Question 1

When the British pound rises in value relative to other currencies,then

Accepted Answer

A) goods imported into Britain rise in price. 
B) British exports rise in price. 
C) neither British exports nor imports rise in price. 
D) both British exports and imports rise in price. 
A) goods imported into Britain rise in price. 
B) British exports rise in price. 
C) neither British exports nor imports rise in price. 
D) both British exports and imports rise in price.

Question 2

The price of one currency in terms of another is called

Accepted Answer

A) the exchange rate. 
B) purchasing power parity. 
C) the terms of trade. 
D) a currency band. 
A) the exchange rate. 
B) purchasing power parity. 
C) the terms of trade. 
D) a currency band.

Question 3

Purchasing power parity means that

Accepted Answer

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

Question 4

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

Accepted Answer

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

Question 5

When the euro falls in value relative to other currencies,then

Accepted Answer

A) goods imported into Europe rise in price. 
B) European exports rise in price. 
C) neither European exports nor imports rise in price. 
D) both European exports and imports rise in price. 
A) goods imported into Europe rise in price. 
B) European exports rise in price. 
C) neither European exports nor imports rise in price. 
D) both European exports and imports rise in price.

Question 6

Describe the effects of a rise in the domestic real interest rate on the exchange rate and on both domestic and foreign net exports.

Accepted Answer

The rise in the domestic real interest r

Question 7

A decrease in foreign output would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

Accepted Answer

A) rise; shift up 
B) rise; shift down 
C) fall; shift up 
D) fall; shift down 
A) rise; shift up 
B) rise; shift down 
C) fall; shift up 
D) fall; shift down

Question 8

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.

Accepted Answer

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

Question 9

An increase in foreign output would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

Accepted Answer

A) rise; shift up 
B) rise; shift down 
C) fall; shift up 
D) fall; shift down 
A) rise; shift up 
B) rise; shift down 
C) fall; shift up 
D) fall; shift down

Question 10

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 11

If the real exchange rate rises 2%,domestic inflation is 3%,and foreign inflation is 1%,what is the percent change in the nominal exchange rate?

Accepted Answer

A) 6% 
B) 4% 
C) 2% 
D) 0% 
A) 6% 
B) 4% 
C) 2% 
D) 0%

Question 12

(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?

Accepted Answer

(a)Fundamental value falls below the off

Question 13

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 14

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 15

The J curve implies that a real depreciation will cause

Accepted Answer

A) the nominal exchange rate to appreciate in the short run and depreciate in the long run. 
B) the nominal exchange rate to depreciate in the short run and appreciate in the long run. 
C) net exports to fall in the short run and rise in the long run. 
D) net exports to rise in the short run and fall in the long run. 
A) the nominal exchange rate to appreciate in the short run and depreciate in the long run. 
B) the nominal exchange rate to depreciate in the short run and appreciate in the long run. 
C) net exports to fall in the short run and rise in the long run. 
D) net exports to rise in the short run and fall in the long run.

Question 16

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

Accepted Answer

A) allow exchange rates to float. 
B) allow every country to have an independent monetary policy. 
C) reduce the costs of trading goods and assets. 
D) restrict what countries can do with fiscal policy. 
A) allow exchange rates to float. 
B) allow every country to have an independent monetary policy. 
C) reduce the costs of trading goods and assets. 
D) restrict what countries can do with fiscal policy.

When the British pound rises in value relative to other currencies,then

The price of one currency in terms of another is called

Purchasing power parity means that

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

When the euro falls in value relative to other currencies,then

Describe the effects of a rise in the domestic real interest rate on the exchange rate and on both domestic and foreign net exports.

A decrease in foreign output would cause the domestic country's net exports to and cause the domestic country's IS curve to .

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.

An increase in foreign output would cause the domestic country's net exports to and cause the domestic country's IS curve to .

A depreciation of the dollar causes

If the real exchange rate rises 2%,domestic inflation is 3%,and foreign inflation is 1%,what is the percent change in the nominal exchange rate?

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

The J curve implies that a real depreciation will cause

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

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-LM/AD-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 British pound rises in value relative to other currencies,then

The price of one currency in terms of another is called

Purchasing power parity means that

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

When the euro falls in value relative to other currencies,then

Describe the effects of a rise in the domestic real interest rate on the exchange rate and on both domestic and foreign net exports.

A decrease in foreign output would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

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.

An increase in foreign output would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

A depreciation of the dollar causes

If the real exchange rate rises 2%,domestic inflation is 3%,and foreign inflation is 1%,what is the percent change in the nominal exchange rate?

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

The J curve implies that a real depreciation will cause

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

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-LM/AD-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

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

A decrease in foreign output would cause the domestic country's net exports to and cause the domestic country's IS curve to .

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.

An increase in foreign output would cause the domestic country's net exports to and cause the domestic country's IS curve to .