Question: 1. Assume that policy makers are pursuing a fixed exchange rate regime and the economy is initially operating at the natural level of output. Which of the following will occur as a result of a revaluation? Select one:

a. The real exchange rate will be permanently higher in the medium run.

b. The effects of this revaluation on the real exchange rate will be ambiguous in the medium run.

c. The real exchange rate will be permanently lower in the medium run.

d. The nominal exchange rate will initially fall in the short run and then increase in the medium run.

e. The real exchange rate will be unchanged in medium run.

2. Under a "crawling peg" system, a country's exchange rate: Select one:

a. is determined by the central bank of another country.

b. is fixed except for small, surprise changes.

c. changes at a predetermined rate against the dollar or some other major currency.

d. can fluctuate within a narrow band.

e. can change, but the changes are kept secret from the public.

3. In Australia, over the past forty years: Select one:

a. both exports and imports as a percentage of GDP have increased.

b. both exports and imports as a percentage of GDP have decreased.

c. both exports and imports as a percentage of GDP have remained constant.

d. exports as a percentage of GDP have increased, while imports as a percentage of GDP have decreased.

e. exports as a percentage of GDP have decreased, while imports as a percentage of GDP have increased.

4. Suppose the rest of the world experiences an expansion that causes an increase in foreign income ( Y *). From the domestic economy's perspective, this increase in foreign income will cause which of the following as the domestic economy adjusts to the rise in Y *? Select one:

a. an increase in imports

b. an increase in net exports

c. an increase in domestic income

d. All of the above.

e. Both A and C.

5. Assume that policy makers are pursuing a fixed exchange rate regime. Assume that the economy is initially operating at the natural level of output. Suppose that government spending decreases. Given this information, we know that this fiscal contraction will cause: Select one:

a. the real exchange rate will be unchanged in the medium run.

b. the effects of this fiscal contraction on the real exchange rate will be ambiguous in the medium run.

c. the real exchange rate will be permanently higher in the medium run.

d. the real exchange rate will be permanently lower in the medium run.

e. None of the above.