MASSEY UNIVERSITY PALMERSTON NORTH & WELLINGTON CAMPUS

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1 MASSEY UNIVERSITY PALMERSTON NORTH & WELLINGTON CAMPUS EXAMINATION FOR PRINCIPLES OF MACROECONOMICS Semester Two November 2007 Time allowed: THREE (3) hours All students are required to answer ALL the questions. ONE (1) mark per question total of ONE HUNDRED (100) marks. antron Cards Ensure that your name and identification number are entered on your antron Card. Record your answer on your antron card by putting a solid horizontal pencil line through the character representing the best answer to the question with a blunt 2B or 3B pencil, please. The antron Card will not read properly if you do not follow these instructions. At the conclusion of the examination hand in the antron Card separately. Permitted Calculators Those calculators with alphanumeric keypads and/or alphanumeric memory and/or can store and display text are not permitted, memories must be cleared. No ript Book Required A blue answer book is not required for this question paper. Page 1 of 28

2 1. Jeff has estimated that the marginal benefit of studying an additional hour of economics (instead of biology) is an increase of 20 points on the weekly test and the marginal cost is a decrease of 15 points on his weekly biology test. Applying the optimal quantity rule to maximize his test scores, he should: A. not study the additional hour of economics, but rather should study an additional hour of biology. B. study the additional hour of economics, but no more than one additional hour. C. not study the additional hour of economics, but rather should study an additional one-andone-half hours of biology. D. study the additional hour of economics, plus some additional time studying economics. E. not study economics nor biology. 2. Amy is thinking about going to the movies tonight. A ticket costs $7 and she will have to cancel her dog-sitting job that pays $30. The cost of seeing the movie is A. $7. B. $30. C. $37. D. $37 minus the benefit of seeing the movie. E. indeterminate. 3. If one fails to account for opportunity costs in decision making, then applying the costbenefit rule will be flawed because A. the benefits will be overstated. B. the costs will be understated. C. the benefits will be understated. D. the costs will be overstated. E. the benefits and costs will be understated. Page 2 of 28

3 4. In general, individuals and nations should specialize in producing those goods for which they other individuals or nations. A. can produce more quickly than B. can produce less quickly than C. have the lowest opportunity cost compared to D. have the highest opportunity cost compared to E. have an average opportunity cost compared to 5. The slope of any production possibilities curve is because. A. negative; production of one of the two goods is always insufficient B. negative; to produce more of one good means less production of the other C. constant; the trade-off in production never changes D. positive; to produce more of one good means more production of the other E. positive; to produce more of one good means less production of the other 6. Any combination of goods that can be produced with currently available resources defines a(n) A. unattainable point. B. efficient point. C. inefficient point. D. attainable and efficient point. E. attainable point. 7. If both supply and demand decrease simultaneously, the new equilibrium price is and the new equilibrium quantity is. A. lower; lower B. lower; indeterminate C. indeterminate; higher D. indeterminate; lower E. higher; indeterminate Page 3 of 28

4 8. Assume both the demand and the supply of bagels increase. Which of the following outcomes is certain to occur? A. The equilibrium price of bagels will rise. B. The equilibrium quantity of bagels will rise. C. The equilibrium price of bagels will fall. D. The equilibrium quantity of bagels will fall. E. Neither the equilibrium price nor the equilibrium quantity of bagels can be predicted. 9. If Country A and Country B have the same total output, then the standard of living in Country A will be the standard of living in country B. A. the same as B. higher than C. lower than D. either higher, lower, or the same as (depending on their relative population size) E. either higher, lower, or the same as (depending on their relative geographic size) 10. Average labour productivity equals: A. average production per year. B. total output. C. output per person. D. output per employed worker. E. production per person. 11. The duration of unemployment: A. rises during recessions. B. falls during recessions. C. is a period during which an individual is continuously unemployed. D. is shorter for the chronically unemployed than it is for the long-term unemployed. E. is of less importance to macroeconomics than the costs of unemployment. Page 4 of 28

5 12. The value-added method eliminates the problem of: A. differentiating between final and intermediate goods and services. B. inflation when comparing GDP over time. C. determining whether capital is a final good or intermediate good. D. dividing the value of a final good or service between two periods. E. aggregation. 13. People who would like to work full time, but are able to find only part-time work are officially counted as: A. employed. B. unemployed. C. out of the labour force. D. discouraged workers. E. chronically unemployed. 14. Data for an economy shows that the unemployment rate is 10 percent, the participation rate 80 percent and 200 million people 16 years or older are not in the labour force. How many people are unemployed this economy? A. 20 million. B. 80 million. C. 200 million. D. 800 million. E. 1,000 million. Page 5 of 28

6 15. Given the following data for an economy, compute the investment component of GDP. A. 300 B. 400 C. 800 D. 900 E. 1, If the total expenditures of a typical family equalled $35,000 per year in 2000 and the exact same basket of goods and services cost $40,000 in the year 2005, the family's cost of living: A. increased by 14 percent. B. decreased by 14 percent. C. increased by 12.5 percent. D. decreased by 12.5 percent. E. was unchanged. 17. A CPI that equals 1.34 in 2005 (when 2000 is the base year) means that: A. prices in 2005 are 34 percent higher than in B. the CPI equals $1.34 in C. the inflation rate in 2005 is 134 percent. D. the average level of prices is 34 percent higher in 2005 than in the base year. E. the inflation rate in 2005 is 1.34 percent. Page 6 of 28

7 18. A situation of negative inflation is called: A. recession B. expansion C. boom D. deflation E. disinflation 19. The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 10 percent. The nominal price of gasoline and the real price of gasoline. A. increased; increased B. increased; decreased C. increased; did not change D. decreased; decreased E. decreased; increased 20. To ensure that your salary maintains its real purchasing power from year to year, your nominal salary must be: A. deflated. B. indexed. C. aggregated. D. hyperinflated. E. adjusted for relative price changes. 21. If workers and employers agree to a three-year wage contract expecting 3 percent inflation and inflation turns out to be 5 percent, then: A. workers gain and employers gain. B. workers gain and employers lose. C. workers lose and employers gain. D. workers lose and employers lose. E. neither workers nor employers are affected by the unexpectedly high inflation. Page 7 of 28

8 22. Real GDP per person in Northland is $30,000, while real GDP in Southland is $10,000, however, Northland's real GDP per person is growing at 1 percent per year and Southland's is growing at 3 percent per year. If these growth rates persist indefinitely, then: A. Northland's real GDP per person will decline until it equals Southland's. B. Northland's real GDP per person will always be greater than Southland's. C. Southland's real GDP per person will always be less than Northland's. D. Southland's real GDP per person will eventually be greater than Northland's. E. Southland's real GDP per person will catch up to Northland's, but never exceed Northland's. 23. Assume that the share of population employed in all countries is 50 percent. Based on the information below, which country has the smallest real GDP per capita? A. Country A. B. Country B. C. Country C. D. Country D. E. Country E. 24. The principal economic cost of growth is: A. higher interest rates. B. higher inflation rates. C. higher unemployment rates. D. consumption sacrificed for capital formation. E. investment in stocks and bonds. Page 8 of 28

9 25. In the market for labour, the price of labour is the: A. nominal wage. B. real wage. C. marginal product of labour. D. number of hours employed per year. E. number of workers employed per year. 26. The principle of diminishing returns to labour is based on the: A. scarcity principle. B. cost-benefit principle. C. principle of comparative advantage. D. equilibrium principle. E. principle of increasing opportunity cost. 27. The following table provides information about production at the XYZ-TV Company. How many workers will the XYZ-TV Company hire if the going wage for TV production workers is $34,000? A. 1 B. 2 C. 3 D. 4 E. 5 Page 9 of 28

10 28. As the real wage decreases the quantity of labour demanded, the quantity of labour supplied. A. increases; increases B. increases; decreases C. decreases; decreases D. decreases; increases E. does not change; does not change 29. Capital gains are: A. increases in the flow of investment. B. increases in the flow of saving. C. additions to plant and equipment. D. increases in the value of existing assets. E. decreases in the value of existing assets. 30. Where Y is GDP, C is consumption, I is investment, and G is government spending, if there is no international trade, then national saving equals: A. C + I + G B. Y - C - G C. Y + C + G D. Y - C - I E. Y - C - I - G 31. If total government tax collections equal $100 billion, transfer payments equal $50 billion, and government interest payments equal $5 billion, then net taxes equal: A. $45 billion. B. $50 billion. C. $95 billion. D. $105 billion. E. $155 billion. Page 10 of 28

11 32. The excess of government spending over tax collections is: A. national income. B. national saving. C. national wealth. D. the government budget deficit. E. the government budget surplus. 33. If household saving decreases by $4 million, business saving increases by $4 million, and the government budget deficit decreases by $4 million, then private saving and public saving. A. increases; increases B. increases; decreases C. does not change; increases D. does not change; decreases E. decreases; increases 34. The marginal product of new capital depends on and. A. productivity of capital; relative price of the firm's output B. price of new capital goods; real interest rate C. relative price of the firm's output; real interest rate D. taxes levied on the revenue generated; price of new capital goods E. productivity of new capital; real interest rate 35. As the cost of capital goods falls relative to other prices, the: A. demand for investment in new capital will shift to the left. B. demand for investment in new capital will shift to the right. C. amount of investment in new capital will increase. D. amount of saving will rise. E. amount of saving will fall. Page 11 of 28

12 percent reserve banking refers to a situation in which banks' reserves equal 100 percent of their: A. loans. B. deposits. C. profits. D. income. E. money. 37. Commercial banks create new money: A. by printing currency. B. by issuing checks. C. through multiple rounds of lending and borrowing. D. when they buy government bonds from the Federal Reserve. E. when they increase their desired reserve/deposit ratio. 38. If the Central Bank of Macroland puts an additional 1,000 units of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans totalling and the money supply will increase by. A. $1,000; $1,000 B. $9,000; $9,000 C. $9,000,. $10,000 D. $1,000; $9,000 E. $10,000; $10, The money supply is 1,500 of which 500 is currency held by the public. Bank reserves are 200. The desired reserve/deposit ratio equals: A B C D E Page 12 of 28

13 40. In Macroland, currency held by the public is 2000 econs, bank reserves are 300 econs, and the desired reserve/deposit ratio is 10 percent. If the Central Bank prints an additional 200 econs and uses this new currency to buy government bonds from the public, the money supply in Macroland will increase from econs to econs assuming that the public does not wish to change the amount of currency it holds. A. 2,000; 2,200 B. 2,300; 2,500 C. 3,000; 5,000 D. 5,000; 7,000 E. 5,300; 7, Velocity is a measure of the speed at which: A. inflation increases. B. productivity increases. C. population grows. D. money circulates. E. production accelerates. 42. The quantity equation states that: A. money times velocity equals nominal GDP. B. money times velocity equals real GDP. C. money times prices equals nominal GDP. D. money times prices equals real GDP. E. velocity times prices equals nominal GDP. 43. If the money supply grew by 4 percent per year, velocity increased by 1 percent per year, and the inflation rate was 3 percent per year, then real GDP must have by approximately percent. A. increased; 2 B. increased; 7 C. increased; 12 D. decreased; 2 E. decreased; 7 Page 13 of 28

14 44. A country's trade balance and its net capital inflows: A. sum to zero. B. determine the size of the pool of saving available for capital investment. C. must always equal the sum of the four components of aggregate demand. D. must equal domestic investment in new capital goods. E. are identical in open and closed economies. 45. An increase in net capital inflows to a country will: A. increase its real interest rates. B. increase its imports. C. decrease its exports. D. decrease its real interest rates. E. decrease its investment in new capital. 46. If domestic saving is greater than domestic investment, then a country will have a and net capital inflows. A. trade deficit; negative B. trade deficit; positive C. trade balance; zero D. trade surplus; negative E. trade surplus; positive 47. The primary cause of trade deficits is: A. production of poor quality goods. B. unfair trade restrictions. C. low rates of national saving. D. high rates of national saving. E. cheap foreign labour. Page 14 of 28

15 48. For an open economy at high values of the domestic real interest rate, the total supply of saving national saving. A. equals B. is less than C. is greater than D. equals investment minus E. equals investment plus 49. In an open economy, if domestic citizens decide to save less, then the domestic real interest rate will and the level of capital investment in the country will, holding other factors constant. A. increase; increase B. increase; decrease C. increase; not change D. decrease; decrease E. decrease; increase 50. In an open economy, a decrease in the government's budget deficit will the domestic real interest rate and the level of capital investment in the country, holding other factors constant. A. increase; increase B. increase; decrease C. increase; not change D. decrease; decrease E. decrease; increase 51. In the short run, total spending affects and in the long run total spending affects. A. prices; output B. prices; unemployment C. output; prices D. output; unemployment E. output; output Page 15 of 28

16 52. In the long run, total spending only influences: A. actual output. B. potential output. C. productive capacity. D. labour supply and demand. E. inflation. 53. When firms preset prices in the short-term, economy wide spending changes are the primary cause of: A. frictional unemployment. B. output gaps. C. inflation. D. the growth of potential output. E. structural unemployment. 54. According to Okun's Law, when the output gap is negative, cyclical unemployment: A. equals structural unemployment. B. equals frictional unemployment. C. equals zero. D. is positive. E. is negative. 55. The economy of Alpha operates according to Okun's Law. In Alpha real GDP equals $520 billion, the natural rate of unemployment is 5 percent and the actual rate of unemployment is 3 percent. What is potential GDP in Alpha? A. $480 billion B. $490 billion C. $500 billion D. $510 billion E. $520 billion Page 16 of 28

17 56. In Okunland, a country that operates according to Okun's Law, potential GDP equals $8,000 billion, the actual rate of unemployment is 8 percent, and the natural unemployment rate is 5 percent. What is real GDP in Okunland? A. $7,360 billion B. $7,520 billion C. $8,000 billion D. $8,240 billion E. $8,480 billion 57. According to Okun's Law each extra percentage point of unemployment is associated with a percentage point increase in the output gap, measured in relation to potential output. A. frictional; 2 B. frictional; 4 C. cyclical; 2 D. cyclical; 4 E. structural; In Macroland potential GDP equals $500 billion and real GDP equals $515 billion. Macroland has a(n) gap equal to percent of potential GDP. A. expansionary; -3 B. expansionary; 3 C. expansionary; -15 D. recessionary; 3 E. recessionary; For policymakers the problem with a recessionary gap is and the problem with an expansionary gap is. A. a tendency for inflation to develop; wasted resources B. wasted resources; a tendency for inflation to develop C. an increase in cyclical unemployment; an increase in structural unemployment D. an increase in structural unemployment; an increase in cyclical unemployment E. excessive growth of potential output; declining potential output Page 17 of 28

18 60. If potential output equals $8 billion and actual output equals $7 billion, then this economy has a(n): A. budget deficit. B. trade deficit. C. expansionary gap. D. recessionary gap. E. value-added gap. 61. Menu costs are the costs of: A. running a restaurant. B. changing prices. C. increasing aggregate demand. D. changing production. E. obtaining computer software. 62. The four components of planned aggregate expenditure are: A. spending on domestic goods, domestic services, foreign goods, and foreign services. B. spending on durable goods, inventory investment, government debt, and net exports. C. consumption, planned investment, government transfers, and net interest. D. consumption, interest payments, transfer payments, and net exports. E. consumption, planned investment, government purchases, and net exports. 63. Planned investment may differ from actual investment because of: A. changes in government purchases and net exports. B. the marginal propensity to consume. C. unplanned changes in inventories. D. fluctuations in preset prices. E. menu costs. Page 18 of 28

19 64. If firms sell less output than expected, planned investment: A. is greater than actual investment. B. is less than actual investment. C. equals actual investment. D. equals zero. E. equals aggregate demand. 65. The slope of the consumption function: A. is vertical. B. is horizontal. C. equals 1. D. equals the marginal propensity to consume. E. is negative. 66. In Macroland short-run equilibrium output equals 500,000 and the income-expenditure multiplier equals 5. If autonomous government purchases now increases by 100, short-run equilibrium output will change from 500,000 to. A. 499,500 B. 499,900 C. 500,005 D. 500,100 E. 500, If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, the MPC equals 0.9, and potential output (Y*) equals 9,000, then taxes must be increased by (rounded to the nearest whole number) to eliminate any output gap. A. 10 B. 100 C D. 11 E. 111 Page 19 of 28

20 68. A fiscal policy action to close a recessionary gap is to: A. increase taxes. B. decrease transfer payments. C. increase government purchases. D. increase the marginal propensity to consume. E. increase potential output. 69. If short-run equilibrium output equals 20,000 and potential output (Y*) equals 15,000, then this economy has a(n) gap that can be closed by. A. expansionary; increasing taxes B. expansionary; increasing transfer payments C. expansionary; increasing government purchases D. recessionary; increasing government purchases E. recessionary; increasing taxes 70. If planned aggregate expenditure in an economy can be written as: PAE = Y, what is the income-expenditure multiplier in this economy? A. 0.1 B. 0.9 C D. 9 E Because policy is more flexible than policy, it is used more actively to help stabilize the economy. A. structural; international B. structural; fiscal C. monetary; fiscal D. fiscal; monetary E. structural; monetary Page 20 of 28

21 72. Any value of the nominal interest rate chosen by the Central Bank implies a specific value for. A. potential output B. net exports C. government purchases D. the budget deficit E. the money supply 73. The benefit of holding money is, while the opportunity cost of holding money is. A. the nominal interest rate; the fees charged by banks B. the nominal interest rate; its usefulness in carrying out transactions C. increased income; lost purchasing power D. its usefulness in carrying out transactions; the nominal interest rate E. its usefulness in carrying out transactions; the price of wallets and billfolds 74. The money demand curve will shift to the right if: A. the nominal interest rate increases. B. the nominal interest rate decreases. C. ATM machines are introduced. D. the price level decreases. E. real income increases. 75. When the Central Bank engages in an open market purchase, the money supply and the nominal interest rate. A. increases; increases B. increases; decreases C. increases; may either increase or decrease depending on money demand D. decreases; increases E. decreases; decreases Page 21 of 28

22 76. If planned aggregate spending in an economy can be written as PAE = 15, Y - 20,000r, and potential output equals 35,000, what real interest rate must the Central Bank set to bring the economy to full employment? A B C D E In the short-run, if the Central Bank decreases interest rates, then consumption and investment, planned aggregate expenditure, and short-run equilibrium output. A. increase; increases; increases B. increase; increases decreases C. increase; decreases; decreases D. decrease; decreases; increases E. decrease; decreases; decreases 78. In an economy where planned aggregate spending is given by PAE = 5, Y - 20,000 r, the central bank is currently setting the interest rate at 0.05 (5 percent). If potential output equals 11,750, the central bank must the interest rate to close the gap. A. lower; expansionary B. lower; recessionary C. not change; output D. raise; expansionary E. raise; recessionary 79. According to the Taylor Rule, if there is a recessionary gap of 2 percent of potential output and inflation is 4 percent, what real interest rate will the Central Bank set? A B C D E Page 22 of 28

23 80. In a certain economy the components of planned aggregate expenditure are given by: C = (Y- T) r I = r G = 200 NX = 50 If net taxes equal 100 and the Central Bank sets the interest rate equal to 0.05 (5 percent), short-run equilibrium output equals: A. 825 B. 875 C. 925 D. 975 E. 1, The aggregate demand curve shows the relationship between short-run equilibrium output and the rate. A. nominal interest B. real interest C. unemployment D. inflation E. exchange 82. Because decreases in inflation increase planned spending and short-run equilibrium output, A. the short-run aggregate supply line is downward sloping. B. the short-run aggregate supply line is upward sloping. C. the aggregate demand curve is horizontal. D. the aggregate demand curve is downward sloping. E. the aggregate demand curve is upward sloping. 83. If the Central Bank s monetary policy reaction function does not change, then when inflation increases the Central Bank responds by the real interest rate, which consumption and investment spending, which output. A. increasing; increases; increases B. increasing; increases; decreases C. increasing; decreases; decreases D. decreasing; decreases; increases E. decreasing; decreases; decreases Page 23 of 28

24 84. A downward shift in the Central Bank's policy reaction function is a monetary, and the aggregate demand curve. A. tightening; shifts right B. tightening; shifts left C. tightening; does not shift D. easing; shifts right E. easing; shifts left 85. Inflation inertia is the tendency for inflation to: A. equal zero. B. change relatively slowly from year to year. C. decrease when the Central Bank increases interest rates. D. increase when the Central Bank decreases interest rates. E. re-distribute resources to low-spending households. 86. The short-run aggregate supply curve shows while the long-run aggregate supply curve shows. A. planned aggregate spending; output B. output; planned aggregate spending C. the current inflation rate; potential output D. potential output; the current inflation rate E. potential output; planned aggregate spending 87. If the aggregate demand curve in an economy is Y = 20,000-20,000π, current inflation (π) equals 0.08 (8 percent), and potential output (Y*) equals 19,200, then in the short run equilibrium output equals and in the long run the inflation rate equals percent. A. 19,200; 4 B. 18,800; 6 C. 18,800; 4 D. 18,400; 4 E. 18,400; 8 Page 24 of 28

25 88. An inflation shock is: A. the level of inflation consistent with output in a recessionary gap. B. the level of inflation consistent with output in an expansionary gap. C. a sudden change in the normal behaviour of inflation, unrelated to the nation's output gap. D. a change in the inflation rate generated by excessive aggregate spending. E. a change in inflation brought about by changes in inflation expectations and pricing decisions. Use the following figure to answer Questions Based on the figure above, starting from long-run equilibrium at point C, an adverse inflation shock that increases inflation from π to π 1 will lead to a short-run equilibrium at point creating gap. A. A; an expansionary B. A; a recessionary C. A; no output D. B; expansionary E. B; recessionary Page 25 of 28

26 90. Based on the figure above, starting from long-run equilibrium at point C, an adverse inflation shock that increases inflation from π to π 1 will lead to a short-run equilibrium at point and eventually to a long-run equilibrium at point, if left to self-correcting tendencies. A. A; B B. A; C C. B; A D. B; C E. B; B 91. Based on the figure above, an economy in short-run equilibrium at point A has a(n) gap. The gap could be eliminated by the self-correcting mechanism of the economy and eventually achieve long-run equilibrium at point or the central bank could intervene with monetary easing and the long-run equilibrium would be at point. A. recessionary; B; C B. recessionary; C; B C. recessionary ; C; C D. expansionary; B; C E. expansionary; C; B 92. A combination of inflation and recession is called: A. deflation. B. stagflation. C. disinflation. D. reflation. E. infusion. 93. Suppose the aggregate demand curve in an economy is Y = 10,000-10,000π, current inflation (π) equals 0.05 (5 percent), and potential output (Y*) equals 9,500. If starting from long-run equilibrium, an inflation shock raises inflation to 0.07, in the short run output will equal and in the long run output will equal A. 9,300; 9,300 B. 9,300; 9,500 C. 9,500; 5,500 D. 9,500; 9,300 E. 9,500; 9,700 Page 26 of 28

27 94. Suppose the aggregate demand curve in an economy is Y = 10,000-10,000π, current inflation (π) equals 0.05 (5 percent), and potential output (Y*) equals 9,500. If starting from long-run equilibrium, an aggregate supply shock reduces potential output to 9,300, in the short run there will be a(n) gap and in the long run inflation will equal percent. A. expansionary; 5 B. expansionary; 6 C. expansionary; 7 D. recessionary; 5 E. recessionary; If inflation equals zero, then a worker's real wage will fall when: A. the nominal wage increases. B. the nominal wage decreases. C. the nominal wage is constant. D. the nominal wage increase, decreases, or remains constant. E. relative prices increase. 96. The Central Bank can not achieve a negative real interest rate if the inflation rate is zero or negative because: A. the nominal interest rate can not fall below zero. B. inflation doves will not permit a negative real interest rate. C. zero or negative values of inflation can not be accurately measured. D. inflationary expectations are not anchored when the inflation rate is zero. E. the inside monetary policy lags will become infinite. 97. A weakness of the argument that cheap foreign labour might take the jobs away from high-wage economies is that it does not consider the. A. cost benefit principle B. differences in human capital C. differences in the level of technology D. principle of comparative advantage E. principle of increasing opportunity cost Page 27 of 28

28 98. Easy monetary policy will net exports as a result of a currency. A. increase; stronger B. increase; weaker C. not effect; stronger D. decrease; stronger E. decrease; weaker 99. The real exchange rate is the: A. market on which currencies of various nations are traded for one another. B. price of the average domestic good or service relative to the price of the average foreign good or service, when prices are expressed in terms of a common currency. C. quantity of foreign currency assets held by a government for the purpose of purchasing the domestic currency in the foreign exchange market. D. rate at which two currencies can be traded for each other. E. rate at which a good in one country can be traded for the same good in another country Net exports will tend to be low when the real exchange rate. A. is high B. is low C. equals the nominal exchange rate D. depreciates E. is weak Page 28 of 28