Question 1

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...

Question 2

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 3

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 4

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 5

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 will generally lead to an increase in consumption as individuals will have more money to spend. Therefore, the best choice is E, an increase in consumption.

Question 6

In the short-run, any rise in the real exchange rate, EP  /P, will cause
A) an upward shift in the aggregate demand function and a reduction in output.
B) an upward shift in the aggregate demand function and an expansion of output.
C) a downward shift in the aggregate demand function and an expansion of output.
D) an downward shift in the aggregate demand function and a reduction in output.
E) an upward shift in the aggregate demand function but leaves output intact.

Accepted Answer

The answer of In the short-run, any rise in the...

Question 7

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 due to the fixed nature of certain inputs, such as capital and machinery, which cannot be adjusted quickly to changes in demand. However, in the long run, firms have more flexibility to adjust their inputs to meet changing demand, which reduces the likelihood of over- or under-employment.

Question 8

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 consumers have more money to spend, which increases demand for goods and services including those produced at home. This leads to an increase in aggregate demand for home output.

Question 9

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 10

Explain the difference between the following two expressions:
Y = C(Yd) + I + G + CA(EP  /P, Yd) and
Y = C + I +G + CA

Accepted Answer

The answer of Explain the difference between the following two...

Question 11

Fill in the following table.

Accepted Answer

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

Question 12

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

The answer of What have we assumed when we conclude...

Question 13

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 14

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 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

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

Accepted Answer

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

Question 17

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 18

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 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 $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 20

Fill in the following table.

Accepted Answer

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

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

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

How does a rise in real income affect aggregate demand?

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

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

In the short-run, any rise in the real exchange rate, EP /P, will cause

Which one of the following statements is MOST accurate?

Which one of the following statements is the MOST accurate?

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:

Explain the difference between the following two expressions: Y = C(Yd) + I + G + CA(EP /P, Yd) and Y = C + I +G + CA

Fill in the following table.

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

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

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.

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

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

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

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:

Fill in the following table.