Deck 16: Open Economy Macroeconomics

Question 1

The relationship between the total quantity of goods and services all sectors of the economy demand and the price level is known as:

A) aggregate supply.
B) GDP.
C) the consumer price index.
D) aggregate demand.
E) insufficient demand.

Answer 1

aggregate demand.

Question 2

The aggregate demand curve:

A) shows the level of real GDP purchased in the economy at different price levels.
B) shows the level of real GDP produced in the economy at different price levels.
C) shifts to the left when there is an increase in aggregate spending.
D) slopes upwards because of the income effect.
E) None of the above

Answer 2

shows the level of real GDP purchased in the economy at different price levels.

Question 3

Which of the following statements is true?

A) As wealth increases, consumption tends to increase.
B) As wealth decreases, consumption tends to increase.
C) As wealth increases, consumption tends to decrease.
D) If wealth did not increase, consumption would fall dramatically.
E) Wealth does not affect consumption.

Answer 3

As wealth increases, consumption tends to increase.

Question 4

The wealth effect is defined as:

A) an accumulation of money is the hands of a few individuals.
B) the effect of the wealth of a country.
C) the effect of changes in the price level on the value of people's wealth.
D) the effect of changes in the exchange rate on the value of people's wealth.
E) how equity prices influence wealth.

Question 5

The wealth effect is the impact on GDP caused by a(an):

A) direct relationship between the price level and the real value of wealth.
B) indirect relationship between the price level and the real value of wealth.
C) direct relationship between the interest rate and the real value of wealth.
D) indirect relationship between the interest rate and the real value of wealth.
E) only changes in equity prices.

Question 6

The interest rate effect is the impact on real GDP caused by:

A) the direct relationship between the interest rate and the price level.
B) the inverse relationship between the interest rate and the price level.
C) the direct relationship between the interest rate and the money supply.
D) the inverse relationship between the interest rate and the money supply.
E) changes in interest rates and the exchange rate.

Question 7

Which of the following is not a reason for the downward slope of the aggregate demand curve?

A) the wealth effect
B) the interest rate effect
C) the international substitution effect
D) the price effect
E) the price of oil

Question 8

Which of the following is not one of the determinants of consumption?

A) consumer wealth
B) consumer indebtedness
C) consumer expectations
D) business confidence
E) interest rates

Question 9

Everything else equal, an increase in consumption by the public would tend to cause:

A) a leftward shift in AD.
B) a fall in the price level.
C) a decrease in GDP.
D) a rightward shift of AD.
E) no change is AD.

Question 10

Which of the following would tend to cause an increase in aggregate demand?

A) a decrease in consumption
B) an increase in the trade deficit
C) a fall in investment.
D) an increase in government spending on goods and services
E) an increase in the price of oil

Question 11

Which of the following will not shift the aggregate demand curve to the right?

A) consumers becoming more confident about the future
B) an increase in government spending
C) an increase in business confidence
D) an increase in the level of taxes
E) an increase in business taxes.

Question 12

An appreciation of the home country's currency will cause the aggregate demand curve to:

A) shift to the left.
B) shift to the right.
C) remain the same.
D) shift upwards at a rapid rate.
E) fluctuate.

Question 13

If there is an increase in aggregate demand, this implies that:

A) the AD curve has shifted to the right.
B) the AD curve has shifted to the left.
C) the price level has fallen as spending increased.
D) the price level has risen as spending decreased.
E) consumption has fallen.

Question 14

Which of the following does not cause an increase in aggregate demand?

A) an increase in society's wealth
B) a decrease in consumer indebtedness
C) a fall in the price level
D) a fall in interest rates
E) None of the above

Question 15

An appreciation of the dollar causes an increase in:

A) exports.
B) imports.
C) demand.
D) supply.
E) a higher price level

Question 16

Which of the following would tend to cause the aggregate supply curve to shift to the left?

A) an increase in AD
B) a decrease in AD
C) a decrease in the price of oil
D) a large increase in the price of oil that occurs in a short period of time
E) a change in interest rates

Question 17

The aggregate supply curve is defined as:

A) the total dollar value of the economy's spending.
B) the total output of a country at different price levels.
C) the total output of a country assuming prices are held constant.
D) the total dollar value of a firm's cost of production.
E) None of the above

Question 18

A leftward shift of the aggregate supply curve would tend to:

A) lower the price level.
B) increase real GDP.
C) lower both the price level and real GDP.
D) raise the price level and lower real GDP.
E) not change the price level

Question 19

Which of the following would tend to cause a leftward shift of the aggregate supply curve?

A) a decrease in the price of oil
B) an appreciation of the currency
C) a decrease in inflationary expectations
D) an increase in inflationary expectations
E) a change in interest rates

Question 20

Aggregate supply is determined in part by:

A) demand.
B) the prices of inputs.
C) consumer expectations.
D) consumer confidence.
E) a change in interest rates.

Question 21

The _____ elasticity of demand for _____ is the percentage change in exports divided by the percentage change in foreign income.

A) import, income
B) export, income
C) income, exports
D) import, imports
E) price, imports

Question 22

The foreign income effect depends on:

A) the size of the income change and the income elasticity of demand.
B) the size of the income change and the size of the country's wealth.
C) the size of the country's wealth and the income elasticity of demand.
D) the size of the income change and the inflation rate.
E) None of the above

Question 23

If the foreign income elasticity of the demand for exports is 2, then:

A) a 1% change in foreign income will cause a 2% change in the domestic economy's exports.
B) a 2% change in foreign income will cause a 1% change in the domestic economy's exports.
C) a 1% change in domestic income will cause a 2% change in the domestic economy's exports.
D) a 2% change in domestic income will cause a 1% change in the domestic economy's exports.
E) a 2% change in domestic income will cause a 5% shift in the domestic economy's imports.

Question 24

The sensitivity of a country's exports is _____ related to the real exchange rate.

A) directly
B) inversely
C) not
D) infrequently
E) sometimes

Question 25

The income elasticity of the demand for exports:

A) measures the percentage change in exports relative to a percentage change in domestic income.
B) measures the percentage change in domestic income relative to a percentage change in exports.
C) measures the percentage change in exports relative to a percentage change in foreign income.
D) measures the percentage change in foreign income relative to a percentage change in exports.
E) is almost always equal to 2.

Question 26

If a country's currency appreciates:

A) exports rise and imports fall.
B) exports fall and imports rise.
C) capital will flow into the country.
D) capital will flow out of the country.
E) exports and imports both fall.

Question 27

If a country's currency depreciates:

A) exports rise and imports fall.
B) exports fall and imports rise.
C) capital will flow into the country.
D) capital will flow out of the country.
E) exports and imports will both rise.

Question 28

The domestic income effect on imports depends on:

A) the size of the income change and the income elasticity of demand.
B) the size of the income change and the size of the country's wealth.
C) the size of the country's wealth and the income elasticity of demand.
D) the size of the income change and the inflation rate.
E) changes in the terms of trade.

Question 29

If the domestic income elasticity of the demand for imports is 2, then:

A) a 1% change in domestic income will cause a 2% fall in imports.
B) a 2% change in domestic income will cause a 1% fall in imports.
C) a 1% change in domestic income will cause a 2% rise in imports.
D) a 2% change in domestic income will cause a 1% rise in imports.
E) a 1% change in domestic income will cause a .1% fall in imports.

Question 30

Which of the following is the term for the percentage change in imports divided by the percentage change in domestic income?

A) income elasticity of exports
B) price elasticity of exports
C) income elasticity of imports
D) the price elasticity of demand
E) the relevant elasticity.

Question 31

The income elasticity of the demand for imports:

A) measures the percentage change in imports relative to a percentage change in domestic income.
B) measures the percentage change in domestic income relative to a percentage change in imports.
C) measures the percentage change in imports relative to a percentage change in foreign income.
D) measures the percentage change in foreign income relative to a percentage change in imports.
E) measures how changes in income affect AD.

Question 32

The sensitivity of a country's imports is _____ related to the real exchange rate.

A) directly
B) inversely
C) not
D) infrequently
E) indirectly

Question 33

As a country's currency appreciates:

A) the aggregate demand curve shifts to the left causing an increase in real GDP and the price level.
B) the aggregate demand curve shifts to the left causing a decrease in real GDP and the price level.
C) the aggregate demand curve shifts to the right causing an increase in real GDP and the price level.
D) the aggregate demand curve shifts to the right causing a decrease in real GDP and the price level.
E) the AD curve will be unaffected.

Question 34

During the 1980s, a(n) _____ of the dollar helped to ______ U.S. inflation.

A) appreciation, increase
B) appreciation, decrease
C) depreciation, increase
D) depreciation, decrease
E) depreciation, declerated

Question 35

Which of the following statements is true if the exchange rate depreciates?

A) exports will fall
B) imports will rise
C) GDP will increase
D) the price level will fall
E) GDP will be unaffected.

Question 36

A depreciation of the currency would tend to lead to:

A) a current account surplus.
B) lower inflation.
C) a lower rate of growth of GDP.
D) higher inflation and lower GDP growth.
E) higher inflation and higher GDP growth.

Question 37

If the exchange rate depreciated the price level would _____ and real GDP would ______.

A) rise, fall
B) fall, rise
C) fall, fall
D) rise, rise
E) rise, remain unchanged

Question 38

As a country's currency depreciates:

A) the aggregate demand curve shifts to the left causing an increase in real GDP and the price level.
B) the aggregate demand curve shifts to the left causing a decrease in real GDP and the price level.
C) the aggregate demand curve shifts to the right causing an increase in real GDP and the price level.
D) the aggregate demand curve shifts to the right causing a decrease in real GDP and the price level.
E) the AD curve does not shift.

Question 39

A real depreciation of a country's currency generally causes:

A) an increase in the production of tradable goods and a reduction in the production of nontradable goods in the economy.
B) a decrease in the production of tradable goods and an increase in the production of nontradable goods in the economy.
C) an increase in the production of both tradable goods and nontradable goods in the economy.
D) a decrease in the production of both tradable goods and nontradable goods in the economy.
E) no change in the production of goods.

Question 40

Which of the following countries suffered two exchange rate shocks in the 1980s and 1990s?

A) the U.S.
B) Canada
C) Chile
D) Mexico
E) the UK

Question 41

An exchange rate shock is defined as:

A) a large and quick appreciation of a country's currency.
B) a large and slow appreciation of a country's currency.
C) a large and quick depreciation of a country's currency.
D) a large and slow depreciation of a country's currency.
E) a long period of exchange rate volatility.

Question 42

An exchange rate shock generally causes:

A) the aggregate demand curve to shift to the left.
B) the aggregate demand curve to shift to the right.
C) the aggregate supply curve to shift to the left.
D) the aggregate supply curve to shift to the right.
E) no change in aggregate supply.

Question 43

An exchange rate shock generally causes a country's:

A) real GDP to rise and the price level to rise.
B) real GDP to fall and the price level to rise.
C) real GDP to rise and the price level to fall.
D) real GDP to fall and the price level to fall.
E) real GDP to be more stable.

Question 44

An exchange-rate shock refers to:

A) a large appreciation of the currency that occurs over a long period of time.
B) a large appreciation of the currency that occurs over a short period of time.
C) a large depreciation of the currency that occurs over a long period of time.
D) a large depreciation of the currency that occurs over a short period of time.
E) a long period of exchange rate volatility.

Question 45

A real appreciation of a country's currency generally causes:

A) an increase in the production of tradable goods and a reduction in the production of nontradable goods in the economy.
B) a decrease in the production of tradable goods and an increase in the production of nontradable goods in the economy.
C) an increase in the production of both tradable goods and nontradable goods in the economy.
D) a decrease in the production of both tradable goods and nontradable goods in the economy.
E) no change in the production of goods.

Question 46

An appreciation of the currency would tend to increase the production of _____ and reduce the production of ______.

A) tradable goods, nontradable goods
B) exports, tradable goods
C) cars, haircuts
D) nontradable goods, tradable goods
E) no change in the production of goods

Question 47

Which of the following is not part of the current account?

A) exports of goods
B) imports of services
C) receipts on U.S. investments in other countries.
D) remittances.
E) none of the above

Question 48

Which of the following would lead to a depreciation of the currency?

A) low inflation
B) high interest rates
C) high inflation
D) low economic growth
E) none of the above

Question 49

The aggregate demand curve slopes downwards and to the right.

Question 50

The aggregate demand curve slopes downwards and to the right for the same reasons the demand for peanut butter slopes downwards and to the right.

Question 51

The quantity of real GDP purchased rises with the price level, everything else held constant.

Question 52

The interest rate effect is the impact on real GDP caused by the direct relationship between changes in the price level and the interest rate.

Question 53

The international substitution effect is the direct relationship between the trade balance and the price level of an economy.

Question 54

If aggregate demand increases then the price level will tend to increase.

Question 55

If aggregate demand increases then the price level will tend to fall.

Question 56

The value of people's wealth and their consumption are inversely related.

Question 57

Changes in interest rates have a large effect on business investment but virtually no effect on consumption by the public.

Question 58

A change in aggregate demand is a shifting of the entire aggregate demand curve.

Question 59

The investment spending component of GDP is more volatile than consumption by the public.

Question 60

The aggregate demand curve slopes downwards because of the real wealth, interest rate, and international substitution effects.

Question 61

If the trade deficit gets smaller this would tend to shift the AD curve to the right.

Question 62

A leftward shift of the supply of foreign exchange would tend to cause the exchange rate to depreciate.

Question 63

The exchange rate and aggregate demand are completely unrelated.

Question 64

If interest rates change, aggregate demand will also change as investment responds.

Question 65

Government spending does not influence aggregate demand.

Question 66

As a country's current account moves into a deficit, the aggregate demand of the country will shift to the right.

Question 67

In general, a change in the exchange rate causes a change in the economy's aggregate demand curve.

Question 68

An increase in aggregate supply can be caused by an increase in the price level.

Question 69

An increase in the price of oil will cause the aggregate supply curve to shift to the left.

Question 70

An increase in the price level would tend to increase exports and reduce imports.

Question 71

An increase in the price level would tend to decrease exports and increase imports.

Question 72

Virtually all countries have an income elasticity of demand for exports that is less than one.

Question 73

The income elasticity of demand is usually a negative number indicating an inverse relationship.

Question 74

A foreign income elasticity greater than 1 indicates that as foreign incomes rises by 10% a country's exports increase by less than 10%.

Question 75

The price elasticity of demand for imports is always a positive number.

Question 76

The price and income elasticities of the demand for imports are very similar for all countries.

Question 77

The price elasticity of the demand for imports is usually a positive number indicating a direct relationship.

Question 78

An appreciation of the exchange rate would tend to increase exports and reduce imports.

Question 79

When the exchange rate appreciates, the current account moves into deficit causing the aggregate demand curve to shift to the left.

Question 80

When the exchange rate appreciates, the aggregate demand curve shifts to the right causing an increase in real GDP.