C
hapter: Exchange Rates and the Macroeconomy
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1. If European economies experience a strong economic recovery,
a. U.S. net exports will increase and AD will shift outward.
b. U.S. net exports will increase and AD will shift inward.
c. U.S. net exports will decrease and AD will shift inward.
d. U.S. net exports will decrease and AD will shift outward.
2. When the dollar appreciates, the cost to Americans of foreign goods
a. rises and the CPI falls.
b. rises and the CPI rises.
c. falls and the CPI rises.
d. falls and the CPI falls.
3. For a major country with extensive capital flows, what is the effect of an decrease in interest rates?
a. a currency depreciation and increased net exports.
b. a currency depreciation and reduced net exports.
c. a currency appreciation and increased net exports.
d. a currency appreciation and reduced net exports.
4. International capital flows
a. strengthen monetary policy and have no effect on fiscal policy.
b. strengthen monetary policy but weaken fiscal policy.
c. strengthen monetary and fiscal policy.
d. strengthen fiscal policy but weaken monetary policy.
5. The sequence of events following a contractionary monetary policy would be higher interest rates followed by
a. dollar depreciation, higher exports, lower imports.
b. dollar depreciation, lower exports, higher imports.
c. dollar appreciation, lower exports, higher imports.
d. dollar appreciation, higher exports, lower imports.
6. Which of the graphs in the figure below illustrates the AD-AS shifts associated with an expansionary monetary policy?
a.
b.
7. International capital flows in an open economy have the effect of
a. reducing the power of monetary policy.
b. increasing the power of monetary policy.
c. increasing the power of monetary policy in an expansion and reducing it in a contracti.
d. reducing the power of monetary policy in an expansion and increasing it in a ontraction.
8. The combined effects of a fiscal expansion and a monetary contraction are
a. lower real interest rates.
b. exchange rate depreciation.
c. increased current account deficit.
d. All of the above are correct.
9. How does a budget deficit lead to a trade deficit?
a. The trade deficit triggers higher interest rates, which increase the budget deficit
b. The budget deficit leads to higher interest rates and exchange rates, which shrink net exports
c. The trade deficit causes lower interest rates, which leads to economic recession and a budget deficit
d. The budget deficit causes lower exchange rates, which decrease net exports.
10. Which of the following would be cures for the U.S. trade deficit?
a. Americans save less and spend more.
b. a severe recession in Europe and Asia.
c. a severe recession in the United States.
d. a tax cut.
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