Question 1

To maintain a fixed exchange rate,authorities

Accepted Answer

A)   make laws stipulating the exchange rate.
B)   modify money supply.
C)   modify government expenses.
D)   modify taxes.E) None of the above
F) B) and D)

Question 2

The supply of euros is managed by

Accepted Answer

A)   the European Monetary Union.
B)   the European Monetary System.
C)   the European Central Bank.
D)   the European Bank for Reconstruction and Development.E) All of the above
F) None of the above

Question 3

In the New Keynesian open economy model,if the exchange rate is fixed

Accepted Answer

A)   fiscal policy and monetary policy are powerless.
B)   fiscal policy is an effective stabilization tool.
C)   a change in current total factor productivity increases output.
D)   monetary policy is an effective stabilization tool.E) C) and D)
F) B) and D)

Question 4

In the monetary small open-economy model with a fixed exchange rate,an increase in the world real interest rate

Accepted Answer

A)   increases domestic output and has no effect on the domestic price level.
B)   decreases domestic output and has no effect on the domestic price level.
C)   increases the domestic price level and has no effect on domestic output.
D)   decreases the domestic price level and has no effect on domestic output.E) A) and B)
F) A) and C)

Question 5

For a country with a fixed exchange rate,foreign exchange reserves are

Accepted Answer

A)   an asset of the domestic government.
B)   a liability of the domestic government.
C)   held by private banks.
D)   are unnecessary.E) C) and D)
F) All of the above

Question 6

In response to a temporary change in total factor productivity,the adoption of capital controls under a fixed exchange rate

Accepted Answer

A)   amplifies the effect of this disturbance on both domestic output and the domestic nominal money supply.
B)   amplifies the effect of this disturbance on domestic output and dampens the effect on the domestic nominal money supply.
C)   dampens the effect of this disturbance on domestic output and amplifies the effect on domestic nominal money supply.
D)   dampens the effect of this disturbance on both domestic output and the domestic nominal money supply.E) All of the above
F) A) and B)

Question 7

In the New Keynesian open economy model

Accepted Answer

A)   the nominal exchange rate is always fixed.
B)   prices are flexible.
C)   net exports depends on the relative price of foreign goods to domestic goods.
D)   the nominal exchange rate is always flexible.E) None of the above
F) B) and C)

Question 8

The balance of payments equals

Accepted Answer

A)   the current account surplus plus the capital account surplus.
B)   the current account surplus plus the capital account deficit.
C)   the current account deficit plus the capital account surplus.
D)   the current account deficit plus the capital account deficit.E) A) and D)
F) A) and C)

Question 9

According to purchasing power parity,the relationship among the domestic price (P) ,the foreign price (P) ,and the nominal exchange rate (e) ,can be written as

Accepted Answer

A)   
B)   
C)   
D)   E) A) and B)
F) A) and C)

Question 10

In the monetary small open-economy model with a flexible exchange rate,an increase in the foreign price level decreases

Accepted Answer

A)   domestic output, but has no effect on the domestic price level or the nominal exchange rate.
B)   the domestic price level, but has no effect on domestic output or the nominal exchange rate.
C)   the nominal exchange rate, but has no effect on domestic output or the domestic price level.
D)   the domestic price level and the nominal exchange rate, but has no effect on domestic output.E) A) and C)
F) A) and B)

Question 11

A hard peg may be achieved by all of the following except

Accepted Answer

A)   following the rules of the Bretton Woods Agreement.
B)   dollarization.
C)   establishing a currency board.
D)   mutual agreements establishing a common currency.E) A) and B)
F) A) and C)

Question 12

What is the major problem in a currency union?

Accepted Answer

A)   Money demand becomes more erratic.
B)   Participating central banks may not agree on monetary policy.
C)   It is akin to dollarization.
D)   The capital account becomes difficult to define.E) A) and B)
F) C) and D)

Question 13

A principal reason that purchasing power parity does not hold exactly in practice is

Accepted Answer

A)   that foreign and domestic assets are not perfect substitutes.
B)   the existence of non-traded goods.
C)   that consumers in different countries have different preferences.
D)   that costs of production are not the same in all countries.E) A) and C)
F) A) and D)

Question 14

A capital inflow occurs when a

Accepted Answer

A)   domestic resident purchases a domestic asset.
B)   domestic resident purchases a foreign asset.
C)   foreign resident purchases a domestic asset.
D)   foreign resident purchases a foreign asset.E) B) and C)
F) All of the above

Question 15

In the monetary small open-economy model,a flexible exchange rate insulates the domestic price level from

Accepted Answer

A)   both real and nominal shocks from abroad.
B)   real shocks from abroad, but not from nominal shocks from abroad.
C)   nominal shocks from abroad, but not from real shocks from abroad.
D)   neither real nor nominal shocks from abroad.E) None of the above
F) A) and B)

Question 16

The acquisition of a domestic financial asset by a foreign resident is called

Accepted Answer

A)   foreign direct investment.
B)   foreign capital investment.
C)   a portfolio inflow.
D)   a portfolio outflow.E) B) and C)
F) A) and D)

Question 17

In the monetary small open-economy model with a flexible exchange rate,an increase in the exchange rate has which impact on domestic money demand?

Accepted Answer

A)   It increases it.
B)   It decreases it.
C)   It has no impact.
D)   It depends.E) None of the above
F) A) and B)

Question 18

The nominal exchange rate is the

Accepted Answer

A)   domestic currency price of foreign currency.
B)   foreign currency price of domestic currency.
C)   price of domestic goods in terms of foreign goods.
D)   price of foreign goods in terms of domestic goods.E) A) and B)
F) A) and C)

Question 19

Under a flexible exchange rate,an increase in the domestic money supply leads to

Accepted Answer

A)   a devaluation of the domestic currency.
B)   a revaluation of the domestic currency.
C)   a depreciation of the domestic currency.
D)   an appreciation of the domestic currency.E) A) and B)
F) B) and D)

Question 20

In the New Keynesian open economy model,suppose the exchange rate is flexible and there is a decline in total factor productivity

Accepted Answer

A)   expansionary fiscal policy is necessary.
B)   contractionary monetary policy is necessary.
C)   expansionary monetary policy is necessary.
D)   no policy intervention is necessary.E) A) and B)
F) A) and C)

Exam 16: Money in the Open Economy

A capital inflow occurs when a

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The supply of euros is managed by

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The nominal exchange rate is the

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What is the major problem in a currency union?

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In the monetary small open-economy model with a flexible exchange rate,an increase in the foreign price level decreases

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To maintain a fixed exchange rate,authorities

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In the monetary small open-economy model with a flexible exchange rate,an increase in the exchange rate has which impact on domestic money demand?

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The acquisition of a domestic financial asset by a foreign resident is called

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The balance of payments equals

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In response to a temporary change in total factor productivity,the adoption of capital controls under a fixed exchange rate

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In the monetary small open-economy model with a fixed exchange rate,an increase in the world real interest rate

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In the New Keynesian open economy model,suppose the exchange rate is flexible and there is a decline in total factor productivity

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In the monetary small open-economy model,a flexible exchange rate insulates the domestic price level from

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A principal reason that purchasing power parity does not hold exactly in practice is

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In the New Keynesian open economy model

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For a country with a fixed exchange rate,foreign exchange reserves are

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A hard peg may be achieved by all of the following except

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Under a flexible exchange rate,an increase in the domestic money supply leads to

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In the New Keynesian open economy model,if the exchange rate is fixed

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According to purchasing power parity,the relationship among the domestic price (P) ,the foreign price (P) ,and the nominal exchange rate (e) ,can be written as

Correct AnswerverifiedShow Answer

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