QUESTION 6

1. After a permanent decrease in the money supply,

A.the exchange rate undershoots in the long run.

B.the exchange rate smoothly depreciates in the short run.

C.the exchange rate overshoots in the short run.

D.the exchange rate smoothly appreciates in the short run.

E.None of the above is correct.

QUESTION 7

1. Which of the following is true?

A.A country with a current account surplus is earning more from its exports than it spends on imports.

B.A country could finance a current account deficit by using previously accumulated foreign wealth to pay for its imports.

C.A country with a current account deficit must be increasing its net foreign debts by the amount of the deficit.

D.We can describe the current account surplus as the difference between income and absorption (=C+I+G).

E.All of the above are true of current account balances.

3 points

QUESTION 8

1. Which one of the following statements is the most accurate?

A.For a fixed interest rate, a rise in the expected future exchange rate does not cause a change in the current exchange rate.

B.For a fixed interest rate, a rise in the expected future exchange rate causes a fall in the current exchange rate.

C.For a given dollar interest rate and a constant expected exchange rate, a rise in the interest rate of the euro causes the dollar to depreciate.

D.For a given euro interest rate and a constant expected exchange rate, a rise in the interest rate of the dollar causes euro to appreciate.

QUESTION 9

1. GNP equals GDP

A.minus depreciation.

B.plus depreciation.

C.plus net receipts of factor income from the rest of the world.

D.minus net receipts of factor income from the rest of the world.

E.minus depreciation plus net unilateral transfers.

QUESTION 10

1. What is the expected dollar rate of return on euro deposits with today's exchange rate at $1.10 per euro, next year's expected exchange rate at $1.166 per euro, the dollar interest rate at 10%, and the euro interest rate at 5%?

A.10%

B.0%

C.15%

D.-1%

E.11%