Question 1

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%

Question 2

Under a flexible exchange-rate system,an increase in the demand for Japanese yen would cause the U.S.dollar-Japanese yen exchange rate to

Accepted Answer

A) fall. 
B) rise. 
C) remain unchanged, because supply also increases. 
D) remain unchanged, because the exchange rate is set by the central bank.

Question 3

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.

Question 4

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- and long-run effects in both countries.

Accepted Answer

The answer of Describe the effects of contractionary monetary policy...

Question 5

If a country has an overvaluation problem,the best solution is to

Accepted Answer

A) increase the official rate. 
B) buy less of its currency in the foreign exchange market. 
C) sell more of its currency in the foreign exchange market. 
D) decrease the money supply.

Question 6

A decline in the domestic real interest rate would cause a ________ in net exports and a ________ in the exchange rate.

Accepted Answer

A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall

Question 7

A shift in demand toward the home country's goods would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Accepted Answer

A) lower; increase 
B) lower; decrease 
C) raise; increase 
D) raise; decrease

Question 8

In a flexible exchange-rate system,the value of a currency is determined by

Accepted Answer

A) the government. 
B) the intersection of the IS and LM curves. 
C) the demand and supply for the currency in the foreign exchange market. 
D) Swiss gnomes.

Question 9

If the nominal exchange rate rises 5%,domestic inflation is 2%,and foreign inflation is 3%,what is the percent change in the real exchange rate?

Accepted Answer

A) 8% 
B) 6% 
C) 4% 
D) 2%

Question 10

In an open economy,an increase in savings because of concerns about the future should cause the domestic real interest rate to ________ and should cause net exports to ________.

Accepted Answer

A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall

Question 11

Identify changes in two variables that would shift the supply curve of dollars to the right.Identify changes in two variables that would shift the demand curve for dollars to the right.

Accepted Answer

The answer of Identify changes in two variables that would...

Question 12

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.

Question 13

When the domestic currency buys fewer units of foreign currency,the

Accepted Answer

A) nominal exchange rate rises. 
B) nominal exchange rate falls. 
C) real exchange rate rises. 
D) real exchange rate falls.

Question 14

Purchasing power parity does not hold in the short to medium run because

Accepted Answer

A) exports don't equal imports. 
B) exchange rates fluctuate too much. 
C) most business cycles are caused by shocks to aggregate demand. 
D) countries produce different goods.

Question 15

When a group of countries agree to share a common currency,they are said to have formed a

Accepted Answer

A) currency union. 
B) welfare state. 
C) monetary alliance. 
D) monetary cartel.

Question 16

In an open economy,a decrease in net exports because of reduced demand for domestic products by foreigners should cause the domestic real interest rate to ________ and should cause desired saving minus desired investment to ________.

Accepted Answer

A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall

Question 17

Criteria for an optimum currency area include all the following except

Accepted Answer

A) fiscal transfers. 
B) similar business cycle patterns. 
C) extensive trade with each other. 
D) a common language.

Question 18

According to the J curve,the rapid depreciation in the dollar from 1985 to 1987 caused net exports to

Accepted Answer

A) rise in the short run and fall in the long run. 
B) rise in the short run and rise further in the long run. 
C) fall in the short run and rise in the long run. 
D) fall in the short run and fall further in the long run.

Question 19

Suppose the Swiss franc rises against the British pound but falls against the Japanese yen.What happens to the prices of goods imported into Switzerland?

Accepted Answer

A) Both British and Japanese goods fall in price. 
B) Both British and Japanese goods rise in price. 
C) British goods rise in price while Japanese goods fall in price. 
D) British goods fall in price while Japanese goods rise in price.

Question 20

For a given real exchange rate,a nominal appreciation of the domestic currency will result from

Accepted Answer

A) a decline in the terms of trade. 
B) an increase in the price of the foreign good. 
C) an increase in the price of the domestic good. 
D) an increase in the domestic rate of inflation.

Exam 13: Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

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 flexible exchange-rate system,an increase in the demand for Japanese yen would cause the U.S.dollar-Japanese yen exchange rate to

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

If a country has an overvaluation problem,the best solution is to

A decline in the domestic real interest rate would cause a in net exports and a in the exchange rate.

A shift in demand toward the home country's goods would the domestic real interest rate and net desired saving (desired saving less desired investment) in the economy.

In a flexible exchange-rate system,the value of a currency is determined by

If the nominal exchange rate rises 5%,domestic inflation is 2%,and foreign inflation is 3%,what is the percent change in the real exchange rate?

In an open economy,an increase in savings because of concerns about the future should cause the domestic real interest rate to and should cause net exports to .

Identify changes in two variables that would shift the supply curve of dollars to the right.Identify changes in two variables that would shift the demand curve for dollars to the right.

The price of one currency in terms of another is called

When the domestic currency buys fewer units of foreign currency,the

Purchasing power parity does not hold in the short to medium run because

When a group of countries agree to share a common currency,they are said to have formed a

In an open economy,a decrease in net exports because of reduced demand for domestic products by foreigners should cause the domestic real interest rate to and should cause desired saving minus desired investment to .

Criteria for an optimum currency area include all the following except

According to the J curve,the rapid depreciation in the dollar from 1985 to 1987 caused net exports to

Suppose the Swiss franc rises against the British pound but falls against the Japanese yen.What happens to the prices of goods imported into Switzerland?

For a given real exchange rate,a nominal appreciation of the domestic currency will result from

Exam 13: Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

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 flexible exchange-rate system,an increase in the demand for Japanese yen would cause the U.S.dollar-Japanese yen exchange rate to

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

If a country has an overvaluation problem,the best solution is to

A decline in the domestic real interest rate would cause a ________ in net exports and a ________ in the exchange rate.

A shift in demand toward the home country's goods would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment) in the economy.

In a flexible exchange-rate system,the value of a currency is determined by

If the nominal exchange rate rises 5%,domestic inflation is 2%,and foreign inflation is 3%,what is the percent change in the real exchange rate?

In an open economy,an increase in savings because of concerns about the future should cause the domestic real interest rate to ________ and should cause net exports to ________.

Identify changes in two variables that would shift the supply curve of dollars to the right.Identify changes in two variables that would shift the demand curve for dollars to the right.

The price of one currency in terms of another is called

When the domestic currency buys fewer units of foreign currency,the

Purchasing power parity does not hold in the short to medium run because

When a group of countries agree to share a common currency,they are said to have formed a

In an open economy,a decrease in net exports because of reduced demand for domestic products by foreigners should cause the domestic real interest rate to ________ and should cause desired saving minus desired investment to ________.

Criteria for an optimum currency area include all the following except

According to the J curve,the rapid depreciation in the dollar from 1985 to 1987 caused net exports to

Suppose the Swiss franc rises against the British pound but falls against the Japanese yen.What happens to the prices of goods imported into Switzerland?

For a given real exchange rate,a nominal appreciation of the domestic currency will result from

A decline in the domestic real interest rate would cause a in net exports and a in the exchange rate.

A shift in demand toward the home country's goods would the domestic real interest rate and net desired saving (desired saving less desired investment) in the economy.

In an open economy,an increase in savings because of concerns about the future should cause the domestic real interest rate to and should cause net exports to .

In an open economy,a decrease in net exports because of reduced demand for domestic products by foreigners should cause the domestic real interest rate to and should cause desired saving minus desired investment to .