Applied Macroeconomics
Mock Exam
Course Introduction
Applied Macroeconomics focuses on the practical application of macroeconomic theory to real-world issues and policy decisions. The course covers key topics such as national income determination, economic growth, business cycles, unemployment, inflation, fiscal and monetary policy, and the global economy. Through empirical analysis, case studies, and economic data interpretation, students learn how macroeconomic models inform government policy, financial markets, and business strategy. Emphasis is placed on understanding current macroeconomic challenges and using quantitative techniques to analyze economic trends and policy impacts.
Recommended Textbook
International Money and Finance 8th Edition by Michael Melvin
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13 Chapters
694 Verified Questions
694 Flashcards
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Page 2
Chapter 1: The Foreign Exchange Market
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71 Verified Questions
71 Flashcards
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Sample Questions
Q1) Exchange rates are 150 yen per dollar,0.8 euro per dollar,and 20 pesos per dollar.A bottle of beer in New York costs 6 dollars,1,200 yen in Tokyo,7 euro in Munich,and 100 pesos in Cancun.Where is the most expensive beer?
A) Tokyo
B) Munich
C) New York
D) Cancun
Answer: B
Q2) Refer to Figure 1.2.Suppose that the market for euro is initially in equilibrium at point A with the exchange rate $2.00 per euro.Then the supply curve shifts to S<sub>2</sub>.If the European central bank wants to fix the exchange rate at $2.00/euro,there will be ________ of euro and the euro is __________.
A) excess supply; overvalued
B) excess supply; undervalued
C) excess demand; overvalued
D) excess demand; undervalued
Answer: A
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Chapter 2: International Monetary Arrangements
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52 Flashcards
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Sample Questions
Q1) Seigniorage is the system where the dominant money producer limits the supply of money to leverage foreign currencies.
A)True
B)False
Answer: False
Q2) What exchange rate is maintained with a central rate that is frequently adjusted?
A) Fixed Peg
B) Currency board
C) Managed floating
D) Crawling bands
Answer: D
Q3) What exchange rate system allows for periodic intervention without fixing to any other foreign currency?
A) Free floating
B) Horizontal band
C) Crawling peg
D) Dollarization
Answer: B
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Chapter 3: The Balance of Payments
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51 Flashcards
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Sample Questions
Q1) The United States,Germany,and China are examples of net creditor nations,where the country owes more to the rest of the world than it is owed.
A)True
B)False
Q2) In September,2005,exports of goods from the U.S.decreased $3.3 billion to $73.4 billion,and imports of goods increased $3.8 billion to $144.5 billion.This increased the deficit in:
A) The balance of payments
B) The financial account.
C) The current account.
D) Unilateral transfers.
Q3) The U.S.subsidiary of a South Korean company pays dividends to its parent company in South Korea causes a:
A) Credit in the U.S. investment income
B) Debit in the U.S. investment income
C) Credit in U.S. services
D) Debit in U.S. services
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Chapter 4: Forward-Looking Market Instruments
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44 Flashcards
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Sample Questions
Q1) An option contract requires an up-front premium payment.
A)True
B)False
Q2) Which of the following features describe the futures market for foreign exchange?
I.Fixed contracts
II.Tailored size contracts
III.Fixed maturities
IV.Can be resold
A) I only
B) II only
C) I and IV
D) I, II, and IV
Q3) Forward-looking market instruments are used to:
A) Reduce traders' exchange rate risk.
B) Manage the flow of imports and exports.
C) Adjust the price of tariffs.
D) Assist central banks in managing floating currencies.
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Chapter 6: Exchange Rates, interest Rates, and Interest
Parity
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64 Verified Questions
64 Flashcards
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Sample Questions
Q1) Suppose interest parity holds and there is a sudden change in U.S.policy that leads to expectations of a higher U.S.inflation rate.The increase in expected inflation will cause dollar interest rates to rise.
A)True
B)False
Q2) Suppose interest parity holds.There is a change in U.S.policy that leads to expectations of a lower U.S.inflation rate.The decrease in expected inflation will cause dollar interest rates to _______.
A) Stay the same.
B) Fall.
C) Rise.
D) None of the above.
Q3) Refer to Table 6.1.On May 5,2012,the 1-year forward yen was selling at a:
A) 3.56% premium per annum against the dollar.
B) 3.69% premium per annum against the dollar.
C) 3.56% discount per annum against the dollar.
D) 3.69% discount per annum against the dollar.
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Page 7
Chapter 7: Prices and Exchange Rates: Purchasing Power
Parity
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49 Flashcards
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Sample Questions
Q1) High-inflation countries rarely see purchasing power parity hold over time because of relative price changes.
A)True
B)False
Q2) Under Purchasing Power Parity,
A) S<sub>$/£</sub> = P<sub>US</sub>/P<sub>UK</sub>
B) S<sub>$/£</sub> = P<sub>UK</sub>/P<sub>US</sub>
C) S<sub>$/£</sub> = P<sub>US</sub> + P<sub>UK</sub>
D) S<sub>$/£</sub> = P<sub>US</sub> - P<sub>UK</sub>
Q3) After adjusting for inflation differentials between two countries,the exchange rate is referred to as:
A) Predicted exchange rate
B) Real exchange rate
C) Nominal exchange rate
D) Inflation exchange rate
Q4) Government restrictions are used to keep the purchasing power parity from deviating over time.
A)True
B)False
Page 8
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Chapter 8: Foreign Exchange Risk and Forecasting
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Sample Questions
Q1) Which of the following describe ways that a business manages foreign exposure?
I.Hedge in the futures market
II.Hedge in the options market
III.Slow payments of currencies expected to appreciate
IV.Slow collections of currencies expected to depreciate
A) I only
B) I and II
C) III and IV
D) II, III, and IV
Q2) In the "uncovered interest rate parity," the forward rate is assumed to include a
A) Return differential
B) Exposure risk
C) Risk premium
D) Future spot exchange rate
Q3) Risk premium equals to:
A) expected premium minus forward premium.
B) expected premium plus forward premium.
C) forward premium minus expected premium.
D) exchange rate premium plus forward premium.
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Chapter 9: Financial Management of the Multinational Firm
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Sample Questions
Q1) The evaluation of prospective investment alternatives and the commitment of funds to preferred projects is referred to as:
A) Capital budgeting
B) Cash management
C) Flow budgeting
D) Decentralized management
Q2) Which of the following are advantages of netting?
I.Avoiding transaction costs
II.Shifting profits to different subsidiaries
III.Avoiding taxes for the parent firm
IV.Increasing flexibility in the parent firm
A) I only
B) II only
C) I and IV
D) II, III, and IV
Q3) Refer to Table 9.1.Based on the net present value,
A) the project can be accepted because the net present value is positive.
B) the project should be rejected because the net present value is negative.
C) the project can be accepted because the net present value is negative.
D) the project should be rejected because the net present value is positive.
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Chapter 10: International Portfolio Investment
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56 Flashcards
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Sample Questions
Q1) When a country moves from segmented capital market to globalized capital market,a firm located in this country can achieve:
A) lower cost of capital
B) greater availability of capital
C) lower risk premium on domestic assets
D) All of the above are correct.
Q2) A stock market in which foreign investors are not allowed to buy domestic stocks and domestic investors are not allowed to buy foreign stocks is called an:
A) International market
B) Segmented market
C) Domestic market
D) Globalized market
Q3) When the covariance of two assets is negative,then the two variables move in opposite directions: when one rises the other falls.
A)True
B)False
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11
Chapter 12: Determinants of the Balance of Trade
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50 Flashcards
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Sample Questions
Q1) If the domestic currency is devalued and both export and import contracts are written in foreign currency,then the trade balance will:
A) Increase
B) Decrease
C) Stay the same
D) Uncertain
Q2) How must currency contracts be structured for a currency devaluation to have an improvement on the balance of trade?
A) Export contracts in domestic currency and import contracts in foreign currency
B) Export contracts in foreign currency and import contracts in domestic currency
C) Both contracts in domestic currency
D) Both contracts in foreign currency
Q3) The J-curve illustrates which of the following?
A) The effect of a devaluation on an economy's income.
B) The immediate increase in the current account after a devaluation.
C) The gradual adjustment of the trade balance in response to a devaluation.
D) The gradual adjustment of prices after currency devaluation.
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12
Chapter 13: The Is-Lm-Bp Approach
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54 Flashcards
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Sample Questions
Q1) With flexible exchange rates,a decrease in money supply by a central bank causes the domestic interest rate to _______ ,official settlements _______,and the domestic currency to _______.As a result,the IS curve will shift to bring the domestic interest rate to be equal to foreign interest rates.
A) fall; deficit; depreciate
B) rise; deficit; depreciate
C) rise; surplus; appreciate D) fall; surplus; appreciate
Q2) Under an assumption of perfect capital mobility,suppose that international investors perceive the U.S.assets to be riskier than other countries during the Great Recession of 2008-09.The BP curve for the U.S would:
A) have upward slope.
B) have downward slope.
C) shift downward by the distance of risk premium.
D) shift upward by the distance of risk premium.
Q3) "The balance of payment equilibrium implies that current account equals to zero."
A)True
B)False
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13
Chapter 14: The Monetary Approach
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Sample Questions
Q1) "Under the monetary approach to exchange rate,a rise in domestic income will cause a depreciation of domestic currency."
A)True
B)False
Q2) Assume that China and the U.S.are in a managed floating exchange rate agreement.Suppose that the Fed decreases the money supply by 50%.China's central bank lets the exchange rate partly adjust and also intervenes in foreign exchange market.What would happen to the foreign reserve position for the U.S.and the exchange rate $/yuan?
A) Foreign reserves decrease and exchange rate decreases.
B) Foreign reserves increases and exchange rate increases.
C) Foreign reserves decrease and exchange rate increases.
D) Foreign reserves increase and exchange rate decreases.
Q3) Inflation from one country can be transmitted to another if a floating exchange rate is being used.
A)True B)False
Q4) Under MABP,the full effect of the monetary policy is felt on the exchange rate.
A)True B)False
Page 14
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Chapter 15: Extensions to the Monetary Approach of Exchange Rate Determination
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48 Flashcards
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Sample Questions
Q1) Which of the following statements describes the Currency Substitution Approach?
A) As expectations of a trade deficit change, the exchange rate today will change due to the expected change in asset holdings.
B) Exchange rate adjusts to compensate for changes in international currency portfolios.
C) Slowly adjusting goods prices may cause the exchange rate to over-react in the short run.
D) All of the above are correct.
Q2) When a high degree of currency substitution exists,in order to prevent currencies from becoming too variable:
A) Central banks must not intervene.
B) Countries need international coordination of monetary policy.
C) Fixed currency rates must be adopted.
D) Exchange markets must be temporarily closed.
Q3) In general,the basic Monetary Approach to Exchange Rate MAER does not capture the short run volatility of prices.
A)True
B)False
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Page 15