Question 1

The real exchange rate is:

Accepted Answer

A) how much of a foreign currency you can buy with the domestic currency. 
B) foreign CPI divided by the domestic CPI. 
C) the price of foreign goods in terms of domestic goods. 
D) the price of foreign goods in dollars. 
E) the domestic currency divided by the price level.

Question 2

One implication of an empirical investigation of the Marshall-Lerner condition is that,in the ________,a real ________ in a nation's currency is likely to ________ the country's current account balance.

Accepted Answer

A) long run;depreciation;improve 
B) short run;depreciation;improve 
C) long run;appreciation;improve 
D) short run;appreciation;improve 
E) short run but not the long run;appreciation;improve

Question 3

Explain how an increase in government spending would affect the DD-AA schedule in the short run.

Accepted Answer

The answer of Explain how an increase in government spending...

Question 4

In the short run,any rise in the real exchange rate,EP  /P,will cause

Accepted Answer

A) an upward shift in the aggregate demand function and a reduction in output. 
B) an upward shift in the aggregate demand function and an expansion of 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 5

In the short run

Accepted Answer

A) monetary expansion causes the CA to increase and fiscal expansion causes the CA to decrease. 
B) monetary expansion causes the CA to decrease and fiscal expansion causes the CA to decrease. 
C) monetary expansion causes the CA to increase and fiscal expansion causes the CA to increase. 
D) monetary expansion causes the CA to decrease and fiscal expansion causes the CA to increase. 
E) monetary expansion causes the CA to increase and the effects of fiscal expansion are ambiguous.

Question 6

Using a figure show that under full employment,a temporary fiscal expansion would increase output (over-employment)but cannot increase output in the long run.

Accepted Answer

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Question 7

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 are 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 8

The Marshall-Lerner condition holds that a country's current account balance will ________ in response to a real ________ in a nation's currency if the________.

Accepted Answer

A) improve;depreciation;sum of the price elasticities of export and import demand exceeds 1 
B) worsen;depreciation;sum of the price elasticities of export and import demand exceeds 1 
C) improve;appreciation;sum of the price elasticities of export and import demand exceeds 1 
D) improve;appreciation;sum of the price elasticities of export and import demand exceeds 0 
E) worsen;depreciation;sum of the price elasticities of export and import demand exceeds 0

Question 9

The Marshall-Lerner Condition states that,all else equal

Accepted Answer

A) nominal appreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
B) real depreciation improves the current account if export and import volumes are sufficiently inelastic with respect to the real exchange rate. 
C) real appreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
D) real depreciation improves the current account if export and import volumes are sufficiently elastic with respect to the real exchange rate. 
E) the sum of import and export elasticities must be equal to one in order for depreciation to occur.

Question 10

Which one of the following statements is MOST accurate?

Accepted Answer

A) In general,consumption demand rises by less than disposable income. 
B) In general,consumption demand rises by more than disposable income. 
C) In general,consumption demand rises by more than income. 
D) In general,consumption demand rises by the same amount as disposable income rises. 
E) In general,consumption demand rises are unrelated to disposable income rises.

Question 11

Assume the asset market is always in equilibrium.Therefore a fall in Y would result in

Accepted Answer

A) higher inflation abroad. 
B) a decreased demand for domestic products. 
C) a contraction of the money supply. 
D) a depreciation of the home currency. 
E) an appreciation of the home currency.

Question 12

Fill in the following table.

Accepted Answer

The answer of Fill in the following table. ...

Question 13

If consumers experience an increase in lifetime income,current spending will ________,current saving will ________,and future spending will ________.

Accepted Answer

A) increase;increase;increase 
B) increase;decrease;decrease 
C) increase;decrease;increase 
D) increase;increase;decrease 
E) decrease;increase;increase

Question 14

Which of the following have to be in equilibrium for the economy to be in equilibrium?

Accepted Answer

A) the money market only 
B) the goods market only 
C) the output and asset markets 
D) the savings and investment markets 
E) the goods and output markets

Question 15

The current account balance is

Accepted Answer

A) the supply of a country's exports less the country's own demand for imports. 
B) the demand for a country's exports plus the country's own demand for imports. 
C) the country's own demand for imports less the demand for a country's exports. 
D) the demand for a country's exports less the country's own demand for imports. 
E) the country's federal reserves minus the national debt.

Question 16

What is an accurate implication resulting from an increase in income?

Accepted Answer

A) an increase in exchange rate 
B) a decrease in exchange rate 
C) a decrease in consumption 
D) a decrease in output 
E) an increase in consumption

Question 17

A country's domestic currency's real exchange rate,q,is defined as

Accepted Answer

A) 
E)  
B) E times P. 
C) E times P  . 
D) (E times P  )/P. 
E) P/(E times P  ).

Question 18

Which of the following equations does NOT state a condition required for equilibrium output:?

Accepted Answer

A) Y = C(Yd)+ I + G + CA(EP*/P,Yd) 
B) Y = C(Y - T)+ I + G + CA(EP*/P,Y - T) 
C) Y = D(EP*/P,Y - T,I,G) 
D) R = R* + (EP/
E)  
E) Y = D(EP*/P,Yd,I,G)

Question 19

Explain the following figure:

Accepted Answer

The answer of Explain the following figure: ...

Question 20

Give 4 examples of situations that would cause the DD-curve to shift to the left.

Accepted Answer

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