Question 1

The data for the inflation rates and currency exchange rates of the United States, Japan and Brazil over the period 1980-2010 confirm that

Accepted Answer

A) the U.S.dollar appreciated against the currency of a country with a relatively lower inflation rate. 
B) the U.S.dollar appreciated against the currency of a country with a relatively higher inflation rate. 
C) the U.S.dollar appreciated regardless of the inflation rates in other countries. 
D) the U.S.dollar depreciated regardless of the inflation rates in other countries. 
E) the U.S.dollar was fixed. 
A) the U.S.dollar appreciated against the currency of a country with a relatively lower inflation rate. 
B) the U.S.dollar appreciated against the currency of a country with a relatively higher inflation rate. 
C) the U.S.dollar appreciated regardless of the inflation rates in other countries. 
D) the U.S.dollar depreciated regardless of the inflation rates in other countries. 
E) the U.S.dollar was fixed.

Question 2

All else equal, a depreciation of the U.S. dollar relative to the euro will

Accepted Answer

A) decrease the prices of U.S.-made goods in the United States. 
B) increase U.S.imports from France. 
C) decrease U.S.exports to France. 
D) increase U.S.exports to France. 
E) increase the prices of French-made goods in France. 
A) decrease the prices of U.S.-made goods in the United States. 
B) increase U.S.imports from France. 
C) decrease U.S.exports to France. 
D) increase U.S.exports to France. 
E) increase the prices of French-made goods in France.

Question 3

Why does the demand curve for the dollar slope down? Why does the supply curve of the dollar slope up?

Accepted Answer

The demand for the dollar comes from the

Question 4

An appreciation of a currency occurs when the value of that currency increases.

Accepted Answer

A) True 
 B)False

Question 5

Countries are motivated to pursue fixed exchange rate policies in order

Accepted Answer

A) to allow their central banks to pursue an independent monetary policy. 
B) to have an independent fiscal policy. 
C) to limit the use of countercyclical fiscal policy. 
D) to reduce exchange rate volatility. 
E) raise tariff revenue from importing foreign goods. 
A) to allow their central banks to pursue an independent monetary policy. 
B) to have an independent fiscal policy. 
C) to limit the use of countercyclical fiscal policy. 
D) to reduce exchange rate volatility. 
E) raise tariff revenue from importing foreign goods.

Question 6

The convergence criteria for joining the EMU include all the following except

Accepted Answer

A) inflation at a given low rate. 
B) the long-term interest rate at a given low rate. 
C) a budget deficit not exceeding 3 percent of GDP. 
D) government debt not exceeding 60 percent of GDP. 
E) an annual growth rate of real GDP per capita higher than 5 percent. 
A) inflation at a given low rate. 
B) the long-term interest rate at a given low rate. 
C) a budget deficit not exceeding 3 percent of GDP. 
D) government debt not exceeding 60 percent of GDP. 
E) an annual growth rate of real GDP per capita higher than 5 percent.

Question 7

The fixing of exchange rates in Europe means that

Accepted Answer

A) each country no longer has control over its monetary policy. 
B) when one country is in a recession they will all be in a recession. 
C) each country no longer needs a central bank. 
D) each country no longer has control over its monetary or fiscal policy. 
E) inflation will be higher in Europe. 
A) each country no longer has control over its monetary policy. 
B) when one country is in a recession they will all be in a recession. 
C) each country no longer needs a central bank. 
D) each country no longer has control over its monetary or fiscal policy. 
E) inflation will be higher in Europe.

Question 8

A flexible exchange rate policy

Accepted Answer

A) is one in which the central bank has flexibility in determining exchange rates. 
B) has not been used in the United States since the Great Depression. 
C) is one in which the exchange rate is determined in the foreign exchange market. 
D) gives the president the power to determine exchange rates when negotiating free trade agreements with other countries. 
E) has been adopted universally throughout the world economy. 
A) is one in which the central bank has flexibility in determining exchange rates. 
B) has not been used in the United States since the Great Depression. 
C) is one in which the exchange rate is determined in the foreign exchange market. 
D) gives the president the power to determine exchange rates when negotiating free trade agreements with other countries. 
E) has been adopted universally throughout the world economy.

Question 9

If the value of a currency is believed to have been kept artificially too low, the currency is considered to be

Accepted Answer

A) overvalued. 
B) undervalued. 
C) at par. 
D) appreciated. 
E) depreciated. 
A) overvalued. 
B) undervalued. 
C) at par. 
D) appreciated. 
E) depreciated.

Question 10

According to the textbook, foreign exchange rates during the period 1980-2010

Accepted Answer

A) support the purchasing power parity theory with evidence that a country with relatively high inflation experienced an depreciation of its currency exchange rate. 
B) reject the purchasing power parity theory with evidence that a country with relatively high inflation experienced a depreciation of its currency exchange rate. 
C) support the purchasing power parity theory with evidence that a country with relatively high inflation experienced a depreciation of its currency exchange rate. 
D) reject the purchasing power parity theory with evidence that a country with relatively high inflation experienced an appreciation of its currency exchange rate. 
E) does not support or reject the purchasing power parity theory because there is no evidence of any relationship between a country's inflation and its currency exchange rate. 
A) support the purchasing power parity theory with evidence that a country with relatively high inflation experienced an depreciation of its currency exchange rate. 
B) reject the purchasing power parity theory with evidence that a country with relatively high inflation experienced a depreciation of its currency exchange rate. 
C) support the purchasing power parity theory with evidence that a country with relatively high inflation experienced a depreciation of its currency exchange rate. 
D) reject the purchasing power parity theory with evidence that a country with relatively high inflation experienced an appreciation of its currency exchange rate. 
E) does not support or reject the purchasing power parity theory because there is no evidence of any relationship between a country's inflation and its currency exchange rate.

Question 11

Undervaluation of a currency helps exporters sell more goods to foreign buyers.

Accepted Answer

A) True 
 B)False

Question 12

The Bretton-Woods system is an example of a fixed exchange rate system.

Accepted Answer

A) True 
 B)False

Question 13

The effect of an increase in a country's inflation on its net exports is equivalent to

Accepted Answer

A) a depreciation of its currency. 
B) an appreciation of its currency. 
C) an increase in the prices of its imports. 
D) a decrease in the prices of its exports. 
E) a decrease in the price of its currency in term of a foreign currency. 
A) a depreciation of its currency. 
B) an appreciation of its currency. 
C) an increase in the prices of its imports. 
D) a decrease in the prices of its exports. 
E) a decrease in the price of its currency in term of a foreign currency.

Question 14

Name two reasons why a country would want to fix its exchange rate.

Accepted Answer

To reduce exchange rate fluctuations and

Question 15

According to the theory of purchasing power parity, if the domestic country's inflation rate decreases while the inflation rates in other countries remain unchanged, then

Accepted Answer

A) the domestic currency will appreciate over time. 
B) the domestic currency will depreciate over time. 
C) the exchange rate of the domestic currency will remain unchanged but the exchange rates of other currencies will appreciate. 
D) the exchange rate of the domestic currency will fluctuate over time. 
E) nothing will occur because of the law of one price. 
A) the domestic currency will appreciate over time. 
B) the domestic currency will depreciate over time. 
C) the exchange rate of the domestic currency will remain unchanged but the exchange rates of other currencies will appreciate. 
D) the exchange rate of the domestic currency will fluctuate over time. 
E) nothing will occur because of the law of one price.

Question 16

Explain why a country will lose control over its monetary policy if it fixes its exchange rate to the euro.

Accepted Answer

If a country fixes its exchange rate to

Question 17

Purchasing power parity is ally the same as

Accepted Answer

A) the law of no price. 
B) the law of one price. 
C) the law of price differentials. 
D) the law of no exchange rate movements. 
E) the law of short-run exchange rate determination. 
A) the law of no price. 
B) the law of one price. 
C) the law of price differentials. 
D) the law of no exchange rate movements. 
E) the law of short-run exchange rate determination.

Question 18

Currency overvaluation benefits domestic producers that exports goods to other countries.

Accepted Answer

A) True 
 B)False

Question 19

Interest rate differentials explain exchange rate movements in the long run.

Accepted Answer

A) True 
 B)False

Question 20

An advantage of being part of a currency union is forced monetary discipline.

Accepted Answer

A) True 
 B)False

Exam 30: International Finance

The data for the inflation rates and currency exchange rates of the United States, Japan and Brazil over the period 1980-2010 confirm that

All else equal, a depreciation of the U.S. dollar relative to the euro will

Why does the demand curve for the dollar slope down? Why does the supply curve of the dollar slope up?

An appreciation of a currency occurs when the value of that currency increases.

Countries are motivated to pursue fixed exchange rate policies in order

The convergence criteria for joining the EMU include all the following except

The fixing of exchange rates in Europe means that

A flexible exchange rate policy

If the value of a currency is believed to have been kept artificially too low, the currency is considered to be

According to the textbook, foreign exchange rates during the period 1980-2010

Undervaluation of a currency helps exporters sell more goods to foreign buyers.

The Bretton-Woods system is an example of a fixed exchange rate system.

The effect of an increase in a country's inflation on its net exports is equivalent to

Name two reasons why a country would want to fix its exchange rate.

According to the theory of purchasing power parity, if the domestic country's inflation rate decreases while the inflation rates in other countries remain unchanged, then

Explain why a country will lose control over its monetary policy if it fixes its exchange rate to the euro.

Purchasing power parity is ally the same as

Currency overvaluation benefits domestic producers that exports goods to other countries.

Interest rate differentials explain exchange rate movements in the long run.

An advantage of being part of a currency union is forced monetary discipline.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

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