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

If the spot rate for euros depreciates, and all other variables and expected values remain constant, U.S. investors contemplating European investments would:

International variables are linked through trade and financial flows. Therefore, what trilemma is faced by a nation that wishes to keep its exchange rates with other nations fixed?

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

Whenever there is excess demand for real balances, short-run adjustment occurs because:

Nominal rigidity is another term for:

Suppose a country has decided to peg to the euro. Explain what will need to happen if the European Central Bank engages in a temporary increase in money supply.

Explain the intuition for the fact that short-run nominal interest rates fall in response to an increase in the money supply.

On the outlined graphs that follow, label each axis and each linear relationship. If the money supply in the United States is temporarily increased from M1 to M2, and prices are sticky, trace the effects of the change and predict the effect on the dollar, assuming other variables remain constant.

When currencies are viewed as assets, the price of a currency is its:

Normally, whenever the central bank lowers the rate it charges banks for overnight loans, market rates of interest:

Briefly describe the three elements of a complete theory of exchange rate determination. List the variables in each element, and explain whether the theory addresses short-run exchange rate changes or long-run exchange rates.

Which of the following describes the role of the government in a fixed exchange rate regime?

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

Explain the fact that short-run nominal interest rates rise in response to an increase in the real income.

Assume sticky prices and given expectations of future exchange rates, what is the immediate effect on the exchange rate of the U.S. dollar if there is a temporary increase in the quantity of U.S. dollars?

When a country's central bank temporarily switches from an expansionary to a more conservative monetary policy, one would expect the exchange rate to:

A perceived permanent rise in the rate of money growth will cause what long-run effects in the economy?

Suppose Japan wishes to maintain its exchange rate with the U.S. dollar at ¥100 = $1. It would also like to attract foreign investors to provide funds to build its aircraft sector, and it would like to keep inflation low. Is it capable of doing that?

Assuming short-run sticky prices, the same monetary policy result may be achieved by targeting the money supply or the nominal rate of interest whenever: