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Chapter 16 Money in The Open Economy
Chapter 16 Money in The Open Economy
Chapter 14
A
Question Status:
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2)
D
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3)
the domestic economy may have a comparative advantage in only half the goods it produces.
B)
C
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4)
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
A)
P = e - P.
B)
P = P - e.
C)
P = eP.
D)
P = e/P.
Answer:
C
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Previous Edition
5)
If purchasing power parity holds, the exchange rate (e) can be expressed as a function of the domestic
price (P) and the foreign price (P*) as
A)
e = P - P*.
B)
e = P* - P.
C)
e = P* + P.
D)
e = P/P*.
Answer:
D
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New
6)
A principal reason that purchasing power parity does not hold exactly in practice is
A)
B
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7)
iPods are less expensive in Canada than the United States, once the exchange rate is taken into account.
This is an indication that
A)
B
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New
8)
Purchasing power parity may not hold in practice due to all of the following except
A)
transportation costs.
B)
B
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9)
computes real exchange rates based on the local currency price of Big Macs in different countries.
B)
compares the market shares of American fast food companies in different countries.
C)
computes the relative cost of a Big Mac to the typical full-service restaurant meal in different countries.
Answer:
A
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Previous Edition
10)
Over the period from 1989-2006, an examination of purchasing power parity between the United States
and Canada shows that
A)
purchasing power parity held almost exactly between the two countries.
B)
the real exchange rate has fluctuated, but has shown no trend.
C)
Canada's real exchange rate vs. that of the United States has increased by approximately 70%.
D)
the United States' real exchange rate vs. Canada has increased by approximately 70%.
Answer:
C
Question Status:
Revised
11)
there is no intervention by the domestic fiscal or monetary authorities to specifically target the nominal
exchange rate.
B)
there is only occasional intervention by the domestic fiscal or monetary authorities to specifically target
the nominal exchange rate.
C)
the domestic fiscal and monetary authorities retain considerable flexibility to prevent short-run variability
in the nominal exchange rate.
D)
the domestic fiscal and monetary authorities retain considerable flexibility to prevent long-run variability
in the nominal exchange rate.
Answer:
A
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12)
C
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13)
D
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14)
dollarization.
C)
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15)
tries to stabilize the value of the local currency vs. the U.S. dollar.
B)
outlaws the holding of foreign currencies other than the U.S. dollar.
Answer:
B
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16)
Which of the following was specifically instituted to ensure a successful hard peg?
A)
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17)
automatically varied in response to short-run fluctuations in the exchange rates of the member nations.
Answer:
B
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18)
C
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New
19)
places responsibility for exchange rate management in the hands of an agency that is independent of
political influences.
C)
requires that a centralized institution holds interest-bearing assets denominated in the currency against
which the nominal exchange rate is being fixed.
Answer:
D
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20)
B
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New
21)
B
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New
22)
required foreign central banks to hold certain minimum amounts of gold as foreign exchange reserves.
D)
required member nations, other than the United States, to disband their central banks.
Answer:
A
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23)
A key international institution that plays an important role in exchange rate determination is the
A)
World Bank.
D)
D
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24)
acting as lender of last resort for its member countries' central banks.
C)
B
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25)
Which of the following institutions plays the role of an international lender of last resort?
A)
B
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26)
In the monetary small open-economy model with a flexible exchange rate, an increase in the foreign price
level has which impact on domestic money demand?
A)
It increases it.
B)
It decreases it.
C)
It has no impact.
D)
It depends.
Answer:
A
Question Status:
New
27)
In the monetary small open-economy model with a flexible exchange rate, an increase in the domestic
price level has which impact on domestic money demand?
A)
It increases it.
B)
It decreases it.
C)
It has no impact.
D)
It depends.
Answer:
A
Question Status:
New
28)
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?
A)
It increases it.
B)
It decreases it.
C)
It has no impact.
D)
It depends.
Answer:
A
Question Status:
New
29)
In the monetary small open-economy model with a flexible exchange rate, an increase in the domestic
money supply increases
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.
Answer:
D
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30)
Under a flexible exchange rate, an increase in the domestic money supply leads to
A)
C
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31)
In the monetary small open-economy model with a flexible exchange rate, an increase in the foreign price
level decreases
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.
Answer:
C
Question Status:
Previous Edition
32)
In the monetary small open-economy model with a flexible exchange rate, an increase in the world real
interest rate
A)
increases domestic output and increases the nominal exchange rate, as long as real money demand is
much more responsive to real income than to the real interest rate.
B)
increases domestic output and decreases the nominal exchange rate, as long as real money demand is
much more responsive to real income than to the real interest rate.
C)
decreases domestic output and increases the nominal exchange rate, as long as real money demand is
much more responsive to real income than to the real interest rate.
D)
decreases domestic output and decreases the nominal exchange rate, as long as real money demand is
much more responsive to real income than to the real interest rate.
Answer:
B
Question Status:
Previous Edition
33)
In the monetary small open-economy model with a fixed exchange rate, an increase in the foreign price
level has which impact on domestic money demand?
A)
It increases it.
B)
It decreases it.
C)
It has no impact.
D)
It depends.
Answer:
A
Question Status:
New
34)
In the monetary small open-economy model with a fixed exchange rate, an increase in the domestic price
level has which impact on domestic money demand?
A)
It increases it.
B)
It decreases it.
C)
It has no impact.
D)
It depends.
Answer:
A
Question Status:
New
35)
In the monetary small open-economy model with a fixed exchange rate, an increase in the exchange rate
has which impact on domestic money demand?
A)
It increases it.
B)
It decreases it.
C)
It has no impact.
D)
It depends.
Answer:
A
Question Status:
New
36)
For a country with a fixed exchange rate, foreign exchange reserves are
A)
are unnecessary.
Answer:
A
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Previous Edition
37)
modify taxes.
Answer:
B
Question Status:
New
38)
In the monetary small open-economy model with a fixed exchange rate, the domestic
A)
government loses control over the level of domestic government spending and domestic taxes.
D)
D
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Previous Edition
39)
In the monetary small open-economy model with a fixed exchange rate, an increase in the foreign price
level
A)
increases the domestic money supply and increases the domestic price level.
B)
increases the domestic money supply and decreases the domestic price level.
C)
decreases the domestic money supply and increases the domestic price level.
D)
decreases the domestic money supply and decreases the domestic price level.
Answer:
A
Question Status:
Previous Edition
40)
In the monetary small open-economy model with a fixed exchange rate, an increase in the world real
interest rate
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.
Answer:
A
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Previous Edition
41)
In the monetary small open-economy model with a fixed exchange rate, a devaluation of the domestic
currency in the absence of any other shocks
A)
increases the current account surplus and has no effect on the domestic money supply.
B)
decreases the current account surplus and has no effect on the domestic money supply.
C)
increases the domestic money supply and has no effect on the current account surplus.
D)
decreases the domestic money supply and has no effect on the current account surplus.
Answer:
D
Question Status:
Previous Edition
42)
In the monetary small open-economy model with a fixed exchange rate, a temporary decrease in
domestic total factor productivity in the absence of any other shocks
A)
increases the current account surplus and increases the domestic money supply.
B)
increases the current account surplus and decreases the domestic money supply.
C)
increases the domestic money supply and decreases the current account surplus.
D)
decreases the domestic money supply and decreases the current account surplus.
Answer:
D
Question Status:
Previous Edition
43)
In the monetary small open-economy model, a fixed exchange rate insulates the domestic price level from
A)
real shocks from abroad, but not nominal shocks from abroad.
C)
nominal shocks from abroad, but not from real shocks from abroad.
D)
B
Question Status:
Previous Edition
44)
In the monetary small open-economy model, a flexible exchange rate insulates the domestic price level
from
A)
real shocks from abroad, but not from nominal shocks from abroad.
C)
nominal shocks from abroad, but not from real shocks from abroad.
D)
Previous Edition
45)
A natural region over which a single currency dominates as a medium of exchange is called
A)
sovereign nation.
B)
currency union.
Answer:
C
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46)
currency union.
C)
monetary compact.
D)
Previous Edition
47)
It is akin to dollarization.
D)
B
Question Status:
New
48)
Previous Edition
49)
B
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50)
as an accounting identity.
B)
Previous Edition
51)
never.
Answer:
D
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New
52)
A
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New
53)
a portfolio inflow.
D)
a portfolio outflow.
Answer:
A
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54)
a portfolio inflow.
D)
a portfolio outflow.
Answer:
C
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Previous Edition
55)
In response to a temporary change in total factor productivity, the adoption of capital controls under a
flexible exchange rate
A)
amplifies the effect of this disturbance on both domestic output and the nominal exchange rate.
B)
amplifies the effect of this disturbance on domestic output and dampens the effect on the nominal
exchange rate.
C)
dampens the effect of this disturbance on domestic output and amplifies the effect on the nominal
exchange rate.
D)
dampens the effect of this disturbance on both domestic output and the nominal exchange rate.
Answer:
D
Question Status:
Previous Edition
56)
In response to a temporary change in total factor productivity, the adoption of capital controls under a
fixed exchange rate
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.
Answer:
D
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Previous Edition
57)
some domestic residents better off and some worse off, although on average welfare increases.
C)
some domestic residents better off and some worse off, although on average welfare decreases.
D)
C
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