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91.In 1999, Brazil decided to reduce the value of its currency, the real, in order to boost exports and help the economy to move out of a recession. Argentina, the main trade competitor of Brazil in various products, was immediately affected by Brazil’s decision since it would:
CookMyProjectA.increase Argentina’s imports and decrease Argentina’s trade deficit.
B.decrease Argentina’s exports and increase Argentina’s trade deficit.
C.decrease Argentina’s imports and decrease Argentina’s trade deficit.
D.increase Argentina’s exports and decrease Argentina’s trade deficit.
Devaluation in Brazil would increase the value of Argentina’s peso against the real. Goods from Argentina would be relatively more expensive than those same goods from Brazil. Argentina would experience a reduction in exports and eventually an increase in their trade deficit.
92.If Canada is growing too rapidly and at the same time it is agreeing to work toward reducing its trade surplus, Canada could forsake:
A.its domestic goal and its international commitment simultaneously.
B.its domestic goal but not its international commitment.
C.none of its domestic goals.
D.none of its international commitments.
Canada may use contractionary fiscal and monetary policy to slow the economy, but these policies will reduce income and imports, increasing its trade surplus. Therefore, Canada cannot forsake its international commitment of reducing its trade surplus.
93.Why did Argentina abandon its fixed exchange rate system in 2002?
A.Its economy had improved so much that it was no longer necessary.
B.Domestic economic goals could not be reached if the fixed exchange rate system remained in place.
C.Argentina wanted to adopt contractionary aggregate demand policies that were not consistent with the fixed exchange rate.
D.Argentina was experiencing an economic boom that undermined support for the fixed exchange rate.
Argentina needed to adopt contractionary policies to support the fixed exchange rate, but was in the midst of a recession that would have been aggravated by these policies.
94.Why did Japan run expansionary fiscal policy in the mid-1990s?
A.It wanted to raise the value of the yen for domestic reasons.
B.It was pressured by foreign countries to lower the value of the yen.
C.It was pressured by foreign countries to fight a deep recession.
D.It wanted to hold back an expanding economy.
As the textbook explains, Japan ran expansionary fiscal policy because foreign countries were pressuring it to do so. They wanted to sell more goods to Japanese customers.
95.The basic idea of crowding out is that a budget:
A.deficit will cause the interest rate to go down.
B.deficit will cause the interest rate to go up.
C.surplus will cause the interest rate to go down.
D.surplus will cause the interest rate to go up.
Budget deficits increase the demand for credit, causing interest rates to increase.
96.In the short run, crowding out could be avoided if foreigners:
A.sold the U.S. debt at a higher interest rate.
B.sold the U.S. debt at the existing interest rate.
C.bought the U.S. debt at a higher interest rate.
D.bought the U.S. debt at the existing interest rate.
If foreigners buy U.S. debt at existing interest rates, U.S. interest rates won’t have to increase in the short run.
97.Internationalization of the debt refers to a situation in which the deficit is financed by foreigners:
A.buying the debt, so that crowding out is avoided.
B.buying the debt, so that crowding out is increased.
C.selling the debt, so that crowding out is increased.
D.selling the debt, so that crowding out is avoided.
Internationalization of the debt reduces the pressure on U.S. interest rates since money is borrowed from foreigners.
98.Internationalization of U.S. debt is:
A.helpful in the short run, but harmful in the long run.
B.harmful in the short run, but helpful in the long run.
C.helpful in both the short run and the long run.
D.harmful in both the short run and the long run.
Internationalization of U.S. debt allows the United States to finance its debt at lower interest rates, which is helpful in the short run. Internationalization of the debt reduces future consumption, however, since future consumption must be reduced to repay the debt.
99.In order to pay foreigners interest on the debt, the United States must:
A.increase imports and exports by the same amount.
B.reduce imports and exports by the same amount.
C.export more than it imports.
D.import more than it exports.
The United States must export more than it imports to pay interest on its debt to foreigners because this is the only way it can earn the income needed to make the interest payments.
100.If a country cannot internationalize its debt, then it will have to:
A.sell more bonds domestically, causing its interest rates to fall.
B.sell more bonds domestically, causing its interest rates to rise.
C.buy more bonds domestically, causing its interest rates to fall.
D.buy more bonds domestically, causing its interest rates to rise.
If a country cannot internationalize its debt, it must sell more bonds domestically. To attract additional domestic buyers, domestic interest rates will have to be higher.
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