Fall 2011                                                         Professor: Alan G. Isaac
                         ECON-372 MIDTERM EXAMINATION

Instructions: ALL QUESTIONS ARE EQUALLY WEIGHTED. Choose the one best answer.
The exam is closed books, closed notes. All variables are as defined in class. GOOD LUCK!!

MULTIPLE CHOICE
Answer all 65 questions.

1. US foreign liabilities are very roughly equal to
(a) 150% of current GDP
(b) 100% of current GDP
(c) 50% of current GDP
(d) 25% of current GDP
(e) 10% of current GDP

2. In our first (FX-market only) model of exchange rate determination, which of the following cause a
depreciation of the domestic currency?
(a) an increase the expected future spot rate
(b) an increase in the domestic interest rate
(c) an increase the foreign interest rate
(d) a. and b.
(e)  a. and c.

3. When comparing countries, which of the following is the most important
determinant of the average standard of living?
(a)  average production per worker
(b) income distribution
(c) unemployment rate
(d) inflation rate
(e) national health insurance

4. According to the monetary approach to floating exchange rates,
(a) if a country has a high interest rate, then its assets will attract foreign
investors and appreciate the exchange rate.
(b)  if a country has a high interest rate, investors must expect its currency
to lose value in the future.
(c) if investors expect that a currency will appreciate in the future, assets
denominated in that currency must offer a high risk premium.
(d) if investors expect that a currency will depreciate in the future, assets
denominated in that currency must offer a high risk premium.
(e) all of the above

5. According to our monetary approach model of floating exchange rates,
(a) in the short run, a country can raise interest rates by means of
contractionary monetary policy, in which case its assets will attract foreign
investors and appreciate the exchange rate.
(b) in the long run, a country can raise interest rates by means of
contractionary monetary policy, in which case its assets will attract foreign
investors and appreciate the exchange rate.
(c)  in the long run, a country can raise interest rates by means of
expansionary monetary policy, if it causes inflation and tends to depreciate
the exchange rate.
(d) a. and b.
(e) a. and c.

6. According to our short-run asset-markets (foreign exchange + money market)
model of floating exchange rates,
(a)  in the short run, a country can raise interest rates by means of
contractionary monetary policy, in which case its assets will attract foreign
investors and appreciate the exchange rate.
(b) in the long run, a country can raise interest rates by means of
contractionary monetary policy, in which case its assets will attract foreign
investors and appreciate the exchange rate.
(c) in the long run, a country can raise interest rates by means of
expansionary monetary policy, which will cause inflation and tend to depreciate
the exchange rate.
(d) a. and b.
(e) a. and c.

7. One EUR currently buys very roughly about how many USD?
(a) .38
(b) .83
(c) 1.04
(d)  1.38
(e) 1.83
(f) 2.05

8. One USD currently buys very roughly about how many JPY?
(a) .01
(b) .10
(c) .78
(d) 7.8
(e)  78

9. During the Reagan (41) administration,
(a) taxes were cut.
(b) government spending was increased.
(c) huge government budget deficits were run.
(d) huge current account deficits were run.
(e)  all of the above.

10. During the Obama (44) administration,
(a) taxes revenues fell.
(b) government spending was increased.
(c) huge government budget deficits were run.
(d) huge current account deficits were run.
(e)  all of the above.