ECON 2123: Macroeconomics    Problem Set 3  Instructor: Fei DING 

Problem Set 3
Macroeconomics, ECON 2123
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100 marks total

Part I: True or False Questions. Explain.

( ) 1. If there are no statistical discrepancies, countries with current account deficits must receive net
capital inflows.

( ) 2. That a rich country like Japan has such a small ratio of imports to GDP is clear evidence of an
unfair playing field for US exporters to Japan.

( ) 3. If the dollar is expected to appreciate against the yen, uncovered interest parity implies that the US
nominal interest rate will be greater than the Japanese nominal interest rate.

( ) 4. A real appreciation means that domestic goods become less expensive relative to foreign goods.

( ) 5. Opening the economy to trade tends to increase the multiplier because an increase in expenditure
leads to more exports.

( ) 6. If the trade deficit equals zero, the domestic demand for goods and the demand for domestic goods
are equal.

( ) 7. A real depreciation leads to an immediate improvement in the trade balance.

( ) 8. A small open economy can reduce its trade deficit through fiscal contraction at a smaller cost in
output than can a large open economy.

( ) 9. A fiscal expansion tends to increase net exports.

( ) 10. Other things equal, the interest parity condition implies that the domestic currency will appreciate
in response to an increase in the expected exchange rate.

( ) 11. If the Japanese interest rate is equal to zero, foreigners will not want to hold Japanese bonds.

( ) 12. Under fixed exchange rate, the money stock must be constant.

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ECON 2123: Macroeconomics    Problem Set 3  Instructor: Fei DING 

Part II: Quantitative Questions. Please refer to the end-of-chapter exercises from 6th
edition textbook (scanned version attached) and do the following.

 Ch18: #2 and #4
 Ch19: #6 and #8
 Ch20: #1 and #5

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