Question 1

(Figure: Thailand-U.S. Foreign Exchange Rate) Look at the following graph. How would you explain the behavior of the exchange rate after the pegged exchange rate broke?
Figure: Thailand-U.S. Exchange Rate

Accepted Answer

The answer of (Figure: Thailand-U.S. Foreign Exchange Rate) Look at...

Question 2

If the spot exchange rate is undervalued, the foreign rate of return is:

Accepted Answer

A)   equal to the domestic rate of return.
B)   greater than the domestic rate of return.
C)   less than the domestic rate of return.
D)   diverging from the domestic rate of return.E) B) and D)
F) C) and D)

Question 3

When policy changes are temporary, then:

Accepted Answer

A)   exchange rates do not change.
B)   expectations do not change.
C)   interest rates do not change.
D)   expectations can change based on results.E) C) and D)
F) A) and B)

Question 4

When an increase in the quantity of money is considered to be permanent and prices are sticky, then in the short run the exchange rate depreciates and overshoots because:

Accepted Answer

A)   domestic nominal returns fall relative to foreign returns, and traders expect a permanent depreciation in future exchange rates.
B)   traders do not change their expectations of the exchange rate, and lower domestic rates make it easier to borrow.
C)   inflationary expectations eventually cause a rise in domestic real returns.
D)   traders quickly realize that their expectations of future exchange rates are incorrect and eventually prices will become unstuck.E) B) and D)
F) A) and B)

Question 5

Combining the home money market and the uncovered interest parity relationship, we can see how changes in variables determine:

Accepted Answer

A)   real GDP.
B)   the exchange rate.
C)   the price level.
D)   the quantity of money.E) A) and B)
F) A) and C)

Question 6

The trilemma refers to all the following, EXCEPT:

Accepted Answer

A)   a fixed exchange rate.
B)   international capital mobility.
C)   monetary policy autonomy.
D)   price controls.E) B) and D)
F) A) and D)

Question 7

In the short run, when the central bank increases the quantity of money, what happens to real balances?

Accepted Answer

A)   They do not change, since prices will rise by the same proportion.
B)   They will fall, since prices will rise by a greater proportion.
C)   They will rise, since prices overall will fall.
D)   They will rise, since prices will not change in the short run.E) B) and C)
F) None of the above

Question 8

The monetary approach basically looks at ____ as the fundamental variable affecting _____ exchange rates.

Accepted Answer

A)   interest rates; short-run
B)   interest rates; long-run
C)   the price level; short-run
D)   the price level; long-runE) None of the above
F) A) and D)

Question 9

The money market (short-run)  equilibrium equation states that the demand for real balances, (L(i) Y)  is always equal to the supply of real balances (M/P)  because ____ adjust(s)  to ensure that people are willing to hold the entire stock.

Accepted Answer

A)   nominal interest rates
B)   real interest rates
C)   the price level
D)   nominal GDPE) B) and D)
F) A) and B)

Question 10

Using the asset model of short-run exchange rate determination, once the domestic rate of return is determined by MS and MD, the short-run equilibrium _____ can be determined if prices are inflexible and expectations are given.

Accepted Answer

A)   interest rate
B)   exchange rate
C)   price level
D)   income levelE) A) and C)
F) A) and B)

Question 11

When the exchange rate appreciates in the short run and then depreciates to its original level in the long run, it implies that the foreign money supply has:

Accepted Answer

A)   temporarily risen.
B)   permanently risen.
C)   temporarily fallen.
D)   permanently fallen.E) A) and D)
F) A) and C)

Question 12

The returns from the home country and foreign country capital markets are equalized if:

Accepted Answer

A)   the home country interest rates are higher.
B)   the foreign country interest rates are higher.
C)   the foreign country has a higher price level.
D)   both countries have no capital controls.E) A) and B)
F) C) and D)

Question 13

A key component of the asset approach to exchange rates is being able to accurately gauge:

Accepted Answer

A)   the price level.
B)   the rate of inflation.
C)   expected future exchange rates.
D)   the GDP gap.E) B) and C)
F) All of the above

Question 14

The money market clears as people with excess real balances:

Accepted Answer

A)   buy bonds and drive down nominal rates of interest until the demand for real balances equals supply.
B)   sell bonds and drive up nominal rates of interest until the demand for real balances equals supply.
C)   increase spending, driving up nominal GDP and raising nominal rates of interest.
D)   sell financial assets such as stocks to increase the total supply of real balances.E) B) and C)
F) A) and D)

Question 15

Exchange rate interventions occur when a government:

Accepted Answer

A)   buys and sells its own currency on forex markets.
B)   buys and sells other currencies on forex markets.
C)   increases its interest rate.
D)   buys and sells its own currency and other currencies on forex markets.E) A) and D)
F) All of the above

Question 16

When traders perceive a permanent money supply adjustment, short-term nominal interest rates ___ affected, the expected exchange rate ____ affected, and the spot exchange rate _____ affected.

Accepted Answer

A)   are; is; is
B)   are; is; is not
C)   are not; is not; is not
D)   are; is not; isE) A) and B)
F) B) and C)

Question 17

When the exchange rate depreciates in the short run and then appreciates slightly in the long run, it implies that the foreign money supply has:

Accepted Answer

A)   temporarily risen.
B)   permanently risen.
C)   temporarily fallen.
D)   permanently fallen.E) A) and B)
F) A) and C)

Question 18

A nominal anchor is a commitment to keep nominal variables within limits, often tied to an external value or price. When nations do not incorporate such discipline into their monetary policy, exchange rates are often:

Accepted Answer

A)   irrelevant to economic activity.
B)   extremely volatile, because traders consider monetary shocks to be permanent.
C)   less dependent on monetary variables.
D)   determined by political considerations rather than economic fundamentals.E) B) and C)
F) B) and D)

Question 19

What role does the Fisher effect play in overshooting?

Accepted Answer

The Fisher effect is an economic theory ...

Question 20

Describe the effect of a permanent increase in the foreign quantity of money on exchange rates in both the long run and short run.

Accepted Answer

In the short run, a permanent increase i...

Exam 15: Exchange Rates II: the Asset Approach in the Short Run

Describe the effect of a permanent increase in the foreign quantity of money on exchange rates in both the long run and short run.

Correct AnswerAnswered by ExamLex AIIn the short run, a permanent increase i...View AnswerShow Answer

The trilemma refers to all the following, EXCEPT:

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The returns from the home country and foreign country capital markets are equalized if:

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Using the asset model of short-run exchange rate determination, once the domestic rate of return is determined by MS and MD, the short-run equilibrium _____ can be determined if prices are inflexible and expectations are given.

Correct AnswerverifiedShow Answer

When policy changes are temporary, then:

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What role does the Fisher effect play in overshooting?

Correct AnswerAnswered by ExamLex AIThe Fisher effect is an economic theory ...View AnswerShow Answer

In the short run, when the central bank increases the quantity of money, what happens to real balances?

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The money market (short-run) equilibrium equation states that the demand for real balances, (L(i) Y) is always equal to the supply of real balances (M/P) because ____ adjust(s) to ensure that people are willing to hold the entire stock.

Correct AnswerverifiedShow Answer

The money market clears as people with excess real balances:

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When the exchange rate depreciates in the short run and then appreciates slightly in the long run, it implies that the foreign money supply has:

Correct AnswerverifiedShow Answer

When traders perceive a permanent money supply adjustment, short-term nominal interest rates ___ affected, the expected exchange rate ____ affected, and the spot exchange rate _____ affected.

Correct AnswerverifiedShow Answer

A key component of the asset approach to exchange rates is being able to accurately gauge:

Correct AnswerverifiedShow Answer

When the exchange rate appreciates in the short run and then depreciates to its original level in the long run, it implies that the foreign money supply has:

Correct AnswerverifiedShow Answer

Combining the home money market and the uncovered interest parity relationship, we can see how changes in variables determine:

Correct AnswerverifiedShow Answer

The monetary approach basically looks at ____ as the fundamental variable affecting _____ exchange rates.

Correct AnswerverifiedShow Answer

A nominal anchor is a commitment to keep nominal variables within limits, often tied to an external value or price. When nations do not incorporate such discipline into their monetary policy, exchange rates are often:

Correct AnswerverifiedShow Answer

When an increase in the quantity of money is considered to be permanent and prices are sticky, then in the short run the exchange rate depreciates and overshoots because:

Correct AnswerverifiedShow Answer

(Figure: Thailand-U.S. Foreign Exchange Rate) Look at the following graph. How would you explain the behavior of the exchange rate after the pegged exchange rate broke? Figure: Thailand-U.S. Exchange Rate

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Exchange rate interventions occur when a government:

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If the spot exchange rate is undervalued, the foreign rate of return is:

Correct AnswerverifiedShow Answer

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In the short run, a permanent increase i...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
Answered by ExamLex AI
The Fisher effect is an economic theory ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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When traders perceive a permanent money supply adjustment, short-term nominal interest rates _ affected, the expected exchange rate affected, and the spot exchange rate ___ affected.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The monetary approach basically looks at as the fundamental variable affecting _ exchange rates.

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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