Question

Question 1

Suppose the exchange rate changes so that less Japanese yen are required to buy a dollar. We could conclude that:

A. the Japanese yen has appreciated in value.

B.U.S. citizens will buy more Japanese imports.

C. Japanese will demand less U.S. exports.

D. U.S. citizens will buy more Japanese imports.

Question 2

An increase in the value of the Japanese yen relative to the U.S. dollar will

A. increase aggregate demand in the United States.

B. decrease aggregate supply in the United States.

C. increase aggregate demand in Japan.

D. increase aggregate supply in Japan.

Question 3

Table 20-1
Suppose the economy of Macroland is described by the following:
C = 200 + .8DI (DI = disposable income)
I = 300 + .2Y − 50r (Y = GDP)
(r, the interest rate, is measured in percentage points. For example, a 9 percent interest rate is r = 9).

For this economy, assume that the Federal Reserve uses its monetary policy to peg the interest rate at
r = 6
G = 750
T = .20Y
X = 200
M = 150 + .2Y
Hint: DI = Y − T

From Table 20-1, compute equilibrium GDP for Macroland.

A. 2,917

B. 2,778

C. 2,625

D. 2,525

Question 4

For the U.S, a major open economy with extensive capital flows, what is the effect of a decrease in interest rates due to expansionary monetary policy?

A. a currency depreciation and increased net exports

B. a currency depreciation and reduced net exports

C. a currency appreciation and increased net exports

D.a currency appreciation and reduced net exports

 

Answer 1

Question 1

When less Japanese Yen is required to buy 1 dollar, this means Japanese Yen has appreciated in its value vis-a-vis dollar. Japan can now imports relatively higher as imports has become cheaper. US dollar has depreciated and hence, would purchase import relatively less as imports has become expensive.

Hence, the correct answer is A

Question 2

When there is relatively higher increase in the value of Japanese Yen vis-a-vis US dollar, this means US dollar has depreciated. The exports from US would increase. Since Exports are the part of aggregate demand of US, the US aggregate demand would increase.

Hence, the correct answer is A

Question 3

The equilibrium GDP is given by: Y = C + I + G + X - M

Thus, equilibrium GDP is 2778

The correct answer is B

Question 4

When there is lowering of interest rate due to expansionary monetary policy, there will be flight of domestic currency to foreign country in search for better return. That means, supply of domestic currency increases. This leads to depreciation of domestic currency. The exports would become relatively cheaper. The net exports would increase.

Hence, the correct answer is A