Download Study Questions for Final File

1. The law of one price should hold well for:
a.
differentiated products.
b.
real estate.
c.
haircuts.
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d.
homogeneous products.
2.
For which of the following will the law of one price hold best?
a.
Milk
b.
Houses
c.
Hamburgers
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d.
Gold
3. If a basket of goods and services costing $100 in the U.S. costs 20,000 yen in
Japan, then the purchasing power parity exchange rate is _____ per dollar.
a.
50 yen
b.
100 yen
c.
150 yen
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d.
200 yen
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In converting currencies to a common denominator such as the dollar, the
procedure that uses the cost of a given basket of goods and services as the
basis for setting the conversion rate for one currency into another is
known as:
a.
exchange rate parity.
b.
consumer price index parity.
c.
purchasing power parity.
d.
GDP deflator parity.
Relative purchasing power parity means that:
a.
the exchange rate between any two currencies is equal to the ratio
of their price indexes.
b.
relative prices determine interest rates.
c.
the same good sells for the same price internationally.
d.
the percentage change in the exchange rate is equal to the inflation
differential between the domestic and foreign currencies.
If a Big Mac hamburger sells for the same dollar value in Tokyo and in Los
Angeles then:
a.
exchange rates are said to be fixed.
b.
the inflation rate in each country must equal zero.
c.
Japanese yen have been replaced by dollars in Bangkok.
d.
purchasing power parity holds.
If the real interest rate in the U.S. decreases relative to the real interest
rate in Japan then:
a.
more capital will flow from the U.S. to Japan causing the dollar to
appreciate.
b.
more capital will flow from the U.S. to Japan causing the dollar to
depreciate.
c.
more capital will flow from Japan to the U.S. causing the dollar to
appreciate.
d.
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9.
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10.
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11.
12.
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13.
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more capital will flow from Japan to the U.S. causing the dollar to
depreciate.
If there is an increase in aggregate demand, this implies that:
a.
the AD curve has shifted to the right.
b.
the AD curve has shifted to the left.
c.
the price level has fallen as spending increased.
d.
the price level has risen as spending decreased.
Which of the following does not cause an increase in aggregate demand?
a.
an increase in society’s wealth
b.
a decrease in consumer indebtedness
c.
a fall in the price level
d.
a fall in interest rates
An appreciation of the dollar causes an increase in:
a.
exports.
b.
imports.
c.
demand.
d.
supply.
As a country’s currency depreciates:
a.
the aggregate demand curve shifts to the left causing an increase in
real GDP and the price level.
b.
the aggregate demand curve shifts to the left causing a decrease in
real GDP and the price level.
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c.
the aggregate demand curve shifts to the right causing an
increase in real GDP and the price level.
d.
the aggregate demand curve shifts to the right causing a decrease
in real GDP and the price level.
A real depreciation of a country’s currency generally causes:
a.
an increase in the production of tradable goods and a reduction in
the production of nontradable goods in the economy.
b.
a decrease in the production of tradable goods and an increase in
the production of nontradable goods in the economy.
c.
an increase in the production of both tradable goods and
nontradable goods in the economy.
d.
a decrease in the production of both tradable goods and
nontradable goods in the economy.
The balance between inflows and outflows in the current account is
known as:
a.
internal balance.
b.
external balance.
c.
macroeconomic balance.
d.
the Phillips curve.
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16.
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The levels of inflation and unemployment that fit the preferences of a
country’s citizens is known as:
a.
microeconomic balance.
b.
full employment balance.
c.
the natural rate of unemployment.
d.
internal balance.
In an open economy, an expansionary fiscal policy:
a.
is very effective in changing real GDP.
b.
is not effective in changing real GDP.
c.
is not effective in changing the exchange rate.
d.
is not effective in changing capital flows between countries.
With floating exchange rates:
a.
both fiscal and monetary policy are ineffective.
b.
both monetary and fiscal policy are effective.
c.
monetary policy is effective.
d.
fiscal policy is effective.
Sample Classical Questions
1. If the government adopts a contractionary fiscal policy by increasing
taxes and/or decreasing government spending in an open economy with
capital mobility, what would be its effect on interest rate, exchange rate,
the economy’s real GDP and the price level? Show by using diagram(s).
2. What is the impacts of an expansionary monetary policy in an open
economy with capital mobility, on interest rate, exchange rate, the
economy’s real GDP and the price level? Show by using diagram(s).