Question 1

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 2

What is the real exchange rate? What is its relationship to the current account?

Accepted Answer

Defined as: EP @#IMG-DLM& /P (the exchange rate mu

Question 3

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 4

In the short-run, a tax increase

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 DD curve to the left, decreases 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 DD curve to the left, decreases output and depreciates the currency.

Question 5

What would be the best description of what we assume about money prices in the short run?

Accepted Answer

A)  Money prices of goods and services vary. 
B)  Money prices of goods and services not related to each other. 
C)  Money prices of goods are fixed. 
D)  Money prices of services are fixed. 
E)  Money prices of goods and services are only temporarily fixed. 
A)  Money prices of goods and services vary. 
B)  Money prices of goods and services not related to each other. 
C)  Money prices of goods are fixed. 
D)  Money prices of services are fixed. 
E)  Money prices of goods and services are only temporarily fixed.

Question 6

Which of the following does NOT affect the position of the DD curve?

Accepted Answer

A)  monetary policy 
B)  government spending 
C)  taxes 
D)  export demand 
E)  price levels 
A)  monetary policy 
B)  government spending 
C)  taxes 
D)  export demand 
E)  price levels

Question 7

Use a figure to study the following question: Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD, where both the output and asset markets are out of equilibrium. Explain what will happen next.

Accepted Answer

Since the asset market adjusts very quic

Question 8

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

Accepted Answer

Inflation bias is caused when a governme

Question 9

Discuss the main factors affecting the position of the DD schedule.

Accepted Answer

The level of government demand

Question 10

Which of the following compete to determine whether the current account improves or worsens following a rise in the real exchange rate?

Accepted Answer

A)  appreciation and depreciation 
B)  crowding Out effect and producers effect 
C)  volume effect and value effect 
D)  volume effect and inflation 
E)  producers effect and value effect 
A)  appreciation and depreciation 
B)  crowding Out effect and producers effect 
C)  volume effect and value effect 
D)  volume effect and inflation 
E)  producers effect and value effect

Question 11

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 12

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 13

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 14

Explain the difference between the following two expressions:
Y = C(Yd) + I + G + CA(EP   /P, Yd) and
Y = C + I +G + CA

Accepted Answer

The first one represents a behavioral eq

Question 15

In the short run, with prices fixed, how would an increase in government spending affect the DD-AA equilibrium?

Accepted Answer

A)  It will increase output and appreciate the currency. 
B)  It will increase output and depreciate the currency. 
C)  It will decrease output and appreciate the currency. 
D)  It will decrease output and depreciate the currency. 
E)  It will increase output and have no effect on the currency. 
A)  It will increase output and appreciate the currency. 
B)  It will increase output and depreciate the currency. 
C)  It will decrease output and appreciate the currency. 
D)  It will decrease output and depreciate the currency. 
E)  It will increase output and have no effect on the currency.

Question 16

Explain and give some examples of governmental policy problems.

Accepted Answer

Steady nominal prices give government th

Question 17

Explain what are the factors that shift the DD Schedule.

Accepted Answer

A change in government demand, change in

Question 18

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  A rise in domestic real income raises aggregate demand for home output. 
B)  A rise in domestic real income decreases aggregate demand for home output because of the increase demand for import. 
C)  A rise in domestic real income keeps aggregate demand for home output at the same level. 
D)  It is difficult to tell whether a rise in domestic real income affects positively or negatively aggregate demand for home output. 
E)  A rise in domestic real income decreases aggregate demand for home output because the CA is raised. 
A)  A rise in domestic real income raises aggregate demand for home output. 
B)  A rise in domestic real income decreases aggregate demand for home output because of the increase demand for import. 
C)  A rise in domestic real income keeps aggregate demand for home output at the same level. 
D)  It is difficult to tell whether a rise in domestic real income affects positively or negatively aggregate demand for home output. 
E)  A rise in domestic real income decreases aggregate demand for home output because the CA is raised.

Question 19

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

Accepted Answer

A)  shifts the AA curve to the right, increases output and depreciates 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 appreciates the currency. 
A)  shifts the AA curve to the right, increases output and depreciates 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 appreciates the currency.

Question 20

Which of the following is the MOST accurate?

Accepted Answer

A)  Any disturbance that lowers aggregate demand for domestic output shifts the DD schedule to the right. 
B)  Any disturbance that lowers aggregate demand for foreign output shifts the DD schedule to the left. 
C)  Any disturbance that raises aggregate demand for domestic output shifts the DD schedule to the right. 
D)  Any disturbance that raises aggregate demand for domestic output shifts the DD schedule to the left. 
E)  Any disturbance that lowers aggregate demand for domestic output shifts the DD schedule downward. 
A)  Any disturbance that lowers aggregate demand for domestic output shifts the DD schedule to the right. 
B)  Any disturbance that lowers aggregate demand for foreign output shifts the DD schedule to the left. 
C)  Any disturbance that raises aggregate demand for domestic output shifts the DD schedule to the right. 
D)  Any disturbance that raises aggregate demand for domestic output shifts the DD schedule to the left. 
E)  Any disturbance that lowers aggregate demand for domestic output shifts the DD schedule downward.

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

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

What is the real exchange rate? What is its relationship to the current account?

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

In the short-run, a tax increase

What would be the best description of what we assume about money prices in the short run?

Which of the following does NOT affect the position of the DD curve?

Use a figure to study the following question: Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD, where both the output and asset markets are out of equilibrium. Explain what will happen next.

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

Discuss the main factors affecting the position of the DD schedule.

Which of the following compete to determine whether the current account improves or worsens following a rise in the real exchange rate?

Disposable income is defined as

Which one of the following statements is the MOST accurate?

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

Explain the difference between the following two expressions: Y = C(Yd) + I + G + CA(EP /P, Yd) and Y = C + I +G + CA

In the short run, with prices fixed, how would an increase in government spending affect the DD-AA equilibrium?

Explain and give some examples of governmental policy problems.

Explain what are the factors that shift the DD Schedule.

Which one of the following statements is the MOST accurate?

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

Which of the following is the MOST accurate?

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

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

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