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ECON 2123 Quiz 5

This document contains 20 multiple choice questions testing knowledge of macroeconomic concepts related to exchange rates, monetary and fiscal policy, and international trade. The questions cover topics such as the effects of changes in exchange rates, interest rates, government spending, taxes, and foreign output on variables like net exports, the trade balance, consumption, investment and domestic output.

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0% found this document useful (0 votes)
146 views4 pages

ECON 2123 Quiz 5

This document contains 20 multiple choice questions testing knowledge of macroeconomic concepts related to exchange rates, monetary and fiscal policy, and international trade. The questions cover topics such as the effects of changes in exchange rates, interest rates, government spending, taxes, and foreign output on variables like net exports, the trade balance, consumption, investment and domestic output.

Uploaded by

Charlie Tsui
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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1.

Which of the following conditions will occur when two countries are engaged in
a credible, fixed exchange rate regime?
A. E = 1
B. E > 1
C. i = i *
D. E < 1

2. When E increases by 5%, we know that


A. a real appreciation will occur if P decreases by 5%.
B. a real depreciation will occur if P also increases by 5%.
C. a nominal appreciation will occur.
D. a nominal depreciation will occur.

3. Suppose there is a real depreciation of the dollar. Which of the following may
have occurred?
A. foreign currency has become more expensive in dollars.
B. foreign goods have become more expensive to Americans
C. the foreign price level has increased relative to the U.S. price level.
D. all of these
E. none of these

4. Suppose there is a reduction in foreign output (Y*). This reduction in Y* will


cause which of the following in the domestic country?
A. a reduction in output
B. a reduction in consumption
C. a reduction in net exports
D. all of these
E. all of these

5. Which of the following occurs when the goods market is in equilibrium?


A. domestic output (Y) equals the demand for domestic goods.
B. Y equals the domestic demand for goods.
C. Y equals the domestic demand for domestic goods.
D. net exports equals 0.
E. demand for domestic goods equals the domestic demand for goods.

6. Which of the following will occur as a result of a tax increase?


A. private saving increases
B. investment increases
C. the trade balance improves
D. the trade balance worsens
E. the budget deficit increases
7. An increase in government spending will have a greater impact on net exports
when
A. the marginal propensity to save is smaller.
B. the economy is closed.
C. the sensitivity of investment to income is smaller.
D. all of these
E. none of these

8. Which of the following conditions must be satisfied for the demand for
domestic goods to be equal to the domestic demand for goods?
A. X = εIM
B. X = 0
C. G - T = 0
D. S = I
E. X = IM/ε

9. Assume that the interest parity holds and that the dollar is expected to
depreciate against the pound. Given this information, we know that
A. U.S. and U.K. interest rates are equal.
B. the U.S. interest rate exceeds the U.K. interest rate.
C. the U.K. interest rate exceeds the U.S. interest rate.
D. individuals will prefer to hold U.S. bonds because the U.S. interest rate
exceeds the U.K. interest rate.
E. none of these

10. As the economy moves up and to the left along the IS curve, which of the
following will occur when exchange rates are flexible?
A. investment spending decreases
B. consumption decreases
C. the domestic currency appreciates
D. all of these
E. none of these

11. For this question, assume that there is a simultaneous increase in government
spending and monetary contraction. In a flexible exchange rate regime, we know
with certainty that such a policy mix will cause which of the following?
A. an increase in the domestic interest rate
B. an increase in the exchange rate
C. a reduction in net exports
D. all of these
E. only A and C
12. Under a fixed exchange rate regime, expansionary fiscal policy will tend to cause
which of the following?
A. an increase in imports
B. an increase in net exports
C. a reduction in investment
D. all of these

13. A common argument for fixed exchange rates is that they


A. give central banks greater freedom in adjusting their economy's level of
output.
B. forever free the central bank from having to adjust the exchange rate to
fundamental changes in the economy.
C. make trade more costly, and thus encourage domestic citizens to buy
domestically produced output.
D. all of these
E. none of these

14. 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. a reduction in E.
C. an expected depreciation of the domestic currency.
D. all of these

15. 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.
E. all of these

16. Expansionary monetary policy in a flexible exchange rate regime will cause
A. a shift of the IP curve.
B. an appreciation of the domestic currency.
C. a reduction in E.
D. no change in E.
17. For this question, assume that policy makers are pursuing a fixed exchange rate
regime. Now suppose that households decide to increase consumption because
of, for example, an increase in consumer confidence. Given this information, we
would expect which of the following to occur?
A. increase in the domestic interest rate
B. a reduction in E
C. an increase in E
D. an increase in investment
E. none of these

18. Assume that the interest parity condition holds. Also assume that the U.S.
interest rate is 6% while the U.K. interest rate is 8%. 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%.

19. In an open economy under flexible exchange rates, a reduction in government


spending will cause a reduction in which of the following?
A. net exports
B. the exchange rate, E
C. exports
D. all of these
E. none of these

20. 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.

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