Question 1

A permanent increase in the domestic money supply

Accepted Answer

A) must ultimately lead to a proportional decrease in E,and,therefore,the expected future exchange rate must rise proportionally. 
B) must ultimately lead to a proportional decrease in E,and,therefore,the expected future exchange rate must decrease proportionally. 
C) must ultimately lead to a proportional rise in E,and,therefore,the expected future exchange rate must rise proportionally. 
D) must ultimately lead to a proportional rise in E,and,therefore,the expected future exchange rate must rise more than proportionally. 
E) must ultimately lead to a proportional rise in E,and,therefore,the expected future exchange rate must rise less than proportionally. 
A) must ultimately lead to a proportional decrease in E,and,therefore,the expected future exchange rate must rise proportionally. 
B) must ultimately lead to a proportional decrease in E,and,therefore,the expected future exchange rate must decrease proportionally. 
C) must ultimately lead to a proportional rise in E,and,therefore,the expected future exchange rate must rise proportionally. 
D) must ultimately lead to a proportional rise in E,and,therefore,the expected future exchange rate must rise more than proportionally. 
E) must ultimately lead to a proportional rise in E,and,therefore,the expected future exchange rate must rise less than proportionally.

Question 2

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

Accepted Answer

When the real exchange rate increases,do

Question 3

Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD and where both the output and asset markets are out of equilibrium.Explain what will happen next?

Accepted Answer

Since the asset market adjusts very quic

Question 4

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 5

If the economy starts in long-run equilibrium,a permanent fiscal expansion will cause

Accepted Answer

A) an increase in exchange rate,E. 
B) a decrease in exchange rate,E. 
C) an increase in output,Y. 
D) a decrease in output,Y. 
E) shifting of the AA curve up and to the right. 
A) an increase in exchange rate,E. 
B) a decrease in exchange rate,E. 
C) an increase in output,Y. 
D) a decrease in output,Y. 
E) shifting of the AA curve up and to the right.

Question 6

The DD schedule shows all combinations of which 2 variables so that the output market is in equilibrium?

Accepted Answer

A) imports and exports 
B) exports and the exchange rate 
C) foreign prices and the exchange rate 
D) output and the exchange rate 
E) output and exports 
A) imports and exports 
B) exports and the exchange rate 
C) foreign prices and the exchange rate 
D) output and the exchange rate 
E) output and exports

Question 7

Using the DD model,explain what happens to output when Government demands increase.Use a figure to explain when it is taking place.

Accepted Answer

The figure below shows the G₁ t

Question 8

Which of the following is an example of an "unconventional monetary policy" by a central bank?

Accepted Answer

A) the purchase of specific categories of assets with new money 
B) the sale of long-term government bonds for foreign exchange 
C) the purchase of long-term government bonds using foreign exchange 
D) raising reserve requirements by commercial banks 
E) selling gold reserves 
A) the purchase of specific categories of assets with new money 
B) the sale of long-term government bonds for foreign exchange 
C) the purchase of long-term government bonds using foreign exchange 
D) raising reserve requirements by commercial banks 
E) selling gold reserves

Question 9

In the short run,any fall in EP   /P,regardless of its causes,will cause

Accepted Answer

A) an upward shift in the aggregate demand function and an expansion of output. 
B) an upward shift in the aggregate demand function and a reduction in output. 
C) a downward shift in the aggregate demand function and an expansion of output. 
D) an downward shift in the aggregate demand function and a reduction in output. 
E) an upward shift in the aggregate demand function but leaves output intact. 
A) an upward shift in the aggregate demand function and an expansion of output. 
B) an upward shift in the aggregate demand function and a reduction in output. 
C) a downward shift in the aggregate demand function and an expansion of output. 
D) an downward shift in the aggregate demand function and a reduction in output. 
E) an upward shift in the aggregate demand function but leaves output intact.

Question 10

Which one of the following statements is MOST accurate?

Accepted Answer

A) In the long run,foreign output depends only on the available domestic supplies of factors of production. 
B) In the short run,domestic output depends only on the available domestic supplies of factors of production. 
C) In the long run,domestic output depends only on the available domestic supplies of factors of production. 
D) In the long run and in the short run,domestic output depends only on the available domestic supplies of factors of production. 
E) In the long run,domestic output depends only on the real exchange rate. 
A) In the long run,foreign output depends only on the available domestic supplies of factors of production. 
B) In the short run,domestic output depends only on the available domestic supplies of factors of production. 
C) In the long run,domestic output depends only on the available domestic supplies of factors of production. 
D) In the long run and in the short run,domestic output depends only on the available domestic supplies of factors of production. 
E) In the long run,domestic output depends only on the real exchange rate.

Question 11

Temporary tax cuts would cause

Accepted Answer

A) the AA-curve to shift left. 
B) the AA-curve to shift right. 
C) the DD-curve to shift left. 
D) the DD-curve to shift right. 
E) a shift in the AA-curve,although the direction is ambiguous. 
A) the AA-curve to shift left. 
B) the AA-curve to shift right. 
C) the DD-curve to shift left. 
D) the DD-curve to shift right. 
E) a shift in the AA-curve,although the direction is ambiguous.

Question 12

The unique equilibrium output level in the short run is found at the intersection of the following curves.

Accepted Answer

A) aggregate demand and aggregate supply 
B) aggregate demand and 45 degree line 
C) aggregate supply and 45 degree line 
D) aggregate demand and short-run aggregate supply 
E) aggregate supply and long-run demand 
A) aggregate demand and aggregate supply 
B) aggregate demand and 45 degree line 
C) aggregate supply and 45 degree line 
D) aggregate demand and short-run aggregate supply 
E) aggregate supply and long-run demand

Question 13

Which one of the following statements is the MOST accurate?

Accepted Answer

A) Over time,the inflationary pressure that follows a temporary money supply expansion pushes the price level to its long-run value and returns the economy to full employment. 
B) Over time,the inflationary pressure that follows a permanent money supply expansion pushes the price level to its long-run value and returns the economy to full employment. 
C) Over time,the inflationary pressure that follows a temporary money supply expansion pushes the price level to its long-run value,but leaves the economy in a state of artificially low employment. 
D) Over time,the inflationary pressure that follows a permanent money supply expansion pushes the price level to its long-run value,but leaves the economy in a state of artificially low employment. 
E) Over time,the inflationary pressure that follows a permanent money supply expansion pushes the price level beyond its long-run value and lower the level of employment. 
A) Over time,the inflationary pressure that follows a temporary money supply expansion pushes the price level to its long-run value and returns the economy to full employment. 
B) Over time,the inflationary pressure that follows a permanent money supply expansion pushes the price level to its long-run value and returns the economy to full employment. 
C) Over time,the inflationary pressure that follows a temporary money supply expansion pushes the price level to its long-run value,but leaves the economy in a state of artificially low employment. 
D) Over time,the inflationary pressure that follows a permanent money supply expansion pushes the price level to its long-run value,but leaves the economy in a state of artificially low employment. 
E) Over time,the inflationary pressure that follows a permanent money supply expansion pushes the price level beyond its long-run value and lower the level of employment.

Question 14

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 15

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 16

In long-run equilibrium after a permanent money-supply increase there follows:

Accepted Answer

A) an increase in exchange rate,E. 
B) a decrease in exchange rate,E. 
C) an increase in output,Y. 
D) a decrease in output,Y. 
E) an unchanged exchange rate,E. 
A) an increase in exchange rate,E. 
B) a decrease in exchange rate,E. 
C) an increase in output,Y. 
D) a decrease in output,Y. 
E) an unchanged exchange rate,E.

Question 17

Which one of the following statements is MOST accurate?

Accepted Answer

A) Factors of production can only be over-employed in the short run. 
B) Factors of production can only be under-employed in the short run. 
C) Factors of production can be over- or under-employed in the long run. 
D) Factors of production can be over- or under-employed in the short run. 
E) Factors of production are fully employed in the short run. 
A) Factors of production can only be over-employed in the short run. 
B) Factors of production can only be under-employed in the short run. 
C) Factors of production can be over- or under-employed in the long run. 
D) Factors of production can be over- or under-employed in the short run. 
E) Factors of production are fully employed in the short run.

Question 18

Using the DD-AA framework,show the phenomenon of overshooting.Use a figure to explain when it is taking place.

Accepted Answer

The figure below shows the phenomenon of

Question 19

Please discuss the volume effect and the value effect in regards to how the current account will move given a change in the real exchange rate.

Accepted Answer

The volume effect takes place when consu

Question 20

Which statement best describes the current account balance in the short run?

Accepted Answer

A) Monetary expansion lowers the current account balance. 
B) Monetary expansion keeps the current account balance the same. 
C) Fiscal expansion increases the current account balance. 
D) Fiscal expansion keeps the current account balance the same. 
E) Monetary expansion increases the current account balance. 
A) Monetary expansion lowers the current account balance. 
B) Monetary expansion keeps the current account balance the same. 
C) Fiscal expansion increases the current account balance. 
D) Fiscal expansion keeps the current account balance the same. 
E) Monetary expansion increases the current account balance.

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

A permanent increase in the domestic money supply

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

Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD and where both the output and asset markets are out of equilibrium.Explain what will happen next?

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

If the economy starts in long-run equilibrium,a permanent fiscal expansion will cause

The DD schedule shows all combinations of which 2 variables so that the output market is in equilibrium?

Using the DD model,explain what happens to output when Government demands increase.Use a figure to explain when it is taking place.

Which of the following is an example of an "unconventional monetary policy" by a central bank?

In the short run,any fall in EP /P,regardless of its causes,will cause

Which one of the following statements is MOST accurate?

Temporary tax cuts would cause

The unique equilibrium output level in the short run is found at the intersection of the following curves.

Which one of the following statements is the MOST accurate?

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

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

In long-run equilibrium after a permanent money-supply increase there follows:

Which one of the following statements is MOST accurate?

Using the DD-AA framework,show the phenomenon of overshooting.Use a figure to explain when it is taking place.

Please discuss the volume effect and the value effect in regards to how the current account will move given a change in the real exchange rate.

Which statement best describes the current account balance in the short run?

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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