Suppose a change in exchange rates causes aggregate demand to decrease. What is the result? Choose one or more: A. In the long run, the price level will decrease. DB. In the short run, the price level will decrease. OC. In the short run, GDP will decrease. DD. In the long run, GDP will decrease.
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- Suppose policy makers want to increase net exports (NX) and keep output (Y) constant. Which of the following policies would most likely achieve this? A.an increase in government spending B.a real depreciation C.an increase in government spending and a decrease in the real exchange rate D.a decrease in the real exchange rate and a tax increaseThe diagram to the right most likely shows the impact on the Canadian economy of A. an increase in the worldwide demand for petroleum products, a major Canadian export good. B. changes in world tastes in favour of Canadian goods. C. a decrease in foreign incomes. D. an outbreak of inflation outside of Canada. If the Bank of Canada makes no transactions in the foreign-exchange market, the Canadian dollar will undergo a depreciation. Use the three-point curve drawing tool to show how a flexible exchange rate serves as a "shock absorber" to the external shock depicted in the accompanying graph. Carefully follow the instructions above, and only draw the required objects. …………. Price Level (P) FO Real GDP (Y) ASO AD1 ADO QWhich of the following will occur in the medium run as a result of a revaluation? a. All of the other answers are correct. b. A decrease in the price level. c. An increase in the exchange rate. d. A decrease in net exports.
- An increase in the real exchange rate (real depreciation of domestic currency) will result in: A. an increase in imports only. B. an increase in net exports. C. a decline in imports. D. a decline in exports.The value of the U.S. dollar typically increases when the (select all that apply) A. global economy is strong. B. U.S. economy is strong. C. global economy is weak. D. U.S. economy is weak.In a fixed exchange rate system, ..... A. the International Monetary Fund determines exchange rates. B. market forces play a role in determining the fixed value of a currency. C. market forces and the country's stock of gold determine its exchange rate. D. a central bank affects the value of a currency by changing its foreign exchange reserves.
- 4. In your macroeconomic lectures you are often told that exchange rates and interest rates are important for macroeconomic decision-making. a. How does an increase in Japan’s government budget deficit affect each of the following? i. The real interest rate in the short run in Japan. Explain. ii. Private domestic investment in plant and equipment in Japan. b. Draw a correctly labeled graph of the foreign exchange market for the euro, and show the effect of the change in the real interest rate in Japan from part (a)(i) on each of the following. i. Supply of euros. Explain. ii. Yen price of the euro.c. To reverse the change in the yen price of the euro identified in part (b) (ii), should the European Central Bank buy or sell euros in the foreign exchange market? Explain.True/False and Explain 1. An increase in savings implies a decrease in consumption and therefore a decrease in GDP. 2. The exchange rate between two countries can be thought of as unrelated to any economic variables. 3. If the real rate of return on investment is higher in the US than in Canada, capital will tend to flow out of the US and into Canada. 4. When nominal interest rates are zero, the central bank can still lower them by printing money and purchasing bonds from banks. This increases the supply of loanable funds and stimulates lending. 5. A pro-savings policy by the US would likely reduce the US trade deficit. 6. When savings equals investment, reducing savings and increasing consumption is especially effective in stimulating output. 7. In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means the central bank cannot control the rate of output growth or the inflation rate. 8. There are an infinite number of combinations of real interest rates and…When a country devalues its currency, we expect that A.income will fall because the devaluation reduces aggregate supply. B. income will rise because the devaluation stimulates aggregate demand. C. income will rise because the devaluation stimulates aggregate supply. D. income will fall because the devaluation reduces aggregate demand.
- Computing the real exchange rate: 2. Assume that the nominal exchange rate between U.S. and Mexico is: e = 10 pesos per $. The price of Tall Starbucks Latte: P = $3 in U.S.; P* = 24 pesos in Mexico. A. What is the price of a U.S. latte measured in pesos? B. Compute the real exchange rate, measured as Mexican lattes per US latte. C. Interpret the real exchange rate you obtain in “B”.Suppose we are studying the German economy. What happens to the trade balance if the German government increases the tax rate on German companies? Note: Consider this from a production standpoint only. Answer selection groupReal GDP rises and price level fallsReal GDP and price level risesReal GDP and price level fallsReal GDP falls and price level risesColombia is the world’s biggest producer of roses. The global demand for rosesincreases and at the same time Colombia’s central bank increases the interest rate.In the foreign exchange market for Colombian pesos, what happens to: The quantity of pesos demanded?iv. The quantity of pesos supplied?
