Question 1

An intertemporal budget constraint

Accepted Answer

A) requires the present value of consumption to be equal to the present value of production. 
B) requires total spending in each period to be equal to total consumption in each period. 
C) does not take into account the ability to borrow or loan goods domestically. 
D) categorizes income into permanent and temporary income. 
E) limits consumption to the amount produced in each time period. 
A) requires the present value of consumption to be equal to the present value of production. 
B) requires total spending in each period to be equal to total consumption in each period. 
C) does not take into account the ability to borrow or loan goods domestically. 
D) categorizes income into permanent and temporary income. 
E) limits consumption to the amount produced in each time period. A

Question 2

Which one of the following statements is the MOST accurate?

Accepted Answer

A) A permanent increase in the money supply cannot have any short-run effects. 
B) A permanent increase in taxes cannot have any short-run effects. 
C) A permanent decrease in the money supply cannot have short-run effects. 
D) A permanent decrease in taxes cannot have short-run effects. 
E) A permanent increase in money demand can be offset with a permanent increase in the money supply of equal magnitude. 
A) A permanent increase in the money supply cannot have any short-run effects. 
B) A permanent increase in taxes cannot have any short-run effects. 
C) A permanent decrease in the money supply cannot have short-run effects. 
D) A permanent decrease in taxes cannot have short-run effects. 
E) A permanent increase in money demand can be offset with a permanent increase in the money supply of equal magnitude. E

Question 3

In the short run,a permanent increase in the domestic money supply

Accepted Answer

A) has stronger effects on the exchange rate and output than an equal temporary increase. 
B) has stronger effects only on the exchange rate but not on output than an equal temporary increase. 
C) has weaker effects on the exchange rate and output than an equal temporary increase. 
D) has stronger effects on output,but lower effect on the exchange rate than an equal temporary increase. 
E) has weaker effects only on the exchange rate than an equal temporary increase. 
A) has stronger effects on the exchange rate and output than an equal temporary increase. 
B) has stronger effects only on the exchange rate but not on output than an equal temporary increase. 
C) has weaker effects on the exchange rate and output than an equal temporary increase. 
D) has stronger effects on output,but lower effect on the exchange rate than an equal temporary increase. 
E) has weaker effects only on the exchange rate than an equal temporary increase. A

Question 4

If consumers experience an decrease in lifetime income,current spending will ________,current saving will ________,and future spending will ________.

Accepted Answer

A) decrease;decrease;decrease 
B) increase;decrease;decrease 
C) increase;decrease;increase 
D) increase;increase;decrease 
E) decrease;increase;increase 
A) decrease;decrease;decrease 
B) increase;decrease;decrease 
C) increase;decrease;increase 
D) increase;increase;decrease 
E) decrease;increase;increase

Question 5

In the short run,a permanent increase in the domestic money supply causes

Accepted Answer

A) a greater upward shift in the DD curve than that caused by an equal,but transitory,increase. 
B) a greater downward shift in the AA curve than that caused by an equal,but transitory,increase. 
C) a smaller upward shift in the AA curve than that caused by an equal,but transitory,increase. 
D) a smaller downward shift in the AA curve than that caused by an equal,but transitory,increase. 
E) a greater upward shift in the AA curve than that caused by an equal,but transitory,increase. 
A) a greater upward shift in the DD curve than that caused by an equal,but transitory,increase. 
B) a greater downward shift in the AA curve than that caused by an equal,but transitory,increase. 
C) a smaller upward shift in the AA curve than that caused by an equal,but transitory,increase. 
D) a smaller downward shift in the AA curve than that caused by an equal,but transitory,increase. 
E) a greater upward shift in the AA curve than that caused by an equal,but transitory,increase.

Question 6

A country's domestic currency's real exchange rate,q,is best described by

Accepted Answer

A) the price of similar goods in the same market. 
B) the price of the domestic basket in terms of the foreign one. 
C) the price of a domestic basket. 
D) the price of the foreign basket in terms of the domestic basket. 
E) the price of different goods baskets in the same market. 
A) the price of similar goods in the same market. 
B) the price of the domestic basket in terms of the foreign one. 
C) the price of a domestic basket. 
D) the price of the foreign basket in terms of the domestic basket. 
E) the price of different goods baskets in the same market.

Question 7

How does an increase in the real exchange rate affect exports and imports?

Accepted Answer

A) exports increase;imports decrease 
B) exports decrease;imports increase 
C) exports increase;imports change ambiguously 
D) exports change ambiguously;imports decrease 
E) exports increase;imports are constant 
A) exports increase;imports decrease 
B) exports decrease;imports increase 
C) exports increase;imports change ambiguously 
D) exports change ambiguously;imports decrease 
E) exports increase;imports are constant

Question 8

How does a rise in real income affect aggregate demand?

Accepted Answer

A) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more. 
B) Y ↑ implies Yd ↑ implies Im ↓ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more. 
C) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↑ implies AD ↑,and Y ↑ implies Yd ↑ implies C ↑ implies AD ↑. 
D) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by less. 
E) Y ↑ implies Yd ↑ implies Im ↓ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by less. 
A) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more. 
B) Y ↑ implies Yd ↑ implies Im ↓ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more. 
C) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↑ implies AD ↑,and Y ↑ implies Yd ↑ implies C ↑ implies AD ↑. 
D) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by less. 
E) Y ↑ implies Yd ↑ implies Im ↓ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by less.

Question 9

Find the real exchange rate for the following case: Assume that the representative basket of European goods and services costs 40 euros and 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

[(0.9 $/euro)(40 eur

Question 10

According to historical data,what is the effect of a sharp change in the current account on the exchange rate (both in the short and long run)?

Accepted Answer

A) At first,home currency will depreciate as CA balance falls,but over time,currency will begin to depreciate. 
B) At first,home currency will appreciate as CA balance falls,but over time,currency will begin to depreciate. 
C) At first,home currency will appreciate as CA balance rises,but over time,currency will begin to depreciate. 
D) At first,home currency will depreciate as CA balance falls,but over time,currency will begin to appreciate. 
E) At first,home currency will appreciate as CA balance falls,but over time,currency will begin to appreciate. 
A) At first,home currency will depreciate as CA balance falls,but over time,currency will begin to depreciate. 
B) At first,home currency will appreciate as CA balance falls,but over time,currency will begin to depreciate. 
C) At first,home currency will appreciate as CA balance rises,but over time,currency will begin to depreciate. 
D) At first,home currency will depreciate as CA balance falls,but over time,currency will begin to appreciate. 
E) At first,home currency will appreciate as CA balance falls,but over time,currency will begin to appreciate.

Question 11

The percent by which import prices rise when the home currency depreciates by 1% is the degree of

Accepted Answer

A) pass-forward from exchange rates to import prices. 
B) pass-through from exchange rates to import prices. 
C) pass-on from exchange rates to import prices. 
D) roll-forward from exchange rates to import prices. 
E) pass-beyond from exchange rates to import prices. 
A) pass-forward from exchange rates to import prices. 
B) pass-through from exchange rates to import prices. 
C) pass-on from exchange rates to import prices. 
D) roll-forward from exchange rates to import prices. 
E) pass-beyond from exchange rates to import prices.

Question 12

Demonstrate how a permanent fiscal expansion will not increase output in the long run.

Accepted Answer

(1)E on Y-axis,Y on X-axis
(2)DD shifts

Question 13

Which one of the following statements is the MOST accurate?

Accepted Answer

A) For asset markets to remain in equilibrium,a rise in domestic output must be accompanied by a depreciation of domestic currency,all else equal. 
B) For asset markets to remain in equilibrium,a fall in domestic output must be accompanied by a depreciation of foreign currency,all else equal. 
C) For asset markets to remain in equilibrium,a rise in domestic output must be accompanied by an appreciation of domestic currency,all else equal. 
D) For asset markets to remain in equilibrium,a fall in domestic output must be accompanied by an appreciation of domestic currency,all else equal. 
E) For asset markets to remain in equilibrium,a fall in domestic output must be accompanied by an appreciation of foreign currency,all else equal. 
A) For asset markets to remain in equilibrium,a rise in domestic output must be accompanied by a depreciation of domestic currency,all else equal. 
B) For asset markets to remain in equilibrium,a fall in domestic output must be accompanied by a depreciation of foreign currency,all else equal. 
C) For asset markets to remain in equilibrium,a rise in domestic output must be accompanied by an appreciation of domestic currency,all else equal. 
D) For asset markets to remain in equilibrium,a fall in domestic output must be accompanied by an appreciation of domestic currency,all else equal. 
E) For asset markets to remain in equilibrium,a fall in domestic output must be accompanied by an appreciation of foreign currency,all else equal.

Question 14

Imagine that the economy is at a point that is above both AA and DD,where both the output and asset markets are out of equilibrium.Which first action is TRUE?

Accepted Answer

A) The economy will stay at this level in the short run. 
B) The exchange rate will first drop to a point on the AA schedule. 
C) The exchange rate will first move to a point on the DD schedule. 
D) The AA-DD equilibrium will shift to the position of the economy. 
E) The exchange rate will first move left to a position on the AA schedule. 
A) The economy will stay at this level in the short run. 
B) The exchange rate will first drop to a point on the AA schedule. 
C) The exchange rate will first move to a point on the DD schedule. 
D) The AA-DD equilibrium will shift to the position of the economy. 
E) The exchange rate will first move left to a position on the AA schedule.

Question 15

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 16

Current account is given by the equation:

Accepted Answer

A) CA = IM - EX (measured in terms of domestic output). 
B) CA = IM - EX (measured in terms of foreign output). 
C) CA = EX - IM (measured in terms of domestic output). 
D) CA = EX - IM (measured in terms of foreign output). 
E) CA = EX + IM (measured in terms of domestic output). 
A) CA = IM - EX (measured in terms of domestic output). 
B) CA = IM - EX (measured in terms of foreign output). 
C) CA = EX - IM (measured in terms of domestic output). 
D) CA = EX - IM (measured in terms of foreign output). 
E) CA = EX + IM (measured in terms of domestic output).

Question 17

Explain what are the factors that shift the DD Schedule.

Accepted Answer

A change in government demand,change in

Question 18

In the short run,a tax increase

Accepted Answer

A) shifts the DD curve to the right,increases output and appreciates the currency. 
B) shifts the AA curve to the left,increases output and depreciates the currency. 
C) shifts the AA curve to the left,decreases output and depreciates the currency. 
D) shifts the AA curve to the left,increases output and appreciates the currency. 
E) shifts the DD curve to the left,decreases output and depreciates the currency. 
A) shifts the DD curve to the right,increases output and appreciates the currency. 
B) shifts the AA curve to the left,increases output and depreciates the currency. 
C) shifts the AA curve to the left,decreases output and depreciates the currency. 
D) shifts the AA curve to the left,increases output and appreciates the currency. 
E) shifts the DD curve to the left,decreases output and depreciates the currency.

Question 19

Imagine that the economy is at a point that is below both AA and DD,where both the output and asset markets are out of equilibrium.Which first action is TRUE?

Accepted Answer

A) The economy will stay at this level in the short run. 
B) The exchange rate will first rise to a point on the AA schedule. 
C) The exchange rate will first rise to a point on the DD schedule. 
D) The AA-DD equilibrium will shift to the position of the economy. 
E) The output level will first increase to a position on the DD schedule. 
A) The economy will stay at this level in the short run. 
B) The exchange rate will first rise to a point on the AA schedule. 
C) The exchange rate will first rise to a point on the DD schedule. 
D) The AA-DD equilibrium will shift to the position of the economy. 
E) The output level will first increase to a position on the DD schedule.

Question 20

In the short run,a temporary increase in money supply

Accepted Answer

A) shifts the DD curve to the right,increases output and appreciates the currency. 
B) shifts the AA curve to the left,increases output and depreciates the currency. 
C) shifts the AA curve to the left,decreases output and depreciates the currency. 
D) shifts the AA curve to the left,increases output and appreciates the currency. 
E) shifts the AA curve to the right,increases output and depreciates the currency. 
A) shifts the DD curve to the right,increases output and appreciates the currency. 
B) shifts the AA curve to the left,increases output and depreciates the currency. 
C) shifts the AA curve to the left,decreases output and depreciates the currency. 
D) shifts the AA curve to the left,increases output and appreciates the currency. 
E) shifts the AA curve to the right,increases output and depreciates the currency.

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

An intertemporal budget constraint

Which one of the following statements is the MOST accurate?

In the short run,a permanent increase in the domestic money supply

If consumers experience an decrease in lifetime income,current spending will ________,current saving will ________,and future spending will ________.

In the short run,a permanent increase in the domestic money supply causes

A country's domestic currency's real exchange rate,q,is best described by

How does an increase in the real exchange rate affect exports and imports?

How does a rise in real income affect aggregate demand?

According to historical data,what is the effect of a sharp change in the current account on the exchange rate (both in the short and long run)?

The percent by which import prices rise when the home currency depreciates by 1% is the degree of

Demonstrate how a permanent fiscal expansion will not increase output in the long run.

Which one of the following statements is the MOST accurate?

Imagine that the economy is at a point that is above both AA and DD,where both the output and asset markets are out of equilibrium.Which first action is TRUE?

What is the best way to describe aggregate demand?

Current account is given by the equation:

Explain what are the factors that shift the DD Schedule.

In the short run,a tax increase

Imagine that the economy is at a point that is below both AA and DD,where both the output and asset markets are out of equilibrium.Which first action is TRUE?

In the short run,a temporary increase in money supply

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

Filters

If consumers experience an decrease in lifetime income,current spending will ,current saving will ,and future spending will .