In 2021, our imaginary country fixes its exchange rate at 0.5 dollars per its currency. From 2021 to 2026, this hypothetical country experiences inflation of 5 percent per year, while Canadian inflation is 2 percent per year.

By how much does this hypothetical country's real exchange rate change from 2021 to 2026? Assume an initial price level of 1 in both Canada and our imaginary country.

Question 7 options:

a)	None of the answers are correct

b)

around 2%

c)	around 13%

d)	around 15%

e)	around 10%

Assume that the central bank uses Okun's law to estimate the output gap. Policymakers' estimate of the natural rate of unemployment is 5%, but the true natural rate of unemployment is 6%. If in a given year unemployment is 4%, policymakers' estimate of the output gap is_____, while the true output gap is _____.

Question 9 options:

a)	1 percent; 4 percent

b)	2 percent; 4 percent

c)	1 percent; 6 percent

d)	None of the answers are correct

e)	2 percent; 6 percent

International trade is an important component of GDP in Turkey, then monetary policy likely reacts to

Question 10 options:

a)	inflation only.

b)	output, inflation, and exchange rates.

c)	output and inflation.

d)	None of the answers are correct

e)	output only.

Assume that government spending increases in our imaginary country. The central bank of this country is planning to keep both output and the real exchange rate constant.

How can policymakers accomplish these goals through a combination of an interest-rate adjustment and capital controls?

Question 12 options:

a)	The central bank cannot achieve the two goals simultaneously.

b)	The central bank has to increase the real interest rate and prevent capital inflows.

c)	The central bank has to increase the real interest rate and prevent capital outflows.

d)	The central bank has to decrease the real interest rate and prevent capital outflows.

e)	None of the answers are correct