1. The Plaza Accord failed to correct the U.S. trade deficit because

a. U.S. government spending remained high.

b. USD exchange rates became volatile.

c. both (a) and (b).

2. Suppose the domestic money growth rate falls over time but remains

above the foreign money growth rate then

a. there is a one time depreciation of the domestic currency.

b. the domestic currency depreciates at a lower rate over time.

c. the domestic currency appreciates at a faster rate over time.

3. Suppose domestic consumption rises and the exchange rate is fixed

then the supply-demand model of exchange rates predicts

a. a rise in Y and a fall in X-M

b. a fall in X-M and fall in domestic central bank reserves of foreign currency.

c. jumps in the domestic interest rate and a fall in X-M

4. Rational expectations implies

a. monetary shocks are always perfectly forecast by investors.

b. inflation is usually low.

c. there is a rapid return to Yn if Y deviates from Yn

5. Suppose the domestic government issues a vast number of bonds which

are purchased by foreign investors then with a fixed exchange rate

a. the domestic money supply rises.

b. the domestic money supply falls.

c. the exchange rate appreciates.