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13) The Bretton Woods exchange rate system was an example of a A) target zone. B) managed float. C) pure gold standard. D) modified gold standard. E) floating exchange rate system. 14) ) Suppose the exchange rates between the United States and Canada are in long-run equilibrium as defined by the idea of purchasing power parity. If the law of one price holds perfectly, then differences between U.S. and Canadian rates of inflation would A) have no effect on nominal exchange rates. B) be completely offset by changes in the real exchange rate. C) be completely offset by changes in the nominal exchange rate. D) violate the conditions for the law of one price. E) lead to a change in the real purchasing power of each country's currency when it is converted to the other country's currency. 15) Which of the following is TRUE? A) Points along the aggregate supply curve show the equilibrium levels of output and prices that are consistent on the demand side of the economy. B) Points along the aggregate demand curve show the equilibrium levels of output and prices that are consistent on the supply side of the economy. C) Aggregate demand shows the levels of GDP and prices where expenditure decisions and production decisions match. decisions match. D) Aggregate supply shows the levels of GDP and prices where expenditure decisions and production 16) Along the aggregate supply curve A) the horizontal part represents a situation where the economy is operating above full employment levels. B) inflation would be a primary concern along the horizontal part of the aggregate supply curve. C) idle resources, such as labor and capital, would be a feature of the vertical section of the aggregate supply curve. D) the horizontal section of the aggregate supply curve represents the limit of production. E) the middle, upward-sloping part of the aggregate supply curve would be associated with a growing economy that experienced increased prices from resources that are becoming relatively scarce. 17) Starting from a balanced budget, which of the following would NOT cause a deficit? A) A decrease in taxes B) An increase in spending of goods and services C) An increase in transfer payments D) A 50 percent increase in spending accompanied by a 40 percent increase in taxes E) None of the above. 18) Intermediate inputs are A) goods used for household consumption only. B) goods used for government consumption only. C) goods purchased by one business from another to use in production. D) goods purchased by foreigners. E) raw materials used in the production process. 19) The effects of tax cuts or government spending dissipate and each additional change in consumption and income becomes smaller and smaller because A) some of the increase in income will be lost through taxation. B) some of the increase is saved and does not result in an increase in consumer demand. C) some of the increase in consumption will be an additional demand for imported goods. D) All of the above. E) None of the above. 20) Which of the following is FALSE concerning the long run? A) Economists believe that fiscal and monetary policies have no permanent effects on the economy. B) Economists more or less agree that the economy tends to fluctuate around the level that is consistent with full employment. C) In the long run, the unemployment rate returns to its normal level. D) The current account must tend toward balance in the long run. E) None of the above. Part II: Answer the following question. (10 marks) 1. Which of the three motives for holding foreign exchange are applicable to each of the following? (5 marks) a. A tourist b. A bond trader. c. A portfolio manager. d. A manufacturer. 2. Assume that aggregate supply meets aggregate demand in the upward sloping portion of the AS curve. For each of the following, graph the change in aggregate supply and/or aggregate demand, and state the effect on prices and output. (5 marks) a. The demand for U.S. exports increases. b. Taxes increase. c. Businesses become less optimistic about the future. d. The labor force in
