Purchasing power parity does not hold in the short to

5) Purchasing power parity does not hold in the short to medium run because
A) exports don't equal imports.
B) exchange rates fluctuate too much.
C) most business cycles are caused by shocks to aggregate demand.
D) countries produce different goods.

Instructor: Guisinger
Spring 2014
Econ 2102.11
2
6) Which of the following changes would cause American net exports to increase?
7) A decrease in foreign output would cause the domestic country's net exports to
________ and cause the domestic country's IS curve to ________.
8) In the Keynesian model of an open economy, a temporary decrease in government
purchases would ________ the domestic real interest rate and ________ net desired
saving (desired saving less desired investment) in the economy.
9) Under a system of fixed exchange rates, what happens if a country's currency is
overvalued?
A) The central bank loses official reserve assets.
B) The central bank gains official reserve assets.
C) The currency appreciates.
D) The exchange rate rises.