Question 1

Explain and give some examples of governmental policy problems.

Accepted Answer

Steady nominal prices give government th

Question 2

Which of the following compete to determine whether the current account improves or worsens following a rise in the real exchange rate?

Accepted Answer

A) appreciation and depreciation 
B) crowding Out effect and producers effect 
C) volume effect and value effect 
D) volume effect and inflation 
E) producers effect and value effect 
A) appreciation and depreciation 
B) crowding Out effect and producers effect 
C) volume effect and value effect 
D) volume effect and inflation 
E) producers effect and value effect

Question 3

Explain how does a rise in real income affect aggregate demand?

Accepted Answer

A rise in domestic real income,Y,leads t

Question 4

Explain the following figure:

Accepted Answer

The figure depicts the effect of a perma

Question 5

Which one of the following statements is MOST accurate?

Accepted Answer

A) Factors of production can only be over-employed in the short run. 
B) Factors of production can only be under-employed in the short run. 
C) Factors of production can be over- or under-employed in the long run. 
D) Factors of production can be over- or under-employed in the short run. 
E) Factors of production are fully employed in the short run. 
A) Factors of production can only be over-employed in the short run. 
B) Factors of production can only be under-employed in the short run. 
C) Factors of production can be over- or under-employed in the long run. 
D) Factors of production can be over- or under-employed in the short run. 
E) Factors of production are fully employed in the short run.

Question 6

Why is the economy at full employment in the long run?

Accepted Answer

A) Only wages have the ability to adjust. 
B) Only price can adjust. 
C) Prices don't adjust. 
D) Wages and the price level eventually adjust to full employment equilibrium levels. 
E) Government policies eventually converge on the full employment strategy. 
A) Only wages have the ability to adjust. 
B) Only price can adjust. 
C) Prices don't adjust. 
D) Wages and the price level eventually adjust to full employment equilibrium levels. 
E) Government policies eventually converge on the full employment strategy.

Question 7

Use a figure to study the following question: Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD,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 8

Explain what are the factors that shift the AA Schedule?

Accepted Answer

Changes in the domestic money supply;cha

Question 9

Which one of the following statements is the MOST accurate?

Accepted Answer

A) A rise in domestic real income raises aggregate demand for home output. 
B) A rise in domestic real income decreases aggregate demand for home output because of the increase demand for import. 
C) A rise in domestic real income keeps aggregate demand for home output at the same level. 
D) It is difficult to tell whether a rise in domestic real income affects positively or negatively aggregate demand for home output. 
E) A rise in domestic real income decreases aggregate demand for home output because the CA is raised. 
A) A rise in domestic real income raises aggregate demand for home output. 
B) A rise in domestic real income decreases aggregate demand for home output because of the increase demand for import. 
C) A rise in domestic real income keeps aggregate demand for home output at the same level. 
D) It is difficult to tell whether a rise in domestic real income affects positively or negatively aggregate demand for home output. 
E) A rise in domestic real income decreases aggregate demand for home output because the CA is raised.

Question 10

A country's domestic currency's real exchange rate,q,is best described by

Accepted Answer

A) the price of similar goods in the same market. 
B) the price of the domestic basket in terms of the foreign one. 
C) the price of a domestic basket. 
D) the price of the foreign basket in terms of the domestic basket. 
E) the price of different goods baskets in the same market. 
A) the price of similar goods in the same market. 
B) the price of the domestic basket in terms of the foreign one. 
C) the price of a domestic basket. 
D) the price of the foreign basket in terms of the domestic basket. 
E) the price of different goods baskets in the same market.

Question 11

What is the real exchange rate? What is its relationship to the current account?

Accepted Answer

Defined as: EP @#IMG-DLM& 
/P (the exchange rate m

Question 12

In the short-run,a tax increase

Accepted Answer

A) shifts the DD curve to the right,increases output and appreciates the currency. 
B) shifts the AA curve to the left,increases output and depreciates the currency. 
C) shifts the AA curve to the left,decreases output and depreciates the currency. 
D) shifts the AA curve to the left,increases output and appreciates the currency. 
E) shifts the DD curve to the left,decreases output and depreciates the currency. 
A) shifts the DD curve to the right,increases output and appreciates the currency. 
B) shifts the AA curve to the left,increases output and depreciates the currency. 
C) shifts the AA curve to the left,decreases output and depreciates the currency. 
D) shifts the AA curve to the left,increases output and appreciates the currency. 
E) shifts the DD curve to the left,decreases output and depreciates the currency.

Question 13

Fill in the following table.

Accepted Answer

The answer of Fill in the following table.  ...

Question 14

Explain what are the factors that shift the DD Schedule.

Accepted Answer

A change in government demand,change in

Question 15

Current account is given by the equation:

Accepted Answer

A) CA = IM - EX (measured in terms of domestic output). 
B) CA = IM - EX (measured in terms of foreign output). 
C) CA = EX - IM (measured in terms of domestic output). 
D) CA = EX - IM (measured in terms of foreign output). 
E) CA = EX + IM (measured in terms of domestic output). 
A) CA = IM - EX (measured in terms of domestic output). 
B) CA = IM - EX (measured in terms of foreign output). 
C) CA = EX - IM (measured in terms of domestic output). 
D) CA = EX - IM (measured in terms of foreign output). 
E) CA = EX + IM (measured in terms of domestic output).

Question 16

A real depreciation of a nation's currency gives rise to the ________ effect and the ________ effect on the current account.

Accepted Answer

A) volume;value 
B) depletion;expansion 
C) surplus;deficit 
D) output;trade 
E) price;profit 
A) volume;value 
B) depletion;expansion 
C) surplus;deficit 
D) output;trade 
E) price;profit

Question 17

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 $90,and the dollar/euro exchange rate is $0.80 per euro,then the price of the European basket in terms of U.S.basket is:

Accepted Answer

[(0.80 $/euro)(150 euro per a

Question 18

The domestic currency price of a representative domestic 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 19

The real exchange rate is:

Accepted Answer

A) how much of a foreign currency you can buy with the domestic currency. 
B) foreign CPI divided by the domestic CPI. 
C) the price of foreign goods in terms of domestic goods. 
D) the price of foreign goods in dollars. 
E) the domestic currency divided by the price level. 
A) how much of a foreign currency you can buy with the domestic currency. 
B) foreign CPI divided by the domestic CPI. 
C) the price of foreign goods in terms of domestic goods. 
D) the price of foreign goods in dollars. 
E) the domestic currency divided by the price level.

Question 20

When an economy is in a liquidity trap

Accepted Answer

A) monetary policy cannot be used to influence the exchange rate. 
B) monetary policy can be used to drive interest rates down,but not to drive them up. 
C) there is an excess demand for bonds. 
D) people and institutions avoid holding cash balances. 
E) it can escape only by introducing a hard,or illiquid,currency. 
A) monetary policy cannot be used to influence the exchange rate. 
B) monetary policy can be used to drive interest rates down,but not to drive them up. 
C) there is an excess demand for bonds. 
D) people and institutions avoid holding cash balances. 
E) it can escape only by introducing a hard,or illiquid,currency.

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

Explain and give some examples of governmental policy problems.

Which of the following compete to determine whether the current account improves or worsens following a rise in the real exchange rate?

Explain how does a rise in real income affect aggregate demand?

Explain the following figure:

Which one of the following statements is MOST accurate?

Why is the economy at full employment in the long run?

Use a figure to study the following question: Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD,where both the output and asset markets are out of equilibrium.Explain what will happen next.

Explain what are the factors that shift the AA Schedule?

Which one of the following statements is the MOST accurate?

A country's domestic currency's real exchange rate,q,is best described by

What is the real exchange rate? What is its relationship to the current account?

In the short-run,a tax increase

Fill in the following table.

Explain what are the factors that shift the DD Schedule.

Current account is given by the equation:

A real depreciation of a nation's currency gives rise to the ________ effect and the ________ effect on the current account.

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 $90,and the dollar/euro exchange rate is $0.80 per euro,then the price of the European basket in terms of U.S.basket is:

The domestic currency price of a representative domestic expenditure basket is

The real exchange rate is:

When an economy is in a liquidity trap

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

A real depreciation of a nation's currency gives rise to the effect and the effect on the current account.