Deck 36: Exchange Rates and the Macroeconomy

Question 1

Booms or recessions in one country tend to be transmitted to other countries through international trade in goods and services.

Answer 1

True

Question 2

An appreciation of the dollar makes imported inputs cheaper and shifts the U.S. aggregate supply curve outward, thus pushing American prices down.

Answer 2

True

Question 3

When the dollar depreciates, the prices of imported inputs rise and the U.S. aggregate supply curve, therefore, shifts inward, pushing up the prices of American-made goods and services.

Answer 3

True

Question 4

A depreciation of the dollar will cause an increase in the Consumer Price Index.

Question 5

If the dollar appreciates, American consumers will buy more foreign goods and services.

Question 6

A fall in the relative prices of a country's exports tends to increase that country's net exports, and, thereby, to raise its real GDP.

Question 7

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

Question 8

A reduction in G or an increase in T would lead to lower real interest rates in the United States, a depreciating dollar, and, eventually, a smaller trade deficit..

Question 9

An exchange rate appreciation will shift the aggregate demand curve inward.

Question 10

A rise in the relative prices of a country's exports will decrease that country's net exports and reduce GDP.

Question 11

A nation's currency is said to depreciate when exchange rates change so that a unit of its currency can buy fewer units of foreign currency.

Question 12

A Japanese recession will be counteracted by an appreciation of the Japanese yen.

Question 13

An increase in the U.S. price level will increase U.S. net exports.

Question 14

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

Question 15

In an open economy, aggregate supply consists of domestic production plus imports.

Question 16

Because one country's imports are another country's exports, rapid (or sluggish) economic growth in one country contributes to rapid (or sluggish) growth in other countries.

Question 17

An open economy is one that trades with other nations in goods and services, and perhaps also trades in financial assets.

Question 18

A nation's currency is said to appreciate when exchange rates change so that a unit of its currency can buy more units of foreign currency.

Question 19

The exchange rate states the price, in terms of one currency, at which another currency can be bought.

Question 20

Currency appreciation should reduce net exports and, therefore, decrease aggregate demand.

Question 21

Appreciations or depreciations in currency change international relative prices.

Question 22

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

Question 23

An appreciation of the Japanese yen would shift the Japanese aggregate demand curve inward.

Question 24

A currency depreciation is inflationary and probably also expansionary.

Question 25

A currency appreciation reduces aggregate demand and raises aggregate supply.

Question 26

A fall in the domestic interest rate leads to capital outflows, which make the exchange rate depreciate. The monetary expansion of the mid-1990s was expected to lead to a currency appreciation.

Question 27

An appreciation of the dollar makes imported inputs cheaper and shifts the U.S. aggregate supply curve outward, thus pushing American prices down.

Question 28

A closed economy is one that does not trade with other nations in either goods or assets.

Question 29

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

Question 30

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

Question 31

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

Question 32

A rise in the domestic interest rate leads to capital inflows, which make the exchange rate appreciate.

Question 33

The depreciation of the Japanese yen in 2002 would ease their problems with regard to recession.

Question 34

As the international value of the dollar rises, AS shifts outward and AD shifts inward.

Question 35

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

Question 36

When the dollar depreciates, the prices of imported inputs rise, and the U.S. aggregate supply curve, therefore, shifts inward, pushing up the prices of American-made goods and services.

Question 37

The U.S. trade deficit must be cured by some combination of lower budget deficits, higher savings, and lower investment.

Question 38

The U.S. trade deficit is made possible, in part, because of foreigners' demand for U.S. financial assets.

Question 39

A decline in interest rates tends to expand the economy by depreciating the currency and raising net exports.

Question 40

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

Question 41

A rise in net exports shifts the aggregate

A) demand curve inward.
B) demand curve outward.
C) supply curve outward.
D) supply curve inward.

Question 42

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

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 43

Foreign trade will have no impact on real GDP when

A) exports exceed imports.
B) exports equal imports.
C) imports exceed exports.
D) exports equal zero.

Question 44

Which of the following is correct?

A) IM + X = G − T
B) I + G + T = S + X − M
C) I + G + X = S + T + IM
D) I + T + G = S − X − IM

Question 45

A sizable appreciation of the U.S. dollar in the mid-1980s

A) raised U.S. exports and imports.
B) raised U.S. exports and reduced imports.
C) reduced U.S. exports and imports.
D) reduced U.S. exports and raised imports.

Question 46

International capital inflows reduce the power of fiscal policy.

Question 47

An appreciation of the Japanese yen relative to the U.S. dollar will

A) increase aggregate demand in the United States.
B) increase aggregate supply in the United States.
C) increase aggregate demand in Japan.
D) decrease aggregate supply in Japan.

Question 48

An increase in the value of the U.S. dollar relative to the Japanese yen will

A) increase aggregate demand in the United States.
B) decrease aggregate supply in the United States.
C) increase aggregate demand in Japan.
D) increase aggregate supply in Japan.

Question 49

The sum of current account surplus and capital account surplus is zero.

Question 50

A favorable supply shock abroad would

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

Question 51

A fall in the relative prices of a country's exports tends to ________________ that country's net exports, and thereby, to ____ its real GDP.

A) increase; raise
B) decrease; raise
C) decrease; decrease
D) None of the above is correct.

Question 52

A currency depreciation would _____ net exports, and therefore ___________ aggregate demand.

A) increase; increase
B) increase; decrease
C) decrease; decrease
D) None of the above is correct.

Question 53

If a currency depreciates, a country's net exports

A) fall and AD increases.
B) rise and AD increases.
C) fall and AD decreases.
D) rise and AD decreases.

Question 54

International capital flows increase the power of monetary policy.

Question 55

If a currency appreciates, a country's net exports

A) fall and AD increases.
B) rise and AD increases.
C) fall and AD decreases.
D) rise and AD decreases.

Question 56

A currency appreciation should _______ net exports, and, therefore, _________aggregate demand.

A) reduce; decrease
B) reduce; reduce
C) increase; decrease.
D) None of the above is correct.

Question 57

If European economies experience a strong economic recovery, U.S. net exports will

A) increase and AD will shift outward.
B) increase and AD will shift inward.
C) decrease and AD will shift inward.
D) decrease and AD will shift outward.

Question 58

If Asian economies suffer a serious economic slump, U.S. net exports will

A) increase and AD will shift outward.
B) increase and AD will shift inward.
C) decrease and AD will shift inward.
D) decrease and AD will shift outward.

Question 59

Figure 36-1

Which of the graphs in Figure 36-1 best illustrates the behavior of exports and imports in relation to U.S. real GDP?

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

Question 60

A reduction in net exports shifts the aggregate

A) demand curve inward.
B) demand curve outward.
C) supply curve outward.
D) supply curve inward.

Question 61

If Japan experiences a period of deflation and the United States does not, what will happen in the United States?

A) An increase in aggregate supply
B) A decrease in aggregate supply
C) A decrease in aggregate demand
D) An increase in aggregate demand

Question 62

Suppose the dollar depreciates from 89 Japanese yen to 79 Japanese yen. One would expect

A) U.S. imports to increase
B) U.S. exports to increase.
C) Japanese exports to increase.
D) Japanese net exports to increase.

Question 63

Figure 36-2

Which of the following explains the movements in Figure 36-2?

A) An increase in U.S. imports
B) A decrease in U.S. exports
C) An increase in U.S. exports
D) A decrease in U.S. net exports

Question 64

Theoretically, when a currency depreciates one can predict that

A) the price level will rise and real GDP will rise.
B) the price level will fall and real GDP will fall.
C) real GDP will rise, but price change is not predictable.
D) the price level will rise, but real GDP change is not predictable.

Question 65

Figure 36-3

Which of the situations illustrated in Figure 36-3 shows the effects of a currency appreciation leading to real GDP growth?

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

Question 66

An increase in the U.S. price level relative to the price level of U.S. trading partners will cause the aggregate expenditures function in the United States to

A) shift up.
B) shift down.
C) get flatter.
D) get steeper.

Question 67

An increase in the price level in the economies of U.S. trading partners will cause the aggregate expenditures function in the United States to

A) shift up.
B) shift down.
C) get flatter.
D) get steeper.

Question 68

What effect did the decrease in the value of the dollar have on the U.S. trade deficit in the period from 2006 to 2009?

A) It decreased the trade deficit as Americans bought more U.S. capital goods.
B) It decreased the trade deficit as foreigners were attracted to the increased value of U.S. products and Americans bought fewer imports.
C) It increased the trade deficit as U.S. investors bought more domestic financial assets.
D) It increased the trade deficit as Americans bought more imports and foreigners bought fewer U.S. products.

Question 69

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

A) An increase in aggregate supply
B) A decrease in aggregate supply
C) A decrease in aggregate demand
D) An increase in aggregate demand

Question 70

If Mexico experiences a period of stable prices while the United States experiences rapid inflation, what will happen in Mexico?

A) An increase in aggregate supply
B) A decrease in aggregate supply
C) A decrease in aggregate demand
D) An increase in aggregate demand

Question 71

Assume that Country X and Country Y are trading partners and the exchange rates are fixed. If prices in Country Y rise, all of the following are expected to happen except

A) Country X will export more.
B) Country Y will import more.
C) net exports will rise for Country X.
D) trade will boost the GDP of Country Y.

Question 72

If Mexico experiences a period of stable prices while the United States experiences rapid inflation, what will happen in the United States?

A) An increase in U.S. imports
B) An increase in U.S. exports
C) A decrease in U.S. imports
D) An increase in U.S. net exports

Question 73

Figure 36-2

Which of the following explains the movements in Figure 36-2?

A) An increase in the U.S. price level
B) A decrease in the U.S. price level
C) An appreciation of the U.S. dollar
D) An expansionary monetary policy

Question 74

Figure 36-3

Which of the situations illustrated in Figure 36-3 shows the effects of a currency appreciation leading to a recession?

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

Question 75

When the U.S. dollar appreciates,

A) U.S. exports rise.
B) U.S. imports decline.
C) aggregate demand shifts inward.
D) aggregate demand shifts outward.

Question 76

Which of the following would lead to a depreciating dollar?

A) A higher federal deficit
B) Lower interest rates
C) Higher interest rates
D) Contractionary monetary policy

Question 77

Assume that Country X and Country Y are trading partners and the exchange rates are fixed. If prices in Country Y fall, which of the following is expected to happen?

A) Country X will export more.
B) Economy of Country X will be depressed.
C) Net exports will rise for Country X.
D) Country Y will import more.

Question 78

One of the results of the strong economic growth in the United States relative to the rest of the world is a

A) U.S. trade surplus.
B) U.S. trade deficit.
C) growing U.S. net exports.
D) trade deficit for U.S. trading partners.

Question 79

Depreciation of the Japanese yen would lead to

A) outward shift in the aggregate supply curve for Japan.
B) upward shift in the aggregate demand curve for Japan.
C) downward shift in the aggregate supply curve for Japan.
D) inward shift in the aggregate demand curve for Japan.

Question 80

Appreciation of the Japanese yen would lead to

A) outward shift in the aggregate supply curve for Japan.
B) upward shift in the aggregate demand curve for Japan.
C) downward shift in the aggregate supply curve for Japan.
D) downward shift in the aggregate demand curve for Japan.