Question 1

Part of the reason for the Mexican peso crisis of 1994 was Mexico's decision to

Accepted Answer

A) allow the peso to depreciate too rapidly. 
B) allow the peso to appreciate too rapidly. 
C) maintain relatively low nominal interest rates in the face of relatively high inflation. 
D) maintain a roughly fixed nominal exchange rate in the face of relatively high inflation. 
E)  run a very small budget deficit in the face of relatively high inflation. 
A) allow the peso to depreciate too rapidly. 
B) allow the peso to appreciate too rapidly. 
C) maintain relatively low nominal interest rates in the face of relatively high inflation. 
D) maintain a roughly fixed nominal exchange rate in the face of relatively high inflation. 
E)  run a very small budget deficit in the face of relatively high inflation.

Question 2

Suppose the economy is operating below the natural level of output.Discuss the arguments for and against using a devaluation in such a situation.

Accepted Answer

With a devaluation,Y returns to the natu

Question 3

Assume a country is in a fixed exchange rate regime.Explain what factors might cause individuals to expect that a country will revalue its currency.

Accepted Answer

The currency might be viewed a

Question 4

A country which does not revalue when financial markets expect it to will probably suffer

Accepted Answer

A) a real depreciation of its currency. 
B) lower interest rates. 
C) a default on its national debt. 
D) all of the above 
E)  none of the above 
A) a real depreciation of its currency. 
B) lower interest rates. 
C) a default on its national debt. 
D) all of the above 
E)  none of the above

Question 5

Which of the following is an advantage of a common currency in Europe?

Accepted Answer

A) Each country could conduct its own, independent monetary policy. 
B) Exchange rate uncertainty within the common currency area would be eliminated. 
C) Each country could conduct its own, independent fiscal policy. 
D) all of the above 
E)  none of the above 
A) Each country could conduct its own, independent monetary policy. 
B) Exchange rate uncertainty within the common currency area would be eliminated. 
C) Each country could conduct its own, independent fiscal policy. 
D) all of the above 
E)  none of the above

Question 6

European currencies taken out of circulation and replaced with the Euro in

Accepted Answer

A) 1992. 
B) 1997. 
C) 1999. 
D) 2004. 
E)  none of the above 
A) 1992. 
B) 1997. 
C) 1999. 
D) 2004. 
E)  none of the above

Question 7

When policy makers decide to devalue the currency,such an action generally represents

Accepted Answer

A) a decision to let the currency float. 
B) an increase in the pegged value of the domestic currency. 
C) a reduction in the foreign price level. 
D) a reduction in the domestic price level. 
E)  none of the above 
A) a decision to let the currency float. 
B) an increase in the pegged value of the domestic currency. 
C) a reduction in the foreign price level. 
D) a reduction in the domestic price level. 
E)  none of the above

Question 8

Suppose foreign exchange markets anticipate a devaluation for country A.Further assume that policy makers in country A will continue to fix its nominal exchange rate.In order to peg the currency at its original level,which of the following must occur?

Accepted Answer

A) increase the domestic interest rate 
B) increase the domestic price level 
C) convince trading partners to raise their interest rates 
D) all of the above 
E)  none of the above 
A) increase the domestic interest rate 
B) increase the domestic price level 
C) convince trading partners to raise their interest rates 
D) all of the above 
E)  none of the above

Question 9

The new European Central Bank is located in which country?

Accepted Answer

A) England 
B) Italy 
C) France 
D) Spain 
E)  Germany 
A) England 
B) Italy 
C) France 
D) Spain 
E)  Germany

Question 10

Assume that policy makers are pursuing a fixed exchange rate regime and that the economy is initially operating at the natural level.Which of the following will occur as a result of a evaluation?

Accepted Answer

A) The real exchange rate will be permanently higher in the medium run. 
B) The real exchange rate will be permanently lower in the medium run. 
C) The effects of this devaluation on the real exchange rate will be ambiguous in the medium run. 
D) The nominal exchange rate will initially increase in the short run and then decrease in the medium run. 
E)  none of the above 
A) The real exchange rate will be permanently higher in the medium run. 
B) The real exchange rate will be permanently lower in the medium run. 
C) The effects of this devaluation on the real exchange rate will be ambiguous in the medium run. 
D) The nominal exchange rate will initially increase in the short run and then decrease in the medium run. 
E)  none of the above

Question 11

For this question,assume that policy makers are pursuing a fixed exchange rate regime and that output is initially less than the natural level of output.The economy will tend to move toward the natural level of output when which of the following occur?

Accepted Answer

A) an increase in the price level 
B) a devaluation of the currency 
C) an increase in the domestic interest rate 
D) a reduction in the foreign price level 
E)  none of the above 
A) an increase in the price level 
B) a devaluation of the currency 
C) an increase in the domestic interest rate 
D) a reduction in the foreign price level 
E)  none of the above

Question 12

Suppose a country is perceived to have an overvalued real exchange rate does not devalue.Which of the following would we expect to occur over time?

Accepted Answer

A) a reduction in its price level 
B) a real depreciation of its currency 
C) a reduction in its trade surplus 
D) all of the above 
E)  none of the above 
A) a reduction in its price level 
B) a real depreciation of its currency 
C) a reduction in its trade surplus 
D) all of the above 
E)  none of the above

Question 13

In chapter 20,the expected future nominal exchange rate in the long run say,Eᵉt₊n,is assumed to be the nominal exchange rate at which

Accepted Answer

A) the current account is in balance. 
B) the future rate of appreciation or depreciation is constant. 
C) domestic and foreign price levels are equal. 
D) one unit of foreign currency exchanges for one unit of domestic currency. 
E)  none of the above 
A) the current account is in balance. 
B) the future rate of appreciation or depreciation is constant. 
C) domestic and foreign price levels are equal. 
D) one unit of foreign currency exchanges for one unit of domestic currency. 
E)  none of the above

Question 14

A number of situations can arise that will cause individuals to believe that policy makers might change the pegged value of a fixed exchange rate.Suppose financial market participants expect a revaluation in the future.The interest parity condition will be maintained if which of the following policy actions are taken in the current period?

Accepted Answer

A) a reduction in the pegged value of the domestic currency 
B) an increase in i 
C) a reduction in i 
D) an increase in government spending 
A) a reduction in the pegged value of the domestic currency 
B) an increase in i 
C) a reduction in i 
D) an increase in government spending

Question 15

Assume that policy makers are pursuing a fixed exchange rate regime and that the economy is initially operating at the natural level of output.Which of the following will occur as a result of a revaluation?

Accepted Answer

A) The real exchange rate will be permanently higher in the medium run. 
B) The real exchange rate will be permanently lower in the medium run. 
C) The effects of this revaluation on the real exchange rate will be ambiguous in the medium run. 
D) The real exchange rate will be unchanged in medium run. 
E)  The nominal exchange will initially fall in the short run and then increase in the medium run. 
A) The real exchange rate will be permanently higher in the medium run. 
B) The real exchange rate will be permanently lower in the medium run. 
C) The effects of this revaluation on the real exchange rate will be ambiguous in the medium run. 
D) The real exchange rate will be unchanged in medium run. 
E)  The nominal exchange will initially fall in the short run and then increase in the medium run.

Question 16

Explain the cases for and against flexible and fixed exchange rate regimes.

Accepted Answer

Case for fixed: cannot trust the central

Question 17

Suppose the economy is initially operating above the natural level of output.In a fixed exchange rate regime,explain how the economy will adjust to this situation.

Accepted Answer

With Y below the natural level,the expec

Question 18

Does Europe constitute an optimal common currency area? Why?

Accepted Answer

There is less agreement on the question.

Question 19

Explain what factors cause shifts of the aggregate demand curve in the open economy model.

Accepted Answer

The standard of list of determinants tha

Question 20

Use the information provided below to answer the following question(s).
The exchange rate between the British pound and the U.S. dollar is 2. In England, the price level is 1.0 and the one-year interest rate is 20%. In the United States, the price level is .8 and the one-year interest rate is 8%. The inflation rate in both countries is zero.
-Refer to the information above.The price of U.S.goods measured in pounds is

Accepted Answer

A) .8. 
B) 1.0. 
C) 1.6. 
D) 2. 
E)  none of the above 
A) .8. 
B) 1.0. 
C) 1.6. 
D) 2. 
E)  none of the above

Exam 20: Exchange Rate Regimes

Part of the reason for the Mexican peso crisis of 1994 was Mexico's decision to

Suppose the economy is operating below the natural level of output.Discuss the arguments for and against using a devaluation in such a situation.

Assume a country is in a fixed exchange rate regime.Explain what factors might cause individuals to expect that a country will revalue its currency.

A country which does not revalue when financial markets expect it to will probably suffer

Which of the following is an advantage of a common currency in Europe?

European currencies taken out of circulation and replaced with the Euro in

When policy makers decide to devalue the currency,such an action generally represents

Suppose foreign exchange markets anticipate a devaluation for country A.Further assume that policy makers in country A will continue to fix its nominal exchange rate.In order to peg the currency at its original level,which of the following must occur?

The new European Central Bank is located in which country?

Assume that policy makers are pursuing a fixed exchange rate regime and that the economy is initially operating at the natural level.Which of the following will occur as a result of a evaluation?

For this question,assume that policy makers are pursuing a fixed exchange rate regime and that output is initially less than the natural level of output.The economy will tend to move toward the natural level of output when which of the following occur?

Suppose a country is perceived to have an overvalued real exchange rate does not devalue.Which of the following would we expect to occur over time?

In chapter 20,the expected future nominal exchange rate in the long run say,Eᵉt₊n,is assumed to be the nominal exchange rate at which

Assume that policy makers are pursuing a fixed exchange rate regime and that the economy is initially operating at the natural level of output.Which of the following will occur as a result of a revaluation?

Explain the cases for and against flexible and fixed exchange rate regimes.

Suppose the economy is initially operating above the natural level of output.In a fixed exchange rate regime,explain how the economy will adjust to this situation.

Does Europe constitute an optimal common currency area? Why?

Explain what factors cause shifts of the aggregate demand curve in the open economy model.

A Tour of the World

A Tour of the Book

The Goods Market

Financial Markets

Goods and Financial Marketsthe Is-Lm Model

Financial Markets Ii: the Extended Is-Lm Model

The Labor Market

The Phillips Curve, the Natural Rate of Unemployment, and Inflation

From the Short to the Medium Run: the Is-Lm-Pc Model

The Facts of Growth

Saving, capital Accumulation, and Output

Technological Progress and Growth

Technological Progress: the Short, the Medium, and the Long Run

Financial Markets and Expectations

Expectations, consumption, and Investment

Expectations, output, and Policy

Openness in Goods and Financial Markets

The Goods Market in an Open Economy

Output, the Interest Rate, and the Exchange Rate

Should Policy Makers Be Restrained

Fiscal Policy: a Summing up

Monetary Policy: a Summing up

Epilogue: the Story of Macroeconomics

Appendix

Filters