Question 1

What determines an exchange rate in the short run? What determines an exchange rate in the long run? Explain.

Accepted Answer

In the short run, the exchange rate of a

Question 2

An appreciation of a country's currency

Accepted Answer

A) decreases its exports and increases its imports. 
B) increases its imports and decreases its exports. 
C) decreases both its exports and imports. 
D) increases both its exports and imports. 
E) has no effect on its exports or imports. 
A) decreases its exports and increases its imports. 
B) increases its imports and decreases its exports. 
C) decreases both its exports and imports. 
D) increases both its exports and imports. 
E) has no effect on its exports or imports.

Question 3

The central bank for the EMU is

Accepted Answer

A) Bank of England. 
B) the Riksbank. 
C) the Federal Reserve. 
D) European Central Bank. 
E) None of these: The EMU does not have a central bank. 
A) Bank of England. 
B) the Riksbank. 
C) the Federal Reserve. 
D) European Central Bank. 
E) None of these: The EMU does not have a central bank.

Question 4

The European Central Bank's decision to lower interest rates in 2000 and 2001 had no adverse effect the EMU members.

Accepted Answer

A) True 
 B)False

Question 5

All else equal, an increase in the U.S. demand for foreign goods causes an appreciation of the dollar.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is true about exchange rate systems in the world?

Accepted Answer

A) Many European countries have fixed exchange rates with each other. 
B) Most countries in the world have flexible exchange rate systems. 
C) Only developing countries have fixed exchange rates. 
D) The United States has always had a flexible exchange rate system. 
E) The United States has always had a fixed exchange rate system. 
A) Many European countries have fixed exchange rates with each other. 
B) Most countries in the world have flexible exchange rate systems. 
C) Only developing countries have fixed exchange rates. 
D) The United States has always had a flexible exchange rate system. 
E) The United States has always had a fixed exchange rate system.

Question 7

If the exchange rate between the dollar and peso is that $1 equals 5 pesos, then the price of a peso is

Accepted Answer

A) $5. 
B) $0.25. 
C) $0.2. 
D) $2. 
E) $1. 
A) $5. 
B) $0.25. 
C) $0.2. 
D) $2. 
E) $1.

Question 8

Suppose that the exchange rate between the dollar and peso is that $1 equals 10 pesos. If a firm in Mexico purchases $10,000 worth of U.S. cellphones, how many pesos must the firm exchange for?

Accepted Answer

A) 100 pesos. 
B) 1,000 pesos. 
C) 10,000 pesos. 
D) 100,000 pesos. 
E) 1,000,000 pesos. 
A) 100 pesos. 
B) 1,000 pesos. 
C) 10,000 pesos. 
D) 100,000 pesos. 
E) 1,000,000 pesos.

Question 9

The fixing of exchange rates in Europe means that, if Italy experiences an expansion and the others do not,

Accepted Answer

A) Italy will have to drop out of the fixed exchange rate system to regain control over its inflation. 
B) Italy can use fiscal policy but not monetary policy to cool down the economy. 
C) Italy cannot use fiscal or monetary policy to cool down the economy. 
D) Italy can use monetary policy but not fiscal policy to cool down the economy. 
E) inflation will spiral out of control in Italy. 
A) Italy will have to drop out of the fixed exchange rate system to regain control over its inflation. 
B) Italy can use fiscal policy but not monetary policy to cool down the economy. 
C) Italy cannot use fiscal or monetary policy to cool down the economy. 
D) Italy can use monetary policy but not fiscal policy to cool down the economy. 
E) inflation will spiral out of control in Italy.

Question 10

All else equal, an increase in the U.S. interest rate will

Accepted Answer

A) increase the demand for the dollar. 
B) decrease the demand for the dollar. 
C) increase the supply of the dollar. 
D) increase the demand for foreign currencies. 
E) have no effect on either the demand for or supply of currencies. 
A) increase the demand for the dollar. 
B) decrease the demand for the dollar. 
C) increase the supply of the dollar. 
D) increase the demand for foreign currencies. 
E) have no effect on either the demand for or supply of currencies.

Question 11

The East Asian currency crisis of 1997 was a result of

Accepted Answer

A) central banks running out of foreign currency reserves. 
B) central banks keeping large amounts of foreign currency reserves. 
C) central banks cutting interest rates. 
D) East Asian countries growing too rapidly. 
E) a flexible exchange rate policy. 
A) central banks running out of foreign currency reserves. 
B) central banks keeping large amounts of foreign currency reserves. 
C) central banks cutting interest rates. 
D) East Asian countries growing too rapidly. 
E) a flexible exchange rate policy.

Question 12

Some governments have undervalued their currencies in an attempt to

Accepted Answer

A) raise exports. 
B) raise imports. 
C) keep inflation low. 
D) keep interest rates low. 
E) increase domestic consumption. 
A) raise exports. 
B) raise imports. 
C) keep inflation low. 
D) keep interest rates low. 
E) increase domestic consumption.

Question 13

If the value of a currency is believed to have been kept artificially too high, 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 14

"Countries that prefer to follow a specific monetary policy will not find it beneficial to join a currency union." Answer true or false about this statement. Explain.

Accepted Answer

This statement is True
 Joining a curren

Question 15

The theory of purchasing power parity works well if there are more non-tradable goods.

Accepted Answer

A) True 
 B)False

Question 16

All else equal, an appreciation of the U.S. dollar against the euro makes

Accepted Answer

A) both European goods and U.S.goods more expensive in the U.S. 
B) both European goods and U.S.goods cheaper in the U.S. 
C) European goods cheaper in the U.S.and U.S.goods more expensive in Europe. 
D) European goods more expensive in the U.S.and U.S.goods cheaper in Europe. 
E) U.S.goods cheaper in everywhere other than Europe. 
A) both European goods and U.S.goods more expensive in the U.S. 
B) both European goods and U.S.goods cheaper in the U.S. 
C) European goods cheaper in the U.S.and U.S.goods more expensive in Europe. 
D) European goods more expensive in the U.S.and U.S.goods cheaper in Europe. 
E) U.S.goods cheaper in everywhere other than Europe.

Question 17

The theory of purchasing power parity implies that price differentials between two countries do not exist in the long run.

Accepted Answer

A) True 
 B)False

Question 18

If two countries have a fixed exchange rate, they will both have

Accepted Answer

A) lower inflation. 
B) interest rates that move in the same direction. 
C) more stable economies. 
D) fixed interest rates at differential levels. 
E) interest rates that move in the opposite direction. 
A) lower inflation. 
B) interest rates that move in the same direction. 
C) more stable economies. 
D) fixed interest rates at differential levels. 
E) interest rates that move in the opposite direction.

Question 19

One way to increase U.S. net exports is to

Accepted Answer

A) lower the value of the U.S.exchange rate. 
B) raise the value of the U.S.exchange rate. 
C) keep the U.S.exchange rate fixed. 
D) make U.S.exchange rate fluctuate a lot over time. 
E) make sure the U.S.exchange rate appreciate over time. 
A) lower the value of the U.S.exchange rate. 
B) raise the value of the U.S.exchange rate. 
C) keep the U.S.exchange rate fixed. 
D) make U.S.exchange rate fluctuate a lot over time. 
E) make sure the U.S.exchange rate appreciate over time.

Question 20

During the period between 1980 and 2010, a comparison of interest rate differential between the U.S. and the United Kingdom against their exchange rate suggest that

Accepted Answer

A) when the U.S.interest rate was relatively higher, the dollar depreciated. 
B) when the U.S.interest rate was relatively lower, the dollar depreciated. 
C) the interest rate differential and exchange rate are positively related half the time and negatively related the other half of the time. 
D) both the interest rate differential and exchange rate were very steady over the entire period. 
E) there is no relationship between changes in the interest rate differential and the exchange rate. 
A) when the U.S.interest rate was relatively higher, the dollar depreciated. 
B) when the U.S.interest rate was relatively lower, the dollar depreciated. 
C) the interest rate differential and exchange rate are positively related half the time and negatively related the other half of the time. 
D) both the interest rate differential and exchange rate were very steady over the entire period. 
E) there is no relationship between changes in the interest rate differential and the exchange rate.

Exam 30: International Finance

What determines an exchange rate in the short run? What determines an exchange rate in the long run? Explain.

An appreciation of a country's currency

The central bank for the EMU is

The European Central Bank's decision to lower interest rates in 2000 and 2001 had no adverse effect the EMU members.

All else equal, an increase in the U.S. demand for foreign goods causes an appreciation of the dollar.

Which of the following is true about exchange rate systems in the world?

If the exchange rate between the dollar and peso is that $1 equals 5 pesos, then the price of a peso is

Suppose that the exchange rate between the dollar and peso is that $1 equals 10 pesos. If a firm in Mexico purchases $10,000 worth of U.S. cellphones, how many pesos must the firm exchange for?

The fixing of exchange rates in Europe means that, if Italy experiences an expansion and the others do not,

All else equal, an increase in the U.S. interest rate will

The East Asian currency crisis of 1997 was a result of

Some governments have undervalued their currencies in an attempt to

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

"Countries that prefer to follow a specific monetary policy will not find it beneficial to join a currency union." Answer true or false about this statement. Explain.

The theory of purchasing power parity works well if there are more non-tradable goods.

All else equal, an appreciation of the U.S. dollar against the euro makes

The theory of purchasing power parity implies that price differentials between two countries do not exist in the long run.

If two countries have a fixed exchange rate, they will both have

One way to increase U.S. net exports is to

During the period between 1980 and 2010, a comparison of interest rate differential between the U.S. and the United Kingdom against their exchange rate suggest that

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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