Question 1

A decline in the exchange rate could have been caused by which of these factors?

Accepted Answer

A) A decline in domestic output (income) 
B) An increase in the domestic real interest rate 
C) A decline in the world demand for domestic goods 
D) An increase in foreign output (income) 
A) A decline in domestic output (income) 
B) An increase in the domestic real interest rate 
C) A decline in the world demand for domestic goods 
D) An increase in foreign output (income)

Question 2

A rise in the domestic real interest rate 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 3

In a Keynesian model,what are the short-run effects on output,the real interest rate,and the real exchange rate,for both the domestic economy and a foreign economy,of a decline in investment?

Accepted Answer

The IS curve shifts down and to the left

Question 4

Europe may not be an optimum currency area because

Accepted Answer

A) people speak different languages. 
B) fiscal transfers are weak. 
C) the countries do not trade very much with each other. 
D) financial markets are weak. 
A) people speak different languages. 
B) fiscal transfers are weak. 
C) the countries do not trade very much with each other. 
D) financial markets are weak.

Question 5

The idea that similar foreign and domestic goods,or baskets of goods,should have the same price when priced in terms of the same currency is called

Accepted Answer

A) equity. 
B) purchasing power parity. 
C) efficiency. 
D) the tragedy of the commons. 
A) equity. 
B) purchasing power parity. 
C) efficiency. 
D) the tragedy of the commons.

Question 6

Suppose the dollar-euro exchange rate falls.Then

Accepted Answer

A) French firms will import more from the United States into France. 
B) U)S. firms will export less to France. 
C) the dollar is less valuable relative to the euro. 
D) the euro is more valuable relative to the dollar. 
A) French firms will import more from the United States into France. 
B) U)S. firms will export less to France. 
C) the dollar is less valuable relative to the euro. 
D) the euro is more valuable relative to the dollar.

Question 7

An exchange-rate system in which the nominal exchange rate is set by the government is known as

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 8

Purchasing power parity does not hold in the short to medium run because

Accepted Answer

A) exports don't equal imports. 
B) exchange rates fluctuate too much. 
C) some goods aren't internationally traded. 
D) most business cycles are caused by shocks to aggregate demand. 
A) exports don't equal imports. 
B) exchange rates fluctuate too much. 
C) some goods aren't internationally traded. 
D) most business cycles are caused by shocks to aggregate demand.

Question 9

When the rate of appreciation of the nominal exchange rate equals the foreign inflation rate minus the domestic inflation rate,we say there is

Accepted Answer

A) relative purchasing power parity. 
B) purchasing power parity. 
C) a Phillips curve. 
D) an aggregate supply shock. 
A) relative purchasing power parity. 
B) purchasing power parity. 
C) a Phillips curve. 
D) an aggregate supply shock.

Question 10

A rise in the real exchange rate is called

Accepted Answer

A) a real depreciation. 
B) a real appreciation. 
C) a real bargain. 
D) a real devaluation. 
A) a real depreciation. 
B) a real appreciation. 
C) a real bargain. 
D) a real devaluation.

Question 11

In a Keynesian model,a temporary increase in government purchases would cause output to ________ and the domestic real interest rate to ________,in the short run.

Accepted Answer

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

Question 12

Empirical evidence shows that in the short run,purchasing power parity ________,and in the long run,purchasing power parity ________.

Accepted Answer

A) holds; does not hold 
B) holds; holds 
C) does not hold; holds 
D) does not hold; does not hold 
A) holds; does not hold 
B) holds; holds 
C) does not hold; holds 
D) does not hold; does not hold

Question 13

A depreciation of the dollar causes

Accepted Answer

A) a decrease in U.S. exports. 
B) an increase in U.S. imports. 
C) an increase in the prices of U.S. imports. 
D) an increase in the prices of U.S. exports. 
A) a decrease in U.S. exports. 
B) an increase in U.S. imports. 
C) an increase in the prices of U.S. imports. 
D) an increase in the prices of U.S. exports.

Question 14

Purchasing power parity means that

Accepted Answer

A) enom = PFor / P. 
B) P = PFor. 
C) P = enom / PFor. 
D) enom = mc2. 
A) enom = PFor / P. 
B) P = PFor. 
C) P = enom / PFor. 
D) enom = mc2.

Question 15

For this question,use the Keynesian IS-LM model with flexible exchange rates.
Eastland's main trading partner is Westland.Suppose Westland undertakes an expansionary monetary policy.
(a)What is the effect of Westland's expansionary monetary policy on Eastland's real exchange rate in the short run,assuming no change in Eastland's policies?
(b)What is the effect of Westland's expansionary monetary policy on Eastland's real exchange rate in the long run,assuming no change in Eastland's policies?
(c)What is the effect of Westland's expansionary monetary policy on Eastland's nominal exchange rate in the short run and in the long run?

Accepted Answer

(a)Since LM(West)shifts right,West's out

Question 16

A temporary increase in government purchases 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 17

Europe may not be an optimum currency area because

Accepted Answer

A) people speak different languages. 
B) workers are not very mobile. 
C) the countries do not trade very much with each other. 
D) financial markets are weak. 
A) people speak different languages. 
B) workers are not very mobile. 
C) the countries do not trade very much with each other. 
D) financial markets are weak.

Question 18

Describe how the euro was created.What are the benefits of the monetary union? What are the costs?

Accepted Answer

The European countries unified their cur

Question 19

From 1980 to 2000,the yen-dollar exchange rate fell from 240 yen/dollar to 102 yen/dollar,while the dollar-pound exchange rate fell from 2.22 dollars/pound to 1.62 dollars/pound.As a result

Accepted Answer

A) the dollar appreciated relative to the yen, but depreciated relative to the pound. 
B) the dollar depreciated relative to the yen, but appreciated relative to the pound. 
C) the dollar appreciated relative to both the yen and the pound. 
D) the dollar depreciated relative to both the yen and the pound. 
A) the dollar appreciated relative to the yen, but depreciated relative to the pound. 
B) the dollar depreciated relative to the yen, but appreciated relative to the pound. 
C) the dollar appreciated relative to both the yen and the pound. 
D) the dollar depreciated relative to both the yen and the pound.

Question 20

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

Accepted Answer

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

A decline in the exchange rate could have been caused by which of these factors?

A rise in the domestic real interest rate would cause a in net exports and a in the exchange rate.

In a Keynesian model,what are the short-run effects on output,the real interest rate,and the real exchange rate,for both the domestic economy and a foreign economy,of a decline in investment?

Europe may not be an optimum currency area because

The idea that similar foreign and domestic goods,or baskets of goods,should have the same price when priced in terms of the same currency is called

Suppose the dollar-euro exchange rate falls.Then

An exchange-rate system in which the nominal exchange rate is set by the government is known as

Purchasing power parity does not hold in the short to medium run because

When the rate of appreciation of the nominal exchange rate equals the foreign inflation rate minus the domestic inflation rate,we say there is

A rise in the real exchange rate is called

In a Keynesian model,a temporary increase in government purchases would cause output to and the domestic real interest rate to ,in the short run.

Empirical evidence shows that in the short run,purchasing power parity ,and in the long run,purchasing power parity .

A depreciation of the dollar causes

Purchasing power parity means that

A temporary increase in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment)in the economy.

Europe may not be an optimum currency area because

Describe how the euro was created.What are the benefits of the monetary union? What are the costs?

From 1980 to 2000,the yen-dollar exchange rate fell from 240 yen/dollar to 102 yen/dollar,while the dollar-pound exchange rate fell from 2.22 dollars/pound to 1.62 dollars/pound.As a result

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

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

A decline in the exchange rate could have been caused by which of these factors?

A rise in the domestic real interest rate would cause a ________ in net exports and a ________ in the exchange rate.

In a Keynesian model,what are the short-run effects on output,the real interest rate,and the real exchange rate,for both the domestic economy and a foreign economy,of a decline in investment?

Europe may not be an optimum currency area because

The idea that similar foreign and domestic goods,or baskets of goods,should have the same price when priced in terms of the same currency is called

Suppose the dollar-euro exchange rate falls.Then

An exchange-rate system in which the nominal exchange rate is set by the government is known as

Purchasing power parity does not hold in the short to medium run because

When the rate of appreciation of the nominal exchange rate equals the foreign inflation rate minus the domestic inflation rate,we say there is

A rise in the real exchange rate is called

In a Keynesian model,a temporary increase in government purchases would cause output to ________ and the domestic real interest rate to ________,in the short run.

Empirical evidence shows that in the short run,purchasing power parity ________,and in the long run,purchasing power parity ________.

A depreciation of the dollar causes

Purchasing power parity means that

A temporary increase in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Europe may not be an optimum currency area because

Describe how the euro was created.What are the benefits of the monetary union? What are the costs?

From 1980 to 2000,the yen-dollar exchange rate fell from 240 yen/dollar to 102 yen/dollar,while the dollar-pound exchange rate fell from 2.22 dollars/pound to 1.62 dollars/pound.As a result

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

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

A rise in the domestic real interest rate would cause a in net exports and a in the exchange rate.

In a Keynesian model,a temporary increase in government purchases would cause output to and the domestic real interest rate to ,in the short run.

Empirical evidence shows that in the short run,purchasing power parity ,and in the long run,purchasing power parity .

A temporary increase in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment)in the economy.