Question : 17.5   Asset Market Equilibrium in the Short Run: The AA : 1303632

17.5   Asset Market Equilibrium in the Short Run: The AA Schedule

1) How is the AA schedule derived?

A) The AA schedule has a positive slope because an increase in output leads to a depreciation of the currency.

B) The AA schedule has a negative slope because an increase in output leads to a decrease in the domestic interest rate.

C) The AA schedule has a negative slope because an increase in output leads to an increase in the domestic interest rate and a domestic currency appreciation.

D) The AA schedule has a positive slope because an increase in the money supply leads to an increase in the domestic interest rate.

E) The AA schedule has a positive slope because a decrease in output leads to a depreciation of the currency.

2) Which one of the following statements is MOST accurate?

A) In the long run, foreign output depends only on the available domestic supplies of factors of production.

B) In the short run, domestic output depends only on the available domestic supplies of factors of production.

C) In the long run, domestic output depends only on the available domestic supplies of factors of production.

D) In the long run and in the short run, domestic output depends only on the available domestic supplies of factors of production.

E) In the long run, domestic output depends only on the real exchange rate.

3) In the short-run, a temporary increase in the money supply

A) shifts the AA curve to the right, increases output and depreciates the currency.

B) shifts the AA curve to the left, increases output and depreciates the currency.

C) shifts the AA curve to the left, decreases output and depreciates the currency.

D) shifts the AA curve to the left, increases output and appreciates the currency.

E) shifts the AA curve to the right, increases output and appreciates the currency.

4) Which of the following equations does NOT state a condition required for equilibrium output:?

A) Y = C(Yd) + I + G + CA(EP*/P,Yd)

B) Y = C(Y – T) + I + G + CA(EP*/P,Y – T)

C) Y = D(EP*/P,Y – T,I,G)

D) R = R* + (EP/E)

E) Y = D(EP*/P,Yd,I,G)

5) The interest parity condition requires that:

A) all countries have the same interest rate.

B) there is a unique exchange rate for every output level.

C) purchasing power parity hold.

D) interest rates are fixed in the short run.

E) the money supply is held constant.

6) How is the AA schedule derived?

A) It is derived by the schedule of interest rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market.

B) It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the foreign money market and the domestic exchange market.

C) It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic money market and the foreign exchange market.

D) It is derived by the schedule of exchange rate and output combinations that are consistent with equilibrium in the domestic bond market and the foreign asset market.

E) It is derived by the schedule of exchange rate and output combinations that are greater than equilibrium in the foreign money market and the domestic exchange market.

7) Explain how the AA schedule is derived.

8) Discuss the main factors affecting the position of the AA schedule.

9) What is the AA-curve? Why does it have a negative slope? What factors cause it to shift?

10) Explain what are the factors that shift the AA Schedule?

11) Which one of the following statements is the MOST accurate?

A) For asset markets to remain in equilibrium, a rise in domestic output must be accompanied by a depreciation of domestic currency, all else equal.

B) For asset markets to remain in equilibrium, a fall in domestic output must be accompanied by a depreciation of foreign currency, all else equal.

C) For asset markets to remain in equilibrium, a rise in domestic output must be accompanied by an appreciation of domestic currency, all else equal.

D) For asset markets to remain in equilibrium, a fall in domestic output must be accompanied by an appreciation of domestic currency, all else equal.

E) For asset markets to remain in equilibrium, a fall in domestic output must be accompanied by an appreciation of foreign currency, all else equal.