Because of the United States' long-standing trade deficit with Japan, the supply of U.S. dollars in Japan has increased. Which of the following is true about this situation?
A. The trade deficit will continue to increase in size as Japan gains more U.S. dollars and economic strength.
B. We cannot say anything for sure about the trade deficit other than that it exists.
C. The value of the U.S. dollar will decrease in terms of the yen, ceteris paribus, thereby reducing the trade deficit.
D. Trade restrictions on Japanese imported goods are ultimately the only way to reduce the trade deficit.
Answer: C
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In recent years, Japan's capital stock has increased by about 6 percent from one year to the next. As a result, we would expect
A) a leftward shift in Japan's aggregate demand curve. B) a movement up along Japan's short-run aggregate supply curve. C) only Japan's long-run aggregate supply curve to shift rightward. D) rightward shifts in both Japan's short-run aggregate supply and long-run aggregate supply curves.
Forward-looking households may reduce consumption expenditures today if they believe that the government is currently
A) borrowing to run a budget deficit, and to pay back these loans in the future may require higher taxes. B) running a budget surplus, and the increase in the government's supply of money will generate inflation in the future. C) experiencing a balanced budget, and will therefore not be implementing any fiscal policy to stabilize the economy. D) cutting federal spending to decrease the budget deficit, which will raise the real interest rate, the inflation rate , and the unemployment rate.