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

The real exchange rate is

When the nominal exchange rate rises,

An increase in the Canadian money supply would cause Canadian output to ________ and the Canadian net exports to ________ in the short run using a Keynesian model.

Describe the effects of a rise in the domestic real interest rate on the exchange rate and on both domestic and foreign net exports.

When the domestic currency strengthens under a fixed-exchange rate system, this is called

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

Why a worldwide coordinated expansionary fiscal policy can be an effective policy in response to recession?

A fall in the real exchange rate is called

The Bretton Woods system relied on

In a small open economy with flexible exchange rates, a fiscal contraction would

Why are European countries planning to unify their currencies? What are the benefits of doing so? What are the potential costs?

You have just noticed that the dollar depreciated and you suspect that the Canadian government was behind this change. Which would you choose as the most likely cause of this depreciation in the real exchange rate?

When the nominal exchange rate falls,

The idea that similar foreign and domestic goods, or baskets of goods, should have the same price when priced in terms of the same currency is called

If all countries produce the same good (or the same set of goods) and goods are freely traded among countries, so that the real exchange rate equals one, then the relationship between domestic and foreign prices and the nominal exchange rate is

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

Which of the following best represents Canada's fiscal and monetary policies in response to the 2008-2009 financial crisis and recession?

In a flexible-exchange-rate system, the value of a currency is determined by

Three-wheel cars made in North Edsel are sold for 5000 pounds. Four-wheel cars made in South Edsel are sold for 10,000 marks. The real exchange rate between North and South Edsel is four three-wheel cars for three four-wheel cars. The nominal exchange rate between the two countries is

International businesses like a fixed-exchange-rate system because