Question 1

In the short run, a permanent increase in the domestic money supply

Accepted Answer

A permanent increase in the domestic money supply has stronger effects on the exchange rate and output than an equal temporary increase in the short run. This is because a permanent increase in the money supply leads to higher inflation expectations, causing the exchange rate to depreciate and output to increase as a result of increased aggregate demand. In contrast, a temporary increase in the money supply might lead to lower inflation expectations, resulting in weaker effects on the exchange rate and output.

Question 2

Which one of the following statements is the MOST accurate?

Accepted Answer

A permanent increase in money demand can indeed be offset by a permanent increase in the money supply of equal magnitude, maintaining equilibrium in the money market. This is a fundamental principle in monetary economics, where adjusting the money supply can counteract changes in money demand to stabilize the economy.

Question 3

A permanent increase in the domestic money supply

Accepted Answer

A permanent increase in the domestic money supply typically leads to inflation, which reduces the value of the domestic currency. This results in a proportional rise in the exchange rate (E), where E represents the price of foreign currency in terms of the domestic currency. Consequently, the expected future exchange rate must also rise proportionally, reflecting the anticipated continued effect of the increased money supply on the currency's value.

Question 4

Explain the following figure:

Accepted Answer

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 ...

Question 5

A permanent fiscal expansion

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Question 6

Demonstrate how a permanent fiscal expansion will not increase output in the long run.

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Question 7

In the short run, a permanent increase in the domestic money supply causes

Accepted Answer

In the short run, a permanent increase in the domestic money supply causes a greater upward shift in the AA curve than that caused by an equal, but transitory, increase. This is because a permanent increase in the money supply leads to a permanent increase in output, which in turn leads to an increase in interest rates due to a higher demand for credit. The higher interest rates cause a greater upward shift in the AA curve than a transitory increase in the money supply, which only has a temporary effect on output and interest rates.

Question 8

Explain and give some examples of governmental policy problems.

Accepted Answer

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Question 9

In the short run

Accepted Answer

In the short run, monetary expansion typically leads to a depreciation of the currency, making exports cheaper and imports more expensive, thus increasing the current account (CA). Fiscal expansion often increases domestic demand, which can lead to higher imports and a decrease in the CA.

Question 10

In long-run equilibrium after a permanent money-supply increase there follows:

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Question 11

Using the DD-AA framework, show the phenomenon of overshooting. Use a figure to explain when it is taking place.

Accepted Answer

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Question 12

Which statement best describes the current account balance in the short run?

Accepted Answer

Monetary expansion increases the money supply and can lead to a decrease in the exchange rate. A decrease in the exchange rate makes exports cheaper and more competitive, while imports become more expensive. Therefore, an increase in exports and decrease in imports will increase the current account balance.

Question 13

Which one of the following statements is the MOST accurate?

Accepted Answer

Over time, a permanent expansion of the money supply is more likely to push the price level to its long-run value and return the economy to full employment, according to the long-run neutrality of money concept. Temporary expansions do not have the same long-term effects on the economy's output and employment levels.

Question 14

Which of the following is TRUE of the current account balance?

Accepted Answer

Monetary expansion typically leads to a depreciation of the currency, which can make exports cheaper and imports more expensive, potentially increasing the current account balance.

Question 15

If the economy starts in long-run equilibrium, a permanent fiscal expansion will cause

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Question 16

Using the DD-AA framework, which one of the following statements is the MOST accurate?

Accepted Answer

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Question 17

Show the effects of a permanent increase in the money supply.

Accepted Answer

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Question 18

Using the DD model, explain what happens to output when Government demands increase. Use a figure to explain when it is taking place.

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Question 19

The J-curve illustrates which of the following?

Accepted Answer

The J-curve illustrates the short-term effects of currency depreciation on the current account. Initially, the current account balance worsens due to the higher cost of imports and lower demand for exports. However, over time, the balance improves as exports become more competitive and imports become relatively cheaper. The shape of the curve resembles the letter "J."

Question 20

According to historical data, what is the effect of a sharp change in the current account on the exchange rate (both in the short and long run)?

Accepted Answer

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Quiz 17: Output and the Exchange Rate in the Short Run

In the short run, a permanent increase in the domestic money supply

Which one of the following statements is the MOST accurate?

A permanent increase in the domestic money supply

Explain the following figure:

A permanent fiscal expansion

Demonstrate how a permanent fiscal expansion will not increase output in the long run.

In the short run, a permanent increase in the domestic money supply causes

Explain and give some examples of governmental policy problems.

In the short run

In long-run equilibrium after a permanent money-supply increase there follows:

Using the DD-AA framework, show the phenomenon of overshooting. Use a figure to explain when it is taking place.

Which statement best describes the current account balance in the short run?

Which one of the following statements is the MOST accurate?

Which of the following is TRUE of the current account balance?

If the economy starts in long-run equilibrium, a permanent fiscal expansion will cause

Using the DD-AA framework, which one of the following statements is the MOST accurate?

Show the effects of a permanent increase in the money supply.

Using the DD model, explain what happens to output when Government demands increase. Use a figure to explain when it is taking place.

The J-curve illustrates which of the following?

According to historical data, what is the effect of a sharp change in the current account on the exchange rate (both in the short and long run) ?