ECON 4423: INTERNATIONAL FINANCE

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "ECON 4423: INTERNATIONAL FINANCE"

Transcription

1 University of Colorado at Boulder Department of Economics ECON 4423: INTERNATIONAL FINANCE Final Examination Fall 2005 Name: Answer Key Student ID: Instructions: This test is 1 1/2 hours in length. You may use a hand calculator No Cell Phones Answer all questions. Section 1: Multiple Choice. Section 2: Problems. This test is x pages long (including cover). 1

2 Section 1: Multiple Choice Each question is worth 5 points, for a total of 60 points. 1. In the short run, with prices fixed, how would an increase in government spending affect the DD-AA schedule? A. It will increase output and appreciate the currency. B. It will increase output and depreciate the currency. C. It will decrease output and appreciate the currency. D. It will decrease output and depreciate the currency. Answer: A 2. Which one of the following statements is most accurate? A. In the long run, foreign output depends only on the available domestic supplies of factors of production. B. In the short run, domestic output depends only on the available domestic supplies of factors of production. C. In the long run, domestic output depends only on the available domestic supplies of factors of production. D. In the long run and in the short run, domestic output depends only on the available domestic supplies of factors of production. Answer: C 3. Which one of the following statements is most accurate? A. Factors of production can only be over-employed in the short run. B. Factors of production can only be under-employed in the short run. C. Factors of production can be over- or under- employed in the long run. D. Factors of production can be over- or under- employed in the short run. 4. The current account balance is A. the supply of a country s exports less the country s own demand for imports. B. the demand for a country s exports plus the country s own demand for imports. C. the country s own demand for imports less the demand for a country s exports. D. the demand for a country s exports less the country s own demand for imports. 5. Which one of the following statements is the most accurate? A. An increase in the real exchange rate and an increase in disposable income improve the current account. B. A decrease in the real exchange rate and a decrease in disposable income improve the current account. C. A decrease in the real exchange rate and a decrease in disposable income improve the current account. D. An increase in the real exchange rate and a decrease in disposable income improve the current account. 2

3 6. In the short-run, any rise in the real exchange rate, EP*/P, will cause A. an upward shift in the aggregate demand function and a reduction in output. B. an upward shift in the aggregate demand function and an expansion of output. C. a downward shift in the aggregate demand function and an expansion of output. D. an downward shift in the aggregate demand function and a reduction in output. E. an upward shift in the aggregate demand function, but it leaves output intact. Answer: B 7. In the short run, any rise in the foreign price level, P*, will cause A. an upward shift in the aggregate demand function and an expansion of output. B. an upward shift in the aggregate demand function and a reduction in output. C. a downward shift in the aggregate demand function and an expansion of output. D. a downward shift in the aggregate demand function and a reduction in output. E. an upward shift in the aggregate demand function but leaves output intact. 8. Using the DD AA framework, which one of the following statements is the most accurate? A. Only monetary policy can bring the economy to full employment. B. Only fiscal policy can bring the economy to full employment. C. Only both monetary and fiscal policies can bring the economy to full employment. D. Neither policy is capable of bringing the economy to full employment. E. Monetary policy by itself or fiscal policy by itself can bring the economy to full employment. Answer: E 9. Fiscal Expansion under a fixed exchange rate has what effect(s) on the economy? A. The money supply decreases. B. Output decreases. C. The exchange rate increases. D. The exchange rate decreases initially but then returns to its original point. E. Output is unchanged.. Fiscal expansion under a fixed exchange rate shifts the DD schedule outward, thereby causing an increase in output and a decrease in the exchange rate. However, with an accompanying outward shift of the AA schedule, output increases, and the exchange rate shifts outward. This shifts the exchange rate outward to its initial point. 10. Which one of the following statements is most true? A. Any central bank purchase of assets automatically results in an increase in the domestic money supply, while any central bank sale of assets automatically causes the money supply to decline. B. Any central bank purchase of assets results in an increase in the domestic money supply, while any central bank sale of assets causes the money supply to decline. C. Any central bank purchase of assets automatically results in a decrease in the domestic money supply, while any central bank sale of assets automatically causes the money supply to decline. D. Any central bank purchase of assets automatically results in a decrease in the domestic money supply, while any central bank sale of assets automatically causes the money supply to increase. E. None of the above statement is true. Answer: A 3

4 11. Which one of the following statements is the most accurate? A. Fiscal policy has the same effect on employment under fixed and flexible exchange rate regimes. B. Fiscal policy affects employment less under fixed than under flexible exchange rate regimes. C. Fiscal policy affects employment more under fixed than under flexible exchange rate regimes. D. Fiscal policy cannot affect employment under fixed exchange rate but does affect output under flexible exchange rate regimes. E. None of the above statements is true. Answer: C 12. Under fixed exchange rate, which one of the following statements is the most accurate? A. Devaluation causes a decrease in output, a decrease in official reserves, and a contraction of the money supply. B. Devaluation causes a rise in output, a rise in official reserves, and an expansion of the money supply. C. Devaluation causes a rise in output and a rise in official reserves. D. Devaluation causes a rise in output and an expansion of the money supply. E. Devaluation causes a rise in official reserves and an expansion of the money supply. Answer: B Section 2: Short Questions Each question is worth 10 points, for a total of 60 points. Points allocated to explanation/computation only. Question 1. True, false, or uncertain: In a world where the stock of money grows continually, the long-run rate of inflation of a country is independent of its exchange rate regime Question 2. Imagine that Congress passes a constitutional amendment requiring the U.S. government to maintain a balanced budget at all times. Thus, if the government wishes to change government spending, it must change taxes by the same amount. The constitutional amendment implies that the government can no longer use fiscal policy to affect employment and output. Question 3. The Central Bank of Saudi Arabia pegs the Riyal to the United States Dollar at a price of 3.75 Riyal per dollar. Describe a monetary policy intervention that the Central Bank of Saudi Arabia must pursue in response to a temporary fiscal expansion in the United States. How would this show on the AA-DD graph? Question 4. A large (temporary) expansionary shock to the demand for money causes a recession. Using the AA-DD schedules, discuss the effects of countercyclical fiscal and monetary policies on output and the exchange rate. Question 5. Using diagrams, fully describe the impact of a permanent reduction in money supply on output, interest rates, exchange rates (nominal and real), and prices. Your description must explain the behavior on the money market, the foreign exchange market, and the goods market. 4

5 Question 6. The Central Bank of the Bahamas pegs the US dollar. The Bank believes that a reduction of home interest rates would stimulate investment. Using the appropriate diagrams, describe a temporary monetary policy and sterilized intervention that maintain a fixed exchange rate, but lower home interest rates. For this question, you must assume the existence of a risk premium. 5

Fixed versus Flexible Exchange Rates Extra Material and some of Chapter 19

Fixed versus Flexible Exchange Rates Extra Material and some of Chapter 19 Fixed versus Flexible Exchange Rates Extra Material and some of Chapter 19 1. Fixed versus flexible exchange rates 2. Supply shocks under flexible exchange rates 3. Fixed-price two-country model of international

More information

Econ 336 - Spring 2007 Homework 5

Econ 336 - Spring 2007 Homework 5 Econ 336 - Spring 2007 Homework 5 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The real exchange rate, q, is defined as A) E times P B)

More information

e) Permanent changes in monetary and fiscal policies (assume now long run price flexibility)

e) Permanent changes in monetary and fiscal policies (assume now long run price flexibility) Topic I.4 concluded: Goods and Assets Markets in the Short Run a) Aggregate demand and equilibrium b) Money and asset markets equilibrium c) Short run equilibrium of Y and E d) Temporary monetary and fiscal

More information

Chapter 16 Output and the Exchange Rate in the Short Run

Chapter 16 Output and the Exchange Rate in the Short Run Chapter 16 Output and the Exchange Rate in the Short Run Prepared by Iordanis Petsas To Accompany International Economics: Theory and Policy, Sixth Edition by Paul R. Krugman and Maurice Obstfeld Chapter

More information

International Balance of Payments Homework 4

International Balance of Payments Homework 4 International Balance of Payments Homework 4 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Barbados A) pegs its exchange rate to the French

More information

Economics of Money, Banking, and Fin. Markets, 10e (Mishkin) Chapter 22 Aggregate Demand and Supply Analysis. 22.

Economics of Money, Banking, and Fin. Markets, 10e (Mishkin) Chapter 22 Aggregate Demand and Supply Analysis. 22. Economics of Money, Banking, and Fin. Markets, 10e (Mishkin) Chapter 22 Aggregate Demand and Supply Analysis 22.1 Aggregate Demand 1) The aggregate demand curve is the total quantity of an economy's A)

More information

Economics 345 Practice Examination. This exam has two parts. Part I is worth 30 points, Part II is worth 20 points.

Economics 345 Practice Examination. This exam has two parts. Part I is worth 30 points, Part II is worth 20 points. Spring 2004 Mr. Easton Economics 345 Practice Examination This exam has two parts. Part I is worth 30 points, Part II is worth 20 points. Part I. Answer the following questions by writing the question

More information

Answers to Textbook Problems

Answers to Textbook Problems 88 Krugman/Obstfeld International conomics: Theory and Policy, Seventh dition nswers to Textbook Problems. decline in investment demand decreases the level of aggregate demand for any level of the exchange

More information

Fixed Exchange Rates and Exchange Market Intervention. Chapter 18

Fixed Exchange Rates and Exchange Market Intervention. Chapter 18 Fixed Exchange Rates and Exchange Market Intervention Chapter 18 1. Central bank intervention in the foreign exchange market 2. Stabilization under xed exchange rates 3. Exchange rate crises 4. Sterilized

More information

Business Conditions Analysis Prof. Yamin Ahmad ECON 736

Business Conditions Analysis Prof. Yamin Ahmad ECON 736 Business Conditions Analysis Prof. Yamin Ahmad ECON 736 Sample Final Exam Name Id # Instructions: There are two parts to this midterm. Part A consists of multiple choice questions. Please mark the answers

More information

Chapter 13. Aggregate Demand and Aggregate Supply Analysis

Chapter 13. Aggregate Demand and Aggregate Supply Analysis Chapter 13. Aggregate Demand and Aggregate Supply Analysis Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics In the short run, real GDP and

More information

EC2105, Professor Laury EXAM 2, FORM A (3/13/02)

EC2105, Professor Laury EXAM 2, FORM A (3/13/02) EC2105, Professor Laury EXAM 2, FORM A (3/13/02) Print Your Name: ID Number: Multiple Choice (32 questions, 2.5 points each; 80 points total). Clearly indicate (by circling) the ONE BEST response to each

More information

Chapter 17. Fixed Exchange Rates and Foreign Exchange Intervention. Copyright 2003 Pearson Education, Inc.

Chapter 17. Fixed Exchange Rates and Foreign Exchange Intervention. Copyright 2003 Pearson Education, Inc. Chapter 17 Fixed Exchange Rates and Foreign Exchange Intervention Slide 17-1 Chapter 17 Learning Goals How a central bank must manage monetary policy so as to fix its currency's value in the foreign exchange

More information

1) Explain why each of the following statements is true. Discuss the impact of monetary and fiscal policy in each of these special cases:

1) Explain why each of the following statements is true. Discuss the impact of monetary and fiscal policy in each of these special cases: 1) Explain why each of the following statements is true. Discuss the impact of monetary and fiscal policy in each of these special cases: a) If investment does not depend on the interest rate, the IS curve

More information

Economics 152 Solution to Sample Midterm 2

Economics 152 Solution to Sample Midterm 2 Economics 152 Solution to Sample Midterm 2 N. Das PART 1 (84 POINTS): Answer the following 28 multiple choice questions on the scan sheet. Each question is worth 3 points. 1. If Congress passes legislation

More information

1) Other things equal, a decrease in autonomous consumption shifts the curve to the. A) IS; right B) IS; left C) LM; left D) LM; right

1) Other things equal, a decrease in autonomous consumption shifts the curve to the. A) IS; right B) IS; left C) LM; left D) LM; right Chapter 21 Monetary and Fiscal Policy in the ISLM Model 21.1 Factors That Cause the IS Curve to Shift 1) Other things equal, a decrease in autonomous consumption shifts the curve to the. A) IS; right B)

More information

Econ 202 Final Exam. Table 3-1 Labor Hours Needed to Make 1 Pound of: Meat Potatoes Farmer 8 2 Rancher 4 5

Econ 202 Final Exam. Table 3-1 Labor Hours Needed to Make 1 Pound of: Meat Potatoes Farmer 8 2 Rancher 4 5 Econ 202 Final Exam 1. If inflation expectations rise, the short-run Phillips curve shifts a. right, so that at any inflation rate unemployment is higher. b. left, so that at any inflation rate unemployment

More information

150 points. Please write answers in ink. Allocate your time efficiently. Good luck.

150 points. Please write answers in ink. Allocate your time efficiently. Good luck. Eco 202 Name Final Exam Key 10 May 2004 150 points. Please write answers in ink. Allocate your time efficiently. Good luck. 1. Suppose that Congress passes an investment tax credit, which subsidizes domestic

More information

International Economic Relations

International Economic Relations nswers to Problem Set #5 International conomic Relations Prof. Murphy Chapter 5 Krugman and Obstfeld. Relative PPP predicts that inflation differentials are matched by changes in the exchange rate. Under

More information

AGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand

AGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand AGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand Suppose that the economy is undergoing a recession because of a fall in aggregate demand. a. Using

More information

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Sample Final Exam Name Id # Part B Instructions: Please answer in the space provided and circle your answer on the question paper as well.

More information

7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Aggregate Supply

7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Aggregate Supply Chapter 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Aggregate Supply Topic: Aggregate Supply/Aggregate Demand Model 1) The aggregate supply/aggregate demand model is used to help understand all of the following

More information

CHAPTER 17 MACROECONOMIC POLICY IN AN OPEN ECONOMY

CHAPTER 17 MACROECONOMIC POLICY IN AN OPEN ECONOMY CHAPTER 17 MACROECONOMIC POLICY IN AN OPEN ECONOMY MULTIPLE-CHOICE QUESTIONS 1. A nation experiences internal balance if it achieves: a. Full employment b. Price stability c. Full employment and price

More information

. consumption and investment spending.

. consumption and investment spending. Chapter 10 1. The aggregate demand curve: A. is upward sloping because a higher price level is necessary to make production profitable as production costs rise. B. is downward sloping because production

More information

ECON 3312 Macroeconomics Exam 3 Fall 2014. Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

ECON 3312 Macroeconomics Exam 3 Fall 2014. Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. ECON 3312 Macroeconomics Exam 3 Fall 2014 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Everything else held constant, an increase in net

More information

Chapter 17. Preview. Introduction. Fixed Exchange Rates and Foreign Exchange Intervention

Chapter 17. Preview. Introduction. Fixed Exchange Rates and Foreign Exchange Intervention Chapter 17 Fixed Exchange Rates and Foreign Exchange Intervention Slides prepared by Thomas Bishop Copyright 2009 Pearson Addison-Wesley. All rights reserved. Preview Balance sheets of central banks Intervention

More information

Practiced Questions. Chapter 20

Practiced Questions. Chapter 20 Practiced Questions Chapter 20 1. The model of aggregate demand and aggregate supply a. is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution

More information

1. a. Interest-bearing checking accounts make holding money more attractive. This increases the demand for money.

1. a. Interest-bearing checking accounts make holding money more attractive. This increases the demand for money. Macroeconomics ECON 2204 Prof. Murphy Problem Set 4 Answers Chapter 10 #1, 2, and 3 (on pages 308-309) 1. a. Interest-bearing checking accounts make holding money more attractive. This increases the demand

More information

Name: Final Exam Econ 219 Spring You can skip one multiple choice question. Indicate clearly which one

Name: Final Exam Econ 219 Spring You can skip one multiple choice question. Indicate clearly which one Name: Final Exam Econ 219 Spring 2005 This is a closed book exam. You are required to abide all the rules of the Student Conduct Code of the University of Connecticut. You can skip one multiple choice

More information

Introduction to Macroeconomics TOPIC 5: The IS-LM Model in an Open Economy

Introduction to Macroeconomics TOPIC 5: The IS-LM Model in an Open Economy TOPIC 5: The IS-LM Model in an Open Economy Annaïg Morin CBS - Department of Economics August 2013 The IS-LM Model in an Open Economy Road map: Two concepts to better understand openness The goods market

More information

AP MACROECONOMICS 2012 SCORING GUIDELINES

AP MACROECONOMICS 2012 SCORING GUIDELINES AP MACROECONOMICS 2012 SCORING GUIDELINES Question 1 12 Points (2 + 6 + 4) (a) 2 points: One point is earned for a correctly labeled graph of the production possibilities curve (PPC). One point is earned

More information

Lecture 6: Economic Fluctuations. Rob Godby University of Wyoming

Lecture 6: Economic Fluctuations. Rob Godby University of Wyoming Lecture 6: Economic Fluctuations Rob Godby University of Wyoming Short-Run Economic Fluctuations Economic activity fluctuates from year to year. In some years, the production of goods and services rises.

More information

Problem Set 4. We are asked to label each of the seven statements as true, false or uncertain and to justify our answers briefly.

Problem Set 4. We are asked to label each of the seven statements as true, false or uncertain and to justify our answers briefly. Problem Set 4 Question 2 We are asked to label each of the seven statements as true, false or uncertain and to justify our answers briefly. (a) The aggregate supply relation implies that an increase in

More information

Econ 102 Aggregate Supply and Demand

Econ 102 Aggregate Supply and Demand Econ 102 ggregate Supply and Demand 1. s on previous homework assignments, turn in a news article together with your summary and explanation of why it is relevant to this week s topic, ggregate Supply

More information

ECONS PASCO {ECON 152}

ECONS PASCO {ECON 152} ECONS PASCO {ECON 152} 1. Macroeconomics deals with a. the activities of individual units b. the behaviour of the electronics industry c. economic aggregates d. the behaviour of firms 2. The study of inflation

More information

A country s economy is in a short-run equilibrium with an output level less than the full-employment output level. Assume an upwardsloping aggregate

A country s economy is in a short-run equilibrium with an output level less than the full-employment output level. Assume an upwardsloping aggregate ADAS Practice A country s economy is in a short-run equilibrium with an output level less than the full-employment output level. Assume an upwardsloping aggregate supply curve. (a) Using a correctly labeled

More information

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi CH 26 AD & AS Use the figure below to answer the following questions. Figure 26.1.1

More information

VII. ECONOMIC FLUCTUATIONS AND MACROECONOMIC POLICY

VII. ECONOMIC FLUCTUATIONS AND MACROECONOMIC POLICY VII. ECONOMIC FLUCTUATIONS AND MACROECONOMIC POLICY A. Aggregate Demand and Prices 1. The aggregate demand/inflation (ADI) curve -- graphical representation of the negative relationship (downward sloping

More information

The session previously discussed important variables such as inflation, unemployment and GDP. We also alluded to factors that cause economic growth

The session previously discussed important variables such as inflation, unemployment and GDP. We also alluded to factors that cause economic growth The session previously discussed important variables such as inflation, unemployment and GDP. We also alluded to factors that cause economic growth enabling us to produce more and more to achieve higher

More information

Economics 3422 Sample Final Examination

Economics 3422 Sample Final Examination Economics 3422 Sample Final Examination Instructions: Put your name and PeopleSoft ID on the blue book provided. Put all your answers in the blue book provided. Turn both question sheet and blue book in

More information

I. MULTIPLE CHOICES. Choose the one alternative that best completes the statement to answer the question.

I. MULTIPLE CHOICES. Choose the one alternative that best completes the statement to answer the question. Econ 20B- Additional Problem Set I. MULTIPLE CHOICES. Choose the one alternative that best completes the statement to answer the question. 1.According to the theory of liquidity preference, the money supply

More information

4. If the investment demand function is I = c drand the quantity of real money demanded is ey fr,

4. If the investment demand function is I = c drand the quantity of real money demanded is ey fr, 1. If money demand does not depend on income, then the curve is. A) IS; vertical B) IS; horizontal C) LM; vertical D) LM; horizontal 2. If consumption is given by C = 200 + 0.75(Y T) and investment is

More information

THE OPEN AGGREGATE DEMAND AGGREGATE SUPPLY MODEL.

THE OPEN AGGREGATE DEMAND AGGREGATE SUPPLY MODEL. THE OPEN AGGREGATE DEMAND AGGREGATE SUPPLY MODEL. Introduction. This model represents the workings of the economy as the interaction between two curves: - The AD curve, showing the relationship between

More information

South African Trade-Offs among Depreciation, Inflation, and Unemployment. Alex Diamond Stephanie Manning Jose Vasquez Erin Whitaker

South African Trade-Offs among Depreciation, Inflation, and Unemployment. Alex Diamond Stephanie Manning Jose Vasquez Erin Whitaker South African Trade-Offs among Depreciation, Inflation, and Unemployment Alex Diamond Stephanie Manning Jose Vasquez Erin Whitaker April 16, 2003 Introduction South Africa has one of the most unique histories

More information

ECO 2302 Principle of Macroeconomics TEST I. Name: R: ID:

ECO 2302 Principle of Macroeconomics TEST I. Name: R: ID: ECO 2302 Principle of Macroeconomics TEST I Ibrahim Ozayturk Name: R: ID: MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The can change the quantity

More information

LECTURE 22. The Open Economy

LECTURE 22. The Open Economy LECTURE 22 The Open Economy MACROECONOMY Open economy Trades with other nations Goods and services Financial assets Floating exchange rate Model large open economy Substantial capital flows INTERNATIONAL

More information

6 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts

6 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts Chapter 6 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Key Concepts Aggregate Supply The aggregate production function shows that the quantity of real GDP (Y ) supplied depends on the quantity of labor (L ),

More information

In this chapter we learn the potential causes of fluctuations in national income. We focus on demand shocks other than supply shocks.

In this chapter we learn the potential causes of fluctuations in national income. We focus on demand shocks other than supply shocks. Chapter 11: Applying IS-LM Model In this chapter we learn the potential causes of fluctuations in national income. We focus on demand shocks other than supply shocks. We also learn how the IS-LM model

More information

3 Macroeconomics SAMPLE QUESTIONS

3 Macroeconomics SAMPLE QUESTIONS Sample Multiple-Choice Questions Circle the letter of each correct answer. 1. Which of the following best describes aggregate supply? (A) The amount buyers plan to spend on output (B) A schedule showing

More information

ECON 3312 Mcroeconomics Exam 2 Fall 2014 Prof. Crowder

ECON 3312 Mcroeconomics Exam 2 Fall 2014 Prof. Crowder ECON 3312 Mcroeconomics Exam 2 Fall 2014 Prof. Crowder Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) When people are holding money in excess

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. ECON 3312 Macroeconomics Practice Exam 3 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Assuming the economy is starting at the natural rate

More information

International Economic Relations

International Economic Relations nternational conomic Relations Prof. Murphy Chapter 12 Krugman and Obstfeld 2. quation 2 can be written as CA = (S p ) + (T G). Higher U.S. barriers to imports may have little or no impact upon private

More information

dr Bartłomiej Rokicki Chair of Macroeconomics and International Trade Theory Faculty of Economic Sciences, University of Warsaw

dr Bartłomiej Rokicki Chair of Macroeconomics and International Trade Theory Faculty of Economic Sciences, University of Warsaw Chair of Macroeconomics and International Trade Theory Faculty of Economic Sciences, University of Warsaw The small open economy The small open economy is an economy that is small enough compared to the

More information

Econ 202 Final Exam. Douglas, Spring 2010 May 6, 2010 PLEDGE: I have neither given nor received unauthorized help on this exam.

Econ 202 Final Exam. Douglas, Spring 2010 May 6, 2010 PLEDGE: I have neither given nor received unauthorized help on this exam. , Spring 2010 May 6, 2010 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Final Exam Multiple Choice. 2 points each. 1. According to the long-run

More information

Chapter 18 Open-Economy Macroeconomics: Adjustment Policies

Chapter 18 Open-Economy Macroeconomics: Adjustment Policies Chapter 18 Open-Economy Macroeconomics: Adjustment Policies Since Keynes published The General Theory in 1936, it has been widely accepted that the two fundamental propositions of a full employment policy

More information

Chapter 22. Aggregate Demand and Supply Analysis

Chapter 22. Aggregate Demand and Supply Analysis Chapter 22 Aggregate Demand and Supply Analysis Aggregate Demand The relationship between the quantity of aggregate output demanded and the price level when all other variables are held constant Based

More information

2 0 0 0 E D I T I O N CLEP O F F I C I A L S T U D Y G U I D E. The College Board. College Level Examination Program

2 0 0 0 E D I T I O N CLEP O F F I C I A L S T U D Y G U I D E. The College Board. College Level Examination Program 2 0 0 0 E D I T I O N CLEP O F F I C I A L S T U D Y G U I D E College Level Examination Program The College Board Principles of Macroeconomics Description of the Examination The Subject Examination in

More information

I. MULTIPLE CHOICES. Choose the one alternative that best completes the statement to answer the question.

I. MULTIPLE CHOICES. Choose the one alternative that best completes the statement to answer the question. Econ 20B- Additional Problem Set I. MULTIPLE CHOICES. Choose the one alternative that best completes the statement to answer the question. 1. Which of the following is correct? a. Over the business cycle

More information

QUESTION 1: SHORT VERSUS MEDIUM RUN. 30 points

QUESTION 1: SHORT VERSUS MEDIUM RUN. 30 points QUESTION 1: SHORT VERSUS MEDIUM RUN. 30 points Consider an economy that fits the AS-AD model. The labor market equilibrium is given by the AS curve. The equilibrium in the goods market is given by the

More information

Answer: C Learning Objective: Money supply Level of Learning: Knowledge Type: Word Problem Source: Unique

Answer: C Learning Objective: Money supply Level of Learning: Knowledge Type: Word Problem Source: Unique 1.The aggregate demand curve shows the relationship between inflation and: A) the nominal interest rate. D) the exchange rate. B) the real interest rate. E) short-run equilibrium output. C) the unemployment

More information

Answers to Sample Long Free-Response Questions

Answers to Sample Long Free-Response Questions s to Sample Long Free-Response Questions 1. Assume you are a member of Congress. A member of your staff has just given you the following economic statistics: Year Ago Last Estimate for Quarter Quarter

More information

Macroeconomic Analysis Econ 6022 Level I

Macroeconomic Analysis Econ 6022 Level I 1 / 66 Macroeconomic Analysis Econ 6022 Level I Lecture 8 Fall, 2011 2 / 66 Business Cycle Analysis: A Preview What explains business cycle fluctuations? Two major business cycle theories - Classical theory

More information

Econ 371: Answer Key to Problem Set 4 (Chapter 16-17)

Econ 371: Answer Key to Problem Set 4 (Chapter 16-17) con 37: Answer Key to Problem Set 4 (Chapter 6-7) Instructor: Kanda Naknoi November 5, 005. ( points) xplain the effect of temporary monetary expansion on output under a flexible exchange rate, using the

More information

Miami Dade College ECO Principles of Macroeconomics Fall 2015 Practice Test #3

Miami Dade College ECO Principles of Macroeconomics Fall 2015 Practice Test #3 Miami Dade College ECO 2013.004 Principles of Macroeconomics Fall 2015 Practice Test #3 1. If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume? A) 0.4 B)

More information

SOLUTIONS TO TEXT PROBLEMS:

SOLUTIONS TO TEXT PROBLEMS: SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1. Three key facts about economic fluctuations are: (1) economic fluctuations are irregular and unpredictable; (2) most macroeconomic quantities fluctuate together;

More information

Pre-Test Chapter 11 ed17

Pre-Test Chapter 11 ed17 Pre-Test Chapter 11 ed17 Multiple Choice Questions 1. Built-in stability means that: A. an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby

More information

Assignment 4. To answer each question correctly, you have to choose the best answer from the given four choices.

Assignment 4. To answer each question correctly, you have to choose the best answer from the given four choices. IBS 601 Introduction to International Economics Instructor: Sharif F. Khan Department of Economics Ryerson University Winter 2006 Assignment 4 Part A Multiple-Choice Questions To answer each question correctly,

More information

Economics Macroeconomic Theory

Economics Macroeconomic Theory Economics 202.04 Macroeconomic Theory Spring 2003 Mid-Term Exam, 27 February 2003 Please answer FIVE QUESTIONS FROM SECTION A and TWO QUESTIONS FROM SECTION B. SECTION A and B each carry 50% of the marks.

More information

Chapter 22. Aggregate Demand and Supply Analysis Aggregate Demand

Chapter 22. Aggregate Demand and Supply Analysis Aggregate Demand Chapter 22 Aggregate Demand and Supply Analysis 22.1 Aggregate Demand 1) The aggregate demand curve is the total quantity of an economyʹs A) intermediate goods demanded at all price levels. B) intermediate

More information

Answers to Text Questions and Problems. Chapter 22. Answers to Review Questions

Answers to Text Questions and Problems. Chapter 22. Answers to Review Questions Answers to Text Questions and Problems Chapter 22 Answers to Review Questions 3. In general, producers of durable goods are affected most by recessions while producers of nondurables (like food) and services

More information

GOVERNMENT ECONOMIC OBJECTIVES AND POLICIES. Textbook, Chapter 26 [pg 317-328]

GOVERNMENT ECONOMIC OBJECTIVES AND POLICIES. Textbook, Chapter 26 [pg 317-328] GOVERNMENT ECONOMIC OBJECTIVES AND POLICIES Textbook, Chapter 26 [pg 317-328] Name: Class: Learning outcomes: Identify government economic objectives. Explain the main stages of the business cycle. Explain

More information

SHORT-RUN FLUCTUATIONS. David Romer. University of California, Berkeley. First version: August 1999 This revision: January 2012

SHORT-RUN FLUCTUATIONS. David Romer. University of California, Berkeley. First version: August 1999 This revision: January 2012 SHORT-RUN FLUCTUATIONS David Romer University of California, Berkeley First version: August 1999 This revision: January 2012 Copyright 2012 by David Romer CONTENTS Preface vi I The IS-MP Model 1 I-1 Monetary

More information

Problem Set #4: Aggregate Supply and Aggregate Demand Econ 100B: Intermediate Macroeconomics

Problem Set #4: Aggregate Supply and Aggregate Demand Econ 100B: Intermediate Macroeconomics roblem Set #4: Aggregate Supply and Aggregate Demand Econ 100B: Intermediate Macroeconomics 1) Explain the differences between demand-pull inflation and cost-push inflation. Demand-pull inflation results

More information

QUIZ 3 14.02 Principles of Macroeconomics May 19, 2005. I. True/False (30 points)

QUIZ 3 14.02 Principles of Macroeconomics May 19, 2005. I. True/False (30 points) QUIZ 3 14.02 Principles of Macroeconomics May 19, 2005 I. True/False (30 points) 1. A decrease in government spending and a real depreciation is the right policy mix to improve the trade balance without

More information

AGGREGATE DEMAND AND AGGREGATE SUPPLY

AGGREGATE DEMAND AND AGGREGATE SUPPLY 33 AGGREGATE DEMAND AND AGGREGATE SUPPLY Questions for Review 1. Two macroeconomic variables that decline when the economy goes into a recession are real GDP and investment spending (many other answers

More information

FISCAL POLICY* Chapter. Key Concepts

FISCAL POLICY* Chapter. Key Concepts Chapter 11 FISCAL POLICY* Key Concepts The Federal Budget The federal budget is an annual statement of the government s expenditures and tax revenues. Using the federal budget to achieve macroeconomic

More information

Macro Chapter 10 study guide questions

Macro Chapter 10 study guide questions Macro Chapter 10 study guide questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Which of the following will reduce aggregate demand? a. an increase

More information

I. Introduction to Aggregate Demand/Aggregate Supply Model

I. Introduction to Aggregate Demand/Aggregate Supply Model University of California-Davis Economics 1B-Intro to Macro Handout 8 TA: Jason Lee Email: jawlee@ucdavis.edu I. Introduction to Aggregate Demand/Aggregate Supply Model In this chapter we develop a model

More information

0 100 200 300 Real income (Y)

0 100 200 300 Real income (Y) Lecture 11-1 6.1 The open economy, the multiplier, and the IS curve Assume that the economy is either closed (no foreign trade) or open. Assume that the exchange rates are either fixed or flexible. Assume

More information

International Finance Master PEI Nicolas Coeurdacier. Sample exam

International Finance Master PEI Nicolas Coeurdacier. Sample exam International Finance Master PEI Nicolas Coeurdacier Sample exam Documents and calculator not allowed. For the essay questions, please be precise but concise in your answers. I. Multiple choice questions

More information

a) Aggregate Demand (AD) and Aggregate Supply (AS) analysis

a) Aggregate Demand (AD) and Aggregate Supply (AS) analysis a) Aggregate Demand (AD) and Aggregate Supply (AS) analysis Determinants of AD: Aggregate demand is the total demand in the economy. It measures spending on goods and services by consumers, firms, the

More information

Econ 202 Section 4 Final Exam

Econ 202 Section 4 Final Exam Douglas, Fall 2009 December 15, 2009 A: Special Code 00004 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 4 Final Exam 1. Oceania buys $40

More information

The Euro Appreciation and ECB Monetary Policy

The Euro Appreciation and ECB Monetary Policy EP402.tex The Euro Appreciation and ECB Monetary Policy Lars E.O. Svensson Princeton University, CEPR and NBER www.princeton.edu/ svensson February 2004 Abstract The appropriate response to the euro appreciation

More information

7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts

7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts Chapter 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Key Concepts Aggregate Supply The aggregate production function shows that the quantity of real GDP (Y ) supplied depends on the quantity of labor (L ),

More information

Module 29(65) The AD AS Model. Module Objectives. Module Outline. I. The AD AS Model

Module 29(65) The AD AS Model. Module Objectives. Module Outline. I. The AD AS Model Module 29(65) The AS Model Module Objectives What students will learn: The difference between short-run and long-run macroeconomic equilibrium The causes and effects of demand shocks and supply shocks

More information

13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Fixed Prices and Expenditure Plans. D) the aggregate price level is fixed and that aggregate

13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Fixed Prices and Expenditure Plans. D) the aggregate price level is fixed and that aggregate Chapter 13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Fixed Prices and Expenditure Plans Topic: Keynesian Model * 1) In the Keynesian model of aggregate expenditure, real GDP is determined by the A)

More information

Pre-Test Chapter 10 ed17

Pre-Test Chapter 10 ed17 Pre-Test Chapter 10 ed17 Multiple Choice Questions 1. Refer to the above diagrams. Assuming a constant price level, an increase in aggregate expenditures from AE 1 to AE 2 would: A. move the economy from

More information

Problem Set for Chapter 20(Multiple choices)

Problem Set for Chapter 20(Multiple choices) Problem Set for hapter 20(Multiple choices) 1. According to the theory of liquidity preference, a. if the interest rate is below the equilibrium level, then the quantity of money people want to hold is

More information

Chapter 12 Aggregate Supply and Aggregate Demand

Chapter 12 Aggregate Supply and Aggregate Demand Chapter 12 Aggregate Supply and Aggregate Demand After reading Chapter 12, AGGREGATE SUPPLY AND AGGREGATE DEMAND, you should be able to: Use an Aggregate Demand and Aggregate Supply model to explain output,

More information

Please write answers in ink. You may use a pencil to draw your graphs. Good luck. 120 points. 15 points each. Allocate your time efficiently.

Please write answers in ink. You may use a pencil to draw your graphs. Good luck. 120 points. 15 points each. Allocate your time efficiently. Eco 302 Name Final Exam 18 May 2011 Please write answers in ink. You may use a pencil to draw your graphs. Good luck. 120 points. 15 points each. Allocate your time efficiently. 1. In March 2009 the nominal

More information

Worksheet 17.1: Intro to AD

Worksheet 17.1: Intro to AD Worksheet 17.1: Intro to After watching Jason Welker s An Introduction to Aggregate Demand video found at https://www.youtube.com/watch?v=adgqvtlutmk, answer the following questions. 1. What factors cause

More information

For a closed economy, the national income identity is written as Y = F (K; L)

For a closed economy, the national income identity is written as Y = F (K; L) A CLOSED ECONOMY IN THE LONG (MEDIUM) RUN For a closed economy, the national income identity is written as Y = C(Y T ) + I(r) + G the left hand side of the equation is the total supply of goods and services

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Econ 111 Summer 2007 Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The classical dichotomy allows us to explore economic growth

More information

Chapter 29 AS-AD and the Business Cycle

Chapter 29 AS-AD and the Business Cycle Chapter 29 AS-AD and the Business Cycle 29.1 Business-Cycle Definitions and Facts 1) The relationship between real GDP and potential GDP over the business cycle can be best summarized by which of the following

More information

Fixed vs Flexible Exchange Rate Regimes

Fixed vs Flexible Exchange Rate Regimes Fixed vs Flexible Exchange Rate Regimes Review fixed exchange rates and costs vs benefits to devaluations. Exchange rate crises. Flexible exchange rate regimes: Exchange rate volatility. Fixed exchange

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Inflation can be started by 1) A) an increase in aggregate supply or a decrease in aggregate

More information

Aggregate Supply and Aggregate Demand

Aggregate Supply and Aggregate Demand Aggregate Supply and Aggregate Demand Econ 120: Global Macroeconomics 1 1.1 Goals Goals Specific Goals Be able to explain GDP fluctuations when the price level is also flexible. Explain how real GDP and

More information

14.02 PRINCIPLES OF MACROECONOMICS QUIZ 3

14.02 PRINCIPLES OF MACROECONOMICS QUIZ 3 14.02 PRINCIPLES OF MACROECONOMICS QUIZ 3 READ INSTRUCTIONS FIRST: Read all questions carefully and completely before beginning the quiz. Label all of your graphs, including axes, clearly; if we can t

More information

02 Elementary Keynesian Model

02 Elementary Keynesian Model 02 Elementary Keynesian Model HKAL ECONOMICS PAST PAPER MACRO SECTION A 1. 90(2) In a hypothetical closed economy, C = 50 + 0.8Y I = 20 Y = 10N where C = consumption expenditure, Y = national income I

More information

The Fiscal Policy and The Monetary Policy. Ing. Mansoor Maitah Ph.D.

The Fiscal Policy and The Monetary Policy. Ing. Mansoor Maitah Ph.D. The Fiscal Policy and The Monetary Policy Ing. Mansoor Maitah Ph.D. Government in the Economy The Government and Fiscal Policy Fiscal Policy changes in taxes and spending that affect the level of GDP to

More information