Problem Set #5 ANSWERS (Spring 2008)

# Problem Set #5 ANSWERS (Spring 2008) - Name: _ SID: _...

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Problem Set #5 (Spring 2008) 1/9 Name: _______________________ SID: _______________________ Discussion Section: _______________________ Problem Set #5 ANSWERS Due Tuesday, April 29, 2008 Problem Sets MUST be word-processed except for graphs and equations. When drawing diagrams, the following rules apply: 1. Completely , clearly and accurately label all axes, lines, curves, and equilibrium points. 2. The original diagram and any equilibrium points MUST be drawn in black or pencil. 3. The first change in any variable, curve, or line and any new equilibrium points MUST be drawn in red. 4. The second change in any variable, curve, or line and any new equilibrium points MUST be drawn in blue. 5. The third change in any variable, curve, or line and any new equilibrium points MUST be drawn in green.

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2/9 QUESTIONS A. Multiple Choice Questions . Circle the letter corresponding to the best answer. (1 points each.) 1. Which of the following would be part of the nation’s capital and financial account? a. A night club show seen by an American in Mexico City. b. A dividend from a British equity owned by an American. c. A payment to the Philippine government for the use of military bases in their country. d. One hundred shared of British Petroleum stock purchased by an American. 2. A small open economy increases its investment demand. This causes the world real interest rate to _______ and the country’s current account balance to _______. a. Rise; fall. b. Remain unchanged; rise. c. Rise; rise. d. Remain unchanged; fall. 3. A large open economy reduces its investment demand. This causes the world real interest rate to _______ and the country’s current account balance to _______. a. Rise; fall. b. Rise; rise. c. Fall; rise. d. Fall; fall. 4. Assume that an increase in Costa Rica’s government budget deficit reduced desired national saving by 10 million colon (the Costa Rican currency). Assuming Costa Rica is a small open economy, you would expect the government’s action to: a. Increase the current account balance by exactly 10 million colon. b. Increase the current account balance by less than 10 million colon. c. Reduce the current account balance by exactly 10 million colon. d. Reduce the current account balance by more than 10 million colon. 5. From 1980 to 2000, the ye/dollar exchange rate fell from 240 yen/dollar to 102 yen/dollar, while the dollar pound exchange rate fell from 2.22 dollars/pound to 1.62 dollars/pound. As a result, a. The dollar appreciated relative to the yen but depreciated relative to the pound. b. The dollar depreciated relative to the yen but appreciated relative to the pound. c. The dollar appreciated relative to both the yen and the pound. d.
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Problem Set #5 ANSWERS (Spring 2008) - Name: _ SID: _...

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