Deck 36: Macro Policy in a Global Setting

Question 1

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

Answer 1

False

Question 2

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.

Answer 2

more expensive, raising the price of imports.

Question 3

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

Answer 3

False

Question 4

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 5

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

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

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

Question 8

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.

Question 9

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

Question 10

The economic goals about which there is a substantial agreement include all 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.

Question 11

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 12

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 13

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

Question 14

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 15

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

Question 16

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

Question 17

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 18

Expansionary fiscal policy increases income, which increases imports and hence the size of the trade deficit.

Question 19

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 20

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

Question 21

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

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

Question 22

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 23

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

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

Question 24

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 25

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 26

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 27

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 28

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 29

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 30

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)SU.S.products to foreigners
C)Selling U.S.land and factories to foreigners
D)Selling U.S.stocks and bonds to foreigners

Question 31

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 32

A trade deficit allows a country to:

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

Question 33

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 34

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 35

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 36

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 37

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 38

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 39

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 40

If a country's trade deficit declines but 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 41

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 42

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 43

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 44

Albania wants to maintain an 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 Croatian 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 45

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 46

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 it does not finance productive investment.
D)U.S.citizens refuse to lend to foreigners as a result of it.

Question 47

During 2007, the United States and Japan announced possible limits on Chinese imports through higher tariff rates 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 48

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

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

Question 49

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 50

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 51

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 52

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 53

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 54

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

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

Question 55

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 56

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 57

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 58

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 59

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 60

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 61

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 62

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 63

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 64

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 65

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 66

Suppose the United States is entering a recession at the same time that it has agreed to work toward eliminating its trade deficit.Considering the effect of monetary policy on trade through its impact on income only:

A)an expansionary monetary policy would be the appropriate means of achieving both objectives.
B)a contractionary monetary policy would be the appropriate means of achieving both objectives.
C)an expansionary monetary policy would be appropriate to eliminate the trade deficit, but contractionary monetary policy is called for to deal with the recession.
D)a contractionary monetary policy would be appropriate to eliminate the trade deficit, but expansionary monetary policy is called for to deal with the recession.

Question 67

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 68

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 69

Considering an economy with a current trade surplus and considering only the direct effect on 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 70

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 71

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 72

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 73

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 74

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 75

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.

Question 76

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 77

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 78

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 79

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

A)increase income and imports and lower the trade deficit.
B)increase income and imports and raise the trade deficit.
C)decrease income and imports and lower the trade deficit.
D)decrease income and imports and raise the trade deficit.

Question 80

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.