Question 1

According to the portfolio balance approach,an increase in domestic real income or GDP leads domestic residents to increase the demand for the:

Accepted Answer

A) domestic money 
B) domestic bond 
C) foreign bond 
D) all of the above 
A) domestic money 
B) domestic bond 
C) foreign bond 
D) all of the above A

Question 2

Suppose that the price level in the United States is 135 and the price level in Germany is 234.What would absolute purchasing power parity theory predict the dollar/euro exchange rate to be?

Accepted Answer

135 = 235/R.R = 1.74 ($/€)

Question 3

According to the portfolio balance approach,an increase in domestic wealth leads domestic residents to increase the demand for the:

Accepted Answer

A) domestic money 
B) domestic bond 
C) foreign bond 
D) all of the above 
A) domestic money 
B) domestic bond 
C) foreign bond 
D) all of the above D

Question 4

Discuss (a)the exchange dynamics of the dollar resulting from an unanticipated reduction of the U.S.money supply and (b)indicate the final long-run equilibrium interest rate,price index,and exchange rate as compared with the original equilibrium position.

Accepted Answer

(a)The unanticipated reduction in the U.

Question 5

What is the empirical evidence for the monetary and portfolio balance model of exchange rate determination?

Accepted Answer

Initial papers by Frenkel (1976),Bilson

Question 6

The monetary approach assumes that the following assumption holds:

Accepted Answer

A) domestic and foreign bonds are perfect substitutes 
B) covered interest arbitrage holds 
C) expectations do not affect the future spot exchange rate. 
D) the risk premium is positive 
A) domestic and foreign bonds are perfect substitutes 
B) covered interest arbitrage holds 
C) expectations do not affect the future spot exchange rate. 
D) the risk premium is positive

Question 7

If a nation's money GDP is 100 and the velocity of circulation of money is 4,the quantity demanded of money in the nation is:

Accepted Answer

A) 20 
B) 25 
C) 50 
D) 100 
A) 20 
B) 25 
C) 50 
D) 100

Question 8

The monetary base of the nation refers to the:

Accepted Answer

A) domestic credit created by the nation's monetary authorities or the domestic assets backing of the nation's money supply 
B) international reserves of the nation 
C) domestic credit created by the nation's monetary authorities or the domestic assets backing of the nation's money supply plus the international reserves of the nation 
D) legal reserve requirements in the nation 
A) domestic credit created by the nation's monetary authorities or the domestic assets backing of the nation's money supply 
B) international reserves of the nation 
C) domestic credit created by the nation's monetary authorities or the domestic assets backing of the nation's money supply plus the international reserves of the nation 
D) legal reserve requirements in the nation

Question 9

If the legal reserve requirement of the nation is 25%,the money multiplier in the nation is:

Accepted Answer

A) 2 
B) 4 
C) 5 
D) 6 
A) 2 
B) 4 
C) 5 
D) 6

Question 10

The monetary approach to the balance of payments:

Accepted Answer

A) views the balance of payments as an essentially monetary phenomenon 
B) rests on the purchasing power-parity theory 
C) postulates that money plays the crucial role in the long run both as a disturbance and adjustment in the nation's balance of payments 
D) all of the above 
A) views the balance of payments as an essentially monetary phenomenon 
B) rests on the purchasing power-parity theory 
C) postulates that money plays the crucial role in the long run both as a disturbance and adjustment in the nation's balance of payments 
D) all of the above

Question 11

Since the creation of the euro,forecasts have

Accepted Answer

A) accurately predicted changes in the euro. 
B) correctly predicted changes in the euro most of the time. 
C) not been used to chart movements in the euro. 
D) not been able to correctly chart movements in the euro. 
A) accurately predicted changes in the euro. 
B) correctly predicted changes in the euro most of the time. 
C) not been used to chart movements in the euro. 
D) not been able to correctly chart movements in the euro.

Question 12

An unexpected increase in the U.S.money supply leads to:

Accepted Answer

A) an immediate reduction in the U.S.interest rate 
B) an immediate larger dollar depreciation 
C) a gradual appreciation of the dollar over time 
D) all of the above 
A) an immediate reduction in the U.S.interest rate 
B) an immediate larger dollar depreciation 
C) a gradual appreciation of the dollar over time 
D) all of the above

Question 13

Explain absolute and relative purchasing power parity (PPP).

Accepted Answer

Absolute PPP postulates that the exchang

Question 14

Explain the fundamental difference between modern exchange rate theories and traditional exchange rate theories.

Accepted Answer

Modern exchange rate theories,such as th

Question 15

If the increase in a nation's money supply grows less rapidly than its GNP,the nation will face a:

Accepted Answer

A) once-and-for-all balance of payments deficit 
B) once-and-for-all balance of payments surplus 
C) continuous balance of payments deficit 
D) continuous balance of payments surplus 
A) once-and-for-all balance of payments deficit 
B) once-and-for-all balance of payments surplus 
C) continuous balance of payments deficit 
D) continuous balance of payments surplus

Question 16

The relative purchasing power-parity theory postulates that:

Accepted Answer

A) The equilibrium exchange rate is equal to the ratio of the price level in the two nations 
B) the change in the exchange rate over a period of time should be proportional to the relative change in the price level in the two nations over the same time period 
C) the change in the exchange rate over a period of time should be proportional to the absolute change in the price level in the two nations over the same time period 
D) the exchange rate at a period of time should be proportional to the relative prices in the two nations 
A) The equilibrium exchange rate is equal to the ratio of the price level in the two nations 
B) the change in the exchange rate over a period of time should be proportional to the relative change in the price level in the two nations over the same time period 
C) the change in the exchange rate over a period of time should be proportional to the absolute change in the price level in the two nations over the same time period 
D) the exchange rate at a period of time should be proportional to the relative prices in the two nations

Question 17

The relative PPP theory gives better results:

Accepted Answer

A) in the long run than in the short run 
B) when structural changes take place 
C) the greater is the level of commodity aggregation 
D) in tests including developed and developing countries 
A) in the long run than in the short run 
B) when structural changes take place 
C) the greater is the level of commodity aggregation 
D) in tests including developed and developing countries

Question 18

According to the monetary approach to the balance of payments a non-reserve currency nation:

Accepted Answer

A) has no control over its money supply in the long-run under fixed exchange rates 
B) has no control over its money supply in the short-run under fixed exchange rates 
C) has no control over its money supply in the long-run under flexible exchange rates 
D) retains complete control over its money supply in the long-run 
A) has no control over its money supply in the long-run under fixed exchange rates 
B) has no control over its money supply in the short-run under fixed exchange rates 
C) has no control over its money supply in the long-run under flexible exchange rates 
D) retains complete control over its money supply in the long-run

Question 19

Which of the following is false with regard to exchange rate dynamics:

Accepted Answer

A) seeks to explain exchange rate fluctuations over time 
B) results because the real sector adjusts instantaneously to disturbances 
C) in the short run,the exchange rate overshoots its long-run equilibrium 
D) results from the stock adjustment in financial assets 
A) seeks to explain exchange rate fluctuations over time 
B) results because the real sector adjusts instantaneously to disturbances 
C) in the short run,the exchange rate overshoots its long-run equilibrium 
D) results from the stock adjustment in financial assets

Question 20

A Big Mac costs 6.60 lira in Turkey and $4.20 in the United States.If the actual exchange rate is 1.85 lire/dollar,the Turkish lira is _________,and U.S.tourists will find that Big Macs are _______ than in the United States.

Accepted Answer

A) overvalued,more expensive 
B) overvalued,less expensive 
C) undervalued,more expensive 
D) undervalued,less expensive 
A) overvalued,more expensive 
B) overvalued,less expensive 
C) undervalued,more expensive 
D) undervalued,less expensive

Exam 15: Exchange Rate Determination

According to the portfolio balance approach,an increase in domestic real income or GDP leads domestic residents to increase the demand for the:

Suppose that the price level in the United States is 135 and the price level in Germany is 234.What would absolute purchasing power parity theory predict the dollar/euro exchange rate to be?

According to the portfolio balance approach,an increase in domestic wealth leads domestic residents to increase the demand for the:

Discuss (a)the exchange dynamics of the dollar resulting from an unanticipated reduction of the U.S.money supply and (b)indicate the final long-run equilibrium interest rate,price index,and exchange rate as compared with the original equilibrium position.

What is the empirical evidence for the monetary and portfolio balance model of exchange rate determination?

The monetary approach assumes that the following assumption holds:

If a nation's money GDP is 100 and the velocity of circulation of money is 4,the quantity demanded of money in the nation is:

The monetary base of the nation refers to the:

If the legal reserve requirement of the nation is 25%,the money multiplier in the nation is:

The monetary approach to the balance of payments:

Since the creation of the euro,forecasts have

An unexpected increase in the U.S.money supply leads to:

Explain absolute and relative purchasing power parity (PPP).

Explain the fundamental difference between modern exchange rate theories and traditional exchange rate theories.

If the increase in a nation's money supply grows less rapidly than its GNP,the nation will face a:

The relative purchasing power-parity theory postulates that:

The relative PPP theory gives better results:

According to the monetary approach to the balance of payments a non-reserve currency nation:

Which of the following is false with regard to exchange rate dynamics:

A Big Mac costs 6.60 lira in Turkey and $4.20 in the United States.If the actual exchange rate is 1.85 lire/dollar,the Turkish lira is _________,and U.S.tourists will find that Big Macs are _______ than in the United States.

Introduction

The Law of Comparative Advantage

The Standard Theory of International Trade

Demand and Supply, offer Curves, and the Terms of Trade

Factor Endowments and the Heckscher-Ohlin Theory

Economies of Scale, imperfect Competition, and International Trade

Economic Growth and International Trade

Economic Growth and International Trade

Nontariff Trade Barriers and the New Protectionism

Economic Integration: Customs Unions and Free Trade Areas

International Trade and Economic Development

International Resource Movements and Multinational Corporations

Balance of Payments

Foreign Exchange Markets and Exchange Rates

The Price Adjustment Mechanism With Flexible and Fixed Exchange

The Income Adjustment Mechanism and Synthesis of Automatic

Open-Economy Macroeconomics: Adjustment Policies

Prices and Output in an Open Economy: Aggregate Demand and Aggregate Supply

Flexible Versus Fixed Exchange Rates, the European Monetary System, and Macroeconomic Policy Coordination

The International Monetary System: Past,present,and Future

Filters

A Big Mac costs 6.60 lira in Turkey and $4.20 in the United States.If the actual exchange rate is 1.85 lire/dollar,the Turkish lira is ___,and U.S.tourists will find that Big Macs are _ than in the United States.