Chapter 17
Which two time periods did the U.S. begin to experience a sharp increase in Current Account deficits? A) 1981, mid-1990s B) 1971, mid-1990s C) 1961, mid-1990s D) 1971, mid-1980s E) 1985, mid-1990s
A) 1981, mid-1990s
Which one of the following statements is the MOST accurate? A) A rise in domestic real income raises aggregate demand for home output. B) A rise in domestic real income decreases aggregate demand for home output because of the increase demand for import. C) A rise in domestic real income keeps aggregate demand for home output at the same level. D) It is difficult to tell whether a rise in domestic real income affects positively or negatively aggregate demand for home output. E) A rise in domestic real income decreases aggregate demand for home output because the CA is raised.
A) A rise in domestic real income raises aggregate demand for home output.
Why does an exchange rate-output combination lying above both DD and AA jump first to AA in equilibrium? A) Asset prices can adjust immediately. B) Production plans can adjust immediately. C) to preserve full employment D) Prices are nominal and demand is real. E) Aggregate demand adjusts faster than output.
A) Asset prices can adjust immediately.
Which one of the following statements is MOST accurate? A) In general, consumption demand rises by less than disposable income. B) In general, consumption demand rises by more than disposable income. C) In general, consumption demand rises by more than income. D) In general, consumption demand rises by the same amount as disposable income rises. E) In general, consumption demand rises are unrelated to disposable income rises.
A) In general, consumption demand rises by less than disposable income.
In the short run, with prices fixed, how would an increase in government spending affect the DD-AA equilibrium? A) It will increase output and appreciate the currency. B) It will increase output and depreciate the currency. C) It will decrease output and appreciate the currency. D) It will decrease output and depreciate the currency. E) It will increase output and have no effect on the currency.
A) It will increase output and appreciate the currency.
The domestic currency price of a representative domestic expenditure basket is A) P, the domestic price level. B) E, the nominal exchange rate. C) P times E, the domestic price level times the domestic price level. D) P , the foreign price level. E) P times E, the foreign price level times the nominal exchange rate.
A) P, the domestic price level.
Which of the following is an example of an "unconventional monetary policy" by a central bank? A) The purchase of specific categories of assets with new money. B) The sale of long-term government bonds for foreign exchange. C) the purchase of long-term government bonds using foreign exchange. D) raising reserve requirements by commercial banks. E) selling gold reserves.
A) The purchase of specific categories of assets with new money.
1) How does a rise in real income affect aggregate demand? A) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓, but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more. B) Y ↑ implies Yd ↑ implies Im ↓ implies CA ↓ implies AD ↓, but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more. C) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↑ implies AD ↑, and Y ↑ implies Yd ↑ implies C ↑ implies AD ↑. D) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓, but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by less. E) Y ↑ implies Yd ↑ implies Im ↓ implies CA ↓ implies AD ↓, but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by less.
A) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓, but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more.
If the representative basket of European goods and services costs 40 euros, the representative U.S. basket costs $50, and the dollar/euro exchange rate is $0.90 per euro, then the price of the European basket in terms of U.S. basket is A) [(0.9 $/euro) (40 euro per a European basket)]/[(50 $/U.S. basket)]. B) [(0.9 $/euro) (50 $/U.S. basket)]/[(40 euro per a European basket)]. C) [(40 euro per a European basket)]/[(50 $/U.S. basket) (0.9 $/euro)]. D) [(50 $/U.S. basket)]. E) [(0.9 $/euro) (40 euro per a European basket) (50 $ U.S. basket)].
A) [(0.9 $/euro) (40 euro per a European basket)]/[(50 $/U.S. basket)].
In long-run equilibrium after a permanent money-supply increase there follows: A) an increase in exchange rate, E. B) a decrease in exchange rate, E. C) an increase in output, Y. D) a decrease in output, Y. E) an unchanged exchange rate, E.
A) an increase in exchange rate, E.
In the short run, a permanent increase in the domestic money supply A) has stronger effects on the exchange rate and output than an equal temporary increase. B) has stronger effects only on the exchange rate but not on output than an equal temporary increase. C) has weaker effects on the exchange rate and output than an equal temporary increase. D) has stronger effects on output, but lower effect the exchange rate than an equal temporary increase. E) has weaker effects only on the exchange rate than an equal temporary increase.
A) has stronger effects on the exchange rate and output than an equal temporary increase.
An increase in the real exchange rate A) makes imports more expensive. B) makes imports less expensive. C) does not affect import values. D) always makes the number of imports rise. E) makes domestic consumers spend more on only foreign imports.
A) makes imports more expensive.
In the short run A) monetary expansion causes the CA to increase & fiscal expansion causes the CA to decrease. B) monetary expansion causes the CA to decrease & fiscal expansion causes the CA to decrease. C) monetary expansion causes the CA to increase & fiscal expansion causes the CA to increase. D) monetary expansion causes the CA to decrease & fiscal expansion causes the CA to increase. E) monetary expansion causes the CA to increase & the effects of fiscal expansion are
A) monetary expansion causes the CA to increase & fiscal expansion causes the CA to decrease.
Which of the following does NOT affect the position of the DD curve? A) monetary policy B) government spending C) taxes D) export demand E) price levels
A) monetary policy
When an economy is in a liquidity trap A) monetary policy cannot be used to influence the exchange rate. B) monetary policy can be used to drive interest rates down, but not to drive them up. C) there is an excess demand for bonds. D) people and institutions avoid holding cash balances. E) it can escape only by introducing a hard, or illiquid, currency.
A) monetary policy cannot be used to influence the exchange rate.
In the short-run, a temporary increase in the money supply A) shifts the AA curve to the right, increases output and depreciates the currency. B) shifts the AA curve to the left, increases output and depreciates the currency. C) shifts the AA curve to the left, decreases output and depreciates the currency. D) shifts the AA curve to the left, increases output and appreciates the currency. E) shifts the AA curve to the right, increases output and appreciates the currency.
A) shifts the AA curve to the right, increases output and depreciates the currency.
In the short-run, we assume that the money prices of goods and services are A) temporarily fixed. B) permanently fixed. C) allowed to fluctuate. D) equal to long-run prices. E) fully employed.
A) temporarily fixed.
If a country's nominal interest rate is zero, then A) the country's economy is in a liquidity trap. B) exchange rates with other countries are likely to decline. C) exchange rates with other countries are likely to increase. D) monetary policy is likely to be very effective in stimulating the economy. E) the country's economy has achieved monetary equilibrium.
A) the country's economy is in a liquidity trap.
The real exchange rate, q, is defined as A) the price of the foreign basket in terms of the domestic one. B) the price of the domestic basket in terms of the foreign one. C) the price of the foreign basket. D) the price of the domestic basket. E) the nominal exchange rate in terms of the domestic basket.
A) the price of the foreign basket in terms of the domestic one.
If an economy is in a liquidity trap, then the nominal interest rate is ________ and the only effective policy that can be used to stimulate the economy is ________. A) zero or negative; expansionary fiscal policy B) zero or negative; expansionary monetary policy C) high and rising; contractionary monetary policy D) high and rising; expansionary monetary policy E) high and rising; expansionary fiscal policy
A) zero or negative; expansionary fiscal policy
According to historical data, what is the effect of a sharp change in the current account on the exchange rate (both in the short and long run)? A) At first, home currency will depreciate as CA balance falls, but over time, currency will begin to depreciate. B) At first, home currency will appreciate as CA balance falls, but over time, currency will begin to depreciate. C) At first, home currency will appreciate as CA balance rises, but over time, currency will begin to depreciate. D) At first, home currency will depreciate as CA balance falls, but over time, currency will begin to appreciate. E) At first, home currency will appreciate as CA balance falls, but over time, currency will begin to appreciate.
B) At first, home currency will appreciate as CA balance falls, but over time, currency will begin to depreciate.
Which one of the following statements is the MOST accurate? A) Over time, the inflationary pressure that follows a temporary money supply expansion pushes the price level to its long-run value and returns the economy to full employment. B) Over time, the inflationary pressure that follows a permanent money supply expansion pushes the price level to its long-run value and returns the economy to full employment. C) Over time, the inflationary pressure that follows a temporary money supply expansion pushes the price level to its long-run value, but leaves the economy in a state of artificially low employment. D) Over time, the inflationary pressure that follows a permanent money supply expansion pushes the price level to its long-run value, but leaves the economy in a state of artificially low employment. E) Over time, the inflationary pressure that follows a permanent money supply expansion pushes the price level beyond its long-run value and lower the level of employment.
B) Over time, the inflationary pressure that follows a permanent money supply expansion pushes the price level to its long-run value and returns the economy to full employment.
Imagine that the economy is at a point that is above both AA and DD, where both the output and asset markets are out of equilibrium. Which first action is TRUE? A) The economy will stay at this level in the short run. B) The exchange rate will first drop to a point on the AA schedule. C) The exchange rate will first move to a point on the DD schedule. D) The AA-DD equilibrium will shift to the position of the economy. E) The exchange rate will first move left to a position on the AA schedule.
B) The exchange rate will first drop to a point on the AA schedule.
Imagine that the economy is at a point on that is below both AA and DD, where both the output and asset markets are out of equilibrium. Which first action is TRUE? A) The economy will stay at this level in the short run. B) The exchange rate will first rise to a point on the AA schedule. C) The exchange rate will first rise to a point on the DD schedule. D) The AA-DD equilibrium will shift to the position of the economy. E) The output level will first increase to a position on the DD schedule.
B) The exchange rate will first rise to a point on the AA schedule.
Disposable income is defined as A) Y - C. B) Y - T. C) C - T. D) I - C. E) Y - I.
B) Y - T.
If the economy starts in long-run equilibrium, a permanent fiscal expansion will cause A) an increase in exchange rate, E. B) a decrease in exchange rate, E. C) an increase in output, Y. D) a decrease in output, Y. E) shifting of the AA curve up and to the right.
B) a decrease in exchange rate, E.
Assume the output market adjusts more rapidly than the asset market. A point of disequilibrium that is below both AA and DD will therefore initially result in A) an increase in output. B) a decrease in output. C) a contraction of the money supply. D) a depreciation of the home currency. E) an appreciation of the home currency.
B) a decrease in output.
The unique equilibrium output level in the short-run is found at the intersection of the following curves. A) aggregate demand and aggregate supply B) aggregate demand and 45 degree line C) aggregate supply and 45 degree line D) aggregate demand and short-run aggregate supply E) aggregate supply and long-run demand
B) aggregate demand and 45 degree line
In the short-run, any rise in the real exchange rate, EP /P, will cause A) an upward shift in the aggregate demand function and a reduction in output. B) an upward shift in the aggregate demand function and an expansion of output. C) a downward shift in the aggregate demand function and an expansion of output. D) an downward shift in the aggregate demand function and a reduction in output. E) an upward shift in the aggregate demand function but leaves output intact.
B) an upward shift in the aggregate demand function and an expansion of output.
The percent by which import prices rise when the home currency depreciates by 1% is the degree of A) pass-forward from exchange rates to import prices. B) pass-through from exchange rates to import prices. C) pass-on from exchange rates to import prices. D) roll-forward from exchange rates to import prices. E) pass-beyond from exchange rates to import prices.
B) pass-through from exchange rates to import prices.
How would you define a DD schedule? A) the combinations of output and the exchange rate that must hold when the home money market and the foreign exchange market are in equilibrium B) the combinations of output and the exchange rate that must hold when the output market is in short-run equilibrium C) factors of production in the long run D) the aggregate demand in relation to the foreign market value E) the currency depreciation in relation to the exchange rate
B) the combinations of output and the exchange rate that must hold when the output market is in short-run equilibrium
Assuming that the value effect dominates, the current account will increase if A) the real exchange rate decreases. B) the real exchange rate increases. C) disposable income increases. D) exports fall. E) domestic prices fall.
B) the real exchange rate increases.
The interest parity condition requires that: A) all countries have the same interest rate. B) there is a unique exchange rate for every output level. C) purchasing power parity hold. D) interest rates are fixed in the short run. E) the money supply is held constant.
B) there is a unique exchange rate for every output level.
In practice, many U.S. import prices tend to rise by only around A) 1/4 of a typical dollar depreciation over the following year. B) 1/3 of a typical dollar depreciation over the following year. C) 1/2 of a typical dollar depreciation over the following year. D) 2/3 of a typical dollar depreciation over the following year. E) 2/5 of a typical dollar depreciation over the following year.
C) 1/2 of a typical dollar depreciation over the following year.
What have we assumed when we conclude that a real depreciation of the currency improves the current account? A) The volume effect outweighs the value effect. B) The value effect outweighs the volume effect. C) All else equal and the volume effect outweighs the value effect. D) All else equal and the value effect outweighs the volume effect. E) All else equal and the volume effect equals the value effect.
C) All else equal and the volume effect outweighs the value effect.
Which one of the following statements is the MOST accurate? A) An increase in disposable income improves the current account. B) An increase in disposable income does not affect the current account. C) An increase in disposable income worsens the current account. D) An increase in income worsens the current account. E) An increase in income improves the current account.
C) An increase in disposable income worsens the current account.
Which of the following is the MOST accurate? A) Any disturbance that lowers aggregate demand for domestic output shifts the DD schedule to the right. B) Any disturbance that lowers aggregate demand for foreign output shifts the DD schedule to the left. C) Any disturbance that raises aggregate demand for domestic output shifts the DD schedule to the right. D) Any disturbance that raises aggregate demand for domestic output shifts the DD schedule to the left. E) Any disturbance that lowers aggregate demand for domestic output shifts the DD schedule downward.
C) Any disturbance that raises aggregate demand for domestic output shifts the DD schedule to the right.
Current account is given by the equation: A) CA = IM - EX (measured in terms of domestic output). B) CA = IM - EX (measured in terms of foreign output). C) CA = EX - IM (measured in terms of domestic output). D) CA = EX - IM (measured in terms of foreign output). E) CA = EX + IM (measured in terms of domestic output).
C) CA = EX - IM (measured in terms of domestic output).
How does an increase in the real exchange rate affect exports and imports? A) Exports increase; imports decrease. B) Exports decrease; imports increase. C) Exports increase; imports change ambiguously. D) Exports change ambiguously; imports decrease. E) Exports increase; imports are constant.
C) Exports increase; imports change ambiguously.
Which one of the following statements is the MOST accurate? A) For asset markets to remain in equilibrium, a rise in domestic output must be accompanied by a depreciation of domestic currency, all else equal. B) For asset markets to remain in equilibrium, a fall in domestic output must be accompanied by a depreciation of foreign currency, all else equal. C) For asset markets to remain in equilibrium, a rise in domestic output must be accompanied by an appreciation of domestic currency, all else equal. D) For asset markets to remain in equilibrium, a fall in domestic output must be accompanied by an appreciation of domestic currency, all else equal. E) For asset markets to remain in equilibrium, a fall in domestic output must be accompanied by an appreciation of foreign currency, all else equal.
C) For asset markets to remain in equilibrium, a rise in domestic output must be accompanied by an appreciation of domestic currency, all else equal.
When EP /P rises A) IM will rise. B) IM will fall. C) IM may rise or fall. D) IM is not affected. E) IM and P* will both rise.
C) IM may rise or fall.
Which one of the following statements is MOST accurate? A) In the long run, foreign output depends only on the available domestic supplies of factors of production. B) In the short run, domestic output depends only on the available domestic supplies of factors of production. C) In the long run, domestic output depends only on the available domestic supplies of factors of production. D) In the long run and in the short run, domestic output depends only on the available domestic supplies of factors of production. E) In the long run, domestic output depends only on the real exchange rate.
C) In the long run, domestic output depends only on the available domestic supplies of factors of production.
How is the AA schedule derived? A) It is derived by the schedule of interest rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market. B) It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the foreign money market and the domestic exchange market. C) It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market. D) It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic bond market and the foreign asset market. E) It is derived by the schedule of exchange rate and output combinations that are greater than equilibrium in the foreign money market and the domestic exchange market.
C) It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market.
How is the AA schedule derived? A) The AA schedule has a positive slope because an increase in output leads to a depreciation of the currency. B) The AA schedule has a negative slope because an increase in output leads to a decrease in the domestic interest rate. C) The AA schedule has a negative slope because an increase in output leads to an increase in the domestic interest rate and a domestic currency appreciation. D) The AA schedule has a positive slope because an increase in the money supply leads to an increase in the domestic interest rate. E) The AA schedule has a positive slope because a decrease in output leads to a depreciation of the currency.
C) The AA schedule has a negative slope because an increase in output leads to an increase in the domestic interest rate and a domestic currency appreciation.
What is the best way to describe aggregate demand? A) quantity required to satisfy equilibrium B) exports decrease; imports increase C) amount of a country's goods and services demanded by household and firms throughout the world D) individual's demand E) domestic demand of foreign imports.
C) amount of a country's goods and services demanded by household and firms throughout the world
Which of the following would cause the current account to decrease? A) an increase in the nominal exchange rate, E B) an appreciation of the home currency C) an increase in disposable income D) an increase in foreign prices, P E) a decrease in domestic prices, P
C) an increase in disposable income
A permanent increase in the domestic money supply A) must ultimately lead to a proportional decrease in E, and, therefore, the expected future exchange rate must rise proportionally. B) must ultimately lead to a proportional decrease in E, and, therefore, the expected future exchange rate must decrease proportionally. C) must ultimately lead to a proportional rise in E, and, therefore, the expected future exchange rate must rise proportionally. D) must ultimately lead to a proportional rise in E, and, therefore, the expected future exchange rate must rise more than proportionally. E) must ultimately lead to a proportional rise in E, and, therefore, the expected future exchange rate must rise less than proportionally.
C) must ultimately lead to a proportional rise in E, and, therefore, the expected future exchange rate must rise proportionally.
A permanent fiscal expansion A) shifts the DD and the AA schedules to the right, increasing output. B) shifts the DD and the AA schedules to the right, decreasing output. C) shifts the DD to the right and the AA schedule to the left, leaving output the same. D) shifts the DD to the left and the AA schedule to the left, decreasing output. E) shifts the DD and the AA schedules to the left, leaving output the same.
C) shifts the DD to the right and the AA schedule to the left, leaving output the same.
Which of the following have to be in equilibrium for the economy to be in equilibrium? A) the money market only B) the goods market only C) the output and asset markets D) the savings and investment markets E) the goods and output markets
C) the output and asset markets
The real exchange rate is: A) how much of a foreign currency you can buy with the domestic currency. B) foreign CPI divided by the domestic CPI. C) the price of foreign goods in terms of domestic goods. D) the price of foreign goods in dollars. E) the domestic currency divided by the price level.
C) the price of foreign goods in terms of domestic goods.
Which of the following compete to determine whether the current account improves or worsens following a rise in the real exchange rate? A) appreciation and depreciation B) crowding Out effect and producers effect C) volume effect and value effect D) volume effect and inflation E) producers effect and value effect
C) volume effect and value effect
A country's domestic currency's real exchange rate, q, is defined as A) E. B) E times P. C) E times P . D) (E times P )/P. E) P/(E times P ).
D) (E times P )/P.
Which one of the following statements is the MOST accurate? A) An increase in the real exchange rate and an increase in disposable income improve the current account. B) A decrease in the real exchange rate and a decrease in disposable income improve the current account. C) A decrease in the real exchange rate and a increase in disposable income improve the current account. D) An increase in the real exchange rate and a decrease in disposable income improve the current account. E) An increase in the real exchange rate and a decrease in disposable income lowers the current account.
D) An increase in the real exchange rate and a decrease in disposable income improve the current account.
Which one of the following statements is MOST accurate? A) Factors of production can only be over-employed in the short run. B) Factors of production can only be under-employed in the short run. C) Factors of production can be over- or under-employed in the long run. D) Factors of production can be over- or under-employed in the short run. E) Factors of production are fully employed in the short run.
D) Factors of production can be over- or under-employed in the short run.
Which of the following equations does NOT state a condition required for equilibrium output:? A) Y = C(Yd) + I + G + CA(EP*/P,Yd) B) Y = C(Y - T) + I + G + CA(EP*/P,Y - T) C) Y = D(EP*/P,Y - T,I,G) D) R = R* + (EP/E) E) Y = D(EP*/P,Yd,I,G)
D) R = R* + (EP/E)
Why is the economy at full employment in the long run? A) Only wages have the ability to adjust. B) Only price can adjust. C) Prices don't adjust. D) Wages and the price level eventually adjust to full employment equilibrium levels. E) Government policies eventually converge on the full employment strategy.
D) Wages and the price level eventually adjust to full employment equilibrium levels.
Assume the asset market is always in equilibrium. Therefore a fall in Y would result in A) higher inflation abroad. B) a decreased demand for domestic products. C) a contraction of the money supply. D) a depreciation of the home currency. E) an appreciation of the home currency.
D) a depreciation of the home currency.
In the short-run, an increase in government purchases will cause A) a shift of the DD curve to the left and an increase in output. B) a shift of the DD curve to the right and a decrease in output. C) a shift of the DD curve to the left and a decrease in output. D) a shift of the DD curve to the right and an increase in output. E) a shift of the DD curve the left and an appreciation of the currency.
D) a shift of the DD curve to the right and an increase in output.
In the short-run, any fall in EP /P, regardless of its causes, will cause A) an upward shift in the aggregate demand function and an expansion of output. B) an upward shift in the aggregate demand function and a reduction in output. C) a downward shift in the aggregate demand function and an expansion of output. D) an downward shift in the aggregate demand function and a reduction in output. E) an upward shift in the aggregate demand function but leaves output intact.
D) an downward shift in the aggregate demand function and a reduction in output.
When the real exchange rate rises A) imports measured in terms of domestic output will rise. B) imports measured in terms of domestic output will fall. C) imports measured in terms of domestic output will never be affected. D) imports measured in terms of domestic output may rise or fall. E) imports measured in terms of foreign output will rise.
D) imports measured in terms of domestic output may rise or fall.
The DD schedule shows all combinations of which 2 variables so that the output market is in equilibrium? A) imports and exports B) exports and the exchange rate C) foreign prices and the exchange rate D) output and the exchange rate E) output and exports
D) output and the exchange rate
Temporary tax cuts would cause A) the AA-curve to shift left. B) the AA-curve to shift right. C) the DD-curve to shift left. D) the DD-curve to shift right. E) a shift in the AA-curve, although the direction is ambiguous.
D) the DD-curve to shift right.
The current account balance is A) the supply of a country's exports less the country's own demand for imports. B) the demand for a country's exports plus the country's own demand for imports. C) the country's own demand for imports less the demand for a country's exports. D) the demand for a country's exports less the country's own demand for imports. E) the country's federal reserves minus the national debt.
D) the demand for a country's exports less the country's own demand for imports.
A country's domestic currency's real exchange rate, q, is best described by A) the price of similar goods in the same market. B) the price of the domestic basket in terms of the foreign one. C) the price of a domestic basket. D) the price of the foreign basket in terms of the domestic basket. E) the price of different goods baskets in the same market.
D) the price of the foreign basket in terms of the domestic basket.
The J-curve illustrates which of the following? A) the effects of depreciation on the home country's economy B) the immediate increase in current account caused by a currency depreciation C) the gradual adjustment of home prices to a currency depreciation D) the short-term effects of depreciation on the current account E) the Keynesian view of international trade dynamics
D) the short-term effects of depreciation on the current account
5) Which one of the following statements is the MOST accurate? A) A permanent increase in the money supply cannot have any short-run effects. B) A permanent increase in taxes cannot have any short-run effects. C) A permanent decrease in the money supply cannot have short-run effects. D) A permanent decrease in taxes cannot have short-run effects. E) A permanent increase in money demand can be offset with a permanent increase in the money supply of equal magnitude.
E) A permanent increase in money demand can be offset with a permanent increase in the money supply of equal magnitude.
The aggregate demand for home input can be written as a function of: I. Real exchange rate. II. Government spending. III. Disposable income. A) I only B) III only C) I and III D) II and III E) I, II, and III
E) I, II, and III
Which of the following is TRUE of the current account balance? A) Monetary expansion has no effect on the current account balance. B) Monetary expansion decreases the current account balance. C) Fiscal expansion increases the current account balance. D) Fiscal expansion has no effect on the current account balance. E) Monetary expansion increases the current account balance.
E) Monetary expansion increases the current account balance.
Which statement best describes the current account balance in the short run? A) Monetary expansion lowers the current account balance. B) Monetary expansion keeps the current account balance the same. C) Fiscal expansion increases the current account balance. D) Fiscal expansion keeps the current account balance the same. E) Monetary expansion increases the current account balance.
E) Monetary expansion increases the current account balance.
Using the DD-AA framework, which one of the following statements is the MOST accurate? A) Only monetary policy can bring the economy to full employment. B) Only fiscal policy can bring the economy to full employment. C) Only both monetary and fiscal policies can bring the economy to full employment. D) Both policies are capable of bringing the economy to full employment and low inflation. E) Monetary policy by itself or fiscal policy by itself can bring the economy to full employment.
E) Monetary policy by itself or fiscal policy by itself can bring the economy to full employment.
What would be the best description of what we assume about money prices in the short run? A) Money prices of goods and services vary. B) Money prices of goods and services not related to each other. C) Money prices of goods are fixed. D) Money prices of services are fixed. E) Money prices of goods and services are only temporarily fixed.
E) Money prices of goods and services are only temporarily fixed.
The domestic currency price of a representative foreign expenditure basket is A) P, the domestic price level. B) E, the nominal exchange rate. C) P times E, the domestic price level times the domestic price level. D) P , the foreign price level. E) P times E, the foreign price level times the nominal exchange rate
E) P times E, the foreign price level times the nominal exchange rate
In the short run, a permanent increase in the domestic money supply causes A) a greater upward shift in the DD curve than that caused by an equal, but transitory, increase. B) a greater downward shift in the AA curve than that caused by an equal, but transitory, increase. C) an smaller upward shift in the AA curve than that caused by an equal, but transitory, increase. D) a smaller downward shift in the AA curve than that caused by an equal, but transitory, increase. E) a greater upward shift in the AA curve than that caused by an equal, but transitory, increase.
E) a greater upward shift in the AA curve than that caused by an equal, but transitory, increase.
What is an accurate implication resulting from an increase in income? A) an increase in exchange rate B) a decrease in exchange rate C) a decrease in consumption D) a decrease in output E) an increase in consumption
E) an increase in consumption
In the short-run, a temporary increase in money supply A) shifts the DD curve to the right, increases output and appreciates the currency. B) shifts the AA curve to the left, increases output and depreciates the currency. C) shifts the AA curve to the left, decreases output and depreciates the currency. D) shifts the AA curve to the left, increases output and appreciates the currency. E) shifts the AA curve to the right, increases output and depreciates the currency.
E) shifts the AA curve to the right, increases output and depreciates the currency.
In the short-run, a tax increase A) shifts the DD curve to the right, increases output and appreciates the currency. B) shifts the AA curve to the left, increases output and depreciates the currency. C) shifts the AA curve to the left, decreases output and depreciates the currency. D) shifts the AA curve to the left, increases output and appreciates the currency. E) shifts the DD curve to the left, decreases output and depreciates the currency.
E) shifts the DD curve to the left, decreases output and depreciates the currency.
