Question 1

Suppose there is a reduction in foreign output (Y*).This reduction in Y* will cause which of the following in the domestic country?

Accepted Answer

A reduction in foreign output (Y*) would likely lead to a decrease in demand for domestic exports, as foreign consumers and businesses would have less income to spend on goods and services. This decrease in demand for exports would negatively impact the domestic country's output and consumption, as producers would see a decrease in sales abroad, potentially leading to lower production levels and employment domestically. Consequently, this would also lead to a reduction in net exports, as the value of exports falls. Therefore, all of the mentioned effects (reduction in output, consumption, and net exports) are plausible outcomes of a reduction in foreign output.

Question 2

Assume the Marshall-Lerner condition holds.Which of the following will cause an increase in net exports?

Accepted Answer

A reduction in the real exchange rate will cause an increase in net exports, as it makes domestic goods relatively cheaper compared to foreign goods, thus increasing foreign demand for domestic goods. An increase in government spending or investment does not necessarily affect the exchange rate or foreign demand for domestic goods. A reduction in foreign output may have a positive effect on net exports, but it depends on the elasticity of demand for the foreign country's goods. Therefore, the best choice is D.

Question 3

Using the ZZ / Y and NX graphs,illustrate graphically and explain what effect an increase in government spending will have on output,exports,imports,and net exports.Clearly label all curves and clearly label the initial and final equilibria.

Accepted Answer

An increase in government spending will cause ZZ to shift up as demand rises.Y will increase causing an increase in C and S.As Y rises,imports will rise.Given that exports do not change,net exports will decrease.

Question 4

Explain the determinants of exports and imports.

Accepted Answer

The answer of Explain the determinants of exports and imports....

Question 5

Which of the following represents the domestic demand for goods?

Accepted Answer

The domestic demand for goods is represented by the formula C+I+G. C stands for consumption, I stands for investments and G stands for government spending.

Question 6

Using the ZZ / Y and NX graphs,illustrate graphically and explain what effect a reduction in taxes will have on output,exports,imports,and net exports.Clearly label all curves and clearly label the initial and final equilibria.

Accepted Answer

The answer of Using the ZZ / Y and NX...

Question 7

In an open economy,an increase in government spending will cause

Accepted Answer

An increase in government spending will lead to an increase in aggregate demand, which will cause an increase in domestic output. However, it will also lead to an increase in imports, as consumers and businesses will demand more foreign goods and services. This will lead to a reduction in net exports, as exports will remain the same but imports will increase.

Question 8

Which of the following is true when a county is experiencing a trade deficit (NX < 0)?

Accepted Answer

When a country is experiencing a trade deficit, it means that the value of imports is greater than the value of exports. This suggests that the domestic demand for goods is more than the domestic production of goods. Therefore, the demand for domestic goods is less than the domestic demand for goods.

Question 9

The quantity of imports will increase when there is

Accepted Answer

An increase in domestic output typically leads to higher income levels, which can increase the demand for imported goods, thus increasing the quantity of imports.

Question 10

Which of the following occurs when the goods market is in equilibrium?

Accepted Answer

When the goods market is in equilibrium, domestic output (Y) is equal to the demand for domestic goods, which is represented by the intersection of the aggregate demand and aggregate supply curves. Therefore, choice A is the correct answer. Choices B, C, D, and E do not accurately describe the relationship between domestic output and demand for goods in the goods market equilibrium.

Question 11

In an open economy,which of the following will cause an increase in the size of the multiplier?

Accepted Answer

If there is a reduction in the marginal propensity to import, it means that a larger share of the spending will be on domestically produced goods and services, and hence the multiplier effect on the domestic economy will be greater. Reducing foreign output or increasing the marginal propensity to save may affect the overall level of economic activity, but it will not necessarily increase the size of the multiplier.

Question 12

The expression,IM,represents the value of imports in terms of

Accepted Answer

The answer of The expression,IM,represents the value of imports in...

Question 13

Exports will decrease when there is

Accepted Answer

An increase in the real exchange rate leads to an increase in the relative price of domestic goods, making them more expensive for foreign buyers. This reduces demand for domestic goods and hence exports. An increase in domestic output (B) may lead to an increase in exports if the export demand is also increasing, but in general, it is not necessarily true that domestic output and exports move in the same direction. An increase in foreign output (C) may lead to an increase in imports as foreign countries have more goods to sell, but it does not necessarily affect exports. Therefore, the correct answer is A.

Question 14

Explain why the demand for domestic goods curve (ZZ)has a different shape than the domestic demand curve (DD).

Accepted Answer

The answer of Explain why the demand for domestic goods...

Question 15

Explain why in practice policy coordination is hard to achieve.

Accepted Answer

The answer of Explain why in practice policy coordination is...

Question 16

Using the ZZ / Y and NX graphs,illustrate graphically and explain what effect a reduction in foreign output (Y*)will have on output,exports,imports,and net exports.Clearly label all curves and clearly label the initial and final equilibria.

Accepted Answer

The answer of Using the ZZ / Y and NX...

Question 17

Which of the following is true when a country's trade position is balanced (i.e.,NX = 0)?

Accepted Answer

When a country's trade position is balanced (i.e., NX = 0), it means that its exports are equal to its imports. This implies that the demand for domestic goods (exports) is equal to the domestic demand for goods (imports), which is the same as saying demand for domestic goods is equal to the domestic demand for goods. Option A is, therefore, the correct answer. Option B and C suggest unequal demand, which is not what a balanced trade position implies. Option D is not related to the question, as it refers to the government's budget balance.

Question 18

Which of the following represents the demand for domestic goods?

Accepted Answer

The answer of Which of the following represents the demand...

Question 19

Which of the following is true when a country is experiencing a trade surplus (NX > 0)?

Accepted Answer

When a country is experiencing a trade surplus (NX > 0), it means that the country is exporting more than it is importing. This implies that the demand for its domestic goods from abroad is greater than the domestic demand for foreign goods.

Question 20

Explain the difference between: (1)the demand for domestic goods; and (2)the domestic demand for goods.

Accepted Answer

The answer of Explain the difference between: (1)the demand for...

Quiz 18: The Goods Market in an Open Economy

Suppose there is a reduction in foreign output (Y) .This reduction in Y will cause which of the following in the domestic country?

Assume the Marshall-Lerner condition holds.Which of the following will cause an increase in net exports?

Using the ZZ / Y and NX graphs,illustrate graphically and explain what effect an increase in government spending will have on output,exports,imports,and net exports.Clearly label all curves and clearly label the initial and final equilibria.

Explain the determinants of exports and imports.

Which of the following represents the domestic demand for goods?

Using the ZZ / Y and NX graphs,illustrate graphically and explain what effect a reduction in taxes will have on output,exports,imports,and net exports.Clearly label all curves and clearly label the initial and final equilibria.

In an open economy,an increase in government spending will cause

Which of the following is true when a county is experiencing a trade deficit (NX < 0) ?

The quantity of imports will increase when there is

Which of the following occurs when the goods market is in equilibrium?

In an open economy,which of the following will cause an increase in the size of the multiplier?

The expression,IM,represents the value of imports in terms of

Exports will decrease when there is

Explain why the demand for domestic goods curve (ZZ)has a different shape than the domestic demand curve (DD).

Explain why in practice policy coordination is hard to achieve.

Using the ZZ / Y and NX graphs,illustrate graphically and explain what effect a reduction in foreign output (Y*)will have on output,exports,imports,and net exports.Clearly label all curves and clearly label the initial and final equilibria.

Which of the following is true when a country's trade position is balanced (i.e.,NX = 0) ?

Which of the following represents the demand for domestic goods?

Which of the following is true when a country is experiencing a trade surplus (NX > 0) ?

Explain the difference between: (1)the demand for domestic goods; and (2)the domestic demand for goods.

Quiz 18: The Goods Market in an Open Economy

Suppose there is a reduction in foreign output (Y*) .This reduction in Y* will cause which of the following in the domestic country?

Assume the Marshall-Lerner condition holds.Which of the following will cause an increase in net exports?

Using the ZZ / Y and NX graphs,illustrate graphically and explain what effect an increase in government spending will have on output,exports,imports,and net exports.Clearly label all curves and clearly label the initial and final equilibria.

Explain the determinants of exports and imports.

Which of the following represents the domestic demand for goods?

Using the ZZ / Y and NX graphs,illustrate graphically and explain what effect a reduction in taxes will have on output,exports,imports,and net exports.Clearly label all curves and clearly label the initial and final equilibria.

In an open economy,an increase in government spending will cause

Which of the following is true when a county is experiencing a trade deficit (NX < 0) ?

The quantity of imports will increase when there is

Which of the following occurs when the goods market is in equilibrium?

In an open economy,which of the following will cause an increase in the size of the multiplier?

The expression,IM,represents the value of imports in terms of

Exports will decrease when there is

Explain why the demand for domestic goods curve (ZZ)has a different shape than the domestic demand curve (DD).

Explain why in practice policy coordination is hard to achieve.

Using the ZZ / Y and NX graphs,illustrate graphically and explain what effect a reduction in foreign output (Y*)will have on output,exports,imports,and net exports.Clearly label all curves and clearly label the initial and final equilibria.

Which of the following is true when a country's trade position is balanced (i.e.,NX = 0) ?

Which of the following represents the demand for domestic goods?

Which of the following is true when a country is experiencing a trade surplus (NX > 0) ?

Explain the difference between: (1)the demand for domestic goods; and (2)the domestic demand for goods.

Suppose there is a reduction in foreign output (Y) .This reduction in Y will cause which of the following in the domestic country?