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Quiz 13

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Question 1 (1.0 points)
A reduction in the money supply in a flexible exchange rate regime will cause:
  1. a shift of the IP curve.
  2. no change in E.
  3. an increase in E.
  4. an appreciation of the domestic currency.
Question 2 (1.0 points)
Under a fixed exchange rate regime, a tax increase will:
  1. require a reduction in the money supply.
  2. cause no change in the domestic interest rate.
  3. cause a reduction in Y.
  4. all of the above
Question 3 (1.0 points)
In an open economy, we know that individuals must choose between which of the following?
  1. domestic goods and foreign currency
  2. domestic bonds and foreign currency
  3. foreign goods and domestic currency
  4. domestic and foreign bonds
  5. none of the above
Question 4 (1.0 points)
In an open economy under flexible exchange rates, a tax cut will cause which of the following?
  1. an increase in the exchange rate, E
  2. an appreciation of the domestic currency
  3. an increase in net exports
  4. all of the above
  5. none of the above
Question 5 (1.0 points)
In an open economy under flexible exchange rates, a tax cut will cause an increase in which of the following?
  1. exports
  2. net exports
  3. the exchange rate, E
  4. all of the above
  5. none of the above
Question 6 (1.0 points)
Suppose policy makers in a fixed exchange rate regime decide to peg the exchange rate at a lower level. Such a policy is called:
  1. a depreciation.
  2. a devaluation.
  3. an appreciation.
  4. a revaluation.
Question 7 (1.0 points)
In an open economy under flexible exchange rates, a monetary contraction will cause a reduction in which of the following?
  1. output
  2. interest rate
  3. exchange value of domestic currency
  4. all of the above
  5. none of the above
Question 8 (1.0 points)
In a flexible exchange rate regime, a reduction in the foreign interest rate (i * ) will cause:
  1. neither a shift nor movement along the IP curve.
  2. a movement along the IP curve.
  3. the IP curve to shift to the left.
  4. the IP curve to shift to the right.
Question 9 (1.0 points)
As the economy moves up and to the left along the IS curve, which of the following will occur when exchange rates are flexible?
  1. Consumption decreases.
  2. The domestic currency appreciates.
  3. Investment spending decreases.
  4. all of the above
  5. none of the above
Question 10 (1.0 points)
In an open economy under flexible exchange rates, expansionary monetary policy will always cause:
  1. a drop in the interest rate.
  2. an increase in the exchange rate, E.
  3. a rise in output.
  4. all of the above
  5. both A and B
Question 11 (1.0 points)
In practice, under the EMS, a member country:
  1. could change its interest rate only if other countries changed theirs as well.
  2. had complete freedom in choosing the interest rate it wanted.
  3. could never change its interest rate.
  4. must apply to a special European Commission in order to change its interest rate.
  5. had complete freedom in choosing its interest rate only if it is a very small country.
Question 12 (1.0 points)
Suppose policy makers are pursuing a policy to fix the exchange rate. In such a system with perfect capital mobility, an open market purchase of domestic bonds by the domestic central bank will eventually result in:
  1. a permanent reduction in the monetary base.
  2. a change in the composition of the monetary base.
  3. a permanent increase in the monetary base.
  4. a gradual reduction in the domestic interest rate.
Question 13 (1.0 points)
When the interest parity condition holds, we know that the domestic interest rate must be equal to:
  1. the foreign interest rate plus the expected rate of depreciation of the foreign currency.
  2. the expected rate of appreciation of the domestic currency.
  3. the foreign interest rate.
  4. the expected rate of depreciation of the domestic currency.
  5. the foreign interest rate plus the expected rate of depreciation of the domestic currency.
Question 14 (1.0 points)
Suppose a country switches from a flexible to a fixed exchange rate. Which of the following will occur as a result of this change?
  1. Fiscal policy will become a less effective tool for changing output.
  2. Both fiscal and monetary policy will become more effective in changing GDP.
  3. Both fiscal and monetary policy will become completely ineffective in changing GDP.
  4. Monetary policy will become a more effective tool for changing output.
  5. none of the above
Question 15 (1.0 points)
Suppose there are two countries that are identical in every way with the following exception. Country A is pursuing a fixed exchange rate regime and country B is pursuing a flexible exchange rate regime. Suppose government spending in both countries rises by the same amount.Given this information, we know that:
  1. the relative output effects are ambiguous.
  2. the change in output in A will be greater than in B.
  3. the change in output in B will be greater than in A.
  4. the change in output will be the same in both countries.
Question 16 (1.0 points)
Under a fixed exchange rate regime, a reduction in consumer confidence will cause:
  1. a reduction in i and an increase in E.
  2. no change in output.
  3. a reduction in investment.
  4. an increase in imports.
  5. no change in net exports.
Question 17 (1.0 points)
Under a fixed exchange rate regime, a tax increase will cause:
  1. an increase in E.
  2. a reduction in the domestic interest rate.
  3. a reduction in investment.
  4. a reduction in E.
  5. none of the above
Question 18 (1.0 points)
Under a fixed exchange rate regime, we know that a reduction in government spending will cause:
  1. an increase in investment.
  2. an increase in imports.
  3. an increase in net exports.
  4. all of the above
Question 19 (1.0 points)
Assume that the interest parity holds and that the dollar is expected to depreciate against the pound. Given this information, we know that:
  1. the U.K. interest rate exceeds the U.S. interest rate.
  2. U.S. and U.K. interest rates are equal.
  3. the U.S. interest rate exceeds the U.K. interest rate.
  4. individuals will prefer to hold U.S. bonds because the U.S. interest rate exceeds the U.K. interest rate.
  5. none of the above
Question 20 (1.0 points)
Assume that the interest parity condition holds. Also assume that the U.S. interest rate is 4% while the U.K. interest rate is 6%. Given this information, financial markets expect the pound to:
  1. appreciate by 2%.
  2. depreciate by 10%.
  3. depreciate by 2%.
  4. appreciate by 4%.
  5. appreciate by 6%.
Question 21 (1.0 points)
Which of the following conditions must be satisfied for individuals to be indifferent between holding foreign or domestic bonds?
  1. The Marshall-Lerner condition must hold.
  2. The foreign and domestic interest rates must be equal.
  3. The expected rate of depreciation of the domestic currency must be zero.
  4. Interest parity must hold.
  5. none of the above
Question 22 (1.0 points)
For this question, assume that all price levels are fixed. If there is an appreciation of the domestic currency, which of the following will occur?
  1. an increase in net exports
  2. a decrease in imports
  3. an increase in demand for domestic output
  4. an increase in exports
  5. none of the above
Question 23 (1.0 points)
In the early 1990s, European unemployment rose largely because of:
  1. undervalued currencies.
  2. overvalued currencies.
  3. high inflation.
  4. low budget deficits.
  5. high real interest rates.
Question 24 (1.0 points)
Under fixed exchange rates and perfect capital mobility, which of the following must occur if the policy to peg the currency is credible?
  1. A contractionary fiscal policy will require that the central bank decrease the money supply.
  2. The central bank cannot use monetary policy to affect domestic output.
  3. The domestic and foreign interest rates must be equal.
  4. all of the above
  5. none of the above
Question 25 (1.0 points)
The exchange rate policy of the United States is:
  1. a float.
  2. a crawling peg.
  3. a fixed rate within a band.
  4. the EMS.
  5. none of the above
Copyright 2008, by the Contributing Authors. Cite/attribute Resource . admin. (2009, January 27). Quiz 13. Retrieved January 07, 2011, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/economics/macroeconomics-for-managers/quiz13.htm. This work is licensed under a Creative Commons License Creative Commons License