Question 1

In a small open economy with flexible exchange rates, a contractionary monetary policy would

Accepted Answer

A)  cause an exchange rate depreciation in short run. 
B)  increase domestic output in short run. 
C)  decrease domestic output in short run. 
D)  decrease domestic output in long run. 
A)  cause an exchange rate depreciation in short run. 
B)  increase domestic output in short run. 
C)  decrease domestic output in short run. 
D)  decrease domestic output in long run. C

Question 2

In the short run in the Keynesian model, an increase in the domestic money supply would cause domestic output to ________ and the domestic real interest rate to ________.

Accepted Answer

A)  rise; rise 
B)  fall; rise 
C)  rise; fall 
D)  fall; fall 
A)  rise; rise 
B)  fall; rise 
C)  rise; fall 
D)  fall; fall C

Question 3

If the nominal exchange rate rises 2%, domestic inflation is 3%, and foreign inflation is 4%, what is the percent change in the real exchange rate?

Accepted Answer

A)  5% 
B)  3% 
C)  1% 
D)  -1% 
A)  5% 
B)  3% 
C)  1% 
D)  -1% C

Question 4

Compared to a system of fixed exchange rates, currency unions are beneficial because they

Accepted Answer

A)  restrict what countries can do with fiscal policy. 
B)  allow exchange rates to float. 
C)  allow every country to have an independent monetary policy. 
D)  eliminate the possibility of speculative attacks. 
A)  restrict what countries can do with fiscal policy. 
B)  allow exchange rates to float. 
C)  allow every country to have an independent monetary policy. 
D)  eliminate the possibility of speculative attacks.

Question 5

A decrease in the foreign real interest rate would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

Accepted Answer

A)  rise; shift up 
B)  rise; shift down 
C)  fall; shift up 
D)  fall; shift down 
A)  rise; shift up 
B)  rise; shift down 
C)  fall; shift up 
D)  fall; shift down

Question 6

The nominal exchange rate is 15 crowns per florin, the domestic price level is 6 florins/bottle, and the foreign price level is 2 crowns/bushel.
a. What is the real exchange rate?
b. What is the real exchange rate in the foreign country?
c. If the domestic price level rises to 8 florins/bottle, what must the nominal exchange rate become if the real exchange rate remains unchanged?

Accepted Answer

a. 45 bushels/bottle

Question 7

There's been a real depreciation of the dollar over the past month. In the long run, you would expect the quantity of Canadian imports to ________ and the quantity of Canadian exports to ________.

Accepted Answer

A)  fall; fall 
B)  rise; rise 
C)  fall; rise 
D)  rise; fall 
A)  fall; fall 
B)  rise; rise 
C)  fall; rise 
D)  rise; fall

Question 8

What happens to the exchange rate and net exports in each of the following cases?
a. The foreign real interest rate rises.
b. Foreign output falls.
c. Foreign demand for domestic goods falls.
d. Domestic output falls.
e. The domestic real interest rate rises.

Accepted Answer

a. exchange rate falls, net exports rise

Question 9

An exchange-rate system in which the nominal exchange rate is set by the government is known as

Accepted Answer

A)  a flexible-exchange-rate system. 
B)  a floating-exchange-rate system. 
C)  a fixed-exchange-rate system. 
D)  an exchange-rate union. 
A)  a flexible-exchange-rate system. 
B)  a floating-exchange-rate system. 
C)  a fixed-exchange-rate system. 
D)  an exchange-rate union.

Question 10

An appreciation of the dollar causes

Accepted Answer

A)  an increase in Canadian exports. 
B)  a reduction in Canadian exports. 
C)  an increase in the prices of Canadian imports. 
D)  an increase in the prices of Canadian exports. 
A)  an increase in Canadian exports. 
B)  a reduction in Canadian exports. 
C)  an increase in the prices of Canadian imports. 
D)  an increase in the prices of Canadian exports.

Question 11

Empirical evidence shows that in the short run, purchasing power parity ________, and in the long run, purchasing power parity ________.

Accepted Answer

A)  holds; does not hold 
B)  holds; holds 
C)  does not hold; holds 
D)  does not hold; does not hold 
A)  holds; does not hold 
B)  holds; holds 
C)  does not hold; holds 
D)  does not hold; does not hold

Question 12

Which of the following statements is false?

Accepted Answer

A)  The Bretton Woods system is the most recent example of a fixed exchange rate system. 
B)  Under the gold standard system, each country agreed to buy or sell gold in exchange for currency at a fixed exchange rate. 
C)  Under the Bretton Woods system, the values of various currencies were fixed in terms of the US dollar, which was set at $35 per ounce of gold. 
D)  The recession in the US economy was the main reason for the breakdown of the Bretton Woods system in the early 1970s. 
A)  The Bretton Woods system is the most recent example of a fixed exchange rate system. 
B)  Under the gold standard system, each country agreed to buy or sell gold in exchange for currency at a fixed exchange rate. 
C)  Under the Bretton Woods system, the values of various currencies were fixed in terms of the US dollar, which was set at $35 per ounce of gold. 
D)  The recession in the US economy was the main reason for the breakdown of the Bretton Woods system in the early 1970s.

Question 13

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

Accepted Answer

A)  rise; rise 
B)  rise; fall 
C)  fall; rise 
D)  fall; fall 
A)  rise; rise 
B)  rise; fall 
C)  fall; rise 
D)  fall; fall

Question 14

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

Accepted Answer

A)  rise; rise 
B)  rise; fall 
C)  fall; rise 
D)  fall; fall 
A)  rise; rise 
B)  rise; fall 
C)  fall; rise 
D)  fall; fall

Question 15

Suppose the real exchange rate is 10, the domestic price level is 8, and the foreign price level is 4.
a. What is the nominal exchange rate?
b. Suppose the real exchange rate rises 10%, the inflation rate in the domestic country is 6%, and the inflation rate in the foreign country is 4%. By what percentage does the nominal exchange rate change?
c. Suppose the nominal exchange rate rises 5%, the real exchange rate rises 8%, and domestic inflation is 3%. What is the foreign inflation rate?

Accepted Answer

The answer of Suppose the real exchange rate is 10,...

Question 16

Which of the following changes would cause Canadian net exports to increase?

Accepted Answer

A)  an increase in the real value of the dollar 
B)  an increase in Canadian income 
C)  an increase in foreign income 
D)  a shift in demand by Canadian consumers away from domestically produced goods 
A)  an increase in the real value of the dollar 
B)  an increase in Canadian income 
C)  an increase in foreign income 
D)  a shift in demand by Canadian consumers away from domestically produced goods

Question 17

The real exchange rate is

Accepted Answer

A)  the price of one currency in terms of another. 
B)  the price of domestic goods relative to foreign goods. 
C)  the quantity of gold that can be purchased by one unit of currency. 
D)  the difference in interest rates between two countries. 
A)  the price of one currency in terms of another. 
B)  the price of domestic goods relative to foreign goods. 
C)  the quantity of gold that can be purchased by one unit of currency. 
D)  the difference in interest rates between two countries.

Question 18

The Canadian interest rate is 4 percent and the US interest rate is 6 percent. If the interest parity condition holds, we expect

Accepted Answer

A)  the Canadian dollar to appreciate by 2 percent. 
B)  the Canadian dollar to depreciate by 6 percent. 
C)  the US dollar to depreciate 2 percent. 
D)  the US dollar to appreciate by 2 percent. 
A)  the Canadian dollar to appreciate by 2 percent. 
B)  the Canadian dollar to depreciate by 6 percent. 
C)  the US dollar to depreciate 2 percent. 
D)  the US dollar to appreciate by 2 percent.

Question 19

All else being equal in a classical model, a temporary decrease in government expenditures in the United States would cause the Canadian real interest rate to ________ and the Canadian price level to ________.

Accepted Answer

A)  rise; rise 
B)  rise; fall 
C)  fall; rise 
D)  fall; fall 
A)  rise; rise 
B)  rise; fall 
C)  fall; rise 
D)  fall; fall

Question 20

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

Accepted Answer

A)  fall. 
B)  rise. 
C)  remain unchanged because supply also increases. 
D)  remain unchanged because the exchange rate is set by the Central Bank. 
A)  fall. 
B)  rise. 
C)  remain unchanged because supply also increases. 
D)  remain unchanged because the exchange rate is set by the Central Bank.

In a small open economy with flexible exchange rates, a contractionary monetary policy would

In the short run in the Keynesian model, an increase in the domestic money supply would cause domestic output to and the domestic real interest rate to .

If the nominal exchange rate rises 2%, domestic inflation is 3%, and foreign inflation is 4%, what is the percent change in the real exchange rate?

Compared to a system of fixed exchange rates, currency unions are beneficial because they

A decrease in the foreign real interest rate would cause the domestic country's net exports to and cause the domestic country's IS curve to .

There's been a real depreciation of the dollar over the past month. In the long run, you would expect the quantity of Canadian imports to and the quantity of Canadian exports to .

What happens to the exchange rate and net exports in each of the following cases? a. The foreign real interest rate rises. b. Foreign output falls. c. Foreign demand for domestic goods falls. d. Domestic output falls. e. The domestic real interest rate rises.

An exchange-rate system in which the nominal exchange rate is set by the government is known as

An appreciation of the dollar causes

Empirical evidence shows that in the short run, purchasing power parity , and in the long run, purchasing power parity .

Which of the following statements is false?

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

A decline in domestic output would cause a in net exports and a in the exchange rate.

Which of the following changes would cause Canadian net exports to increase?

The real exchange rate is

The Canadian interest rate is 4 percent and the US interest rate is 6 percent. If the interest parity condition holds, we expect

All else being equal in a classical model, a temporary decrease in government expenditures in the United States would cause the Canadian real interest rate to and the Canadian price level to .

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

Introduction to Macroeconomics

The Measurement and Structure of the Canadian Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The IS-LMAD-AS Model: A General Framework for Macroeconomic Analysis

Classical Business Cycle Analysis: Market-Clearing Macroeconomics

Keynesian Business Cycle Analysis: Non-Market-Clearing Macroeconomics

Unemployment and Inflation

Monetary Policy and the Bank of Canada

Government Spending and Its Financing

Filters

Exam 10: Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy

In a small open economy with flexible exchange rates, a contractionary monetary policy would

In the short run in the Keynesian model, an increase in the domestic money supply would cause domestic output to ________ and the domestic real interest rate to ________.

If the nominal exchange rate rises 2%, domestic inflation is 3%, and foreign inflation is 4%, what is the percent change in the real exchange rate?

Compared to a system of fixed exchange rates, currency unions are beneficial because they

A decrease in the foreign real interest rate would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

There's been a real depreciation of the dollar over the past month. In the long run, you would expect the quantity of Canadian imports to ________ and the quantity of Canadian exports to ________.

What happens to the exchange rate and net exports in each of the following cases? a. The foreign real interest rate rises. b. Foreign output falls. c. Foreign demand for domestic goods falls. d. Domestic output falls. e. The domestic real interest rate rises.

An exchange-rate system in which the nominal exchange rate is set by the government is known as

An appreciation of the dollar causes

Empirical evidence shows that in the short run, purchasing power parity ________, and in the long run, purchasing power parity ________.

Which of the following statements is false?

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

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

Which of the following changes would cause Canadian net exports to increase?

The real exchange rate is

The Canadian interest rate is 4 percent and the US interest rate is 6 percent. If the interest parity condition holds, we expect

All else being equal in a classical model, a temporary decrease in government expenditures in the United States would cause the Canadian real interest rate to ________ and the Canadian price level to ________.

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

Introduction to Macroeconomics

The Measurement and Structure of the Canadian Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The IS-LMAD-AS Model: A General Framework for Macroeconomic Analysis

Classical Business Cycle Analysis: Market-Clearing Macroeconomics

Keynesian Business Cycle Analysis: Non-Market-Clearing Macroeconomics

Unemployment and Inflation

Monetary Policy and the Bank of Canada

Government Spending and Its Financing

Filters

In the short run in the Keynesian model, an increase in the domestic money supply would cause domestic output to and the domestic real interest rate to .

A decrease in the foreign real interest rate would cause the domestic country's net exports to and cause the domestic country's IS curve to .

There's been a real depreciation of the dollar over the past month. In the long run, you would expect the quantity of Canadian imports to and the quantity of Canadian exports to .

Empirical evidence shows that in the short run, purchasing power parity , and in the long run, purchasing power parity .

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

A decline in domestic output would cause a in net exports and a in the exchange rate.

All else being equal in a classical model, a temporary decrease in government expenditures in the United States would cause the Canadian real interest rate to and the Canadian price level to .