Question 1

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

Accepted Answer

The answer of Explain how does an increase in the...

Question 2

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 3

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

When domestic real income rises, individuals have more purchasing power which leads to higher consumption, investment, and government spending. This increased spending leads to an increase in demand for home output, therefore, A is the most accurate statement.

Question 4

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 considered to be variable and adjustable to achieve maximum output. In the short run, however, some inputs, such as labor and capital, are fixed, which means that output can only be increased by using those inputs more efficiently. Therefore, in the short run, domestic output depends on the available domestic supplies of factors of production, but in the long run, all inputs can be adjusted, and domestic output depends only on the available domestic supplies of factors of production.

Question 5

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:

Accepted Answer

The answer of Find the real exchange rate for the...

Question 6

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 individuals have more money to spend on goods and services.

Question 7

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

Accepted Answer

The answer of Explain how does a rise in real...

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

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

Accepted Answer

The answer of What is the real exchange rate?
 What...

Question 10

Fill in the following table.

Accepted Answer

The answer of Fill in the following table.
 ...

Question 11

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 ________.

Accepted Answer

The answer of Find the real exchange rate for the...

Question 12

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. In the short run, some factors of production may be fixed and cannot be adjusted immediately to changes in demand. As a result, firms may over- or under-employ other factors of production, such as labor or capital, to match the fixed factors. In the long run, all factors of production can be adjusted so that they are employed at their optimal levels.

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

We assume that the volume effect (increase in export volume and decrease in import volume due to cheaper currency) outweighs the value effect (change in the price of exports and imports), leading to an improvement in the current account.

Question 14

Fill in the following table.

Accepted Answer

The answer of Fill in the following table.
 ...

Question 15

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

The answer of Please discuss the volume effect and the...

Question 16

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.

Accepted Answer

The answer of A country's domestic currency's real exchange rate,...

Question 17

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:

Accepted Answer

The answer of Find the real exchange rate for the...

Question 18

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 level can adjust, but eventually, they will adjust to the point where the economy is at full employment equilibrium levels. This means that there is no cyclical unemployment or demand-deficient unemployment in the economy, and all available resources are being utilized efficiently.

Question 19

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:

Accepted Answer

The answer of Find the real exchange rate for the...

Question 20

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

Accepted Answer

The answer of Monetary expansion causes the current account balance...

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

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

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 the MOST accurate?

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:

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

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

How does a rise in real income affect aggregate demand?

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

Fill in the following table.

Which one of the following statements is MOST accurate?

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

Fill in the following table.

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.

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

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:

Why is the economy at full employment in the long 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 $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:

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