FINANCIAL PLANNING 5 In order for the condition E = P/P* to hold, what assumptions does the principle of purchasing power parity make? Question 1 options: A)  Only that there are no transportation costs and restrictions on trade. B)  Only that the markets are perfectly competitive. C)  The factors of production are identical between countries. D)  Home country and Foreign country are perfectly competitive and there are no transportation costs or restrictions on trade. Save Question 2 (1 point) Under Purchasing Power Parity (and by the Fisher Effect), all else equal, Question 2 options: A)  a fall in a country's expected inflation rate will eventually cause an equal rise in the interest rate that deposits of its currency offer. B)  a rise in a country's expected inflation rate will eventually cause an equal rise in the interest rate that deposits of its currency offer. C)  a rise in a country's expected inflation rate will eventually cause a less than proportional rise in the interest rate that deposits of its currency offer to accommodate for the higher inflation. D)  a rise in a country's expected inflation rate will eventually cause a more than proportional rise in the interest rate that deposits of its currency offer to accommodate for the higher inflation. Save Question 3 (1 point) A country's domestic currency's real exchange rate, q, is defined as Question 3 options: A)  E B)  E times P C)  E times P* D)  E times P*/P Save Question 4 (1 point) Disposable income, Yd, is defined as Question 4 options: A)  Y-C B)  Y-T C)  C-T D)  Y-I Save Question 5 (1 point) In general, consumption expenditure rises by Question 5 options: A)  more than the increase in disposable income. B)  less than the increase in disposable income. C)  more than income. D)  the same amount as disposable income rises. Save Question 6 (1 point) An increase in disposable income Question 6 options: A)  improves the current account. B)  worsens the current account. C)  does not affect the current account. D)  affects exports, but does not affect imports. Save Question 7 (1 point) Which of the following compete to determine whether the current account improves or worsens following a rise in the real exchange rate? Question 7 options: A)  appreciation and depreciation B)  producers effect and volume effect C)  producers effect and value effect D)  volume effect and value effect Save Question 8 (1 point) What have we assumed when we conclude that a real depreciation of the currency improves the current account? Question 8 options: A)  All else equal, the volume effect outweighs the value effect. B)  All else equal, the value effect outweighs the volume effect. C)  All else equal, the producers effect outweighs the volume effect. D)  All else equal, the producers effect outweighs the value effect. S ...

1. FINANCIAL PLANNING
5
In order for the condition E = P/P* to hold, what assumptions
does the principle of purchasing power parity make?
Question 1 options:
A)
Only that there are no transportation costs and restrictions on
trade.
B)
Only that the markets are perfectly competitive.
C)
The factors of production are identical between countries.
D)
Home country and Foreign country are perfectly competitive
and there are no transportation costs or restrictions on trade.
Save
Question 2 (1 point)
Under Purchasing Power Parity (and by the Fisher Effect), all
else equal,
Question 2 options:
A)
a fall in a country's expected inflation rate will eventually cause

2. an equal rise in the interest rate that deposits of its currency
offer.
B)
a rise in a country's expected inflation rate will eventually cause
an equal rise in the interest rate that deposits of its currency
offer.
C)
a rise in a country's expected inflation rate will eventually cause
a less than proportional rise in the interest rate that deposits of
its currency offer to accommodate for the higher inflation.
D)
a rise in a country's expected inflation rate will eventually cause
a more than proportional rise in the interest rate that deposits of
its currency offer to accommodate for the higher inflation.
Save
Question 3 (1 point)
A country's domestic currency's real exchange rate, q, is defined
as
Question 3 options:
A)
E
B)
E times P

3. C)
E times P*
D)
E times P*/P
Save
Question 4 (1 point)
Disposable income, Yd, is defined as
Question 4 options:
A)
Y-C
B)
Y-T
C)
C-T
D)
Y-I
Save
Question 5 (1 point)
In general, consumption expenditure rises by
Question 5 options:
A)
more than the increase in disposable income.

4. B)
less than the increase in disposable income.
C)
more than income.
D)
the same amount as disposable income rises.
Save
Question 6 (1 point)
An increase in disposable income
Question 6 options:
A)
improves the current account.
B)
worsens the current account.
C)
does not affect the current account.
D)
affects exports, but does not affect imports.
Save
Question 7 (1 point)

5. Which of the following compete to determine whether the
current account improves or worsens following a rise in the real
exchange rate?
Question 7 options:
A)
appreciation and depreciation
B)
producers effect and volume effect
C)
producers effect and value effect
D)
volume effect and value effect
Save
Question 8 (1 point)
What have we assumed when we conclude that a real
depreciation of the currency improves the current account?
Question 8 options:
A)
All else equal, the volume effect outweighs the value effect.
B)
All else equal, the value effect outweighs the volume effect.

6. C)
All else equal, the producers effect outweighs the volume
effect.
D)
All else equal, the producers effect outweighs the value effect.
Save
Question 9 (1 point)
How would you define a DD schedule?
Question 9 options:
A)
the combination of output and the exchange rate that must hold
when the output market is in the short-run equilibrium.
B)
the combinations of output and the exchange rate that must hold
when the home money market and the foreign exchange market
are in equilibrium.
C)
the aggregate demand in relation to the foreign market value
D)
factors of production in the long run
Save
Question 10 (1 point)
The AA schedule is derived by the schedule of exchange rate

7. and output combination that are
Question 10 options:
A)
consistent with equilibrium in the foreign money market and the
domestic exchange market.
B)
consistent with equilibrium in the domestic money market and
the foreign exchange market.
C)
consistent with equilibrium in the domestic bond market and
foreign asset market.
D)
greater than equilibrium in the foreign money market and the
domestic exchange market.
Save
Question 11 (1 point)
In the short run, a temporary increase in money supply
Question 11 options:
A)
shifts the DD curve to the right, increases output and
appreciates the currency.
B)
shifts the DD curve to the right, increases output and
depreciates the currency.

8. C)
shifts the AA curve to the right, increases output and
appreciates the currency.
D)
shifts the AA curve to the right, increases output and
depreciates the currency.
Save
Question 12 (1 point)
In the short run, with prices fixed, how would an increase in
government spending affect the DD-AA schedule?
Question 12 options:
A)
It will increase output and appreciate the currency.
B)
It will increase output and depreciate the currency.
C)
It will decrease output and appreciate the currency.
D)
It will decrease output and depreciate the currency.
Save
Question 13 (1 point)

9. In the short run, monetary expansion causes the CA to _______
and fiscal expansion causes the CA to ______.
Question 13 options:
A)
decrease; decrease
B)
increase; increase
C)
decrease; increase
D)
increase; decrease
Save
Question 14 (1 point)
If a country chooses to have a monetary policy autonomy and
the freedom of international capital flows, it cannot have
Question 14 options:
A)
a floating exchange rate.
B)
a fixed exchange rate.
C)
fiscal policy.

10. D)
tax policy.
Save
Question 15 (1 point)
A financial crisis is a breakdown in a country's financial
system. In developing countries this will usually result in
Question 15 options:
A)
a crisis in the domestic banking industry.
B)
a large drop in the value of the domestic currency.
C)
an inability to repay foreign debt denominated in other
currencies.
D)
all of the above.