Ch. 19 macroeconomics

. foreign income

A change in which of the following variables will have NO direct effect on domestic demand?

the real exchange rate

A change in which of the following variables will have NO direct effect on the level of domestic demand?

The J-Curve effect.

A real depreciation will initially cause a reduction in output when which of the following holds?

a reduction in net exports

A reduction in private saving (S) can be reflected in:

the ZZ line to become steeper and a given change in government spending (G) to have a larger effect on domestic output

A reduction in the marginal propensity to import will cause:

the multiplier to increase and a given change in government spending (G) to have a larger effect on domestic output

A reduction in the marginal propensity to import will cause:

a smaller effect on output than in a closed economy and a positive effect on the trade balance

An increase in domestic demand will have which of the following effects in an open economy?

the marginal propensity to save is smaller.

An increase in government spending will have a greater impact on net exports when

a. an increase in private saving b. a reduction in investment c. a reduction in net exports

An increase in the budget deficit can be reflected in:

the ZZ line to become flatter and a given change in government spending (G) to have a smaller effect on domestic output

An increase in the marginal propensity to import will cause:

the multiplier to decrease and a given change in government spending (G) to have a smaller effect on domestic output

An increase in the marginal propensity to import will cause:

the real exchange rate

An increase in which of the following variables will cause a reduction in the demand for domestic goods?

low investment or a trade deficit.

An open economy with a low saving rate (private and public) must have

S + T = I + G

Assume a country is closed. Given this information, which of the following must occur?

a. demand for domestic goods will be equal to the domestic demand for goods b. demand for domestic goods will be greater than the domestic demand for goods c. demand for domestic goods will be less than the domestic demand for goods d. S + T = I + G e. none of the above ans. e. none of the above

Assume a country is open. Given this information, which of the following must occur?

an increase in the real exchange rate.

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

an increase in the real exchange rate.

Exports will decrease when there is:

a. S + G - T - I b. S + G - T + I c. S + T - G + I d. G - T + I - S e. none of the above ans. e. none of the above

For an open economy, which of the following expressions represents net exports (NX)?

I + G - T + NX

For an open economy, which of the following expressions represents saving (S)?

a. a reduction in government spending b. convince the country's trading partners to pursue policies that will cause an increase in foreign income (Y*) c. a reduction in the real exchange rate d. a reduction in taxes e. a simultaneous increase in government spending and reduction in the real exchange rate f. none of the above ans. f. none of the above

For this question, assume that equilibrium output is determined in the ZZ-Y diagram. Further assume that policy makers' goals are: (1) to achieve balanced trade (i.e., NX = 0); and (2) to achieve a target level of output, say YT. Now, suppose that the initial level of equilibrium output is equal to YT (i.e., Y = YT) and that a trade deficit exists at this initial level of output. Which of the following policy actions would most likely enable the policy makers to achieve their two goals simultaneously?

the trade deficit will improve temporarily before it worsens.

For this question, assume that the J-curve effect exists. Which of the following will occur after a real appreciation?

a. a reduction in NX and a reduction in foreign output (Y*) b. a reduction in NX and an increase in domestic output (Y) c. an increase in NX and a reduction in Y d. an increase in NX and an increase in Y e. none of the above ans. e. none of the above

For this question, assume that the Marshall-Lerner condition does NOT hold. A reduction in the real exchange rate will tend to cause which of the following to occur?

an increase in NX and an increase in Y

For this question, assume that the Marshall-Lerner condition does NOT hold. An increase in the real exchange rate will tend to cause which of the following to occur?

a. an improvement of the trade balance. b. a reduction in the quantity of imports. c. an increase in domestic output. d. all of the above. e. none of the above. ans. e. none of the above

For this question, assume the Marshal-Lerner condition holds. Which of the following would occur as a result of an increase in the real exchange rate?

on output is large and the effect on the trade balance is small

In a large country, the effect of a given change in government spending:

on output is small and the effect on the trade balance is large

In a small country, the effect of a given change in government spending:

a. a reduction in domestic output. b. a reduction in imports. c. a reduction in net exports.

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

X - IM/ε.

In an open economy, net exports will be equal to which of the following?

a reduction in the marginal propensity to import.

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

prefers that other countries increase their demand.

Policy coordination is difficult because each country

a reduction in government spending and a reduction in the real exchange rate

Suppose policy makers want to increase NX and keep Y constant. Which of the following policies would most likely achieve this?

a real depreciation

Suppose policy makers want to increase Y and increase NX. Which of the following policies would most likely achieve this?

an increase in government spending and a reduction in the real exchange rate

Suppose policy makers want to increase Y and keep NX constant. Which of the following policies would most likely achieve this?

the domestic country's output to increase and its trade balance to worsen as imports increase.

Suppose that the rest of the world experiences an economic boom causing an increase in foreign output (Y*). This increase in Y* will NOT cause which of the following to occur?

a reduction in income and a reduction in imports

Suppose the rest of the world experiences a recession that causes a reduction in foreign income (Y*). From the domestic economy's perspective, this reduction in foreign income will cause which of the following as the domestic economy adjusts to the drop in Y*?

a. an increase in domestic income b. an increase in imports c. an increase in net exports

Suppose the rest of the world experiences an expansion that causes an increase in foreign income (Y*). From the domestic economy's perspective, this increase in foreign income will cause which of the following as the domestic economy adjusts to the rise in Y*?

exports and imports are relatively sensitive to price changes.

Suppose there is a real appreciation. This real appreciation is more likely to cause a reduction in net exports when

a. a reduction in output. b. a reduction in consumption. c. a reduction in net exports.

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

changes in the real exchange rate on NX

The J-curve illustrates the effects of:

a. imports and exports are very price-sensitive. b. the trade deficit is large c. the marginal propensity to consume is very large. d. the marginal propensity to consume if very small. e. none of the above ans. e. none of the above

The Marshall-Lerner condition is less likely to hold when:

eventually improves the trade balance.

The evidence suggests that in rich countries, a depreciation

an initial reduction in the demand for domestic goods

The existence of the J-curve suggests that a real depreciation will cause:

foreign goods.

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

an increase in domestic output.

The quantity of imports will increase when there is:

the larger the effect of fiscal policy on output and the smaller the effect of fiscal policy on the trade position

We will generally observe that the less open an economy:

the smaller the effect of fiscal policy on output and the larger the effect of fiscal policy on the trade position

We will generally observe that the more open an economy:

X = IM/ε

Which of the following conditions must be satisfied for the demand for domestic goods to be equal to the domestic demand for goods?

demand for domestic goods is greater than the domestic demand for goods

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

demand for domestic goods is equal to the domestic demand for goods

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

demand for domestic goods is less than the domestic demand for goods

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

domestic output (Y) equals the demand for domestic goods.

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

C + I + G + X - IM/ε

Which of the following represents the demand for domestic goods?

C + I + G

Which of the following represents the domestic demand for goods?

a reduction in domestic output.

Which of the following will always cause an increase in net exports?

the trade balance improves.

Which of the following will occur as a result of a tax increase?

changes in government spending will cause large changes in the trade balance.

Which of the following will occur in a small country with a high marginal propensity to import?

a. a reduction in marginal propensity to save. b. a small initial trade deficit. c. a reduction in the marginal propensity to import. d. a real appreciation. e. none of the above. ans. e. none of the above

Which of the following would make the spending multiplier smaller?