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Exam

Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Assume the Marshall-Lerner condition holds. Which of the following will cause an increase in net exports?

1)

_______
A)
a real depreciation
B)
an increase in investment
C)
an increase in government spending
D)
a reduction in foreign output
E)
all of the above

2)
An increase in the marginal propensity to import will cause

2)

_______
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.

3)
In a large country, the effect of a given change in government spending

3)

_______
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.

4)
Suppose policy makers want to reduce Y and reduce NX. Which of the following policies would most likely achieve this?

4)

_______
A)
an increase in the real exchange rate
B)
a real appreciation
C)
an increase in taxes and an increase in the real exchange rate
D)
a reduction in government spending

5)
Assume the domestic economy is an open economy. Which of the following will make the government spending
multiplier smaller?

5)

_______
A)
a reduction foreign output
B)
a reduction in the marginal propensity to import
C)
an increase in the marginal propensity to consume
D)
all of the above
E)
none of the above

6)
Assume a country is open. Given this information, which of the following must occur?

6)

_______
A)
S+T=I+G
B)
Demand for domestic goods will be equal to the domestic demand for goods.
C)
Demand for domestic goods will be greater than the domestic demand for goods.
D)
Demand for domestic goods will be less than the domestic demand for goods.
E)
none of the above

7)
Suppose there is a real appreciation. This real appreciation is more likely to cause a reduction in net exports when

7)

_______
A)
the Marshall-Lerner condition does not hold.
B)
domestic output is relatively low.
C)
exports and imports are relatively sensitive to price changes.
D)
foreign output is relatively high.
E)
imports are not at all sensitive to price changes.

8)
Which of the following is true when a country's trade position is balanced (i.e., NX = 0)?

8)

_______
A)
Neither a budget surplus nor deficit exists (i.e., G - T = 0).
B)
Demand for domestic goods is equal to the domestic demand for goods.
C)
Demand for domestic goods is less than the domestic demand for goods.
D)
Demand for domestic goods is greater than the domestic demand for goods.

9)
Policy coordination is difficult because each country

9)
_______
A)
prefers to be the one to increase demand.
B)
prefers that other countries increase taxes.
C)
prefers that other countries increase their demand.
D)
prefers to be the one to increase taxes.
E)
prefers to be the one to appreciate its currency.

10)
The J-curve illustrates the effects of

10)

______
A)
changes in Y on NX.

B)

changes in Y on imports.
C)
changes in Y* on NX.

D)

changes in the real exchange rate on NX.

11)
A reduction in the marginal propensity to import will cause

11)

______
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.
12)
A reduction in private saving (S) can be reflected in

12)

______
A)
a reduction in net exports.

B)

an increase in investment.
C)
an increase in the budget deficit.

D)

all of the above

13)
Which of the following represents the domestic demand for goods?

13)

______
A)
C + I + G - IM/
B)
C + I + G + X - M/
C)
C+I+G+X
D)
C + I + G + X + IM
E)
C+I+G

14)
Assume a country is closed. Given this information, which of the following must occur?

14)

______
A)
A budget surplus exists.
B)
S+T=I+G
C)
Demand for domestic goods will be less than the domestic demand for goods.
D)
Demand for domestic goods will be greater than the domestic demand for goods.
E)
S=I

15)
In a small country, the effect of a given change in government spending

15)

______
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.

16)
Which of the following would cause a reduction in the quantity of imports?

16)

______
A)
an increase in foreign output
B)
an increase in domestic output
C)
a reduction in the real exchange rate
D)
all of the above
E)
none of the above

17)
Which of the following will always cause a reduction in net exports?

17)

______
A)
a decrease in the real exchange rate
B)
an increase in domestic output
C)
a reduction in government spending
D)
a reduction in investment
E)
all of the above

18)
Suppose policy makers want to reduce NX and keep Y constant. Which of the following policies would most likely achieve
this?

18)

______
A)
a reduction in government spending and a reduction in the real exchange rate
B)
a reduction in the real exchange rate and a tax cut
C)
a real appreciation
D)
a reduction in government spending

19)
The expression, IM, represents the value of imports in terms of

19)

______
A)
exports.
B)
domestic goods.
C)
foreign goods.
D)
foreign currency.
E)
domestic currency.

20)
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*?

20)

______
A)
an increase in imports
B)
an increase in domestic income
C)
an increase in net exports
D)
all of the above
E)
both A and C

21)
The Marshall-Lerner condition is less likely to hold when

21)

______
A)
the marginal propensity to consume is very large.
B)
the marginal propensity to consume if very small.
C)
imports and exports are very price-sensitive.
D)
the trade deficit is large.
E)
none of the above

22)
Which of the following is true when a county is experiencing a trade deficit (NX < 0)?

22)

______
A)
A budget deficit exists.
B)
Demand for domestic goods is greater than the domestic demand for goods.
C)
Demand for domestic goods is equal to the domestic demand for goods.
D)
Demand for domestic goods is less than the domestic demand for goods.

23)
A real depreciation will initially cause a reduction in output when which of the following holds?

23)

______
A)
Net exports are initially zero.
B)
Net exports are initially negative.
C)
Net exports are initially positive.
D)
the Marshall-Lerner condition
E)
the J-Curve effect

24)
Which of the following would cause an increase in exports?

24)

______
A)
a reduction in the real exchange rate
B)
a reduction in foreign output
C)
an increase in domestic output
D)
all of the above
E)
none of the above

25)
Which of the following will occur in a small country with a high marginal propensity to import?

25)

______
A)
Changes in government spending will cause large changes in the trade balance.
B)
Changes in government spending will cause large changes in output.
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

26)
Suppose the rest of the world experiences a recession that causes a reduction in foreign income (Y*). From the domestic
economy's perspective, this reduction in foreign income will cause which of the following as the domestic economy
adjusts to the drop in Y*?

26)

______
A)
the NX line to shift up
B)
a reduction in income and a reduction in imports
C)
an ambiguous effect on net exports
D)
a reduction in imports and an increase in net exports

27)
A reduction in the marginal propensity to import will cause

27)

______
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.

28)
Which of the following occurs when the goods market is in equilibrium?

28)
______
A)
Y equals the domestic demand for domestic goods.
B)
Net exports equals 0.
C)
Demand for domestic goods equals the domestic demand for goods.
D)
Y equals the domestic demand for goods.
E)
Domestic output (Y) equals the demand for domestic goods.

29)
For an open economy, which of the following expressions represents net exports (NX)?

29)

______
A)
S+G-T-I
B)
G-T+I-S
C)
S+T-G+I
D)
S+G-T+I
E)
none of the above

30)
For this question, assume that the Marshall-Lerner condition does NOT hold. An increase in the real exchange rate will
tend to cause which of the following to occur?

30)

______
A)
an increase in NX and a reduction in Y

B)

a reduction in NX and an increase in Y


C)
a reduction in NX and a reduction in Y

D)
an increase in NX and an increase in Y

1)

2)
B

3)
A

4)
B

5)
B

6)
E

7)
C

8)
B

9)
C

10)
D

11)
C

12)
A

13)
E

14)
B

15)
D

16)
B

17)
B

18)
B

19)
C

20)
D

21)
E

22)
D

23)
E

24)
A
25)
A

26)
B

27)
A

28)
E

29)
E

30)
D