Question 1

The law of one price indicates that the:

Accepted Answer

A)  prices will adjust so that the price of similar goods in different countries is the same. 
B)  exchange rate will always exceed 1. 
C)  exchange rate will always equal 1. 
D)  interest rate on domestic and foreign bonds must be the same. 
A)  prices will adjust so that the price of similar goods in different countries is the same. 
B)  exchange rate will always exceed 1. 
C)  exchange rate will always equal 1. 
D)  interest rate on domestic and foreign bonds must be the same. A

Question 2

If the U.S. sends food aid to Zimbabwe to help the thousands who are dying from hunger, then the value of the aid is entered as a _______ in the U.S. _______ account.

Accepted Answer

A)  negative; financial account 
B)  positive; current account 
C)  negative capital account 
D)  negative; current account 
A)  negative; financial account 
B)  positive; current account 
C)  negative capital account 
D)  negative; current account B

Question 3

Recall Application 4, "The Argentine Financial Crisis," to answer the question below:
-According to the application, the exchange rate system that Argentina had between the 1980s and 2002 was a:

Accepted Answer

A)  floating exchange rate with the Brazilian real. 
B)  fixed exchange rate with the U.S. dollar. 
C)  fixed exchange rate with the Mexican peso. 
D)  floating exchange rate with the British pound. 
A)  floating exchange rate with the Brazilian real. 
B)  fixed exchange rate with the U.S. dollar. 
C)  fixed exchange rate with the Mexican peso. 
D)  floating exchange rate with the British pound. B

Question 4

Since reaching a high in July 2008, the price of oil has been fluctuating at lower prices worldwide. Based on the argument provided in the Application, how will this drop in the price of oil affect the amount of international investment made by Russia.

Accepted Answer

A)  It will experience unpredictable increases and decreases. 
B)  It will probably increase. 
C)  It will probably decrease. 
D)  It will probably stay the same. 
A)  It will experience unpredictable increases and decreases. 
B)  It will probably increase. 
C)  It will probably decrease. 
D)  It will probably stay the same.

Question 5

If an individual in Germany must make transactions with firms in the U.S. , he must first:

Accepted Answer

A)  convert his U.S. dollars to euros. 
B)  convert his euros into U.S. dollars. 
C)  A and B are correct. 
D)  neither A nor B is correct. 
A)  convert his U.S. dollars to euros. 
B)  convert his euros into U.S. dollars. 
C)  A and B are correct. 
D)  neither A nor B is correct.

Question 6

Explain what effect a reduction in the U.S. interest rate would have on the exchange rate.

Accepted Answer

A reduction in the domestic interest rat

Question 7

The Bretton Woods exchange rate system was

Accepted Answer

A)  a floating exchange rate system. 
B)  a single currency system. 
C)  a fixed exchange rate system. 
D)  both a fixed and a flexible exchange rate system. 
A)  a floating exchange rate system. 
B)  a single currency system. 
C)  a fixed exchange rate system. 
D)  both a fixed and a flexible exchange rate system.

Question 8

Purchasing power parity suggests that exchange rates are set so that the price of similar goods in different countries reflects the relative interest rates in those countries.

Accepted Answer

A) True 
 B)False

Question 9

The price of one country's currency in terms of another country's currency is the:

Accepted Answer

A)  terms of trade. 
B)  balance of trade. 
C)  comparative advantage. 
D)  exchange rate. 
A)  terms of trade. 
B)  balance of trade. 
C)  comparative advantage. 
D)  exchange rate.

Question 10

An increase in the price level in the United States relative to the price level in Mexico will cause an appreciation of the dollar against the peso.

Accepted Answer

A) True 
 B)False

Question 11

What is the multilateral real exchange rate? What is the effect in the U.S. of an increase in its multilateral real exchange rate?

Accepted Answer

The multilateral real exchange rate is a

Question 12

An increase in U.S. exports to Russia _______ the demand for U.S. dollars and _______ the supply of Russian rubles.

Accepted Answer

A)  decreases; increases 
B)  increases; decreases 
C)  decreases; decreases 
D)  increases; increases 
A)  decreases; increases 
B)  increases; decreases 
C)  decreases; decreases 
D)  increases; increases

Question 13

A U.S. individual buys shares in a Swiss company. This transaction will be entered as:

Accepted Answer

A)  a negative in the U.S. current account. 
B)  a negative in the U.S. financial account. 
C)  a positive in the U.S. current account. 
D)  a positive in the U.S. capital account. 
A)  a negative in the U.S. current account. 
B)  a negative in the U.S. financial account. 
C)  a positive in the U.S. current account. 
D)  a positive in the U.S. capital account.

Question 14

As U.S. interest rates fall relative to British interest rates:

Accepted Answer

A)  U.S. citizens holding dollars will be attracted into British securities market. 
B)  the supply of pounds shifts to the right if British citizens buy bonds in the United States. 
C)  British buyers must exchange pounds for dollars to buy bonds in Britain. 
D)  the result will be a depreciated pound and a stronger dollar. 
A)  U.S. citizens holding dollars will be attracted into British securities market. 
B)  the supply of pounds shifts to the right if British citizens buy bonds in the United States. 
C)  British buyers must exchange pounds for dollars to buy bonds in Britain. 
D)  the result will be a depreciated pound and a stronger dollar.

Question 15

When people in in France and Germany buy from and sell to each other, an exchange of currencies must also take place.

Accepted Answer

A) True 
 B)False

Question 16

The U.S. balance of payments records all transactions involving

Accepted Answer

A)  the U.S. and a U.S. territory. 
B)  the U.S. and the rest of the world. 
C)  the U.S. federal government and a state government. 
D)  the U.S. and countries that also use the U.S. dollar as their currency. 
A)  the U.S. and a U.S. territory. 
B)  the U.S. and the rest of the world. 
C)  the U.S. federal government and a state government. 
D)  the U.S. and countries that also use the U.S. dollar as their currency.

Question 17

There is a general tendency for the currencies of relatively high- inflation countries to appreciate.

Accepted Answer

A) True 
 B)False

Question 18

An increase in the U.S. interest rate relative to the British interest rate will cause a(n):

Accepted Answer

A)  increase in demand for dollars and an increase in the demand for British pounds. 
B)  decrease in demand for dollars and an increase in the supply of British pounds. 
C)  increase in demand for dollars and a reduction in the supply of British pounds. 
D)  increase in demand for dollars and an increase in the supply of British pounds. 
A)  increase in demand for dollars and an increase in the demand for British pounds. 
B)  decrease in demand for dollars and an increase in the supply of British pounds. 
C)  increase in demand for dollars and a reduction in the supply of British pounds. 
D)  increase in demand for dollars and an increase in the supply of British pounds.

Question 19

When a country experiences a balance of payments surplus in a fixed exchange rate system, it usually _______ the currency to reduce exports.

Accepted Answer

A)  tries to hold constant the value of 
B)  abandons 
C)  allows the revaluation of 
D)  allows the devaluation of 
A)  tries to hold constant the value of 
B)  abandons 
C)  allows the revaluation of 
D)  allows the devaluation of

Question 20

An Italian citizen buys a U.S. bond. This transaction will be entered as:

Accepted Answer

A)  a negative in the U.S. current account. 
B)  a positive in the U.S. current account. 
C)  a positive in the U.S. financial account. 
D)  a positive in the U.S. capital account. 
A)  a negative in the U.S. current account. 
B)  a positive in the U.S. current account. 
C)  a positive in the U.S. financial account. 
D)  a positive in the U.S. capital account.

The law of one price indicates that the:

If the U.S. sends food aid to Zimbabwe to help the thousands who are dying from hunger, then the value of the aid is entered as a _ in the U.S. _ account.

Recall Application 4, "The Argentine Financial Crisis," to answer the question below: -According to the application, the exchange rate system that Argentina had between the 1980s and 2002 was a:

Since reaching a high in July 2008, the price of oil has been fluctuating at lower prices worldwide. Based on the argument provided in the Application, how will this drop in the price of oil affect the amount of international investment made by Russia.

If an individual in Germany must make transactions with firms in the U.S. , he must first:

Explain what effect a reduction in the U.S. interest rate would have on the exchange rate.

The Bretton Woods exchange rate system was

Purchasing power parity suggests that exchange rates are set so that the price of similar goods in different countries reflects the relative interest rates in those countries.

The price of one country's currency in terms of another country's currency is the:

An increase in the price level in the United States relative to the price level in Mexico will cause an appreciation of the dollar against the peso.

What is the multilateral real exchange rate? What is the effect in the U.S. of an increase in its multilateral real exchange rate?

An increase in U.S. exports to Russia _ the demand for U.S. dollars and _ the supply of Russian rubles.

A U.S. individual buys shares in a Swiss company. This transaction will be entered as:

As U.S. interest rates fall relative to British interest rates:

When people in in France and Germany buy from and sell to each other, an exchange of currencies must also take place.

The U.S. balance of payments records all transactions involving

There is a general tendency for the currencies of relatively high- inflation countries to appreciate.

An increase in the U.S. interest rate relative to the British interest rate will cause a(n):

When a country experiences a balance of payments surplus in a fixed exchange rate system, it usually _______ the currency to reduce exports.

An Italian citizen buys a U.S. bond. This transaction will be entered as:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

Filters

Exam 19: The World of International Finance

The law of one price indicates that the:

If the U.S. sends food aid to Zimbabwe to help the thousands who are dying from hunger, then the value of the aid is entered as a _______ in the U.S. _______ account.

Recall Application 4, "The Argentine Financial Crisis," to answer the question below: -According to the application, the exchange rate system that Argentina had between the 1980s and 2002 was a:

Since reaching a high in July 2008, the price of oil has been fluctuating at lower prices worldwide. Based on the argument provided in the Application, how will this drop in the price of oil affect the amount of international investment made by Russia.

If an individual in Germany must make transactions with firms in the U.S. , he must first:

Explain what effect a reduction in the U.S. interest rate would have on the exchange rate.

The Bretton Woods exchange rate system was

Purchasing power parity suggests that exchange rates are set so that the price of similar goods in different countries reflects the relative interest rates in those countries.

The price of one country's currency in terms of another country's currency is the:

An increase in the price level in the United States relative to the price level in Mexico will cause an appreciation of the dollar against the peso.

What is the multilateral real exchange rate? What is the effect in the U.S. of an increase in its multilateral real exchange rate?

An increase in U.S. exports to Russia _______ the demand for U.S. dollars and _______ the supply of Russian rubles.

A U.S. individual buys shares in a Swiss company. This transaction will be entered as:

As U.S. interest rates fall relative to British interest rates:

When people in in France and Germany buy from and sell to each other, an exchange of currencies must also take place.

The U.S. balance of payments records all transactions involving

There is a general tendency for the currencies of relatively high- inflation countries to appreciate.

An increase in the U.S. interest rate relative to the British interest rate will cause a(n):

When a country experiences a balance of payments surplus in a fixed exchange rate system, it usually _______ the currency to reduce exports.

An Italian citizen buys a U.S. bond. This transaction will be entered as:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

Filters

If the U.S. sends food aid to Zimbabwe to help the thousands who are dying from hunger, then the value of the aid is entered as a _ in the U.S. _ account.

An increase in U.S. exports to Russia _ the demand for U.S. dollars and _ the supply of Russian rubles.