1. The short-run asset market approach model assumes A) fixed money supply B) fixed nominal exchange rate C) sticky price D) growing national income
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1 1. The short-run asset market approach model assumes A) fixed money supply B) fixed nominal exchange rate C) sticky price D) growing national income 2. Which of the following is true regarding the money market? A) The money supply curve is downward sloping B) Money demand is positively related to nominal interest rate C) In short run the money market clears via the adjustment of nominal interest rate D) A permanent increase in money supply will lower the price level 3. Which of the following is true regarding the foreign exchange market? A) The market is in equilibrium if money supply equals money demand B) Everything else equal, falling domestic nominal interest rate will increase current exchange rate C) Everything else equal, falling foreign nominal interest rate will increase current exchange rate D) Rising foreign nominal interest rate will shift the DR line 4. Uncovered interest parity (UIP) states that A) The foreign and domestic nominal interest rates are equal B) The returns from foreign and domestic interest-bearing deposits are equal C) The current and expected exchange rates are equal D) The foreign and domestic real interest rates are equal 5. Domestic interest-bearing deposit becomes more attractive when A) Domestic nominal interest rate falls B) Foreign currency is expected to depreciate C) Foreign nominal interest rate rises D) Domestic currency is expected to depreciate 6. Suppose the annual nominal interest rate is 7% in US, 5% in eurozone, and the expected exchange rate in one year is 1.5 dollars per euro. Then the current exchange rate is A) 2.04 dollars per euro B) 1.53 dollars per euro C) 1.47 dollars per euro D) all above is wrong Page 1
2 7. A temporary increase in money supply will shift A) money supply curve to right B) money demand curve up C) DR line up D) FR line up 8. What is the long-run effect of a permanent increase in money supply A) nominal interest rate remains unchanged B) national income rises C) nominal exchange rate remains unchanged D) price level remains unchanged 9. A permanent increase in money supply will result in overshooting happening to? A) national income B) price level C) nominal interest rate D) nominal exchange rate 10. A permanent increase in money supply will cause in long run the same proportion rise in A) nominal exchange rate B) real exchange rate C) nominal interest rate D) real money balance 11. Suppose US' economy is in permanent recession, everything else equal A) US's demand curve for real balance shifts to right B) US interest rate falls in the long run C) US price levels remains unchanged in the long run D) US dollar depreciates more in short run than in long run 12. Suppose US economy is in temporary recession, everything else equal A) DR curve remains unchanged in short run B) FR curve remains unchanged in short run C) US money demand curve remains unchanged in short run D) US money supply curve shifts to right in short run and then moves back in long run Page 2
3 13. Suppose US real income and money supply both permanently rise by 10% A) There will be overshooting in dollar nominal exchange rate against euro B) US nominal interest falls in short run C) FR curve shifts up in short run D) Both dollar nominal and real exchange rates remain unchanged in long run 14. Country X's currency is pegged with US dollar. Suppose during a currency crises, X's currency is expected to depreciated against US dollar. Which of the following is true A) Country's X's dollar reserved would rise if the government intervenes to maintain the peg B) Country X would let its currency appreciates against dollar if the government gives up peg C) Country X would increase its interest rate if the government intervenes to maintain the peg D) Country X has to impose capital control 15. Chinese Yuan is pegged with US dollar, and the market expects Yuan will appreciate in the future. Which of the following is true A) Capital will move into China if China removes capital control B) US export to China will decrease if Yuan appreciates C) Chinese money supply will decrease if Chinese government intervenes to avoid the appreciation of Yuan D) China has to lose its monetary autonomy in long run 16. Gross national expenditure (GNE) in a closed economy is defined as: A) government spending net of taxes. B) personal consumption spending, government spending, and investment spending. C) personal consumption spending, government spending, investment spending, and spending on exports. D) production of consumer goods, government services, and capital goods. 17. In a closed economy, income generated from production is equal to: A) GNE. B) GDP. C) GNI. D) GNE, GDP, and GNI. Page 3
4 18. When calculating GDP in an open economy, we adjust gross national expenditure (GNE) by: A) subtracting exports and adding imports. B) subtracting investment from foreigners and adding foreign investment by residents. C) subtracting imports and adding exports. D) subtracting depreciation from GDP. Use the following to answer questions 19-21: Table: Hypothetical U.S. National Income and Product Accounts Data Category Billions of dollars Consumption (personal consumption expenditures) 8,000 Investment (gross private domestic investment) 1,300 Government consumption (government expenditures) 2,100 Exports 900 Imports 1,750 NFIA +45 Net unilateral transfers (Table: Hypothetical U.S. National Income and Product Accounts Data) The GNE is. A) $9,300 B) $3,400 C) $10,550 D) $11, (Table: Hypothetical U.S. National Income and Product Accounts Data) The trade balance for the economy provided is. A) $1,750 B) $900 C) $2,650 D) $ (Table: Hypothetical U.S. National Income and Product Accounts Data) The GDP for the economy provided is. A) $11,400 B) $10,575 C) $10,550 D) $10,595 Page 4
5 22. The current account (CA) represents the difference between gross national disposable Income (GNDI) and: A) GDP. B) GNP. C) domestic investment spending. D) GNE. 23. Whenever the balance on the current account (CA) is negative, it indicates that: A) the trade deficit is shrinking. B) total spending (GNE) in the economy is greater than income and is financed by borrowing from abroad. C) domestic investment (I) cannot be carried out because of a shortage of savings (S = Y C G). D) domestic investment (I) is decreasing. 24. A deficit in the financial account means: A) the nation has imported more assets than it exported. B) the nation has exported more assets than it imported. C) the nation has saved more than it invested. D) the nation has produced more than it consumed. 25. Which of the following would cause a nation's external wealth to decrease? A) a decrease in domestic GDP B) a decline in domestic real estate prices C) a current account deficit D) an increase in the unemployment rate Page 5
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