1.An individual member of a currency union can change its exchange rate to ease adjustment if it experiences an unfavorable economic shock.

True

False

2.The price of Mexico's currency in terms of that of the United States is the ______________.

exchange rate

foreign exchange

balance of payments

currency ratio

3.Real government purchases may fall when the price level rises if which of the following is true?

• Some parts of the government budget are fixed in nominal terms.
• All parts of the government budget are fixed in real terms.
• Governments always buy the same quantity of goods and services regardless of how much they cost.
• Governments prefer more expensive goods to less expensive goods because they create more jobs.

4.Which of the following instruments is not used by the Fed to change the money supply?

• State and local tax rates
• The required reserve ratio
• The federal funds rate
• Open-market operations

5.The __________ exchange rate reflects the rate parties experience at the time of a transaction. The ________ exchange rate takes into account the rates of inflation in both countries.

• nominal; real
• real; real
• real; nominal
• nominal; nominal

6.If a country experiences inflation, its exports become less competitive and its imports tend to increase, which puts a drag on the economy.

True

False

7.A decrease in consumer confidence tends to decrease aggregate demand.

True

False