Money and Banking II

Spring 2024

Midterm Exam

You are not allowed to use phones and any handouts. All calculations can be done without
using calculators. Cheating is a significance offense against university academic policy. If
cheating or identical answers are detected, you will automatically receive an F grade for the
entire course.

1. Keeping all other factors constant, what will happen with the value of domestic currency
today if people expect that return on domestic financial assets will increase soon, please
use the supply and demand analysis for the financial assets that we have covered? (15
points)

2. What types of exchange rate regimes do you know? (15 points)

3. If the Central Bank is conducting foreign exchange intervention (selling US dollars),

what will happen with international reserves, monetary base (reserves of banks), and the
value of domestic currency? (15)

4. Please list factors that explain the shifts of Aggregate Demand curve. (15 points)
5. Using Aggregate Demand and Aggregate Supply curves, show what will happen with a
new short-run equilibrium domestic price level and real output (economic activity) if the
Central Bank decreases the policy rate? (20 points)

6. Using Aggregate Demand and Aggregate Supply curves, show what will happen with a
new short-run equilibrium domestic price level and real output (economic activity), if the
country experiences sudden inflow of the labor force that decreases the average wage in
the country? (20 points)

7. Please write down and explain the formula of real exchange rate? What does this
indicator show us? Bonus question (15 points)