Question 1

If there is a permanent increase in the domestic money supply, then in the short run, which of the following will be true?

Accepted Answer

A)  The prices will adjust lower. 
B)  Domestic interest rates will increase. 
C)  Real money supply will increase. 
D)  Domestic money demand will permanently increase. 
A)  The prices will adjust lower. 
B)  Domestic interest rates will increase. 
C)  Real money supply will increase. 
D)  Domestic money demand will permanently increase.

Question 2

Why would making a permanent change in a monetary aggregate have an effect on exchange rates in a nation?

Accepted Answer

A)  Permanent rates are mostly set by short-run fluctuations in the rate of interest caused by monetary instability. 
B)  A permanent change is never quite as permanent as policy makers claim-people form expectations on past performance rather than declarations. 
C)  The central bank is always aware of the effect on exchange rates as it formulates policy, so it is very careful to make small permanent changes that have no effect on exchange rates. 
D)  Traders form expectations of future exchange rates based on the anticipated long-run effects of monetary operations. 
A)  Permanent rates are mostly set by short-run fluctuations in the rate of interest caused by monetary instability. 
B)  A permanent change is never quite as permanent as policy makers claim-people form expectations on past performance rather than declarations. 
C)  The central bank is always aware of the effect on exchange rates as it formulates policy, so it is very careful to make small permanent changes that have no effect on exchange rates. 
D)  Traders form expectations of future exchange rates based on the anticipated long-run effects of monetary operations.

Question 3

If you observe that the dollar is appreciating because of a permanent change in the U.S. monetary supply, then the money supply must have:

Accepted Answer

A)  fallen. 
B)  stayed the same. 
C)  risen. 
D)  Not enough information is provided to answer the question. 
A)  fallen. 
B)  stayed the same. 
C)  risen. 
D)  Not enough information is provided to answer the question.

Question 4

To move quickly to turn around the crisis during 2007-08, the U.S. Federal Reserve relied on:

Accepted Answer

A)  lowering taxes. 
B)  removing restrictions on collateral, adding more categories of securities purchased by the Federal Reserve, and expanding its operations with nonbank dealers. 
C)  tightening up credit rules and keeping banks out of trouble. 
D)  admonishing the administration for its excessive debt situation. 
A)  lowering taxes. 
B)  removing restrictions on collateral, adding more categories of securities purchased by the Federal Reserve, and expanding its operations with nonbank dealers. 
C)  tightening up credit rules and keeping banks out of trouble. 
D)  admonishing the administration for its excessive debt situation.

Question 5

In 2003, which of the following currencies was used in Iraq?

Accepted Answer

A)  Swiss dinar 
B)  Saddam (or print) dinar 
C)  American dinar 
D)  Swiss dinar and Saddam (or print) dinar 
A)  Swiss dinar 
B)  Saddam (or print) dinar 
C)  American dinar 
D)  Swiss dinar and Saddam (or print) dinar

Question 6

When analyzing the complete model, which can predict short-run and long-run changes in the exchange rate, one must:

Accepted Answer

A)  start with short-run changes and move toward long-run changes, and thereby determine expectations. 
B)  use only the long-run model because the short-run model is largely irrelevant. 
C)  start with the long-run equilibrium positions where expectations of future exchange rates can be determined and use those expectations to feed into the short-run model. 
D)  use the short-run model only, because the long run is only a theoretical concept. 
A)  start with short-run changes and move toward long-run changes, and thereby determine expectations. 
B)  use only the long-run model because the short-run model is largely irrelevant. 
C)  start with the long-run equilibrium positions where expectations of future exchange rates can be determined and use those expectations to feed into the short-run model. 
D)  use the short-run model only, because the long run is only a theoretical concept.

Question 7

Which of the following is true in the short run?

Accepted Answer

A)  Short-term interest rates are fixed. 
B)  Prices are flexible. 
C)  Long-run expectations of the exchange rate are unchanged. 
D)  Monetary shocks are deemed permanent. 
A)  Short-term interest rates are fixed. 
B)  Prices are flexible. 
C)  Long-run expectations of the exchange rate are unchanged. 
D)  Monetary shocks are deemed permanent.

Question 8

What assumptions are made to create a model to determine short-run changes in exchange rates using the asset approach?

Accepted Answer

A)  Prices are completely flexible. 
B)  In the long run, money is neutral. 
C)  Prices are sticky, yet nominal interest rates are flexible. 
D)  Prices and nominal interest rates are sticky. 
A)  Prices are completely flexible. 
B)  In the long run, money is neutral. 
C)  Prices are sticky, yet nominal interest rates are flexible. 
D)  Prices and nominal interest rates are sticky.

Question 9

Describe the effect of a permanent increase in the quantity of money on exchange rates in both the long and short run.

Accepted Answer

In the short run, a permanent increase i

Question 10

Overshooting occurs because:

Accepted Answer

A)  expectations adjust slower than prices. 
B)  expectations adjust at the same rate as prices. 
C)  expectations adjust faster than prices. 
D)  expectations do not adjust. 
A)  expectations adjust slower than prices. 
B)  expectations adjust at the same rate as prices. 
C)  expectations adjust faster than prices. 
D)  expectations do not adjust.

Question 11

If UIP holds and if the home currency is expected to depreciate, then:

Accepted Answer

A)  the home interest rate must be greater than the foreign interest rate. 
B)  interest rates cannot be changing. 
C)  the home interest rate must be less than the foreign interest rate. 
D)  Not enough information is provided to answer the question. 
A)  the home interest rate must be greater than the foreign interest rate. 
B)  interest rates cannot be changing. 
C)  the home interest rate must be less than the foreign interest rate. 
D)  Not enough information is provided to answer the question.

Question 12

Which of the following explains why a monetary policy in a nation with an exchange rate peg, such as Denmark, would NOT be possible?

Accepted Answer

A)  The nation must keep its import tariffs in sync with the import tariffs of the nation to which it pegs. 
B)  The nation must keep its price level and nominal interest rate equal to the price level and nominal interest rate in the nation to which it pegs. 
C)  The nation must keep its taxes and budget deficit in sync with taxes and budget deficit in the nation to which it pegs. 
D)  The nation is no longer able to print its own money, since it is using the currency of the nation to which it pegs. 
A)  The nation must keep its import tariffs in sync with the import tariffs of the nation to which it pegs. 
B)  The nation must keep its price level and nominal interest rate equal to the price level and nominal interest rate in the nation to which it pegs. 
C)  The nation must keep its taxes and budget deficit in sync with taxes and budget deficit in the nation to which it pegs. 
D)  The nation is no longer able to print its own money, since it is using the currency of the nation to which it pegs.

Question 13

A short-run depreciation of the British pound would be consistent with:

Accepted Answer

A)  a temporary fall in the British money supply. 
B)  a temporary fall in the European money supply. 
C)  a temporary rise in the European money supply. 
D)  either a temporary fall in the British money supply or a temporary rise in the European money supply. 
A)  a temporary fall in the British money supply. 
B)  a temporary fall in the European money supply. 
C)  a temporary rise in the European money supply. 
D)  either a temporary fall in the British money supply or a temporary rise in the European money supply.

Question 14

A rise in real income will have which of the following effects on money demand?

Accepted Answer

A)  The money demand curve will shift out. 
B)  The money demand curve will not shift at all. 
C)  The money demand curve will shift in. 
D)  Real income has no effect on money demand. 
A)  The money demand curve will shift out. 
B)  The money demand curve will not shift at all. 
C)  The money demand curve will shift in. 
D)  Real income has no effect on money demand.

Question 15

When the exchange rate appreciates in the short run and then depreciates slightly in the long run, it implies that the domestic money supply has:

Accepted Answer

A)  temporarily risen. 
B)  permanently risen. 
C)  temporarily fallen. 
D)  permanently fallen. 
A)  temporarily risen. 
B)  permanently risen. 
C)  temporarily fallen. 
D)  permanently fallen.

Question 16

The dollar-pound exchange rate has increased (the dollar has depreciated). What could have happened? Choose one possible determinant and how it caused this phenomenon.

Accepted Answer

One possible determinant for the increas

Question 17

In the short run, the nominal interest rate is affected by changes in the money supply perceived to be temporary, but once ____ adjust(s), the nominal interest rate ____ in the long run.

Accepted Answer

A)  the supply of money; rises 
B)  the price level; will revert to its former level 
C)  expectations of interest rates; falls 
D)  real GDP; does not change 
A)  the supply of money; rises 
B)  the price level; will revert to its former level 
C)  expectations of interest rates; falls 
D)  real GDP; does not change

Question 18

When the exchange rate depreciates in the short run and then depreciates slightly in the long run, it implies that the domestic money supply has:

Accepted Answer

A)  temporarily risen. 
B)  permanently risen. 
C)  temporarily fallen. 
D)  permanently fallen. 
A)  temporarily risen. 
B)  permanently risen. 
C)  temporarily fallen. 
D)  permanently fallen.

Question 19

After the United States dropped an atomic bomb on Japan, what do you expect happened to the yen?

Accepted Answer

A)  The yen appreciated. 
B)  The yen was unaffected. 
C)  The yen depreciated. 
D)  There is no way to predict the effect on the yen. 
A)  The yen appreciated. 
B)  The yen was unaffected. 
C)  The yen depreciated. 
D)  There is no way to predict the effect on the yen.

Question 20

If there is a temporary increase in the money supply in the Eurozone, ceteris paribus, what is the result for the United States?

Accepted Answer

A)  The money supply in the United States must decrease by the same proportion. 
B)  The U.S. dollar nominal interest rate will increase, as the euro rate is unchanged. 
C)  Long-run expectations shift to expect a stronger euro. 
D)  The dollar appreciates against the euro. 
A)  The money supply in the United States must decrease by the same proportion. 
B)  The U.S. dollar nominal interest rate will increase, as the euro rate is unchanged. 
C)  Long-run expectations shift to expect a stronger euro. 
D)  The dollar appreciates against the euro.

Exam 15: Exchange Rates II: the Asset Approach in the Short Run

If there is a permanent increase in the domestic money supply, then in the short run, which of the following will be true?

Why would making a permanent change in a monetary aggregate have an effect on exchange rates in a nation?

If you observe that the dollar is appreciating because of a permanent change in the U.S. monetary supply, then the money supply must have:

To move quickly to turn around the crisis during 2007-08, the U.S. Federal Reserve relied on:

In 2003, which of the following currencies was used in Iraq?

When analyzing the complete model, which can predict short-run and long-run changes in the exchange rate, one must:

Which of the following is true in the short run?

What assumptions are made to create a model to determine short-run changes in exchange rates using the asset approach?

Describe the effect of a permanent increase in the quantity of money on exchange rates in both the long and short run.

Overshooting occurs because:

If UIP holds and if the home currency is expected to depreciate, then:

Which of the following explains why a monetary policy in a nation with an exchange rate peg, such as Denmark, would NOT be possible?

A short-run depreciation of the British pound would be consistent with:

A rise in real income will have which of the following effects on money demand?

When the exchange rate appreciates in the short run and then depreciates slightly in the long run, it implies that the domestic money supply has:

The dollar-pound exchange rate has increased (the dollar has depreciated). What could have happened? Choose one possible determinant and how it caused this phenomenon.

In the short run, the nominal interest rate is affected by changes in the money supply perceived to be temporary, but once ____ adjust(s), the nominal interest rate ____ in the long run.

When the exchange rate depreciates in the short run and then depreciates slightly in the long run, it implies that the domestic money supply has:

After the United States dropped an atomic bomb on Japan, what do you expect happened to the yen?

If there is a temporary increase in the money supply in the Eurozone, ceteris paribus, what is the result for the United States?

Trade in the Global Economy

Trade and Technology: The Ricardian Model

Gains and Losses From Trade in the Specific-Factors Model

Trade and Resources: the Heckscher-Ohlin Model

Movement of Labor and Capital Between Countries

Increasing Returns to Scale and Monopolistic Competition

Offshoring of Goods and Services

Import Tariffs and Quotas Under Perfect Competition

Import Tariffs and Quotas Under Imperfect Competition

Export Subsidies in Agriculture and High-Technology Industries

International Agreements: Trade, Labor, and the Environment

The Global Macroeconomy

Introduction to Exchange Rates and the Foreign Exchange Market

Exchange Rates I: the Monetary Approach in the Long Run

National and International Accounts: Income, Wealth, and the Balance of Payments

Balance of Payments I: the Gains From Financial Globalization

Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies in the Short Run

Fixed Versus Floating: International Monetary Experience

Exchange Rate Crises: How Pegs Work and How They Break

The Euro

Topics in International Macroeconomics

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In the short run, the nominal interest rate is affected by changes in the money supply perceived to be temporary, but once adjust(s), the nominal interest rate in the long run.