Question 1

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 2

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 3

In the short run,with prices fixed,how would an increase in government spending affect the DD-AA equilibrium?

Accepted Answer

A) It will increase output and appreciate the currency. 
B) It will increase output and depreciate the currency. 
C) It will decrease output and appreciate the currency. 
D) It will decrease output and depreciate the currency. 
E) It will increase output and have no effect on the currency. 
A) It will increase output and appreciate the currency. 
B) It will increase output and depreciate the currency. 
C) It will decrease output and appreciate the currency. 
D) It will decrease output and depreciate the currency. 
E) It will increase output and have no effect on the currency.

Question 4

What is inflation bias? What measures have governments taken to avoid it?

Accepted Answer

Inflation bias is caused when a governme

Question 5

Explain the difference between the following two expressions:
Y = C(Yd)+ I + G + CA(EP   /P,Yd)and
Y = C + I +G + CA

Accepted Answer

The first one represents a behavioral eq

Question 6

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 7

Which one of the following statements is the MOST accurate?

Accepted Answer

A) A rise in domestic real income raises aggregate demand for home output. 
B) A rise in domestic real income decreases aggregate demand for home output because of the increase demand for import. 
C) A rise in domestic real income keeps aggregate demand for home output at the same level. 
D) It is difficult to tell whether a rise in domestic real income affects positively or negatively aggregate demand for home output. 
E) A rise in domestic real income decreases aggregate demand for home output because the CA is raised. 
A) A rise in domestic real income raises aggregate demand for home output. 
B) A rise in domestic real income decreases aggregate demand for home output because of the increase demand for import. 
C) A rise in domestic real income keeps aggregate demand for home output at the same level. 
D) It is difficult to tell whether a rise in domestic real income affects positively or negatively aggregate demand for home output. 
E) A rise in domestic real income decreases aggregate demand for home output because the CA is raised.

Question 8

Which of the following is TRUE of the current account balance?

Accepted Answer

A) Monetary expansion has no effect on the current account balance. 
B) Monetary expansion decreases the current account balance. 
C) Fiscal expansion increases the current account balance. 
D) Fiscal expansion has no effect on the current account balance. 
E) Monetary expansion increases the current account balance. 
A) Monetary expansion has no effect on the current account balance. 
B) Monetary expansion decreases the current account balance. 
C) Fiscal expansion increases the current account balance. 
D) Fiscal expansion has no effect on the current account balance. 
E) Monetary expansion increases the current account balance.

Question 9

Which one of the following statements is the MOST accurate?

Accepted Answer

A) An increase in the real exchange rate and an increase in disposable income improve the current account. 
B) A decrease in the real exchange rate and a decrease in disposable income improve the current account. 
C) A decrease in the real exchange rate and an increase in disposable income improve the current account. 
D) An increase in the real exchange rate and a decrease in disposable income improve the current account. 
E) An increase in the real exchange rate and a decrease in disposable income lowers the current account. 
A) An increase in the real exchange rate and an increase in disposable income improve the current account. 
B) A decrease in the real exchange rate and a decrease in disposable income improve the current account. 
C) A decrease in the real exchange rate and an increase in disposable income improve the current account. 
D) An increase in the real exchange rate and a decrease in disposable income improve the current account. 
E) An increase in the real exchange rate and a decrease in disposable income lowers the current account.

Question 10

In the short run,we assume that the money prices of goods and services are

Accepted Answer

A) temporarily fixed. 
B) permanently fixed. 
C) allowed to fluctuate. 
D) equal to long-run prices. 
E) fully employed. 
A) temporarily fixed. 
B) permanently fixed. 
C) allowed to fluctuate. 
D) equal to long-run prices. 
E) fully employed.

Question 11

What have we assumed when we conclude that a real depreciation of the currency improves the current account?

Accepted Answer

A) The volume effect outweighs the value effect. 
B) The value effect outweighs the volume effect. 
C) All else equal and the volume effect outweighs the value effect. 
D) All else equal and the value effect outweighs the volume effect. 
E) All else equal and the volume effect equals the value effect. 
A) The volume effect outweighs the value effect. 
B) The value effect outweighs the volume effect. 
C) All else equal and the volume effect outweighs the value effect. 
D) All else equal and the value effect outweighs the volume effect. 
E) All else equal and the volume effect equals the value effect.

Question 12

Assume the output market adjusts more rapidly than the asset market.A point of disequilibrium that is below both AA and DD will therefore initially result in

Accepted Answer

A) an increase in output. 
B) a decrease in output. 
C) a contraction of the money supply. 
D) a depreciation of the home currency. 
E) an appreciation of the home currency. 
A) an increase in output. 
B) a decrease in output. 
C) a contraction of the money supply. 
D) a depreciation of the home currency. 
E) an appreciation of the home currency.

Question 13

The interest parity condition requires that:

Accepted Answer

A) all countries have the same interest rate. 
B) there is a unique exchange rate for every output level. 
C) purchasing power parity hold. 
D) interest rates are fixed in the short run. 
E) the money supply is held constant. 
A) all countries have the same interest rate. 
B) there is a unique exchange rate for every output level. 
C) purchasing power parity hold. 
D) interest rates are fixed in the short run. 
E) the money supply is held constant.

Question 14

The real exchange rate,q,is defined as

Accepted Answer

A) the price of the foreign basket in terms of the domestic one. 
B) the price of the domestic basket in terms of the foreign one. 
C) the price of the foreign basket. 
D) the price of the domestic basket. 
E) the nominal exchange rate in terms of the domestic basket. 
A) the price of the foreign basket in terms of the domestic one. 
B) the price of the domestic basket in terms of the foreign one. 
C) the price of the foreign basket. 
D) the price of the domestic basket. 
E) the nominal exchange rate in terms of the domestic basket.

Question 15

If an economy is in a liquidity trap,then the nominal interest rate is ________ and the only effective policy that can be used to stimulate the economy is ________.

Accepted Answer

A) zero or negative;expansionary fiscal policy 
B) zero or negative;expansionary monetary policy 
C) high and rising;contractionary monetary policy 
D) high and rising;expansionary monetary policy 
E) high and rising;expansionary fiscal policy 
A) zero or negative;expansionary fiscal policy 
B) zero or negative;expansionary monetary policy 
C) high and rising;contractionary monetary policy 
D) high and rising;expansionary monetary policy 
E) high and rising;expansionary fiscal policy

Question 16

Which of the following would cause the current account to decrease?

Accepted Answer

A) an increase in the nominal exchange rate,E 
B) an appreciation of the home currency 
C) an increase in disposable income 
D) an increase in foreign prices,P   
E) a decrease in domestic prices,P 
A) an increase in the nominal exchange rate,E 
B) an appreciation of the home currency 
C) an increase in disposable income 
D) an increase in foreign prices,P   
E) a decrease in domestic prices,P

Question 17

Which of the following compete to determine whether the current account improves or worsens following a rise in the real exchange rate?

Accepted Answer

A) appreciation and depreciation 
B) crowding out effect and producers effect 
C) volume effect and value effect 
D) volume effect and inflation 
E) producers effect and value effect 
A) appreciation and depreciation 
B) crowding out effect and producers effect 
C) volume effect and value effect 
D) volume effect and inflation 
E) producers effect and value effect

Question 18

In practice,many U.S.import prices tend to rise by only around

Accepted Answer

A) 1/4 of a typical dollar depreciation over the following year. 
B) 1/3 of a typical dollar depreciation over the following year. 
C) 1/2 of a typical dollar depreciation over the following year. 
D) 2/3 of a typical dollar depreciation over the following year. 
E) 2/5 of a typical dollar depreciation over the following year. 
A) 1/4 of a typical dollar depreciation over the following year. 
B) 1/3 of a typical dollar depreciation over the following year. 
C) 1/2 of a typical dollar depreciation over the following year. 
D) 2/3 of a typical dollar depreciation over the following year. 
E) 2/5 of a typical dollar depreciation over the following year.

Question 19

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 150 euros and the representative U.S.basket costs $90,and the dollar/euro exchange rate is $0.80 per euro,then the price of the European basket in terms of U.S.basket is:

Accepted Answer

[(0.80 $/euro)(150 euro per a

Question 20

The domestic currency price of a representative domestic expenditure basket is

Accepted Answer

A) P,the domestic price level. 
B) E,the nominal exchange rate. 
C) P times E,the domestic price level times the domestic price level. 
D) P   ,the foreign price level. 
E) P   times E,the foreign price level times the nominal exchange rate. 
A) P,the domestic price level. 
B) E,the nominal exchange rate. 
C) P times E,the domestic price level times the domestic price level. 
D) P   ,the foreign price level. 
E) P   times E,the foreign price level times the nominal exchange rate.

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

Which of the following is the MOST accurate?

When EP /P rises

In the short run,with prices fixed,how would an increase in government spending affect the DD-AA equilibrium?

What is inflation bias? What measures have governments taken to avoid it?

Explain the difference between the following two expressions: Y = C(Yd)+ I + G + CA(EP /P,Yd)and Y = C + I +G + CA

When an economy is in a liquidity trap

Which one of the following statements is the MOST accurate?

Which of the following is TRUE of the current account balance?

Which one of the following statements is the MOST accurate?

In the short run,we assume that the money prices of goods and services are

What have we assumed when we conclude that a real depreciation of the currency improves the current account?

Assume the output market adjusts more rapidly than the asset market.A point of disequilibrium that is below both AA and DD will therefore initially result in

The interest parity condition requires that:

The real exchange rate,q,is defined as

If an economy is in a liquidity trap,then the nominal interest rate is ________ and the only effective policy that can be used to stimulate the economy is ________.

Which of the following would cause the current account to decrease?

Which of the following compete to determine whether the current account improves or worsens following a rise in the real exchange rate?

In practice,many U.S.import prices tend to rise by only around

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 150 euros and the representative U.S.basket costs $90,and the dollar/euro exchange rate is $0.80 per euro,then the price of the European basket in terms of U.S.basket is:

The domestic currency price of a representative domestic expenditure basket is

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

Explain the difference between the following two expressions: Y = C(Y^d)+ I + G + CA(EP /P,Y^d)and Y = C + I +G + CA

If an economy is in a liquidity trap,then the nominal interest rate is and the only effective policy that can be used to stimulate the economy is .