Question 1

In the short run, an increase in government purchases will cause

Accepted Answer

A)  a shift of the DD curve to the left and an increase in output. 
B)  a shift of the DD curve to the right and a decrease in output. 
C)  a shift of the DD curve to the left and a decrease in output. 
D)  a shift of the DD curve to the right and an increase in output. 
E)  a shift of the DD curve the left and an appreciation of the currency. 
A)  a shift of the DD curve to the left and an increase in output. 
B)  a shift of the DD curve to the right and a decrease in output. 
C)  a shift of the DD curve to the left and a decrease in output. 
D)  a shift of the DD curve to the right and an increase in output. 
E)  a shift of the DD curve the left and an appreciation of the currency.

Question 2

Find the real exchange rate for the following case: Assume that the representative basket of European goods and services costs 40 euros and the representative U.S. basket costs $50, and the dollar/euro exchange rate is $0.90 per euro, then the price of the European basket in terms of U.S. basket is ________.

Accepted Answer

[(0.9 $/euro) (40 eu

Question 3

When EP/P* rises

Accepted Answer

A)  IM will rise. 
B)  IM will fall. 
C)  IM may rise or fall. 
D)  IM is not affected. 
E)  IM and P* will both rise. 
A)  IM will rise. 
B)  IM will fall. 
C)  IM may rise or fall. 
D)  IM is not affected. 
E)  IM and P* will both rise.

Question 4

Discuss the main factors affecting the position of the DD schedule.

Accepted Answer

The level of government demand

Question 5

Temporary tax cuts would cause

Accepted Answer

A)  the AA-curve to shift left. 
B)  the AA-curve to shift right. 
C)  the DD-curve to shift left. 
D)  the DD-curve to shift right. 
E)  a shift in the AA-curve, although the direction is ambiguous. 
A)  the AA-curve to shift left. 
B)  the AA-curve to shift right. 
C)  the DD-curve to shift left. 
D)  the DD-curve to shift right. 
E)  a shift in the AA-curve, although the direction is ambiguous.

Question 6

Disposable income is defined as

Accepted Answer

A)  Y - C. 
B)  Y - T. 
C)  C - T. 
D)  I - C. 
E)  Y - I. 
A)  Y - C. 
B)  Y - T. 
C)  C - T. 
D)  I - C. 
E)  Y - I.

Question 7

How is the AA schedule derived?

Accepted Answer

A)  It is derived by the schedule of interest rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market. 
B)  It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the foreign money market and the domestic exchange market. 
C)  It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market. 
D)  It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic bond market and the foreign asset market. 
E)  It is derived by the schedule of exchange rate and output combinations that are greater than equilibrium in the foreign money market and the domestic exchange market. 
A)  It is derived by the schedule of interest rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market. 
B)  It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the foreign money market and the domestic exchange market. 
C)  It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market. 
D)  It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic bond market and the foreign asset market. 
E)  It is derived by the schedule of exchange rate and output combinations that are greater than equilibrium in the foreign money market and the domestic exchange market.

Question 8

Current account is given by the equation:

Accepted Answer

A)  CA = IM - EX (measured in terms of domestic output). 
B)  CA = IM - EX (measured in terms of foreign output). 
C)  CA = EX - IM (measured in terms of domestic output). 
D)  CA = EX - IM (measured in terms of foreign output). 
E)  CA = EX + IM (measured in terms of domestic output). 
A)  CA = IM - EX (measured in terms of domestic output). 
B)  CA = IM - EX (measured in terms of foreign output). 
C)  CA = EX - IM (measured in terms of domestic output). 
D)  CA = EX - IM (measured in terms of foreign output). 
E)  CA = EX + IM (measured in terms of domestic output).

Question 9

Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD and where both the output and asset markets are out of equilibrium. Explain what will happen next?

Accepted Answer

Since the asset market adjusts very quic

Question 10

The unique equilibrium output level in the short run is found at the intersection of the following curves.

Accepted Answer

A)  aggregate demand and aggregate supply 
B)  aggregate demand and 45 degree line 
C)  aggregate supply and 45 degree line 
D)  aggregate demand and short-run aggregate supply 
E)  aggregate supply and long-run demand 
A)  aggregate demand and aggregate supply 
B)  aggregate demand and 45 degree line 
C)  aggregate supply and 45 degree line 
D)  aggregate demand and short-run aggregate supply 
E)  aggregate supply and long-run demand

Question 11

Explain what are the factors that shift the AA Schedule?

Accepted Answer

Changes in the domestic money supply; ch

Question 12

A real depreciation of a nation's currency gives rise to the ________ effect and the ________ effect on the current account.

Accepted Answer

A)  volume; value 
B)  depletion; expansion 
C)  surplus; deficit 
D)  output; trade 
E)  price; profit 
A)  volume; value 
B)  depletion; expansion 
C)  surplus; deficit 
D)  output; trade 
E)  price; profit

Question 13

What is an accurate implication resulting from an increase in income?

Accepted Answer

A)  an increase in exchange rate 
B)  a decrease in exchange rate 
C)  a decrease in consumption 
D)  a decrease in output 
E)  an increase in consumption 
A)  an increase in exchange rate 
B)  a decrease in exchange rate 
C)  a decrease in consumption 
D)  a decrease in output 
E)  an increase in consumption

Question 14

An increase in the real exchange rate

Accepted Answer

A)  makes imports more expensive. 
B)  makes imports less expensive. 
C)  does not affect import values. 
D)  always makes the number of imports rise. 
E)  makes domestic consumers spend more on only foreign imports. 
A)  makes imports more expensive. 
B)  makes imports less expensive. 
C)  does not affect import values. 
D)  always makes the number of imports rise. 
E)  makes domestic consumers spend more on only foreign imports.

Question 15

Which of the following does NOT affect the position of the DD curve?

Accepted Answer

A)  monetary policy 
B)  government spending 
C)  taxes 
D)  export demand 
E)  price levels 
A)  monetary policy 
B)  government spending 
C)  taxes 
D)  export demand 
E)  price levels

Question 16

The Marshall-Lerner Condition states that, all else equal

Accepted Answer

A)  nominal appreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
B)  real depreciation improves the current account if export and import volumes are sufficiently inelastic with respect to the real exchange rate. 
C)  real appreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
D)  real depreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
E)  the sum of import and export elasticities must be equal to one in order for depreciation to occur. 
A)  nominal appreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
B)  real depreciation improves the current account if export and import volumes are sufficiently inelastic with respect to the real exchange rate. 
C)  real appreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
D)  real depreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
E)  the sum of import and export elasticities must be equal to one in order for depreciation to occur.

Question 17

Explain what are the factors that shift the DD Schedule.

Accepted Answer

A change in government demand, change in

Question 18

Show the effects of a permanent increase in the money supply.

Accepted Answer

(1) AA-shifts right-increase in Y and E

Question 19

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 100 euros and the representative U.S. basket costs $125, and the dollar/euro exchange rate is $0.75 per euro, then the price of the European basket in terms of U.S. basket is:

Accepted Answer

[(0.75 $/euro) (100 euro per a

Question 20

Why does an exchange rate-output combination lying above both DD and AA jump first to AA in equilibrium?

Accepted Answer

A)  Asset prices can adjust immediately. 
B)  Production plans can adjust immediately. 
C)  to preserve full employment 
D)  Prices are nominal and demand is real. 
E)  Aggregate demand adjusts faster than output. 
A)  Asset prices can adjust immediately. 
B)  Production plans can adjust immediately. 
C)  to preserve full employment 
D)  Prices are nominal and demand is real. 
E)  Aggregate demand adjusts faster than output.

Exam 17: Output and the Exchange Rate in the Short Run

In the short run, an increase in government purchases will cause

When EP/P* rises

Discuss the main factors affecting the position of the DD schedule.

Temporary tax cuts would cause

Disposable income is defined as

How is the AA schedule derived?

Current account is given by the equation:

Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD and where both the output and asset markets are out of equilibrium. Explain what will happen next?

The unique equilibrium output level in the short run is found at the intersection of the following curves.

Explain what are the factors that shift the AA Schedule?

A real depreciation of a nation's currency gives rise to the ________ effect and the ________ effect on the current account.

What is an accurate implication resulting from an increase in income?

An increase in the real exchange rate

Which of the following does NOT affect the position of the DD curve?

The Marshall-Lerner Condition states that, all else equal

Explain what are the factors that shift the DD Schedule.

Show the effects of a permanent increase in the money supply.

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 100 euros and the representative U.S. basket costs $125, and the dollar/euro exchange rate is $0.75 per euro, then the price of the European basket in terms of U.S. basket is:

Why does an exchange rate-output combination lying above both DD and AA jump first to AA in equilibrium?

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters

A real depreciation of a nation's currency gives rise to the effect and the effect on the current account.