Question 1

An optimum currency area is a geographic region

Accepted Answer

A) with inflation near zero. 
B) that allows exchange rates to float. 
C) that has fixed exchange rates. 
D) for which the benefits of having a common currency exceed the costs. 
A) with inflation near zero. 
B) that allows exchange rates to float. 
C) that has fixed exchange rates. 
D) for which the benefits of having a common currency exceed the costs. D

Question 2

Suppose Japan is currently running a current account surplus.The most effective way of eliminating this current account surplus would be to temporarily ________ government purchases and ________ the domestic money supply.

Accepted Answer

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

Question 3

You have just noticed that the dollar appreciated and you suspect that U.S.policymakers were behind this change.Which would you choose as the most likely cause of this appreciation in the real exchange rate?

Accepted Answer

A) An increase in the money supply 
B) A decrease in the money supply 
C) A temporary increase in government purchases 
D) A temporary decrease in taxes 
A) An increase in the money supply 
B) A decrease in the money supply 
C) A temporary increase in government purchases 
D) A temporary decrease in taxes B

Question 4

An increase in the foreign real interest rate would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

Accepted Answer

A) rise; shift up 
B) rise; shift down 
C) fall; shift up 
D) fall; shift down 
A) rise; shift up 
B) rise; shift down 
C) fall; shift up 
D) fall; shift down

Question 5

A geographic region in which the benefits of having a common currency exceed the costs is

Accepted Answer

A)  an optimum currency area. 
B) an exchange-rate mechanism. 
C) a currency board area. 
D) a common currency area. 
A)  an optimum currency area. 
B) an exchange-rate mechanism. 
C) a currency board area. 
D) a common currency area.

Question 6

Relative purchasing power parity occurs when

Accepted Answer

A) purchasing power parity holds between every two countries. 
B) purchasing power parity only holds in recessions. 
C) the nominal exchange rate is constant. 
D) the real exchange rate is constant. 
A) purchasing power parity holds between every two countries. 
B) purchasing power parity only holds in recessions. 
C) the nominal exchange rate is constant. 
D) the real exchange rate is constant.

Question 7

According to the classical model,an increase in the American nominal money supply would cause the nominal exchange rate to ________ and the real exchange rate to ________.

Accepted Answer

A) depreciate; appreciate 
B) appreciate; depreciate 
C) depreciate; remain unchanged 
D) appreciate; remain unchanged 
A) depreciate; appreciate 
B) appreciate; depreciate 
C) depreciate; remain unchanged 
D) appreciate; remain unchanged

Question 8

Suppose purchasing power parity holds.If in 1997 the price level in the United States is 100,the price level in Japan is 10,000,and the nominal exchange rate is 100 yen per dollar,while in 1998 the price level in Japan rises to 10,500 and the nominal exchange rate rises to 105,then the price level in the United States in 1998 must be

Accepted Answer

A) 95. 
B) 100. 
C) 105. 
D) 110.25. 
A) 95. 
B) 100. 
C) 105. 
D) 110.25.

Question 9

If the real exchange rate rises 4%,domestic inflation is 2%,and foreign inflation is 0%,what is the percent change in the nominal exchange rate?

Accepted Answer

A) 6% 
B) 4% 
C) 2% 
D) 0% 
A) 6% 
B) 4% 
C) 2% 
D) 0%

Question 10

A shift in demand toward the foreign country's goods would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Accepted Answer

A) lower; increase 
B) lower; decrease 
C) raise; increase 
D) raise; decrease 
A) lower; increase 
B) lower; decrease 
C) raise; increase 
D) raise; decrease

Question 11

According to the "beachhead effect," in order to undo the effects of a strong-dollar period,the real value of the dollar

Accepted Answer

A) must fall to at least half of its value before appreciation of the dollar began. 
B) must fall to the value it had before appreciation of the dollar began. 
C) must fall to a much lower level than it had before appreciation of the dollar began. 
D) must actually appreciate before it depreciates to undo the effects of a strong-dollar period. 
A) must fall to at least half of its value before appreciation of the dollar began. 
B) must fall to the value it had before appreciation of the dollar began. 
C) must fall to a much lower level than it had before appreciation of the dollar began. 
D) must actually appreciate before it depreciates to undo the effects of a strong-dollar period.

Question 12

Which of the following changes would cause American net exports to decrease?

Accepted Answer

A) A decrease in the real value of the dollar 
B) A decrease in American income 
C) An increase in foreign income 
D) A shift in demand by American consumers away from domestically produced goods 
A) A decrease in the real value of the dollar 
B) A decrease in American income 
C) An increase in foreign income 
D) A shift in demand by American consumers away from domestically produced goods

Question 13

The U.S.real interest rate rises relative to the British real interest rate.British net exports ________ and the British exchange rate ________.

Accepted Answer

A) increase; rises 
B) increase; falls 
C) decrease; rises 
D) decrease; falls 
A) increase; rises 
B) increase; falls 
C) decrease; rises 
D) decrease; falls

Question 14

The Maastricht treaty was the first step toward

Accepted Answer

A) having free trade between Russia and China. 
B) European monetary union. 
C) gaining credibility for monetary policy. 
D) reducing the costs of disinflation. 
A) having free trade between Russia and China. 
B) European monetary union. 
C) gaining credibility for monetary policy. 
D) reducing the costs of disinflation.

Question 15

When the domestic currency strengthens under a fixed exchange-rate system,this is called

Accepted Answer

A) a depreciation. 
B) an appreciation. 
C) a devaluation. 
D) a revaluation. 
A) a depreciation. 
B) an appreciation. 
C) a devaluation. 
D) a revaluation.

Question 16

Under a system of fixed exchange rates,what happens if a country's currency is overvalued?

Accepted Answer

A) The central bank loses official reserve assets. 
B) The central bank gains official reserve assets. 
C) The currency appreciates. 
D) The exchange rate rises. 
A) The central bank loses official reserve assets. 
B) The central bank gains official reserve assets. 
C) The currency appreciates. 
D) The exchange rate rises.

Question 17

Three-wheel cars made in North Edsel are sold for 5000 pounds.Four-wheel cars made in South Edsel are sold for 10,000 marks.The nominal exchange rate between the two countries is three marks per pound.The real exchange rate between the two countries is

Accepted Answer

A) 0)50 three-wheel cars per four-wheel car. 
B) 0)66 three-wheel cars per four-wheel car. 
C) 1)50 three-wheel cars per four-wheel car. 
D) 2)00 three-wheel cars per four-wheel car. 
A) 0)50 three-wheel cars per four-wheel car. 
B) 0)66 three-wheel cars per four-wheel car. 
C) 1)50 three-wheel cars per four-wheel car. 
D) 2)00 three-wheel cars per four-wheel car.

Question 18

The Federal Reserve has just purchased bonds in the market,carrying out open market operations.In the short run in the Keynesian model,this would cause the foreign real interest rate to ________ and foreign output to ________.

Accepted Answer

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

Question 19

Goods market equilibrium in the open economy occurs when

Accepted Answer

A) desired saving equals desired investment. 
B) output equals desired consumption plus desired investment plus government spending. 
C) desired consumption equals desired investment. 
D) desired saving minus desired investment equals net exports. 
A) desired saving equals desired investment. 
B) output equals desired consumption plus desired investment plus government spending. 
C) desired consumption equals desired investment. 
D) desired saving minus desired investment equals net exports.

Question 20

Suppose the euro-yen exchange rate falls while the dollar-yen exchange rate rises.What happens to the price of goods imported into Japan?

Accepted Answer

A) European goods become more expensive while U.S. goods become cheaper. 
B) European goods become cheaper while U.S. goods become more expensive. 
C) Both European and U.S. goods become more expensive. 
D) Both European and U.S. goods become cheaper. 
A) European goods become more expensive while U.S. goods become cheaper. 
B) European goods become cheaper while U.S. goods become more expensive. 
C) Both European and U.S. goods become more expensive. 
D) Both European and U.S. goods become cheaper.

An optimum currency area is a geographic region

Suppose Japan is currently running a current account surplus.The most effective way of eliminating this current account surplus would be to temporarily government purchases and the domestic money supply.

You have just noticed that the dollar appreciated and you suspect that U.S.policymakers were behind this change.Which would you choose as the most likely cause of this appreciation in the real exchange rate?

An increase in the foreign real interest rate would cause the domestic country's net exports to and cause the domestic country's IS curve to .

A geographic region in which the benefits of having a common currency exceed the costs is

Relative purchasing power parity occurs when

According to the classical model,an increase in the American nominal money supply would cause the nominal exchange rate to and the real exchange rate to .

If the real exchange rate rises 4%,domestic inflation is 2%,and foreign inflation is 0%,what is the percent change in the nominal exchange rate?

A shift in demand toward the foreign country's goods would the domestic real interest rate and net desired saving (desired saving less desired investment)in the economy.

According to the "beachhead effect," in order to undo the effects of a strong-dollar period,the real value of the dollar

Which of the following changes would cause American net exports to decrease?

The U.S.real interest rate rises relative to the British real interest rate.British net exports and the British exchange rate .

The Maastricht treaty was the first step toward

When the domestic currency strengthens under a fixed exchange-rate system,this is called

Under a system of fixed exchange rates,what happens if a country's currency is overvalued?

Three-wheel cars made in North Edsel are sold for 5000 pounds.Four-wheel cars made in South Edsel are sold for 10,000 marks.The nominal exchange rate between the two countries is three marks per pound.The real exchange rate between the two countries is

The Federal Reserve has just purchased bonds in the market,carrying out open market operations.In the short run in the Keynesian model,this would cause the foreign real interest rate to and foreign output to .

Goods market equilibrium in the open economy occurs when

Suppose the euro-yen exchange rate falls while the dollar-yen exchange rate rises.What happens to the price of goods imported into Japan?

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Exam 13: Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

An optimum currency area is a geographic region

Suppose Japan is currently running a current account surplus.The most effective way of eliminating this current account surplus would be to temporarily ________ government purchases and ________ the domestic money supply.

You have just noticed that the dollar appreciated and you suspect that U.S.policymakers were behind this change.Which would you choose as the most likely cause of this appreciation in the real exchange rate?

An increase in the foreign real interest rate would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

A geographic region in which the benefits of having a common currency exceed the costs is

Relative purchasing power parity occurs when

According to the classical model,an increase in the American nominal money supply would cause the nominal exchange rate to ________ and the real exchange rate to ________.

If the real exchange rate rises 4%,domestic inflation is 2%,and foreign inflation is 0%,what is the percent change in the nominal exchange rate?

A shift in demand toward the foreign country's goods would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

According to the "beachhead effect," in order to undo the effects of a strong-dollar period,the real value of the dollar

Which of the following changes would cause American net exports to decrease?

The U.S.real interest rate rises relative to the British real interest rate.British net exports ________ and the British exchange rate ________.

The Maastricht treaty was the first step toward

When the domestic currency strengthens under a fixed exchange-rate system,this is called

Under a system of fixed exchange rates,what happens if a country's currency is overvalued?

Three-wheel cars made in North Edsel are sold for 5000 pounds.Four-wheel cars made in South Edsel are sold for 10,000 marks.The nominal exchange rate between the two countries is three marks per pound.The real exchange rate between the two countries is

The Federal Reserve has just purchased bonds in the market,carrying out open market operations.In the short run in the Keynesian model,this would cause the foreign real interest rate to ________ and foreign output to ________.

Goods market equilibrium in the open economy occurs when

Suppose the euro-yen exchange rate falls while the dollar-yen exchange rate rises.What happens to the price of goods imported into Japan?

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Suppose Japan is currently running a current account surplus.The most effective way of eliminating this current account surplus would be to temporarily government purchases and the domestic money supply.

An increase in the foreign real interest rate would cause the domestic country's net exports to and cause the domestic country's IS curve to .

According to the classical model,an increase in the American nominal money supply would cause the nominal exchange rate to and the real exchange rate to .

A shift in demand toward the foreign country's goods would the domestic real interest rate and net desired saving (desired saving less desired investment)in the economy.

The U.S.real interest rate rises relative to the British real interest rate.British net exports and the British exchange rate .

The Federal Reserve has just purchased bonds in the market,carrying out open market operations.In the short run in the Keynesian model,this would cause the foreign real interest rate to and foreign output to .