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国际经济学 金融部分

1. If the dollar interest rate is 10 percent and the euro interest rate is 6 percent,

and the expected return on dollar depreciation against the euro is 8 percent,

then

A.an investor should invest only in dollars.

B.an investor should invest only in euros.

C.an investor should be indifferent between dollars and euros.

D.It is impossible to tell given the information.

E.All of the above.

Answer: B

2. Which of the following statements is the most accurate?

A. A rise in the interest rate offered by dollar deposits causes the dollar to

appreciate.

B. A rise in the interest rate offered by dollar deposits causes the dollar to

depreciate.

C. A rise in the interest rate offered by dollar deposits does not affect the

U.S. dollar.

D.For a given euro interest rate and constant expected exchange rate, a

rise in the interest rate offered by dollar deposits causes the dollar to

appreciate.

E.None of the above.

Answer: D

3. Individuals base their demand for an asset on

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.All of the above.

E.Only A and B.

Answer: D

4. An increase in a country’s money supply causes

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 its 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.None of the above.

Answer: B

5. Which one of the following statements is the most accurate?

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. None of the above.

Answer: D

6. Which one of the following statements is the most accurate?

A.Only the long-run equilibrium price level is the value of P satisfying

P=M S/L(R,Y).

B.Only the short-run equilibrium price level is the value of P satisfying

P=M S/L(R,Y).

C.The short and long-run equilibrium price level is the value of P

satisfying P=M S/L(R,Y).

D.The long-run equilibrium price level is the value of P satisfying

P=M D/L(R,Y).

E.None of the above.

Answer: C

7. A change in the level of the supply of money

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 value of only the interest rate.

D.has no effect on the long-run value of only real output.

E.has no effect on the long-run values of the interest rate and real output.

Answer: E

8. Changes in the money supply growth rate

A.are neutral in the short run.

B.need not be neutral in the short run.

C.are neutral both in the short and long run.

D.are neutral in the long run.

E.need not be neutral in the long run.

Answer: D

9. A sustained change in the monetary growth rate will

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.

Answer: E

10. Wages

A. enter indices of the price level directly.

B. do not enter indices of the price level directly, but they make up a

small fraction of the cost of producing goods and services.

C. do not enter indices of the price level directly, but they make up a

negligible fraction of the cost of producing goods and services.

D. do not enter indices of the price level directly, but they make up a large

fraction of the cost of producing goods and services.

E. None of the above.

Answer: D

11. For all the main industrial countries in recent years,

A. the exchange rate is much more variable than relative price levels.

B. the exchange rate is much less variable than relative price levels.

C. the exchange rate is as variable as the relative price levels.

D. It is hard to tell from the data whether the exchange rate is much more

variable than relative price levels.

E. None of the above.

Answer: A

12. After a permanent increase in the money supply,

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.None of the above.

Answer: A

13. In order for the condition E$/HK$ = Pus/P HK to hold, what assumptions does

the principle of purchasing power parity make?

A. No transportation costs and restrictions on trade; commodity baskets

that are a reliable indication of price level.

B.Markets are perfectly competitive, i.e., P = M

C.

C. The factors of production are identical between countries.

D. No arbitrage exists.

E. All of the above.

Answer: E

14. Which of the following statements is the most accurate?

A.In the long run, national price levels play a minor role in determining

both interest rates and the relative prices at which countries’ products

are traded.

B.In the long run, national price levels play a key role only in

determining interest rates.

C.In the long run, national price levels play a key role only in

determining the relative prices at which countries’ products are traded.

D.In the long run, national price levels play a key role in determining

both interest rates and the relative prices at which countries’ products

are traded.

E.None of the above.

Answer: D

15 Under Purchasing Power Parity,

A.E$/E = P i US/ P i E.

B.E$/E = P i E / P i US.

C.E$/E = P US / P E.

D.E$/E = P E / P ES.

E.None of the above.

Answer: C

16 Which of the following statements is the most accurate?

A.Absolute PPP does not imply relative PPP.

B.Relative PPP implies absolute PPP.

C.There is no causality relation between the two.

D.Absolute PPP implies relative PPP.

E.None of the above statements is true.

Answer: D

17. Which of the following statements is the most accurate?

A.Relative PPP is valid even when absolute PPP is not, provided the

factors causing deviations from absolute PPP are more or less stable

over different commodities space.

B.Absolute PPP is valid even when relative PPP is not, provided the

factors causing deviations from relative PPP are more or less stable

over time.

C.Relative PPP is valid even when absolute PPP is not, provided the

factors causing deviations from absolute PPP are more or less stable

over time.

D.Relative PPP is not valid when absolute PPP is not.

E.None of the above statements is true.

Answer: C

18. Which of the following statements is the most accurate? In general,

A. The monetary approach to the exchange rate is a long-run theory.

B.The monetary approach to the exchange rate is a short-run theory.

C.The monetary approach to the exchange rate is both a short- and

long-run theory.

D.The monetary approach to the exchange rate neither long-run nor

short-run theory.

E.None of the above statements is true.

Answer: A

19. The monetary approach makes the general prediction that

A.The exchange rate, which is the relative price of American and

European money, is fully determined in the long run by the relative

supplies of those monies.

B.The exchange rate, which is the relative price of American and

European money, is fully determined in the short run by the relative

supplies of those monies and the relative demands for them

C.The exchange rate, which is the relative price of American and

European money, is fully determined in the short- and long run by the

relative supplies of those monies and the relative demands for them

D.The exchange rate, which is the relative price of American and

European money, is fully determined in the long run by the relative

supplies of those monies and the relative demands for them

E.None of the above statements is true.

Answer: A

20. Under sticky prices,

A. a fall in the money supply raises the interest rate to preserve money

market equilibrium.

B. a fall in the money supply reduces the interest rate to preserve money

market equilibrium.

C. a fall in the money supply keeps the interest rate intact to preserve

money market equilibrium.

D. a fall in the money supply does not affect the interest rate in the short

run, only in the long run.

E. None of the above statements is true.

Answer: A

21. Under the monetary approach to the exchange rate,

A. an interest rate decrease is associated with higher expected inflation

and a currency that will be weaker on all future dates.

B. an interest rate increase is associated with higher expected deflation

and a currency that will be weaker on all future dates.

C. an interest rate increase is associated with higher expected inflation

and a currency that will be strengthened on all future dates.

D. an interest rate increase is associated with higher expected deflation

and a currency that will be strengthened on all future dates.

E. an interest rate increase is associated with higher expected inflation

and a currency that will be weaker on all future dates.

Answer: E

22. Which of the following statements is the most accurate?

A. The prices of identical commodity baskets, when converted to a single

currency, are the same across countries.

B. The prices of identical commodity baskets, when converted to a single

currency, differ substantially across countries.

C. The prices of identical commodity baskets, when converted to a single

currency, do not differ substantially across countries.

D. The prices of identical commodity baskets, when converted to a single

currency, are often the same across countries.

E. None of the above statements is true.

Answer: B

23. Which of the following statements is the most accurate?

A. Relative PPP is not a reasonable approximation to the data.

B. Relative PPP is sometimes a reasonable approximation to the data but

usually performs poorly.

C. Relative PPP is sometimes a reasonable approximation to the data.

D. PPP is sometimes a reasonable approximation to the data.

E. PPP is sometimes a reasonable approximation to the data but usually

performs poorly.

Answer: B

24. The PPP theory fails in reality because

A. transport costs and restrictions on trade.

B. monopolistic or oligopolistic practices in goods markets.

C. the inflation data reported in different countries are based on different

commodity baskets.

D. A, B, and C.

E. A and B only.

Answer: D

25. Which one of the following statements is the most accurate?

A. The purchasing power of any given country will increase in countries

where the prices of non-tradable goods rise.

B. The purchasing power of any given country will fall in countries where

the prices of non-tradable goods increase.

C. The purchasing power of any given country will fall in countries where

the prices of non-tradable goods rise.

D. The purchasing power of any given country will remain constant in

countries where the prices of non-tradable goods rise.

E. The purchasing power of any given country will fall in countries where

the prices of non-tradable goods remain constant.

Answer: C

26. Which one of the following statements is the most accurate?

A. Relative price changes could not lead to PPP violations even if trade

were free and costless.

B. Relative price changes could lead to PPP violations only if trade were

free and costless.

C. Relative price changes could lead to PPP violations even if trade were

free and costless.

D. Price changes could lead to PPP violations even if trade were free and

costless.

E. None of the above statements is true.

Answer: C

27. Which one of the following statements is the most accurate?

A. Departures from PPP are similar in both the short run and long run.

B. Departures from PPP are even greater in the long run than in the short

run.

C. Departures from PPP are smaller in the long run than in the long run.

D. It is hard to tell whether departures from PPP are greater in the short

run than in the long run.

E. Departures from PPP are even greater in the short run than in the long

run.

Answer: E

28. Floating exchange rates

A. systematically lead to larger and more frequent short-run deviations

from the relative PPP.

B. systematically lead to much larger but less frequent short-run

deviations from the relative PPP.

C. systematically lead to much larger and more frequent short-run

deviations from the relative PPP.

D. systematically lead to much smaller and less frequent short-run

deviations from the relative PPP.

E. systematically lead to much smaller but more frequent short-run

deviations from the relative PPP.

Answer: C

29. How does an increase in the real exchange rate affect exports and imports?

A.Exports increase; imports decrease

B.Exports decrease; imports increase.

C.Exports increase; imports change ambiguously.

D.Exports change ambiguously; imports decrease.

E.Exports increase; imports are constant.

Answer: C

30. The J-curve illustrates which of the following?

A. The effects of depreciation on the home country's economy

B. The immediate increase in the current account caused by a currency

depreciation

C. The gradual adjustment of home prices to a currency depreciation

D. The short-term effects of depreciation on the current account

E. The Keynesian view of international trade dynamics

Answer: D

31. The Marshall-Lerner Condition states that

A. depreciation always has a favorable effect on the current account.

B. import dependency reinforces the effects of depreciation on the current

account.

C. high elasticity of exports is sufficient for the favorable effects of

depreciation on the current account to be observed.

D. depreciation has a favorable effect on the current account only if the

sum of export and import elasticities is greater than one.

E. the sum of import and export elasticities must be equal to one in order

for depreciation to occur.

Answer: D

32. If the economy starts in long-run equilibrium, a permanent fiscal expansion

will cause

A. an increase in exchange rate, E.

B. a decrease in exchange rate, E.

C. an increase in output, Y.

D. a decrease in output, Y.

E. shifting of the AA curve up and to the right.

Answer: B

33. In the long-run equilibrium, after a permanent money-supply increase there

follows:

A. an increase in exchange rate, E.

B. a decrease in exchange rate, E.

C. an increase in output, Y.

D. a decrease in output, Y.

E. Both B and D.

Answer: A

34. Which of the following are true in terms of the current account balance?

A. Monetary expansion increases the current account balance.

B. Monetary expansion decreases the current account balance.

C. Fiscal expansion increases the current account balance.

D. Fiscal expansion decreases the current account balance.

E. Both A and D

Answer: E

35. In the short run, with prices fixed, how would an increase in government

spending affect the DD-AA schedule?

A. It will increase output and appreciate the currency.

B. It will increase output and depreciate the currency.

C. It will decrease output and appreciate the currency.

D. It will decrease output and depreciate the currency.

E. None of the above.

Answer: A

36. The domestic currency price of a representative foreign expenditure basket is

A.P, the domestic price level.

B.E, the nominal exchange rate.

C.P times E, the domestic price level times the domestic price level.

D.P*, the foreign price level.

E.P* times E, the foreign price level times the nominal exchange rate.

Answer: E

37. When EP*/P rises,

A. IM will rise.

B. IM will fall.

C. IM may rise or fall.

D. IM is not affected.

E. None of the above.

Answer: C

38. In the short run, a rise in the exchange rate, i.e. currency depreciation,

A.raises aggregate demand and raises output.

B.raises aggregate demand and lowers output.

C.raises aggregate demand and does not affect output.

D.lowers aggregate demand and raises output.

E.lowers aggregate demand and lowers output.

Answer: A

39. Why is the reserve center in the reserve currency fixed rate system asymmetric?

A. The reserve center fixes its exchange rate against the reserve currency,

and all other countries are subject to that rate.

B. Other countries fix their exchange rate to the reserve currency, and

there is no exchange rate left for the reserve center to fix.

C. The center country has to intervene all the time and regulate the

balance of payments.

D. The center country never has to intervene and bears none of the burden

of financing its balance of payments.

E.Both B and D.

Answer: E

40. Imperfect asset substitutability assumes that

A. the returns on foreign and domestic currency bonds are the same.

B. the returns on foreign and domestic currency are different.

C. the returns on foreign and domestic currency are influenced by risk.

D. Both B and C

E.sterilized intervention proves to be unproductive.

Answer: D

41. Benefit(s) of the gold standard include

A. asymmetry.

B. making real values of national monies more stable and predictable.

C. limiting money creation.

D. Both A and C.

E.Both B and C.

Answer: E

42. Which of the following are true, based on the Monetary Approach to the

Balance of Payments?

A.If the demand for money increases, a budget surplus will result, and the

money supply will have to decrease to maintain equilibrium.

B.If the demand for money increases, a budget surplus will result, and the

money supply will have to increase to maintain equilibrium.

C.If the demand for money increases, a budget deficit will result, and the

money supply will have to decrease to maintain equilibrium.

D.If the demand for money increases, a budget deficit will result, and the

money supply will have to increase to maintain equilibrium.

E.According to the Monetary Approach, money market equilibrium does not

have to be maintained if the balance of payments is not in equilibrium.

Answer: B

43. By fixing the exchange rate, the central bank gives up its ability to

A.adjust taxes.

B.increase government spending.

C.influence the economy through fiscal policy.

D.depreciate the domestic currency.

E.influence the economy through monetary policy.

Answer: E.

44. Fiscal Expansion under a fixed exchange rate has what effect(s) on the

economy?

A.The money supply decreases.

B.Output decreases.

C.The exchange rate increases.

D.The exchange rate decreases initially but then returns to its original

point.

E.Output is unchanged.

Answer: D.

45. Which one of the following statements is the most true?

A.If central banks are not sterilizing and the home country has a balance

of payments surplus, any associated increase in the home central

bank’s foreign asset implies an increased home money supply.

B.If central banks are not sterilizing and the home country has a balance

of payments surplus, any associated increase in the home central

bank’s foreign asset implies a decreased home money supply.

C.If central banks are not sterilizing and the home country has a balance

of payments surplus, any associated increase in the home central

bank’s foreign asset implies an increased home money demand.

D.If central banks are not sterilizing and the home country has a balance

of payments surplus, any associated decreased in the home central

bank’s foreign asset implies an increased home money supply.

E.None of the above statement is true.

Answer: A

46. Under fixed exchange rate, in general,

A.the domestic and foreign interest rates are equal, R = R*.

B.R = R* + (E e– E)/E.

C.None of the above.

D. E is equal to one.

E.One of the above.

Answer: A

47. Under fixed exchange rate, in general which one of the following statements is the

most accurate?

A.The following condition should hold for domestic money market

equilibrium: M s/P = L(R*, Y).

B.The following condition should hold for domestic money market

equilibrium: M s/P = L(R, Y).

C.The following condition should hold for domestic money market

equilibrium: M d/P = L(R*, Y).

D.The following condition should hold for domestic money market

equilibrium: M s = L(R*, Y).

E.The following condition should hold for domestic money market

equilibrium: P = L(R*, Y).

Answer: A

48. Which one of the following statements is the most accurate?

A.Under a fixed exchange rate, central bank monetary tools are

powerless to affect the economy’s money supply.

B.Under a flexible exchange rate, central bank monetary tools are

powerless to affect the economy’s money supp ly or its output.

C.Under a fixed exchange rate, fiscal policy tools are powerless to affect

the economy’s money supply or its output.

D.Under a fixed exchange rate, central bank monetary tools are

powerless to affect the economy’s money supply or its output.

E.Under a dirty float exchange rate, central bank monetary tools are

powerless to affect the economy’s money supply or its output.

Answer: D

49. Under fixed rates, which one of the following statements is the most accurate?

A.Fiscal policy can affect output, employment, and international reserves

at the same time.

B.Fiscal policy can affect only employment.

C.Fiscal policy can affect only international reserves.

D.Fiscal policy can affect only output and employment.

E.None of the above statements is true.

Answer: A

50. Which one of the following statements is the most accurate?

A.Depreciation is a rise in E when the exchange rate is fixed, and

devaluation is a rise in E when the exchange rate floats.

B.Depreciation is a decrease in E when the exchange rate floats, and

devaluation is a rise in E when the exchange rate is fixed.

C.Depreciation is a rise in E when the exchange rate floats, and

devaluation is a rise in E when the exchange rate is fixed.

D.Depreciation is a rise in E when the exchange rate floats, and

devaluation is a decrease in E when the exchange rate is fixed.

E.None of the above.

Answer: C

51. Under fixed exchange rate, which one of the following statements is the most

accurate?

A.Devaluation causes a decrease in output, a decrease in official reserves,

and a contraction of the money supply.

B.Devaluation causes a rise in output, a rise in official reserves, and an

expansion of the money supply.

C.Devaluation causes a rise in output and a rise in official reserves.

D.Devaluation causes a rise in output and an expansion of the money

supply.

E.Devaluation causes a rise in official reserves and an expansion of the

money supply.

Answer: B

52. The main reason(s) why governments sometimes chose to devalue their

currencies is (are):

A.devaluation allows the government to fight domestic unemployment

despite the lack of effective monetary policy.

B.devaluation improves in the current account.

C.devaluation increases foreign reserves held by the central bank.

D.All of the above.

E.None of the above.

Answer: D

53. Under the price-specie-flow mech anism, what happens when Germany’s

current account surplus is greater than its non-reserve capital account deficits?

A. German loans will finance all foreign net imports.

B. There will be an automatic drop in German domestic prices and a rise

in foreign prices.

C. Gold reserves will flow into Germany.

D.Gold reserves will flow out of Germany.

E.None of the above.

Answer: C

54. External balance means

A. balance in the country’s current account.

B. balance in the country’s service account.

C. balance in the count ry’s capital account.

D. balance in the country’s trade account.

E. None of the above.

Answer: E

55. A current account surplus

A. poses a problem if domestic savings are being invested more profitably

abroad than they would be at home.

B. may pose no problem if domestic savings are being invested more

profitably abroad than they would be at home.

C. may pose no problem if domestic savings are being invested less

profitably abroad than they would be at home.

D. there is no relation between current account surplus and between

savings and investment.

E. None of the above.

Answer: B

56. Countries where investment is relatively

A. productive should be net exporters of currently available output.

B. unproductive should be net importers of currently available output.

C. unproductive should be net exporters of currently available output.

D. unproductive should be net exporters of future available output.

E. None of the above.

Answer: C

57. Under the gold standard era of 1870 – 1914,

A. central banks tried to have sharp fluctuations in the balance of

payments.

B. central banks tried to avoid sharp fluctuations in the current account of

the balance of payments.

C. central banks tried to avoid sharp fluctuations in the trade account of

the balance of payments.

D. central banks tried to avoid sharp fluctuations in the capital account of

the balance of payments.

E. central banks tried to avoid sharp fluctuations in the balance of

payments.

Answer: E

58. Under the gold standard,

A. a perpetual surplus is possible.

B. a perpetual deficit is possible.

C. a perpetual surplus is impossible, but a perpetual deficit is possible.

D. a perpetual deficit is impossible, but a perpetual surplus is possible.

E. a perpetual surplus is impossible.

Answer: E

59. A policy of “beggar-thy-neig hbor” is a policy that

A.often benefits the home country in the long run.

B.often benefits the foreign country in the long run.

C.often benefits the foreign country in the short run.

D.does not often benefit any country in the long run.

E.None of the above.

Answer: D

60. The IMF articles of 1944

A.called for convertibility on current account transactions only.

B.called for convertibility on capital account transactions only.

C.called for convertibility on current and capital account transactions.

D.did not call for convertibility on current account transactions.

E.did not call for convertibility on current and capital account

transactions.

Answer: A

61. The dollar of the United States became the postwar world’s key currency

because

A. of the early convertibility of the U.S. dollar in 1945.

B. of the special position of the dollar under the Bretton Woods system.

C. of the strength of the American economy relative to the devastated

economies of Europe and Japan.

D. Central banks naturally found it advantageous to hold their

international reserves in the form of interest-bearing dollar assets..

E. All of the above.

Answer: E

62. Under fixed exchange rates,

A monetary policy is not an effective policy.

B fiscal policy is not an effective policy.

C monetary policy and fiscal policy are not effective.

D both monetary and fiscal policies are effective.

E None of the above.

Answer: A

63 Which of the following is NOT a result of a temporary fall in foreign demand

on one country’s exports under floating exchange rate?

A. The DD curve shifts to the left due to reduction of aggregate demand.

B. The AA curve shifts downwards due to reduction of money supply.

C. Aggregate output falls

D. The home country’s currency depreciates.

E. None of the above.

Answer: B

64. The MAIN reason behind the claims that the "Greater Autonomy" resulting

from floating rates is illusionary is that

A.there is no evidence backing the claim.

B.the exchange rate is an important macroeconomic variable and policy

makers will still consider its effect on the exchange rate.

C.this claim is dependent on whom the government or policymakers are.

D.None of the above.

E.All of the above.

Answer: B

65. Advocates of flexible exchange rates claim that under flexible exchange rates,

A.no country would be forced to import only inflation from abroad.

B.no country would be forced to import only deflation from abroad.

C.no country would be forced to import inflation and deflation from

abroad.

D.flexible exchange rates are not able to halt importing inflation from

abroad.

E.flexible exchange rates are not able to halt importing deflation from

abroad.

Answer: C

66. Advocates of flexible exchange rates claim that under flexible exchange rates,

a currency

A.depreciation caused by increasing the money supply would reduce

unemployment by increasing world demand for them.

B.appreciation caused by increasing the money supply would reduce

unemployment by increasing world demand for them.

C.appreciation caused by decreasing the money supply would reduce

unemployment by increasing world demand for them.

D.appreciation caused by increasing the money supply would increase

unemployment by increasing world demand for them.

E.appreciation caused by increasing the money supply would increase

unemployment by decreasing world demand for them.

Answer A

67. Under purchasing power parity (PPP), if U.S. monetary growth leads to a

long-run doubling of the U.S. price level, while Germany’s price level remains constant, PPP predicts that the

A.long-run DM price of the dollar will be doubled.

B.long-run DM price of the dollar will be halved.

C.long-run DM price of the dollar will remain the same.

D.short-run DM price of the dollar will be halved.

E.None of the above.

Answer: B

68. Under a flexible exchange rate regime, a money-induced

A.decrease in U.S. prices causes an immediate appreciation of the

foreign currencies against the dollar.

B.increase in U.S. prices causes an immediate appreciation of the foreign

currencies against the dollar.

C.increase in U.S. prices causes an eventual appreciation of the foreign

currencies against the dollar.

D.increase in U.S. prices causes an eventual depreciation of the foreign

currencies against the dollar.

E.None of the above.

Answer: B

69. Under a fixed exchange rate regime, an increase in real money demand

A.moves the AA curve to the right.

B.leaves the AA curve unchanged.

C.moves the AA curve to the left.

D.moves the DD curve to the right.

E.None of the above.

Answer: B

70. Under a flexible exchange rate regime, an increase in real money demand

A. moves the AA curve to the right.

B. moves the AA curve to the left.

C. leaves the AA curve unchanged.

D. moves the DD curve to the right.

E. moves the DD curve to the left.

Answer: B

71. The effects of an increase in real money demand on an economy

A.are a powerful argument in favor of fixed rates.

B.are a powerful argument in favor of flexible rates.

C.show the difficulties in determining which exchange rate is better.

D.are a powerful argument in favor of fixed rates only in the short run.

E.are a powerful argument in favor of fixed rates only in the long run.

Answer: A

72. The effects of a decrease in export demand

A.are a powerful argument in favor of fixed rates.

B.are a powerful argument in favor of flexible rates.

C.Show the difficulties in determining which exchange rate is better.

D.are a powerful argument in favor of fixed rates only in the short run.

E.are a powerful argument in favor of fixed rates only in the long run.

Answer: B

1. Using figures for both the short run and the long run, show the effects of a

permanent increase in the U.S. money supply. Try to line up your figures to

the short and long run equilibria side by side. Assume that the U.S. real

national income is constant.

2. 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.

3 Present and explain the Fundamental Equation of the Monetary Approach.

What are the predictions for the long run of the Monetary Approach?

4Explain why price levels are lower in poorer countries.

5Describe the chain of events leading to exchange rate determination for the following cases:

An increase in the U.S. money supply

An increase in the growth rate of the U.S. money supply

An increase in world relative demand for U.S. products

An increase in relative U.S. output supply

6Under fixed exchange rate, show the effects of an expansionary fiscal policy.

Show the equilibrium under a flexible exchange rate. Discuss the difference in the two regimes.

7. Use a figure to study the effects of a change in market belief with regard to the

fixed exchange rate, in particular assume market participants expect the

government to devaluate.

8. Use a figure to study the following question: Imagine that the economy is at a

point on the DD-AA schedule that is above both AA and DD, where both the

output and asset markets are out of equilibrium. Explain what will happen

next.

9. Using a figure, show that under full employment, a temporary fiscal expansion

would increase output (over-employment) but cannot increase output in the

long run.

10. Use the DD – AA model to examine and compare the response of an economy

under fixed and floating exchange-rate regimes to a temporary fall in foreign

demand for its exports.

11. Use the DD – AA model to examine and compare the response of an economy

under fixed and floating exchange-rates regimes to a permanent fall in foreign demand for its exports.

12. Using the AA – DD framework, compare the effects of a rise in real domestic

money demand under flexible and under fixed exchange-rate regimes.