Question 1

International capital flows in an open economy have the effect of

Accepted Answer

A)   increasing the power of fiscal policy.
B)   reducing the power of fiscal policy.
C)   reducing the power of fiscal policy in an expansion, and increasing it in a contraction.
D)   increasing the power of fiscal policy in an expansion, and reducing it in a contraction.

Question 2

If the dollar rises in value compared to other currencies, what will happen in the United States?

Accepted Answer

A)   An increase in aggregate demand
B)   An increase in aggregate supply
C)   A decrease in aggregate supply
D)   An increase in the U.S. price level

Question 3

A decrease in the price level in Japan will shift the U.S. aggregate demand curve outward.

Accepted Answer

A) True 
 B)False

Question 4

In the spring of 2002, the United States imposed tariffs on imported steel to protect the jobs of American steel workers and protect the production of the American steel industry. Why might this policy not work to increase overall employment in the United States?

Accepted Answer

This type of trade policy is commonly ca...

Question 5

Figure 36-6

In Figure 36-6, which point represents equilibrium at the lowest exchange rate?

Accepted Answer

A)   E
B)   F
C)   G
D)   H

Question 6

A country's trade deficit is the excess of its imports over its exports.

Accepted Answer

A) True 
 B)False

Question 7

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.

Question 8

Appreciations or depreciations in currency change international relative prices.

Accepted Answer

A) True 
 B)False

Question 9

Figure 36-5

Which of the graphs in Figure 36-5 are consistent with a depreciation of the U.S. dollar and an increase in net exports caused by a decrease in U.S. interest rates?

Accepted Answer

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

Question 10

International capital flows are purchases and sales of financial assets across national borders.

Accepted Answer

A) True 
 B)False

Question 11

Figure 36-7

In Figure 36-7, there are three aggregate expenditure functions ( C + I + G + X − IM )  for an open economy. Which of the following would cause a movement from B to A?

Accepted Answer

A)   A recession in Southeast Asia
B)   An economic expansion in Japan
C)   A depreciation of the dollar
D)   An increase in the interest rate

Question 12

The dramatic rise in the dollar between 1981 and 1986 was the result of a(n)

Accepted Answer

A)   tight monetary and tight fiscal policy.
B)   expansive monetary and expansive fiscal policy.
C)   expansive monetary and tight fiscal policy.
D)   tight monetary and expansive fiscal policy.

Question 13

In the 1990s, the United States eliminated its budget deficit and expanded the money supply. This should have led to

Accepted Answer

A)   lower real interest rates and a depreciation of the dollar.
B)   lower real interest rates and an appreciation of the dollar.
C)   higher real interest rates and a depreciation of the dollar.
D)   higher real interest rates and an appreciation of the dollar.

Question 14

The worst remedy for curing the U.S. trade deficit is to

Accepted Answer

A)   increase U.S. personal saving.
B)   reduce the budget deficit.
C)   encourage all nations to lower trade barriers.
D)   limit imports by imposing tariffs, quotas, and other trade restrictions.

Question 15

The major difference between a closed economy and an open economy is that a(n)

Accepted Answer

A)   closed economy balances budget, while an open economy does not.
B)   open economy is a market economy, while a closed economy relies on planning.
C)   open economy interacts with the rest of the world, while a closed economy does not.
D)   closed economy keeps political affairs secret, while an open economy does not.

Question 16

A large tax cut in the United States should lead to an increase in the trade deficit.

Accepted Answer

A) True 
 B)False

Question 17

Do you agree that currency depreciation will lead to an increase in the debt burden of the companies that borrow in foreign currency? Explain with an example.

Accepted Answer

Companies that borrow in foreign currenc...

Question 18

A rise in interest rates tends to contract the economy by appreciating the currency and reducing net exports.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is correct?

Accepted Answer

A)   Current account surplus + capital account surplus = 1
B)   Current account surplus − capital account surplus = 0
C)   Current account surplus + capital account surplus = 0
D)   Current account surplus − capital account surplus = 1

Question 20

Why is fiscal policy less effective in an open economy than in a closed economy?

Accepted Answer

A)   Expansionary fiscal policy raises demand for imports, which reduces aggregate demand.
B)   Expansionary fiscal policy raises interest rates, which raises the value of the currency, and reduces aggregate demand.
C)   Expansionary fiscal policy raises the value of the currency, which reduces demand for exports.
D)   Expansionary fiscal policy has all the above effects.

Exam 36: Exchange Rates and the Macroeconomy

A country's trade deficit is the excess of its imports over its exports.

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

A large tax cut in the United States should lead to an increase in the trade deficit.

Correct AnswerverifiedShow Answer

A decrease in the price level in Japan will shift the U.S. aggregate demand curve outward.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Figure 36-7 In Figure 36-7, there are three aggregate expenditure functions ( C + I + G + X − IM ) for an open economy. Which of the following would cause a movement from B to A?

Correct AnswerverifiedShow Answer

The dramatic rise in the dollar between 1981 and 1986 was the result of a(n)

Correct AnswerverifiedShow Answer

Why is fiscal policy less effective in an open economy than in a closed economy?

Correct AnswerverifiedShow Answer

In the spring of 2002, the United States imposed tariffs on imported steel to protect the jobs of American steel workers and protect the production of the American steel industry. Why might this policy not work to increase overall employment in the United States?

Correct AnswerverifiedThis type of trade policy is commonly ca...View AnswerShow Answer

The major difference between a closed economy and an open economy is that a(n)

Correct AnswerverifiedShow Answer

International capital flows are purchases and sales of financial assets across national borders.

Correct AnswerverifiedShow Answer

If the dollar rises in value compared to other currencies, what will happen in the United States?

Correct AnswerverifiedShow Answer

The worst remedy for curing the U.S. trade deficit is to

Correct AnswerverifiedShow Answer

Do you agree that currency depreciation will lead to an increase in the debt burden of the companies that borrow in foreign currency? Explain with an example.

Correct AnswerverifiedCompanies that borrow in foreign currenc...View AnswerShow Answer

Appreciations or depreciations in currency change international relative prices.

Correct AnswerverifiedShow Answer

Figure 36-5 Which of the graphs in Figure 36-5 are consistent with a depreciation of the U.S. dollar and an increase in net exports caused by a decrease in U.S. interest rates?

Correct AnswerverifiedShow Answer

A rise in interest rates tends to contract the economy by appreciating the currency and reducing net exports.

Correct AnswerverifiedShow Answer

In the 1990s, the United States eliminated its budget deficit and expanded the money supply. This should have led to

Correct AnswerverifiedShow Answer

International capital flows in an open economy have the effect of

Correct AnswerverifiedShow Answer

Figure 36-6 In Figure 36-6, which point represents equilibrium at the lowest exchange rate?

Correct AnswerverifiedShow Answer

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This type of trade policy is commonly ca...
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Companies that borrow in foreign currenc...
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