SOL. PS6 - METU Department of Economics ECON202...

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1 METU Department of Economics ECON202 Macroeconomic Theory Fall 2015 SOL. Of PROBLEM SET VI Q.1 Label each of the following statements trues, false or uncertain. Explain briefly. a.A fiscal expansion tends to increase net exports. FALSE b.Fiscal policy has a greater effect on output in an economy with fixed exchange rates than in an economy with flexible exchange rates. TRUE c.Other things being equal, the interest parity condition implies that the domestic currency will appreciate in response to an increase in the expected exchange rate.FALSE d.If financial investors expect the dollar to depreciate against the yen over the coming year, one year interest rate will be higher in the United States than in Japan. TRUE e.If the Japanese interest rate is equal to zero, foreigners will not want to hold Japanese bonds. UNCERTAIN. It depends on the expected appreciation or
f.Under fixed exchange rates, the money stock must be constant. FALSE

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