Question 1

If an economy is in a liquidity trap,then the nominal interest rate is ________ and the only effective policy that can be used to stimulate the economy is ________.

Accepted Answer

A) zero or negative;expansionary fiscal policy 
B) zero or negative;expansionary monetary policy 
C) high and rising;contractionary monetary policy 
D) high and rising;expansionary monetary policy 
E) high and rising;expansionary fiscal policy

Question 2

What have we assumed when we conclude that a real depreciation of the currency improves the current account?

Accepted Answer

A) The volume effect outweighs the value effect. 
B) The value effect outweighs the volume effect. 
C) All else equal and the volume effect outweighs the value effect. 
D) All else equal and the value effect outweighs the volume effect. 
E) All else equal and the volume effect equals the value effect.

Question 3

Which one of the following statements is the MOST accurate?

Accepted Answer

A) A permanent increase in the money supply cannot have any short-run effects. 
B) A permanent increase in taxes cannot have any short-run effects. 
C) A permanent decrease in the money supply cannot have short-run effects. 
D) A permanent decrease in taxes cannot have short-run effects. 
E) A permanent increase in money demand can be offset with a permanent increase in the money supply of equal magnitude.

Question 4

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.

Question 5

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 100 euros and the representative U.S.basket costs $125,and the dollar/euro exchange rate is $0.75 per euro,then the price of the European basket in terms of U.S.basket is:

Accepted Answer

The answer of Find the real exchange rate for the...

Question 6

Explain how the AA schedule is derived.

Accepted Answer

The answer of Explain how the AA schedule is derived....

Question 7

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

Accepted Answer

The answer of What is inflation bias? What measures have...

Question 8

Find the real exchange rate for the following case: Assume that the representative basket of European goods and services costs 40 euros and the representative U.S.basket costs $50,and the dollar/euro exchange rate is $0.90 per euro,then the price of the European basket in terms of U.S.basket is ________.

Accepted Answer

The answer of Find the real exchange rate for the...

Question 9

When the real exchange rate rises

Accepted Answer

A) imports measured in terms of domestic output will rise. 
B) imports measured in terms of domestic output will fall. 
C) imports measured in terms of domestic output will never be affected. 
D) imports measured in terms of domestic output may rise or fall. 
E) imports measured in terms of foreign output will rise.

Question 10

The real exchange rate,q,is defined as

Accepted Answer

A) the price of the foreign basket in terms of the domestic one. 
B) the price of the domestic basket in terms of the foreign one. 
C) the price of the foreign basket. 
D) the price of the domestic basket. 
E) the nominal exchange rate in terms of the domestic basket.

Question 11

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 12

Using the DD-AA framework,show the phenomenon of overshooting.Use a figure to explain when it is taking place.

Accepted Answer

The answer of Using the DD-AA framework,show the phenomenon of...

Question 13

The DD schedule shows all combinations of which 2 variables so that the output market is in equilibrium?

Accepted Answer

A) imports and exports 
B) exports and the exchange rate 
C) foreign prices and the exchange rate 
D) output and the exchange rate 
E) output and exports

Question 14

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

Accepted Answer

The answer of What are two ways the government can...

Question 15

Assume the output market adjusts more rapidly than the asset market.A point of disequilibrium that is below both AA and DD will therefore initially result in

Accepted Answer

A) an increase in output. 
B) a decrease in output. 
C) a contraction of the money supply. 
D) a depreciation of the home currency. 
E) an appreciation of the home currency.

Question 16

If the economy starts in long-run equilibrium,a permanent fiscal expansion will cause

Accepted Answer

A) an increase in exchange rate,E. 
B) a decrease in exchange rate,E. 
C) an increase in output,Y. 
D) a decrease in output,Y. 
E) shifting of the AA curve up and to the right.

Question 17

Which of the following is an example of an "unconventional monetary policy" by a central bank?

Accepted Answer

A) The purchase of specific categories of assets with new money. 
B) The sale of long-term government bonds for foreign exchange. 
C) the purchase of long-term government bonds using foreign exchange. 
D) raising reserve requirements by commercial banks. 
E) selling gold reserves.

Question 18

In the short-run,we assume that the money prices of goods and services are

Accepted Answer

A) temporarily fixed. 
B) permanently fixed. 
C) allowed to fluctuate. 
D) equal to long-run prices. 
E) fully employed.

Question 19

How is the AA schedule derived?

Accepted Answer

A) It is derived by the schedule of interest rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market. 
B) It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the foreign money market and the domestic exchange market. 
C) It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market. 
D) It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic bond market and the foreign asset market. 
E) It is derived by the schedule of exchange rate and output combinations that are greater than equilibrium in the foreign money market and the domestic exchange market.

Question 20

Which one of the following statements is the MOST accurate?

Accepted Answer

A) Over time,the inflationary pressure that follows a temporary money supply expansion pushes the price level to its long-run value and returns the economy to full employment. 
B) Over time,the inflationary pressure that follows a permanent money supply expansion pushes the price level to its long-run value and returns the economy to full employment. 
C) Over time,the inflationary pressure that follows a temporary money supply expansion pushes the price level to its long-run value,but leaves the economy in a state of artificially low employment. 
D) Over time,the inflationary pressure that follows a permanent money supply expansion pushes the price level to its long-run value,but leaves the economy in a state of artificially low employment. 
E) Over time,the inflationary pressure that follows a permanent money supply expansion pushes the price level beyond its long-run value and lower the level of employment.

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

If an economy is in a liquidity trap,then the nominal interest rate is and the only effective policy that can be used to stimulate the economy is .

What have we assumed when we conclude that a real depreciation of the currency improves the current account?

Which one of the following statements is the MOST accurate?

Which of the following is the MOST accurate?

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 100 euros and the representative U.S.basket costs $125,and the dollar/euro exchange rate is $0.75 per euro,then the price of the European basket in terms of U.S.basket is:

Explain how the AA schedule is derived.

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

When the real exchange rate rises

The real exchange rate,q,is defined as

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.

Using the DD-AA framework,show the phenomenon of overshooting.Use a figure to explain when it is taking place.

The DD schedule shows all combinations of which 2 variables so that the output market is in equilibrium?

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

Assume the output market adjusts more rapidly than the asset market.A point of disequilibrium that is below both AA and DD will therefore initially result in

If the economy starts in long-run equilibrium,a permanent fiscal expansion will cause

Which of the following is an example of an "unconventional monetary policy" by a central bank?

In the short-run,we assume that the money prices of goods and services are

How is the AA schedule derived?

Which one of the following statements is the MOST accurate?