Question 1

If the price level in Japan increases more rapidly than the price level in Britain, we would expect

Accepted Answer

A) interest rates in Japan to lower than interest rates in Britain. 
B) the Japanese yen to depreciate against the British pound. 
C) the British pound to depreciate against the Japanese yen. 
D) Japanese productivity to have increased more rapidly than British productivity. 
A) interest rates in Japan to lower than interest rates in Britain. 
B) the Japanese yen to depreciate against the British pound. 
C) the British pound to depreciate against the Japanese yen. 
D) Japanese productivity to have increased more rapidly than British productivity.

Question 2

If the Japanese yen appreciates against the U.S. dollar,

Accepted Answer

A) Japanese businesses gain by a decrease in the dollar price of exports to the United States. 
B) Japanese consumers gain by a decrease in the yen price of U.S. exports to Japan. 
C) Japanese consumers lose by an increase in the yen price of U.S. exports to Japan. 
D) U.S. consumers gain by an decrease in the dollar price of Japanese exports to the United States. 
A) Japanese businesses gain by a decrease in the dollar price of exports to the United States. 
B) Japanese consumers gain by a decrease in the yen price of U.S. exports to Japan. 
C) Japanese consumers lose by an increase in the yen price of U.S. exports to Japan. 
D) U.S. consumers gain by an decrease in the dollar price of Japanese exports to the United States.

Question 3

Most foreign exchange is bought and sold

Accepted Answer

A) by governments. 
B) by tourists. 
C) in over-the-counter markets. 
D) on the New York Stock Exchange. 
A) by governments. 
B) by tourists. 
C) in over-the-counter markets. 
D) on the New York Stock Exchange.

Question 4

The law of one price does not hold for

Accepted Answer

A) agricultural goods. 
B) tradeable goods. 
C) differentiated goods. 
D) goods whose production causes pollution. 
A) agricultural goods. 
B) tradeable goods. 
C) differentiated goods. 
D) goods whose production causes pollution.

Question 5

One of the reasons the British pound depreciated against the U.S. dollar during the late 1970s is that

Accepted Answer

A) British productivity growth was greater than U.S. productivity growth. 
B) the U.S. inflation rate was greater than the British inflation rate. 
C) the British inflation rate was greater than the U.S. inflation rate. 
D) U.S. consumers increased their preference for British goods. 
A) British productivity growth was greater than U.S. productivity growth. 
B) the U.S. inflation rate was greater than the British inflation rate. 
C) the British inflation rate was greater than the U.S. inflation rate. 
D) U.S. consumers increased their preference for British goods.

Question 6

A substantial appreciation of the U.S. dollar will likely result in, all else equal,

Accepted Answer

A) lower demand for U.S. products and layoffs of U.S. workers. 
B) increased demand for U.S. products and increased employment of U.S. workers. 
C) lower foreign currency prices of U.S. products in foreign countries. 
D) higher U.S. dollar prices of foreign products in the United States. 
A) lower demand for U.S. products and layoffs of U.S. workers. 
B) increased demand for U.S. products and increased employment of U.S. workers. 
C) lower foreign currency prices of U.S. products in foreign countries. 
D) higher U.S. dollar prices of foreign products in the United States.

Question 7

If the United States puts a tariff on the import of golf balls,

Accepted Answer

A) the price of U.S.-produced golf balls will fall. 
B) the dollar will depreciate. 
C) the dollar will appreciate. 
D) the price of foreign-produced golf balls sold in the United States will fall. 
A) the price of U.S.-produced golf balls will fall. 
B) the dollar will depreciate. 
C) the dollar will appreciate. 
D) the price of foreign-produced golf balls sold in the United States will fall.

Question 8

Under the theory of purchasing power parity, an increase in the U.S. price level of 10% relative to the Japanese price level will result in

Accepted Answer

A) a 10% appreciation of the yen. 
B) a 10% appreciation of the dollar. 
C) an appreciation of the yen by an amount that depends upon what happens to the real exchange rate. 
D) an appreciation of the dollar by an amount that depends upon what happens to the real exchange rate. 
A) a 10% appreciation of the yen. 
B) a 10% appreciation of the dollar. 
C) an appreciation of the yen by an amount that depends upon what happens to the real exchange rate. 
D) an appreciation of the dollar by an amount that depends upon what happens to the real exchange rate.

Question 9

Which of the following would cause the nominal exchange rate to depreciate?

Accepted Answer

A) The real exchange rate appreciates. 
B) The domestic inflation rate increases. 
C) The foreign inflation rate increases. 
D) The government budget deficit increases. 
A) The real exchange rate appreciates. 
B) The domestic inflation rate increases. 
C) The foreign inflation rate increases. 
D) The government budget deficit increases.

Question 10

Differences in price levels

Accepted Answer

A) explain well actual exchange rate movements. 
B) are not capable of explaining well actual exchange rate movements, particularly in the short run. 
C) have been small for most countries in the post-World War II period. 
D) only can be explained by the fact that little foreign trade actually takes place. 
A) explain well actual exchange rate movements. 
B) are not capable of explaining well actual exchange rate movements, particularly in the short run. 
C) have been small for most countries in the post-World War II period. 
D) only can be explained by the fact that little foreign trade actually takes place.

Question 11

Nominal exchange rates differ from real exchange rates in that nominal exchange rates

Accepted Answer

A) do not correct for differing interest rates across countries. 
B) do not measure the purchasing power of the currency. 
C) are fixed, while real exchange rates are flexible. 
D) are flexible, while real exchange rates are fixed. 
A) do not correct for differing interest rates across countries. 
B) do not measure the purchasing power of the currency. 
C) are fixed, while real exchange rates are flexible. 
D) are flexible, while real exchange rates are fixed.

Question 12

Why were interest rates on U.S. Treasury securities in 1998 at their lowest levels in a generation?

Accepted Answer

A) Investors were fearful of a revival of inflation. 
B) A severe recession in the United States resulted in investors shifting out of corporate bonds and into U.S. Treasury securities. 
C) A cut in tax rates reduced the desirability of municipal bonds, leading investors to shift into U.S. Treasury securities. 
D) A crisis in Asian financial markets resulted in a flight to quality. 
A) Investors were fearful of a revival of inflation. 
B) A severe recession in the United States resulted in investors shifting out of corporate bonds and into U.S. Treasury securities. 
C) A cut in tax rates reduced the desirability of municipal bonds, leading investors to shift into U.S. Treasury securities. 
D) A crisis in Asian financial markets resulted in a flight to quality.

Question 13

If the rate of growth of U.S. productivity is higher than the rates of growth of productivity in most other countries,

Accepted Answer

A) the prices of U.S. goods will fall relative to foreign goods. 
B) the prices of U.S. goods will rise relative to foreign goods. 
C) the U.S. real exchange rate will depreciate. 
D) the cost of producing U.S. goods will rise faster than the cost of producing foreign goods. 
A) the prices of U.S. goods will fall relative to foreign goods. 
B) the prices of U.S. goods will rise relative to foreign goods. 
C) the U.S. real exchange rate will depreciate. 
D) the cost of producing U.S. goods will rise faster than the cost of producing foreign goods.

Question 14

According to the theory of purchasing power parity, if the inflation rate in England is greater than the inflation rate in Japan,

Accepted Answer

A) the law of one price has been violated. 
B) the nominal value of the pound will appreciate against the yen. 
C) the nominal value of the yen will appreciate against the pound. 
D) the nominal value of the pound will appreciate against the yen, but only if the two countries are on the gold standard. 
A) the law of one price has been violated. 
B) the nominal value of the pound will appreciate against the yen. 
C) the nominal value of the yen will appreciate against the pound. 
D) the nominal value of the pound will appreciate against the yen, but only if the two countries are on the gold standard.

Question 15

Which of the following expressions gives the expected rate of return on foreign assets in dollar terms?

Accepted Answer

A) Rf = if - ΔE Xe /EX 
B) R = if - ΔE Xe /EX 
C) Rf = if + ΔE Xe /EX 
D) Rf = i + ΔE Xe /EX 
A) Rf = if - ΔE Xe /EX 
B) R = if - ΔE Xe /EX 
C) Rf = if + ΔE Xe /EX 
D) Rf = i + ΔE Xe /EX

Question 16

One of the reasons the dollar appreciated against the British pound during the 1970s and 1980s is that

Accepted Answer

A) U.S. productivity growth was greater than British productivity growth. 
B) British productivity growth was greater than U.S. productivity growth. 
C) the British inflation rate was lower than the U.S. inflation rate. 
D) U.S. consumers increased their preference for British goods. 
A) U.S. productivity growth was greater than British productivity growth. 
B) British productivity growth was greater than U.S. productivity growth. 
C) the British inflation rate was lower than the U.S. inflation rate. 
D) U.S. consumers increased their preference for British goods.

Question 17

About what percentage of the goods and services purchased by U.S. consumers, businesses, and governments in 2006 were produced by foreigners?

Accepted Answer

A) 1% 
B) 11% 
C) 17% 
D) 40% 
A) 1% 
B) 11% 
C) 17% 
D) 40%

Question 18

Which of the following would cause the nominal exchange rate to appreciate?

Accepted Answer

A) The real exchange rate depreciates. 
B) The domestic inflation rate decreases. 
C) The domestic inflation rate increases. 
D) The government budget deficit decreases. 
A) The real exchange rate depreciates. 
B) The domestic inflation rate decreases. 
C) The domestic inflation rate increases. 
D) The government budget deficit decreases.

Question 19

Because of shifts in preferences for domestic or foreign goods and because of the existence of trade barriers

Accepted Answer

A) purchasing power parity's underlying assumption is not valid. 
B) the nominal exchange rate will fluctuate, but the real exchange rate will not. 
C) purchasing power parity will be accurate in predicting short-run fluctuations in exchange rates, but not in predicting long-run fluctuations. 
D) most national governments believe exchange rates should not be set by the market. 
A) purchasing power parity's underlying assumption is not valid. 
B) the nominal exchange rate will fluctuate, but the real exchange rate will not. 
C) purchasing power parity will be accurate in predicting short-run fluctuations in exchange rates, but not in predicting long-run fluctuations. 
D) most national governments believe exchange rates should not be set by the market.

Question 20

According to the theory of purchasing power parity, whenever a country's price level is expected to fall relative to another country's price level,

Accepted Answer

A) its currency's real exchange rate relative to the other country's currency should rise. 
B) its currency should depreciate relative to the other country's currency. 
C) its currency should appreciate relative to the other country's currency. 
D) its nominal interest rate should rise relative to the other country's nominal interest rate. 
A) its currency's real exchange rate relative to the other country's currency should rise. 
B) its currency should depreciate relative to the other country's currency. 
C) its currency should appreciate relative to the other country's currency. 
D) its nominal interest rate should rise relative to the other country's nominal interest rate.

Exam 8: The Foreign-Exchange Market and Exchange Rates

If the price level in Japan increases more rapidly than the price level in Britain, we would expect

If the Japanese yen appreciates against the U.S. dollar,

Most foreign exchange is bought and sold

The law of one price does not hold for

One of the reasons the British pound depreciated against the U.S. dollar during the late 1970s is that

A substantial appreciation of the U.S. dollar will likely result in, all else equal,

If the United States puts a tariff on the import of golf balls,

Under the theory of purchasing power parity, an increase in the U.S. price level of 10% relative to the Japanese price level will result in

Which of the following would cause the nominal exchange rate to depreciate?

Differences in price levels

Nominal exchange rates differ from real exchange rates in that nominal exchange rates

Why were interest rates on U.S. Treasury securities in 1998 at their lowest levels in a generation?

If the rate of growth of U.S. productivity is higher than the rates of growth of productivity in most other countries,

According to the theory of purchasing power parity, if the inflation rate in England is greater than the inflation rate in Japan,

Which of the following expressions gives the expected rate of return on foreign assets in dollar terms?

One of the reasons the dollar appreciated against the British pound during the 1970s and 1980s is that

About what percentage of the goods and services purchased by U.S. consumers, businesses, and governments in 2006 were produced by foreigners?

Which of the following would cause the nominal exchange rate to appreciate?

Because of shifts in preferences for domestic or foreign goods and because of the existence of trade barriers

According to the theory of purchasing power parity, whenever a country's price level is expected to fall relative to another country's price level,

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters