Reference no: EM133985909
Questions
1. For this question, assume that equilibrium output is determined in the _ZZ_- _Y_ diagram. Further assume that policy makers' goals are: (1) to achieve balanced trade (i.e., _NX_ = 0); and (2) to achieve a target level of output, say _YT_. Now suppose that the initial level of equilibrium output is equal to _YT_ (i.e., _Y_ = _YT_) and that a trade deficit exists at this initial level of output. Which of the following policy actions would most likely enable the policy makers to achieve their two goals simultaneously?
a. a reduction in the real exchange rate
b. a reduction in taxes
c. None of the answers.
d. a reduction in government spending
e. Convince the country's trading partners to pursue policies that will cause an increase in foreign income ( _Y_ *).
2. Assume a country is closed. Given this information, which of the following must occur?
a. _S_ = _I_
b. Demand for domestic goods will be greater than the domestic demand for goods.
c. _S_ + _T_ = _I_ + _G_
d. Demand for domestic goods will be less than the domestic demand for goods.
e. A budget surplus exists.
3. In 2008, output per capita in Australia was approximately equal to:
a. A $52,800.
b. A $45,800.
c. A $34,800.
d. A $28,800.
4. Suppose two countries make a credible commitment to fix their bilateral exchange rate. In such a situation, we know that:
a. neither country will run a trade deficit.
b. the uncovered interest parity condition no longer holds.
c. the real exchange rate must be constant as well.
d. the interest rate in the two countries must be equal.
e. each country can freely allow its interest rate to diverge from that of the other country.
5. Assume that the price levels in two countries are constant. In this situation, we know that:
a. the nominal exchange rate will fluctuate more widely than the real exchange rate.
b. the nominal exchange rate can change, while the real exchange rate is constant.
c. the real exchange rate can change, while the nominal exchange rate is constant.
d. the real and nominal exchange rate must move together, changing by the same percentage.
e. neither the real nor the nominal exchange rate can change.