CHP 22
A devaluation of the exchange rate will: a. shift the IS curve to the right. b. shift the LM curve to the right. c. shift the FE curve to the left. d. lead to a financial account surplus.
a
Equilibrium GDP in the short-run is determined at the point where: a. gross domestic production equals aggregate demand. b. domestic production equals domestic consumption. c. imports equal exports. d. the rate of unemployment equals zero.
a
For small open economy, assume that the marginal propensity to import is 0.3, and that interest rates, exchange rates, and the price level are all constant. If an increase of $10 billion in government spending results in an increase of $6 billion in imports, then: a. real GDP increases by $4 billion. b. the spending multiplier is 2. c. taxes increase by $10 billion. d. real domestic investment decreases by $4 billion.
a
If the marginal propensity to save is 0.3 and the marginal propensity to import is 0.2, then value of the simple spending multiplier is: a. 2.0. b. 0.5. c. 1.5. d. 0.1.
a
In IS-LM-FE analysis, expansionary monetary policy: a. leads to lower interest rates. b. leads to higher interest rates. c. lowers levels of GDP. d. shifts the LM curve to the left.
a
The IS curve illustrates all combinations of domestic output levels and interest rates for which: a. the domestic product market is in equilibrium. b. the domestic money market is in equilibrium. c. there is a zero balance in the country's official settlements balance. d. there is full employment.
a
The LM curve has a: a. positive slope because a higher interest rate leads to a decrease in the demand for money and thus a higher level of domestic production is needed to cause people to continue to hold the same amount of money. b. negative slope because a lower interest rate leads to an increase in the demand for bonds and thus a higher level of domestic production is needed to cause people to continue to hold the same amount of money. c. negative slope because a lower interest rate leads to a decrease in foreign investments and thus a higher level of domestic production is needed for equilibrium. d. positive slope because a higher interest rate leads to a higher incentive to hold money and thus a higher money supply is needed for equilibrium.
a
The LM curve will shift to the right if: a. the average price level decreases. b. the money supply decreases. c. the money demand increases. d. the interest rate decreases.
a
The greater the marginal propensity to import: a. the smaller the spending multiplier. b. the greater the level of investment. c. the greater is the net export. d. the smaller is the level of consumption.
a
1. Which of the following is NOT a fundamental objective for the performance of a country's macroeconomy? a. Price stability b. Interest rates c. Full employment of resources d. A reasonable and sustainable balance of payments with the rest of the world
b
16. An increase in the spending multiplier causes the IS curve to: a. become steeper. b. become flatter. c. shift temporarily to having a positive slope. d. shift to the left.
b
An increase in government spending will: a. shift the IS curve to the left. b. shift the IS curve to the right. c. increase the slope of the IS curve. d. shift the LM curve to the right.
b
Fiscal policy consists of: a. changes in money supply and interest rates. b. changes in government expenditures and taxes. c. changes in exchange rate par values. d. changes in the official settlements balance.
b
Real domestic investment spending is: a. positively related to the marginal propensity to consume. b. negatively related to the level of interest rates in the economy. c. positively related to government spending. d. negatively related to the exchange rate.
b
Start from an initial triple intersection of the IS, LM, and FE curves. Before anything else adjusts, a shift to an expansionary monetary policy results in a(n): a. overall balance of payments surplus. b. overall balance of payments deficit. c. increase in domestic interest rates. d. decrease in domestic output.
b
The LM curve illustrates all combinations of domestic output levels and interest rates for which: a. the domestic product market is in equilibrium. b. the domestic money market is in equilibrium. c. there is a zero balance for the country's official settlements balance. d. there is full employment.
b
The intersection of the IS and LM curves shows: a. the balance of payments deficit or surplus. b. the short-run equilibrium interest rate and the output level in the economy. c. the short-run trade balance. d. the long-run equilibrium inflation rate and the natural rate of unemployment in the economy.
b
When taking into account foreign-income repercussions, the spending multiplier is: a. smaller because an increase in domestic imports causes current account deficit. b. larger because an increase in domestic imports causes foreign income to rise and thus boosts domestic exports. c. smaller because an increase in domestic imports lowers the growth in the domestic exports. d. larger because an increase in domestic imports causes a surplus in the official settlements balance.
b
Which of the following is likely to have the most effect on a country's demand for imports? a. Foreign income b. Prices of domestic products relative to the prices of foreign products c. The volume of the country's exports d. The change in the country's official settlements balance
b
Which of the following will cause the FE curve to shift to the left? a. An exogenous increase in exports b. An exogenous increase in imports c. Exogenous changes that cause an increase in capital inflows d. A decrease in real domestic product (Y)
b
. The IS curve has a: a. positive slope because a higher interest rate leads to an increase in foreign investment and thus raises the level of aggregate income. b. negative slope because a higher interest rate leads to a decrease in government spending which reduces domestic output level. c. negative slope because a higher interest rate leads to a decrease in aggregate demand that results in lowering of domestic production level. d. positive slope because a higher interest rate leads to an increase in aggregate savings and thus an increase in domestic real investment.
c
An external shock such as a foreign country's devaluation will shift the: a. FE curve to the right. b. LM curve to the right. c. FE curve to the left. d. LM curve to the left.
c
An increase in the domestic price level will: a. shift the IS curve to the right. b. shift the LM curve to the right. c. shift the FE curve to the left. d. lead to a surplus in the balance of payments.
c
If C represents aggregate consumption, Id represents domestic investments, G represents government expenditures, E represents national expenditures on goods and services, X represents foreign demands for exports, and M represents domestic demand for imports, then aggregate demand in an economy equals: a. C + Id + G. b. E + C + Id + (X - M). c. C + Id + G + (X - M). d. C + Id + G + (M - X).
c
If the marginal propensity to save is 0.3 and the marginal propensity to import is 0.1, and the government increases expenditures by $10 billion, ignoring foreign-income repercussions, how much will GDP rise? a. $20 billion. b. $10 billion. c. $25 billion. d. $15 billion.
c
Perfect capital mobility implies: a. a vertical FE curve. b. high domestic interest rates relative to foreign interest rates. c. an FE curve that is horizontal. d. an FE curve that is steeper than the LM curve.
c
The FE curve has a: a. negative slope because an increase in domestic interest rates leads to capital inflows causing a surplus in the official settlements balance. A decrease in output levels is thus needed to reduce that surplus. b. positive slope because a decrease in domestic interest rates leads to capital outflows causing a surplus in the official settlements balance. An increase in output levels is thus needed to reduce that surplus. c. positive slope because an increase in domestic interest rates leads to capital inflows causing a surplus in the financial account balance. An increase in output levels is thus needed to reduce that surplus. d. negative slope because an increase in domestic interest rates leads to capital outflows causing a deficit in the financial account balance. An increase in output levels is thus needed to reduce that deficit.
c
The FE curve illustrates all combinations of domestic output levels and interest rates for which: a. the domestic product market is in equilibrium. b. the domestic money market is in equilibrium. c. there is a zero balance for the country's official settlements balance. d. there is full employment.
c
The demand for money is: a. positively related to nominal GDP and to the level of interest rates available on other financial assets. b. negatively related to nominal GDP and to the level of interest rates available on other financial assets. c. positively related to nominal GDP and negatively related to the level of interest rates available on other financial assets. d. negatively related to nominal GDP and positively related to the level of interest rates available on other financial assets.
c
The official settlements balance is in _____ if the IS-LM intersection is _____ the FE curve. a. surplus; on b. surplus; to the right of c. surplus; to the left of d. deficit; on
c
Which of the following is true for an expansionary fiscal policy? a. It leads to a fall in the interest rate. b. It has no impact on the aggregate output. c. It causes an increase in the aggregate demand. d. It increases the level of imports.
c
Which of the following will NOT cause the IS curve to shift to the left? a. A contractionary fiscal policy b. An exogenous decrease in exports c. An exogenous decrease in imports d. An exogenous decrease in household consumption
c
The amount of price inflation that the economy experiences eventually depends on the size of the spending multiplier.
false
An increase in home country money demand will shift the: a. IS curve to the right. b. LM curve to the right. c. FE curve to the right. d. LM curve to the left.
d
At points above the IS curve, there is an _____ and at points below the IS curve there is an _____. a. excess demand for goods; excess supply of goods b. excess demand for money; excess supply of money c. excess supply of money; excess demand for money d. excess supply of goods; excess demand for goods
d
The amount by which imports increase when income goes up by one dollar is called: a. the marginal propensity to consume. b. the spending multiplier. c. the money multiplier. d. the marginal propensity to import.
d
The goal of internal balance includes: a. growth stability. b. full employment of resources. c. a reasonable and sustainable balance of payments with the rest of the world. d. exchange rate stability.
d
The greater the degree of international capital mobility: a. the further to the right is the FE curve. b. the further to the left is the FE curve. c. the steeper is the FE curve. d. the flatter is the FE curve.
d
The locomotive theory posits that growth in one or more large countries: a. will retard the growth of smaller countries dependent on exports. b. will lead smaller countries to open their economies. c. can put pressure on their domestic import-competing firms. d. can raise growth in other smaller countries that trade with these larger countries.
d
The official settlements balance _____ if the IS-LM intersection is _____ the FE curve. a. is in surplus; on b. is in surplus; to the right of c. is in deficit; to the left of d. has a zero value; on
d
Which of the following will cause the LM curve to shift to the left? a. A reduction in the interest rates b. A decrease in the average price level c. An exogenous decrease in money demand d. A contractionary monetary policy
d
The smaller the country, the more its spending tends to affect other countries.
false
A vertical FE curve indicates perfect capital mobility.
false
Contractionary monetary policy will shift the LM curve to the right.
false
Expansionary monetary policy will cause the FE curve to shift to the right.
false
Exports depend on income in the exporting country and on the relative prices between the exporting and importing countries.
false
Fiscal policy is the set of central-bank policies, institutions, and bank behavioral patterns governing the availability of bank checking deposits and currency in circulation.
false
The United States accounts for more than 50% of world production.
false
A rise in the domestic product of an economy deteriorates its current account balance.
true
Expansionary fiscal policy will cause the IS curve to shift to the right.
true
For a small country with closed economy, if the marginal propensity to save is equal to 0.2, then the spending multiplier indicates that a $10 exogenous increase in government spending will lead to a $20 increase in GDP.
true
Suppose the United States' imports substantially affect foreign incomes, and the foreign countries import from the United States. The United States' spending multiplier will exceed the spending multiplier for a comparable small open economy.
true
The European Union has relatively large production and income effects on Africa.
true
With its rapid growth of production and imports, China can be considered as another locomotive economy.
true