Exam 16: The Price Adjustment Mechanism With Flexible and Fixed Exchange

When a nation's demand curve for imports in terms of the foreign currency is vertical:

Which of the following is a true statement?

The United States has a trade problem with Japan because the U.S.trade deficit with Japan:

What are the necessary elasticity conditions for a stable foreign exchange market?

Explain why under a gold standard exchange rate system that the market exchange rate will never deviate far from the mint parity rate.

According to the quantity theory of money,if the velocity of money and physical output are held constant,and increase in the money supply will lead to

The more elastic is a nation's demand and supply of foreign exchange the:

David Hume was responsible for introducing

For a small nation:

A depreciation of the nation's currency causes its terms of trade to:

When increase in the domestic price of an imported commodity is less than the depreciation of the domestic currency it is commonly referred to as

Suppose that a nation is at full employment without inflation but has a deficit in its balance of payments. (a)Explain why a depreciation of the nation's currency will not correct the deficit unless real output rises or domestic expenditures (absorption)fall. (b)How can the nation's output rise as a result of the depreciation? (c)How can domestic absorption fall automatically as a result of the depreciation? (d)How can the government help reduce domestic absorption and make the devaluation effective?

Explain the meaning of the J-curve effect and exactly how it works.

When a nation's demand curve for exports in terms of the foreign currency is inelastic:

A depreciation of a nation's currency shifts:

Explain why currency pass-through is not likely to be complete.

Under the gold standard:

The Marshall-Lerner condition indicates that

Which of the following statements is not true with regard to the price-specie-flow mechanism:

A currency board refers to the case where: