Question 1

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 2

A naïve implication of the DD-AA framework is that either fiscal or monetary policy can lead to full employment. Discuss why this view is naïve.

Accepted Answer

(1) Inflation may arise without any gain

Question 3

How is the AA schedule derived?

Accepted Answer

A)  It is derived by the schedule of interest rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market. 
B)  It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the foreign money market and the domestic exchange market. 
C)  It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market. 
D)  It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic bond market and the foreign asset market. 
E)  It is derived by the schedule of exchange rate and output combinations that are greater than equilibrium in the foreign money market and the domestic exchange market. 
A)  It is derived by the schedule of interest rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market. 
B)  It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the foreign money market and the domestic exchange market. 
C)  It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market. 
D)  It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic bond market and the foreign asset market. 
E)  It is derived by the schedule of exchange rate and output combinations that are greater than equilibrium in the foreign money market and the domestic exchange market.

Question 4

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)].

Question 5

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 develop full employment. 
E)  Wages don't adjust. 
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 develop full employment. 
E)  Wages don't adjust.

Question 6

The J-curve illustrates which of the following?

Accepted Answer

A)  the effects of depreciation on the home country's economy 
B)  the immediate increase in current account caused by a currency depreciation 
C)  the gradual adjustment of home prices to a currency depreciation 
D)  the short-term effects of depreciation on the current account 
E)  the Keynesian view of international trade dynamics 
A)  the effects of depreciation on the home country's economy 
B)  the immediate increase in current account caused by a currency depreciation 
C)  the gradual adjustment of home prices to a currency depreciation 
D)  the short-term effects of depreciation on the current account 
E)  the Keynesian view of international trade dynamics

Question 7

Fill in the following table.

Accepted Answer

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

Question 8

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 9

Show the effects of a permanent increase in the money supply.

Accepted Answer

(1) AA-shifts right-increase in Y and E

Question 10

The unique output level in the short-run is found at the intersection of the following curves:

Accepted Answer

A)  aggregate demand and aggregate supply 
B)  aggregate demand and 45 degree line 
C)  aggregate supply and 45 degree line 
D)  aggregate demand and short-run aggregate supply 
E)  aggregate supply and long-run demand 
A)  aggregate demand and aggregate supply 
B)  aggregate demand and 45 degree line 
C)  aggregate supply and 45 degree line 
D)  aggregate demand and short-run aggregate supply 
E)  aggregate supply and long-run demand

Question 11

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 12

Explain what are the factors that shift the DD Schedule.

Accepted Answer

A change in government demand, change in

Question 13

The interest parity condition requires that:

Accepted Answer

A)  all countries have the same interest rate. 
B)  there is a unique exchange rate for every output level. 
C)  purchasing power parity hold. 
D)  interest rates are fixed in the short run. 
E)  the money supply is held constant. 
A)  all countries have the same interest rate. 
B)  there is a unique exchange rate for every output level. 
C)  purchasing power parity hold. 
D)  interest rates are fixed in the short run. 
E)  the money supply is held constant.

Question 14

In the short run, a permanent increase in the domestic money supply causes

Accepted Answer

A)  a greater upward shift in the DD curve than that caused by an equal, but transitory, increase. 
B)  a greater downward shift in the AA curve than that caused by an equal, but transitory, increase. 
C)  an smaller upward shift in the AA curve than that caused by an equal, but transitory, increase. 
D)  a smaller downward shift in the AA curve than that caused by an equal, but transitory, increase. 
E)  a greater upward shift in the AA curve than that caused by an equal, but transitory, increase. 
A)  a greater upward shift in the DD curve than that caused by an equal, but transitory, increase. 
B)  a greater downward shift in the AA curve than that caused by an equal, but transitory, increase. 
C)  an smaller upward shift in the AA curve than that caused by an equal, but transitory, increase. 
D)  a smaller downward shift in the AA curve than that caused by an equal, but transitory, increase. 
E)  a greater upward shift in the AA curve than that caused by an equal, but transitory, increase.

Question 15

In the long-run equilibrium, after a permanent money-supply increase there follows:

Accepted Answer

A)  an increase in exchange rate, E. 
B)  a decrease in exchange rate, E. 
C)  an increase in output, Y. 
D)  a decrease in output, Y. 
E)  an unchanged exchange rate, E. 
A)  an increase in exchange rate, E. 
B)  a decrease in exchange rate, E. 
C)  an increase in output, Y. 
D)  a decrease in output, Y. 
E)  an unchanged exchange rate, E.

Question 16

In the short-run, we assume that the money prices of goods and services are

Accepted Answer

A)  temporarily fixed. 
B)  permanently fixed. 
C)  allowed to fluctuate. 
D)  equal to long-run prices. 
E)  fully employed. 
A)  temporarily fixed. 
B)  permanently fixed. 
C)  allowed to fluctuate. 
D)  equal to long-run prices. 
E)  fully employed.

Question 17

How does an increase in the real exchange rate affect exports and imports?

Accepted Answer

A)  Exports increase; imports decrease. 
B)  Exports decrease; imports increase. 
C)  Exports increase; imports change ambiguously. 
D)  Exports change ambiguously; imports decrease. 
E)  Exports increase; imports are constant. 
A)  Exports increase; imports decrease. 
B)  Exports decrease; imports increase. 
C)  Exports increase; imports change ambiguously. 
D)  Exports change ambiguously; imports decrease. 
E)  Exports increase; imports are constant.

Question 18

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

Accepted Answer

A rise in domestic real income, Y, leads

Question 19

The aggregate demand for home input can be written as a function of: I. Real exchange rate.
II) Government spending.
III) Disposable income.

Accepted Answer

A)  I only 
B)  III only 
C)  I and III 
D)  II and III 
E)  I, II, and III 
A)  I only 
B)  III only 
C)  I and III 
D)  II and III 
E)  I, II, and III

Question 20

What is the best way to describe aggregate demand?

Accepted Answer

A)  quantity required to satisfy equilibrium 
B)  exports decrease; imports increase 
C)  amount of a country's goods and services demanded by household and firms throughout the world 
D)  individual's demand 
E)  domestic demand of foreign imports. 
A)  quantity required to satisfy equilibrium 
B)  exports decrease; imports increase 
C)  amount of a country's goods and services demanded by household and firms throughout the world 
D)  individual's demand 
E)  domestic demand of foreign imports.

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

Which one of the following statements is the most accurate?

A naïve implication of the DD-AA framework is that either fiscal or monetary policy can lead to full employment. Discuss why this view is naïve.

How is the AA schedule derived?

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

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

The J-curve illustrates which of the following?

Fill in the following table.

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

Show the effects of a permanent increase in the money supply.

The unique output level in the short-run is found at the intersection of the following curves:

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

Explain what are the factors that shift the DD Schedule.

The interest parity condition requires that:

In the short run, a permanent increase in the domestic money supply causes

In the long-run equilibrium, after a permanent money-supply increase there follows:

In the short-run, we assume that the money prices of goods and services are

How does an increase in the real exchange rate affect exports and imports?

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

The aggregate demand for home input can be written as a function of: I. Real exchange rate. II) Government spending. III) Disposable income.

What is the best way to describe aggregate demand?

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

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