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. Econ 306 – International Economic II
Quiz #2
Assist. Prof. Idil Göksel
True Statements (Because there were different groups in the quiz, I wrote the true statment for
each case.)
1) In the asset market or portfolio balance approach, other things equal, a depreciation of the
home currency would be caused by an increase in inflationary expectations in the home
country and by decrease in real income in the home country.
2) In the “overshooting” model, asset (and money) markets adjust more rapidly to disturbances
than do goods markets, and therefore the exchange rate and the price level do not move
proportionately to each other in the short run.
3) The shape of the curve that shows the effect of currency depreciation upon a country’s
current account balance over time, with the curve itself being known as the J curve, reflects
the fact that short-run demand elasticities are sufficiently _lower_ than long-run elasticities to
generate this particular shape.
4) In the portfolio balance approach, an increase in the home country real income level,
other things equal, will cause a decrease in the demand for domestic bonds by home
country citizens.
5) If country A depreciates its currency against country B’s currency, then, other things
being equal, there should be “expenditure switching” towards A’s goods by residents of
both countries