Question 1

When other countries threatened to limit Japanese imports, Japan took steps to:

Accepted Answer

Japan increased the value of the yen to make its exports more expensive and imports cheaper, which helped to decrease its trade surplus. This was a response to international pressure to address trade imbalances.

Question 2

The U.S. exchange rate has:

Accepted Answer

The U.S. exchange rate has significantly fluctuated over the past 30 years due to various economic factors, including changes in interest rates, inflation, and economic policies.

Question 3

Considering only its direct effect on income, expansionary monetary policy tends to:

Accepted Answer

Expansionary monetary policy typically leads to a decrease in interest rates, which tends to reduce the value of a country's currency (decrease the exchange rate). A lower exchange rate makes a country's exports cheaper and imports more expensive, potentially increasing the trade deficit as imports increase and exports may not increase proportionally.

Question 4

Domestic goals dominate international goals for all of the following reasons except:

Accepted Answer

Countries becoming more economically integrated is a reason why international goals might be prioritized or considered important, not a reason why domestic goals would dominate over international ones. Economic integration often necessitates considering and sometimes prioritizing international goals due to their direct impact on a country's economy.

Question 5

Considering only its direct effect on income, contractionary monetary policy tends to:

Accepted Answer

Contractionary monetary policy typically involves increasing interest rates, which tends to attract foreign investment, increasing the demand for the domestic currency and thus increasing its value (exchange rate). A stronger currency makes imports cheaper and exports more expensive, potentially decreasing the trade deficit by reducing the volume of imports and/or increasing the value of exports.

Question 6

Considering only its direct effect on income, the effect of monetary policy is that:

Accepted Answer

Expansionary monetary policy typically leads to lower interest rates, which can increase domestic consumption, including of imported goods, thus potentially increasing the trade deficit. Contractionary policy, on the other hand, tends to raise interest rates, which can decrease consumption and imports, potentially decreasing the trade deficit.

Question 7

The reason that domestic goals tend to dominate the political agenda is that:

Accepted Answer

Domestic goals often dominate the political agenda because issues like inflation, unemployment, and growth have a direct and immediate impact on the lives of a country's citizens, influencing their well-being and economic stability.

Question 8

The U.S. trade deficit is most likely to be harmful in the future if:

Accepted Answer

The U.S. trade deficit could be harmful if the inflow of financial capital does not finance productive investment. This is because, without productive investment, the economy may not generate sufficient returns to offset the liabilities created by the deficit, potentially leading to economic problems.

Question 9

As domestic income decreases, the trade balance:

Accepted Answer

When domestic income decreases, consumers have less money to spend, which typically leads to a decrease in imports. If exports remain constant or do not decrease as much, the trade balance (exports minus imports) is likely to improve.

Question 10

Albania wants to maintain its exchange rate of $0.20 per lek. However, the market for lek per U.S. dollar has determined an exchange rate of $0.14 per lek (depreciation of the lek against the U.S. dollar). The Albanian central bank decides to increase the domestic interest rates through a contractionary monetary policy. This would shift the:

Accepted Answer

Increasing domestic interest rates would make lek-denominated assets more attractive to investors, increasing the demand for lek and causing it to appreciate in value.

Question 11

International goals become primary goals when:

Accepted Answer

International goals can become primary when there is international pressure, as countries may prioritize these goals to maintain good relations, comply with international agreements, or respond to global crises.

Question 12

The Chinese government slowly increased the value of the yuan from 8.1 yuan per dollar in January 2006 to 7.69 yuan per dollar in May 2007. The Chinese government's objective in increasing the value of its currency was to:

Accepted Answer

By increasing the value of the yuan, Chinese exports become more expensive to foreign buyers, which can decrease the trade surplus. Additionally, a stronger yuan makes imports cheaper, which can help prevent domestic price levels from rising further by reducing the cost of imported goods and services.

Question 13

Some economists believe that the high U.S. trade deficit should not be a concern because the:

Accepted Answer

A) The inflow of financial capital financing new investment can lead to the production of more goods in the future, potentially reversing the deficit without causing serious disruptions to the economy. This is a common argument among some economists who view the trade deficit in a less negative light, emphasizing the potential for future growth and adjustment.

Question 14

During 2007, the United States and Japan announced possible limits on Chinese imports through higher tariffs on Chinese products. To avoid these limits, China would have had to:

Accepted Answer

To avoid the limits on its imports through higher tariffs, China would have needed to increase the value of the yuan, making its exports more expensive and imports cheaper, thereby decreasing its trade surplus.

Question 15

In the short run, a trade deficit allows more consumption, but in the long run, a trade deficit is a problem because the:

Accepted Answer

In the long run, a trade deficit means a country is borrowing from abroad to finance its consumption, which eventually requires it to produce more than it consumes to repay the debt and profits to foreigners.

Question 16

Considering only its direct effect on income, contractionary monetary policy tends to:

Accepted Answer

Contractionary monetary policy typically involves increasing interest rates to reduce inflation, which can lead to a decrease in spending and investment. This reduction in spending can lead to lower income and imports, potentially improving the trade balance by reducing the deficit or moving it towards a surplus.

Question 17

Considering only its direct effect on income, expansionary monetary policy tends to:

Accepted Answer

Expansionary monetary policy typically increases income by lowering interest rates, which stimulates investment and consumption. Higher income increases demand for imports, potentially leading to a larger trade deficit.

Question 18

If foreigners become unwilling to hold U.S. assets, the U.S. trade balance will:

Accepted Answer

If foreigners are unwilling to hold U.S. assets, the demand for the U.S. dollar decreases, leading to a depreciation of the dollar. This makes U.S. exports cheaper and imports more expensive, potentially reducing the trade deficit.

Question 19

Since 1970, the U.S. trade balance has:

Accepted Answer

Since 1970, the U.S. trade balance has predominantly been in deficit, meaning that the value of imports has exceeded the value of exports in most years.

Question 20

All of the following are international (as opposed to domestic)policy goals for the United States except:

Accepted Answer

Low inflation is primarily a domestic policy goal, as it focuses on maintaining the purchasing power of the domestic currency and controlling the rate at which prices for goods and services rise within a country. The other options (B, C, D) are directly related to international economic relations and trade policies.

Quiz 36: Macro Policy in a Global Setting

When other countries threatened to limit Japanese imports, Japan took steps to:

The U.S. exchange rate has:

Considering only its direct effect on income, expansionary monetary policy tends to:

Domestic goals dominate international goals for all of the following reasons except:

Considering only its direct effect on income, contractionary monetary policy tends to:

Considering only its direct effect on income, the effect of monetary policy is that:

The reason that domestic goals tend to dominate the political agenda is that:

The U.S. trade deficit is most likely to be harmful in the future if:

As domestic income decreases, the trade balance:

International goals become primary goals when:

The Chinese government slowly increased the value of the yuan from 8.1 yuan per dollar in January 2006 to 7.69 yuan per dollar in May 2007. The Chinese government's objective in increasing the value of its currency was to:

Some economists believe that the high U.S. trade deficit should not be a concern because the:

During 2007, the United States and Japan announced possible limits on Chinese imports through higher tariffs on Chinese products. To avoid these limits, China would have had to:

In the short run, a trade deficit allows more consumption, but in the long run, a trade deficit is a problem because the:

Considering only its direct effect on income, contractionary monetary policy tends to:

Considering only its direct effect on income, expansionary monetary policy tends to:

If foreigners become unwilling to hold U.S. assets, the U.S. trade balance will:

Since 1970, the U.S. trade balance has:

All of the following are international (as opposed to domestic) policy goals for the United States except: