Question 1

The exchange rate between currencies depends on

Accepted Answer

A)  the interest rate that can be earned on deposits of those currencies. 
B)  the interest rate that can be earned on deposits of those currencies and the expected future exchange rate. 
C)  the expected future exchange rate. 
D)  national output. 
E)  the interest rate that can be earned on deposits of those countries and the national output. 
A)  the interest rate that can be earned on deposits of those currencies. 
B)  the interest rate that can be earned on deposits of those currencies and the expected future exchange rate. 
C)  the expected future exchange rate. 
D)  national output. 
E)  the interest rate that can be earned on deposits of those countries and the national output.

Question 2

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 3

What will be the effects of an increase in the money supply on the interest rate?

Accepted Answer

An increase in the money supply will cau

Question 4

The most extreme inflationary conditions occurred

Accepted Answer

A)  in Zimbabwe in 2008. 
B)  in Chile in 2012. 
C)  in Eastern Europe in the 1990s. 
D)  in Western Europe in the 1980s. 
E)  in Germany in 2013. 
A)  in Zimbabwe in 2008. 
B)  in Chile in 2012. 
C)  in Eastern Europe in the 1990s. 
D)  in Western Europe in the 1980s. 
E)  in Germany in 2013.

Question 5

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 6

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 7

"Although the price levels appear to display short-run stickiness in many countries, a change in the money supply creates immediate demand and cost pressures that eventually lead to future increase in the price level." Discuss.

Accepted Answer

(See Section 7). The statement

Question 8

If there is an excess supply of money

Accepted Answer

A)  the interest rate falls. 
B)  the interest rate rises. 
C)  the real money supply shifts left to make an equilibrium. 
D)  the real money supply shifts right to make an equilibrium. 
E)  the interest rate stays constant, but consumer confidence falters. 
A)  the interest rate falls. 
B)  the interest rate rises. 
C)  the real money supply shifts left to make an equilibrium. 
D)  the real money supply shifts right to make an equilibrium. 
E)  the interest rate stays constant, but consumer confidence falters.

Question 9

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 10

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 11

A permanent increase in a country's money supply

Accepted Answer

A)  causes a more than proportional increase in its price level. 
B)  causes a less than proportional increase in its price level. 
C)  causes a proportional increase in its price level. 
D)  leaves its price level constant in long-run equilibrium. 
E)  causes an inversely proportional fall in its price level. 
A)  causes a more than proportional increase in its price level. 
B)  causes a less than proportional increase in its price level. 
C)  causes a proportional increase in its price level. 
D)  leaves its price level constant in long-run equilibrium. 
E)  causes an inversely proportional fall in its price level.

Question 12

Michael Woodford says the following is an advantage of interest-rate instruments for central banks.

Accepted Answer

A)  Conduct monetary policy without inflation. 
B)  Conduct monetary policy even if checking deposits pay interest at competitive rates. 
C)  Conduct monetary policy without government approval. 
D)  Conduct monetary policy with consumers in mind. 
E)  Conduct monetary policy with workers in mind. 
A)  Conduct monetary policy without inflation. 
B)  Conduct monetary policy even if checking deposits pay interest at competitive rates. 
C)  Conduct monetary policy without government approval. 
D)  Conduct monetary policy with consumers in mind. 
E)  Conduct monetary policy with workers in mind.

Question 13

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 14

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

Question 15

Explain the exchange rate over-shooting hypothesis.

Accepted Answer

Many prices in the economy are written i

Question 16

If individuals are holding more money than they desire

Accepted Answer

A)  they will attempt to reduce their liquidity by using money to purchase goods. 
B)  they will attempt to reduce their liquidity by using money to purchase interest-bearing assets. 
C)  they will attempt to reduce their liquidity by converting real money holdings into nominal money holdings. 
D)  they will keep their holdings constant. 
A)  they will attempt to reduce their liquidity by using money to purchase goods. 
B)  they will attempt to reduce their liquidity by using money to purchase interest-bearing assets. 
C)  they will attempt to reduce their liquidity by converting real money holdings into nominal money holdings. 
D)  they will keep their holdings constant.

Question 17

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 18

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 19

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 20

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.

Exam 15: Money, Interest Rates, and Exchange Rates

The exchange rate between currencies depends on

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

What will be the effects of an increase in the money supply on the interest rate?

The most extreme inflationary conditions occurred

After a permanent increase in the money supply

Changes in the money supply growth rate

"Although the price levels appear to display short-run stickiness in many countries, a change in the money supply creates immediate demand and cost pressures that eventually lead to future increase in the price level." Discuss.

If there is an excess supply of money

Money serves as all of the following EXCEPT

Inflation targeting was initiated by which central bank in 1989?

A permanent increase in a country's money supply

Michael Woodford says the following is an advantage of interest-rate instruments for central banks.

The aggregate demand for money can be expressed by

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)

Explain the exchange rate over-shooting hypothesis.

If individuals are holding more money than they desire

Which one of the following statements is the MOST accurate?

Money demand behavior may

A change in the level of the supply of money

An individual's need for liquidity would increase if

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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