10. Under a flexible exchange rate, a surge in capital inflow will result in:

A. A rise in foreign exchange reserves

B. An expansion in domestic money supply

C. A rise in net exports and domestic output

D. All of the above

E. None of the above

11. With a flexible exchange rate and free capital mobility, an expansionary fiscal policy is:

A. Ineffective because a higher domestic interest rate will crowd out investment

B. Very effective because domestic interest rate will not rise and hence crowding out of investment cannot occur

C. Ineffective because the exchange rate will appreciate, crowding out net exports

D. Very effective because both domestic demand and net exports will rise

E. Both B. and D.

12. With a flexible exchange rate and free capital mobility, monetary policy will be:

A. Is completely ineffective in changing the level of output

B. Is very effective in changing the level of output

C. Is completely ineffective in changing the level of output, but effective in changing domestic interest rates

D. Is very effective in changing the level of output and domestic interest rates

E. Cannot be conducted independently of exchange rate considerations

13. Other things equal, a country with a flexible exchange rate will tend to have, compared to one with a fixed exchange rate

A. A higher variability in domestic output and price

B. A lower variability in domestic output but a higher variability in price

C. A higher variability in domestic output but a lower variability in price

D. A lower variability in domestic output and price

E. A lower variability in domestic output, while the impact on price is uncertain

14. The "absolute" version of purchasing power parity (PPP) theory states:

A. The "law of one price" holds

B. The level of exchange rate adjusts so that the price of similar traded goods is equalized across the world

C. A country experiencing a higher rate of inflation should see its currency depreciate

D. The equilibrium real exchange rate is constant at 1

E. All of the above

15. The "relative" version of purchasing power parity (PPP) theory states:

A. The "law of one price" holds

B. The level of exchange rate adjusts so that the price of similar traded goods is equalized across the world

C. A country experiencing a higher rate of inflation should also see its currency depreciate

D. The equilibrium real exchange rate is constant at 1

E. The equilibrium real exchange is not equal to 1 but stays constant

With explanations please