Economics Quiz Solution - Spring 2024: Assessment Review

This document presents solutions to an economics quiz covering various economic concepts. It addresses questions related to trade deficits, the impact of money supply on interest rates and investment, and the role of the Federal Reserve in managing inflation. The quiz explores topics such as fiscal policy, currency devaluation, and its effects on international trade. It also delves into the relationship between economic growth, real GDP, and the factors influencing it, along with the implications of government debt and foreign reserves. The solutions offer insights into the complexities of macroeconomic principles and provide a comprehensive understanding of the quiz questions. The quiz also covers topics like the impact of interest rates, trade deficits, and the role of government policies in influencing the economy. The document provides detailed explanations for each question, offering a valuable resource for students seeking to deepen their understanding of economics.

Question 1- With regards to US, the trade deficit is significant and it has been the case since last
many years. This is primarily because the imports of US are consistently significantly greater than
then corresponding exports. Also, the country runs budgetary deficit caused by the expenditure
being greater than the revenues for the Federal government. This creates a need to increase the
debt so as to fund the deficit. Owing to continuation of this policy coupled with quantitative3 easing,
the debt levels have become unsustainably high. Going forward, it is essential that these deficits
need to be corrected for which the devaluation of US dollar seems necessary. Owing to the
devaluation of the USD, the exports from US would become more competitive while the imports
would become expensive. This would help the nation in reducing the trade deficit and thereby allow
for peaking or reduction of the national debt which has reached in trillions.
Question 2 - An increase in the money supply will lower the interest rate, increase investment
spending, and increase GDP.
Question 4 - To raise interest rates to control the rising inflation
Question 5 - sell securities through its open market operations.
Question 6- an increase in the price level accompanied by decreases in real output and employment
Question 7- it involves massive direct central bank financing of national governments by printing
money
Question 8 - one indication that it is keeping its currency undervalued is the countryґs accumulation
of foreign reserves
Question 9 - both b and d are true
Question 10 - interest-rate increases that are greater in Sweden than in the euro area
Question 11 - By running a trade deficit
Question 12 - through the exchange rate
Question 13- for the U.S. government to devalue the dollar on international currency markets
Question 14- exported more goods and services than it imported
Question 15- sell the currency on international markets, accumulating foreign reserves
Question 16 - for Spaniards to devaluate their currency relative to their main trading partners for
Spaniards to buy only Spanish goods, thus improving the trade balance
Question 17 - the makers of fiscal policy are subject to political pressure and may use spending and
taxes for political purposes, thus destabilizing the economy
Question 18 - The country is increasing the level of its foreign debt
Question 19 – taxes could be decreased