Question 1

According to historical data, what is the effect of a sharp change in the current account on the exchange rate (both in the short and long run)?

Accepted Answer

The answer of According to historical data, what is the...

Question 2

If the economy starts in long-run equilibrium, a permanent fiscal expansion will cause

Accepted Answer

The answer of If the economy starts in long-run equilibrium,...

Question 3

Which one of the following statements is the MOST accurate?

Accepted Answer

A permanent increase in money demand can indeed be offset by a permanent increase in the money supply of equal magnitude, maintaining equilibrium in the money market. This is a fundamental principle in monetary economics, where adjusting the money supply can counteract changes in money demand to stabilize the economy.

Question 4

Which of the following is TRUE of the current account balance?

Accepted Answer

Monetary expansion increases the money supply in an economy, leading to lower interest rates and increased demand for imports. This results in a higher current account deficit, leading to an increase in the current account balance.

Question 5

Using the DD model, explain what happens to output when Government demands increase. Use a figure to explain when it is taking place.

Accepted Answer

The answer of Using the DD model, explain what happens...

Question 6

Using the DD-AA framework, which one of the following statements is the MOST accurate?

Accepted Answer

The answer of Using the DD-AA framework, which one of...

Question 7

Show the effects of a permanent increase in the money supply.

Accepted Answer

The answer of Show the effects of a permanent increase...

Question 8

Explain and give some examples of governmental policy problems.

Accepted Answer

The answer of Explain and give some examples of governmental...

Question 9

Which one of the following statements is the MOST accurate?

Accepted Answer

Over time, a permanent expansion of the money supply is more likely to push the price level to its long-run value and return the economy to full employment, according to the long-run neutrality of money concept. Temporary expansions do not have the same long-term effects on the economy's output and employment levels.

Question 10

The J-curve illustrates which of the following?

Accepted Answer

The J-curve illustrates the short-term effects of depreciation on the current account, showing a temporary deterioration (or worsening) of the current account balance immediately after a currency depreciation, followed by a gradual improvement in the long run.

Question 11

A permanent increase in the domestic money supply

Accepted Answer

A permanent increase in the domestic money supply typically leads to inflation, which reduces the value of the domestic currency. This results in a proportional rise in the exchange rate (E), where E represents the price of foreign currency in terms of the domestic currency. Consequently, the expected future exchange rate must also rise proportionally, reflecting the anticipated continued effect of the increased money supply on the currency's value.

Question 12

Demonstrate how a permanent fiscal expansion will not increase output in the long run.

Accepted Answer

The answer of Demonstrate how a permanent fiscal expansion will...

Question 13

A permanent fiscal expansion

Accepted Answer

The answer of A permanent fiscal expansion
...

Question 14

Using the DD-AA framework, show the phenomenon of overshooting. Use a figure to explain when it is taking place.

Accepted Answer

The answer of Using the DD-AA framework, show the phenomenon...

Question 15

In the short run, a permanent increase in the domestic money supply

Accepted Answer

In the short run, a permanent increase in the domestic money supply has stronger effects on the exchange rate and output than an equal temporary increase. This is because a permanent increase in the money supply leads to higher inflation expectations, which in turn leads to higher interest rates and a higher exchange rate. Additionally, a permanent increase in the money supply also increases output in the short run, as it stimulates aggregate demand. On the other hand, a temporary increase in the money supply may not lead to the same impact on inflation expectations and interest rates, and therefore may have weaker effects on the exchange rate and output.

Question 16

In the short run, a permanent increase in the domestic money supply causes

Accepted Answer

In the short run, a permanent increase in the domestic money supply causes a greater upward shift in the AA curve than that caused by an equal, but transitory, increase. This is because a permanent increase in the money supply leads to a permanent increase in output, which in turn leads to an increase in interest rates due to a higher demand for credit. The higher interest rates cause a greater upward shift in the AA curve than a transitory increase in the money supply, which only has a temporary effect on output and interest rates.

Question 17

Explain the following figure:

Accepted Answer

The answer of Explain the following figure: ...

Question 18

In long-run equilibrium after a permanent money-supply increase there follows:

Accepted Answer

The answer of In long-run equilibrium after a permanent money-supply...

Question 19

Which statement best describes the current account balance in the short run?

Accepted Answer

Monetary expansion increases the money supply and can lead to a decrease in the exchange rate. A decrease in the exchange rate makes exports cheaper and more competitive, while imports become more expensive. Therefore, an increase in exports and decrease in imports will increase the current account balance.

Question 20

In the short run

Accepted Answer

The answer of In the short run
...

Quiz 17: Output and the Exchange Rate in the Short Run

According to historical data, what is the effect of a sharp change in the current account on the exchange rate (both in the short and long run) ?

If the economy starts in long-run equilibrium, a permanent fiscal expansion will cause

Which one of the following statements is the MOST accurate?

Which of the following is TRUE of the current account balance?

Using the DD model, explain what happens to output when Government demands increase. Use a figure to explain when it is taking place.

Using the DD-AA framework, which one of the following statements is the MOST accurate?

Show the effects of a permanent increase in the money supply.

Explain and give some examples of governmental policy problems.

Which one of the following statements is the MOST accurate?

The J-curve illustrates which of the following?

A permanent increase in the domestic money supply

Demonstrate how a permanent fiscal expansion will not increase output in the long run.

A permanent fiscal expansion

Using the DD-AA framework, show the phenomenon of overshooting. Use a figure to explain when it is taking place.

In the short run, a permanent increase in the domestic money supply

In the short run, a permanent increase in the domestic money supply causes

Explain the following figure:

In long-run equilibrium after a permanent money-supply increase there follows:

Which statement best describes the current account balance in the short run?

In the short run