HW11/Quiz11
The Current Account may fall after a real depreciation because:
Import orders are placed in advance and a depreciation raises the domestic price.
The multiplier effect is dampened by
Imports Taxes Savings *All of the above
Which of the following is not a problem associated with fiscal policy? Which of the following is not a problem associated with monetary policy?
It is difficult to predict interest rates because a number of other factors also affect interest rates. None of the above.
Which economic institution determines or controls the money supply in the U.S.?
The Federal Reserve
Which of the following is correct?
The president and Congress conduct fiscal policy and the Federal Reserve conducts monetary policy.
Suppose the United States, Japan, and many other places around the world go into recession, but growth remains strong in Europe. Using macroeconomic policy coordination could help in this situation but sometimes coordination faces problems. Which of the following is a problem associated with macroeconomic policy coordination?
There is rarely a period in which nations find it in their own interest to pursue the same policies as their leading partners. There is no international organization capable of arranging a multilateral agreement among nations. Your answer is not correct. There is no multilateral agreement possible without a significant sacrifice of national sovereignty. *All of the above are problems.
The United States is currently running a large current account deficit. If Congress and the president wanted to reduce this, which policy could they use?
They could create an exchange rate depreciation policy.
A temporary tariff on imported foreign goods is an example of
an expenditure switching policy.
If a country implements an contractionary monetary policy, the short to medium term effects include
an increase in the country's interest rate and an appreciation of the country's currency.
Assuming a flexible exchange rate system, a decrease in the money supply leads to ____ in the value of the U.S. dollar and ____ in the value of foreign currency. This in turn, leads to ____ in net exports and aggregate demand. A decrease in the money supply leads to ___ interest rates. This, in turn, leads to ___ in investment spending by firms and aggregate demand.
an increase; a decrease; a decrease; an increase; a decrease
An increase in disposable income worsens the current account because:
consumers demand more of all goods, including imported goods, while exports are not affected.
An increase in domestic interest rates are likely to ___ aggregate demand.
decrease
When there is a change in government spending or taxes to affect aggregate economic activity, this is referred to as When the money supply is changed to affect aggregate economic activity, this is referred to as
fiscal policy. monetary policy.
The figure on the right shows aggregate money demand, Md, and the initial money supply, Ms1. Now, suppose the money supply falls while the price level and all other variables not in the graph remain the same. Use the line drawing tool to draw the new money supply on the same graph and label it 'Ms2'. Note: Carefully follow the instructions above, and only draw the required objects. As the result of this change in the money supply, the equilibrium ____ will ____.
interest rate; rise
A temporary fiscal contraction in an economy produces
no change in the long-run expected exchange rate, a depreciation of its currency, and a fall in its output and employment. Because the policy is temporary, there is no effect upon the long-run expected exchange rate. In the short-run, however, the fiscal action produces a contractionary effect upon the domestic economy along with a depreciation of the country's currency.
A temporary increase in an economy's money supply produces
no change in the long-run expected exchange rate, a depreciation of its currency, and a rise in its output and employment. Because the policy is temporary, there is no effect upon the long-run expected exchange rate. In the short-run, however, the money supply increase has a expansionary effect upon the domestic economy, bringing about a depreciation of the country's currency.
Assume Japan begins with its economy running at full employment. If the Japanese government increases government expenditures the AS/AD model shows that in the short run,
the AD curve will shift out, causing an increase in the Japanese price level, but not change in output.
When the U.S. dollar depreciates, it is predicted that
the US current account will worsen in the short run (become more negative), and improve in the long run. *Not: U.S. firms and individuals will immediately change from foreign sources of import to domestic sources of products.
The opportunity cost of money holdings is:
the alternative interest income foregone from not holding some other asset. The opportunity cost of holding money is the lost interest that could have been earned if the money of an interest bearing asset were held instead of money.
Which of the following assets is the least liquid?
A house. A house is the least liquid since it takes a longer time to convert into money, and there are larger transaction costs in selling a house compared to the other listed assets.
Which of the following is/are examples of expansionary fiscal policy?
An increase in government spending.
If the central bank purchases assets (e.g., bonds from banks), the economic result is:
An increase in the money supply.
Since World War II, the economic agents that bear the most responsibility for growth in the economy are
the government, via taxation and expenditures.
Why would governments want to coordinate macroeconomic policies?
to achieve a desirable level of growth to avoid a global crisis to raise living standards *All of the above
A currency board, as exemplified by the particular case of Argentina:
Can achieve exchange rate stability and free capital movement, but not effective monetary policy.
Using the AD/AS graph, when there is a drop in export demand by foreign purchasers, the price level will _____ and GDP will _____.
Decrease; Decrease
