Question 1

When the dollar rises relative to other currencies,

Accepted Answer

A) foreign goods are more expensive in terms of dollars. 
B) foreign currency is more expensive in terms of dollars. 
C) U.S.goods become more expensive to foreigners. 
D) foreign currency is more expensive in the United States,but foreign goods are cheaper. 
A) foreign goods are more expensive in terms of dollars. 
B) foreign currency is more expensive in terms of dollars. 
C) U.S.goods become more expensive to foreigners. 
D) foreign currency is more expensive in the United States,but foreign goods are cheaper. C

Question 2

Describe the effects of contractionary fiscal policy by the domestic government on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model.

Accepted Answer

Domestic country: output falls,real interest rate falls,and net exports rise Foreign country: output falls,real interest rate falls,and net exports fall.

Question 3

Currency unions are rare because

Accepted Answer

A) they're to no one's advantage. 
B) countries are reluctant to give up having their own currencies. 
C) having flexible exchange rates has the same benefits and none of the costs. 
D) speculative attacks are likely to occur. 
A) they're to no one's advantage. 
B) countries are reluctant to give up having their own currencies. 
C) having flexible exchange rates has the same benefits and none of the costs. 
D) speculative attacks are likely to occur. B

Question 4

A depreciation of the dollar causes

Accepted Answer

A) a decrease in U.S.exports. 
B) an increase in U.S.imports. 
C) an increase in the prices of U.S.imports. 
D) an increase in the prices of U.S.exports. 
A) a decrease in U.S.exports. 
B) an increase in U.S.imports. 
C) an increase in the prices of U.S.imports. 
D) an increase in the prices of U.S.exports.

Question 5

A temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Accepted Answer

A) lower; increase 
B) lower; decrease 
C) raise; increase 
D) raise; decrease 
A) lower; increase 
B) lower; decrease 
C) raise; increase 
D) raise; decrease

Question 6

A shift in demand toward the home country's goods would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Accepted Answer

A) lower; increase 
B) lower; decrease 
C) raise; increase 
D) raise; decrease 
A) lower; increase 
B) lower; decrease 
C) raise; increase 
D) raise; decrease

Question 7

In an open economy,a decrease in net exports because of reduced demand for domestic products by foreigners should cause the domestic real interest rate to ________ and should cause desired saving minus desired investment to ________.

Accepted Answer

A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall 
A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall

Question 8

Three-wheel cars made in North Edsel are sold for 5000 pounds.Four-wheel cars made in South Edsel are sold for 10,000 marks.The nominal exchange rate between the two countries is three marks per pound.The real exchange rate between the two countries is

Accepted Answer

A) 0.50 three-wheel cars per four-wheel car. 
B) 0.66 three-wheel cars per four-wheel car. 
C) 1.50 three-wheel cars per four-wheel car. 
D) 2.00 three-wheel cars per four-wheel car. 
A) 0.50 three-wheel cars per four-wheel car. 
B) 0.66 three-wheel cars per four-wheel car. 
C) 1.50 three-wheel cars per four-wheel car. 
D) 2.00 three-wheel cars per four-wheel car.

Question 9

A classical economy is described by the equations
AD: Y = 1000 + 100M/P
AS:   = 1500
The real exchange rate is 3 bushels/bottle,the domestic nominal money supply is 30 florins,and the foreign price level is 8 crowns/bushel.
(a)What is the nominal exchange rate?
(b)If the government wants to maintain an official nominal exchange rate of 6 crowns/florin,what must the nominal money supply be?

Accepted Answer

(a)4 crown

Question 10

Purchasing power parity does not hold in the short to medium run because

Accepted Answer

A) exports don't equal imports. 
B) exchange rates fluctuate too much. 
C) some goods aren't internationally traded. 
D) most business cycles are caused by shocks to aggregate demand. 
A) exports don't equal imports. 
B) exchange rates fluctuate too much. 
C) some goods aren't internationally traded. 
D) most business cycles are caused by shocks to aggregate demand.

Question 11

Suppose Japan is currently running a current account surplus.The most effective way of eliminating this current account surplus would be to temporarily ________ government purchases and ________ the domestic money supply.

Accepted Answer

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

Question 12

Describe the effects of contractionary monetary policy by the domestic central bank on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model in the short run.What happens in the long run? Show a diagram to illustrate the short-run and long-run effects in both countries.

Accepted Answer

Domestic country: output falls

Question 13

Compared with a system of fixed exchange rates,currency unions are beneficial because they

Accepted Answer

A) restrict what countries can do with fiscal policy. 
B) allow exchange rates to float. 
C) allow every country to have an independent monetary policy. 
D) eliminate the possibility of speculative attacks. 
A) restrict what countries can do with fiscal policy. 
B) allow exchange rates to float. 
C) allow every country to have an independent monetary policy. 
D) eliminate the possibility of speculative attacks.

Question 14

Which of the following changes would cause American net exports to increase?

Accepted Answer

A) An increase in the real value of the dollar 
B) An increase in American income 
C) An increase in foreign income 
D) A shift in demand by American consumers away from domestically produced goods 
A) An increase in the real value of the dollar 
B) An increase in American income 
C) An increase in foreign income 
D) A shift in demand by American consumers away from domestically produced goods

Question 15

In the Keynesian model of an open economy,a temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Accepted Answer

A) lower; increase 
B) lower; decrease 
C) raise; increase 
D) raise; decrease 
A) lower; increase 
B) lower; decrease 
C) raise; increase 
D) raise; decrease

Question 16

Purchasing power parity means that

Accepted Answer

A) cnom = PFor / P. 
B) P = PFor. 
C) P = cnom / PFor. 
D) cnom = mc2. 
A) cnom = PFor / P. 
B) P = PFor. 
C) P = cnom / PFor. 
D) cnom = mc2.

Question 17

Purchasing power parity does not hold in the short to medium run because

Accepted Answer

A) exports don't equal imports. 
B) exchange rates fluctuate too much. 
C) most business cycles are caused by shocks to aggregate demand. 
D) countries produce different goods. 
A) exports don't equal imports. 
B) exchange rates fluctuate too much. 
C) most business cycles are caused by shocks to aggregate demand. 
D) countries produce different goods.

Question 18

Under a system of fixed exchange rates,what happens if a country's currency is undervalued?

Accepted Answer

A) The central bank loses official reserve assets. 
B) The central bank gains official reserve assets. 
C) The currency depreciates. 
D) The exchange rate falls. 
A) The central bank loses official reserve assets. 
B) The central bank gains official reserve assets. 
C) The currency depreciates. 
D) The exchange rate falls.

Question 19

When the domestic currency strengthens under a fixed-exchange-rate system,this is called

Accepted Answer

A) a depreciation. 
B) an appreciation. 
C) a devaluation. 
D) a revaluation. 
A) a depreciation. 
B) an appreciation. 
C) a devaluation. 
D) a revaluation.

Question 20

Suppose the dollar/euro exchange rate falls.Then

Accepted Answer

A) French firms will import more from the United States into France. 
B) U.S.firms will export less to France. 
C) the dollar is less valuable relative to the euro. 
D) the euro is more valuable relative to the dollar. 
A) French firms will import more from the United States into France. 
B) U.S.firms will export less to France. 
C) the dollar is less valuable relative to the euro. 
D) the euro is more valuable relative to the dollar.

When the dollar rises relative to other currencies,

Describe the effects of contractionary fiscal policy by the domestic government on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model.

Currency unions are rare because

A depreciation of the dollar causes

A temporary decrease in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment)in the economy.

A shift in demand toward the home country's goods would the domestic real interest rate and net desired saving (desired saving less desired investment)in the economy.

In an open economy,a decrease in net exports because of reduced demand for domestic products by foreigners should cause the domestic real interest rate to and should cause desired saving minus desired investment to .

Three-wheel cars made in North Edsel are sold for 5000 pounds.Four-wheel cars made in South Edsel are sold for 10,000 marks.The nominal exchange rate between the two countries is three marks per pound.The real exchange rate between the two countries is

Purchasing power parity does not hold in the short to medium run because

Suppose Japan is currently running a current account surplus.The most effective way of eliminating this current account surplus would be to temporarily government purchases and the domestic money supply.

Compared with a system of fixed exchange rates,currency unions are beneficial because they

Which of the following changes would cause American net exports to increase?

In the Keynesian model of an open economy,a temporary decrease in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment)in the economy.

Purchasing power parity means that

Purchasing power parity does not hold in the short to medium run because

Under a system of fixed exchange rates,what happens if a country's currency is undervalued?

When the domestic currency strengthens under a fixed-exchange-rate system,this is called

Suppose the dollar/euro exchange rate falls.Then

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Exam 13: Exchange Rates,business Cycles,and Macroeconomic Policy in the Open Economy

When the dollar rises relative to other currencies,

Describe the effects of contractionary fiscal policy by the domestic government on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model.

Currency unions are rare because

A depreciation of the dollar causes

A temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

A shift in demand toward the home country's goods would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

In an open economy,a decrease in net exports because of reduced demand for domestic products by foreigners should cause the domestic real interest rate to ________ and should cause desired saving minus desired investment to ________.

Three-wheel cars made in North Edsel are sold for 5000 pounds.Four-wheel cars made in South Edsel are sold for 10,000 marks.The nominal exchange rate between the two countries is three marks per pound.The real exchange rate between the two countries is

Purchasing power parity does not hold in the short to medium run because

Suppose Japan is currently running a current account surplus.The most effective way of eliminating this current account surplus would be to temporarily ________ government purchases and ________ the domestic money supply.

Compared with a system of fixed exchange rates,currency unions are beneficial because they

Which of the following changes would cause American net exports to increase?

In the Keynesian model of an open economy,a temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Purchasing power parity means that

Purchasing power parity does not hold in the short to medium run because

Under a system of fixed exchange rates,what happens if a country's currency is undervalued?

When the domestic currency strengthens under a fixed-exchange-rate system,this is called

Suppose the dollar/euro exchange rate falls.Then

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

A temporary decrease in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment)in the economy.

A shift in demand toward the home country's goods would the domestic real interest rate and net desired saving (desired saving less desired investment)in the economy.

In an open economy,a decrease in net exports because of reduced demand for domestic products by foreigners should cause the domestic real interest rate to and should cause desired saving minus desired investment to .

Suppose Japan is currently running a current account surplus.The most effective way of eliminating this current account surplus would be to temporarily government purchases and the domestic money supply.

In the Keynesian model of an open economy,a temporary decrease in government purchases would the domestic real interest rate and net desired saving (desired saving less desired investment)in the economy.