Finance-QA156

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Assume that the interest parity holds and that the A$ dollar is expected to depreciate against the U.K. pound. Given this information, we know that
 
1.Australian and U.K. interest rates are equal.

2.the Australian interest rate exceeds the U.K. interest rate.

3.the U.K. interest rate exceeds the Australian interest rate.

4.individuals will prefer to hold Australian bonds because the Australian interest rate exceeds the U.K. interest rate.

5.none of the above

 
Suppose there is a real depreciation of the domestic currency. This real depreciation will cause:
 
1.an increase in net exports.

2.an increase in imports.

3.a reduction in output.

4.a decrease in government spending.

5.all of the above.

 
A reduction in foreign income will tend to cause in equilibrium
 
1.a reduction in domestic income and a reduction in imports.

2.a reduction in imports and an increase in net exports.

3.the net export (NX) line in terms of output to shift up.

4.an increase in the demand for domestic goods.

 
A nominal appreciation of the Mexican peso against the Australian dollar indicates that
 
1.the exchange rate of pesos per dollar, E, has increased.

2.E has decreased.

3.the peso price of the U.K. pound has increased.

4.the number of units of foreign currency that one can obtain with one peso has decreased.

 
Suppose policy makers want to increase output (Y) and increase net exports (NX). Which of the following policies would most likely achieve this?
 
1.an increase in government spending

2.a real depreciation

3.an increase in government spending and an increase in the real exchange rate

4.an increase in the real exchange rate
 

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Assume the Marshall-Lerner condition is satisfied. Which of the following will cause a reduction in net exports?
 
1.a decrease in government spending

2.a decrease in investment

3.an increase in foreign output

4.a real appreciation

5.all of the above

 
A change in which of the following variables will have NO direct effect on domestic demand?
 
1.domestic income

2.government spending

3.taxes

4.the interest rate (r)

5.none of the above
 

When the interest parity condition holds, we know that the domestic interest rate must be approximately equal to
 
1.the foreign interest rate.

2.the expected rate of depreciation of the domestic currency.

3.the expected rate of appreciation of the domestic currency.

4.the foreign interest rate minus the expected rate of appreciation of the domestic currency.

5.the foreign interest rate plus the expected rate of appreciation of the domestic currency.
 

Which of the following will cause a real depreciation?
 
1.a reduction in the exchange rate of foreign currency for domestic currency, E

2.an increase in the foreign price of goods, P*

3.a decrease in the domestic price of goods, P

4.all of the above

5.none of the above
 
Under a fixed exchange rate regime, a tax increase will in the short run
 

1.cause a reduction in ouput, Y.

2.require a reduction in the money supply.

3.cause no change in the domestic interest rate.

4.all of the above
 

Assume that the interest parity condition holds. Also assume that the one-year U.S. interest rate is 4% while the one-year U.K. interest rate is 6%. Given this information, financial markets expect the U.K. pound to
 
1.depreciate by 2% today.

2.depreciate by 2% over the next year.

3.appreciate by 2% over the next year.

4.appreciate by 2% today.

5.be unchanged

 
Suppose the domestic and foreign interest rates are i = 12%, i* = 10%, and that the domestic currency is expected to appreciate by 3% during the coming year. Given this information, we know that
 
1.individuals will only hold domestic bonds.

2.individuals will only hold foreign bonds.

3.individuals will be indifferent about holding domestic or foreign bonds.

4.the interest parity condition holds.
 
A real appreciation can initially cause an increase in output when which of the following holds?
 
1.the Marshall-Lerner condition

2.the J-Curve effect

3.Net exports are initially zero.

4.Net exports are initially negative.

5.Net exports are initially positive.
 
Suppose a country switches from a flexible to a fixed exchange rate. Which of the following will occur as a result of this change?
 
1.Monetary policy will become a more effective tool for changing output.

2.Fiscal policy will become a less effective tool for changing output.

3.Both fiscal and monetary policy will become more effective in changing GDP.

4.Both fiscal and monetary policy will become completely ineffective in changing GDP.

5.none of the above

 
Suppose the domestic and foreign interest rates are i = 4%, i* = 2%, and that the domestic currency is expected to depreciate by 3% during the coming year. Given this information, we know that
 
1.individuals will only hold domestic bonds.

2.individuals will only hold foreign bonds.

3.individuals will be indifferent about holding domestic or foreign bonds.

4.the interest parity condition holds.
 

An increase in which of the following variables is likely to have NO direct effect on domestic demand?

1.domestic income

2.the real exchange rate

3.taxes

4.the interest rate (r)

5.none of the above

 
Suppose two countries are engaged in a fixed exchange rate regime. Also assume that financial market participants believe this policy is credible. Given this information, we know that
 
1.the exchange rate of foreign for domestic currency, E = 1.

2.E > 1.

3.domestic and foreign interest rates are equal, i = i*.

4.individuals will only hold domestic bonds.
 

Assume a country is open. Given this information, which of the following statement is true?
 
1.Demand for domestic goods will be equal to the domestic demand for goods.

2.Demand for domestic goods will be greater than the domestic demand for goods.

3.Demand for domestic goods will be less than the domestic demand for goods.

4.Demand for domestic goods may not be always equal to the domestic demand for goods.

5.savings equals investment, S = I
 

In a flexible exchange rate regime, an increase in the expected future exchange rate will cause
 
1.the interest parity (IP) curve to shift to the left.

2.a movement along the IP curve.

3.the IP curve to pivot to the right and be flatter.

4.neither a shift nor movement along the IP curve.
 

Assume the Marshall-Lerner condition holds. Which of the following would occur as a result of a real depreciation?
 
1.an improvement of the trade balance

2.a reduction in the quantity of imports

3.an increase in domestic output

4.all of the above

5.none of the above

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