Question 1

In a world with money and bonds only

Accepted Answer

A)  it is not risky to hold money. 
B)  it is risky to hold money. 
C)  risk is an important factor in the demand for money. 
D)  there is no relationship between risk and holding money. 
E)  assets become meaningless. 
A)  it is not risky to hold money. 
B)  it is risky to hold money. 
C)  risk is an important factor in the demand for money. 
D)  there is no relationship between risk and holding money. 
E)  assets become meaningless. B

Question 2

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  Given PUS, when the money supply rises, the dollar interest rate declines and the dollar depreciates against the euro. 
B)  Given YUS, when the money supply rises, the dollar interest rate declines and the dollar depreciates against the euro. 
C)  Given PUS and YUS, when the money supply decreases, the dollar interest rate declines and the dollar depreciates against the euro. 
D)  Given PUS and YUS, when the money supply rises, the dollar interest rate declines and the dollar appreciates against the euro. 
E)  Given PUS and YUS, when the money supply rises, the dollar interest rate declines and the dollar depreciates against the euro. 
A)  Given PUS, when the money supply rises, the dollar interest rate declines and the dollar depreciates against the euro. 
B)  Given YUS, when the money supply rises, the dollar interest rate declines and the dollar depreciates against the euro. 
C)  Given PUS and YUS, when the money supply decreases, the dollar interest rate declines and the dollar depreciates against the euro. 
D)  Given PUS and YUS, when the money supply rises, the dollar interest rate declines and the dollar appreciates against the euro. 
E)  Given PUS and YUS, when the money supply rises, the dollar interest rate declines and the dollar depreciates against the euro. E

Question 3

The money supply schedule is

Accepted Answer

A)  horizontal because   is set by the central bank while P is taken as given. 
B)  horizontal because   is set by the central bank. 
C)  vertical because   is set by the households and firms while P is taken as given. 
D)  vertical because   and P are set by the central bank. 
E)  vertical because   is set by the central bank while P is taken as given. 
A)  horizontal because   is set by the central bank while P is taken as given. 
B)  horizontal because   is set by the central bank. 
C)  vertical because   is set by the households and firms while P is taken as given. 
D)  vertical because   and P are set by the central bank. 
E)  vertical because   is set by the central bank while P is taken as given. E

Question 4

A family's summer house on Cape Cod pays a return in the form of

Accepted Answer

A)  interest rate. 
B)  capital gains. 
C)  the pleasure of vacations at the beach. 
D)  stock options. 
E)  capital gains and pleasure. 
A)  interest rate. 
B)  capital gains. 
C)  the pleasure of vacations at the beach. 
D)  stock options. 
E)  capital gains and pleasure.

Question 5

In Zimbabwe, the government stopped the country's hyperinflation by

Accepted Answer

A)  reducing domestic monetary growth drastically. 
B)  returning to a gold/silver currency standard. 
C)  switching to foreign currencies that are relatively stable. 
D)  passing a law making price increases illegal. 
E)  implementing a new currency based on diamonds. 
A)  reducing domestic monetary growth drastically. 
B)  returning to a gold/silver currency standard. 
C)  switching to foreign currencies that are relatively stable. 
D)  passing a law making price increases illegal. 
E)  implementing a new currency based on diamonds.

Question 6

What would be the effect of an increase in the European money supply in the dollar /euro exchange rate?

Accepted Answer

An increase in the European mo

Question 7

Given PUS and YUS

Accepted Answer

A)  An increase in the European money supply causes the euro to appreciate against the dollar, but it does not disturb the U.S. money market equilibrium. 
B)  An increase in the European money supply causes the euro to appreciate against the dollar, and it creates excess demand for dollars in the U.S. money market. 
C)  An increase in the European money supply causes the euro to depreciate against the dollar, and it creates excess demand for dollars in the U.S. money market. 
D)  An increase in the European money supply causes the euro to depreciate against the dollar, but it does not disturb the U.S. money market equilibrium. 
E)  An increase in the European money supply causes the euro to depreciate against the dollar, and disturbing the U.S. money market equilibrium. 
A)  An increase in the European money supply causes the euro to appreciate against the dollar, but it does not disturb the U.S. money market equilibrium. 
B)  An increase in the European money supply causes the euro to appreciate against the dollar, and it creates excess demand for dollars in the U.S. money market. 
C)  An increase in the European money supply causes the euro to depreciate against the dollar, and it creates excess demand for dollars in the U.S. money market. 
D)  An increase in the European money supply causes the euro to depreciate against the dollar, but it does not disturb the U.S. money market equilibrium. 
E)  An increase in the European money supply causes the euro to depreciate against the dollar, and disturbing the U.S. money market equilibrium.

Question 8

A change in the money supply creates demand and cost pressures that lead to future increases in the price level from which main sources? I. Excess demand for output and labor
II) Inflationary expectations
III) Raw materials prices

Accepted Answer

A)  I 
B)  II 
C)  II and III 
D)  I and II 
E)  I, II, and III 
A)  I 
B)  II 
C)  II and III 
D)  I and II 
E)  I, II, and III

Question 9

Explain the following figure.

Accepted Answer

The figure explains how the money market

Question 10

Money includes

Accepted Answer

A)  currency. 
B)  checking deposits held by households and firms. 
C)  deposits in the foreign exchange markets. 
D)  currency and checking deposits held by households and firms. 
E)  futures and deposits in the foreign exchange market. 
A)  currency. 
B)  checking deposits held by households and firms. 
C)  deposits in the foreign exchange markets. 
D)  currency and checking deposits held by households and firms. 
E)  futures and deposits in the foreign exchange market.

Question 11

A reduction in a country's money supply causes

Accepted Answer

A)  its currency to depreciate in the foreign exchange market. 
B)  its currency to appreciate in the foreign exchange market. 
C)  does not affect its currency in the foreign market. 
D)  does affect its currency in the foreign market in an ambiguous manor. 
E)  affects other countries currency in the foreign market. 
A)  its currency to depreciate in the foreign exchange market. 
B)  its currency to appreciate in the foreign exchange market. 
C)  does not affect its currency in the foreign market. 
D)  does affect its currency in the foreign market in an ambiguous manor. 
E)  affects other countries currency in the foreign market.

Question 12

Individuals base their demand for an asset on

Accepted Answer

A)  the expected return the asset offers compared with the returns offered by other assets. 
B)  the riskiness of the asset's expected return. 
C)  the asset's liquidity. 
D)  the expected return, how risky that expected return is, and the asset's liquidity. 
E)  the aesthetic qualities of the asset. 
A)  the expected return the asset offers compared with the returns offered by other assets. 
B)  the riskiness of the asset's expected return. 
C)  the asset's liquidity. 
D)  the expected return, how risky that expected return is, and the asset's liquidity. 
E)  the aesthetic qualities of the asset.

Question 13

Using a figure describing both the U.S. money market and the foreign exchange market, analyze the effects of a temporary increase in the European money supply on the dollar/euro exchange rate.

Accepted Answer

An increase in the European money supply

Question 14

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  A permanent increase in a country's money supply causes a proportional long-run depreciation of its currency against foreign currencies. 
B)  A temporary increase in a country's money supply causes a proportional long-run depreciation of its currency against foreign currencies. 
C)  A permanent increase in a country's money supply causes a proportional long-run appreciation of its currency against foreign currencies. 
D)  A permanent increase in a country's money supply causes a proportional short-run depreciation of its currency against foreign currencies. 
E)  A permanent increase in a country's money supply causes a proportional short-run appreciation of its currency against foreign currencies. 
A)  A permanent increase in a country's money supply causes a proportional long-run depreciation of its currency against foreign currencies. 
B)  A temporary increase in a country's money supply causes a proportional long-run depreciation of its currency against foreign currencies. 
C)  A permanent increase in a country's money supply causes a proportional long-run appreciation of its currency against foreign currencies. 
D)  A permanent increase in a country's money supply causes a proportional short-run depreciation of its currency against foreign currencies. 
E)  A permanent increase in a country's money supply causes a proportional short-run appreciation of its currency against foreign currencies.

Question 15

An increase in a country's money supply causes

Accepted Answer

A)  its currency to appreciate in the foreign exchange market while a reduction in the money supply causes its currency to depreciate. 
B)  its currency to depreciate in the foreign exchange market while a reduction in the money supply causes its currency to appreciate. 
C)  no effect on the values of it currency in international markets. 
D)  its currency to depreciate in the foreign exchange market while a reduction in the money supply causes its currency to further depreciate. 
E)  its currency to depreciate in the domestic market and appreciate in the foreign market. 
A)  its currency to appreciate in the foreign exchange market while a reduction in the money supply causes its currency to depreciate. 
B)  its currency to depreciate in the foreign exchange market while a reduction in the money supply causes its currency to appreciate. 
C)  no effect on the values of it currency in international markets. 
D)  its currency to depreciate in the foreign exchange market while a reduction in the money supply causes its currency to further depreciate. 
E)  its currency to depreciate in the domestic market and appreciate in the foreign market.

Question 16

Money serves as all of the following EXCEPT

Accepted Answer

A)  a medium of exchange. 
B)  a unit of account. 
C)  a store of value. 
D)  a symbol that is made of or can be redeemed for a fixed amount of precious metal. 
E)  a highly liquid asset. 
A)  a medium of exchange. 
B)  a unit of account. 
C)  a store of value. 
D)  a symbol that is made of or can be redeemed for a fixed amount of precious metal. 
E)  a highly liquid asset.

Question 17

An increase in

Accepted Answer

A)  nominal output raises the interest rate while a fall in real output lowers the interest rate, given the price level and the money supply. 
B)  real output decreases the interest rate while a fall in real output increases the interest rate, given the price level. 
C)  real output raises the interest rate while a fall in real output lowers the interest rate, given the money supply. 
D)  nominal output raises the interest rate while a fall in real output lowers the interest rate, given the price level. 
E)  real output increase raises the interest rate while a fall in real output lowers the interest rate, given the price level and the money supply. 
A)  nominal output raises the interest rate while a fall in real output lowers the interest rate, given the price level and the money supply. 
B)  real output decreases the interest rate while a fall in real output increases the interest rate, given the price level. 
C)  real output raises the interest rate while a fall in real output lowers the interest rate, given the money supply. 
D)  nominal output raises the interest rate while a fall in real output lowers the interest rate, given the price level. 
E)  real output increase raises the interest rate while a fall in real output lowers the interest rate, given the price level and the money supply.

Question 18

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  A decrease in the money supply lowers the interest rate while an increase in the money supply raises the interest rate, given the price level and output. 
B)  An increase in the money supply lowers the interest rate while a fall in the money supply raises the interest rate, given the price level. 
C)  An increase in the money supply lowers the interest rate while a fall in the money supply raises the interest rate, given the output level. 
D)  An increase in the money supply lowers the interest rate while a fall in the money supply raises the interest rate, given the price level and output. 
E)  An increase in the money supply does not usually affect the interest rate. 
A)  A decrease in the money supply lowers the interest rate while an increase in the money supply raises the interest rate, given the price level and output. 
B)  An increase in the money supply lowers the interest rate while a fall in the money supply raises the interest rate, given the price level. 
C)  An increase in the money supply lowers the interest rate while a fall in the money supply raises the interest rate, given the output level. 
D)  An increase in the money supply lowers the interest rate while a fall in the money supply raises the interest rate, given the price level and output. 
E)  An increase in the money supply does not usually affect the interest rate.

Question 19

Combine a graph showing the interest parity condition and one showing money demand and supply to demonstrate simultaneous equilibrium in the money market and the foreign exchange market.
How would an increase in the U.S. money supply affect the dollar/euro exchange rate and the U.S. interest rate? Illustrate your answer graphically and explain.

Accepted Answer

Above the axis is depicted the foreign e

Question 20

Explain why one can write the demand for money as the price level times a function of the interest rate and real income as follows:   = PxL (R, Y)

Accepted Answer

The aggregate money demand is proportion

Exam 15: Money, Interest Rates, and Exchange Rates

In a world with money and bonds only

Which one of the following statements is the MOST accurate?

The money supply schedule is

A family's summer house on Cape Cod pays a return in the form of

In Zimbabwe, the government stopped the country's hyperinflation by

What would be the effect of an increase in the European money supply in the dollar /euro exchange rate?

Given PUS and YUS

A change in the money supply creates demand and cost pressures that lead to future increases in the price level from which main sources? I. Excess demand for output and labor II) Inflationary expectations III) Raw materials prices

Explain the following figure.

Money includes

A reduction in a country's money supply causes

Individuals base their demand for an asset on

Using a figure describing both the U.S. money market and the foreign exchange market, analyze the effects of a temporary increase in the European money supply on the dollar/euro exchange rate.

Which one of the following statements is the MOST accurate?

An increase in a country's money supply causes

Money serves as all of the following EXCEPT

An increase in

Which one of the following statements is the MOST accurate?

Explain why one can write the demand for money as the price level times a function of the interest rate and real income as follows: = PxL (R, Y)

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters

Given P_US and Y_US