5 multiple choice questions: Based on the long run money market model, If there is a permanent increase in doment supply by 5%, If the U.S inflation rate exceeds Chinas:

1) If less baskets of home goods are needed to buy a basket of foreign goods, then we say that the foreign country experienced: a) a nominal appreciation b) a nominal depreciation c) a real appreciation d) a real depreciation 2) If the U.S. economy is growing slower than China, then, in the long run, the dollar will appreciate against yuan: a) Only if the U.S. inflation rate exceeds China’s. b) Regardless of the relative inflation rates. c) Only if the U.S. inflation rate is less than China’s. d) Only if the U.S. inflation rate is less than China’s other trading partners. 3) According to the long run money market model, if money supply is growing at 5% in the United States and 6% in the United Kingdom, while real GDP is rising at 3% in the United States, and at 2% in the United Kingdom, what will happen to the nominal exchange rate between USD and British pound? a) USD depreciates b) Exchange rate increases c) Exchange rate stays the same d) USD appreciates 4) Suppose that Mexico has a fixed exchange rate regime, and value of peso is fixed against the dollar. If, everything else constant, Mexico starts growing slower than US, how should the monetary policy react to maintain the fixed exchange rate regime? a) Mexico has to increase growth rate of money supply. b) Mexico has to reduce growth rate of money supply. c) Under fixed exchange rate regime, they cannot change monetary policy. d) U.S. should adjust monetary policy. 5) If there is a permanent increase in domestic money supply by 5%, then in the long run: a) prices will increase by 5% b) prices will decrease by 5% c) the home currency will depreciate by 2.5% d) the home currency will appreciate by 2.5%

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