Question 1

The price of ________ in terms of ________ is referred to as the real exchange rate.

Accepted Answer

A)  foreign goods;foreign services
B)  domestic goods;the domestic currency
C)  domestic goods;domestic services
D)  domestic goods;foreign goodsE) A) and B)
F) B) and C)

Question 2

Monetary policy has a ________ effect on aggregate demand in a(n) ________ economy,and fiscal policy has a ________ effect on aggregate demand in a(n) ________ economy.

Accepted Answer

A)  weaker;open;weaker;open
B)  weaker;closed;stronger;closed
C)  stronger;open;weaker;closed
D)  stronger;closed;weaker;openE) A) and B)
F) A) and C)

Question 3

Figure 18-1 
-Refer to Figure 18-1.Suppose that the U.S.government deficit decreases,causing interest rates in the United States to fall relative to those in the European Union.Assuming all else remains constant,how would this be represented?

Accepted Answer

A)  Supply would decrease,demand would increase and the economy moves from A to D to C.
B)  Demand would decrease and the economy moves from B to A.
C)  Demand would increase and the economy moves from A to B.
D)  Supply would increase,demand would increase and the economy moves from D to A to B.E) A) and D)
F) B) and D)

Question 4

Figure 18-1 
-Refer to Figure 18-1.The appreciation of the dollar is represented as a movement from

Accepted Answer

A)  B to A.
B)  D to C.
C)  C to B.
D)  C to A.E) A) and B)
F) All of the above

Question 5

When exchange rates are ________,we say that the country's exchange rate is fixed.

Accepted Answer

A)  determined in the market
B)  set by a country's central bank
C)  determined by supply and demand
D)  relatively stableE) A) and C)
F) A) and B)

Question 6

An HMO hires radiology services from India to cut costs.If all else remains equal,this will

Accepted Answer

A)  decrease net exports.
B)  decrease the balance of trade.
C)  increase the current account balance.
D)  decrease the financial account.E) All of the above
F) B) and C)

Question 7

Contractionary monetary policy and expansionary fiscal policy both reduce net exports in an open economy.

Accepted Answer

A) True 
 B)False

Question 8

The difference between the value of the goods a country exports and the value of the goods a country imports is the country's

Accepted Answer

A)  financial account balance.
B)  current account balance.
C)  balance of trade.
D)  capital account balance.E) C) and D)
F) B) and C)

Question 9

Net foreign investment is equal to

Accepted Answer

A)  capital inflows minus capital outflows.
B)  foreign direct investment.
C)  the balance of trade.
D)  net foreign portfolio investment plus net foreign direct investment.E) C) and D)
F) None of the above

Question 10

Which of the following would cause the dollar to appreciate?

Accepted Answer

A)  an increase in the demand for dollars
B)  a decrease in the demand for dollars
C)  an increase in the supply of dollars
D)  an increase in the demand for imports from foreign countriesE) All of the above
F) A) and B)

Question 11

What impact might a decrease in the U.S.federal budget deficit have on interest rates and exchange rates in the market for the U.S.dollar? (Assume the exchange rate is stated in terms of foreign currency per U.S.dollar. )

Accepted Answer

A)  Interest rates and exchange rates increase.
B)  Interest rates increase and exchange rates decrease.
C)  Interest rates decrease and exchange rates increase.
D)  Interest rates and exchange rates decrease.E) A) and B)
F) B) and C)

Question 12

Figure 18-1 
-Refer to Figure 18-1.Suppose that the U.S.government deficit causes interest rates in the United States to rise relative to those in the European Union.Assuming all else remains constant,how would this be represented?

Accepted Answer

A)  Supply would decrease,demand would decrease and the economy moves from B to C to D.
B)  Supply would increase,demand would decrease and the economy moves from C to B to A.
C)  Demand would increase and the economy moves from A to B.
D)  Demand would decrease and the economy moves from B to A.E) B) and C)
F) All of the above

Question 13

Which of the following would increase the current account balance of the United States?

Accepted Answer

A)  an increase in imports
B)  an increase in the amount of money the U.S.government sends in foreign aid to other countries
C)  an increase in the balance of trade
D)  an increase in the amount of income U.S.companies pay out to foreigners who own investments in the United States.E) B) and C)
F) All of the above

Question 14

If the Fed is using policy to combat inflation,what is likely to happen in the foreign exchange market and to the foreign exchange value of the dollar?

Accepted Answer

A)  The demand for the dollar will increase and the foreign exchange value of the dollar will rise.
B)  The demand for the dollar will decrease and the foreign exchange value of the dollar will rise.
C)  The demand for the dollar will increase and the foreign exchange value of the dollar will fall.
D)  The demand for the dollar will decrease and the foreign exchange value of the dollar will fall.E) A) and B)
F) All of the above

Question 15

In recent decades the United States has incurred overall balance of payments deficits.

Accepted Answer

A) True 
 B)False

Question 16

A decrease in U.S.federal government budget deficits that lowers U.S.interest rates relative to the rest of the world should

Accepted Answer

A)  lower the trade balance.
B)  decrease net exports.
C)  cause the dollar to appreciate.
D)  lead to a current account surplus.
E)  increase foreign portfolio investment.F) A) and E)
G) C) and D)

Question 17

If we take into account transfer payments (TR) when we derive the saving and investment relationship,the saving and investment equation becomes

Accepted Answer

A)  S = I + NFI.
B)  S + TR = I + NFI.
C)  S = I + NFI + TR.
D)  S = I + NX - TR.E) A) and D)
F) All of the above

Question 18

Why does continued foreign investment in U.S.stocks and bonds and foreign companies continuing to build factories in the United States result in a current account deficit in the United States?

Accepted Answer

The willingness of foreign investors and...

Question 19

Public saving equals taxes minus government spending minus transfer payments.

Accepted Answer

A) True 
 B)False

Question 20

The United States has a closed economy.

Accepted Answer

A) True 
 B)False

Exam 18: Macroeconomics in an Open Economy

The United States has a closed economy.

Correct AnswerverifiedShow Answer

Figure 18-1 -Refer to Figure 18-1.The appreciation of the dollar is represented as a movement from

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Figure 18-1 -Refer to Figure 18-1.Suppose that the U.S.government deficit decreases,causing interest rates in the United States to fall relative to those in the European Union.Assuming all else remains constant,how would this be represented?

Correct AnswerverifiedShow Answer

Monetary policy has a ________ effect on aggregate demand in a(n) ________ economy,and fiscal policy has a ________ effect on aggregate demand in a(n) ________ economy.

Correct AnswerverifiedShow Answer

A decrease in U.S.federal government budget deficits that lowers U.S.interest rates relative to the rest of the world should

Correct AnswerverifiedShow Answer

Figure 18-1 -Refer to Figure 18-1.Suppose that the U.S.government deficit causes interest rates in the United States to rise relative to those in the European Union.Assuming all else remains constant,how would this be represented?

Correct AnswerverifiedShow Answer

Which of the following would increase the current account balance of the United States?

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Net foreign investment is equal to

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In recent decades the United States has incurred overall balance of payments deficits.

Correct AnswerverifiedShow Answer

If the Fed is using policy to combat inflation,what is likely to happen in the foreign exchange market and to the foreign exchange value of the dollar?

Correct AnswerverifiedShow Answer

The price of ________ in terms of ________ is referred to as the real exchange rate.

Correct AnswerverifiedShow Answer

Which of the following would cause the dollar to appreciate?

Correct AnswerverifiedShow Answer

Why does continued foreign investment in U.S.stocks and bonds and foreign companies continuing to build factories in the United States result in a current account deficit in the United States?

Correct AnswerverifiedThe willingness of foreign investors and...View AnswerShow Answer

What impact might a decrease in the U.S.federal budget deficit have on interest rates and exchange rates in the market for the U.S.dollar? (Assume the exchange rate is stated in terms of foreign currency per U.S.dollar. )

Correct AnswerverifiedShow Answer

Public saving equals taxes minus government spending minus transfer payments.

Correct AnswerverifiedShow Answer

When exchange rates are ________,we say that the country's exchange rate is fixed.

Correct AnswerverifiedShow Answer

The difference between the value of the goods a country exports and the value of the goods a country imports is the country's

Correct AnswerverifiedShow Answer

Contractionary monetary policy and expansionary fiscal policy both reduce net exports in an open economy.

Correct AnswerverifiedShow Answer

If we take into account transfer payments (TR) when we derive the saving and investment relationship,the saving and investment equation becomes

Correct AnswerverifiedShow Answer

An HMO hires radiology services from India to cut costs.If all else remains equal,this will

Correct AnswerverifiedShow Answer

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Monetary policy has a effect on aggregate demand in a(n) economy,and fiscal policy has a effect on aggregate demand in a(n) economy.

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The price of in terms of is referred to as the real exchange rate.

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The willingness of foreign investors and...
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