Monetary policy is more effective in controlling

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Monetary policy is more effective in controlling inflation than in controlling deflation because the real interest rate cannot fall below - π . | A. A liquidity trap means that | C. increases in the real money supply will not lower interest rates nor increase aggregate demand(AE). An unexpected change in an exogenous variable is known as | A . A shock If one country is hit with a shock that increases the value of its currency and causes its net exports to decline and other countries' net exports to rise, causing the income in those countries to rise, then the business cycle is being transmitted internationally through an exchange-rate effect. | C. In 1990, exchange rates were : 1.61 U.S. dollars per British pound and 144 Japanese yen per U.S. dollar. In 1980, the exchange rates were: 2.22 U.S. dollars per British pound and 240 Japanese yen per U.S. dollar. Based on these data, from 1980 to 1990 the U.S. dollar ____ versus the British pound and the U.S. dollar ____ versus the Japanese yen. | B. appreciated; depreciated When a country's currency appreciates , the prices of its exports ____ and the prices of its imports ____. | B. rise; fall (Opposite when depreciates) If the exchange rate equals the ratio of price indexes in two countries , there is said to be | B. absolute purchasing-power parity. Under relative purchasing-power parity | B. a currency depreciates relative to another currency by the amount by which the inflation rate is higher in the first country than in the second country. The real exchange rate is best described by the equation | A. If the inflation rate in Canada is 1 percent, the inflation rate in Mexico is 3 percent, and the nominal exchange rate in terms of Mexican pesos per Canadian dollar fell 4 percent, how much did the real exchange rate (in terms of Mexican goods per Canadian good) change? | D. -6 percent.
Interest-rate parity is best described by the equation | B. The sum of net exports of goods and services plus net income from abroad plus net unilateral current transfers equals | B. the balance on current account. Suppose the U.S. has domestic savings of $10 billion, domestic investment of $160 billion, and a government budget deficit of $250 billion. Based on these figures, the amount of net foreign investment is $____ billion.
Explain how a shock in one country can be transmitted to other countries. List three ways this can happen and give an example of each. | Shocks are transmitted internationally via trade effects, interest-rate effects, and exchange-rate effects. Trade effects occur when the demand for exported goods changes; for example, when an increase in income taxes in country A reduces people's after-tax income, they buy fewer goods, including imported goods, so net exports in country B decline and income in country B declines. Interest-rate effects occur because investors can move investments into different countries; for example, if country A eases monetary policy, reducing its interest rate, investors will move their financial investments to other countries, reducing interest rates in those countries and influencing investment and consumption decisions in those countries. Exchange-rate effects occur when the exchange rate changes, changing the relative prices of imported and exported

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