ECON 2123 Quiz 5
ECON 2123 Quiz 5
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
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
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
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
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%.
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.