Chap022

# Chap022 - Chapter 22 The Monetary and Portfolio Balance...

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Chapter 22 - The Monetary and Portfolio Balance Approaches Chapter 22 The Monetary and Portfolio Balance Approaches Multiple Choice Questions 1. In the monetary approach to the balance of payments and the exchange rate, if there is an excess demand for money, the result is a balance-of-payments __________ in a fixed exchange rate situation and __________ of the country's currency in a flexible exchange rate situation. A . Surplus; an appreciation b. Surplus; a depreciation c. Deficit; an appreciation d. Deficit; a depreciation 2. If Ms is the money supply, BR = reserves of commercial banks (depository institutions), C = currency held by the nonbank public, and a = the money multiplier, then a. Ms = aBR + C B . Ms = a(BR + C) c. BR = Ms - C d. AC = Ms - BR 3. If id is the domestic interest rate, if is the foreign interest rate, xa is the expected rate of appreciation of the foreign currency (or the expected rate of depreciation of the home currency), and financial capital is mobile across countries (and assuming no risk premium), then equilibrium in international financial asset markets is indicated by the expression a. Xa = (id/if) b. Xa = id + if c. If = id + xa D . Id = if + xa 22-1

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Chapter 22 - The Monetary and Portfolio Balance Approaches
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