Question 1

Which of the following statements is the MOST accurate?

Accepted Answer

A) The law of one price does fare well in all recent studies. 
B) The law of one price does fare well in many recent studies. 
C) The law of one price sometimes fares well in recent studies. 
D) The law of one price does not fare well in recent studies. 
E) The law of one price has not been studied recently. 
A) The law of one price does fare well in all recent studies. 
B) The law of one price does fare well in many recent studies. 
C) The law of one price sometimes fares well in recent studies. 
D) The law of one price does not fare well in recent studies. 
E) The law of one price has not been studied recently.

Question 2

When the domestic money prices of goods are held constant

Accepted Answer

A) a nominal dollar appreciation makes U.S.goods cheaper compared with foreign goods. 
B) a nominal dollar depreciation makes U.S.goods less appealing in foreign markets. 
C) a nominal dollar appreciation does not affect the prices of U.S.goods. 
D) a nominal dollar depreciation makes U.S.goods more expensive compared with foreign goods. 
E) a nominal dollar depreciation makes U.S.goods cheaper compared with foreign goods and a nominal dollar appreciation makes U.S.goods more expensive compared with foreign goods. 
A) a nominal dollar appreciation makes U.S.goods cheaper compared with foreign goods. 
B) a nominal dollar depreciation makes U.S.goods less appealing in foreign markets. 
C) a nominal dollar appreciation does not affect the prices of U.S.goods. 
D) a nominal dollar depreciation makes U.S.goods more expensive compared with foreign goods. 
E) a nominal dollar depreciation makes U.S.goods cheaper compared with foreign goods and a nominal dollar appreciation makes U.S.goods more expensive compared with foreign goods.

Question 3

The monetary approach makes the general prediction that

Accepted Answer

A) the exchange rate,which is the relative price of American and European money,is fully determined in the long run by the relative supplies of those monies. 
B) the exchange rate,which is the relative price of American and European money,is fully determined in the short run by the relative supplies of those monies and the relative demands for them. 
C) the exchange rate,which is the relative price of American and European money,is fully determined in the short run and long run by the relative supplies of those monies and the relative demands for them. 
D) the exchange rate,which is the relative price of American and European money,is fully determined in the long run by the relative supplies of those monies and the relative demands for them. 
E) the money supply in the U.S.will adjust to European monetary equilibrium. 
A) the exchange rate,which is the relative price of American and European money,is fully determined in the long run by the relative supplies of those monies. 
B) the exchange rate,which is the relative price of American and European money,is fully determined in the short run by the relative supplies of those monies and the relative demands for them. 
C) the exchange rate,which is the relative price of American and European money,is fully determined in the short run and long run by the relative supplies of those monies and the relative demands for them. 
D) the exchange rate,which is the relative price of American and European money,is fully determined in the long run by the relative supplies of those monies and the relative demands for them. 
E) the money supply in the U.S.will adjust to European monetary equilibrium.

Question 4

Which of the following statements is MOST accurate?

Accepted Answer

A) In the output market,an increase in demand for U.S.output leads to an increase in the long-run nominal dollar/euro exchange rate. 
B) In the output market,an increase in the demand for European output leads to an increase in the long-run nominal dollar/euro exchange rate. 
C) In the output market,a decrease in demand for U.S.output leads to a decrease in the long-run nominal dollar/euro exchange rate. 
D) In the output market,an increase in the demand for European output leads to a decrease in the long-run nominal dollar/euro exchange rate. 
E) In the output market,an increase in the demand for European output leads to an increase in the long-run nominal euro/dollar exchange rate. 
A) In the output market,an increase in demand for U.S.output leads to an increase in the long-run nominal dollar/euro exchange rate. 
B) In the output market,an increase in the demand for European output leads to an increase in the long-run nominal dollar/euro exchange rate. 
C) In the output market,a decrease in demand for U.S.output leads to a decrease in the long-run nominal dollar/euro exchange rate. 
D) In the output market,an increase in the demand for European output leads to a decrease in the long-run nominal dollar/euro exchange rate. 
E) In the output market,an increase in the demand for European output leads to an increase in the long-run nominal euro/dollar exchange rate.

Question 5

If people expect relative PPP to hold

Accepted Answer

A) the difference between the interest rates offered by dollar and euro deposits will equal the difference between the inflation rates expected,in the United States and Europe,respectively,over the relevant horizon. 
B) the difference between the interest rates offered by dollar and euro deposits will equal the difference between the inflation rates expected in Europe and the United States,respectively. 
C) the difference between the interest rates offered by dollar and euro deposits will equal the difference between the inflation rates expected,over the relevant horizon,in the United States and Europe,respectively,in the short run. 
D) the difference between the interest rates offered by dollar and euro deposits will be above the difference between the inflation rates expected,over the relevant horizon,in the United States and Europe,respectively. 
E) the difference between the interest rates offered by dollar and euro deposits will be below the difference between the inflation rates expected,over the relevant horizon,in the United States and Europe,respectively. 
A) the difference between the interest rates offered by dollar and euro deposits will equal the difference between the inflation rates expected,in the United States and Europe,respectively,over the relevant horizon. 
B) the difference between the interest rates offered by dollar and euro deposits will equal the difference between the inflation rates expected in Europe and the United States,respectively. 
C) the difference between the interest rates offered by dollar and euro deposits will equal the difference between the inflation rates expected,over the relevant horizon,in the United States and Europe,respectively,in the short run. 
D) the difference between the interest rates offered by dollar and euro deposits will be above the difference between the inflation rates expected,over the relevant horizon,in the United States and Europe,respectively. 
E) the difference between the interest rates offered by dollar and euro deposits will be below the difference between the inflation rates expected,over the relevant horizon,in the United States and Europe,respectively.

Question 6

Which of the following statements is the MOST accurate?

Accepted Answer

A) Relative PPP may be valid even when absolute PPP is not,provided the factors causing deviations from absolute PPP are more or less stable over different commodities space. 
B) Absolute PPP may be valid even when relative PPP is not,provided the factors causing deviations from relative PPP are more or less stable over time. 
C) Relative PPP may be valid even when absolute PPP is not,provided the factors causing deviations from absolute PPP are more or less stable over time. 
D) Relative PPP is not valid when absolute PPP is not. 
E) Relative PPP is only valid when absolute PPP is valid,providing the factors causing deviations from relative PPP are more or less stable over time. 
A) Relative PPP may be valid even when absolute PPP is not,provided the factors causing deviations from absolute PPP are more or less stable over different commodities space. 
B) Absolute PPP may be valid even when relative PPP is not,provided the factors causing deviations from relative PPP are more or less stable over time. 
C) Relative PPP may be valid even when absolute PPP is not,provided the factors causing deviations from absolute PPP are more or less stable over time. 
D) Relative PPP is not valid when absolute PPP is not. 
E) Relative PPP is only valid when absolute PPP is valid,providing the factors causing deviations from relative PPP are more or less stable over time.

Question 7

In the short run

Accepted Answer

A) the interest rate can rise when the domestic money supply falls. 
B) the interest rate can decrease when the domestic money supply falls. 
C) the interest rate stays constant when the domestic money supply falls. 
D) the interest rate rises in the same proportion as the domestic money supply falls. 
E) the interest rate never rises when the domestic money supply falls. 
A) the interest rate can rise when the domestic money supply falls. 
B) the interest rate can decrease when the domestic money supply falls. 
C) the interest rate stays constant when the domestic money supply falls. 
D) the interest rate rises in the same proportion as the domestic money supply falls. 
E) the interest rate never rises when the domestic money supply falls.

Question 8

Which of the following statements is the MOST accurate?

Accepted Answer

A) If PPP holds true,then the law of one price holds true for every commodity as long as the reference baskets used to reckon different countries' price levels are the same. 
B) If the law of one price holds true for every commodity,PPP must hold automatically. 
C) If the law of one price holds true for every commodity,PPP must automatically hold as long as the reference baskets used to reckon different countries' price levels are the same. 
D) If the law of one price does not hold true for every commodity,PPP cannot be true as long as the reference baskets used to reckon different countries' price levels are the same. 
E) If PPP holds true,then the law of one price must hold true automatically. 
A) If PPP holds true,then the law of one price holds true for every commodity as long as the reference baskets used to reckon different countries' price levels are the same. 
B) If the law of one price holds true for every commodity,PPP must hold automatically. 
C) If the law of one price holds true for every commodity,PPP must automatically hold as long as the reference baskets used to reckon different countries' price levels are the same. 
D) If the law of one price does not hold true for every commodity,PPP cannot be true as long as the reference baskets used to reckon different countries' price levels are the same. 
E) If PPP holds true,then the law of one price must hold true automatically.

Question 9

The difference between nominal and real interest rates is that

Accepted Answer

A) nominal interest rates are measured in terms of a country's output,while real interest rates are measured in monetary terms. 
B) nominal interest rates are measured in monetary terms,while real interest rates are measured in terms of a country's output. 
C) nominal interest rates can fluctuate,while real interest rates always remain fixed. 
D) real interest rates can fluctuate,while nominal interest rates always remain fixed. 
E) real interest rates are the same in every country,while nominal interest rates are different for every country. 
A) nominal interest rates are measured in terms of a country's output,while real interest rates are measured in monetary terms. 
B) nominal interest rates are measured in monetary terms,while real interest rates are measured in terms of a country's output. 
C) nominal interest rates can fluctuate,while real interest rates always remain fixed. 
D) real interest rates can fluctuate,while nominal interest rates always remain fixed. 
E) real interest rates are the same in every country,while nominal interest rates are different for every country.

Question 10

To answer the following question,please refer to the figure below.Concentrating only at the lower right quadrant,discuss the effects of a change in U.S.expected inflation.

Accepted Answer

Lower right quadrant shows the equilibri

Question 11

Under Purchasing Power Parity

Accepted Answer

A) E$/P = PUS/PE. 
B) E$/E = PUS/PE. 
C) E$/E = PUS - PE. 
D) E$/E = PE/PES. 
E) E$/E = PUS + PE. 
A) E$/P = PUS/PE. 
B) E$/E = PUS/PE. 
C) E$/E = PUS - PE. 
D) E$/E = PE/PES. 
E) E$/E = PUS + PE.

Question 12

What are the predictions for the long-run equilibrium of the Monetary Approach?

Accepted Answer

Money supplies: Given the equations, @#IMG-DLM& =

Question 13

Under the monetary approach to exchange rate theory,money supply growth at a constant rate

Accepted Answer

A) eventually results in ongoing price level deflation at the same rate,but changes in this long-run deflation rate do not affect the full-employment output level or the long-run relative prices of goods and services. 
B) eventually results in ongoing price level inflation at the same rate,but changes in this long-run inflation rate do affect the full-employment output level and the long-run relative prices of goods and services. 
C) eventually results in ongoing price level inflation at the same rate,but changes in this long-run inflation rate do not affect the full-employment output level or the long-run relative prices of goods and services. 
D) eventually results in ongoing price level inflation at the same rate,but changes in this long-run inflation rate do not affect the full-employment output level,only the long-run relative prices of goods and services. 
E) eventually results in ongoing price level deflation at the same rate,but changes in this long-run deflation rate do not affect the full-employment output level,only the long-run relative prices of goods and services. 
A) eventually results in ongoing price level deflation at the same rate,but changes in this long-run deflation rate do not affect the full-employment output level or the long-run relative prices of goods and services. 
B) eventually results in ongoing price level inflation at the same rate,but changes in this long-run inflation rate do affect the full-employment output level and the long-run relative prices of goods and services. 
C) eventually results in ongoing price level inflation at the same rate,but changes in this long-run inflation rate do not affect the full-employment output level or the long-run relative prices of goods and services. 
D) eventually results in ongoing price level inflation at the same rate,but changes in this long-run inflation rate do not affect the full-employment output level,only the long-run relative prices of goods and services. 
E) eventually results in ongoing price level deflation at the same rate,but changes in this long-run deflation rate do not affect the full-employment output level,only the long-run relative prices of goods and services.

Question 14

What is the Fisher Effect? Provide an example.

Accepted Answer

All else equal,a rise in a country's exp

Question 15

Discuss why the empirical support for PPP and the law of one price is weak in recent data.

Accepted Answer

The failure of these propositions in the

Question 16

Discuss the relationship between PPP and the Law of One Price.

Accepted Answer

The law of one price applies to individu

Question 17

Which of the following statements is the MOST accurate? In general

Accepted Answer

A) the monetary approach to the exchange rate is a long run theory. 
B) the monetary approach to the exchange rate is a short run theory. 
C) the monetary approach to the exchange rate is both a short and long run theory. 
D) the monetary approach to the exchange rate neither long run nor short run theory. 
E) the monetary approach to the exchange rate is considered less practical than the law of one price. 
A) the monetary approach to the exchange rate is a long run theory. 
B) the monetary approach to the exchange rate is a short run theory. 
C) the monetary approach to the exchange rate is both a short and long run theory. 
D) the monetary approach to the exchange rate neither long run nor short run theory. 
E) the monetary approach to the exchange rate is considered less practical than the law of one price.

Question 18

Is a depreciation of the dollar/euro exchange rate correlated with a decrease in the dollar return on U.S.deposits?

Accepted Answer

No.
Assume that the Interest Parity is m

Question 19

Which of the following statements is the MOST accurate? The law of one price states

Accepted Answer

A) in competitive markets free of transportation costs and official barriers to trade,identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency. 
B) in competitive markets free of transportation costs and official barriers to trade,identical goods sold in the same country must sell for the same price when their prices are expressed in terms of the same currency. 
C) in competitive markets free of transportation costs and official barriers to trade,identical goods sold in different countries must sell for the same price. 
D) identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency. 
E) in competitive markets free of official barriers to trade,identical goods are sold at the same price regardless of transportation costs. 
A) in competitive markets free of transportation costs and official barriers to trade,identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency. 
B) in competitive markets free of transportation costs and official barriers to trade,identical goods sold in the same country must sell for the same price when their prices are expressed in terms of the same currency. 
C) in competitive markets free of transportation costs and official barriers to trade,identical goods sold in different countries must sell for the same price. 
D) identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency. 
E) in competitive markets free of official barriers to trade,identical goods are sold at the same price regardless of transportation costs.

Question 20

Under sticky prices

Accepted Answer

A) a fall in the money supply raises the interest rate to preserve money market equilibrium. 
B) a fall in the money supply reduces the interest rate to preserve money market equilibrium. 
C) a fall in the money supply keeps the interest rate intact to preserve money market equilibrium. 
D) a fall in the money supply does not affect the interest rate in the short run,only in the long run. 
E) a fall in the money supply raises the interest rate to preserve money market equilibrium in the long run. 
A) a fall in the money supply raises the interest rate to preserve money market equilibrium. 
B) a fall in the money supply reduces the interest rate to preserve money market equilibrium. 
C) a fall in the money supply keeps the interest rate intact to preserve money market equilibrium. 
D) a fall in the money supply does not affect the interest rate in the short run,only in the long run. 
E) a fall in the money supply raises the interest rate to preserve money market equilibrium in the long run.

Exam 16: Price Levels and the Exchange Rate in the Long Run

Which of the following statements is the MOST accurate?

When the domestic money prices of goods are held constant

The monetary approach makes the general prediction that

Which of the following statements is MOST accurate?

If people expect relative PPP to hold

Which of the following statements is the MOST accurate?

In the short run

Which of the following statements is the MOST accurate?

The difference between nominal and real interest rates is that

To answer the following question,please refer to the figure below.Concentrating only at the lower right quadrant,discuss the effects of a change in U.S.expected inflation.

Under Purchasing Power Parity

What are the predictions for the long-run equilibrium of the Monetary Approach?

Under the monetary approach to exchange rate theory,money supply growth at a constant rate

What is the Fisher Effect? Provide an example.

Discuss why the empirical support for PPP and the law of one price is weak in recent data.

Discuss the relationship between PPP and the Law of One Price.

Which of the following statements is the MOST accurate? In general

Is a depreciation of the dollar/euro exchange rate correlated with a decrease in the dollar return on U.S.deposits?

Which of the following statements is the MOST accurate? The law of one price states

Under sticky prices

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

Output and the Exchange Rate in the Short 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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