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Exam 37: Exchange Rates and the Macroeconomy

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Question 41

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Compare the effectiveness of fiscal policy in an open economy with mobile international capital to fiscal policy in a closed economy.Why is it different? Use an appropriate diagram to illustrate your answer.

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An appropriate diagram should resemble F...

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Question 42

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International capital flows strengthen

A) monetary policy and have no effect on fiscal policy.
B) monetary policy but weaken fiscal policy.
C) monetary and fiscal policy.
D) fiscal policy but weaken monetary policy.

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Question 43

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The reason that higher interest rates reduce aggregate demand in an open economy with capital flows is that investment

Table 20-2 $\begin{array}{cccc}\text { Domestic }&&&& G D P\\\text { Expenditure } & & \text { Exports } & \text { Imports } & \text { Total Expenditures } \\\mathrm{Y} & \mathrm{C}+\mathrm{I}+\mathrm{G} & \mathrm{X} & \mathrm{IM}&\mathrm{C}+\mathrm{I}+\mathrm{G}+(\mathrm{X}-\mathrm{IM}) \\\$ 2,500 & \$ 3,100 & \$ 650 & \$ 250&\underline {\quad\quad\quad\quad} \\3,000 & 3,400 & 650 & 300 &\underline {\quad\quad\quad\quad} \\3,500 & 3,700 & 650 & 350 &\underline {\quad\quad\quad\quad} \\4,000 & 4,000 & 650 & 400 &\underline {\quad\quad\quad\quad} \\4,500 & 4,300 & 650 & 450 &\underline {\quad\quad\quad\quad} \\5,000 & 4,600 & 650 & 500 &\underline {\quad\quad\quad\quad} \\5,500 & 4,900 & 650 & 550&\underline {\quad\quad\quad\quad} \end{array}$ -From Table 20-2, what can you conclude about net exports as GDP rises?

International capital flows tend to reduce the impact of monetary policy.

Because monetary stimulus overwhelmed fiscal contraction in the United States during the 1992- 2000 period,

The U.S.trade deficits of the late 1990s were due primarily to low saving rates.

A currency appreciation

Explain how and why economic events in the U.S.affected the economies of Thailand, South Korea, and Indonesia and vice-versa.

If the federal government has a deficit, and the current account is in balance, then

An economic boom in the United States would cause the aggregate demand curve in other countries to shift outward.

Despite the elimination of the federal budget deficit in the late 1990s, the trade deficit increased due to

Following an expansionary monetary policy, we would expect lower interest rates, dollar

Despite the monetary expansion of the 1992-2000 period, the inflation rate

A depreciating currency makes foreign inputs cheaper and shifts the aggregate supply curve outward.

Table 20-2 $\begin{array}{cccc}\text { Domestic }&&&& G D P\\\text { Expenditure } & & \text { Exports } & \text { Imports } & \text { Total Expenditures } \\\mathrm{Y} & \mathrm{C}+\mathrm{I}+\mathrm{G} & \mathrm{X} & \mathrm{IM}&\mathrm{C}+\mathrm{I}+\mathrm{G}+(\mathrm{X}-\mathrm{IM}) \\\$ 2,500 & \$ 3,100 & \$ 650 & \$ 250&\underline {\quad\quad\quad\quad} \\3,000 & 3,400 & 650 & 300 &\underline {\quad\quad\quad\quad} \\3,500 & 3,700 & 650 & 350 &\underline {\quad\quad\quad\quad} \\4,000 & 4,000 & 650 & 400 &\underline {\quad\quad\quad\quad} \\4,500 & 4,300 & 650 & 450 &\underline {\quad\quad\quad\quad} \\5,000 & 4,600 & 650 & 500 &\underline {\quad\quad\quad\quad} \\5,500 & 4,900 & 650 & 550&\underline {\quad\quad\quad\quad} \end{array}$ -In Table 20-2, assume that exports rise to $900.What is the new equilibrium GDP?

If European economies experience a period of sustained recession and the United States does not, what will happen in the United States?

When the dollar appreciates, the prices of imported inputs

Which of the following would be cures for the U.S.trade deficit?

The elimination of the federal budget deficit in the 1990s put downward pressure on real interest rates.