ECON 2H03 Lecture Notes - Lecture 13: Floating Exchange Rate, Risk Premium, Money Supply

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19 Apr 2016

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In a small open economy with a fixed exchange rate, if the country devalues its currency, then in the new short-run equilibrium the exchange rate ______, and the. Question 9 options: decreases; left increases; left decreases; right increases; right. In the mundell fleming model, if political turmoil raises the risk premium in a country"s interest rate, then the exchange rate will: Question 11 options: increase. decrease. remain constant. either increase or decrease, depending on whether the is* or lm* curve shifts more. A revaluation of a currency under a fixed-exchange-rate system occurs when the level at which the currency is fixed is: increased. decreased. allowed to float. kept fixed within a band. The introduction of a stylish new line of cars made in europe, which makes some consumers prefer foreign cars over domestic cars, will, according to the mundell . Fleming model with fixed exchange rates, lead to:

Related Questions

13.	(2.0 pts)) According to the MundellâFleming model for a small open economy with flexible exchange rates, if the Federal Reserve cannot alter domestic interest rates, changes in the money supply could still influence aggregate income through changes in the:

Answer:

14.	(2.0 pts) Explain why in the MundellâFleming model with fixed exchange rates, the imposition of trade restrictions results in an increase in net exports. Answer:

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Mundell-Fleming Model:

Use the Mundell-Fleming Model to predict what happens to aggregate income y, the exchange rate e, and the trade balance NX, under both floating and fixed exchange rates in response to each of the following shocks:

a.A fall in consumer confidence about the future induces consumers to spend less and save more.

b.The introduction of a stylish line of Toyotas makes some consumers prefer foreign cars over domestic cars.

The introduction of automatic teller machines reduces the demand for money.

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1. The multiplier helps explain

A. why a decrease in taxes causes real Gross Domestic Product (GDP) to fall by more than the amount of the decrease in taxes.

B. why a fall in investment cause real Gross Domestic Product (GDP) to rise by more than the amount of the decrease in investment.

C. why a rise in government expenditures causes real Gross Domestic Product (GDP) to rise by more than the amount of the increase in government spending.

D. why an increase in disposable income causes real Gross Domestic Product (GDP) to rise by less than the amount of the increase in disposable income.

2. If the marginal propensity to save (MPS) increases, the multiplier

A. decreases.

B. can either increase or decrease, depending on what happens to the marginal propensity to consume (MPC).

C. stays the same.

D. increases.

QUESTION 60

The investment function will shift when there is a change in

		A. the opportunity cost of retained earnings.
		B. firms' profit expectations.
		C. the cost of borrowing.
		D. the interest rate.

1.43 points

QUESTION 61

In the Keynesian model, whenever planned saving exceeds planned investment,

		A. there will be unplanned inventory accumulation.
		B. real GDP will not be influenced.
		C. the interest rate will remain unchanged.
		D. there will be unplanned inventory depletion.

1.43 points

QUESTION 62

In the Keynesian model, whenever planned saving is less than planned investment,

		A. there will be unplanned inventory depletion.
		B. the interest rate will remain unchanged.
		C. there will be unplanned inventory accumulation.
		D. real GDP will not be influenced.

1.43 points

QUESTION 63

Government purchases

		A. are determined by the political process.
		B. are determined by the public.
		C. are influenced by interest rates.
		D. are determined by suppliers.

1.43 points

QUESTION 64

If, at some level of output, total planned real expenditures are less than real Gross Domestic Product (GDP),

		A. real GDP will either fall or remain unchanged, depending on the MPC.
		B. real GDP will rise.
		C. real GDP remains unchanged.
		D. unplanned inventories will increase and real GDP will fall.

1.43 points

QUESTION 65

When the economy is operating at the equilibrium level of GDP, we know that

		A. total planned real expenditures equal real GDP.
		B. real net exports equal inventory changes.
		C. planned real investment spending equals real net exports of zero.
		D. total planned real consumption expenditures equal real GDP.

1.43 points

QUESTION 66

One divided by the marginal propensity to save (MPS) is the formula for

		A. the inverse of the multiplier.
		B. the multiplier.
		C. one minus the multiplier.
		D. autonomous consumption.

QUESTION 67

Thinking like an economist would, which is true of investment?

		A. Investment represents spending on capital goods.
		B. Investment is a stock concept.
		C. Investment is putting money into stocks and bonds.
		D. It is the portion of disposable income that is not used for consumption or saving.

QUESTION 68

Other things being equal, if input prices rise in a country, then there would be

		A. cost-push inflation.
		B. demand-pull inflation.
		C. cost-pull deflation.
		D. more production and a lower price level.

QUESTION 69

In the short run, if the price level rises, then the overall economy can temporarily produce beyond its nominal capacity. One reason for this is that

		A. existing capital equipment can be used more intensively.
		B. wage rates rise almost simultaneously with the price level.
		C. the unemployment rate usually rises dramatically along with the price level.
		D. workers can be switched from counted to uncounted production.

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ECON 2H03 Lecture Notes - Lecture 13: Floating Exchange Rate, Risk Premium, Money Supply

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