Question

In the early 1980s, the Federal Reserve pursued a tight monetary policy. All else being equal, the impact of that policy was to __________ interest rates in the United States relative to those in Europe and cause the dollar to __________ against European currencies.

Select one:

a. increase; appreciate

b. decrease; depreciate

c. increase; depreciate

d. decrease; appreciate

Based on the supply and demand model of the exchange rate, which of the following should cause the Indian Rupee to appreciate?

Select one:

a. Repayment by the Indian government of its debt to the IMF.

b. Increased imports by Indian consumers of electronics made in China

c. An increase in remittances from Indian workers abroad to their families at home.

d. An increase in the Indian savings that is used to purchase financial assets in Europe

According to the Marshall-Lerner condition, currency depreciation has no effect on a country’s trade balance if the elasticity of demand for its exports plus the elasticity of demand for its imports equals_______________.

Select one:

a. 1.0

b. 0.5

c. 0.1

d. 2.0

Suppose the expected inflation rate is 12 percent and the unemployment rate is 5 percent. If the expected inflation rate increases to 13 percent,___________________.

Select one:

a. the short-run Phillips curve will shift towards the left.

b. the short-run Phillips curve will shift towards the right.

c. there will be a movement along the short-run Phillips curve

d. the natural unemployment rate will rise.

Suppose the government increases expenditure by $ 9 billion to increase aggregate demand in the economy. If the spending multiplier is 3, what is the value of the marginal propensity to consume?

Select one:

a. 2/3

b. 3/5

c. 1/3

d. 1/2

If the Phillips Curve is vertical in the long run, then an increase in the money supply from year to year will _______ the unemployment rate and will _________inflation rate.

Select one:

a. increase; not change

b. not change; not change

c. increase; increase

d. not change; increase

Answer 1

Q1) option a)

contractionary monetray policy leads to Decrease in money supply, so interest rate rises, & so exchange rate appreciates

Q2)option b)

this leads to rise in demand of Indian currency, leading to appreciation

Q3) option a) 1.

If export + import Elasticity > 1, then currency depreciation leads to improvement in current account deficit

If it's 1, then no effect on trade balance

Q4) option b)

If expected inflation rate rises , then SRPC shifts upwards to right

Q5) option a) 2/3

spending Multiplier m = 1/(1-MPC) = 3.

1 = 3-3MPC

3MPC = 2

MPC = 2/3

Q6) option d)

no effect on Unemployment rate, only inflation rate rises