1. Decreasing the income tax rate in the U.S. will stimulate U.S. merchandise exports, and shrink the trade deficit.

True

False

2. If Mexico's inflation rate increases relative to that in the U.S., the dollar will appreciate.

TRUE

FALSE.

3. Persistent trade deficits indicate that the country's currency is overvalued.

TRUE

FALSE.

4. The yen will appreciate against the dollar if Japan's economy contracts, while the U.S. economy continues to expand.

TRUE

FALSE.