HW11/Quiz11

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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


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