OPEN ECONOMY-MACRO

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An open economy is defined as an economy affected by imports and exports. Allowing products and services from other countries makes it open. Take up the quiz to understand this part of macroeconomics better. All the best.

Questions and Answers

1.

In the short run, the economy reaches the same real exchange rate and the same level of output, whether it operates under fixed exchange rates or under flexible exchange rates.In the medium run, the economy reaches the same real exchange rate and the same level of output, whether it operates under fixed exchange rates or under flexible exchange rates.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False
2.

In an open economy, the price level affects output through its effects on the real exchange rate.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True
3.

In the short run, a fixed nominal exchange rate implies a fixed real exchange rate.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True
4.

In the medium run, a fixed nominal exchange rate is consistent with an adjustment of the real exchange rate through movements in the price level.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True
5.

A devaluation of the right size can return an economy in recession back to the natural level of output.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True
6.

In an open economy, the “domestic demand for goods” is not the same as the “demand for domestic goods.”
- A.
  
  True
- B.
  
  False
Correct Answer
A. True
7.

A higher real exchange rate makes foreign goods relatively more expensive, leading to a decrease in the quantity of imports.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True
8.

An increase in Y*, or foreign output, leads to higher U.S. exports. An increase in e, the value of foreign goods in terms of domestic goods, also leads to an increase in imports.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False
9.

Increases in demand, both foreign and domestic, lead to an increase in output. However, they have opposite impacts on the trade situation of the country.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True
10.

The Marshall-Lerner condition is the condition under which a real depreciation (an increase in e) leads to an increase in net exports.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

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Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

Current Version
Mar 19, 2022

Quiz Edited by
ProProfs Editorial Team
Apr 09, 2013

Quiz Created by
Emzcansun

Open Economy-macro

In an open economy, the price level affects output through its effects on the real exchange rate.

In the short run, a fixed nominal exchange rate implies a fixed real exchange rate.

In the medium run, a fixed nominal exchange rate is consistent with an adjustment of the real exchange rate through movements in the price level.

A devaluation of the right size can return an economy in recession back to the natural level of output.

In an open economy, the “domestic demand for goods” is not the same as the “demand for domestic goods.”

A higher real exchange rate makes foreign goods relatively more expensive, leading to a decrease in the quantity of imports.

An increase in Y*, or foreign output, leads to higher U.S. exports. An increase in e, the value of foreign goods in terms of domestic goods, also leads to an increase in imports.

Increases in demand, both foreign and domestic, lead to an increase in output. However, they have opposite impacts on the trade situation of the country.

The Marshall-Lerner condition is the condition under which a real depreciation (an increase in e) leads to an increase in net exports.

In the short run, a fixed nominal exchange rate implies a fixed real exchange rate.

In the medium run, a fixed nominal exchange rate is consistent with an adjustment of the real exchange rate through movements in the price level.

A devaluation of the right size can return an economy in recession back to the natural level of output.

Increases in demand, both foreign and domestic, lead to an increase in output. However, they have opposite impacts on the trade situation of the country.

The Marshall-Lerner condition is the condition under which a real depreciation (an increase in e) leads to an increase in net exports.