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LOS o: Contrast the traditional trade approach (J-curve) and the money demand approach to modeling the relationship between real exchange rate changes and domestic economic activity.
Q1. Assume that a country has a negative trade balance. In the traditional model of the impact of currency appreciation on domestic economic activities, what is the likely short-run impact of currency depreciation?
A) Domestic industry becomes more competitive narrowing the trade balance.
B) The cost of imports decreases narrowing the trade balance.
C) The cost of imports increases widening the trade balance.
Q2. According to the traditional model, a decline in the value of a country’s currency has what effect upon national competitiveness in the long run and domestic inflation in the short run?
A) Both will increase.
B) Both will decrease.
C) Only one will increase.
Q3. Suppose a nation’s monetary authority increases real interest rates. What does economic theory tell us will happen to the value of the nation’s currency?
A) Changes in the nominal rate, not the real rate, cause appreciation.
B) The value of the currency will fall.
C) The value of the currency will rise.
Q4. In the money demand model, what is the relationship between appreciation in the domestic currency and the equity markets? Currency appreciation:
A) is negatively correlated with equity returns.
B) hurts competitiveness and stock market returns.
C) is positively correlated with equity returns. | 
发表于 2009-4-2 14:04
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