Question 1

How does a rise in real income affect aggregate demand?

Accepted Answer

A) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more. 
B) Y ↑ implies Yd ↑ implies Im ↓ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more. 
C) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↑ implies AD ↑,and Y ↑ implies Yd ↑ implies C ↑ implies AD ↑. 
D) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by less. 
E) Y ↑ implies Yd ↑ implies Im ↓ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by less. 
A) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more. 
B) Y ↑ implies Yd ↑ implies Im ↓ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more. 
C) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↑ implies AD ↑,and Y ↑ implies Yd ↑ implies C ↑ implies AD ↑. 
D) Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by less. 
E) Y ↑ implies Yd ↑ implies Im ↓ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by less.

Question 2

What would be the best description of what we assume about money prices in the short run?

Accepted Answer

A) Money prices of goods and services vary. 
B) Money prices of goods and services not related to each other. 
C) Money prices of goods are fixed. 
D) Money prices of services are fixed. 
E) Money prices of goods and services are only temporarily fixed. 
A) Money prices of goods and services vary. 
B) Money prices of goods and services not related to each other. 
C) Money prices of goods are fixed. 
D) Money prices of services are fixed. 
E) Money prices of goods and services are only temporarily fixed.

Question 3

In the short-run,an increase in government purchases will cause

Accepted Answer

A) a shift of the DD curve to the left and an increase in output. 
B) a shift of the DD curve to the right and a decrease in output. 
C) a shift of the DD curve to the left and a decrease in output. 
D) a shift of the DD curve to the right and an increase in output. 
E) a shift of the DD curve the left and an appreciation of the currency. 
A) a shift of the DD curve to the left and an increase in output. 
B) a shift of the DD curve to the right and a decrease in output. 
C) a shift of the DD curve to the left and a decrease in output. 
D) a shift of the DD curve to the right and an increase in output. 
E) a shift of the DD curve the left and an appreciation of the currency.

Question 4

If consumers experience an decrease in lifetime income,current spending will ________,current saving will ________,and future spending will ________.

Accepted Answer

A) decrease;decrease;decrease 
B) increase;decrease;decrease 
C) increase;decrease;increase 
D) increase;increase;decrease 
E) decrease;increase;increase 
A) decrease;decrease;decrease 
B) increase;decrease;decrease 
C) increase;decrease;increase 
D) increase;increase;decrease 
E) decrease;increase;increase

Question 5

The current account balance is

Accepted Answer

A) the supply of a country's exports less the country's own demand for imports. 
B) the demand for a country's exports plus the country's own demand for imports. 
C) the country's own demand for imports less the demand for a country's exports. 
D) the demand for a country's exports less the country's own demand for imports. 
E) the country's federal reserves minus the national debt. 
A) the supply of a country's exports less the country's own demand for imports. 
B) the demand for a country's exports plus the country's own demand for imports. 
C) the country's own demand for imports less the demand for a country's exports. 
D) the demand for a country's exports less the country's own demand for imports. 
E) the country's federal reserves minus the national debt.

Question 6

A country's domestic currency's real exchange rate,q,is defined as

Accepted Answer

A) E. 
B) E times P. 
C) E times P  
. 
D) (E times P  
)/P. 
E) P/(E times P  
). 
A) E. 
B) E times P. 
C) E times P  
. 
D) (E times P  
)/P. 
E) P/(E times P  
).

Question 7

Disposable income is defined as

Accepted Answer

A) Y - C. 
B) Y - T. 
C) C - T. 
D) I - C. 
E) Y - I. 
A) Y - C. 
B) Y - T. 
C) C - T. 
D) I - C. 
E) Y - I.

Question 8

What is the AA-curve? Why does it have a negative slope? What factors cause it to shift?

Accepted Answer

The AA-curve is the specific levels of E

Question 9

Which of the following equations does NOT state a condition required for equilibrium output:?

Accepted Answer

A) Y = C(Yd)+ I + G + CA(EP*/P,Yd) 
B) Y = C(Y - T)+ I + G + CA(EP*/P,Y - T) 
C) Y = D(EP*/P,Y - T,I,G) 
D) R = R* + (EP/
E)  
E) Y = D(EP*/P,Yd,I,G) 
A) Y = C(Yd)+ I + G + CA(EP*/P,Yd) 
B) Y = C(Y - T)+ I + G + CA(EP*/P,Y - T) 
C) Y = D(EP*/P,Y - T,I,G) 
D) R = R* + (EP/
E)  
E) Y = D(EP*/P,Yd,I,G)

Question 10

The domestic currency price of a representative foreign expenditure basket is

Accepted Answer

A) P,the domestic price level. 
B) E,the nominal exchange rate. 
C) P times E,the domestic price level times the domestic price level. 
D) P  
,the foreign price level. 
E) P  
Times E,the foreign price level times the nominal exchange rate. 
A) P,the domestic price level. 
B) E,the nominal exchange rate. 
C) P times E,the domestic price level times the domestic price level. 
D) P  
,the foreign price level. 
E) P  
Times E,the foreign price level times the nominal exchange rate.

Question 11

An increase in the real exchange rate

Accepted Answer

A) makes imports more expensive. 
B) makes imports less expensive. 
C) does not affect import values. 
D) always makes the number of imports rise. 
E) makes domestic consumers spend more on only foreign imports. 
A) makes imports more expensive. 
B) makes imports less expensive. 
C) does not affect import values. 
D) always makes the number of imports rise. 
E) makes domestic consumers spend more on only foreign imports.

Question 12

Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD and where both the output and asset markets are out of equilibrium.Explain what will happen next?

Accepted Answer

Since the asset market adjusts very quic

Question 13

Which of the following does NOT affect the position of the DD curve?

Accepted Answer

A) monetary policy 
B) government spending 
C) taxes 
D) export demand 
E) price levels 
A) monetary policy 
B) government spending 
C) taxes 
D) export demand 
E) price levels

Question 14

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 150 euros and the representative U.S.basket costs $200,and the dollar/euro exchange rate is $1.20 per euro,then the price of the European basket in terms of U.S.basket is:

Accepted Answer

[(1.20 $/euro)(150 euro per a

Question 15

Discuss the main factors affecting the position of the DD schedule.

Accepted Answer

The level of government demand

Question 16

Using the DD model,explain what happens to out put when Government demands increase.Use a figure to explain when it is taking place.

Accepted Answer

The figure below shows the G₁ t

Question 17

Which one of the following statements is the MOST accurate?

Accepted Answer

A) For asset markets to remain in equilibrium,a rise in domestic output must be accompanied by a depreciation of domestic currency,all else equal. 
B) For asset markets to remain in equilibrium,a fall in domestic output must be accompanied by a depreciation of foreign currency,all else equal. 
C) For asset markets to remain in equilibrium,a rise in domestic output must be accompanied by an appreciation of domestic currency,all else equal. 
D) For asset markets to remain in equilibrium,a fall in domestic output must be accompanied by an appreciation of domestic currency,all else equal. 
E) For asset markets to remain in equilibrium,a fall in domestic output must be accompanied by an appreciation of foreign currency,all else equal. 
A) For asset markets to remain in equilibrium,a rise in domestic output must be accompanied by a depreciation of domestic currency,all else equal. 
B) For asset markets to remain in equilibrium,a fall in domestic output must be accompanied by a depreciation of foreign currency,all else equal. 
C) For asset markets to remain in equilibrium,a rise in domestic output must be accompanied by an appreciation of domestic currency,all else equal. 
D) For asset markets to remain in equilibrium,a fall in domestic output must be accompanied by an appreciation of domestic currency,all else equal. 
E) For asset markets to remain in equilibrium,a fall in domestic output must be accompanied by an appreciation of foreign currency,all else equal.

Question 18

In the short-run,any fall in EP   /P,regardless of its causes,will cause

Accepted Answer

A) an upward shift in the aggregate demand function and an expansion of output. 
B) an upward shift in the aggregate demand function and a reduction in output. 
C) a downward shift in the aggregate demand function and an expansion of output. 
D) an downward shift in the aggregate demand function and a reduction in output. 
E) an upward shift in the aggregate demand function but leaves output intact. 
A) an upward shift in the aggregate demand function and an expansion of output. 
B) an upward shift in the aggregate demand function and a reduction in output. 
C) a downward shift in the aggregate demand function and an expansion of output. 
D) an downward shift in the aggregate demand function and a reduction in output. 
E) an upward shift in the aggregate demand function but leaves output intact.

Question 19

Using the DD-AA framework,which one of the following statements is the MOST accurate?

Accepted Answer

A) Only monetary policy can bring the economy to full employment. 
B) Only fiscal policy can bring the economy to full employment. 
C) Only both monetary and fiscal policies can bring the economy to full employment. 
D) Both policies are capable of bringing the economy to full employment and low inflation. 
E) Monetary policy by itself or fiscal policy by itself can bring the economy to full employment. 
A) Only monetary policy can bring the economy to full employment. 
B) Only fiscal policy can bring the economy to full employment. 
C) Only both monetary and fiscal policies can bring the economy to full employment. 
D) Both policies are capable of bringing the economy to full employment and low inflation. 
E) Monetary policy by itself or fiscal policy by itself can bring the economy to full employment.

Question 20

If the representative basket of European goods and services costs 40 euros,the representative U.S.basket costs $50,and the dollar/euro exchange rate is $0.90 per euro,then the price of the European basket in terms of U.S.basket is

Accepted Answer

A) [(0.9 $/euro)(40 euro per a European basket)]/[(50 $/U.S.basket)]. 
B) [(0.9 $/euro)(50 $/U.S.basket)]/[(40 euro per a European basket)]. 
C) [(40 euro per a European basket)]/[(50 $/U.S.basket)(0.9 $/euro)]. 
D) [(50 $/U.S.basket)]. 
E) [(0.9 $/euro)(40 euro per a European basket)(50 $ U.S.basket)]. 
A) [(0.9 $/euro)(40 euro per a European basket)]/[(50 $/U.S.basket)]. 
B) [(0.9 $/euro)(50 $/U.S.basket)]/[(40 euro per a European basket)]. 
C) [(40 euro per a European basket)]/[(50 $/U.S.basket)(0.9 $/euro)]. 
D) [(50 $/U.S.basket)]. 
E) [(0.9 $/euro)(40 euro per a European basket)(50 $ U.S.basket)].

Exam 17: Output and the Exchange Rate in the Short Run

How does a rise in real income affect aggregate demand?

What would be the best description of what we assume about money prices in the short run?

In the short-run,an increase in government purchases will cause

If consumers experience an decrease in lifetime income,current spending will ________,current saving will ________,and future spending will ________.

The current account balance is

A country's domestic currency's real exchange rate,q,is defined as

Disposable income is defined as

What is the AA-curve? Why does it have a negative slope? What factors cause it to shift?

Which of the following equations does NOT state a condition required for equilibrium output:?

The domestic currency price of a representative foreign expenditure basket is

An increase in the real exchange rate

Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD and where both the output and asset markets are out of equilibrium.Explain what will happen next?

Which of the following does NOT affect the position of the DD curve?

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 150 euros and the representative U.S.basket costs $200,and the dollar/euro exchange rate is $1.20 per euro,then the price of the European basket in terms of U.S.basket is:

Discuss the main factors affecting the position of the DD schedule.

Using the DD model,explain what happens to out put when Government demands increase.Use a figure to explain when it is taking place.

Which one of the following statements is the MOST accurate?

In the short-run,any fall in EP /P,regardless of its causes,will cause

Using the DD-AA framework,which one of the following statements is the MOST accurate?

If the representative basket of European goods and services costs 40 euros,the representative U.S.basket costs $50,and the dollar/euro exchange rate is $0.90 per euro,then the price of the European basket in terms of U.S.basket is

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

Price Levels and the Exchange Rate in the Long 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

Filters

If consumers experience an decrease in lifetime income,current spending will ,current saving will ,and future spending will .