Question : 31) Refer to Figure 20.4. The demand and supply of : 1381294

31) Refer to Figure 20.4. The demand and supply of pounds are S2 and D2. Which of the following can change the equilibrium exchange rate ($/pound) to $2.50 and the equilibrium quantity to 400 pounds?

A) an increase in income in the United States

B) a sudden dislike of British products in the United States

C) an increase in the price level in Great Britain

D) a decrease in the price level in the United States

32) Refer to Figure 20.4. The demand and supply of pounds are S2 and D2. Which of the following can change the equilibrium exchange rate ($/pound) to $1.50 and the equilibrium quantity to 400 pounds?

A) British purchases of U.S.-made cars increase

B) United States purchases of British-made cars increase

C) the price level in Great Britain decreases

D) income in Great Britain decreases

33) The J-curve effect refers to the observation that

A) the trade balance usually gets worse before it improves after a currency depreciation.

B) GDP usually decreases before it increases after a currency appreciation.

C) the trade balance usually gets worse before it improves after a currency appreciation.

D) GDP usually decreases before it increases after a currency depreciation.

34) The J-curve effect suggests that the depreciation of a nation’s currency may

A) increase its exports and decrease its imports.

B) increase its imports and decrease its exports.

C) have an ambiguous effect on its balance of trade.

D) lead to economic ruin.

35) Why does the depreciation of a country’s currency tend to increase its price level?

A) domestic buyers tend to substitute imports for domestic products

B) a currency depreciation makes a country’s products less competitive in world markets, so exports fall

C) a currency depreciation makes imported inputs more expensive

D) a currency depreciation makes imported inputs less expensive

36) The openness of the economy and flexible exchange rates

A) increase the effectiveness of a contractionary monetary policy, but reduce the effectiveness of an expansionary monetary policy.

B) reduce the effectiveness of both expansionary and contractionary monetary policies.

C) increase the effectiveness of both expansionary and contractionary monetary policies.

D) increase the effectiveness of an expansionary monetary policy, but reduce the effectiveness of a contractionary monetary policy.

37) Fiscal policies are

A) less effective when the exchange rate is flexible and the economy is closed.

B) less effective when the exchange rate is flexible and the economy is open.

C) more effective when the exchange rate is flexible and the economy is closed.

D) less effective when the exchange rate is fixed and the economy is open.

38) If the Fed reduces the money supply to reduce inflation, a floating exchange rate will aid the Fed in fighting inflation because

A) as the money supply is decreased, the interest rate will increase, and the price of U.S. exports will fall and the price of U.S. imports will rise.

B) as the money supply is decreased, the interest rate will increase, and the price of U.S. exports will rise and the price of U.S. imports will fall.

C) as the money supply is decreased, the interest rate will increase, and the price of both U.S. exports and U.S. imports will rise.

D) as the money supply is decreased, the interest rate will increase, and the price of U.S. exports and U.S. imports will fall.

39) Expansionary monetary policy

A) tends to lead to an appreciation of a nation’s currency.

B) usually has no effect on a currency’s exchange value.

C) tends to lead to a depreciation of a nation’s currency.

D) tends to lead to a depreciation of the currencies of other nations.

40) Which of the following policies tends to cause the dollar to appreciate?

A) an expansionary monetary policy

B) an expansionary fiscal policy

C) a contractionary fiscal policy

D) a combination of an expansionary monetary policy and a contractionary fiscal policy

41) Related to the Economics in Practice on p. 703: By keeping the value of the yuan relatively low, the Chinese government has essentially ________ exports from China and made foreign goods ________ inChina.

A) increased; more expensive

B) increased; less expensive

C) decreased; more expensive

D) decreased; less expensive

42) Related to the Economics in Practice on p. 703: Many countries believe the Chinese government has ________ the yuan in order to ________.

A) overvalued; narrow its trade gap

B) overvalued; decrease imports

C) undervalued; increase exports

D) undervalued; lower the domestic prices of foreign imports

43) Related to the Economics in Practice on p. 705: Countries that use a common currency like the euro do not have the ability to

A) conduct independent monetary policy.

B) conduct independent fiscal policy.

C) trade in an open economy.

D) effectively reduce trade gaps.