Quiz for Chapter 12
Ⅰ. Fill the following blanks with the proper word or expression
1. Y-( )=CA
2、National income equals GNP less ( ),plus ( ),less ( ). 3. GNP equals GDP ( ) net receipts of factor income from the rest of the world. 4. The national income identity for an open economy is ( ).
5. When a country 's exports exceed its imports, we say the country has a current account ( ). 6. The current account includes ( )
7. Any transaction resulting in a payment to foreigners is entered in the balance of payment account as a ( ).
8. In a closed economy, national saving always equals ( ).
9.When official reserves increase, this will be recorded in the ( ), with ( )sign. 10. When debit is bigger than net decrease of the reserve, the difference will go to the ( ).
Ⅱ. True or false
1. The balance of payments accounts always balance in practice as they must in theory.( )
2. Net unilateral transfers are considered part of the current accounts but not a part of national income .( ) 3. The GNP a country generates over some time period must equal its national income ,the income earned in that period by its factors of production. ( )
4. When you buy a share of Microsoft stock , you are buying neither a good or a service , so your purchase dose not show up in GNP. ( )
5. If the government deficit rises and private saving and investment do not change much ,the current account surplus must fall by roughly the same account as the increase in the fiscal deficit. ( )
6. We include income on foreign investment in the current account because that income really is compensation for the services provided by foreign investments.( )
7. Remember that foreign borrowing may not always be a bad idea :a country that borrows abroad to undertake profitable domestic investment can pay its creditors and still have money left over.( )
8. Government agencies including central banks can freely hold foreign reserves and intervene officially in exchange market.( )
9. When the United States lends abroad, a payment is made to foreigners and the capital account is credited. 10. One reason intervention is important is that central banks use it as a way of altering the amount of money in circulation.
Ⅲ. Answer the following questions:
1. Why account keepers adds the account a statistical discrepancy to the balance of payment?
2. The nation of Pecunia had a current account deficit of ＄1 billion and a nonreserve financial account surplus
of ＄550 million in 2005.
(1) What was the balance of payments of Pecunia in that year? What happened to the country’s net foreign
assets?
(2) Assume that foreign central banks neither buy nor sell Pecunian assets. How did the Pecunian central banks
had purchased ＄600 million of Pecunian assets in 2005? How would this official intervention show up in the balance of payments accounts?
(3) How would your answer to (2) change if you learned that foreign central banks had purchased enter foreign
balance of payments accounts?
Ⅳ. Fill the following blanks:
China's balance of payment in 2000
Unit US dollar (million) Balance Current Account Goods Services Income Unilateral Transfer Capital Account Direct investment Portfolio investment Other capital Statistical Discrepancy Official Reserve
34473 -5600 -14665 6311 37482 -3990 -31534 -11929 Quiz for Chapter 13
Ⅰ. Fill the following blanks with the proper word or expression
1. Changes in exchange rates are described as or . 2. Foreign exchange deals sometimes specify a value date farther away than two-days-30 days, 90days, 180 days, or even several years. The exchange rates quoted in such transactions are called 3. is the most liquid of assets
4. The ease with which the asset can be sold or exchange for goods, we call the character is 5. A foreign is a spot sale of a currency combined with a forward repurchase of the currency. 6. The foreign exchange market is in when deposits of all currencies offer the same expected rate of return.
7. The price of one currency in terms of another is called an
8. All else equal, a in the expected future exchange rate causes a rise in the current exchange rate. 9. is the percentage increase in value, it offers over some time period.
10. All else equal, an in the interest paid on deposits of a currency causes that currency to
appreciate against foreign currencies.
Ⅱ. True or false
1. A rate of appreciation of the dollar against the euro is the rate of depreciation of the euro against dollar.( ) 2. The exchange rate quoted as the price of foreign currency in terms of domestic currency is called direct quotation. ( )
3. all else equal, an appreciation of a country's currency makes its goods cheaper for foreigners. ( )
4. The foreign exchange market is in equilibrium when deposits of all currencies offer the same expected rate of return. ( )
5. All else equal., When a country's currency depreciated, domestic residents find that imports from abroad are more expensive. ( )
6. Central bank is at the center of the foreign exchange market.( )
7. A depreciation of the dollar against euro today makes euro deposit less attractive on the condition that expected future dollar/euro rate and interest rates do not change.( )
8. all else equal, a decrease of the interest paid on deposit of US dollars causes dollars to appreciate against foreign currency.( )
9. New York. is the largest foreign exchange market in the world. ( )
10. A fall in the expected future exchange rate causes a fall in the current exchange rate.
Ⅲ. Answer the following questions:
1. Currently, the spot exchange rate is US$1=SF1.50 and the expected exchange rate for six month is SF1.55. the interest rate is 8% in the US per annum and 10% in the Switzerland per annum. （1）Determine whether interest rate parity is currently holding.
（2）If it is not holding, what will happen in the foreign exchange market?.
（3）If the expected exchange rate is unchanged, what is the spot rate when foreign exchange rate is in equilibrium?
2. Suppose the dollar interest rate and the pound sterling interest rate are the same, 5 percent per year. What is the relation between the current equilibrium ＄/￡ exchange rate and its expected future level? Suppose the expected future ＄/￡ exchange rate, ＄1.52 per pound, remains constant as Britain’s interest rate rises to 10 percent per year. If the U.S. interest rate also remains constant, what is the new equilibrium ＄/￡ exchange rate?
Quiz for Chapter 14
Ⅰ. Fill the following blanks with the proper word or expression
1. M1 includes __________.
2. An economy ' s money supply is controlled by _________________.
3. Three main factors that determine aggregate money demand are 4. When money supply equals money demand, we say that the money market is _______________________. 5. A rise in the average value of transactions carried out by a household or firm cause its demand for money to .
6. is an important phenomenon because it helps explain why exchange rates move so sharply from day to day.
7. If the economy is initially at full employment, a permanent increase in the money supply eventually be followed by in the price level.
8. Overshooting is a direct consequence of the short-run 9. An economy’s is the position it would eventually reach if no new economic shocks occurred during the adjustment to full employment.
10. All else equal, a permanent in a country’s money supply causes a proportional long-run depreciation of its currency against foreign currencies.
Ⅱ. True or false
1. An increase in real output lowers the interest rate. ( )
2. In the short run, a reduction in a country's money supply causes its currency to appreciate in the foreign exchange market. ( )
3. All else equal, an increase in a country 's money supply causes a proportional increase in its price level in the long run. ( )
3. All else equal, a rise in the interest rate causes the demand for money to fall. ( ) 4. If there is initially an excess demand of money, the interest rate falls in the short-run. ( )
5. A rise in the average value of transactions carried out by a household or firm causes its demand for money to fall. ( )
6. Given the price level and out put, an increase in the money supply lowers the interest rate. ( ) 7. A change in the supply of money has effect on the long-run values of the interest rate or real output. ( ) 8. The higher the interest rate, the more you sacrifice by holding wealth in the form of money. ( ) 9. An increase in real output lowers the interest rate, given the price level and the money supply( ) 10. An economy experiences inflation when its price level is falling. ( )
Ⅲ. Answer the following questions:
1. What is the short-run effect on the exchange rate when US government increases the money supply? (expectations about future exchange rate are unchanged)
2. Please draw a group of pictures to show the time paths of U.S. economic variables after a permanent increase in
the U.S. money supply growth rate according to the following:
(1)The u.s. decided to increase the money supply growth rate permanently. The vertical axis is money supply and the horizontal axis is time.
(2)The interest rate change,. The vertical axis is Dollar interest rate and the horizontal axis is time. (3)The price level change. The vertical axis is U.S price level and the horizontal axis is time.
(4)The exchange rate change,. The vertical axis is the Dollar/Euro exchange rate and the horizontal axis is time.
Ⅳ. CALCULATION
Suppose that the spot rate is �1 = US$1.2468 － 78 and the six-month forward rate is �1 = US$1.2523－33, the interest rate per annum is 4% in the euro zone and 6% in the US. After carrying out interest arbitrage with �5,000,000 borrowed at the above-mentioned rate, please calculate your net interest arbitrage profit ( other costs ignored ).
Quiz for Chapter 15
Ⅰ. Fill the following blanks with the proper word or expression
1. The equation for real interest parity is .
2. The long-run relationship between inflation and interest rates is called . 3. The equation for absolute PPP is _________________________. 4. The equation for relative PPP is _________________________.
5. The law of_______________ states that under free competition and in the absence of trade impediments, a good must sell for a single price regardless of where in the world it is sold. 6. Equation
q$/??(E$/??PE)/PUS shows that at unchanged output prices, nominal depreciation implies
real . 7. According to Fisher effect, if U.S. inflation were to rise, then U.S. dollar interest rates would_________________.
8. _________________is the relative price of two output baskets, while _________________is the relative price of two currencies.
9. Transport costs and government trade restrictions make it expensive to move goods between markets located in different countries and therefore weaken the _________________mechanism underlying PPP.
10. refer to those goods and services that can never be traded internationally at a profit.
Ⅱ. True or false
1. According to monetary approach, a rise in the interest rate on dollar will lead to the depreciation of the dollar in the long run.( )
2. According to monetary approach, a rise in European output causes the Euro to appreciate. ( ) 3. When demand for American products rises, there will be a long-run real depreciation of the dollar. ( ) 4. According to monetary approach, a rise in European output causes the Euro to appreciate. ( ) 5. When European output supply increases, there will be an appreciation of the euro. ( )
6. Expected real interest rates are the same in different countries when relative PPP is expected to hold. ( ) 7. Based on the monetary approach, other things equal, a permanent rise in the U.S. money supply causes a proportional long-run appreciation of the dollar against euro. ( )
8. At unchanged output prices, nominal depreciation implies real appreciation. ( )
9. Departures from PPP may be even greater in the short run than in the long run because many prices in the economy are sticky and take time to adjust fully. ( )
10. If all U.S. prices increase by 10% and the dollar depreciates against foreign currencies by 10%, absolute PPP will be satisfied (assuming there are no changes abroad) for any domestic and foreign choices of price level indexes. ( )
Ⅲ. Answer the following questions:
1. Suppose America’s inflation rate is 6% over one year, but the inflation rate in Italy is 12%. According to relative PPP, what should happen over the year to the dollar’s exchange rate against the lira?
2. How to explain the problems with PPP? Give the reasons.
Quiz for Chapter 16
Ⅰ. Fill the following blanks with the proper word or expression
1. The aggregate demand for an open economy’s output consists of four components: 2. The current account balance is determined by two main factors: and
3. Equilibrium in the economy as a whole requires equilibrium in the as well as in the 4. An temporary increase in the money supply causes a of the domestic currency, of output, and therefore in employment. 5. Given a fixed exchange rate, when government demand increases, DD schedule will shift 6. A reduction in money demand would shift AA ___________.
7. __________ policy works through changes in government spending or taxes.
8. If the economy starts at long-run equilibrium, a permanent change in fiscal policy has no net effect on . 9. J-curve effects amplify the of exchange rates
10. Because a permanent fiscal expansion changes exchange-rate expectations, the effect on output is if the economy stats in long-run equilibrium.
Ⅱ. True or false
1. If there is a decline in investment demand, the DD schedule will shift to the right. ( ) 2. The effect of real exchange rate increase on IM is ambiguous. ( )
3. A temporary increase in the money supply, which does not alter the long-run expected exchange rate, causes a depreciation of the currency and a rise in output. Temporary fiscal expansion also has the same result. ( ) 4. Other things equal, a real depreciation of the home currency lowers aggregate demand for home output. ( ) 5. The DD Schedule shows all exchange rate and output levels at which the output market is in short-run equilibrium. DD Schedule slopes upward. ( )
6. A permanent fiscal expansion does not changes exchange-rate expectations. ( )
7. Since the effect is the same of that of an increase in G, an increase in T must cause the DD Schedule to shift rightward. ( )
8. A rise in R* causes an upward shift of AA. ( )
9. Either an increase in the money supply or temporary fiscal ease can be used to maintain full employment. The two polices have no different effects at all. ( )
10.If exports and imports adjust gradually to real exchange rate changes, the current account may follow a J-curve pattern after a real currency appreciation, first worsening and then improving. ( )
11. The greater the upward shift of the asset market equilibrium schedule, the greater the appreciation of the currency. ( )
12. Monetary expansion causes the current account balance to decrease in the short run. ( ) 13. Expansionary fiscal policy reduces the current account balance. ( )
Ⅲ. Answer the following questions:
1. A new government is elected and announces that once it is inaugurated, it will increase the money supply. Use the DD-AA model to study the economy’s response to this announcement.
2. Please use AA and DD schedules to describe “The adjustment to a permanent increase in the money supply. ” The original point is at full employment.
The vertical axis is exchange rate, the horizontal axis is output.
3. If an economy does not start out at full employment, is it still true that a permanent change in fiscal policy has no current effect on output? Please use AA and DD schedules to describe it.
Quiz for Chapter 17
Ⅰ. Fill the following blanks with the proper word or expression
1. Any central bank purchase of assets automatically results in an in the domestic money supply. 2. The condition of the foreign exchange market equilibrium under a fixed exchange rate is . 3. Under a fixed exchange rate, central bank policy tools is more effective.
4. The expectation of a future devaluation causes a in the home interest rate above the world level. 5. The main factor that may lead to imperfect asset substitutability in the foreign exchange market is . 6. Between the end of World War II and 1973, was the main reserve currency. 7. Under a gold standard, each country fixes the price of its currency in terms of . 8. Under a _________, central bank monetary policy tools are powerless to affect the economy’s money supply or its output.
9. A system which governments may attempt to moderate exchange rate movements without keeping exchange rates rigidly fixed is____________.
10. Half way between the gold standard and a pure reserve currency standard is the __________.
Ⅱ. True or false
1. Any central bank sale of assets automatically causes the money supply to decline. ( )
2. If central banks are not sterilizing and the home country has a balance of payments surplus, any increase in the home central bank’s foreign assets implies an decreased home money supply. ( )
3. Under a fixed exchange rate, central bank monetary policy tools are powerful to affect the economy’s money supply. ( )
4. The expectation of a future revaluation causes a rise in foreign reserves. ( )
5 When domestic and foreign currency bonds are imperfect substitutes, equilibrium in the foreign market requires that the domestic interest rate equal the expected domestic currency return on foreign bonds subtract a risk premium. ( )
6. Between the end of World War II and 1973, the exchange rate system was one in which exchange rate between any two currencies were floating. ( )
7. Under the reserve currency standard, the center country has to intervene the exchange rate. ( ) 8. The central bank can negate the money supply effect of intervention through sterilization.( )
9. A system of managed floating allows the central bank to retain some ability to control the domestic money supply, but at the cost of greater exchange rate instability.( )
10. A world system of fixed exchange rates in which countries peg the prices of their currencies in terms of a reserve currency does not involve a striking asymmetry.( )
Ⅲ. Answer the following questions:
1. Why governments sometimes choose to devalue their currencies?
2. How does fiscal expansion affect a country’s output and the central bank’s balance sheet under fixed exchange rate?
3. Can you think of reasons why a government might willingly sacrifice some of its ability to use monetary policy so that it can have stable exchange rates?
4. Explain why temporary and permanent fiscal expansions do not have different effects under fixed exchange rates, as they do under floating.
Quiz for Chapter 18—21
Ⅰ. Fill the following blanks with the proper word or expression
1. The channels of interdependence depend, in turn, on the monetary and exchange rate arrangements that countries adopt-a set of institutions called the （ ）.
2. In open economies, policymakers are motivated by the goals of internal and external balance. Simply defined, ( )requires the full employment of a country’s resources and domestic price level stability. 3. A country is said to be in( ) when the sum of its current and its no reserve capital accounts equals zero, so that the current account balance is financed entirely by international lending without reserve movements. 4. The gold standard contains some powerful automatic mechanisms that contribute to the simultaneous achievement of balance of payments equilibrium by all countries .That mechanisms is( ). 5. ( ) is one currency that may be freely exchanged for foreign currencies.
6、Under the Bretoon Woods system ,( ) or ( )can be used to influence output and thus help the government achieve its internal goal of full employment.
7、Fiscal policy is also called ( ),because it alters the level of the economy’s total demand for goods and services.; The accompanying exchange rate adjustment is called ( ), Because it changes the direction of demand ,shifting it between domestic output and imports.
8、Bretton Woods system give ( )the leading position in the world economy. 9、Bretton Woods system require that other currency should peg with ( ) 10、Under the fixed rate system, if the exchange rate change, the foreign reserves will ( )
11、( ) symmetry and exchange rate as automatic stabilizers are the advantages of floating rate system. 12、 ( ) predict the collapse of the Bretton Woods system.
13、The level of ( ) in the European Union is too small to cushion member countries from adverse economic events.
14、The ( ) schedule shows the relationship between the monetary efficiency gain and the degree of economic integration.
Ⅱ. True or false
1. In an open economy, macroeconomic policy has two basic goals, internal balance (full employment with price stability) and external balance (avoiding excessive imbalances in international payments)( ) 2. The gold standard era starts in 1861 and end in 1914.( )
3. The countries with the weak investment opportunities should be net importers of currently available output (and thus have current account surpluses), while countries with the good investment opportunities should be net exporters of current output (and have current account deficits).( )
4. Each member of IMF contributed to the Fund an amount of gold equal in value to three-fourth of its quota. The
remaining one-fourths of its quota took the form of a contribution of its own national currency. ( ) 5、Balance of payment crisis became increasingly frequent and violent throughout the 1960 and early 1970s.The events led to the Bretoon Woods system’s collapse.（ ）
6、One interpretation of the Bretoon Woods system’s collapse is that the foreign countries were forced to import US. Inflation through the mechanism to stabilize their price levels and regain internal balance, they had to abandon fixed exchange rates and allow their currency to float.（ ）
7、Speculation on changes in exchange rats could lead to instability in foreign exchange markets . （ ） 8.Under the fixed rate system, the government is required to use foreign reserve to stabilize exchange rate.（ ）
9.The U.S. Federal Reserve played the leading role in determining their owns domestic money supply.（ ）
10.Advocates of floating argued that floating rates would allow each country to choose its own desired long-run inflation rate rather than passively importing the inflation rate established abroad. （ ）
11.The eight original participant in the EMS’s exchange rate mechanism------France, German, Italy, Belgium, Denmark, Ireland, Luxembourg, and the Netherlands. ( )