Label the following statements as true, false or uncertain (A). The gold standard was an international monetary system which combined fixed exchange rates with freedom of international capital movements. (B). Under flexible exchange rates, a temporary increase in money supply lowers the domestic interest rate which causes a rise in the exchange rate, leading to an increase in the current account balance. (C) . The Marshall Lerner condition states that a real depreciation will increase the current account balance if the price elasticities of export demand and import demand are very low.

Question: How is this likely to affect economies that are heavily dependent on oil imports? a) Decrease in inflation b) Increase in their trade deficits c) Increase in their exports d) Decrease in their current account deficits

When a country hosts the Olympics this can be expected to        A) reduce the supply of the country's currency on the foreign exchange markets. B) increase the country's exports. C) reduce the country's imports. D) lead to a depreciation of the host country's currency. E) do all of the above.

How to solve question 4?

Question 2 Consider an economy that lasts for two periods, period 1 and period 2. Let T B1 denotes the trade balance in period t, CA1 the current account balance in period 1, and B*1 the country’s net international investment position at the end of period 1. Let r denote the interest rate paid on assets held for one period. Assume net international payments to employees, net unilateral transfers, and valuation changes are always equal to zero, so that in period t = 1, 2: CAt =rB*t-1 =TBt (1) and CAt = B*t − B*t-1 (2) A) Which conditions are needed to show that B*2 = 0? B)  Suppose that the country runs perpetual trade deficits. What can you tell about the country’s initial net foreign asset position? Justify your answer. C)  If the country starts period 1 with no debt or assets, what can you say about the current account in periods 1 and 2?

A trade balance can be quickly defined as the gap between ___________ , which are also included in the current account balance along with ___________ . a) supply and demand; stocks and bonds b) exports and imports; stocks and bonds c) exports and imports; investment income and unilateral transfers d) supply and demand; investment income and unilateral transfers

Consider a small open economy producing a good which is an imperfect substitute for a foreign good. There are five categories of agents: firms, households, commercial banks, the central bank, and the government. The world price of the foreign good is taken as exogenous and normalized to unity. The nominal exchange rate, E, is flexible. The supply of the domestic good is given by YS * =YS * (PD) * Where PD is the price of the domestic good and YS = d YS’ /d PD > 0   Investment, I, is financed by bank loans and is defined as 1 = I(iL) Where iL is the loan rate and I’ < 0   Households hold three categories of assets: cash (which bears no interest), deposits with domestic banks, and foreign-currency deposits abroad. Assets are imperfect substitutes. Household financial wealth, F ^ H is defined as: FH = M+D+E.D* Where M is cash holdings, and D (respectively, D*) domestic (respectively, foreign) deposits.   The demand for deposits is M / D = m, Where ID is the interest rate on…