Table 20-1, find the trade deficit or surplus.

Accepted Answer

A) 475 deficit 
B) 75 deficit 
C) 75 surplus 
D) 475 surplus 
A) 475 deficit 
B) 75 deficit 
C) 75 surplus 
D) 475 surplus

Question 16

A main reason why the U.S.trade deficit grew so large from 1997 to 2000 was that

Accepted Answer

A) Congress removed all tariffs and trade restrictions on imports. 
B) NAFTA was introduced and Mexican exports flooded the United States. 
C) the international value of the dollar fell during the 1990s, which encouraged U.S.exports. 
D) the international value of the dollar rose in the last half of the 1990s, which encouraged U.S.imports and damaged U.S.exports. 
A) Congress removed all tariffs and trade restrictions on imports. 
B) NAFTA was introduced and Mexican exports flooded the United States. 
C) the international value of the dollar fell during the 1990s, which encouraged U.S.exports. 
D) the international value of the dollar rose in the last half of the 1990s, which encouraged U.S.imports and damaged U.S.exports.

Question 17

The trade deficits of the 1980s and 1990s reflects American desire for foreign

Accepted Answer

A) assets and foreign desire for American goods and services. 
B) goods and services and foreign assets. 
C) goods and services and foreign desire for American assets. 
D) assets now and foreign goods and services in the future. 
A) assets and foreign desire for American goods and services. 
B) goods and services and foreign assets. 
C) goods and services and foreign desire for American assets. 
D) assets now and foreign goods and services in the future.

Question 18

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 19

The growing federal budget deficit in the 1980s was accompanied by a

Accepted Answer

A) growing trade surplus. 
B) growing trade deficit. 
C) shrinking trade deficit. 
D) shrinking capital account surplus. 
A) growing trade surplus. 
B) growing trade deficit. 
C) shrinking trade deficit. 
D) shrinking capital account surplus.

Question 20

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.

Exam 37: Exchange Rates and the Macroeconomy

If the dollar depreciates, both the aggregate demand curve and the aggregate supply curve shift inward.

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

Discuss the opposing points of view on U.S.trade deficit.

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

The main input into the production of Starbuck's coffee is imported coffee beans.If the dollar depreciates, how will this affect the U.S.retail coffee market?

The saving rate in the United States fell to nearly zero in the early 2000s.One of the contributing factors to this development was the

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.

How does a budget deficit lead to a trade deficit?

A recession abroad would

A closed economy is one that

If the demand effect dominates during a currency depreciation, then

The combined effects of a fiscal contraction and a monetary expansion are

An increase in the price level in Japan relative to the price level in the United States would

A rise in the domestic interest rate leads to capital

A main reason why the U.S.trade deficit grew so large from 1997 to 2000 was that

The trade deficits of the 1980s and 1990s reflects American desire for foreign

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

The growing federal budget deficit in the 1980s was accompanied by a

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

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: the Price System

The Shortcomings of Free Markets

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

Is Useconomic Leadership Threatened

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

He 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

Filters