Scribd
Upload
15 views3 pages

Final Exam Practice Questions Set 1

The document contains sample questions related to International Macroeconomics for the ECON3104/5304 course at UNSW Business School. It covers topics such as the effects of monetary policy changes on the foreign exchange market, trade balance evolution after GDP changes, and the impact of optimistic firm expectations on economic variables. Additionally, it includes exercises on currency pegs, central bank balance sheets, and the implications of changes in money supply and demand.

Uploaded by

Harrison Hu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
15 views3 pages

Final Exam Practice Questions Set 1

The document contains sample questions related to International Macroeconomics for the ECON3104/5304 course at UNSW Business School. It covers topics such as the effects of monetary policy changes on the foreign exchange market, trade balance evolution after GDP changes, and the impact of optimistic firm expectations on economic variables. Additionally, it includes exercises on currency pegs, central bank balance sheets, and the implications of changes in money supply and demand.

Uploaded by

Harrison Hu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

School of Economics

UNSW Business School

ECON3104/5304: International Macroeconomics

c University of New South Wales


This material cannot be used for commercial purposes.

Sample Questions for materials covered after the midterm


Exercise This question considers how the FX market will respond to changes in monetary policy.
For these questions, define the exchange rate as Korean won per Japanese yen, Ewon/U . Use the
FX and money market diagrams to answer the following questions. On all graphs, label the initial
equilibrium point A.

(a) Suppose the Bank of Korea permanently decreases its money supply. Illustrate the short-run
(label the equilibrium point B) and long-run effects (label the equilibrium point C) of this
policy.

(b) Now, suppose the Bank of Korea announces it plans to permanently decrease its money supply
but doesn’t actually implement this policy. How will this affect the FX market in the short
run if investors believe the Bank of Korea’s announcement?

(c) Finally, suppose the Bank of Korea permanently decreases its money supply but this change
is not anticipated. When the Bank of Korea implements this policy, how will this affect the
FX market in the short run?

(d) Using your previous answers, evaluate the following statements:

1. If a country wants to increase the value of its currency, it can do so (temporarily) without
raising domestic interest rates.
2. The central bank can reduce both the domestic price level and the value of its currency in
the long run.
3. The most effective way to increase the value of a currency is through surprising investors.

Exercise Assume a nation has an output level of 100. Suppose there is a sudden temporary drop
in GDP by 21%. How will the trade balance evolve if this country has access to global financial
markets with an interest rate of 5%?

1
Exercise Assume a nation has an output level of 100 units per year, and that consumption is
also 100. If a nation has an opportunity to make a productive investment that costs 16 units of
production that raises yearly output by 5%, how might a nation undertake the investment and
smooth consumption during the entire period?

Exercise How would a decrease in the money supply of Paraguay (currency unit is the “guarani”)
affect its own output and its exchange rate with Brazil (currency unit is the “real”). Do you think
this policy in Paraguay might also affect output across the border in Brazil? Explain.

Exercise Suppose firms become more optimistic about future profitability. What will this shock
do to Y, i, E, and TB? Explain using the IS-LM-FX model.

Exercise Suppose that Venezuela pegs its bolivar to the Mexican peso. Suppose further that both
countries are in a recession. Using the IS-LM-FX model, explain what will happen in Venezuela
when Mexican firms begin to expect higher profits in the future.

Exercise Home’s currency is the peso and trades at 2 pesos per dollar. Home has external assets
of $100 billion, all of which are denominated in dollars. It has external liabilities of $250 billion, 50%
of which are denominated in dollars. What happens to net wealth (in pesos) if the peso depreciates
to 3 pesos per dollar?

Exercise Use the following table that shows the Central Bank of Mexico’s balance sheet. Note
that the Mexican peso is pegged to the US dollar.

Simplified Central Bank Balance Sheet (millions of pesos)


Assets Liabilities
Reserves R 750 Money supply M 2,250
Foreign assets (dollar reserves) Currency in circulation
Domestic credit B 1,500
Domestic assets (peso bonds)

(a) Suppose output in Mexico rises, causing money demand to change by 75 million pesos. What
will happen to reserves, domestic credit, and the backing ratio? Explain how these changes
take place.

2
(b) Suppose foreign interest rates rise in the United States, causing money demand to change
by 150 million pesos. What will happen to reserves, domestic credit, and the backing ratio?
Explain how these changes take place.

(c) Suppose the central bank engages in an open-market purchase of 300 million pesos. What
will happen to reserves, domestic credit, and the backing ratio? Explain how these changes
take place.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy