Answer the following Multiple Choice Questions: A thorough explanation is not needed.

1. If the Fed announced it would fix the exchange rate at 150 yen per dollar. But if the market exchange rate is 100 yen per dollar, then:

A. arbitragers would sell yen in the marketplace to make a profit,

B. arbitragers would buy yen from the Fed with dollars.

C. the money supply would fall until the market exchange rate was 150 yen per dollar.

D. all of the above.

2. The opportunity cost of holding money decreases when

A. the purchasing power of money rises

B. the interest rate falls

C. the price of goods and services falls

D. the interest rate increases

3. In the IS/LM model of a closed economy, if government expenditures and autonomous taxes each increase by $100 billion, then

A. income increases by $100 billion

B. income increases by more than $100 billion

C. income increases by (mpc*$100 billion)

D. income doesn't change

4. In a small open economy (with balanced trade) under a floating exchange rate, policies that decrease:

A. investment tend to cause a trade surplus.

B. investment tend to cause a trade deficit.

C. domestic saving do not affect the trade balance.

D. domestic saving tend to cause a trade deficit.

E. A and D are correct.

5. The World Bank is concerned about appreciating currencies in developing countries, typically SOE's. What fiscal and/or monetary policy should the Bank propose large foreign countries to implement in order to reverse the exchange rate appreciation?

A. The policy should be a contractionary fiscal policy by large foreign countries.

B. The policy should be an expansionary fiscal policy by large foreign countries.

C. The policy should be a contractionary monetary policy by large foreign countries.

D. The policy should be an expansionary monetary policy by large foreign countries.

E. B and C are correct.

6. In a small open economy with a fixed exchange rate, if the central bank tries to increase the money supply, then in the new short-run equilibrium:

A. income rises.

B. income falls.

C. the exchange rate falls.

D. income remains constant.