Question 1

An increase in domestic output would cause a ________ in net exports and a ________ in the exchange rate.

Accepted Answer

A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall 
A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall

Question 2

Describe the effects of a rise in the domestic real interest rate on the exchange rate and on both domestic and foreign net exports.

Accepted Answer

The rise in the domestic real interest r

Question 3

A decrease 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 4

The Bretton Woods system relied on

Accepted Answer

A) a flexible exchange-rate system. 
B) a floating exchange-rate system. 
C) a fixed exchange-rate system. 
D) an exchange-rate union. 
A) a flexible exchange-rate system. 
B) a floating exchange-rate system. 
C) a fixed exchange-rate system. 
D) an exchange-rate union.

Question 5

When the nominal exchange rate falls

Accepted Answer

A) the domestic currency buys more units of foreign currency and the domestic currency has depreciated. 
B) the domestic currency buys fewer units of foreign currency and the domestic currency has depreciated. 
C) the domestic currency buys more units of foreign currency and the domestic currency has appreciated. 
D) the domestic currency buys fewer units of foreign currency and the domestic currency has appreciated. 
A) the domestic currency buys more units of foreign currency and the domestic currency has depreciated. 
B) the domestic currency buys fewer units of foreign currency and the domestic currency has depreciated. 
C) the domestic currency buys more units of foreign currency and the domestic currency has appreciated. 
D) the domestic currency buys fewer units of foreign currency and the domestic currency has appreciated.

Question 6

The J curve implies that a real depreciation will cause

Accepted Answer

A) the nominal exchange rate to appreciate in the short run and depreciate in the long run. 
B) the nominal exchange rate to depreciate in the short run and appreciate in the long run. 
C) net exports to fall in the short run and rise in the long run. 
D) net exports to rise in the short run and fall in the long run. 
A) the nominal exchange rate to appreciate in the short run and depreciate in the long run. 
B) the nominal exchange rate to depreciate in the short run and appreciate in the long run. 
C) net exports to fall in the short run and rise in the long run. 
D) net exports to rise in the short run and fall in the long run.

Question 7

The nominal exchange rate is 15 crowns per florin,the domestic price level is 6 florins/bottle,and the foreign price level is 2 crowns/bushel.
(a)What is the real exchange rate?
(b)What is the real exchange rate in the foreign country?
(c)If the domestic price level rises to 8 florins/bottle,what must the nominal exchange rate become if the real exchange rate remains unchanged?

Accepted Answer

(a)45 bushels/bottle

Question 8

The real exchange rate is

Accepted Answer

A) the price of one currency in terms of another. 
B) the price of domestic goods relative to foreign goods. 
C) the quantity of gold that can be purchased by one unit of currency. 
D) the difference in interest rates between two countries. 
A) the price of one currency in terms of another. 
B) the price of domestic goods relative to foreign goods. 
C) the quantity of gold that can be purchased by one unit of currency. 
D) the difference in interest rates between two countries.

Question 9

An increase in the U.S.money supply would cause the value of the dollar to ________ and U.S.net exports to ________ in the short run using a Keynesian model.

Accepted Answer

A) fall; fall 
B) fall; rise 
C) rise; rise 
D) rise; fall 
A) fall; fall 
B) fall; rise 
C) rise; rise 
D) rise; fall

Question 10

The Japanese real interest rate declines relative to the German real interest rate.German net exports ________ and the German 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 11

Compared to a system of fixed exchange rates,currency unions are beneficial because they

Accepted Answer

A) allow exchange rates to float. 
B) allow every country to have an independent monetary policy. 
C) reduce the costs of trading goods and assets. 
D) restrict what countries can do with fiscal policy. 
A) allow exchange rates to float. 
B) allow every country to have an independent monetary policy. 
C) reduce the costs of trading goods and assets. 
D) restrict what countries can do with fiscal policy.

Question 12

Assume the United States is currently running a current account deficit.The most effective way of eliminating this current account deficit 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

Question 13

A classical IS-LM model of the world economy can be used to show that in a flexible exchange-rate system,a temporary increase in government purchases will cause

Accepted Answer

A) output and the real interest rate to rise, which reduces net exports but has an ambiguous effect on the real exchange rate. 
B) output and the real interest rate to rise, which increases net exports but has an ambiguous effect on the real exchange rate. 
C) output to rise and the real interest rate to fall, which reduces net exports and causes the exchange rate to depreciate. 
D) the real interest rate to fall, which causes the exchange rate to rise, which reduces net exports. 
A) output and the real interest rate to rise, which reduces net exports but has an ambiguous effect on the real exchange rate. 
B) output and the real interest rate to rise, which increases net exports but has an ambiguous effect on the real exchange rate. 
C) output to rise and the real interest rate to fall, which reduces net exports and causes the exchange rate to depreciate. 
D) the real interest rate to fall, which causes the exchange rate to rise, which reduces net exports.

Question 14

A classical economy is described by the equations
AD: Y = 1000 + 100M/P
AS:  $ \bar{\gamma} $= 1500
The real exchange rate is 3 bushels/bottle,the domestic nominal money supply is 30 florins,and the foreign price level is 8 crowns/bushel.
(a)What is the nominal exchange rate?
(b)If the government wants to maintain an official nominal exchange rate of 6 crowns/florin,what must the nominal money supply be?

Accepted Answer

(a)4 crown

Question 15

If all countries produce the same good (or the same set of goods)and goods are freely traded among countries,so that the real exchange rate equals one,then the relationship between domestic and foreign prices and the nominal exchange rate is

Accepted Answer

A) P = PFor / enom. 
B) P = enom / PFor. 
C) enom = P × PFor. 
D) P = PFor. 
A) P = PFor / enom. 
B) P = enom / PFor. 
C) enom = P × PFor. 
D) P = PFor.

Question 16

A decline in domestic output would cause a ________ in net exports and a ________ in the exchange rate.

Accepted Answer

A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall 
A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall

Question 17

When the euro falls in value relative to other currencies,then

Accepted Answer

A) goods imported into Europe rise in price. 
B) European exports rise in price. 
C) neither European exports nor imports rise in price. 
D) both European exports and imports rise in price. 
A) goods imported into Europe rise in price. 
B) European exports rise in price. 
C) neither European exports nor imports rise in price. 
D) both European exports and imports rise in price.

Question 18

Suppose the real exchange rate is 10,the domestic price level is 8,and the foreign price level is 4.
(a)What is the nominal exchange rate?
(b)Suppose the real exchange rate rises by 10%,the inflation rate in the domestic country is 6%,and the inflation rate in the foreign country is 4%.By what percentage does the nominal exchange rate change?
(c)Suppose the nominal exchange rate rises by 5%,the real exchange rate rises by 8%,and domestic inflation is 3%.What is the foreign inflation rate?

Accepted Answer

The answer of Suppose the real exchange rate is 10,the...

Question 19

An increase in foreign output 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 20

There's been a real depreciation of the dollar over the past month.In the long run,you would expect the quantity of

Accepted Answer

A) American imports to fall and the quantity of American exports to fall. 
B) American imports to rise and the quantity of American exports to rise. 
C) American imports to fall and the quantity of American exports to rise. 
D) American imports to rise and the quantity of American exports to fall. 
A) American imports to fall and the quantity of American exports to fall. 
B) American imports to rise and the quantity of American exports to rise. 
C) American imports to fall and the quantity of American exports to rise. 
D) American imports to rise and the quantity of American exports to fall.

An increase in domestic output would cause a in net exports and a in the exchange rate.

Describe the effects of a rise in the domestic real interest rate on the exchange rate and on both domestic and foreign net exports.

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

The Bretton Woods system relied on

When the nominal exchange rate falls

The J curve implies that a real depreciation will cause

The real exchange rate is

An increase in the U.S.money supply would cause the value of the dollar to and U.S.net exports to in the short run using a Keynesian model.

The Japanese real interest rate declines relative to the German real interest rate.German net exports and the German exchange rate .

Compared to a system of fixed exchange rates,currency unions are beneficial because they

Assume the United States is currently running a current account deficit.The most effective way of eliminating this current account deficit would be to temporarily government purchases and the domestic money supply.

A classical IS-LM model of the world economy can be used to show that in a flexible exchange-rate system,a temporary increase in government purchases will cause

If all countries produce the same good (or the same set of goods)and goods are freely traded among countries,so that the real exchange rate equals one,then the relationship between domestic and foreign prices and the nominal exchange rate is

A decline in domestic output would cause a in net exports and a in the exchange rate.

When the euro falls in value relative to other currencies,then

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

There's been a real depreciation of the dollar over the past month.In the long run,you would expect the quantity of

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 increase in domestic output would cause a ________ in net exports and a ________ in the exchange rate.

Describe the effects of a rise in the domestic real interest rate on the exchange rate and on both domestic and foreign net exports.

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

The Bretton Woods system relied on

When the nominal exchange rate falls

The J curve implies that a real depreciation will cause

The real exchange rate is

An increase in the U.S.money supply would cause the value of the dollar to ________ and U.S.net exports to ________ in the short run using a Keynesian model.

The Japanese real interest rate declines relative to the German real interest rate.German net exports ________ and the German exchange rate ________.

Compared to a system of fixed exchange rates,currency unions are beneficial because they

Assume the United States is currently running a current account deficit.The most effective way of eliminating this current account deficit would be to temporarily ________ government purchases and ________ the domestic money supply.

A classical IS-LM model of the world economy can be used to show that in a flexible exchange-rate system,a temporary increase in government purchases will cause

If all countries produce the same good (or the same set of goods)and goods are freely traded among countries,so that the real exchange rate equals one,then the relationship between domestic and foreign prices and the nominal exchange rate is

A decline in domestic output would cause a ________ in net exports and a ________ in the exchange rate.

When the euro falls in value relative to other currencies,then

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

There's been a real depreciation of the dollar over the past month.In the long run,you would expect the quantity of

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

An increase in domestic output would cause a in net exports and a in the exchange rate.

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

An increase in the U.S.money supply would cause the value of the dollar to and U.S.net exports to in the short run using a Keynesian model.

The Japanese real interest rate declines relative to the German real interest rate.German net exports and the German exchange rate .

Assume the United States is currently running a current account deficit.The most effective way of eliminating this current account deficit would be to temporarily government purchases and the domestic money supply.

A decline in domestic output would cause a in net exports and a in the exchange rate.

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