Economics Test 2 UNF
An effective policy to decrease a trade surplus in a small open economy would be to: A) Decrease tax B) Implement investment tax credit C) increase government spending. D) increase taxes.
A)
Holding other factors constant, legislation to increase taxes in an open economy will: A) increase national saving and lead to a trade surplus. B) increase national saving and lead to a trade deficit. C) reduce national saving and lead to a trade surplus. D) reduce national saving and lead to a trade deficit.
A)
If a country has a low rate of inflation relative to the United States, the dollar will buy: A) less of the foreign currency over time. B) more of the foreign currency over time. C) the same amount of the foreign currency over time. D) an amount of foreign currency determined by the real exchange rate.
A)
If domestic saving exceeds domestic investment, then net exports are ______ and net capital outflows are ______ . A) positive; positive B) positive; negative C) negative; negative D) negative; positive
A)
In a small open economy with perfect capital mobility, when foreign governments reduce national saving in their countries, the equilibrium real interest rate: A) rises B) decrease C) does not change D) Not enough information
A)
In a small open economy, if domestic investment exceeds domestic saving, then the extra investment will be financed by: A) borrowing from abroad B) lending to abroad C) the domestic government D) The World Bank
A)
In a small open economy, starting from a position of balanced trade, if the foreign government decreases the income tax and government purchase by the same amount, this produces a tendency toward a trade ______ and ______ net capital outflow for the small open economy. A) deficit; negative B) surplus; positive C) deficit; positive D) surplus; negative
A)
In a small open economy, starting from a position of balanced trade, if the government increases domestic government purchases, this produces a tendency toward a trade ______ and ______ net capital outflow. A) deficit; negative B) surplus; positive C) deficit; positive D) surplus; negative
A)
In a small open economy, when the government reduces national saving, the equilibrium real exchange rate: A) rises and net exports fall. B) rises and net exports rise. C) falls and net exports fall. D) falls and net exports rise.
A)
Structural unemployment is unemployment caused by: A) wage rigidity. B) minimum-wage legislation. C) the time it takes workers to search for a job. D) Clashes between the motives of insiders and outsiders
A)
The natural rate of unemployment is: A) the average rate of unemployment around which the economy fluctuates. B) about 10 percent of the labor force. C) a rate that never changes. D) the transition of individuals between employment and unemployment.
A)
All of the following are reasons for frictional unemployment except: A) workers have different preferences and abilities. B) unemployed workers accept the first job offer that they receive. C) the flow of information is imperfect. D) geographic mobility takes time.
B)
If a country has a high rate of inflation relative to the United States, the dollar will buy: A) less of the foreign currency over time. B) more of the foreign currency over time. C) the same amount of the foreign currency over time. D) an amount of foreign currency determined by the real exchange rate.
B)
If the number of dollars per yen rises, this is called a(n): A) appreciation of the dollar. B) appreciation of the yen. C) increase in the terms of trade. D) decrease in the terms of trade.
B)
If the real exchange rate between the United States and Japan remains unchanged, and the inflation rate in the United States is 6 percent and the inflation rate in Japan is 3 percent, the: A) dollar will appreciate by 3 percent against the yen. B) yen will appreciate by 3 percent against the dollar. C) yen will appreciate by 6 percent against the dollar. D) yen will appreciate by 9 percent against the dollar.
B)
In a closed economy, the real interest rate will be: A) above the world real interest rate. B) makes domestic saving equal to domestic investment. C) is the interest rate charged on loans by the World Bank. D) is the interest rate prevailing in world financial markets.
B)
In a small open economy with perfect capital mobility, when foreign governments increase national saving in their countries, the equilibrium real interest rate: A) rises B) decrease C) does not change D) Not enough information
B)
In a small open economy, if domestic saving exceeds domestic investment, then the extra saving will be financed by: A) borrowing from abroad B) lending to abroad C) the domestic government D) The World Bank
B)
In a small open economy, starting from a position of balanced trade, if the foreign government increases the income tax and government purchase by the same amount, this produces a tendency toward a trade ______ and ______ net capital outflow for the small open economy. A) deficit; negative B) surplus; positive C) deficit; positive D) surplus; negative
B)
In a small open economy, starting from a position of balanced trade, if the government increases the income tax, this produces a tendency toward a trade ______ and ______ net capital outflow. A) deficit; negative B) surplus; positive C) deficit; positive D) surplus; negative
B)
The currencies of countries with low inflation rates relative to the United States have tended to ______, and the currencies of countries with high inflation rates relative to the United States have tended to ______. A) appreciate; appreciate B) appreciate; depreciate C) depreciate; depreciate D) depreciate; appreciate
B)
The nominal exchange rate between the U.S. dollar and the Japanese yen is the: A) number of yen you can get for lending one dollar in Japan for one year. B) number of yen you can get for one dollar. C) price of U.S. goods divided by the price of Japanese goods. D) price of Japanese goods divided by the price of U.S. goods.
B)
If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals ______ percent (rounded to the nearest percent). A) 0 B) 9 C) 10 D) 20
B) U/L unemployed/labor force (unemployed + employed) 20 million/200 million + 20 million 20 million/220 million
A "small" economy is one in which the: A) level of output is fixed. B) price level is fixed. C) domestic interest rate equals the world interest rate, and domestic saving cannot affect world interest rate. D) domestic saving is less than domestic investment.
C)
An increase in the trade surplus of a small open economy could be the result of: A. A domestic tax cut B. An increase in government spending C. An increase in the world interest rate D. The implementation of an investment tax-credit provision.
C)
Frictional unemployment is unemployment caused by: A) wage rigidity. B) minimum-wage legislation. C) the time it takes workers to search for a job. D) Clashes between the motives of insiders and outsiders
C)
If domestic investment exceeds domestic saving, then net exports are ______ and net capital outflows are ______ . A) positive; positive B) positive; negative C) negative; negative D) negative; positive
C)
If the information technology boom increases investment demand in a small open economy, then net exports ______and the real exchange rate______ A) increases; appreciate B) increase; depreciate C) decrease; appreciate D) decrease; depreciate
C)
If the real exchange rate depreciates from 1 Japanese good per U.S. good to 0.5 Japanese good per U.S. good, then U.S. exports ______ and U.S. imports ______. A) increase; increase B) decrease; decrease C) increase; decrease D) decrease; increase
C)
When exports exceed imports, all of the following are true except: A) net capital outflows are positive. B) net exports are positive. C) domestic investment exceeds domestic saving. D) domestic output exceeds spending.
C)
A depreciation of the real exchange rate in a small open economy could be the result of: A) a domestic tax cut. B) an increase in government spending. C) A decrease in the world interest rate. D) the expiration of an investment tax-credit provision.
D)
An effective policy to increase a trade surplus in a small open economy would be to: A) Decrease tax B) Implement investment tax credit C) increase government spending. D) increase taxes.
D)
Frictional unemployment is inevitable because: A) different sectors do not shift. B) the economy needs to be lubricated. C) workers never quit their jobs to change careers. D) the demand for different goods always fluctuates.
D)
Holding other factors constant, legislation to cut taxes in an open economy will: A) increase national saving and lead to a trade surplus. B) increase national saving and lead to a trade deficit. C) reduce national saving and lead to a trade surplus. D) reduce national saving and lead to a trade deficit.
D)
If 5 Swiss francs trade for $1, the U.S. price level equals $1 per good, and the Swiss price level equals 4 francs per good, then the real exchange rate between Swiss goods and U.S. goods is ______ Swiss goods per U.S. good. A) 0.5 B) 2.5 C) 5 D) 1.25
D)
If purchasing-power parity held, if a Big Mac costs $2 in the United States, and if 10 Mexican pesos trade for $1 dollar, then a Big Mac in Cancun, Mexico should cost: A) 2 pesos. B) 5 pesos. C) 10 pesos. D) 20 pesos.
D)
If purchasing-power parity held, if a Big Mac costs $2 in the United States, and if 20 Mexican pesos trade for $1 dollar, then a Big Mac in Cancun, Mexico should cost: A) 2 pesos. B) 5 pesos. C) 10 pesos. D) 40 pesos.
D)
If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separation) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job finding) must be: A) 0.02 B) 0.08 C) 0.10 D) 0.18
D)
In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then investment equals: A) -$25 billion B) -$10 billion C) $10 billion D) $35 billion
D)
In a small open economy, when foreign governments reduce national saving in their countries, the equilibrium real exchange rate of domestic country: A) rises and net exports fall. B) rises and net exports rise. C) falls and net exports fall. D) falls and net exports rise.
D)
In the model of the steady-state unemployment rate with a fixed labor force, the rate of job finding equals the percentage of the ______ who find a job each month, while the rate of job separation equals the percentage of the ______ who lose their job each month. A)labor force; labor force B)labor force, unemployed C)employed, labor force D)unemployed, employed
D)
Sectoral shifts: A) lead to wage rigidity. B) explain the payment of efficiency wages. C) depend on the level of the minimum wage. D) make frictional employment inevitable.
D)
The currencies of countries with high inflation rates relative to the United States have tended to ______, and the currencies of countries with low inflation rates relative to the United States have tended to ______. A) appreciate; appreciate B) appreciate; depreciate C) depreciate; depreciate D) depreciate; appreciate
D)
Unemployment insurance increases the amount of frictional unemployment by: A) making workers more frantic in their search for new jobs. B) inducing workers to accept the first job offer that they receive. C) making employers more reluctant to lay off workers. D) softening the economic hardship of unemployment
D)
if the foreign inflation rate is greater than the domestic inflation rate then:
Foreign currency will depreciate; Domestic currency will appreciate
"Traveling in Mexico is much cheaper now than it was ten years ago,"says a friend. "Ten years ago, a dollar bought 10 pesos; this year, a dollar buys 15 pesos." Is your friend right or wrong? Given that total inflation over this period was 25 percent in the United States and 100 percent in Mexico, has it become more or less expensive to travel in Mexico?
More expensive
Trade Deficit
NX < 0 Imports > Exports Spending > Output Negative NCO Net Borrower (S < I) Gov. spending increases and Taxes decrease Savings go down NX goes down NCO goes down
Trade Surplus
NX > 0 Exports > Imports Output > Spending Positive NCO Net Lender (S > I) Gov. spending decreases and Taxes increase Savings goes up NX goes up NCO goes up
Trade Balance
NX=0 = NCO
Expansionary increase in investment demand
Savings decrease real exchange rate rises NCO falls NX falls
Expansionary fiscal policy abroad on the real exchange rate
an increase in r star reduces investment increases NCO NX rises real exchange rate falls
if the domestic currency is greater than the foreign currency then:
foreign currency will appreciate; domestic currency will depreciate
Fiscal policy abroad
foreign governments increase their government purchases A decrease in world savings would cause the world interest rate to rise reduces investment S > I (trade surplus) NCO has increased NX has increased
An increase in the world interest rate due to a fiscal expansion abroad will:
increase the net export
An expansionary fiscal policy that reduces national saving will:
reduce the net export
An increase in investment demand will:
reduce the net export
Expansionary fiscal policy at home on the real exchange rate
reduces national saving reduces NCO the real exchange rate rises NX falls
Shift in investment demand
savings are unchanged leads to a trade deficit
Fiscal policy at home
shifts savings to the left due to an increase in domestic government spending when S < I there is a trade deficit and NX will fall NCO falls
