Chapter 18 Flashcards
Which of the following represents the demand for domestic goods? A) C + I + G B) C + I + G + X C) C + I + G - εIM D) C + I + G + X + εIM E) C + I + G + X - IM/ε
E) C + I + G + X - IM/ε
Which of the following represents the domestic demand for goods? A) C + I + G B) C + I + G + X C) C + I + G - IM/ε D) C + I + G + X - IM/ε E) C + I + G + X + εIM
A) C + I + G
The quantity of imports will increase when there is
A) a reduction in the real exchange rate.
B) an increase in domestic output.
C) an increase in foreign output.
D) all of the above
B) an increase in domestic output.
Exports will decrease when there is A) an increase in the real exchange rate. B) an increase in domestic output. C) an increase in foreign output. D) all of the above
A) an increase in the real exchange rate.
Which of the following occurs when the goods market is in equilibrium?
A) Domestic output (Y) equals the demand for domestic goods.
B) Y equals the domestic demand for goods.
C) Y equals the domestic demand for domestic goods.
D) Net exports equals 0.
E) Demand for domestic goods equals the domestic demand for goods.
A) Domestic output (Y) equals the demand for domestic goods.
Which of the following is true when a country is experiencing a trade surplus (NX > 0)?
A) Demand for domestic goods is equal to the domestic demand for goods.
B) Demand for domestic goods is greater than the domestic demand for goods.
C) Demand for domestic goods is less than the domestic demand for goods.
D) A budget surplus exists.
B) Demand for domestic goods is greater than the domestic demand for goods.
Which of the following is true when a country’s trade position is balanced (i.e., NX = 0)?
A) Demand for domestic goods is equal to the domestic demand for goods.
B) Demand for domestic goods is greater than the domestic demand for goods.
C) Demand for domestic goods is less than the domestic demand for goods.
D) Neither a budget surplus nor deficit exists (i.e., G - T = 0).
A) Demand for domestic goods is equal to the domestic demand for goods.
In an open economy, which of the following will cause an increase in the size of the multiplier?
A) a reduction in the marginal propensity to import
B) a reduction in foreign output
C) an increase in the marginal propensity to save
D) all of the above
E) none of the above
A) a reduction in the marginal propensity to import
Suppose there is a reduction in foreign output (Y*). This reduction in Y* will cause which of the following in the domestic country? A) a reduction in output B) a reduction in consumption C) a reduction in net exports D) all of the above E) none of the above
D) all of the above
Which of the following will always cause an increase in net exports? A) a reduction in domestic output B) an increase in the real exchange rate C) an increase in government spending D) an increase in investment
A) a reduction in domestic output
Which of the following will occur in a small country with a high marginal propensity to import?
A) Changes in government spending will cause large changes in output.
B) Changes in government spending will cause large changes in the trade balance.
C) A depreciation will cause only small changes in the trade balance.
D) There is no combination of policies that can eliminate the trade deficit.
E) all of the above
B) Changes in government spending will cause large changes in the trade balance.
Suppose that the rest of the world experiences an economic boom causing an increase in foreign output (Y). This increase in Y will not cause which of the following to occur?
A) the domestic country’s output to increase
B) the domestic country’s consumption to increase
C) the domestic country’s output to increase and its trade balance to worsen as imports increase
D) all of the above
E) none of the above
C) the domestic country’s output to increase and its trade balance to worsen as imports increase
In an open economy, net exports will be equal to which of the following? A) X - IM/ε B) T - G C) DD D) Z E) S - I
A) X - IM/ε
Which of the following will occur as a result of a tax increase? A) private saving increases B) investment increases C) the trade balance improves D) the trade balance worsens E) the budget deficit increases
C) the trade balance improves
Policy coordination is difficult because each country
A) prefers to be the one to increase demand.
B) prefers to be the one to appreciate its currency.
C) prefers that other countries increase their demand.
D) prefers to be the one to increase taxes.
E) prefers that other countries increase taxes.
C) prefers that other countries increase their demand.
Which of the following conditions must be satisfied for the demand for domestic goods to be equal to the domestic demand for goods? A) X = εIM B) X = 0 C) G - T = 0 D) S = I E) X = IM/ε
E) X = IM/ε
An increase in which of the following variables will cause a reduction in the demand for domestic goods? A) foreign income B) the real exchange rate C) consumer confidence D) domestic income E) all of the above
B) the real exchange rate
An increase in domestic demand will have which of the following effects in an open economy?
A) a smaller effect on output than in a closed economy and a positive effect on the trade balance
B) a smaller effect on output than in a closed economy and a negative effect on the trade balance
C) a larger effect on output than in a closed economy and a positive effect on the trade balance
D) a larger effect on output than in a closed economy and a negative effect on the trade balance
B) a smaller effect on output than in a closed economy and a negative effect on the trade balance
An increase in the marginal propensity to import will cause
A) the ZZ line to become flatter and a given change in government spending (G) to have a larger effect on domestic output.
B) the ZZ line to become flatter and a given change in government spending (G) to have a smaller effect on domestic output.
C) the ZZ line to become steeper and a given change in government spending (G) to have a larger effect on domestic output.
D) the ZZ line to become steeper and a given change in government spending (G) to have a smaller effect on domestic output.
B) the ZZ line to become flatter and a given change in government spending (G) to have a smaller effect on domestic output.
A reduction in the marginal propensity to import will cause
A) the multiplier to increase and a given change in government spending (G) to have a larger effect on domestic output.
B) the multiplier to increase and a given change in government spending (G) to have a smaller effect on domestic output.
C) the multiplier to decrease and a given change in government spending (G) to have a larger effect on domestic output.
D) the multiplier to decrease and a given change in government spending (G) to have a smaller effect on domestic output.
A) the multiplier to increase and a given change in government spending (G) to have a larger effect on domestic output.
In a large country, the effect of a given change in government spending
A) on output is large and the effect on the trade balance is small.
B) on output is large and the effect on the trade balance is large.
C) on output is small and the effect on the trade balance is small.
D) on output is small and the effect on the trade balance is large.
A) on output is large and the effect on the trade balance is small.
We will generally observe that the more open an economy
A) the larger the effect of fiscal policy on output and the larger the effect of fiscal policy on the trade position.
B) the larger the effect of fiscal policy on output and the smaller the effect of fiscal policy on the trade position.
C) the smaller the effect of fiscal policy on output and the larger the effect of fiscal policy on the trade position.
D) the smaller the effect of fiscal policy on output and the smaller the effect of fiscal policy on the trade position.
C) the smaller the effect of fiscal policy on output and the larger the effect of fiscal policy on the trade position.
Suppose policy makers want to increase Y and keep NX constant. Which of the following policies would most likely achieve this?
A) an increase in government spending
B) a real depreciation
C) an increase in government spending and a reduction in the real exchange rate
D) a reduction in the real exchange rate
E) encourage the country’s trading partners to implement policies that will cause an increase in foreign income (Y*)
C) an increase in government spending and a reduction in the real exchange rate
Suppose policy makers want to increase NX and keep Y constant. Which of the following policies would most likely achieve this?
A) a reduction in government spending
B) a real depreciation
C) a reduction in government spending and a reduction in the real exchange rate
D) a reduction in the real exchange rate and a tax cut
C) a reduction in government spending and a reduction in the real exchange rate
Suppose the rest of the world experiences an expansion that causes an increase in foreign income (Y*). From the domestic economy's perspective, this increase in foreign income will cause which of the following as the domestic economy adjusts to the rise in Y*? A) an increase in domestic income B) an increase in imports C) an increase in net exports D) all of the above
D) all of the above
In an open economy, a reduction in government spending will cause A) an increase in domestic output. B) an increase in imports. C) an increase in net exports. D) all of the above
C) an increase in net exports.
Which of the following will occur as a result of a tax cut? A) private saving decreases B) investment decreases C) the trade balance improves D) the trade balance worsens E) the budget deficit decreases
D) the trade balance worsens
