ECON 312 FINAL EXAM QUESTIONS WITH
COMPLETE SOLUTIONS
The amount of one currency needed to purchase one unit of another currency - VERIFIED ANSWER-
Exchange rate
Determine the prices of goods imported into one country from another - VERIFIED ANSWER-Exchange
rates
Its goods become more expensive when sold abroad
Business firms that export their products sell fewer goods - VERIFIED ANSWER-When a country's
currency appreciates
The currency depreciates relative to other currencies - VERIFIED ANSWER-If the supply of a currency
increases
Situation in which the interest rate on a domestic bond (iD)
Equals the interest rate on a foreign bond (iF) minus the expected appreciation of the domestic
currency - VERIFIED ANSWER-Interest-rate parity
Investments in other countries from installing capital goods and using them to produce output in the
other countries - VERIFIED ANSWER-Direct investment
Invest in the domestic country
Invest in foreign countries
Finance the government's budget deficit
Government spending minus taxes - VERIFIED ANSWER-Savings are used to
High expected return on investments: currency appreciates
Increasing inflation: currency depreciates
, More imports: currency depreciates - VERIFIED ANSWER-Economic expansion
Declining expected returns: currency depreciates
Decreasing inflation: currency appreciates
Fewer imports: currency appreciates - VERIFIED ANSWER-Recession
Similar to models known as new neoclassical synthesis models
Business firms have monopoly power
Prices do not adjust immediately to restore equilibrium
Markets for goods and services are distorted
Government policy may help off set certain types of shocks, especially shocks to demand - VERIFIED
ANSWER-New open-economy macroeconomics
1. Try to prop up the currency - very risky
2. Limit the movement of capital - a desperate measure - VERIFIED ANSWER-How Independent Should
a Country Be?
FED facts - VERIFIED ANSWER-The Federal Reserve System is headed by a seven-member Board of
Governors in Washington, D.C. Twelve Federal Reserve banks around the nation serve banks in their
districts. The seven governors and five of the Federal Reserve bank presidents are members of the
Federal Open Market Committee (FOMC), which determines monetary policy.
Clearing checks
Supervising and examining state member banks and bank holding companies
Tracking the banking statistics on deposits that are part of the monetary aggregates
Supplying currency and coin to financial institutions
Lender of last resort - VERIFIED ANSWER-Functions of the 12 Federal Reserve banks
Need for a central bank to control the money supply and prevent banking crises
COMPLETE SOLUTIONS
The amount of one currency needed to purchase one unit of another currency - VERIFIED ANSWER-
Exchange rate
Determine the prices of goods imported into one country from another - VERIFIED ANSWER-Exchange
rates
Its goods become more expensive when sold abroad
Business firms that export their products sell fewer goods - VERIFIED ANSWER-When a country's
currency appreciates
The currency depreciates relative to other currencies - VERIFIED ANSWER-If the supply of a currency
increases
Situation in which the interest rate on a domestic bond (iD)
Equals the interest rate on a foreign bond (iF) minus the expected appreciation of the domestic
currency - VERIFIED ANSWER-Interest-rate parity
Investments in other countries from installing capital goods and using them to produce output in the
other countries - VERIFIED ANSWER-Direct investment
Invest in the domestic country
Invest in foreign countries
Finance the government's budget deficit
Government spending minus taxes - VERIFIED ANSWER-Savings are used to
High expected return on investments: currency appreciates
Increasing inflation: currency depreciates
, More imports: currency depreciates - VERIFIED ANSWER-Economic expansion
Declining expected returns: currency depreciates
Decreasing inflation: currency appreciates
Fewer imports: currency appreciates - VERIFIED ANSWER-Recession
Similar to models known as new neoclassical synthesis models
Business firms have monopoly power
Prices do not adjust immediately to restore equilibrium
Markets for goods and services are distorted
Government policy may help off set certain types of shocks, especially shocks to demand - VERIFIED
ANSWER-New open-economy macroeconomics
1. Try to prop up the currency - very risky
2. Limit the movement of capital - a desperate measure - VERIFIED ANSWER-How Independent Should
a Country Be?
FED facts - VERIFIED ANSWER-The Federal Reserve System is headed by a seven-member Board of
Governors in Washington, D.C. Twelve Federal Reserve banks around the nation serve banks in their
districts. The seven governors and five of the Federal Reserve bank presidents are members of the
Federal Open Market Committee (FOMC), which determines monetary policy.
Clearing checks
Supervising and examining state member banks and bank holding companies
Tracking the banking statistics on deposits that are part of the monetary aggregates
Supplying currency and coin to financial institutions
Lender of last resort - VERIFIED ANSWER-Functions of the 12 Federal Reserve banks
Need for a central bank to control the money supply and prevent banking crises
