Question 1

Which one of the following statements is most accurate?

Accepted Answer

A)  In the long run, foreign output depends only on the available domestic supplies of factors of production. 
B)  In the short run, domestic output depends only on the available domestic supplies of factors of production. 
C)  In the long run, domestic output depends only on the available domestic supplies of factors of production. 
D)  In the long run and in the short run, domestic output depends only on the available domestic supplies of factors of production. 
E)  In the long run, domestic output depends only on the real exchange rate. 
A)  In the long run, foreign output depends only on the available domestic supplies of factors of production. 
B)  In the short run, domestic output depends only on the available domestic supplies of factors of production. 
C)  In the long run, domestic output depends only on the available domestic supplies of factors of production. 
D)  In the long run and in the short run, domestic output depends only on the available domestic supplies of factors of production. 
E)  In the long run, domestic output depends only on the real exchange rate.

Question 2

The DD schedule shows all combinations of which 2 variables so that the output market is in equilibrium?

Accepted Answer

A)  imports and exports 
B)  exports and the exchange rate 
C)  foreign prices and the exchange rate 
D)  output and the exchange rate 
E)  output and exports 
A)  imports and exports 
B)  exports and the exchange rate 
C)  foreign prices and the exchange rate 
D)  output and the exchange rate 
E)  output and exports

Question 3

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 4

When EP/P rises,

Accepted Answer

A)  IM will rise. 
B)  IM will fall. 
C)  IM may rise or fall. 
D)  IM is not affected. 
E)  IM and P* will both rise. 
A)  IM will rise. 
B)  IM will fall. 
C)  IM may rise or fall. 
D)  IM is not affected. 
E)  IM and P* will both rise.

Question 5

What is inflation bias? What measures have governments taken to avoid it?

Accepted Answer

Inflation bias is caused when a governme

Question 6

Temporary tax cuts would cause

Accepted Answer

A)  the AA-curve to shift left. 
B)  the AA-curve to shift right. 
C)  the DD-curve to shift left. 
D)  the DD-curve to shift right. 
E)  a shift in the AA-curve, although the direction is ambiguous. 
A)  the AA-curve to shift left. 
B)  the AA-curve to shift right. 
C)  the DD-curve to shift left. 
D)  the DD-curve to shift right. 
E)  a shift in the AA-curve, although the direction is ambiguous.

Question 7

What have we assumed when we conclude that a real depreciation of the currency improves the current account?

Accepted Answer

A)  The volume effect outweighs the value effect. 
B)  The value effect outweighs the volume effect. 
C)  All else equal and the volume effect outweighs the value effect. 
D)  All else equal and the value effect outweighs the volume effect. 
E)  All else equal and the volume effect equals the value effect. 
A)  The volume effect outweighs the value effect. 
B)  The value effect outweighs the volume effect. 
C)  All else equal and the volume effect outweighs the value effect. 
D)  All else equal and the value effect outweighs the volume effect. 
E)  All else equal and the volume effect equals the value effect.

Question 8

What are two ways the government can use to maintain full employment in an open economy? Also give an example for each.

Accepted Answer

There are two types of government policy

Question 9

According to historical data, what is the effect of a sharp change in the current account on the exchange rate (both in the short and long run)?

Accepted Answer

A)  At first, home currency will depreciate as CA balance falls, but over time, currency will begin to depreciate. 
B)  At first, home currency will appreciate as CA balance falls, but over time, currency will begin to depreciate. 
C)  At first, home currency will appreciate as CA balance rises, but over time, currency will begin to depreciate. 
D)  At first, home currency will depreciate as CA balance falls, but over time, currency will begin to appreciate. 
E)  At first, home currency will appreciate as CA balance falls, but over time, currency will begin to appreciate. 
A)  At first, home currency will depreciate as CA balance falls, but over time, currency will begin to depreciate. 
B)  At first, home currency will appreciate as CA balance falls, but over time, currency will begin to depreciate. 
C)  At first, home currency will appreciate as CA balance rises, but over time, currency will begin to depreciate. 
D)  At first, home currency will depreciate as CA balance falls, but over time, currency will begin to appreciate. 
E)  At first, home currency will appreciate as CA balance falls, but over time, currency will begin to appreciate.

Question 10

Demonstrate how a permanent fiscal expansion will not increase output in the long run.

Accepted Answer

(1) E on Y-axis, Y on X-axis
(2) DD shif

Question 11

Which one of the following statements is the most accurate?

Accepted Answer

A)  An increase in the real exchange rate and an increase in disposable income improve the current account. 
B)  A decrease in the real exchange rate and a decrease in disposable income improve the current account. 
C)  A decrease in the real exchange rate and a increase in disposable income improve the current account. 
D)  An increase in the real exchange rate and a decrease in disposable income improve the current account. 
E)  An increase in the real exchange rate and a decrease in disposable income lowers the current account. 
A)  An increase in the real exchange rate and an increase in disposable income improve the current account. 
B)  A decrease in the real exchange rate and a decrease in disposable income improve the current account. 
C)  A decrease in the real exchange rate and a increase in disposable income improve the current account. 
D)  An increase in the real exchange rate and a decrease in disposable income improve the current account. 
E)  An increase in the real exchange rate and a decrease in disposable income lowers the current account.

Question 12

In the short-run, a temporary increase in money supply

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 AA curve to the right, increases 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 AA curve to the right, increases output and depreciates the currency.

Question 13

In practice, many U.S. import prices tend to rise by only around

Accepted Answer

A)  1/4 of a typical dollar depreciation over the following year 
B)  1/3 of a typical dollar depreciation over the following year 
C)  1/2 of a typical dollar depreciation over the following year 
D)  2/3 of a typical dollar depreciation over the following year 
E)  2/5 of a typical dollar depreciation over the following year 
A)  1/4 of a typical dollar depreciation over the following year 
B)  1/3 of a typical dollar depreciation over the following year 
C)  1/2 of a typical dollar depreciation over the following year 
D)  2/3 of a typical dollar depreciation over the following year 
E)  2/5 of a typical dollar depreciation over the following year

Question 14

Which two time periods did the U.S. begin to experience a sharp increase in Current Account deficits?

Accepted Answer

A)  1981, mid-1990s 
B)  1971, mid-1990s 
C)  1961, mid-1990s 
D)  1971, mid-1980s 
E)  1985, mid-1990s 
A)  1981, mid-1990s 
B)  1971, mid-1990s 
C)  1961, mid-1990s 
D)  1971, mid-1980s 
E)  1985, mid-1990s

Question 15

Which one of the following statements is most accurate?

Accepted Answer

A)  In general, consumption demand rises by less than disposable income. 
B)  In general, consumption demand rises by more than disposable income. 
C)  In general, consumption demand rises by more than income. 
D)  In general, consumption demand rises by the same amount as disposable income rises. 
E)  In general, consumption demand rises are unrelated to disposable income rises. 
A)  In general, consumption demand rises by less than disposable income. 
B)  In general, consumption demand rises by more than disposable income. 
C)  In general, consumption demand rises by more than income. 
D)  In general, consumption demand rises by the same amount as disposable income rises. 
E)  In general, consumption demand rises are unrelated to disposable income rises.

Question 16

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

Accepted Answer

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

Question 17

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 18

Which one of the following statements is the most accurate?

Accepted Answer

A)  An increase in disposable income improves the current account. 
B)  An increase in disposable income does not affect the current account. 
C)  An increase in disposable income worsens the current account. 
D)  An increase in income worsens the current account. 
E)  An increase in income improves the current account. 
A)  An increase in disposable income improves the current account. 
B)  An increase in disposable income does not affect the current account. 
C)  An increase in disposable income worsens the current account. 
D)  An increase in income worsens the current account. 
E)  An increase in income improves the current account.

Question 19

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 20

How is the AA schedule derived?

Accepted Answer

A)  The AA schedule has a positive slope because an increase in output leads to a depreciation of the currency. 
B)  The AA schedule has a negative slope because an increase in output leads to a decrease in the domestic interest rate. 
C)  The AA schedule has a negative slope because an increase in output leads to an increase in the domestic interest rate and a domestic currency appreciation. 
D)  The AA schedule has a positive slope because an increase in the money supply leads to an increase in the domestic interest rate. 
E)  The AA schedule has a positive slope because a decrease in output leads to a depreciation of the currency. 
A)  The AA schedule has a positive slope because an increase in output leads to a depreciation of the currency. 
B)  The AA schedule has a negative slope because an increase in output leads to a decrease in the domestic interest rate. 
C)  The AA schedule has a negative slope because an increase in output leads to an increase in the domestic interest rate and a domestic currency appreciation. 
D)  The AA schedule has a positive slope because an increase in the money supply leads to an increase in the domestic interest rate. 
E)  The AA schedule has a positive slope because a decrease in output leads to a depreciation of the currency.

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

Which one of the following statements is most accurate?

The DD schedule shows all combinations of which 2 variables so that the output market is in equilibrium?

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

When EP/P rises,

What is inflation bias? What measures have governments taken to avoid it?

Temporary tax cuts would cause

What have we assumed when we conclude that a real depreciation of the currency improves the current account?

What are two ways the government can use to maintain full employment in an open economy? Also give an example for each.

According to historical data, what is the effect of a sharp change in the current account on the exchange rate (both in the short and long run)?

Demonstrate how a permanent fiscal expansion will not increase output in the long run.

Which one of the following statements is the most accurate?

In the short-run, a temporary increase in money supply

In practice, many U.S. import prices tend to rise by only around

Which two time periods did the U.S. begin to experience a sharp increase in Current Account deficits?

Which one of the following statements is most accurate?

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

Disposable income is defined as

Which one of the following statements is the most accurate?

Current account is given by the equation:

How is the AA schedule derived?

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

Optimum Currency Areas and the European Experience

Financial Globalization: Opportunity and Crisis

Developing Countries: Growth, Crisis, and Reform

Filters

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