Question 1

A temporary increase in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Accepted Answer

A temporary increase in government purchases raises the domestic real interest rate due to increased demand for funds, leading to a decrease in net desired saving as savings are diverted to finance the government spending.

Question 2

A shift in demand toward the foreign country's goods would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Accepted Answer

A shift in demand towards a foreign country's goods would lead to a decrease in demand for domestically produced goods. This would lead to a fall in the overall demand and output, causing a decrease in the real interest rate. In turn, this would cause a decrease in net desired savings as well, as the lower interest rate would reduce the amount of savings desired by households and firms. Therefore, option B, i.e., lower; decrease, is the correct answer.

Question 3

An increase in the foreign real interest rate would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

Accepted Answer

An increase in the foreign real interest rate would make domestic assets relatively less attractive, leading to a decrease in net capital outflow and an increase in net exports. This would shift the IS curve up as higher net exports increase aggregate demand.

Question 4

In a Keynesian model,a temporary increase in government purchases would cause output to ________ and the domestic real interest rate to ________,in the short run.

Accepted Answer

In a Keynesian model, a temporary increase in government purchases would increase aggregate demand, leading to an increase in output. This increase in demand for funds for government spending would also lead to an increase in the domestic real interest rate in the short run.

Question 5

In a Keynesian model,what are the short-run effects on output,the real interest rate,and the real exchange rate,for both the domestic economy and a foreign economy,of a decline in investment?

Accepted Answer

The answer of In a Keynesian model,what are the short-run...

Question 6

In the short run in the Keynesian model,an increase in the domestic money supply would cause domestic output to ________ and the domestic real interest rate to ________.

Accepted Answer

In the short run in the Keynesian model, an increase in the domestic money supply would cause aggregate demand to shift rightward. This would result in an increase in domestic output. However, the increase in output would lead to an increase in demand for loanable funds, causing an upward pressure on interest rates. Hence, the domestic real interest rate would fall. Therefore, the correct option is C.

Question 7

The Federal Reserve has just purchased bonds in the market,carrying out open market operations.In the short run in the Keynesian model,this would cause the foreign real interest rate to ________ and foreign output to ________.

Accepted Answer

The purchase of bonds by the Federal Reserve increases the money supply, which leads to a decrease in the domestic real interest rate. This, in turn, leads to an increase in foreign real interest rates and an increase in foreign output.

Question 8

In the Keynesian model of an open economy,a temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Accepted Answer

In the Keynesian model, a temporary decrease in government purchases reduces aggregate demand, leading to a lower domestic real interest rate. This decrease in interest rates encourages saving over investment, thus increasing net desired saving.

Question 9

A decrease in the foreign real interest rate would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

Accepted Answer

The answer of A decrease in the foreign real interest...

Question 10

A shift in demand toward the home country's goods would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Accepted Answer

A shift in demand toward the home country's goods would increase the domestic real interest rate due to higher demand for domestic currency and goods, which increases the cost of borrowing. This shift would also increase net desired saving in the economy, as higher interest rates encourage more saving and potentially reduce investment, widening the gap between desired saving and desired investment.

Question 11

You have just noticed that the dollar appreciated and you suspect that U.S.policymakers were behind this change.Which would you choose as the most likely cause of this appreciation in the real exchange rate?

Accepted Answer

If policymakers wanted to appreciate the dollar, they would likely decrease the money supply, making the dollar more scarce and therefore more valuable. A temporary increase in government purchases or a decrease in taxes could lead to an increase in aggregate demand, ultimately leading to inflation and a depreciation of the currency.

Question 12

According to the classical model,an increase in the American nominal money supply would cause the nominal exchange rate to ________ and the real exchange rate to ________.

Accepted Answer

An increase in the nominal money supply would lead to a depreciation of the nominal exchange rate due to the increased supply of money, making the currency less valuable relative to others. However, the real exchange rate, which adjusts the nominal rate by price levels, would remain unchanged in the classical model, assuming prices adjust proportionately to changes in the money supply.

Question 13

In an open economy,an increase in foreign output would cause the IS curve to shift ________ and a decrease in the foreign real interest rate would cause the IS curve to shift ________.

Accepted Answer

- An increase in foreign output would cause a shift of the IS curve to the right (up) because it would increase the demand for domestic products and cause an increase in the interest rate.
- A decrease in the foreign real interest rate would cause a shift of the IS curve to the right (down) because it would lower the cost of borrowing and increase investment, which would lead to an increase in output and income.

Question 14

A temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Accepted Answer

A temporary decrease in government purchases reduces the demand for loanable funds, leading to a lower domestic real interest rate. This encourages more saving, thus increasing net desired saving.

Question 15

An increase in the U.S.money supply would cause the value of the dollar to ________ and U.S.net exports to ________ in the short run using a Keynesian model.

Accepted Answer

An increase in the U.S. money supply would cause the value of the dollar to fall and U.S. net exports to rise in the short run using a Keynesian model. This is because an increase in the money supply would lead to a decrease in interest rates, which would make it more attractive for foreigners to invest in the U.S., leading to an increase in the demand for dollars and a rise in the value of the dollar. This would make U.S. exports more expensive and imports cheaper, leading to a decrease in net exports.

Question 16

An increase in foreign output would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

Accepted Answer

An increase in foreign output would make domestic goods relatively cheaper, leading to an increase in net exports. This would shift the IS curve up as net exports are a component of aggregate demand.

Question 17

In an open economy,an increase in savings because of concerns about the future should cause the domestic real interest rate to ________ and should cause net exports to ________.

Accepted Answer

In an open economy, an increase in savings due to concerns about the future would typically lead to a decrease in the domestic real interest rate, as the supply of loanable funds increases. This decrease in the interest rate makes domestic investments cheaper, potentially reducing the incentive for capital to flow abroad, thereby affecting the currency value and making exports relatively cheaper and imports more expensive. Consequently, net exports are likely to rise.

Question 18

In an open economy,a shift down and to the left of the IS curve could have been caused by

Accepted Answer

A decline in the foreign real interest rate can lead to capital outflows, reducing investment and shifting the IS curve down and to the left.

Question 19

Suppose Japan is currently running a current account surplus.The most effective way of eliminating this current account surplus would be to temporarily ________ government purchases and ________ the domestic money supply.

Accepted Answer

Increasing government purchases injects more money into the economy, boosting domestic consumption and potentially increasing imports. Increasing the domestic money supply lowers interest rates, encouraging more spending and investment, further increasing imports relative to exports, which can help eliminate a current account surplus.

Question 20

A classical IS-LM model of the world economy can be used to show that in a flexible exchange-rate system,a temporary increase in government purchases will cause

Accepted Answer

According to the IS-LM model, an increase in government purchases will shift the IS curve to the right, leading to an increase in output and the real interest rate. However, as the real interest rate rises, it will reduce net exports by making domestic goods relatively more expensive, which in turn will lead to a decrease in aggregate demand. The increase in output and real interest rate will also lead to capital inflows, causing the domestic currency to appreciate in the short run. However, the long-run effect on the exchange rate is ambiguous and will depend on the relative adjustment of prices and interest rates between the domestic and foreign economy. Therefore, option A is the correct answer.

Quiz 13: Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

A temporary increase in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment) in the economy.

A shift in demand toward the foreign country's goods would the domestic real interest rate and net desired saving (desired saving less desired investment) in the economy.

An increase in the foreign real interest rate would cause the domestic country's net exports to and cause the domestic country's IS curve to .

In a Keynesian model,a temporary increase in government purchases would cause output to and the domestic real interest rate to ,in the short run.

In a Keynesian model,what are the short-run effects on output,the real interest rate,and the real exchange rate,for both the domestic economy and a foreign economy,of a decline in investment?

In the short run in the Keynesian model,an increase in the domestic money supply would cause domestic output to and the domestic real interest rate to .

The Federal Reserve has just purchased bonds in the market,carrying out open market operations.In the short run in the Keynesian model,this would cause the foreign real interest rate to and foreign output to .

In the Keynesian model of an open economy,a temporary decrease in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment) in the economy.

A decrease in the foreign real interest rate would cause the domestic country's net exports to and cause the domestic country's IS curve to .

A shift in demand toward the home country's goods would the domestic real interest rate and net desired saving (desired saving less desired investment) in the economy.

You have just noticed that the dollar appreciated and you suspect that U.S.policymakers were behind this change.Which would you choose as the most likely cause of this appreciation in the real exchange rate?

According to the classical model,an increase in the American nominal money supply would cause the nominal exchange rate to and the real exchange rate to .

In an open economy,an increase in foreign output would cause the IS curve to shift and a decrease in the foreign real interest rate would cause the IS curve to shift .

A temporary decrease in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment) in the economy.

An increase in the U.S.money supply would cause the value of the dollar to and U.S.net exports to in the short run using a Keynesian model.

An increase in foreign output would cause the domestic country's net exports to and cause the domestic country's IS curve to .

In an open economy,an increase in savings because of concerns about the future should cause the domestic real interest rate to and should cause net exports to .

In an open economy,a shift down and to the left of the IS curve could have been caused by

Suppose Japan is currently running a current account surplus.The most effective way of eliminating this current account surplus would be to temporarily government purchases and the domestic money supply.

A classical IS-LM model of the world economy can be used to show that in a flexible exchange-rate system,a temporary increase in government purchases will cause

Quiz 13: Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

A temporary increase in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment) in the economy.

A shift in demand toward the foreign country's goods would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment) in the economy.

An increase in the foreign real interest rate would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

In a Keynesian model,a temporary increase in government purchases would cause output to ________ and the domestic real interest rate to ________,in the short run.

In a Keynesian model,what are the short-run effects on output,the real interest rate,and the real exchange rate,for both the domestic economy and a foreign economy,of a decline in investment?

In the short run in the Keynesian model,an increase in the domestic money supply would cause domestic output to ________ and the domestic real interest rate to ________.

The Federal Reserve has just purchased bonds in the market,carrying out open market operations.In the short run in the Keynesian model,this would cause the foreign real interest rate to ________ and foreign output to ________.

In the Keynesian model of an open economy,a temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment) in the economy.

A decrease in the foreign real interest rate would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

A shift in demand toward the home country's goods would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment) in the economy.

You have just noticed that the dollar appreciated and you suspect that U.S.policymakers were behind this change.Which would you choose as the most likely cause of this appreciation in the real exchange rate?

According to the classical model,an increase in the American nominal money supply would cause the nominal exchange rate to ________ and the real exchange rate to ________.

In an open economy,an increase in foreign output would cause the IS curve to shift ________ and a decrease in the foreign real interest rate would cause the IS curve to shift ________.

A temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment) in the economy.

An increase in the U.S.money supply would cause the value of the dollar to ________ and U.S.net exports to ________ in the short run using a Keynesian model.

An increase in foreign output would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

In an open economy,an increase in savings because of concerns about the future should cause the domestic real interest rate to ________ and should cause net exports to ________.

In an open economy,a shift down and to the left of the IS curve could have been caused by

Suppose Japan is currently running a current account surplus.The most effective way of eliminating this current account surplus would be to temporarily ________ government purchases and ________ the domestic money supply.

A classical IS-LM model of the world economy can be used to show that in a flexible exchange-rate system,a temporary increase in government purchases will cause

A temporary increase in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment) in the economy.

A shift in demand toward the foreign country's goods would the domestic real interest rate and net desired saving (desired saving less desired investment) in the economy.

An increase in the foreign real interest rate would cause the domestic country's net exports to and cause the domestic country's IS curve to .

In a Keynesian model,a temporary increase in government purchases would cause output to and the domestic real interest rate to ,in the short run.

In the short run in the Keynesian model,an increase in the domestic money supply would cause domestic output to and the domestic real interest rate to .

The Federal Reserve has just purchased bonds in the market,carrying out open market operations.In the short run in the Keynesian model,this would cause the foreign real interest rate to and foreign output to .

In the Keynesian model of an open economy,a temporary decrease in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment) in the economy.

A decrease in the foreign real interest rate would cause the domestic country's net exports to and cause the domestic country's IS curve to .

A shift in demand toward the home country's goods would the domestic real interest rate and net desired saving (desired saving less desired investment) in the economy.

According to the classical model,an increase in the American nominal money supply would cause the nominal exchange rate to and the real exchange rate to .

In an open economy,an increase in foreign output would cause the IS curve to shift and a decrease in the foreign real interest rate would cause the IS curve to shift .

A temporary decrease in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment) in the economy.

An increase in the U.S.money supply would cause the value of the dollar to and U.S.net exports to in the short run using a Keynesian model.

An increase in foreign output would cause the domestic country's net exports to and cause the domestic country's IS curve to .

In an open economy,an increase in savings because of concerns about the future should cause the domestic real interest rate to and should cause net exports to .

Suppose Japan is currently running a current account surplus.The most effective way of eliminating this current account surplus would be to temporarily government purchases and the domestic money supply.