Question 1

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. C

Question 2

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  A rise in the average value of transactions carried out by a household or a firm causes its demand for money to fall. 
B)  A reduction in the average value of transactions carried out by a household or a firm causes its demand for money to rise. 
C)  A rise in the average value of transactions carried out by a household or a firm causes its demand for money to rise. 
D)  A rise in the average value of transactions carried out by a household or a firm causes its demand for real money to rise. 
E)  A decrease in the average value of transactions carried out by a household or a firm causes its demand for real money to rise. 
A)  A rise in the average value of transactions carried out by a household or a firm causes its demand for money to fall. 
B)  A reduction in the average value of transactions carried out by a household or a firm causes its demand for money to rise. 
C)  A rise in the average value of transactions carried out by a household or a firm causes its demand for money to rise. 
D)  A rise in the average value of transactions carried out by a household or a firm causes its demand for real money to rise. 
E)  A decrease in the average value of transactions carried out by a household or a firm causes its demand for real money to rise. D

Question 3

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. B

Question 4

The money supply schedule is

Accepted Answer

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

Question 5

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 6

An economy's long-run equilibrium is

Accepted Answer

A)  the equilibrium that would occur if prices were perfectly flexible. 
B)  the equilibrium that would occur if prices were perfectly flexible and always adjusted immediately. 
C)  the equilibrium that would occur if prices were perfectly flexible and always adjusted immediately to preserve full employment. 
D)  the equilibrium that would occur if prices were perfectly fixed to preserve full employment. 
E)  the equilibrium that would occur if prices were perfectly fixed at the full employment point. 
A)  the equilibrium that would occur if prices were perfectly flexible. 
B)  the equilibrium that would occur if prices were perfectly flexible and always adjusted immediately. 
C)  the equilibrium that would occur if prices were perfectly flexible and always adjusted immediately to preserve full employment. 
D)  the equilibrium that would occur if prices were perfectly fixed to preserve full employment. 
E)  the equilibrium that would occur if prices were perfectly fixed at the full employment point.

Question 7

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 8

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 9

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 10

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 11

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.

Question 12

What are the main factors that determine aggregate money demand?

Accepted Answer

The three main factors are interest rate

Question 13

In a world where the price level could adjust immediately to its new long-run level after a money supply increase

Accepted Answer

A)  the dollar interest rate would increase because prices would adjust immediately and prevent the money supply from rising. 
B)  the dollar interest rate would not fall because prices would adjust immediately and prevent the money supply from rising. 
C)  the dollar interest rate would fall because prices would adjust immediately and prevent the money supply from decreasing. 
D)  the dollar interest rate would decrease because prices would adjust immediately and prevent the money supply from decreasing. 
E)  the dollar interest rate would fall because prices would not be able to prevent the money supply from rising. 
A)  the dollar interest rate would increase because prices would adjust immediately and prevent the money supply from rising. 
B)  the dollar interest rate would not fall because prices would adjust immediately and prevent the money supply from rising. 
C)  the dollar interest rate would fall because prices would adjust immediately and prevent the money supply from decreasing. 
D)  the dollar interest rate would decrease because prices would adjust immediately and prevent the money supply from decreasing. 
E)  the dollar interest rate would fall because prices would not be able to prevent the money supply from rising.

Question 14

For a given level of

Accepted Answer

A)  nominal GNP, changes in interest rates cause movements along the L(R,Y) schedule. 
B)  real GNP, changes in interest rates cause a decrease of the L(R,Y) schedule. 
C)  real GNP, changes in interest rates cause an increase of the L(R,Y) schedule. 
D)  nominal GNP, changes in interest rates cause an increase in the L(R,Y) schedule. 
E)  real GNP, changes in interest rates cause movements along the L(R,Y) schedule. 
A)  nominal GNP, changes in interest rates cause movements along the L(R,Y) schedule. 
B)  real GNP, changes in interest rates cause a decrease of the L(R,Y) schedule. 
C)  real GNP, changes in interest rates cause an increase of the L(R,Y) schedule. 
D)  nominal GNP, changes in interest rates cause an increase in the L(R,Y) schedule. 
E)  real GNP, changes in interest rates cause movements along the L(R,Y) schedule.

Question 15

What are the factors that determine the amount of money an individual desires to hold?

Accepted Answer

Three main factors: first, the expected

Question 16

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 17

In the United States at the end of 2012, the total money supply, M1, amounted to approximately

Accepted Answer

A)  16 percent of that year's GNP. 
B)  20 percent of that year's GNP. 
C)  30 percent of that year's GNP. 
D)  40 percent of that year's GNP. 
E)  50 percent of that year's GNP. 
A)  16 percent of that year's GNP. 
B)  20 percent of that year's GNP. 
C)  30 percent of that year's GNP. 
D)  40 percent of that year's GNP. 
E)  50 percent of that year's GNP.

Question 18

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.

Question 19

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 20

Explain the following figure.

Accepted Answer

The figure explains how the money market

Exam 15: Money, Interest Rates, and Exchange Rates

Which one of the following statements is the MOST accurate?

Which one of the following statements is the MOST accurate?

A reduction in a country's money supply causes

The money supply schedule is

An economy's long-run equilibrium is

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.

Which one of the following statements is the MOST accurate?

If there is initially an

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

Which one of the following statements is the MOST accurate?

What are the main factors that determine aggregate money demand?

In a world where the price level could adjust immediately to its new long-run level after a money supply increase

For a given level of

What are the factors that determine the amount of money an individual desires to hold?

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

In the United States at the end of 2012, the total money supply, M1, amounted to approximately

In a world with money and bonds only

Individuals base their demand for an asset on

Explain the following figure.

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

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