20072prbset10 - METU Department of Economics Econ 202...

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1 METU Department of Economics Econ 202 Macroeconomic Theory Instructors: Ebru Voyvoda and Şirin Saraçoğlu Teaching Assistant: Gizem Koşar 2007-2008 Spring Semester Problem Set 10 (OB Chapters 18, 19, and 20) Part I: True/False Decide whether each of the following statement is true or false, and justify your answer with a short argument. 1. If the nominal exchange rate between the euro and dollar is 0.90, it means that one Euro is worth 90 cents. 2. If the real exchange rate between the United Kingdom and the United States is 2, this means that goods are twice as expensive in the United Kingdom than in the United States. 3. The ratio of imports to GDP cannot be larger than 1. 4. If General Motors decides to use only French made Michelin tires for its cars instead of Firestone US made tires, the total demand for US goods decreases. 5. A Turkish tourist spends his holidays in Egypt. Once in Egypt, he pays 500 YTL for his hotel, 100 YTL for kebabs and a 150 YTL statue of Nefertiti to bring back home for his mother. He generated 750 YTL worth of exports from Egypt to Turkey. 6. If the uncovered interest parity does not hold, it surely means that there is an arbitrage opportunity. 7. Nominal exchange rates and real exchange rates tend to move in the same direction over short periods of time. 8. A country can have exports larger than its GDP. 9. If inflation in the Turkey is higher than that in Japan, the nominal exchange rate (measured as the price of yens in terms of YTLs) decreases. 10. A country’s GNP is equal to its GDP if its trade balance is 0. 11. In theory, a capital account deficit implies a current account deficit. 12. In practice, the sum of the measured current account balance and measured capital account balance is always exactly equal to zero. 13. If the domestic nominal interest rate and the expected exchange rate are both fixed, and the domestic and foreign nominal interest rates are initially equal, then an increase in the foreign interest rate will create expectations of an appreciation in the domestic currency. 14. The higher the degree of openness of an economy, the less of an effect a domestic expansionary fiscal policy has on the output level. 15. Assume that the Marshall-Lerner condition holds and * 1 P P = so that E = Є (real and nominal exchange rates are the same). In the short run, in an open economy with flexible
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2 exchange rates and constant expectations about the future exchange rate (
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This note was uploaded on 05/26/2010 for the course ECON 202 taught by Professor Tunc during the Spring '10 term at Middle East Technical University.

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20072prbset10 - METU Department of Economics Econ 202...

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