International Economics, 8e (Krugman) 24Chapter 16 Output and the Exchange Rate in the Short Run16.1 Determinants of Aggregate Demand in an Open Economy1) How does an increase in the real exchange rate affect exports and imports? A) Exports increase; imports decrease. B) Exports decrease; imports increase. C) Exports increase; imports change ambiguously. D) Exports change ambiguously; imports decrease. E) Exports increase; imports are constant. Answer: C Question Status: Previous Edition2) Which one of the following statements is the most accurate? A) For asset markets to remain in equilibrium, a rise in domestic output must be accompanied by a depreciation of domestic currency, all else equal. B) For asset markets to remain in equilibrium, a fall in domestic output must be accompanied by a depreciation of foreign currency, all else equal. C) For asset markets to remain in equilibrium, a rise in domestic output must be accompanied by an appreciation of domestic currency, all else equal. D) For asset markets to remain in equilibrium, a fall in domestic output must be accompanied by an appreciation of domestic currency, all else equal. E) None of the above. Answer: C Question Status: New3) Which one of the following statements is most accurate? A) In general, consumption demand rises by less than disposable income. B) In general, consumption demand rises by more than disposable income. C) In general, consumption demand rises by more than income. D) In general, consumption demand rises by the same amount as disposable income rises. E) None of the above. Answer: A Question Status: Previous Edition4) The current account balance is A) the supply of a countrys exports less the countrys own demand for imports. B) the demand for a countrys exports plus the countrys own demand for imports. C) the countrys own demand for imports less the demand for a countrys exports. D) the demand for a countrys exports less the countrys own demand for imports. E) None of the above. Answer: D Question Status: Previous Edition5) The domestic currency price of a representative foreign expenditure basket is A) P, the domestic price level. B) E, the nominal exchange rate. C) P times E, the domestic price level times the domestic price level. D) P, the foreign price level. E) P times E, the foreign price level times the nominal exchange rate. Answer: E Question Status: Previous Edition 6) Current account is given by the equation: A) CA=IM-EX (measured in terms of domestic output). B) CA=IM-EX (measured in terms of foreign output). C) CA=EX-IM (measured in terms of domestic output). D) CA=EX-IM (measured in terms of foreign output). E) None of the above. Answer: C Question Status: New7) The domestic currency price of a representative domestic expenditure basket is A) P, the domestic price level. B) E, the nominal exchange rate. C) P times E, the domestic price level times the domestic price level. D) P, the foreign price level. E) P times E, the foreign price level times the nominal exchange rate. Answer: A Question Status: Previous Edition8) The real exchange rate, q, is defined as A) the price of the foreign basket in terms of the domestic one. B) the price of the domestic basket in terms of the foreign one. C) the price of the foreign basket. D) the price of the domestic basket. E) None of the above. Answer: A Question Status: Previous Edition9) A countrys domestic currencys real exchange rate, q, is defined as A) E. B) E times P. C) E times P. D) (E times P)/P. E) P/(E times P). Answer: D Question Status: Previous Edition10) If the representative basket of European goods and services costs 40 euros, the representative U.S. basket costs $50, and the dollar/euro exchange rate is $0.90 per euro, then the price of the European basket in terms of U.S. basket is A) (0.9 $/euro) (40 euro per a European basket)/(50 $/U.S. basket). B) (0.9 $/euro) (50 $/U.S. basket)/(40 euro per a European basket). C) (40 euro per a European basket)/(50 $/U.S. basket) (0.9 $/euro). D) (50 $/U.S. basket). E) (0.9 $/euro) (40 euro per a European basket) (50 $ U.S. basket). Answer: A Question Status: Previous Edition 11) When EP/P rises, A) IM will rise. B) IM will fall. C) IM may rise or fall. D) IM is not affected. E) None of the above. Answer: C Question Status: Previous Edition12) When the real exchange rate rises, A) Imports measured i