Question 1

Which one of the following statements is the MOST accurate?

Accepted Answer

A) Departures from PPP are similar in both the short run and long run. 
B) Departures from PPP are even greater in the long run than in the long run. 
C) Departures from PPP are always greater in the short run than in the long run. 
D) It is hard to tell whether departures from PPP are greater in the short run than in the long run. 
E) Departures from PPP may often be greater in the short run than in the long run. 
A) Departures from PPP are similar in both the short run and long run. 
B) Departures from PPP are even greater in the long run than in the long run. 
C) Departures from PPP are always greater in the short run than in the long run. 
D) It is hard to tell whether departures from PPP are greater in the short run than in the long run. 
E) Departures from PPP may often be greater in the short run than in the long run.

Question 2

Under the monetary approach to the exchange rate

Accepted Answer

A) an interest rate decrease is associated with higher expected inflation and a currency that will be weaker on all future dates. 
B) an interest rate increase is associated with higher expected deflation and a currency that will be weaker on all future dates. 
C) an interest rate increase is associated with higher expected inflation and a currency that will be strengthened on all future dates. 
D) an interest rate increase is associated with higher expected deflation and a currency that will be strengthened on all future dates. 
E) an interest rate increase is associated with higher expected inflation and a currency that will be weaker on all future dates. 
A) an interest rate decrease is associated with higher expected inflation and a currency that will be weaker on all future dates. 
B) an interest rate increase is associated with higher expected deflation and a currency that will be weaker on all future dates. 
C) an interest rate increase is associated with higher expected inflation and a currency that will be strengthened on all future dates. 
D) an interest rate increase is associated with higher expected deflation and a currency that will be strengthened on all future dates. 
E) an interest rate increase is associated with higher expected inflation and a currency that will be weaker on all future dates.

Question 3

Which of the following statements is MOST accurate?

Accepted Answer

A) A relative expansion of U.S.output causes a long-run depreciation of the dollar against the euro,while a relative expansion of European output causes a long-run real appreciation of the dollar against the euro. 
B) A relative decline of U.S.output causes a long-run depreciation of the dollar against the euro,while a relative expansion of European output causes a long-run real appreciation of the dollar against the euro. 
C) A relative expansion of U.S.output causes a long-run appreciation of the dollar against the euro,while a relative expansion of European output causes a long-run real depreciation of the dollar against the euro. 
D) A relative expansion of U.S.output causes a long-run depreciation of the dollar against the euro,while a relative decline of European output causes a long-run real appreciation of the dollar against the euro. 
E) A relative decline of U.S.output causes a long-run depreciation of the dollar against the euro,while a relative decline of European output causes a long-run real appreciation of the dollar against the euro. 
A) A relative expansion of U.S.output causes a long-run depreciation of the dollar against the euro,while a relative expansion of European output causes a long-run real appreciation of the dollar against the euro. 
B) A relative decline of U.S.output causes a long-run depreciation of the dollar against the euro,while a relative expansion of European output causes a long-run real appreciation of the dollar against the euro. 
C) A relative expansion of U.S.output causes a long-run appreciation of the dollar against the euro,while a relative expansion of European output causes a long-run real depreciation of the dollar against the euro. 
D) A relative expansion of U.S.output causes a long-run depreciation of the dollar against the euro,while a relative decline of European output causes a long-run real appreciation of the dollar against the euro. 
E) A relative decline of U.S.output causes a long-run depreciation of the dollar against the euro,while a relative decline of European output causes a long-run real appreciation of the dollar against the euro.

Question 4

Which of the following statements is MOST accurate?

Accepted Answer

A) In the money market,an increase in U.S.money supply level leads to a proportional increase in the long-run nominal dollar/euro exchange rate. 
B) In the money market,an increase in European money supply level leads to a proportional increase in the long-run nominal dollar/euro exchange rate. 
C) In the money market,an increase in U.S.money supply growth rate leads to a decrease in the long-run nominal dollar/euro exchange rate. 
D) In the money market,an increase in European money supply growth leads to an increase in the long-run nominal dollar/euro exchange rate. 
E) In the money market,an increase in U.S.money supply level leads to a proportional decrease in the long-run nominal dollar/euro exchange rate. 
A) In the money market,an increase in U.S.money supply level leads to a proportional increase in the long-run nominal dollar/euro exchange rate. 
B) In the money market,an increase in European money supply level leads to a proportional increase in the long-run nominal dollar/euro exchange rate. 
C) In the money market,an increase in U.S.money supply growth rate leads to a decrease in the long-run nominal dollar/euro exchange rate. 
D) In the money market,an increase in European money supply growth leads to an increase in the long-run nominal dollar/euro exchange rate. 
E) In the money market,an increase in U.S.money supply level leads to a proportional decrease in the long-run nominal dollar/euro exchange rate.

Question 5

Which of the following statements is the MOST accurate?

Accepted Answer

A) Relative PPP may be valid even when absolute PPP is not,provided the factors causing deviations from absolute PPP are more or less stable over different commodities space. 
B) Absolute PPP may be valid even when relative PPP is not,provided the factors causing deviations from relative PPP are more or less stable over time. 
C) Relative PPP may be valid even when absolute PPP is not,provided the factors causing deviations from absolute PPP are more or less stable over time. 
D) Relative PPP is not valid when absolute PPP is not. 
E) Relative PPP is only valid when absolute PPP is valid,providing the factors causing deviations from relative PPP are more or less stable over time. 
A) Relative PPP may be valid even when absolute PPP is not,provided the factors causing deviations from absolute PPP are more or less stable over different commodities space. 
B) Absolute PPP may be valid even when relative PPP is not,provided the factors causing deviations from relative PPP are more or less stable over time. 
C) Relative PPP may be valid even when absolute PPP is not,provided the factors causing deviations from absolute PPP are more or less stable over time. 
D) Relative PPP is not valid when absolute PPP is not. 
E) Relative PPP is only valid when absolute PPP is valid,providing the factors causing deviations from relative PPP are more or less stable over time.

Question 6

Fill in the following table,assuming the law of one price prevails.

Accepted Answer

The answer of Fill in the following table,assuming the law...

Question 7

When all variables start out at their long-run equilibrium levels,the most important determinant of long-run swings in nominal exchange rates is

Accepted Answer

A) a shift in relative money supply levels. 
B) a shift in relative money supply growth rates. 
C) a change in relative output demand. 
D) a change in relative output supply. 
E) a change in relative inflation rates. 
A) a shift in relative money supply levels. 
B) a shift in relative money supply growth rates. 
C) a change in relative output demand. 
D) a change in relative output supply. 
E) a change in relative inflation rates.

Question 8

In the long run

Accepted Answer

A) exchange rates obey relative PPP when all disturbances occur in the output markets. 
B) exchange rates obey absolute PPP when all disturbances occur in the output markets. 
C) exchange rates are unlikely to obey relative PPP when all disturbances occur in the output markets. 
D) exchange rates are unlikely to obey relative PPP when all disturbances are monetary in nature. 
E) exchange rates obey absolute PPP when all disturbances are monetary in nature. 
A) exchange rates obey relative PPP when all disturbances occur in the output markets. 
B) exchange rates obey absolute PPP when all disturbances occur in the output markets. 
C) exchange rates are unlikely to obey relative PPP when all disturbances occur in the output markets. 
D) exchange rates are unlikely to obey relative PPP when all disturbances are monetary in nature. 
E) exchange rates obey absolute PPP when all disturbances are monetary in nature.

Question 9

Under a flexible-price monetary approach to the exchange rate

Accepted Answer

A) when the domestic money supply falls,the price level would eventually fall,increasing the interest rate. 
B) when the domestic money supply falls,the price level would fall right away,causing a reduction in the interest rate. 
C) when the domestic money supply falls,the price level would fall right away,causing an increase in the interest rate. 
D) when the domestic money supply falls,the price level would eventually fall,keeping the interest rate constant. 
E) when the domestic money supply falls,the price level would fall right away,keeping the interest rate constant. 
A) when the domestic money supply falls,the price level would eventually fall,increasing the interest rate. 
B) when the domestic money supply falls,the price level would fall right away,causing a reduction in the interest rate. 
C) when the domestic money supply falls,the price level would fall right away,causing an increase in the interest rate. 
D) when the domestic money supply falls,the price level would eventually fall,keeping the interest rate constant. 
E) when the domestic money supply falls,the price level would fall right away,keeping the interest rate constant.

Question 10

Which of the following statements is the MOST accurate? The law of one price states

Accepted Answer

A) in competitive markets free of transportation costs and official barriers to trade,identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency. 
B) in competitive markets free of transportation costs and official barrier to trade,identical goods sold in the same country must sell for the same price when their prices are expressed in terms of the same currency. 
C) in competitive markets free of transportation costs and official barrier to trade,identical goods sold in different countries must sell for the same price. 
D) identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency. 
E) in competitive markets free of official barrier to trade,identical goods are sold at the same price regardless of transportation costs. 
A) in competitive markets free of transportation costs and official barriers to trade,identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency. 
B) in competitive markets free of transportation costs and official barrier to trade,identical goods sold in the same country must sell for the same price when their prices are expressed in terms of the same currency. 
C) in competitive markets free of transportation costs and official barrier to trade,identical goods sold in different countries must sell for the same price. 
D) identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency. 
E) in competitive markets free of official barrier to trade,identical goods are sold at the same price regardless of transportation costs.

Question 11

What is the real interest rate parity condition?

Accepted Answer

The nominal interest rates are

Question 12

Assuming relative PPP,fill in the table below:

Accepted Answer

Using ( @#IMG-DLM&

Question 13

Discuss the relationship between PPP and the Law of One Price.

Accepted Answer

The law of one price applies to individu

Question 14

To answer the following question,please refer to the figure below.Concentrating only at the upper right quadrant,discuss the foreign exchange market equilibrium.

Accepted Answer

The upper right quadrant describes the e

Question 15

Define the concept of the real exchange rate and explain how it differs from the nominal exchange rate.

Accepted Answer

In general,the real exchange rate betwee

Question 16

The difference between nominal and real interest rates is that

Accepted Answer

A) nominal interest rates are measured in terms of a country's output,while real interest rates are measured in monetary terms. 
B) nominal interest rates are measured in monetary terms,while real interest rates are measured in terms of a country's output. 
C) nominal interest rates can fluctuate,while real interest rates always remain fixed. 
D) real interest rates can fluctuate,while nominal interest rates always remain fixed. 
E) real interest rates are the same in every country,while nominal interest rates are different for every country. 
A) nominal interest rates are measured in terms of a country's output,while real interest rates are measured in monetary terms. 
B) nominal interest rates are measured in monetary terms,while real interest rates are measured in terms of a country's output. 
C) nominal interest rates can fluctuate,while real interest rates always remain fixed. 
D) real interest rates can fluctuate,while nominal interest rates always remain fixed. 
E) real interest rates are the same in every country,while nominal interest rates are different for every country.

Question 17

Which of the following statements is the MOST accurate?

Accepted Answer

A) The law of one price does fare well in all recent studies. 
B) The law of one price does fare well in many recent studies. 
C) The law of one price sometimes fares well in recent studies. 
D) The law of one price does not fare well in recent studies. 
E) The law of one price has not been studied recently. 
A) The law of one price does fare well in all recent studies. 
B) The law of one price does fare well in many recent studies. 
C) The law of one price sometimes fares well in recent studies. 
D) The law of one price does not fare well in recent studies. 
E) The law of one price has not been studied recently.

Question 18

What is the real exchange rate between the dollar and the euro equal to?

Accepted Answer

Let
∙ Real dollar/euro exchange rate = @#IMG-DLM&

Question 19

Which of the following statements is the MOST accurate?

Accepted Answer

A) If PPP holds true,then the law of one price holds true for every commodity as long as the reference baskets used to reckon different countries' price levels are the same. 
B) If the law of one price holds true for every commodity,PPP must hold automatically. 
C) If the law of one price holds true for every commodity,PPP must automatically hold as long as the reference baskets used to reckon different countries' price levels are the same. 
D) If the law of one price does not hold true for every commodity,PPP cannot be true as long as the reference baskets used to reckon different countries' price levels are the same. 
E) If PPP holds true,then the law of one price must hold true automatically. 
A) If PPP holds true,then the law of one price holds true for every commodity as long as the reference baskets used to reckon different countries' price levels are the same. 
B) If the law of one price holds true for every commodity,PPP must hold automatically. 
C) If the law of one price holds true for every commodity,PPP must automatically hold as long as the reference baskets used to reckon different countries' price levels are the same. 
D) If the law of one price does not hold true for every commodity,PPP cannot be true as long as the reference baskets used to reckon different countries' price levels are the same. 
E) If PPP holds true,then the law of one price must hold true automatically.

Question 20

Which of the following statements is the MOST accurate? In general,under the monetary approach to the exchange rate

Accepted Answer

A) the interest rate is not independent of the money supply growth rate in the short run. 
B) the interest rate is independent of the money supply growth rate in the long run. 
C) the interest rate is not independent of the money supply growth rate in the long run,but independent in the short run. 
D) the interest rate is not independent of the money supply growth rate in the long run. 
E) the interest rate is a factor of the money supply growth rate only in the short term. 
A) the interest rate is not independent of the money supply growth rate in the short run. 
B) the interest rate is independent of the money supply growth rate in the long run. 
C) the interest rate is not independent of the money supply growth rate in the long run,but independent in the short run. 
D) the interest rate is not independent of the money supply growth rate in the long run. 
E) the interest rate is a factor of the money supply growth rate only in the short term.

Exam 16: Price Levels and the Exchange Rate in the Long Run

Which one of the following statements is the MOST accurate?

Under the monetary approach to the exchange rate

Which of the following statements is MOST accurate?

Which of the following statements is MOST accurate?

Which of the following statements is the MOST accurate?

Fill in the following table,assuming the law of one price prevails.

When all variables start out at their long-run equilibrium levels,the most important determinant of long-run swings in nominal exchange rates is

In the long run

Under a flexible-price monetary approach to the exchange rate

Which of the following statements is the MOST accurate? The law of one price states

What is the real interest rate parity condition?

Assuming relative PPP,fill in the table below:

Discuss the relationship between PPP and the Law of One Price.

To answer the following question,please refer to the figure below.Concentrating only at the upper right quadrant,discuss the foreign exchange market equilibrium.

Define the concept of the real exchange rate and explain how it differs from the nominal exchange rate.

The difference between nominal and real interest rates is that

Which of the following statements is the MOST accurate?

What is the real exchange rate between the dollar and the euro equal to?

Which of the following statements is the MOST accurate?

Which of the following statements is the MOST accurate? In general,under the monetary approach to the exchange rate

Introduction

World Trade: An Overview

Labor Productivity and Comparative Advantage: The Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: An Asset Approach

Money,Interest Rates, and Exchange Rates

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: An Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

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