A rising exchange rate raises U.S. living standards by: encouraging exports. hel

Question

A rising exchange rate raises U.S. living standards by: encouraging exports. helping to hold down inflation. discouraging imports. causing a balance of trade surplus.

2. A tariff designed to eliminate foreign competition completely will be expected to raise: a relatively small amount of tax revenue. a relatively large amount of tax revenue. an amount of revenue equal to the amount of the tariff multiplied by the volume of exports. either a large or a small amount of revenue depending on the magnitude of the tariff imposed

. 3. A trade deficit allows a country to: produce more than it consumers. produce up to the level of desired consumption. consume up to the level of potential production. consume more than it produces.

4. According to the structural stagnation hypothesis, expansionary macro policy tends to lead to: goods inflation. asset price inflation. goods deflation low exchange rates.

QUESTION 5 According to the structural stagnation hypothesis, the expansionary policy carried out by the government led to the illusion that the policies were: leading to long-term economic health. causing goods inflation. effective in reducing the trade deficit. improving U.S comparative advantages.

QUESTION 6 As a country develops economically, what changes usually take place in the goods it exports? There is little change because comparative advantage does not change. Services and manufactured goods decline in importance and are replaced by raw materials and agricultural products. Exports go from being diversified to being specialized in whatever the country finds to be its comparative advantage. Raw materials and agricultural products decline in importance and are replaced by services and manufactured goods.

QUESTION 7 As domestic income decreases, the trade balance: is not likely to change is likely to worsen. is likely to improve. may improve or worsen depending on the size of the decrease in income.

QUESTION 8 Compared to earlier recessions, in the 2008 downturn employment: took longer to return to its pre-recession peak. took about the same amount of time to return to its pre-recession peak. returned to its pre-recession peak in less time. Changes in employment cannot be compared across recessions because every recession is different.

QUESTION 9 Economists believe free trade areas such as NAFTA and the European Union are problematic because they encourage countries to rely on others rather than being self-sufficient. lead to globalization. tend to lead to free trade rather than fair trade. can lead to regional trading blocs that restrict trade with outsiders.

QUESTION 10 Expansionary fiscal policy tends to: raise U.S. income, increase U.S. imports, and increase the trade deficit. raise U.S. income, increase U.S. imports, and lower the trade deficit. lower U.S. income, reduce U.S. imports, and lower the trade deficit. lower U.S. income, reduce U.S. imports, and increase the trade deficit.

QUESTION 11 Expansionary monetary policy tends to: increase the U.S. interest rate and decrease the U.S. exchange rate. increase the U.S. interest rate and increase the U.S. exchange rate. lower the U.S. interest rate and increase the U.S. exchange rate. lower the U.S. interest rate and decrease the U.S. exchange rate.

QUESTION 12 From the late 1990s into the early 2000s, Hong Kong suffered from deflation. Most economists believed that the period of deflation ended and that inflation would begin to pick up slowly. Prices, however, were believed to be held in check because the Hong Kong dollar is pegged to the U.S. dollar. What does the monetary authority in Hong Kong have to do to peg its dollar to the U.S. dollar? It will sell Hong Kong dollars when the price of the Hong Kong dollar rises and buy them when the price of the Hong Kong dollar drops. It will sell Hong Kong dollars when the price of the Hong Kong dollar drops and buy them when the price of the Hong Kong dollar rises. It will raise tariffs when the value of the Hong Kong dollar falls and lower them when the value of the Hong Kong dollar rises. It does not allow free trade in U.S. dollars; the foreign exchange market is illegal.

QUESTION 13 Higher U.S. interest rates usually cause: a drop in the U.S. dollar exchange rate. no change in foreign investment in the United States. foreign capital to leave the United States. foreign capital to enter the United States.

QUESTION 14 If Japan has most-favored nation status with the United States, its exports are: subject to higher U.S. tariffs than exports from any other country. subject to the same U.S. tariffs as other nations that have been granted most-favored nation status by the United States. subject to lower U.S. tariffs than are exports from any other country. not subject to any U.S. tariffs.

QUESTION 15 If the financial and capital account has a deficit, the: balance of payments must have a deficit. balance of payments must have a surplus. balance on the current account must have a deficit. balance on the current account must have a surplus.

QUESTION 16 If the government chooses not to buy or sell foreign currencies, it has a: fixed exchange rate. gold standard. flexible exchange rate. partially flexible exchange rate.

QUESTION 17 In general, why are trade embargoes implemented? To raise revenue from trade. To benefit emerging industries. To lower domestic unemployment rates. For political reasons.

QUESTION 18 In the U.S. current account, most of the trade deficit results from an excess of imported: merchandise and services. merchandise. transfers. services.

QUESTION 19 In the globalized AS/AD model, the world supply curve is: vertical. upward-sloping. horizontal. downward-sloping.

Explanation / Answer

1.)

Rising exchange rate means domestic currency is appreciating against the foreign currency. It makes import relatively cheaper and inflow of more commodities eases down inflation rate in economy. Hence, living standard of people increases.

Hence right answer is : Helping to hold down inflation.

2)

Right answer is: “either a large or a small amount of revenue depending on the magnitude of the tariff imposed”

Share of revenue depends on the magnitude of tariffs imposed by the government. Higher rate will bring relatively larger revenue.

3)

Right answer : consume more than it produces.

Trade deficit means Import is larger than export of country. Hence, inflow is larger than outflow.

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