Download ch 16 and 20

1. (p. 315) During the 1990s Japan experienced a falling price level, or deflation. Assuming that the deflation was
unexpected, it benefited:
C. only lenders.
Lenders benefited from deflation in this case because the purchasing power of the money used to repay loans
exceeded the purchasing power of the initial loans.
2. (p. 317) The short-run aggregate supply curve will shift up if:
D. wages are increasing faster than productivity.
When this is true, inflation occurs, causing the SAS curve to shift up.
3. (p. 318) The velocity of money is:
B. the average number of times each dollar is spent each year.
Velocity measures the average rate at which a dollar is spent during a year.
4. (p. 321) The institutionalist theory of inflation differs from that of the quantity theory by focusing on:
A. how firms determine wages and prices.
The institutionalist theory of inflation focuses on institutional price-setting behavior.
5. (p. 325) The problem portrayed by the short-run Phillips curve is that:
C. inflation tends to increase when unemployment falls.
The short-run Phillips curve shows an inverse relationship between unemployment and inflation which is the
problem for policy makers.
6. (p. 414) If the quantity of currency demanded exceeds the quantity supplied, then there is a:
A. balance of payments surplus.
More goods and assets are demanded by foreigners from the domestic economy than are being supplied to the
domestic economy. As a result there is a balance of payments surplus.
7. (p. 409) Canadian exports involve an:
B. inflow of Canadian dollars from foreigners to Canada.
Any country's exports imply an inflow of local currency from foreigners. In this case, foreigners must first buy
Canadian dollars in the exchange market.
8. (p. 413) If the price of country's currency is above the equilibrium price and flexible exchange rates, then the:
D. domestic currency will lose value.
Since the price of the domestic currency is too high, supply exceeds demand and the currency depreciates.
9. (p. 417) Expansionary monetary policy tends to:
B. lower the U.S. interest rate and decrease the U.S. exchange rate.
Expansionary monetary policy reduces U.S. interest rates and lowers the demand for the dollar, causing the
dollar to decline in value.
10. (p. 417) If the U.S. wants to strengthen the value of the dollar, it should use:
C. contractionary monetary policy.
A contractionary monetary policy will raise U.S. interest rates and reduce U.S. income and prices, all of which
strengthen the dollar. Fiscal policy has an ambiguous effect on the dollar.