Question 1

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

Accepted Answer

When the money supply is decreased, the value of currency increases. This would lead to an appreciation in the real exchange rate, making imports cheaper and exports more expensive. Therefore, B is the best choice as the most likely cause of the dollar appreciation. A temporary increase in government purchases or a temporary decrease in taxes may also have an impact on the economy, but they are less likely to directly affect the exchange rate.

Question 2

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

According to the Keynesian model, an increase in the domestic money supply would increase aggregate demand in the short run, leading to a rise in domestic output. However, as output increases, demand for loanable funds will also increase, putting upward pressure on the real interest rate. Therefore, in the short run, an increase in the money supply will cause the domestic real interest rate to fall initially due to an increase in liquidity preference, but eventually rise as the increase in output leads to an increase in the demand for loanable funds.

Question 3

Describe the effects of contractionary fiscal policy by the domestic government on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model.

Accepted Answer

The answer of Describe the effects of contractionary fiscal policy...

Question 4

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

The answer of In the Keynesian model of an open...

Question 5

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

The answer of An increase in the U.S.money supply would...

Question 6

Assume the United States is currently running a current account deficit.The most effective way of eliminating this current account deficit would be to temporarily ________ government purchases and ________ the domestic money supply.

Accepted Answer

Decreasing government purchases would reduce domestic demand, leading to a decrease in imports. Decreasing the domestic money supply would increase interest rates, appreciating the domestic currency and further reducing imports by making them more expensive, while also potentially increasing exports by making domestic goods cheaper for foreign buyers. Both actions together would help in eliminating the current account deficit.

Question 7

Describe the effects of contractionary monetary policy by the domestic central bank on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model in the short run.What happens in the long run? Show a diagram to illustrate the short-run and long-run effects in both countries.

Accepted Answer

The answer of Describe the effects of contractionary monetary policy...

Question 8

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 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

A decrease in the foreign real interest rate would decrease the foreign country's capital inflows, resulting in a decrease in the exchange rate of the domestic country. This would make domestic goods relatively more expensive and foreign goods relatively cheaper, leading to a fall in net exports. This would shift the IS curve of the domestic country down.

Question 10

For this question,use the Keynesian IS-LM model with flexible exchange rates.
Eastland's main trading partner is Westland.Suppose Westland undertakes an expansionary monetary policy.
(a)What is the effect of Westland's expansionary monetary policy on Eastland's real exchange rate in the short run,assuming no change in Eastland's policies?
(b)What is the effect of Westland's expansionary monetary policy on Eastland's real exchange rate in the long run,assuming no change in Eastland's policies?
(c)What is the effect of Westland's expansionary monetary policy on Eastland's nominal exchange rate in the short run and in the long run?

Accepted Answer

The answer of For this question,use the Keynesian IS-LM model...

Question 11

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

The answer of A temporary decrease in government purchases would...

Question 12

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 lead to an increase in demand for domestically produced goods, leading to an increase in the income and output of the domestic economy. This would cause the IS curve to shift up.

A decrease in the foreign interest rate would lead to an increase in foreign investment, causing an increase in demand for domestic goods and services, leading to an increase in income and output. This would cause the IS curve to shift down.

Question 13

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 14

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

Accepted Answer

The answer of In an open economy,a shift down and...

Question 15

To encourage more investment,Mexico has lowered its tax rates to reduce the user cost of capital.Argentina is unable to pay back its foreign debts,causing its expected future marginal product of capital to fall.Mexico's real exchange rate will ________ and its net exports will ________.

Accepted Answer

Lowering tax rates in Mexico makes investing in Mexico more attractive, likely appreciating its currency due to increased demand for Mexican assets. Argentina's inability to pay back debts decreases its investment appeal, reducing demand for its currency and likely causing a depreciation relative to Mexico's. An appreciated currency makes a country's exports more expensive and imports cheaper, potentially leading to a fall in net exports.

Question 16

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

The answer of A temporary increase in government purchases would...

Question 17

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 18

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 answer of The Federal Reserve has just purchased bonds...

Question 19

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 20

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.

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

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

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 .

Describe the effects of contractionary fiscal policy by the domestic government on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model.

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.

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.

Assume the United States is currently running a current account deficit.The most effective way of eliminating this current account deficit would be to temporarily government purchases and the domestic money supply.

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

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 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.

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

To encourage more investment,Mexico has lowered its tax rates to reduce the user cost of capital.Argentina is unable to pay back its foreign debts,causing its expected future marginal product of capital to fall.Mexico's real exchange rate will and its net exports will .

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

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?

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

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 .

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

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

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 ________.

Describe the effects of contractionary fiscal policy by the domestic government on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model.

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.

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.

Assume the United States is currently running a current account deficit.The most effective way of eliminating this current account deficit would be to temporarily ________ government purchases and ________ the domestic money supply.

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

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 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.

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

To encourage more investment,Mexico has lowered its tax rates to reduce the user cost of capital.Argentina is unable to pay back its foreign debts,causing its expected future marginal product of capital to fall.Mexico's real exchange rate will ________ and its net exports will ________.

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

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?

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

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 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 .

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.

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.

Assume the United States is currently running a current account deficit.The most effective way of eliminating this current account deficit would be to temporarily government purchases and the domestic money supply.

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

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 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.

To encourage more investment,Mexico has lowered its tax rates to reduce the user cost of capital.Argentina is unable to pay back its foreign debts,causing its expected future marginal product of capital to fall.Mexico's real exchange rate will and its net exports will .

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

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

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 .