Question 1

Purchasing power parity does not hold in the short to medium run because

Accepted Answer

A)  exports don't equal imports. 
B)  exchange rates aren't internationally traded. 
C)  some goods aren't internationally traded. 
D)  most business cycles are caused by shocks to aggregate demand. 
A)  exports don't equal imports. 
B)  exchange rates aren't internationally traded. 
C)  some goods aren't internationally traded. 
D)  most business cycles are caused by shocks to aggregate demand.

Question 2

The Canadian real interest rate rises relative to the British real interest rate. British net exports ________ and the British exchange rate ________.

Accepted Answer

A)  increase; rises 
B)  increase; falls 
C)  decrease; rises 
D)  decrease; falls 
A)  increase; rises 
B)  increase; falls 
C)  decrease; rises 
D)  decrease; falls

Question 3

When a group of countries agree to share a common currency, they are said to have formed a

Accepted Answer

A)  currency union. 
B)  welfare state. 
C)  monetary alliance. 
D)  monetary cartel. 
A)  currency union. 
B)  welfare state. 
C)  monetary alliance. 
D)  monetary cartel.

Question 4

The Intertemporal external balance curve will be shifted down if

Accepted Answer

A)  foreign income rises. 
B)  domestic income rises. 
C)  the money supply expands. 
D)  there is a shift in demand away from home goods. 
A)  foreign income rises. 
B)  domestic income rises. 
C)  the money supply expands. 
D)  there is a shift in demand away from home goods.

Question 5

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

Accepted Answer

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

Question 6

Suppose the Big Macs are more expensive in Canada than in China, when measured by US dollar. According to the purchasing power parity theorem,

Accepted Answer

A)  the Canadian dollar will appreciate against the Chinese yuan. 
B)  the Chinese yuan will appreciate against the Canadian dollar. 
C)  the Chinese yuan will depreciate against the Canadian dollar. 
D)  both Canadian dollar and the Chinese yuan will depreciate against the US dollar. 
A)  the Canadian dollar will appreciate against the Chinese yuan. 
B)  the Chinese yuan will appreciate against the Canadian dollar. 
C)  the Chinese yuan will depreciate against the Canadian dollar. 
D)  both Canadian dollar and the Chinese yuan will depreciate against the US dollar.

Question 7

Under a system of fixed exchange rates, what happens if a country's currency is undervalued?

Accepted Answer

A)  The Central Bank loses official reserve assets. 
B)  The Central Bank gains official reserve assets. 
C)  The currency depreciates. 
D)  The exchange rate falls. 
A)  The Central Bank loses official reserve assets. 
B)  The Central Bank gains official reserve assets. 
C)  The currency depreciates. 
D)  The exchange rate falls.

Question 8

Currency unions are rare because

Accepted Answer

A)  they're to no one's advantage. 
B)  countries are reluctant to give up having their own currencies. 
C)  having flexible exchange rates has the same benefits and none of the costs. 
D)  speculative attacks are likely to occur. 
A)  they're to no one's advantage. 
B)  countries are reluctant to give up having their own currencies. 
C)  having flexible exchange rates has the same benefits and none of the costs. 
D)  speculative attacks are likely to occur.

Question 9

The 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 10

Which of the following statements best describes the movement of the Canadian dollar during the 1970s?

Accepted Answer

A)  The dollar rose steadily. 
B)  The dollar was stable. 
C)  The dollar was stable until 1976 and fell thereafter. 
D)  The dollar fell until 1976 and rose thereafter. 
A)  The dollar rose steadily. 
B)  The dollar was stable. 
C)  The dollar was stable until 1976 and fell thereafter. 
D)  The dollar fell until 1976 and rose thereafter.

Question 11

A classical economy is described by the equations AD Y = 1000 + 100M/P AS Y = 1500. The real exchange rate is 3 bushels/bottle, the domestic nominal money supply is 30 florins, and the foreign price level is 8 crowns/bushel.
a. What is the nominal exchange rate?
b. If the government wants to maintain an official nominal exchange rate of 6 crowns/florin, what must the nominal money supply be?

Accepted Answer

a. 4 crown

Question 12

According to the "beachhead effect," in order to undo the effects of a strong-dollar period, the real value of the dollar

Accepted Answer

A)  must fall to at least half of its value before appreciation of the dollar began. 
B)  must fall to the value it had before appreciation of the dollar began. 
C)  must fall to a much lower level than it had before appreciation of the dollar began. 
D)  must actually appreciate before it depreciates to undo the effects of a strong-dollar period. 
A)  must fall to at least half of its value before appreciation of the dollar began. 
B)  must fall to the value it had before appreciation of the dollar began. 
C)  must fall to a much lower level than it had before appreciation of the dollar began. 
D)  must actually appreciate before it depreciates to undo the effects of a strong-dollar period.

Question 13

The financial crisis and recession that started in the U.S. in 2008 spread worldwide rapidly. Explain what government and Bank of Canada could do in response to recession, and comment on the fiscal and the monetary policies conducted in Canada.

Accepted Answer

Both government and Bank of Canada follo

Question 14

Under a fixed exchange rate system, if the nominal interest parity condition holds,

Accepted Answer

A)  the nominal interest rates in domestic and foreign economies must be the same. 
B)  the inflation rates in domestic and foreign economy must be the same. 
C)  the real exchange rates in domestic and foreign economies must be the same. 
D)  the net exports in domestic and foreign economies must be the same. 
A)  the nominal interest rates in domestic and foreign economies must be the same. 
B)  the inflation rates in domestic and foreign economy must be the same. 
C)  the real exchange rates in domestic and foreign economies must be the same. 
D)  the net exports in domestic and foreign economies must be the same.

Question 15

The equilibrium real exchange rate will rise

Accepted Answer

A)  if there is a rise in domestic income. 
B)  if there is a rise in foreign interest rates. 
C)  if there is a rise in foreign income. 
D)  if there is a shift in demand away from the home good. 
A)  if there is a rise in domestic income. 
B)  if there is a rise in foreign interest rates. 
C)  if there is a rise in foreign income. 
D)  if there is a shift in demand away from the home good.

Question 16

Which of the following statements about the effectiveness of the fiscal and the monetary policies in response to a recession in a small open economy is true?

Accepted Answer

A)  In recession, fiscal policy is ineffective, but monetary policy is effective. 
B)  In recession, fiscal policy is effective, but monetary policy is ineffective. 
C)  In recession, both fiscal and monetary policies are effective. 
D)  In recession, both fiscal and monetary policies are in effective. 
A)  In recession, fiscal policy is ineffective, but monetary policy is effective. 
B)  In recession, fiscal policy is effective, but monetary policy is ineffective. 
C)  In recession, both fiscal and monetary policies are effective. 
D)  In recession, both fiscal and monetary policies are in effective.

Question 17

An index that shows the nominal exchange rate for the Canadian dollar against the currencies of Canada's trading partners is called

Accepted Answer

A)  real exchange rate. 
B)  purchasing power parity. 
C)  effective exchange rate. 
D)  nominal exchange rate. 
A)  real exchange rate. 
B)  purchasing power parity. 
C)  effective exchange rate. 
D)  nominal exchange rate.

Question 18

Under a system of fixed exchange rates, what happens if a country's currency is overvalued?

Accepted Answer

A)  The Central Bank loses official reserve assets. 
B)  The Central Bank gains official reserve assets. 
C)  The currency appreciates. 
D)  The exchange rate rises. 
A)  The Central Bank loses official reserve assets. 
B)  The Central Bank gains official reserve assets. 
C)  The currency appreciates. 
D)  The exchange rate rises.

Question 19

Goods market equilibrium in the open economy occurs when

Accepted Answer

A)  desired saving equals desired investment. 
B)  output equals desired consumption plus desired investment plus government spending. 
C)  desired consumption equals desired investment. 
D)  desired saving minus desired investment equals net exports. 
A)  desired saving equals desired investment. 
B)  output equals desired consumption plus desired investment plus government spending. 
C)  desired consumption equals desired investment. 
D)  desired saving minus desired investment equals net exports.

Question 20

The nominal exchange rate between the Canadian dollar and the Japanese yen is 80. It means that

Accepted Answer

A)  a dollar can buy 80 yen in the foreign exchange market. 
B)  a yen can buy 80 cents in the foreign exchange market. 
C)  a dollar cay buy about 0.012 yen in the foreign exchange market. 
D)  a yen can buy 0.20 cents in the foreign exchange market. 
A)  a dollar can buy 80 yen in the foreign exchange market. 
B)  a yen can buy 80 cents in the foreign exchange market. 
C)  a dollar cay buy about 0.012 yen in the foreign exchange market. 
D)  a yen can buy 0.20 cents in the foreign exchange market.

Purchasing power parity does not hold in the short to medium run because

The Canadian real interest rate rises relative to the British real interest rate. British net exports and the British exchange rate .

When a group of countries agree to share a common currency, they are said to have formed a

The Intertemporal external balance curve will be shifted down if

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

Suppose the Big Macs are more expensive in Canada than in China, when measured by US dollar. According to the purchasing power parity theorem,

Under a system of fixed exchange rates, what happens if a country's currency is undervalued?

Currency unions are rare because

The exchange rate is

Which of the following statements best describes the movement of the Canadian dollar during the 1970s?

According to the "beachhead effect," in order to undo the effects of a strong-dollar period, the real value of the dollar

The financial crisis and recession that started in the U.S. in 2008 spread worldwide rapidly. Explain what government and Bank of Canada could do in response to recession, and comment on the fiscal and the monetary policies conducted in Canada.

Under a fixed exchange rate system, if the nominal interest parity condition holds,

The equilibrium real exchange rate will rise

Which of the following statements about the effectiveness of the fiscal and the monetary policies in response to a recession in a small open economy is true?

An index that shows the nominal exchange rate for the Canadian dollar against the currencies of Canada's trading partners is called

Under a system of fixed exchange rates, what happens if a country's currency is overvalued?

Goods market equilibrium in the open economy occurs when

The nominal exchange rate between the Canadian dollar and the Japanese yen is 80. It means that

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

Purchasing power parity does not hold in the short to medium run because

The Canadian real interest rate rises relative to the British real interest rate. British net exports ________ and the British exchange rate ________.

When a group of countries agree to share a common currency, they are said to have formed a

The Intertemporal external balance curve will be shifted down if

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

Suppose the Big Macs are more expensive in Canada than in China, when measured by US dollar. According to the purchasing power parity theorem,

Under a system of fixed exchange rates, what happens if a country's currency is undervalued?

Currency unions are rare because

The exchange rate is

Which of the following statements best describes the movement of the Canadian dollar during the 1970s?

According to the "beachhead effect," in order to undo the effects of a strong-dollar period, the real value of the dollar

The financial crisis and recession that started in the U.S. in 2008 spread worldwide rapidly. Explain what government and Bank of Canada could do in response to recession, and comment on the fiscal and the monetary policies conducted in Canada.

Under a fixed exchange rate system, if the nominal interest parity condition holds,

The equilibrium real exchange rate will rise

Which of the following statements about the effectiveness of the fiscal and the monetary policies in response to a recession in a small open economy is true?

An index that shows the nominal exchange rate for the Canadian dollar against the currencies of Canada's trading partners is called

Under a system of fixed exchange rates, what happens if a country's currency is overvalued?

Goods market equilibrium in the open economy occurs when

The nominal exchange rate between the Canadian dollar and the Japanese yen is 80. It means that

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

The Canadian real interest rate rises relative to the British real interest rate. British net exports and the British exchange rate .