Question 1

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 cause interest rate to decrease. This should increase investment and possibly consumption of durable goods. The reduction in the interest rate will cause a depreciation of the dollar.

Question 2

What are the main functions of money?

Accepted Answer

Money serves in general three important functions: a medium of exchange; a unit of account; and a store of value. As a medium of exchange, money avoids going back to a barter economy, with the enormous search costs connected with it. As a unit of account, the use of money economizes on the number of prices an individual faces. Consider an economy with N goods, then one needs only (N - 1) prices. As a store of value, the use of money in general ensures that you can transfer wealth between periods.

Question 3

If there is initially

Accepted Answer

A)  excess demand for money, the interest rate falls, and if there is initially an excess supply, it rises. 
B)  excess supply of money, the interest rate falls, and if there is initially an excess demand, it rises. 
C)  excess supply of money, the interest rate increases, and if there is initially an excess demand, it falls. 
D)  excess supply of money, the interest rate falls, and if there is initially an excess demand, it further falls. 
E)  excess supply of money, the interest rate increases, and if there is initially an excess demand, it falls 
A)  excess demand for money, the interest rate falls, and if there is initially an excess supply, it rises. 
B)  excess supply of money, the interest rate falls, and if there is initially an excess demand, it rises. 
C)  excess supply of money, the interest rate increases, and if there is initially an excess demand, it falls. 
D)  excess supply of money, the interest rate falls, and if there is initially an excess demand, it further falls. 
E)  excess supply of money, the interest rate increases, and if there is initially an excess demand, it falls B

Question 4

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 5

What year did the Bolivian government introduce a stabilizing plan to end hyperinflation?

Accepted Answer

A)  1983 
B)  1984 
C)  1985 
D)  1986 
A)  1983 
B)  1984 
C)  1985 
D)  1986

Question 6

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 7

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 8

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 9

Explain why one can write the demand for money as follows:

Accepted Answer

The aggregate money demand is proportion

Question 10

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 11

In the United States at the end of 2009, the total money supply, M1, amounted to approximately

Accepted Answer

A)  12 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)  12 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 12

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 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

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.

Question 15

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 16

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 17

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 18

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

Accepted Answer

Three main factors: first, the expected

Question 19

The long run effects of money supply change:

Accepted Answer

A)  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)  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)  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)  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)  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)  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 20

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.

Exam 15: Money, Interest Rates, and Exchange Rates

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

What are the main functions of money?

If there is initially

If there is an excess supply of money:

What year did the Bolivian government introduce a stabilizing plan to end hyperinflation?

Which one of the following statements is the most accurate?

A reduction in a country's money supply causes:

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

Explain why one can write the demand for money as follows:

Which one of the following statements is the most accurate?

In the United States at the end of 2009, the total money supply, M1, amounted to approximately

An increase in a country's money supply causes

After a permanent increase in the money supply,

Which one of the following statements is the most accurate?

A permanent increase in a country's money supply

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

Individuals base their demand for an asset on

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

The long run effects of money supply change:

Which one of the following statements is the most accurate?

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

Optimum Currency Areas and the European Experience

Financial Globalization: Opportunity and Crisis

Developing Countries: Growth, Crisis, and Reform

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