Deck 36: Macro Policy in a Global Setting

Question 1

The economic goals about which there is a substantial agreement include all of the following except:

A)a high level of employment.
B)a low rate of inflation.
C)a high rate of economic growth.
D)a large trade surplus.

Answer 1

a large trade surplus.

Question 2

When the euro rose relative to the dollar in the early 2000s, it:

A)encouraged European imports and exports.
B)discouraged European imports and exports
C)encouraged European imports and discouraged European exports.
D)discouraged European imports and encouraged European exports.

Answer 2

encouraged European imports and discouraged European exports.

Question 3

Contractionary fiscal policy in the United States reduces domestic income, prices, and interest rates, so the exchange rate will decrease.

Answer 3

False

Question 4

A country that runs a trade surplus increases current consumption at the expense of future consumption.

Question 5

Monetary and fiscal policies have little effect on the trade deficit.

Question 6

The United States can reduce its trade deficit by:

A)reducing the value of the dollar.
B)strengthening the dollar.
C)keeping the dollar fixed.
D)either weakening or strengthening the dollar.

Question 7

In the 1980s, Japan had a significant trade surplus. The G-7 nations wanted Japan to reduce its trade surplus, and therefore they pressured the Japanese government to:

A)devalue the yen.
B)strengthen the yen.
C)keep the yen fixed.
D)control inflation.

Question 8

In the early 2000s, the dollar depreciated relative to other currencies. Foreign policy makers claimed that the U.S. government must curtail its spending and encourage its citizens to save more. What does the U.S. saving rate have to do with the value of the dollar?

A)Nothing; those who are giving this advice do not understand economics.
B)More savings would mean more investment, and more investment would increase the value of the dollar.
C)More domestic saving would increase the interest rate, attracting more funds to the United States and thereby raising the value of the dollar.
D)More U.S. savings would reduce the consumption of foreign goods, reducing the trade deficit.

Question 9

A higher exchange rate value of the dollar reduces inflation but has a contractionary effect on the economy.

Question 10

What is the primary benefit to the United States of a low price for the dollar in the foreign exchange market?

A)It makes foreign goods cheaper, helping consumers.
B)It encourages exports, helping producers.
C)It helps keep inflation under control.
D)There are no benefits to the United States of a low price for the dollar; a higher price is always better.

Question 11

When the value of the U.S. dollar fell in the mid-1990s, it:

A)encouraged U.S. imports and exports.
B)discouraged U.S. imports and exports.
C)encouraged U.S. imports and discouraged U.S. exports.
D)discouraged U.S. imports and encouraged U.S. exports.

Question 12

What is the primary benefit to the United States of a high price for the dollar in the foreign exchange market?

A)It makes foreign goods cheaper, helping consumers.
B)It encourages exports, helping producers.
C)It increases the international status of other countries, which gives them an incentive to be our trading partners.
D)There are no benefits to the United States of a high price for the dollar; a lower price is always better.

Question 13

Contractionary fiscal policy in the United States will increase the Japanese trade surplus.

Question 14

In the short run, the net effect of an expansionary monetary policy is a lower trade deficit.

Question 15

An increase in a balance of trade surplus tends to:

A)exert an expansionary effect on the economy.
B)exert a contractionary effect on the economy.
C)occur when a country's exchange rate is too high.
D)occur when a country's exports are too expensive.

Question 16

Expansionary fiscal policy increases income, which increases imports, and this in turn increases the size of the trade deficit.

Question 17

Crowding out can be avoided temporarily if the government's debt is internationalized.

Question 18

A U.S. trade deficit will cause all of the following phenomena except:

A)U.S. assets will have to be sold to foreigners.
B)future interest and profits from assets sold to foreigners must be paid to them.
C)future consumption must decrease to pay for the current excess of imports over exports.
D)production must eventually increase.

Question 19

If Japan adopts an expansionary monetary policy, U.S. exports are likely to increase.

Question 20

A low exchange rate for the dollar makes foreign currencies:

A)cheaper, lowering the price of imports.
B)cheaper, raising the price of imports.
C)more expensive, lowering the price of imports.
D)more expensive, raising the price of imports.

Question 21

A trade deficit allows a country to:

A)consume more than it produces.
B)produce more than it consumes.
C)produce up to the level of desired consumption.
D)consume up to the level of potential production.

Question 22

A country can have a trade deficit as long as it can:

A)purchase foreign assets.
B)make loans to other countries.
C)borrow from or sell assets to foreigners.
D)produce more than it consumes.

Question 23

The trade balance is:

A)exports less imports.
B)imports less exports.
C)total trade this year less total trade last year.
D)sum of imports and exports.

Question 24

A weaker dollar:

A)raises inflation and contracts the economy.
B)reduces inflation and contracts the economy.
C)raises inflation and expands the economy.
D)reduces inflation and expands the economy.

Question 25

Which of the following statements best describes the relationship between exchange rates and aggregate demand for U.S. output?

A)The exchange rate has no effect on aggregate demand.
B)A high exchange rate for the dollar tends to reduce aggregate demand, and a low rate tends to increase it.
C)A high exchange rate for the dollar tends to increase aggregate demand, and a low rate tends to reduce it.
D)Aggregate demand for U.S. output increases as the exchange rate increases.

Question 26

A stronger dollar would be a good policy if the U.S. government wanted to:

A)reduce the trade balance and lower inflation.
B)increase the trade balance and lower inflation.
C)reduce imports and increase the trade balance.
D)increase exports and reduce the trade balance.

Question 27

A stronger dollar would be a good policy if the U.S. government wanted to:

A)increase U.S. exports and expand the U.S. economy.
B)increase U.S. imports and expand the U.S. economy.
C)reduce U.S. exports and slow the U.S. economy.
D)reduce U.S. imports and slow the U.S. economy.

Question 28

If a country's trade deficit declines, but it does not go into surplus, then:

A)its consumption must be rising relative to its production.
B)it must be selling fewer assets to foreigners.
C)it must be buying more assets from foreigners.
D)it must be producing more than it is consuming.

Question 29

A weak dollar would pose a potential problem for Germany and Japan, because it:

A)would make German and Japanese goods more expensive to Americans.
B)would make German and Japanese goods less expensive to Americans.
C)would worsen inflation for Japan and Germany.
D)would make goods imported by Germany and Japan more expensive.

Question 30

A trade surplus occurs when:

A)imports exceed exports, so that a country is consuming more than it is producing.
B)imports exceed exports, so that a country is producing more than it is consuming.
C)exports exceed imports, so that a country is producing more than it is consuming.
D)exports exceed imports, so that a country is consuming more than it is producing.

Question 31

For most countries, international goals are generally:

A)much more important than domestic goals.
B)slightly more important than domestic goals.
C)equally important as domestic goals.
D)less important than domestic goals.

Question 32

Which of the following is not one of the ways in which the United States finances a trade deficit?

A)Selling U.S. assets to foreigners
B)Selling U.S. products to foreigners
C)Selling U.S. land and factories to foreigners
D)Selling U.S. stocks and bonds to foreigners

Question 33

In 2015 the euro depreciated more than 30 percent against the dollar. As a result, European:

A)exports rose, boosting the economy.
B)imports rose, boosting the economy.
C)exports declined, dragging down the economy.
D)imports declined, dragging down the economy.

Question 34

A country with a trade surplus is:

A)consuming more than it produces.
B)producing more than it consumes.
C)producing up to the level of desired consumption.
D)consuming up to the level of potential production.

Question 35

A weaker dollar would be a good policy if the U.S. government wanted to:

A)reduce the trade balance and lower inflation.
B)increase the trade balance and lower inflation.
C)reduce imports and increase the trade balance.
D)increase exports and reduce the trade balance.

Question 36

A weaker dollar would be a good policy if the U.S. government wanted to:

A)increase U.S. exports and expand the U.S. economy.
B)increase U.S. imports and expand the U.S. economy.
C)reduce U.S. exports and slow the U.S. economy.
D)reduce U.S. imports and slow the U.S. economy.

Question 37

Over the last 30 years, the value of the dollar has:

A)increased steadily.
B)decreased steadily.
C)changed little.
D)fluctuated significantly.

Question 38

A rising exchange rate raises U.S. living standards by:

A)causing a balance of trade surplus.
B)discouraging imports.
C)encouraging exports.
D)helping to hold down inflation.

Question 39

Which of the following best explains a government's motive for reducing the value of its currency?

A)Increase the trade balance and prevent the price level from falling further.
B)Increase the trade balance and prevent the price level from rising further.
C)Decrease the trade balance and prevent the price level from rising further.
D)Decrease the trade balance and prevent the price level from falling further.

Question 40

If a country's trade deficit increases, then:

A)its consumption must be falling relative to its production.
B)its consumption must be rising relative to its production.
C)it must be buying more assets from foreigners.
D)it must be selling fewer assets to foreigners.

Question 41

When other countries threatened to limit Japanese imports, Japan took steps to:

A)increase the value of the yen and increase its trade surplus.
B)increase the value of the yen and decrease its trade surplus.
C)decrease the value of the yen and increase its trade surplus.
D)decrease the value of the yen and decrease its trade surplus.

Question 42

The U.S. exchange rate has:

A)been fixed during the past 30 years.
B)significantly fluctuated over the past 30 years.
C)slightly fluctuated over the past 30 years.
D)appreciated over the past 5 years.

Question 43

Considering only its direct effect on income, expansionary monetary policy tends to:

A)be ambiguous with respect to the exchange rate, while decreasing the trade deficit.
B)be ambiguous with respect to the trade deficit, while increasing the exchange rate.
C)decrease the exchange rate and increase a trade deficit.
D)increase the exchange rate and decrease a trade deficit.

Question 44

Domestic goals dominate international goals for all of the following reasons except:

A)international goals are ambiguous.
B)international goals affect a country's population indirectly.
C)countries are becoming more economically integrated.
D)in politics, indirect effects take a back seat.

Question 45

Considering only its direct effect on income, contractionary monetary policy tends to:

A)be ambiguous with respect to the exchange rate but decrease the trade deficit.
B)be ambiguous with respect to the trade deficit but decrease the exchange rate.
C)decrease the exchange rate and increase the trade deficit.
D)increase the exchange rate and decrease the trade deficit.

Question 46

Considering only its direct effect on income, the effect of monetary policy is that:

A)both expansionary and contractionary policies tend to increase the trade deficit.
B)both expansionary and contractionary policies tend to decrease the trade deficit.
C)expansionary policy tends to increase the trade deficit and contractionary policy tends to decrease it.
D)expansionary policy tends to decrease the trade deficit and contractionary policy tends to increase it.

Question 47

The reason that domestic goals tend to dominate the political agenda is that:

A)there are no real international goals.
B)there is complete agreement on international goals, but domestic goals are uncertain.
C)inflation, unemployment, and growth affect a country's citizens more directly.
D)trade deficits and exchange rates affect a country's citizens more directly.

Question 48

The U.S. trade deficit is most likely to be harmful in the future if:

A)U.S. citizens continue to accumulate foreign assets.
B)U.S. production continues to exceed U.S. consumption.
C)the inflow of financial capital associated with the current deficit does not finance productive investment.
D)U.S. citizens refuse to lend to foreigners as a result of it.

Question 49

As domestic income decreases, the trade balance:

A)is likely to improve.
B)is likely to worsen.
C)is not likely to change.
D)may improve or worsen depending on the size of the decrease in income.

Question 50

Albania wants to maintain its exchange rate of $0.20 per lek. However, the market for lek per U.S. dollar has determined an exchange rate of $0.14 per lek (depreciation of the lek against the U.S. dollar). The Albanian central bank decides to increase the domestic interest rates through a contractionary monetary policy. This would shift the:

A)supply of lek to the left and cause the lek to lose value.
B)supply of lek to the right and cause the lek to lose value.
C)demand of lek to the right and cause the lek to gain value.
D)demand of lek to the left and cause the lek to lose value.

Question 51

International goals become primary goals when:

A)there is international pressure.
B)the domestic economy is doing well.
C)the domestic economy is in recession.
D)foreign economies aren't doing well.

Question 52

The Chinese government slowly increased the value of the yuan from 8.1 yuan per dollar in January 2006 to 7.69 yuan per dollar in May 2007. The Chinese government's objective in increasing the value of its currency was to:

A)increase the trade surplus and prevent the price level from falling further.
B)increase the trade surplus and prevent the price level from rising further.
C)decrease the trade surplus and prevent the price level from rising further.
D)decrease the trade surplus and prevent the price level from falling further.

Question 53

Some economists believe that the high U.S. trade deficit should not be a concern because the:

A)inflow of financial capital will finance new investment, in turn producing more goods in the future to reverse the deficit without serious disruptions to the economy.
B)inflow of financial capital will finance more consumption, and the trade deficit will correct itself.
C)inflow of financial capital will finance new investment that will produce more goods in the future, but the economy will face a significant economic distress.
D)long run effects of the trade deficit are correctly anticipated, and therefore, we will observe no serious disruptions in the economy.

Question 54

During 2007, the United States and Japan announced possible limits on Chinese imports through higher tariffs on Chinese products. To avoid these limits, China would have had to:

A)decrease the value of the yuan and increase its trade surplus.
B)decrease the value of the yuan and decrease its trade surplus.
C)increase the value of the yuan and increase its trade surplus.
D)increase the value of the yuan and decrease its trade surplus.

Question 55

In the short run, a trade deficit allows more consumption, but in the long run, a trade deficit is a problem because the:

A)country eventually will consume more and produce less.
B)country eventually will sell all its financial assets to foreigners.
C)domestic currency will appreciate.
D)country eventually has to produce more than it consumes in order to pay foreigners their profits.

Question 56

Considering only its direct effect on income, contractionary monetary policy tends to:

A)increase income and imports, shifting the U.S. trade balance in the direction of deficit.
B)increase income and imports, shifting the U.S. trade balance in the direction of surplus.
C)decrease income and imports, shifting the U.S. trade balance in the direction of deficit.
D)decrease income and imports, shifting the U.S. trade balance in the direction of surplus.

Question 57

Considering only its direct effect on income, expansionary monetary policy tends to:

A)increase income and imports, shifting the U.S. trade balance in the direction of deficit.
B)increase income and imports, shifting the U.S. trade balance in the direction of surplus.
C)decrease income and imports, shifting the U.S. trade balance in the direction of deficit.
D)decrease income and imports, shifting the U.S. trade balance in the direction of surplus.

Question 58

If foreigners become unwilling to hold U.S. assets, the U.S. trade balance will:

A)go further into deficit.
B)go further into surplus.
C)experience smaller deficits.
D)experience smaller surpluses.

Question 59

Since 1970, the U.S. trade balance has:

A)been in surplus in almost every year.
B)been in deficit in almost every year.
C)been close to zero in almost every year.
D)fluctuated between deficit and surplus frequently.

Question 60

All of the following are international (as opposed to domestic)policy goals for the United States except:

A)low inflation.
B)a strong dollar.
C)a balance of trade.
D)an increase in exports relative to imports.

Question 61

In the mid-1960s, the United States was running an expansionary fiscal policy to support the war effort in Vietnam. This likely:

A)improved the trade deficit.
B)worsened the trade deficit.
C)left the trade deficit the same.
D)had ambiguous effects on the trade deficit.

Question 62

Expansionary fiscal policy tends to:

A)raise U.S. income, increase U.S. imports, and increase the trade deficit.
B)raise U.S. income, increase U.S. imports, and lower the trade deficit.
C)lower U.S. income, reduce U.S. imports, and increase the trade deficit.
D)lower U.S. income, reduce U.S. imports, and lower the trade deficit.

Question 63

Considering only its direct effect on income, an expansionary monetary policy tends to:

A)increase a trade deficit and decrease the exchange rate.
B)increase a trade deficit and increase the exchange rate.
C)decrease a trade deficit and decrease the exchange rate.
D)decrease a trade deficit and increase the exchange rate.

Question 64

Considering an economy with a current trade deficit and considering only the direct effect on income, an expansionary monetary policy tends to:

A)decrease the exchange rate and increase the trade deficit.
B)increase the exchange rate and increase the trade deficit.
C)decrease the exchange rate and decrease the trade deficit.
D)increase the exchange rate and decrease the trade deficit.

Question 65

Considering its direct effect on income, which of the following policies is most likely to reduce a country's trade deficit?

A)An increase in the money supply
B)A cut in taxes
C)An increase in government spending
D)An increase in taxes

Question 66

The likely effect of a contractionary monetary policy in Japan would be to:

A)decrease the value of the dollar and the U.S. trade deficit.
B)increase the value of the dollar and the U.S. trade deficit.
C)decrease the value of the dollar and increase the U.S. trade deficit.
D)increase the value of the dollar and decrease the U.S. trade deficit.

Question 67

Considering only its direct effect on income, expansionary fiscal policy tends to:

A)be ambiguous with respect to the trade deficit.
B)increase a trade surplus.
C)decrease a trade deficit.
D)increase a trade deficit.

Question 68

If Japan has a trade surplus and the United States has a trade deficit, the trade gap could be eliminated by:

A)contractionary monetary policy in both Japan and the United States.
B)expansionary monetary policy in both Japan and the United States.
C)expansionary monetary policy in Japan or contractionary monetary policy in the United States.
D)contractionary monetary policy in Japan or expansionary monetary policy in the United States.

Question 69

Considering only its direct effect on income, expansionary fiscal policy tends to:

A)increase income and imports, shifting the U.S. trade balance in the direction of a deficit.
B)increase income and imports, shifting the U.S. trade balance in the direction of a surplus.
C)decrease income and imports, shifting the U.S. trade balance in the direction of a deficit.
D)decrease income and imports, shifting the U.S. trade balance in the direction of a surplus.

Question 70

Without considering the effect that a change in the value of a currency might have on trade, the net effect of an expansionary fiscal policy is:

A)ambiguous with respect to the trade balance, but positive with respect to the exchange rate.
B)ambiguous with respect to the exchange rate, but negative with respect to the trade balance.
C)negative with respect to the exchange rate and positive with respect to the trade balance.
D)positive with respect to the exchange rate and negative with respect to the trade balance.

Question 71

Expansionary fiscal policy tends to:

A)increase the U.S. price level and reduce U.S. exports.
B)increase the U.S. price level and reduce U.S. imports.
C)decrease the U.S. price level and increase U.S. exports.
D)decrease the U.S. price level and increase U.S. imports.

Question 72

Considering only its direct effect on income, contractionary fiscal policy tends to:

A)increase income and imports, lowering the trade deficit.
B)increase income and imports, raising the trade deficit.
C)decrease income and imports, lowering the trade deficit.
D)decrease income and imports, raising the trade deficit.

Question 73

Considering only their direct effect on income, which of the following policies is least likely to reduce a country's trade deficit?

A)A decrease in the money supply
B)A cut in taxes
C)A decrease in government spending
D)An increase in taxes

Question 74

Suppose the United States is going into a recession. To prevent the recession from worsening, the United States could do all the following except asking:

A)Japan to adopt policies that reduce its trade surplus with the United States.
B)China to reduce trade barriers to U.S. exports.
C)Japan to adopt a more expansionary fiscal policy.
D)the European Union to adopt a more contractionary monetary policy.

Question 75

Considering an economy with a current trade surplus and considering only the direct effect of income, an expansionary monetary policy tends to:

A)decrease the exchange rate and increase the trade surplus.
B)increase the exchange rate and increase the trade surplus.
C)decrease the exchange rate and decrease the trade surplus.
D)increase the exchange rate and decrease the trade surplus.

Question 76

Without considering the effect that a change in the value of a currency might have on trade, the net effect of a contractionary fiscal policy is:

A)ambiguous with respect to the exchange rate, but positive with respect to the trade balance.
B)ambiguous with respect to the trade balance, but positive with respect to the exchange rate.
C)negative with respect to the exchange rate and positive with respect to the trade balance.
D)positive with respect to the exchange rate and negative with respect to the trade balance.

Question 77

In considering the net effect of expansionary fiscal policy on the trade deficit, the:

A)income effect offsets the price effect.
B)price effect offsets the income effect.
C)income and price effects work in the same direction, so the trade deficit is decreased.
D)income and price effects work in the same direction, so the trade deficit is increased.

Question 78

In the early 2000s, the George Bush administration passed a series of tax cuts and spending increases to fight a recession. This combination of policies most likely:

A)increased the U.S. trade deficit.
B)decreased the U.S. trade deficit.
C)had no effect on the trade deficit.
D)had an unpredictable effect on the trade deficit.

Question 79

Considering only its direct effect on income, expansionary fiscal policy tends to:

A)decrease imports.
B)increase exports.
C)increase imports.
D)decrease the trade deficit.

Question 80

Considering only its direct effect on income, contractionary monetary policy tends to:

A)increase a trade deficit and decrease the exchange rate.
B)increase a trade deficit and increase the exchange rate.
C)decrease a trade deficit and decrease the exchange rate.
D)decrease a trade deficit and increase the exchange rate.