Question 1

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.

Question 2

The long run effects of money supply change has

Accepted Answer

A)  an ambiguous effect on the long-run values of the interest rate or real output, a proportional change in the price level's long-run value in the opposite direction. 
B)  a proportional effect on the long-run values of the interest rate or real output, a proportional change in the price level's long-run value in the same direction. 
C)  no effect on the long-run values of the interest rate or real output, a proportional change in the price level's long-run value in the same direction. 
D)  no effect on the long-run values of the interest rate or real output, no change in the price level's long-run value. 
E)  an ambiguous effect on the long-run values of the interest rate or real output, a disproportional change in the price level's long-run value in the same direction. 
A)  an ambiguous effect on the long-run values of the interest rate or real output, a proportional change in the price level's long-run value in the opposite direction. 
B)  a proportional effect on the long-run values of the interest rate or real output, a proportional change in the price level's long-run value in the same direction. 
C)  no effect on the long-run values of the interest rate or real output, a proportional change in the price level's long-run value in the same direction. 
D)  no effect on the long-run values of the interest rate or real output, no change in the price level's long-run value. 
E)  an ambiguous effect on the long-run values of the interest rate or real output, a disproportional change in the price level's long-run value in the same direction.

Question 3

What will be the effects of an increase in real output on the interest rate?

Accepted Answer

An increase in real output will increase

Question 4

Analyze the effects of an increase in the European money supply on the dollar/euro exchange rate.

Accepted Answer

The main points are: An increase in the

Question 5

What are the main functions of money?

Accepted Answer

Money serves, in general, three importan

Question 6

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 7

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 8

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 9

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 10

What term means an explosive and seemingly uncontrollable inflation in which money loses value rapidly and may even go out of use?

Accepted Answer

A)  superinflation 
B)  stagflation 
C)  hyperinflation 
D)  maginflation 
E)  deflation 
A)  superinflation 
B)  stagflation 
C)  hyperinflation 
D)  maginflation 
E)  deflation

Question 11

Which one of the countries below announces inflation targets?

Accepted Answer

A)  Japan 
B)  U.S. 
C)  Canada 
D)  Mexico 
E)  Nicaragua 
A)  Japan 
B)  U.S. 
C)  Canada 
D)  Mexico 
E)  Nicaragua

Question 12

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 13

During hyperinflation, exploding inflation causes real money demand to

Accepted Answer

A)  fall over time, and this additional monetary change makes money prices rise even more quickly than the money supply itself rises. 
B)  increase over time, and this additional monetary change makes money prices rise even more quickly than the money supply itself rises. 
C)  fall over time, and this additional monetary change makes money prices decrease even more quickly than the money supply itself rises. 
D)  increase over time, and this additional monetary change makes money prices decrease even more quickly than the money supply itself rises. 
E)  fall over time, and this additional monetary change makes money prices decrease even less quickly than the money supply itself rises. 
A)  fall over time, and this additional monetary change makes money prices rise even more quickly than the money supply itself rises. 
B)  increase over time, and this additional monetary change makes money prices rise even more quickly than the money supply itself rises. 
C)  fall over time, and this additional monetary change makes money prices decrease even more quickly than the money supply itself rises. 
D)  increase over time, and this additional monetary change makes money prices decrease even more quickly than the money supply itself rises. 
E)  fall over time, and this additional monetary change makes money prices decrease even less quickly than the money supply itself rises.

Question 14

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 15

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 16

Using year-by-year data from 1987-2007 shows that

Accepted Answer

A)  there is a strong positive relation between average Latin American money-supply growth and inflation. 
B)  there is a strong negative relation between average Latin American money-supply growth and inflation. 
C)  there is a strong positive relation between average Latin American money-supply growth and deflation. 
D)  it is difficult to find a strong positive relation between average Latin American money-supply growth and inflation. 
E)  there is a weak positive relation between average Latin American money-supply growth and inflation. 
A)  there is a strong positive relation between average Latin American money-supply growth and inflation. 
B)  there is a strong negative relation between average Latin American money-supply growth and inflation. 
C)  there is a strong positive relation between average Latin American money-supply growth and deflation. 
D)  it is difficult to find a strong positive relation between average Latin American money-supply growth and inflation. 
E)  there is a weak positive relation between average Latin American money-supply growth and inflation.

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

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 19

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 20

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.

Exam 15: Money, Interest Rates, and Exchange Rates

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

The long run effects of money supply change has

What will be the effects of an increase in real output on the interest rate?

Analyze the effects of an increase in the European money supply on the dollar/euro exchange rate.

What are the main functions of money?

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

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

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

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

What term means an explosive and seemingly uncontrollable inflation in which money loses value rapidly and may even go out of use?

Which one of the countries below announces inflation targets?

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.

During hyperinflation, exploding inflation causes real money demand to

An increase in a country's money supply causes

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.

Using year-by-year data from 1987-2007 shows that

The aggregate money demand depends on

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

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

Money includes

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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