Question 1

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 150 euros and the representative U.S.basket costs $200,and the dollar/euro exchange rate is $1.20 per euro,then the price of the European basket in terms of U.S.basket is:

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Question 2

Which one of the following statements is the MOST accurate?
A)A rise in domestic real income raises aggregate demand for home output.
B)A rise in domestic real income decreases aggregate demand for home output because of the increase demand for import.
C)A rise in domestic real income keeps aggregate demand for home output at the same level.
D)It is difficult to tell whether a rise in domestic real income affects positively or negatively aggregate demand for home output.
E)A rise in domestic real income decreases aggregate demand for home output because the CA is raised.

Accepted Answer

A rise in domestic real income means that consumers have more money to spend, leading to an increase in demand for domestic goods and services. This leads to an increase in aggregate demand for home output.

Question 3

Fill in the following table.

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Question 4

Why is the economy at full employment in the long run?
A)Only wages have the ability to adjust.
B)Only price can adjust.
C)Prices don't adjust.
D)Wages and the price level eventually adjust to full employment equilibrium levels.
E)Government policies eventually converge on the full employment strategy.

Accepted Answer

In the long run, both wages and price levels have the ability to adjust to reach full employment equilibrium levels. As wages increase, the production costs for firms also increase, leading to higher prices. On the other hand, when the price level rises, the real wage rate, which is the nominal wage rate adjusted for inflation, falls, leading to an increase in the quantity of labor supplied. Thus, in the long run, wages and price levels adjust to full employment equilibrium levels.

Question 5

Fill in the following table.

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Question 6

Monetary expansion causes the current account balance to increase in the short run.Discuss.Is the same the case for fiscal expansion?

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Question 7

A country's domestic currency's real exchange rate,q,is best described by
A)the price of similar goods in the same market.
B)the price of the domestic basket in terms of the foreign one.
C)the price of a domestic basket.
D)the price of the foreign basket in terms of the domestic basket.
E)the price of different goods baskets in the same market.

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Question 8

How does a rise in real income affect aggregate demand?
A)Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more.
B)Y ↑ implies Yd ↑ implies Im ↓ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by more.
C)Y ↑ implies Yd ↑ implies Im ↑ implies CA ↑ implies AD ↑,and Y ↑ implies Yd ↑ implies C ↑ implies AD ↑.
D)Y ↑ implies Yd ↑ implies Im ↑ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by less.
E)Y ↑ implies Yd ↑ implies Im ↓ implies CA ↓ implies AD ↓,but Y ↑ implies Yd ↑ implies C ↑ implies AD ↑ by less.

Accepted Answer

A rise in real income (Y) increases disposable income (Yd), which leads to an increase in consumption (C) and imports (Im). While increased imports can worsen the current account (CA), leading to a potential decrease in aggregate demand (AD), the increase in consumption has a more significant positive effect on AD, causing it to increase overall.

Question 9

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.
E)Factors of production are fully employed in the short run.

Accepted Answer

Factors of production can be over- or under-employed in the short run. This is because in the short run, some factors may be fixed while others are variable, and it may not be possible to adjust the fixed factors quickly. For example, if a company has a fixed quantity of factory space, it may not be able to immediately increase its production in response to increased demand. On the other hand, if demand decreases, the company may be over-employed in the short run, with excess capacity and idle workers. In the long run, all factors of production are considered variable, and adjustments can be made to achieve full employment.

Question 10

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 100 euros and the representative U.S.basket costs $125,and the dollar/euro exchange rate is $0.75 per euro,then the price of the European basket in terms of U.S.basket is:

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Question 11

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 150 euros and the representative U.S.basket costs $90,and the dollar/euro exchange rate is $0.80 per euro,then the price of the European basket in terms of U.S.basket is:

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Question 12

Find the real exchange rate for the following case: Assume that the representative basket of European goods and services costs 40 euros and the representative U.S.basket costs $50,and the dollar/euro exchange rate is $0.90 per euro,then the price of the European basket in terms of U.S.basket is ________.

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Question 13

What have we assumed when we conclude that a real depreciation of the currency improves the current account?
A)The volume effect outweighs the value effect.
B)The value effect outweighs the volume effect.
C)All else equal and the volume effect outweighs the value effect.
D)All else equal and the value effect outweighs the volume effect.
E)All else equal and the volume effect equals the value effect.

Accepted Answer

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Question 14

What is an accurate implication resulting from an increase in income?
A)an increase in exchange rate
B)a decrease in exchange rate
C)a decrease in consumption
D)a decrease in output
E)an increase in consumption

Accepted Answer

An increase in income typically leads to an increase in consumption, as people have more money to spend on goods and services. Therefore, option E is the most accurate implication resulting from an increase in income. Options A, B, C, and D are not necessarily true and do not directly correlate with an increase in income.

Question 15

The aggregate demand for home input can be written as a function of: I.Real exchange rate.
II)Government spending.
III)Disposable income.
A)I only
B)III only
C)I and III
D)II and III
E)I,II,and III

Accepted Answer

The aggregate demand for home input is influenced by the real exchange rate, government spending, and disposable income. The real exchange rate affects the competitiveness of home goods versus foreign goods, government spending directly influences aggregate demand, and disposable income affects consumer spending.

Question 16

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.
E)In the long run,domestic output depends only on the real exchange rate.

Accepted Answer

In the long run, domestic output depends only on the available domestic supplies of factors of production. This is because in the long run, all inputs are variable and can be adjusted to reach their maximum efficiency, meaning that external factors like foreign input/output and exchange rates do not have a significant impact on domestic output.

Question 17

Explain how does an increase in the real exchange rate affect exports and imports?

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Question 18

Please discuss the volume effect and the value effect in regards to how the current account will move given a change in the real exchange rate.

Accepted Answer

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Question 19

What is the real exchange rate? What is its relationship to the current account?

Accepted Answer

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Question 20

Explain how does a rise in real income affect aggregate demand?

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

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 150 euros and the representative U.S.basket costs $200,and the dollar/euro exchange rate is $1.20 per euro,then the price of the European basket in terms of U.S.basket is:

Which one of the following statements is the MOST accurate?

Fill in the following table.

Why is the economy at full employment in the long run?

Fill in the following table.

Monetary expansion causes the current account balance to increase in the short run.Discuss.Is the same the case for fiscal expansion?

A country's domestic currency's real exchange rate,q,is best described by

How does a rise in real income affect aggregate demand?

Which one of the following statements is MOST accurate?

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 100 euros and the representative U.S.basket costs $125,and the dollar/euro exchange rate is $0.75 per euro,then the price of the European basket in terms of U.S.basket is:

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 150 euros and the representative U.S.basket costs $90,and the dollar/euro exchange rate is $0.80 per euro,then the price of the European basket in terms of U.S.basket is:

What have we assumed when we conclude that a real depreciation of the currency improves the current account?

What is an accurate implication resulting from an increase in income?

The aggregate demand for home input can be written as a function of: I.Real exchange rate. II) Government spending. III) Disposable income.

Which one of the following statements is MOST accurate?

Explain how does an increase in the real exchange rate affect exports and imports?

Please discuss the volume effect and the value effect in regards to how the current account will move given a change in the real exchange rate.

What is the real exchange rate? What is its relationship to the current account?

Explain how does a rise in real income affect aggregate demand?