In the monetary small open-economy model with a flexible exchange rate, an increase in the world real interest rate
A) increases domestic output and increases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
B) increases domestic output and decreases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
C) decreases domestic output and increases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
D) decreases domestic output and decreases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
B
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Demand is elastic if
A) consumers respond strongly to changes in the product's price. B) a large percentage change in price brings about a small percentage change in quantity demanded. C) a small percentage change in price brings about a small percentage change in quantity demanded. D) the quantity demanded is not responsive to price changes. E) the demand curve is vertical.
Banks develop statistical models to calculate their maximum loss over a given time period. This approach is known as the
A) stress-testing approach. B) value-at-risk approach. C) trading-loss approach. D) doomsday approach.
Suppose that the current exchange rate between the dollar and peso is $1 equals 10 pesos. If the exchange rate changes to $1 equals 8 pesos, which of the following is TRUE?
A) The dollar depreciates and U.S. exports become cheaper. B) The dollar appreciates and U.S. exports become cheaper. C) The peso depreciates and imports from Mexico become cheaper. D) The peso appreciates and imports from Mexico become cheaper.
The reason the short-run macro model suggests that the economy can operate either above or below its potential while in the long-run classical model the economy operates automatically at full employment is that
a. the short-run macro model is flawed and inaccurate b. the classical model is flawed and inaccurate c. the two models measure completely different aspects of the economy d. in the short run, spending affects output, but not in the long run e. in the short run the role of government in helping the economy return to equilibrium is not considered