Question 1

Which of the following equations does NOT state a condition required for equilibrium output:?

Accepted Answer

A)  Y = C(Yd) + I + G + CA(EP*/P,Yd) 
B)  Y = C(Y - T) + I + G + CA(EP*/P,Y - T) 
C)  Y = D(EP*/P,Y - T,I,G) 
D)  R = R* + (EP/
E)  
E)  Y = D(EP*/P,Yd,I,G) 
A)  Y = C(Yd) + I + G + CA(EP*/P,Yd) 
B)  Y = C(Y - T) + I + G + CA(EP*/P,Y - T) 
C)  Y = D(EP*/P,Y - T,I,G) 
D)  R = R* + (EP/
E)  
E)  Y = D(EP*/P,Yd,I,G)

Question 2

What is the best way to describe aggregate demand?

Accepted Answer

A)  quantity required to satisfy equilibrium 
B)  exports decrease; imports increase 
C)  amount of a country's goods and services demanded by households and firms throughout the world 
D)  individual's demand 
E)  domestic demand of foreign imports. 
A)  quantity required to satisfy equilibrium 
B)  exports decrease; imports increase 
C)  amount of a country's goods and services demanded by households and firms throughout the world 
D)  individual's demand 
E)  domestic demand of foreign imports.

Question 3

If the representative basket of European goods and services costs 40 euros, the representative U.S. basket costs $50, and the dollar/euro exchange rate is $0.90 per euro, then the price of the European basket in terms of U.S. basket is

Accepted Answer

A)  [(0.9 $/euro) (40 euro per a European basket)]/[(50 $/U.S. basket)]. 
B)  [(0.9 $/euro) (50 $/U.S. basket)]/[(40 euro per a European basket)]. 
C)  [(40 euro per a European basket)]/[(50 $/U.S. basket) (0.9 $/euro)]. 
D)  [(50 $/U.S. basket)]. 
E)  [(0.9 $/euro) (40 euro per a European basket) (50 $ U.S. basket)]. 
A)  [(0.9 $/euro) (40 euro per a European basket)]/[(50 $/U.S. basket)]. 
B)  [(0.9 $/euro) (50 $/U.S. basket)]/[(40 euro per a European basket)]. 
C)  [(40 euro per a European basket)]/[(50 $/U.S. basket) (0.9 $/euro)]. 
D)  [(50 $/U.S. basket)]. 
E)  [(0.9 $/euro) (40 euro per a European basket) (50 $ U.S. basket)].

Question 4

When an economy is in a liquidity trap

Accepted Answer

A)  monetary policy cannot be used to influence the exchange rate. 
B)  monetary policy can be used to drive interest rates down, but not to drive them up. 
C)  there is an excess demand for bonds. 
D)  people and institutions avoid holding cash balances. 
E)  it can escape only by introducing a hard, or illiquid, currency. 
A)  monetary policy cannot be used to influence the exchange rate. 
B)  monetary policy can be used to drive interest rates down, but not to drive them up. 
C)  there is an excess demand for bonds. 
D)  people and institutions avoid holding cash balances. 
E)  it can escape only by introducing a hard, or illiquid, currency.

Question 5

Give 4 examples of situations that would cause the DD-curve to shift to the left.

Accepted Answer

Correct answers include any situations t

Question 6

In the short run, an increase in government purchases will cause

Accepted Answer

A)  a shift of the DD curve to the left and an increase in output. 
B)  a shift of the DD curve to the right and a decrease in output. 
C)  a shift of the DD curve to the left and a decrease in output. 
D)  a shift of the DD curve to the right and an increase in output. 
E)  a shift of the DD curve the left and an appreciation of the currency. 
A)  a shift of the DD curve to the left and an increase in output. 
B)  a shift of the DD curve to the right and a decrease in output. 
C)  a shift of the DD curve to the left and a decrease in output. 
D)  a shift of the DD curve to the right and an increase in output. 
E)  a shift of the DD curve the left and an appreciation of the currency.

Question 7

Disposable income is defined as

Accepted Answer

A)  Y - C. 
B)  Y - T. 
C)  C - T. 
D)  I - C. 
E)  Y - I. 
A)  Y - C. 
B)  Y - T. 
C)  C - T. 
D)  I - C. 
E)  Y - I.

Question 8

Explain how an increase in government spending would affect the DD-AA schedule in the short run.

Accepted Answer

An increase in government spending will

Question 9

Which of the following is the MOST accurate?

Accepted Answer

A)  Any disturbance that lowers aggregate demand for domestic output shifts the DD schedule to the right. 
B)  Any disturbance that lowers aggregate demand for foreign output shifts the DD schedule to the left. 
C)  Any disturbance that raises aggregate demand for domestic output shifts the DD schedule to the right. 
D)  Any disturbance that raises aggregate demand for domestic output shifts the DD schedule to the left. 
E)  Any disturbance that lowers aggregate demand for domestic output shifts the DD schedule downward. 
A)  Any disturbance that lowers aggregate demand for domestic output shifts the DD schedule to the right. 
B)  Any disturbance that lowers aggregate demand for foreign output shifts the DD schedule to the left. 
C)  Any disturbance that raises aggregate demand for domestic output shifts the DD schedule to the right. 
D)  Any disturbance that raises aggregate demand for domestic output shifts the DD schedule to the left. 
E)  Any disturbance that lowers aggregate demand for domestic output shifts the DD schedule downward.

Question 10

When the real exchange rate rises

Accepted Answer

A)  imports measured in terms of domestic output will rise. 
B)  imports measured in terms of domestic output will fall. 
C)  imports measured in terms of domestic output will never be affected. 
D)  imports measured in terms of domestic output may rise or fall. 
E)  imports measured in terms of foreign output will rise. 
A)  imports measured in terms of domestic output will rise. 
B)  imports measured in terms of domestic output will fall. 
C)  imports measured in terms of domestic output will never be affected. 
D)  imports measured in terms of domestic output may rise or fall. 
E)  imports measured in terms of foreign output will rise.

Question 11

The real exchange rate is:

Accepted Answer

A)  how much of a foreign currency you can buy with the domestic currency. 
B)  foreign CPI divided by the domestic CPI. 
C)  the price of foreign goods in terms of domestic goods. 
D)  the price of foreign goods in dollars. 
E)  the domestic currency divided by the price level. 
A)  how much of a foreign currency you can buy with the domestic currency. 
B)  foreign CPI divided by the domestic CPI. 
C)  the price of foreign goods in terms of domestic goods. 
D)  the price of foreign goods in dollars. 
E)  the domestic currency divided by the price level.

Question 12

Explain how the AA schedule is derived.

Accepted Answer

For a fixed real money supply, an increa

Question 13

When EP   /P rises

Accepted Answer

A)  IM will rise. 
B)  IM will fall. 
C)  IM may rise or fall. 
D)  IM is not affected. 
E)  IM and P* will both rise. 
A)  IM will rise. 
B)  IM will fall. 
C)  IM may rise or fall. 
D)  IM is not affected. 
E)  IM and P* will both rise.

Question 14

If a country's nominal interest rate is zero, then

Accepted Answer

A)  the country's economy is in a liquidity trap. 
B)  exchange rates with other countries are likely to decline. 
C)  exchange rates with other countries are likely to increase. 
D)  monetary policy is likely to be very effective in stimulating the economy. 
E)  the country's economy has achieved monetary equilibrium. 
A)  the country's economy is in a liquidity trap. 
B)  exchange rates with other countries are likely to decline. 
C)  exchange rates with other countries are likely to increase. 
D)  monetary policy is likely to be very effective in stimulating the economy. 
E)  the country's economy has achieved monetary equilibrium.

Question 15

What would be the best description of what we assume about money prices in the short run?

Accepted Answer

A)  Money prices of goods and services vary. 
B)  Money prices of goods and services are not related to each other. 
C)  Money prices of goods are fixed. 
D)  Money prices of services are fixed. 
E)  Money prices of goods and services are only temporarily fixed. 
A)  Money prices of goods and services vary. 
B)  Money prices of goods and services are not related to each other. 
C)  Money prices of goods are fixed. 
D)  Money prices of services are fixed. 
E)  Money prices of goods and services are only temporarily fixed.

Question 16

Explain and give some examples of governmental policy problems.

Accepted Answer

Steady nominal prices give government th

Question 17

Using the DD-AA framework, which one of the following statements is the MOST accurate?

Accepted Answer

A)  Only monetary policy can bring the economy to full employment. 
B)  Only fiscal policy can bring the economy to full employment. 
C)  Only both monetary and fiscal policies can bring the economy to full employment. 
D)  Both policies are capable of bringing the economy to full employment and low inflation. 
E)  Monetary policy by itself or fiscal policy by itself can bring the economy to full employment. 
A)  Only monetary policy can bring the economy to full employment. 
B)  Only fiscal policy can bring the economy to full employment. 
C)  Only both monetary and fiscal policies can bring the economy to full employment. 
D)  Both policies are capable of bringing the economy to full employment and low inflation. 
E)  Monetary policy by itself or fiscal policy by itself can bring the economy to full employment.

Question 18

The Marshall-Lerner Condition states that, all else equal

Accepted Answer

A)  nominal appreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
B)  real depreciation improves the current account if export and import volumes are sufficiently inelastic with respect to the real exchange rate. 
C)  real appreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
D)  real depreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
E)  the sum of import and export elasticities must be equal to one in order for depreciation to occur. 
A)  nominal appreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
B)  real depreciation improves the current account if export and import volumes are sufficiently inelastic with respect to the real exchange rate. 
C)  real appreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
D)  real depreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
E)  the sum of import and export elasticities must be equal to one in order for depreciation to occur.

Question 19

Assuming that the value effect dominates, the current account will increase if

Accepted Answer

A)  the real exchange rate decreases. 
B)  the real exchange rate increases. 
C)  disposable income increases. 
D)  exports fall. 
E)  domestic prices fall. 
A)  the real exchange rate decreases. 
B)  the real exchange rate increases. 
C)  disposable income increases. 
D)  exports fall. 
E)  domestic prices fall.

Question 20

Which one of the following statements is MOST accurate?

Accepted Answer

A)  In general, consumption demand rises by less than disposable income. 
B)  In general, consumption demand rises by more than disposable income. 
C)  In general, consumption demand rises by more than income. 
D)  In general, consumption demand rises by the same amount as disposable income rises. 
E)  In general, consumption demand rises are unrelated to disposable income rises. 
A)  In general, consumption demand rises by less than disposable income. 
B)  In general, consumption demand rises by more than disposable income. 
C)  In general, consumption demand rises by more than income. 
D)  In general, consumption demand rises by the same amount as disposable income rises. 
E)  In general, consumption demand rises are unrelated to disposable income rises.

Exam 17: Output and the Exchange Rate in the Short Run

Which of the following equations does NOT state a condition required for equilibrium output:?

What is the best way to describe aggregate demand?

If the representative basket of European goods and services costs 40 euros, the representative U.S. basket costs $50, and the dollar/euro exchange rate is $0.90 per euro, then the price of the European basket in terms of U.S. basket is

When an economy is in a liquidity trap

Give 4 examples of situations that would cause the DD-curve to shift to the left.

In the short run, an increase in government purchases will cause

Disposable income is defined as

Explain how an increase in government spending would affect the DD-AA schedule in the short run.

Which of the following is the MOST accurate?

When the real exchange rate rises

The real exchange rate is:

Explain how the AA schedule is derived.

When EP /P rises

If a country's nominal interest rate is zero, then

What would be the best description of what we assume about money prices in the short run?

Explain and give some examples of governmental policy problems.

Using the DD-AA framework, which one of the following statements is the MOST accurate?

The Marshall-Lerner Condition states that, all else equal

Assuming that the value effect dominates, the current account will increase if

Which one of the following statements is MOST accurate?

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

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