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.

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.

A) 

E

B) 

E times P

C) 

E times P*

D) 

E times P*/P

A) 

Y-C

B) 

Y-T

C) 

C-T

D) 

Y-I

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.

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.

A) 

appreciation and depreciation

B) 

producers effect and volume effect

C) 

producers effect and value effect

D) 

volume effect and value effect

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.

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

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.

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.

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.

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.

A) 

decrease; decrease

B) 

increase; increase

C) 

decrease; increase

D) 

increase; decrease

A) 

a floating exchange rate.

B) 

a fixed exchange rate.

C) 

fiscal policy.

D) 

tax policy.

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.