Chapter 19 Flashcards
Assume that the price levels in two countries are constant. In this situation, we know that
A) neither the real nor the nominal exchange rate can change.
B) the real exchange rate can change, while the nominal exchange rate is constant.
C) the nominal exchange rate can change, while the real exchange rate is constant.
D) the real and nominal exchange rate must move together, changing by the same percentage.
E) the nominal exchange rate will fluctuate more widely than the real exchange rate.
D) the real and nominal exchange rate must move together, changing by the same percentage.
An increase in the real exchange rate will cause
A) an increase in net exports.
B) an increase in the quantity of imports.
C) an increase in output.
D) a decrease in government spending.
B) an increase in the quantity of imports.
As the economy moves down and to the right along the IS curve, which of the following will occur when exchange rates are flexible? A) investment spending increases B) consumption increases C) the domestic currency depreciates D) all of the above
D) all of the above
The interest parity condition indicates that the domestic interest rate must be equal to
A) the foreign interest rate.
B) the expected rate of depreciation of the domestic currency.
C) the expected rate of appreciation of the domestic currency.
D) the foreign interest rate minus the expected rate of appreciation of the domestic currency.
D) the foreign interest rate minus the expected rate of appreciation of the domestic currency.
Assume that the interest parity condition holds. Also assume that the U.S. interest rate is 8% while the U.K. interest rate is 6%. Given this information, financial markets expect the pound to A) depreciate by 14%. B) depreciate by 2%. C) appreciate by 2%. D) appreciate by 6%. E) appreciate by 14%.
C) appreciate by 2%.
A real appreciation will tend to cause A) an increase in exports. B) a reduction in imports. C) an increase in net exports. D) a reduction in demand for domestic goods.
D) a reduction in demand for domestic goods.
A reduction in the real exchange rate will cause
A) a reduction in net exports.
B) a reduction in the quantity of imports.
C) a reduction in output.
D) an increase in government spending.
B) a reduction in the quantity of imports.
In an open economy under flexible exchange rates, expansionary monetary policy that results in an increase in the money supply will always cause A) an increase in output. B) an increase in exports. C) a reduction in the exchange rate, E. D) all of the above E) only A and C
D) all of the above
In a flexible exchange rate regime, an increase in the foreign interest rate (i*) will cause
A) the IP curve to shift to the left/up.
B) the IP curve to shift to the right/down.
C) a movement along the IP curve.
D) neither a shift nor movement along the IP curve.
A) the IP curve to shift to the left/up.
Assume the interest parity condition holds and that initially i = i*. A reduction in the domestic interest rate will cause
A) an increase in the demand for the domestic currency.
B) an increase in E.
C) a decrease in the demand for domestic currency.
D) all of the above
C) a decrease in the demand for domestic currency.
For this question, assume that there is a simultaneous tax increase and monetary expansion. In a flexible exchange rate regime, we know with certainty that
A) the exchange rate and output would both increase.
B) the exchange rate would increase and output would decrease.
C) the exchange rate would decrease.
D) the exchange rate would decrease and output would increase.
C) the exchange rate would decrease.
Contractionary monetary policy in a flexible exchange rate regime will cause
A) a shift of the IP curve.
B) a depreciation of the domestic currency.
C) an increase in E.
D) no change in E.
C) an increase in E.
