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

If the real exchange rate rises 2%,domestic inflation is 3%,and foreign inflation is 1%,what is the percent change in the nominal exchange rate?

Under a flexible exchange-rate system,an increase in the demand for Japanese yen would cause the U.S.dollar-Japanese yen exchange rate to

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

Describe the effects of contractionary monetary policy by the domestic central bank on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model in the short run.What happens in the long run? Show a diagram to illustrate the short- and long-run effects in both countries.

If a country has an overvaluation problem,the best solution is to

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

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

In a flexible exchange-rate system,the value of a currency is determined by

If the nominal exchange rate rises 5%,domestic inflation is 2%,and foreign inflation is 3%,what is the percent change in the real exchange rate?

In an open economy,an increase in savings because of concerns about the future should cause the domestic real interest rate to ________ and should cause net exports to ________.

Identify changes in two variables that would shift the supply curve of dollars to the right.Identify changes in two variables that would shift the demand curve for dollars to the right.

The price of one currency in terms of another is called

When the domestic currency buys fewer units of foreign currency,the

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

When a group of countries agree to share a common currency,they are said to have formed a

In an open economy,a decrease in net exports because of reduced demand for domestic products by foreigners should cause the domestic real interest rate to ________ and should cause desired saving minus desired investment to ________.

Criteria for an optimum currency area include all the following except

According to the J curve,the rapid depreciation in the dollar from 1985 to 1987 caused net exports to

Suppose the Swiss franc rises against the British pound but falls against the Japanese yen.What happens to the prices of goods imported into Switzerland?

For a given real exchange rate,a nominal appreciation of the domestic currency will result from