Question 1 Assume that the real interest rate falls in Country Y. Which of the following will occur?

A) There will be an inflow of investment funds to Country Y and a depreciation of Country Y's currency.

B) There will be an outflow of investment funds from Country Y to other countries and a depreciation of Country Y's currency.

C) There will be an outflow of funds from other countries to Country Y, increasing the demand for Country Y's currency.

D) Residents of Country Y will no longer invest funds in other countries, limiting their investment to opportunities in Country Y.

E) There will be an increased demand for the currency of Country Y, an appreciation of its currency, and a reduction in net exports from Country Y.

Question 2 If it is assumed that the market for good Z is in equilibrium and Z is an inferior good, what will be the result following an increase in the average income of consumers?

A) A decrease in the equilibrium price of good Z and a decrease in the equilibrium quantity of good Z.

B) An increase in the equilibrium price of good Z and an increase in the equilibrium quantity of good Z.

C) An increase in the equilibrium price of good Z and a decrease in the equilibrium quantity of good Z.

D) Since the demand for an inferior good must be perfectly inelastic, there will be no change in quantity; price may increase or decrease.

E) An increase in equilibrium quantity with an indeterminate impact on the equilibrium price.

Question 3 Which of the following events increases an individual's demand for money to hold?

A) The bond prices in the economy decrease.

B) The central bank decreases the interest rate.

C) The individual reduces his expenditure.

D) The individual's income decreases.

E) The price level in the economy decreases.

Question 4 Assume that the inflation-adjusted interest rate is 4% and that the expected rate of inflation is 5%. What is the interest rate charged by banks on loans?

A) -1%

B) 1%

C) 4%

D) 5%

E) 9%

Question 5 Suppose Country 'X' is producing an output of 300 units of a certain good at $3 per unit in 2017. With time, the price level rises from $3 per unit to $5 per unit in 2018 while the amount of output produced remains same. Which of the following is true for the given situation?

A) The nominal GDP has decreased from 2017 to 2018.

B) The real GDP has decreased from 2017 to 2018.

C) The nominal GDP remains same for both years.

D) The real GDP has increased from 2017 to 2018.

E) The real GDP remains same for both years.

Question 6 Assume that nominal income increases by 5% and the price level increases by 3%, which of the following is true?

A) Real GDP must have decreased.

B) The impact on real GDP is indeterminate.

C) The percentage increase in real GDP must exceed the percentage increase in the price level.

D) Real GDP increased by approximately 2%.

E) If the price level increased by 3%, nominal GDP must increase by less than 3%, not by 5%.

Question 7 Assume a competitive foreign exchange market between the Japanese yen and the U.S. dollar. Which of the following best explains the supply of yen in the market for yen?

A) It is negatively sloped, as the yen price per dollar falls; Japanese consumers purchase more American goods.

B) It is positively sloped, as the yen price per dollar increases; Japanese investors want more U.S. bonds

C) It is positively sloped, as the dollar price per yen increases; U.S. consumers wish to buy more Japanese goods.

D) It is positively sloped, as the dollar price per yen decreases; U.S. investors wish to buy more Japanese financial assets.

E) It is negatively sloped, as the dollar price yen decreases; U.S. tourists spend more yen traveling in Japan.

Question 8 Which of the following policy actions is taken by the government (or central bank) of a country to finance its budget deficit?

A) Borrowing from the central bank or overseas

B) Decreasing the taxes for households

C) Investing more money into public welfare

D) Printing more money

E) Selling of bonds

Question 9 Which of the following policy initiatives is most likely to increase economic growth?

A) Subsidized training in human capital

B) Central bank selling government bonds

C) Subsidizing consumption

D) Deficit spending to supplement pension payments

E) Lowering the official retirement age from 65 to 60 years

Question 10 Use the graph to answer the question that follows.

Price of U.S. dollars in terms of S euros P2.... D Number of U.S. dollars