[QUESTION]
58. Considering only its direct effect on income, expansionary monetary policy tends to:
A. be ambiguous with respect to the exchange rate, while decreasing the trade deficit.
B. be ambiguous with respect to the trade deficit, while increasing the exchange rate.
C. decrease the exchange rate and increase a trade deficit.
D. increase the exchange rate and decrease a trade deficit.
59. Considering only its direct effect on income, contractionary monetary policy tends to:
A. be ambiguous with respect to the exchange rate, but decrease the trade deficit.
B. be ambiguous with respect to the trade deficit, but decrease the exchange rate.
C. decrease the exchange rate and increase the trade deficit.
D. increase the exchange rate and decrease the trade deficit.
60. Considering only its direct effect on income, the effect of monetary policy is that:
A. both expansionary and contractionary policies tend to increase the trade deficit.
B. both expansionary and contractionary policies tend to decrease the trade deficit.
C. expansionary policy tends to increase the trade deficit and contractionary policy tends to
decrease it.
D. expansionary policy tends to decrease the trade deficit and contractionary policy tends to
increase it.
61. Considering only its direct effect on income, an expansionary monetary policy tends to:
A. increase a trade deficit and decrease the exchange rate.
B. increase a trade deficit and increase the exchange rate.
C. decrease a trade deficit and decrease the exchange rate.
D. decrease a trade deficit and increase the exchange rate.
62. Considering only its direct effect on income, contractionary monetary policy tends to:
A. increase a trade deficit and decrease the exchange rate.
B. increase a trade deficit and increase the exchange rate.
C. decrease a trade deficit and decrease the exchange rate.
D. decrease a trade deficit and increase the exchange rate.
63. Considering an economy with a current trade surplus and considering only the direct effect
on income, an expansionary monetary policy tends to:
A. decrease the exchange rate and increase the trade surplus.
B. increase the exchange rate and increase the trade surplus.
C. decrease the exchange rate and decrease the trade surplus.
D. increase the exchange rate and decrease the trade surplus.
64. Considering an economy with a current trade deficit and considering only the direct effect
on income, an expansionary monetary policy tends to:
A. decrease the exchange rate and increase the trade deficit.
B. increase the exchange rate and increase the trade deficit.
C. decrease the exchange rate and decrease the trade deficit.
D. increase the exchange rate and decrease the trade deficit.
65. Without considering the effect that a change in the value of a currency might have on trade,
the net effect of an expansionary fiscal policy is:
A. ambiguous with respect to the trade balance, but positive with respect to the exchange rate.
B. ambiguous with respect to the exchange rate, but negative with respect to the trade balance.
C. negative with respect to the exchange rate and positive with respect to the trade balance.
D. positive with respect to the exchange rate and negative with respect to the trade balance.
66. Without considering the effect that a change in the value of a currency might have on trade,
the net effect of a contractionary fiscal policy is:
A. ambiguous with respect to the exchange rate, but positive with respect to the trade balance.
B. ambiguous with respect to the trade balance, but positive with respect to the exchange rate.
C. negative with respect to the exchange rate and positive with respect to the trade balance.
D. positive with respect to the exchange rate and negative with respect to the trade balance.
67. Considering only its direct effect on income, expansionary fiscal policy tends to:
A. decrease imports.
B. increase exports.
C. increase imports.
D. decrease the trade deficit.
68. Expansionary fiscal policy tends to:
A. increase the U.S. price level and reduce U.S. exports.
B. increase the U.S. price level and reduce U.S. imports.
C. decrease the U.S. price level and increase U.S. exports.
D. decrease the U.S. price level and increase U.S. imports.
69. Expansionary fiscal policy tends to:
A. raise U.S. income, increase U.S. imports, and increase the trade deficit.
B. raise U.S. income, increase U.S. imports, and lower the trade deficit.
C. lower U.S. income, reduce U.S. imports, and increase the trade deficit.
D. lower U.S. income, reduce U.S. imports, and lower the trade deficit.
70. In the mid-1960s, the United States was running an expansionary fiscal policy to support the
war effort in Vietnam. This likely:
A. improved the trade deficit.
B. worsened the trade deficit.
C. left the trade deficit the same.
D. had ambiguous effects on the trade deficit.
71. Considering only its direct effect on income, contractionary fiscal policy tends to:
A. increase income and imports and lower the trade deficit.
B. increase income and imports and raise the trade deficit.
C. decrease income and imports and lower the trade deficit.
D. decrease income and imports and raise the trade deficit.
72. In the early 2000s, the George Bush administration passed a series of tax cuts and spending
increases to fight a recession. This combination of policies most likely:
A. increased the U.S. trade deficit.
B. decreased the U.S. trade deficit.
C. had no effect on the trade deficit.
D. had an unpredictable effect on the trade deficit.
73. Considering its direct effect on income, which of the following policies is most likely to
reduce a country’s trade deficit?
A. An increase in the money supply.
B. A cut in taxes.
C. An increase in government spending.
D. An increase in taxes.
74. In considering the net effect of expansionary fiscal policy on the trade deficit, the:
A. income effect offsets the price effect.
B. price effect offsets the income effect.
C. income and price effects work in the same direction, so the trade deficit is decreased.
D. income and price effects work in the same direction, so the trade deficit is increased.
75. Considering only their direct effect on income, which of the following policies is least likely
to reduce a country’s trade deficit?
A. A decrease in the money supply
B. A cut in taxes
C. A decrease in government spending
D. An increase in taxes
76. Considering only its direct effect on income, expansionary fiscal policy tends to:
A. increase income and imports, shifting the U.S. trade balance in the direction of a deficit.
B. increase income and imports, shifting the U.S. trade balance in the direction of a surplus.
C. decrease income and imports, shifting the U.S. trade balance in the direction of a deficit.
D. decrease income and imports, shifting the U.S. trade balance in the direction of a surplus.
77. Considering only its direct effect on income, expansionary fiscal policy tends to:
A. be ambiguous with respect to the trade deficit.
B. increase a trade surplus.
C. decrease a trade deficit.
D. increase a trade deficit.
78. Suppose the United States is going into a recession. To prevent the recession from
worsening, the United States could do all the following except asking:
A. Japan to adopt policies that reduce its trade surplus with the United States.
B. China to reduce trade barriers to U.S. exports.
C. Japan to adopt a more expansionary fiscal policy.
D. the European Union to adopt a more contractionary monetary policy.
79. If Japan has a trade surplus and the United States has a trade deficit, the trade gap could be
eliminated by:
A. contractionary monetary policy in both Japan and the United States.
B. expansionary monetary policy in both Japan and the United States.
C. expansionary monetary policy in Japan or contractionary monetary policy in the United
States.
D. contractionary monetary policy in Japan or expansionary monetary policy in the United
States.
80. The likely effect of a contractionary monetary policy in Japan would be to:
A. decrease the value of the dollar and the U.S. trade deficit.
B. increase the value of the dollar and the U.S. trade deficit.
C. decrease the value of the dollar and increase the U.S. trade deficit.
D. increase the value of the dollar and decrease the U.S. trade deficit.
81. Suppose the United States is entering a recession at the same time that it has agreed to work
toward eliminating its trade deficit. Considering the effect of monetary policy on trade through
its impact on income only:
A. an expansionary monetary policy would be the appropriate means of achieving both
objectives.
B. a contractionary monetary policy would be the appropriate means of achieving both
objectives.
C. an expansionary monetary policy would be appropriate to eliminate the trade deficit, but
contractionary monetary policy is called for to deal with the recession.
D. a contractionary monetary policy would be appropriate to eliminate the trade deficit, but
expansionary monetary policy is called for to deal with the recession.
82. If Japan adopts an expansionary monetary policy, the value of the dollar would:
A. decrease and the U.S. trade deficit would decrease.
B. decrease and the U.S. trade deficit would increase.
C. increase and the U.S. trade deficit would decrease.
D. increase and the U.S. trade deficit would increase.
83. Which of the following combinations would be most likely to increase U.S. imports from
Japan and reduce U.S. exports to Japan?
A. Contractionary monetary policy in both the United States and Japan
B. Expansionary monetary policy in both the United States and Japan
C. Contractionary monetary policy in the United States and expansionary monetary policy in
Japan
D. Expansionary monetary policy in the United States and contractionary monetary policy in
Japan
84. Suppose the U.S. economy is going into a recession. Considering the effect of monetary
policy on trade through its impact on income only, the domestic problem calls for:
A. contractionary monetary policy, which will increase the U.S. trade deficit.
B. contractionary monetary policy, which will decrease the U.S. trade deficit.
C. expansionary monetary policy, which will increase the U.S. trade deficit.
D. expansionary monetary policy, which will decrease the U.S. trade deficit.
85. If Japan adopts a contractionary monetary policy, then the dollar will:
A. lose value and U.S. inflation will fall.
B. gain value and U.S. inflation will rise.
C. lose value and U.S. inflation will rise.
D. gain value and U.S. inflation will fall.
86. If the United States is experiencing inflation, then it will be most willing to engage in
international policy coordination if coordination requires:
A. weakening the dollar.
B. strengthening the dollar.
C. expansionary U.S. fiscal policy.
D. expansionary U.S. monetary policy.
87. If Japan is experiencing inflation and the United States is experiencing recession,
international policy coordination would be most likely to occur if it required:
A. a weakening of the dollar.
B. a strengthening of the dollar.
C. expansionary monetary policies in both countries.
D. contractionary fiscal policies in both countries.
88. If Japan is in a recession and the United States is growing too rapidly, international policy
coordination most likely requires:
A. expansionary policies in Japan and contractionary policies in the United States.
B. contractionary policies in Japan and expansionary policies in the United States.
C. expansionary policies in both Japan and the United States.
D. contractionary policies in both Japan and the United States.
89. A large trade deficit that the United States has with China would be narrowed by a:
A. decline in the value of the U.S. dollar or by Chinese inflation.
B. decline in the value of the U.S. dollar or by U.S. inflation.
C. rise in the value of the U.S. dollar or by Chinese inflation.
D. rise in the value of the U.S. dollar or by U.S. inflation.
90. A key reason that the value of the dollar did not change relative to the Chinese yuan in the
early 2000s was:
A. trade was balanced between the two nations.
B. the U.S. Federal Reserve bought dollars to keep the value of the dollar from falling.
C. the Chinese central bank bought dollars to keep the value of the dollar from falling.
D. the Chinese central bank sold dollars to keep the value of the dollar from rising.
91. In the late 1990s, Brazil decided to reduce the value of its currency, the real, in order to
boost exports and help the economy to move out of a recession. Argentina, the main trade
competitor of Brazil in various products, was immediately affected by Brazil’s decision since it
would:
A. increase Argentina’s imports and decrease Argentina’s trade deficit.
B. decrease Argentina’s exports and increase Argentina’s trade deficit.
C. decrease Argentina’s imports and decrease Argentina’s trade deficit.
D. increase Argentina’s exports and decrease Argentina’s trade deficit.
92. If Canada is growing too rapidly and at the same time it is agreeing to work toward reducing
its trade surplus, Canada could forsake:
A. its domestic goal and its international commitment simultaneously.
B. its domestic goal but not its international commitment.
C. none of its domestic goals.
D. none of its international commitments.
93. The basic idea of crowding out is that a budget:
A. deficit will cause the interest rate to go down.
B. deficit will cause the interest rate to go up.
C. surplus will cause the interest rate to go down.
D. surplus will cause the interest rate to go up.
94. In the short run, crowding out could be avoided if foreigners:
A. sold the U.S. debt at a higher interest rate.
B. sold the U.S. debt at the existing interest rate.
C. bought the U.S. debt at a higher interest rate.
D. bought the U.S. debt at the existing interest rate.
95. Internationalization of the debt refers to a situation in which the deficit is financed by
foreigners:
A. buying the debt, so that crowding out is avoided.
B. buying the debt, so that crowding out is increased.
C. selling the debt, so that crowding out is increased.
D. selling the debt, so that crowding out is avoided.
96. Internationalization of U.S. debt is:
A. helpful in the short run, but harmful in the long run.
B. harmful in the short run, but helpful in the long run.
C. helpful in both the short run and the long run.
D. harmful in both the short run and the long run.
97. In order to pay foreigners interest on the debt, the United States must:
A. increase imports and exports by the same amount.
B. reduce imports and exports by the same amount.
C. export more than it imports.
D. import more than it exports.
98. If a country cannot internationalize its debt, then it will have to:
A. sell more bonds domestically, causing its interest rates to fall.
B. sell more bonds domestically, causing its interest rates to rise.
C. buy more bonds domestically, causing its interest rates to fall.
D. buy more bonds domestically, causing its interest rates to rise.
99. When a country internationalizes its debt, it:
A. reduces current consumption but increases future consumption.
B. increases current consumption but reduces future consumption.
C. reduces both current and future consumption.
D. increases both current and future consumption.
100. In March 2009, China held $1.95 trillion in foreign reserves. Approximately 40 percent of
China’s reserves were in the form of U.S. Treasuries. This is an example of:
A. a crowding out effect.
B. internationalizing the U.S. debt.
C. policy conversion.
D. the real debt.
101. If a country wants maximum flexibility to pursue its domestic macroeconomic goals, it:
A. does not matter what type of exchange rate system it uses.
B. should use a flexible exchange rate.
C. should use a fixed exchange rate.
D. should use the gold standard.
102. If a country wants to prevent its exchange rate from falling, it could:
A. remove restrictions on imports.
B. place restrictions on imports.
C. pursue easier monetary policy.
D. remove any subsidies on exports.
103. The desire of governments to be able to use monetary and fiscal policies to pursue domestic
goals of stable prices and full employment has been a reason that:
A. fixed exchange rates have been replaced with flexible exchange rates.
B. flexible exchange rates have been replace with fixed exchange rates.
C. countries have tried to stabilize their exchange rates at a high level.
D. countries have tried to stabilize their exchange rates at a low level.
104. A country must adjust its economy to fit its exchange rate when it is using:
A. fiscal policy.
B. flexible exchange rates.
C. monetary policy.
D. fixed exchange rates.
105. The large budget deficits of the U.S. government in the 2000s have not increased U.S.
interest rates because:
A. Americans increased their rate of saving.
B. businesses cut back on investment spending by an equal amount.
C. the value of the U.S. dollar rose.
D. foreigners were willing to buy the increased U.S. debt.
106. If foreigners decide that they no longer want to acquire U.S. financial assets, we can expect
the value of the dollar to:
A. fall and the trade deficit to fall.
B. fall and the trade deficit to rise.
C. rise and the trade deficit to fall.
D. rise and the trade deficit to rise.
107. If the value of the dollar falls relative to other currencies, the price of goods and services
produced in the United States will appear:
A. more expensive to U.S. citizens.
B. the same to foreigners.
C. more expensive to foreigners.
D. cheaper to foreigners.
108. What would make foreigners want to buy more from the United States?
A. Inflation in United States
B. A fall in the value of the dollar in the foreign exchange market
C. Htariffs
D. Lower interest rates in the United States
109. A country highly linked globally has:
A. more flexibility in its monetary and fiscal policy.
B. more flexibility in its exchange rate policy.
C. less flexibility in its monetary and fiscal policy.
D. less flexibility in its exchange rate policy.
110. If an economy has a trade policy of a fixed exchange rate, then its monetary and fiscal
policies are:
A. independent of the trade policy.
B. independent of the trade regime.
C. less restricted when dealing with domestic goals.
D. more restricted when dealing with domestic goals.
111. An effective way for a country to keep its currency fixed at a desirable level is to:
A. use traditional monetary, fiscal, and trade policies.
B. demand changes in monetary and fiscal policies of its trade partners.
C. demand changes in trade policy to its trade partners.
D. use internationalization of the debt.