QUESTION 1:

After Britain returned to the Gold Standard in the 1920s, the British pound was:

A.undervalued, contributing to a long period of inflation.

B.overvalued, contributing to a long period of recession.

C.undervalued, contributing to a long period of recession.

D.valued about right, leading to a long period of healthy growth with almost no inflation.

E.overvalued, contributing to a long period of inflation.

QUESTION 2:

Suppose there are two countries that decide to peg the exchange rate at its current rate, which of the following must be true in the short run?

A.The interest rates must be equal in the two countries.

B.The real exchange rates between the two countries will be equal.

C.Price levels must be equal in the two countries.

D.Inflation rates must be equal in the two countries.

E.Output growth rates must be equal in the two countries.

QUESTION 3:

Suppose policy makers want to reduceYand keepNXconstant. Which of the following policies would most likely achieve this?

A.Encourage the country's trading partners to implement policies that will decrease foreign income.

B.A decrease in government spending and an increase in the real exchange rate.

C.A decrease in government spending.

D.A real exchange rate appreciation.

E.A real exchange rate depreciation.

QUESTION 4:

Suppose that financial market participants expect that the central bank will pursue a monetary expansion in the future. Also assume that the yield curve is initially upward sloping. Given this information, we would expect which of the following to occur?

A.i2twill decrease.

B.The yield curve will become steeper.

C.The yield curve will become vertical.

D.i2twill increase.

E.The yield curve will become horizontal.