Summary Old exams with solutions Exam International Economics Winter term 2024/2025

Chair of Global Governance Chair of Macroeconomics
Prof. Dr. Christoph Moser Prof. Dr. Christian Merkl




Exam International Economics

Winter term 2018/19




Please note:




The exam consist of two parts: Part 1 deals with International Macroeconomics and part 2 deals with
International Trade.


The exam consist of 3 pages.

You have 60 minutes to answer the exam. In addition, you have five minutes reading time at the beginning.

All parts have to be answered. For each exercise we have indicated the amount of time we recommend you
to spend on it.


Please answer each part on a separate sheet!

You are allowed to use a non-programmable calculator.

Please turn off your mobile phones. An active mobile phone will be treated as an attempt to cheat.




Good luck!




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,Chair of Global Governance Chair of Macroeconomics
Prof. Dr. Christoph Moser Prof. Dr. Christian Merkl




Part 1: International Macroeconomics


Short questions (10 min)

Please provide a short answer to the following questions:

1. Germany has a current account surplus. Briefly explain what this means for exports relative to imports
and for capital inflows relative to capital outflows.

2. Name the key driver for Germany's TARGET 2 surplus and one associated risk.

3. Name two criteria for an optimum currency area.

4. How does a currency board work?


5. When are fiscal multipliers typically large (from an empirical perspective)?



Foreign Exchange Market (8 min)

6. The interest rate on euro deposits is currently Re = 0,01. The interest rate on dollar deposits is Rg = 0,05.

You expect that the dollar/euro exchange rate in a year is Ee =1,20. The current exchange rate is
Es/e = 1,132. (Note: Please round to two decimal places.)
a) Please calculate the expected return on euro deposits (in dollar terms). (4 min)

b) Calculate the current exchange rate at which the interest rate parity condition is satisfied. (4 min)



The Mundell-Fleming Model (12 min)

7. Consider a small open economy with perfect capital mobility. Due to a global economic crisis, the foreign

income Ya falls. Discuss the effects on the small open economy in case of a



a) fixed exchange rate (5 min)

b) flexible exchange rate. (5 min)

Please use a graph for each case and discuss the adjustment process. (Hint: Assume that the international
interest rate ia stays constant.)

c) The government of the small open economy wants to keep the income of the economy stable. What
could the government do to achieve this goal? (2 min)




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, Part 1:

Short questions
Л.
current account 1
‫ ما‬CAT EX> IM capital flous in the economS
- → BOP surplus

2.
capital outflors out of other econories to Gemong

rish in case of a euro zone brealyp, Gernany would have to deal with sukstiantial losses


3.
high foctor mobility and trode ol goods and senives between members

4.
It's a formof manetary policy where the whole monetory baseis covered by foreign curacy
S
fixed exchange rate and during fironcial crises


Foreign Exchange Marbhed
G.
Re=901
@
R=0,05 E=1,20% E=13/
a)
expected retum on euro deposits (indollar terns)? 5 sleps

@ today: 1$ for €

1,13€0,88€


deposit and ged return inone year


988€.(1+ 001)= 9,89€


change bach into
0,894 1,2014-10Dise
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, 4) expected dollar return on euro deposits


107$-18= 0'0Ł


compare to the dollas retum on dollar deposits


11,05=1,05$ →5 7875%


b) interest rate parity condition
E-
R$=Re+ E/


1204/e-€/e
0,05=901+ E/


1.20-E 120 E
904= E E-E
1,202
E
1,204
G,04=Eе-1

1,20/€
1,04 = EN/E


1,04E/=120%

E/4= 115 %0





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