Question 1

Explain how the money markets of two countries are linked through the foreign exchange market.

Accepted Answer

The monetary policy actions by the Fed a

Question 2

If there is initially an

Accepted Answer

A)  excess demand for money, the interest rate will fall, and the supply of money will rise. 
B)  excess supply of money, the interest rate will fall, and if there is initially an excess demand, it will rise. 
C)  excess supply of money, the interest rate will rise, and if there is initially an excess demand, it will fall. 
D)  excess supply of money, the interest rate will fall, and if there is also an excess demand, it will fall rapidly. 
E)  excess supply of money, the interest rate will rise, and if there is also an excess demand, it will rise rapidly. 
A)  excess demand for money, the interest rate will fall, and the supply of money will rise. 
B)  excess supply of money, the interest rate will fall, and if there is initially an excess demand, it will rise. 
C)  excess supply of money, the interest rate will rise, and if there is initially an excess demand, it will fall. 
D)  excess supply of money, the interest rate will fall, and if there is also an excess demand, it will fall rapidly. 
E)  excess supply of money, the interest rate will rise, and if there is also an excess demand, it will rise rapidly.

Question 3

Inflation targeting was initiated by which central bank in 1989?

Accepted Answer

A)  U.S. 
B)  Japan 
C)  Canada 
D)  New Zealand 
E)  U.K. 
A)  U.S. 
B)  Japan 
C)  Canada 
D)  New Zealand 
E)  U.K.

Question 4

A sustained change in the monetary growth rate will

Accepted Answer

A)  immediately affect equilibrium real money balances by raising the money interest rate. 
B)  eventually affect equilibrium nominal money balances by raising the money interest rate. 
C)  eventually affect equilibrium real money balances by reducing the money interest rate. 
D)  eventually affect equilibrium real money balances by raising the real interest rate. 
E)  eventually affect equilibrium real money balances by raising the money interest rate. 
A)  immediately affect equilibrium real money balances by raising the money interest rate. 
B)  eventually affect equilibrium nominal money balances by raising the money interest rate. 
C)  eventually affect equilibrium real money balances by reducing the money interest rate. 
D)  eventually affect equilibrium real money balances by raising the real interest rate. 
E)  eventually affect equilibrium real money balances by raising the money interest rate.

Question 5

Using 4 different figures, plot the time paths showing the effects of a permanent increase in the United States money supply on:
(a) U.S. Money supply
(b) The dollar interest rate.
(c) The U.S. price level
(d) The dollar/euro exchange rate

Accepted Answer

The answer of Using 4 different figures, plot the time...

Question 6

Explain the exchange rate over-shooting hypothesis.

Accepted Answer

Many prices in the economy are written i

Question 7

In a classic paper, Columbia University economist Phillip Cagan drew the line between inflation and hyperinflation at an inflation rate of

Accepted Answer

A)  50 percent per month. 
B)  10 percent per month. 
C)  20 percent per month. 
D)  5 percent per month. 
E)  25 percent per month. 
A)  50 percent per month. 
B)  10 percent per month. 
C)  20 percent per month. 
D)  5 percent per month. 
E)  25 percent per month.

Question 8

A change in the level of the supply of money

Accepted Answer

A)  increases the long-run values of the interest rate and real output. 
B)  decreases the long-run values of the interest rate and real output. 
C)  has no effect on the long-run values of the interest rate, but may affect real output. 
D)  has no effect on the long-run values of real output, but may affect the interest rate. 
E)  has no effect on the long-run values of the interest rate and real output. 
A)  increases the long-run values of the interest rate and real output. 
B)  decreases the long-run values of the interest rate and real output. 
C)  has no effect on the long-run values of the interest rate, but may affect real output. 
D)  has no effect on the long-run values of real output, but may affect the interest rate. 
E)  has no effect on the long-run values of the interest rate and real output.

Question 9

Money demand behavior may

Accepted Answer

A)  change as a result of demographic trends or financial innovations such as electronic cash-transfer facilities. 
B)  change only as a result of demographic trends. 
C)  change only as a result of financial innovations such as electronic cash-transfer facilities. 
D)  not change as a result of demographic trends or financial innovations such as electronic cash-transfer facilities. 
E)  change as a result of demographic trends but not as a result of financial innovations such as electronic cash-transfer facilities. 
A)  change as a result of demographic trends or financial innovations such as electronic cash-transfer facilities. 
B)  change only as a result of demographic trends. 
C)  change only as a result of financial innovations such as electronic cash-transfer facilities. 
D)  not change as a result of demographic trends or financial innovations such as electronic cash-transfer facilities. 
E)  change as a result of demographic trends but not as a result of financial innovations such as electronic cash-transfer facilities.

Question 10

Which of the following can help to explain why higher inflation may lead to currency appreciations?

Accepted Answer

A)  The interest rate is not the prime target of monetary policy. 
B)  Most central banks adjust their policy interest rates expressly so as to keep inflation in check. 
C)  Central banks increase the money supply leading to overshooting of the exchange rate. 
D)  Inflation will increase the purchasing power of a currency. 
E)  The world market does not adjust their currency trade to reflect inflation. 
A)  The interest rate is not the prime target of monetary policy. 
B)  Most central banks adjust their policy interest rates expressly so as to keep inflation in check. 
C)  Central banks increase the money supply leading to overshooting of the exchange rate. 
D)  Inflation will increase the purchasing power of a currency. 
E)  The world market does not adjust their currency trade to reflect inflation.

Question 11

Changes in the money supply growth rate

Accepted Answer

A)  are neutral in the short run. 
B)  need not be neutral in the short run. 
C)  are neutral in the long run. 
D)  need not be neutral in the long run. 
E)  affect the real output of the economy. 
A)  are neutral in the short run. 
B)  need not be neutral in the short run. 
C)  are neutral in the long run. 
D)  need not be neutral in the long run. 
E)  affect the real output of the economy.

Question 12

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

Accepted Answer

An increase in the U.S. money supply wil

Question 13

After a permanent increase in the money supply

Accepted Answer

A)  the exchange rate overshoots in the short run. 
B)  the exchange rate overshoots in the long run. 
C)  the exchange rate smoothly depreciates in the short run. 
D)  the exchange rate smoothly appreciates in the short run. 
E)  the exchange rate remains the same. 
A)  the exchange rate overshoots in the short run. 
B)  the exchange rate overshoots in the long run. 
C)  the exchange rate smoothly depreciates in the short run. 
D)  the exchange rate smoothly appreciates in the short run. 
E)  the exchange rate remains the same.

Question 14

Explain the effects of a permanent increase in the U.S. money supply in the short run and in the long run. Assume that the U.S. real national income is constant.

Accepted Answer

An increase in the nominal money supply

Question 15

In a classic paper, Columbia University economist Phillip Cagan drew the line between inflation and hyperinflation at an inflation rate of

Accepted Answer

A)  more than 120 percent per year. 
B)  more than 100 percent per year. 
C)  more than 200 percent per year. 
D)  more than 12,000 percent per year. 
E)  more than 1,000 percent per year. 
A)  more than 120 percent per year. 
B)  more than 100 percent per year. 
C)  more than 200 percent per year. 
D)  more than 12,000 percent per year. 
E)  more than 1,000 percent per year.

Question 16

An individual's need for liquidity would increase if

Accepted Answer

A)  the average value of transactions carried out by the individual fell. 
B)  the average value of transactions carried out by the individual rose. 
C)  the individual got a raise. 
D)  the individual received a new ATM card. 
E)  the individual wanted to avoid risks. 
A)  the average value of transactions carried out by the individual fell. 
B)  the average value of transactions carried out by the individual rose. 
C)  the individual got a raise. 
D)  the individual received a new ATM card. 
E)  the individual wanted to avoid risks.

Question 17

The aggregate money demand depends on

Accepted Answer

A)  the interest rate. 
B)  the price level. 
C)  real national income. 
D)  the interest rate, price level, and real national income. 
E)  the price level and the liquidity of the asset. 
A)  the interest rate. 
B)  the price level. 
C)  real national income. 
D)  the interest rate, price level, and real national income. 
E)  the price level and the liquidity of the asset.

Question 18

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  There is a lively academic debate over the possibility that seemingly sticky wages and prices are in reality quite fixed. 
B)  There is a lively academic debate over the possibility that seemingly sticky wages and prices are in reality much more sticky than theory assumes. 
C)  There is a lively academic debate over the possibility that seemingly sticky wages and prices are in reality quite flexible. 
D)  There is no debate over the possibility that wages and prices are sticky in the long run. 
E)  There is no debate over the possibility that wages and prices are sticky in the short run. 
A)  There is a lively academic debate over the possibility that seemingly sticky wages and prices are in reality quite fixed. 
B)  There is a lively academic debate over the possibility that seemingly sticky wages and prices are in reality much more sticky than theory assumes. 
C)  There is a lively academic debate over the possibility that seemingly sticky wages and prices are in reality quite flexible. 
D)  There is no debate over the possibility that wages and prices are sticky in the long run. 
E)  There is no debate over the possibility that wages and prices are sticky in the short run.

Question 19

The aggregate demand for money can be expressed by

Accepted Answer

A)  Md = P × L(R,Y). 
B)  Md = L × P(R,Y). 
C)  Md = P × Y(R, L). 
D)  Md = R × L(P,Y). 
E)  Md = R × L(R, P). 
A)  Md = P × L(R,Y). 
B)  Md = L × P(R,Y). 
C)  Md = P × Y(R, L). 
D)  Md = R × L(P,Y). 
E)  Md = R × L(R, P).

Question 20

For main industrial countries such as Japan and the U.S.

Accepted Answer

A)  there is much less month-to-month variability of the exchange rate, suggesting that price levels are relatively sticky in the short run. 
B)  there is much more month-to-month variability of the exchange rate, suggesting that price levels are relatively sticky in the short run. 
C)  there is almost the same month-to-month variability of the exchange rate and price levels. 
D)  it is hard to tell whether month-to-month variability of the exchange rate is similar to changes in price levels. 
E)  there is much more month-to-month variability of the exchange rate, suggesting that price levels are relatively sticky in the long run. 
A)  there is much less month-to-month variability of the exchange rate, suggesting that price levels are relatively sticky in the short run. 
B)  there is much more month-to-month variability of the exchange rate, suggesting that price levels are relatively sticky in the short run. 
C)  there is almost the same month-to-month variability of the exchange rate and price levels. 
D)  it is hard to tell whether month-to-month variability of the exchange rate is similar to changes in price levels. 
E)  there is much more month-to-month variability of the exchange rate, suggesting that price levels are relatively sticky in the long run.

Exam 15: Money, Interest Rates, and Exchange Rates

Explain how the money markets of two countries are linked through the foreign exchange market.

If there is initially an

Inflation targeting was initiated by which central bank in 1989?

A sustained change in the monetary growth rate will

Using 4 different figures, plot the time paths showing the effects of a permanent increase in the United States money supply on: (a) U.S. Money supply (b) The dollar interest rate. (c) The U.S. price level (d) The dollar/euro exchange rate

Explain the exchange rate over-shooting hypothesis.

In a classic paper, Columbia University economist Phillip Cagan drew the line between inflation and hyperinflation at an inflation rate of

A change in the level of the supply of money

Money demand behavior may

Which of the following can help to explain why higher inflation may lead to currency appreciations?

Changes in the money supply growth rate

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

After a permanent increase in the money supply

Explain the effects of a permanent increase in the U.S. money supply in the short run and in the long run. Assume that the U.S. real national income is constant.

In a classic paper, Columbia University economist Phillip Cagan drew the line between inflation and hyperinflation at an inflation rate of

An individual's need for liquidity would increase if

The aggregate money demand depends on

Which one of the following statements is the MOST accurate?

The aggregate demand for money can be expressed by

For main industrial countries such as Japan and the U.S.

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