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

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

The U.S.real interest rate rises relative to the British real interest rate.British net exports ________ and the British exchange rate ________.

When the domestic currency buys fewer units of foreign currency,the

The Federal Reserve has just purchased bonds in the market,carrying out open market operations.In the short run in the Keynesian model,this would cause the foreign real interest rate to ________ and foreign output to ________.

Describe how the euro was created.What are the benefits of the monetary union? What are the costs?

An exchange-rate system in which the nominal exchange rate is set by the government is known as

According to the classical model,an increase in the American nominal money supply would cause the nominal exchange rate to ________ and the real exchange rate to ________.

When the nominal exchange rate falls,

If all countries produce the same good (or the same set of goods)and goods are freely traded among countries,so that the real exchange rate equals one,then the relationship between domestic and foreign prices and the nominal exchange rate is

The price of one currency in terms of another is called

Suppose purchasing power parity holds.If in 1997 the price level in the United States is 100,the price level in Japan is 10,000,and the nominal exchange rate is 100 yen per dollar,while in 1998 the price level in Japan rises to 10,500 and the nominal exchange rate rises to 105,then the price level in the United States in 1998 must be

From 1980 to 2000,the yen/dollar exchange rate fell from 240 yen/dollar to 102 yen/dollar,while the dollar/pound exchange rate fell from 2.22 dollars/pound to 1.62 dollars/pound.As a result,

If a country has an overvaluation problem,the best solution is to

When a group of countries agree to share a common currency,they are said to have formed a

Relative purchasing power parity occurs when

(a)What happens to the fundamental value of a country's exchange rate when it raises its money supply in a fixed-exchange-rate system? Does this make the currency overvalued or undervalued if originally the official rate equaled the fundamental value? (b)What happens to the fundamental value of a country's exchange rate when the foreign country raises its money supply? Does this make the currency overvalued or undervalued if originally the official rate equaled the fundamental value? (c)So,if a country wants to maintain its official rate equal to its fundamental value,what must it do when the foreign country raises its money supply? What happens to inflation?

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

In a Keynesian model,a temporary increase in government purchases would cause output to ________ and the domestic real interest rate to ________,in the short run.

The Japanese real interest rate declines relative to the German real interest rate.German net exports ________ and the German exchange rate ________.

Suppose the Swiss franc rises against the British pound but falls against the Japanese yen.What happens to the prices of goods imported into Switzerland?