Article Summary. Over the past two years, the Indian rupee has fallen 26 percent in
value against the U.S. dollar, reaching a record low of 61.80 rupees per dollar in
August 2013. The decline reflects increasing capital outflows and pessimism
regarding the government’s attempts to reverse this trend. The Indian government
was expected to announce potential measures to increase the inflow of capital,
including the possibility of raising debt abroad, raising money from Indians who
live abroad, easing restrictions on overseas borrowing, and raising interest rates.
Critics argue that current and well-entrenched policies deter capital inflow from
investors and corporations, and raising interest rates may reduce confidence in the
economy, which experienced a decade-low growth rate of 5 percent in 2013.
Source: Rafael Nam, “Rupee over 60: Why Indian currency weakness may be here
to stay,” Reuters, August 8, 2013.
All else equal, a depreciation of the Indian rupee relative to a currency such as the U.S.
dollar should ________ the current account balance in India and therefore ________
the financial account balance in India.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
The Bretton Woods system of fixed exchange rates was set up in
A) the 1890s.
B) the 1920s.
C) the 1940s.
D) the 1970s.
Transactions costs refer to
A) the implicit costs of production.
B) the costs in time and other resources that parties incur in the process of agreeing to
and carrying out an exchange of goods or services.
C) the raw material cost of production.
D) the cost of transporting goods from one destination to another.
A decrease in the price level will
A) shift the aggregate demand curve to the left.
B) shift the aggregate demand curve to the right.
C) move the economy up along a stationary aggregate demand curve.
D) move the economy down along a stationary aggregate demand curve.
Which of the following statements is false?
A) Japan is less dependent on foreign trade than is the United States.
B) Imports and exports account for over one-half of the GDP of the Netherlands.
C) The United States is the leading exporting country, accounting for almost 10 percent
of total world exports.
D) Because the cost of labor used on farms is so high, the United States exports very
little of its wheat, rice and corn crops.
During the recession phase of the business cycle,
A) production is usually rising.
B) interest rates are usually falling.
C) unemployment is usually falling.
D) income is usually rising.
Figure 24-1
Ceteris paribus, a decrease in households’ expectations of their future income would be
represented by a movement from
A) AD1 to AD2.
B) AD2 to AD1.
C) point A to point B.
D) point B to point A.
If the economy is slipping into a recession, which of the following would be an
appropriate fiscal policy?
A) an increase in the money supply and a decrease in interest rates
B) a decrease in government purchases
C) a decrease in taxes
D) a decrease in oil prices
In September, buyers of silver expect that the price of silver will rise in October. What
happens in the silver market in September, holding all else constant?
A) The quantity demanded decreases.
B) The demand curve shifts to the left.
C) The demand curve shifts to the right.
D) The quantity demanded increases.
Expansionary fiscal policy
A) can be effective in the short run.
B) causes complete crowding out in the short run.
C) is never effective because of crowding out.
D) can be effective in the long run.
BHP Billiton is a Canadian company that owns mines in Canada that
A) produce nickel. After World War II, BHP Billiton began to compete with another
Canadian firm, the International Nickel Company. This competition eventually ended
International Nickel’s monopoly in this market.
B) produce bauxite, the mineral needed to produce aluminum. BHP Billiton began to
mine bauxite after World War II. This competition eventually ended the Aluminum
Company of America (ALCOA)’s monopoly in this market.
C) produce coal. Until World War II, BHP Billiton had a monopoly on coal in Canada.
D) produce diamonds.
Explain how each of the following events would affect the long-run aggregate supply
curve.
a. A lower price level
b. A decrease in the labor force
c. A decrease in the quantity of capital goods
d. Technological change
The long-run average cost curve shows
A) the lowest average cost of producing every level of output in the long run.
B) where the most profitable level of output occurs.
C) the average cost of producing where diminishing returns are not present.
D) the plant size or scale that the firm should build.