Graded Homework - Chapter 3(14)

If the U.S. real GDP growth rate is greater than that of Canada, then the dollar will depreciate: only if the U.S. inflation rate exceeds Canada's inflation rate. regardless of the relative inflation rates. only if the U.S. inflation rate is less than that of Canada's other trade partners. only if the U.S. inflation rate is less than Canada's inflation rate.

A

More realistically, the liquidity function is not ______ but a(n) ______ function of the demand for real balances based on changes in the ______. constant; decreasing; nominal rate of interest decreasing; increasing; level of real income increasing; constant; real rate of interest

A

Under the monetary approach to exchange rates, if there is a rise in a country's home money supply, ceteris paribus, then the exchange rate should: depreciate. appreciate. appreciate and then remain steady. hold steady.

A

Absolute purchasing power parity implies that: the price of a basket of goods is cheaper in one country than in another. the price of a basket of goods is the same in the two countries. the price of a basket of goods is more expensive in one country than in another. the exchange rate is artificially held constant.

B

If an automobile costs $32,000 in New York and $1 = 0.8 euros, then under the condition of the law of one price, the cost of the automobile in Rome should be: 32,000 euros. 35,000 euros. 25,600 euros. 40,000 euros.

C

Under what circumstances would there be a "no-arbitrage" situation in goods markets between two nations? when one of the currencies is undervalued when both of the currencies are overvalued when the relative price of the currencies is equal to one when one of the currencies is overvalued

C

Using monetary theory, one can show that the price level (index) in an economy is equal to: the inflation rate minus the interest rate. the velocity of money. the average change in the level of trade over the past five quarters. the ratio of the nominal supply of money to the demand for real balances.

D

When we incorporate a relationship between expected inflation and liquidity preference (demand for real balances) into our long-run model, which of the following occurs? The exchange rate rises in direct proportion to the increase in the quantity of money, but inflation actually falls because of an increase in the demand for money. The exchange rate is unaffected. The exchange rate rises in direct proportion to the increase in the quantity of money and the price level. The increase in interest rates and inflation after an increase in the monetary growth rate affect exchange rates but also cause additional effects on exchange rates and price levels because of a decrease in the demand for real balances.

D

With relative PPP, a rise in a nation's inflation rate is always offset by an increase in the rate of __________ of its currency. devaluation revaluation appreciation depreciation

D