Question 1

A country's domestic currency's real exchange rate, q, is best described by

Accepted Answer

A)  the price of similar goods in the same market. 
B)  the price of the domestic basket in terms of the foreign one. 
C)  the price of a domestic basket. 
D)  the price of the foreign basket in terms of the domestic basket. 
E)  the price of different goods baskets in the same market.

Question 2

An increase in the real exchange rate

Accepted Answer

A)  makes imports more expensive. 
B)  makes imports less expensive. 
C)  does not affect import values. 
D)  always makes the number of imports rise. 
E)  makes domestic consumers spend more on only foreign imports.

Question 3

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 4

The percent by which import prices rise when the home currency depreciates by 1% is the degree of

Accepted Answer

A)  pass-forward from exchange rates to import prices. 
B)  pass-through from exchange rates to import prices. 
C)  pass-on from exchange rates to import prices. 
D)  roll-forward from exchange rates to import prices. 
E)  pass-beyond from exchange rates to import prices.

Question 5

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

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 6

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

Accepted Answer

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

Question 7

How does a rise in real income affect aggregate demand?

Accepted Answer

A)  Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓, but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more 
B)  Y ↑ implies Yd ↑ implies Im ↓ implies CA ↓ implies AD ↓, but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more 
C)  Y ↑ implies Yd ↑ implies Im ↑ implies CA ↑ implies AD ↑, and Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ 
D)  Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓, but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by less 
E)  Y ↑ implies Yd ↑ implies Im ↓ implies CA ↓ implies AD ↓, but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by less

Question 8

How would you define a DD schedule?

Accepted Answer

A)  the combinations of output and the exchange rate that must hold when the home money market and the foreign exchange market are in equilibrium 
B)  the combinations of output and the exchange rate that must hold when the output market is in short-run equilibrium 
C)  factors of production in the long run 
D)  the aggregate demand in relation to the foreign market value 
E)  the currency depreciation in relation to the exchange rate

Question 9

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 10

Using the DD model, explain what happens to out put when Government demands increase. Use a figure to explain when it is taking place.

Accepted Answer

The answer of Using the DD model, explain what happens...

Question 11

Which statement best describes the current account balance in the short run?

Accepted Answer

A)  Monetary expansion lowers the current account balance. 
B)  Monetary expansion keeps the current account balance the same. 
C)  Fiscal expansion increases the current account balance. 
D)  Fiscal expansion keeps the current account balance the same. 
E)  Monetary expansion increases the current account balance.

Question 12

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 150 euros and the representative U.S. basket costs $200, and the dollar/euro exchange rate is $1.20 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 13

A permanent fiscal expansion

Accepted Answer

A)  shifts the DD and the AA schedules to the right, increasing output. 
B)  shifts the DD and the AA schedules to the right, decreasing output. 
C)  shifts the DD to the right and the AA schedule to the left, increasing output. 
D)  shifts the DD to the left and the AA schedule to the left, decreasing output. 
E)  shifts the DD and the AA schedules to the left, leaving output the same.

Question 14

Why does an exchange rate-output combination lying above both DD and AA jump first to AA in equilibrium?

Accepted Answer

A)  Asset prices can adjust immediately. 
B)  Production plans can adjust immediately. 
C)  to preserve full employment 
D)  Prices are nominal and demand is real. 
E)  Aggregate demand adjusts faster than output.

Question 15

Which of the following does not affect the position of the DD curve?

Accepted Answer

A)  monetary policy 
B)  government spending 
C)  taxes 
D)  export Demand 
E)  price levels

Question 16

In the short-run, a temporary increase in the money supply

Accepted Answer

A)  shifts the AA curve to the right, increases output and depreciates the currency. 
B)  shifts the AA curve to the left, increases output and depreciates the currency. 
C)  shifts the AA curve to the left, decreases output and depreciates the currency. 
D)  shifts the AA curve to the left, increases output and appreciates the currency. 
E)  shifts the AA curve to the right, increases output and appreciates the currency.

Question 17

Use a figure to study the following question: Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD, where both the output and asset markets are out of equilibrium. Explain what will happen next.

Accepted Answer

The answer of Use a figure to study the following...

Question 18

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

The answer of Using a figure show that under full...

Question 19

Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD, where both the output and asset markets are out of equilibrium. Which first action is true?

Accepted Answer

A)  The economy will stay at this level in the short run. 
B)  The exchange rate will first drop to a point on the AA schedule. 
C)  The exchange rate will first move to a point on the DD schedule. 
D)  The AA-DD equilibrium will shift to the position of the economy. 
E)  The exchange rate will first move left to a position on the AA schedule.

Question 20

Describe what is a J Curve?

Accepted Answer

The answer of Describe what is a J Curve?...

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