Question 1

Explain what is meant by purchasing power parity.

Accepted Answer

Purchasing power parity assumes that exc

Question 2

An excess supply of dollars will cause an appreciation of the pound relative to the dollar.

Accepted Answer

A) True 
 B)False

Question 3

Fixed exchange rates facilitate international transactions.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is an item in the U.S. current account?

Accepted Answer

A)  net investment income 
B)  the change in foreign private assets held in the United States 
C)  the change in foreign government assets held in the United States 
D)  the change in private U.S. assets held abroad 
A)  net investment income 
B)  the change in foreign private assets held in the United States 
C)  the change in foreign government assets held in the United States 
D)  the change in private U.S. assets held abroad

Question 5

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

Accepted Answer

A)  depreciation of the dollar and a depreciation of the British pound. 
B)  appreciation of the dollar and an appreciation of the British pound. 
C)  appreciation of the dollar and a depreciation of the British pound. 
D)  depreciation of the dollar and an appreciation of the British pound. 
A)  depreciation of the dollar and a depreciation of the British pound. 
B)  appreciation of the dollar and an appreciation of the British pound. 
C)  appreciation of the dollar and a depreciation of the British pound. 
D)  depreciation of the dollar and an appreciation of the British pound.

Question 6

Recall Application 4, "The Argentine Financial Crisis," to answer the question below:
-The Argentine economy suffered a depression after the financial crisis in 2002 because:

Accepted Answer

A)  imports increased. 
B)  the freeze in bank accounts caused a sharp increase in wealth. 
C)  the freeze in bank accounts caused a sharp decrease in wealth. 
D)  imports decreased. 
A)  imports increased. 
B)  the freeze in bank accounts caused a sharp increase in wealth. 
C)  the freeze in bank accounts caused a sharp decrease in wealth. 
D)  imports decreased.

Question 7

One benefit of flexible exchange rates is that flexible exchange rates are

Accepted Answer

A)  making international transactions easier and cheaper. 
B)  under the full control of the government. 
C)  changing as the price levels and interest rates between countries change. 
D)  very volatile. 
A)  making international transactions easier and cheaper. 
B)  under the full control of the government. 
C)  changing as the price levels and interest rates between countries change. 
D)  very volatile.

Question 8

The Mexican financial crisis of 1994 was not caused by:

Accepted Answer

A)  the rising Mexican inflation rate. 
B)  the country experiencing increasingly larger trade deficits. 
C)  a loss of confidence in the economy which resulted in massive selling of pesos. 
D)  improved tourism from the U.S. to Mexico. 
A)  the rising Mexican inflation rate. 
B)  the country experiencing increasingly larger trade deficits. 
C)  a loss of confidence in the economy which resulted in massive selling of pesos. 
D)  improved tourism from the U.S. to Mexico.

Question 9

Figure 19.1
-Refer to Figure 19.1. The yen is currently at Point A. A depreciation of the yen causes a movement to Point _______.

Accepted Answer

A)  D 
B)  E 
C)  C 
D)  B 
A)  D 
B)  E 
C)  C 
D)  B

Question 10

The exchange rate is the rate at which one currency can be traded for another.

Accepted Answer

A) True 
 B)False

Question 11

The theory of international exchange that holds that exchange rates are set so that the price of similar goods in different countries is the same as:

Accepted Answer

A)  price- feedback. 
B)  trade- feedback. 
C)  purchasing power parity. 
D)  the J- curve theory. 
A)  price- feedback. 
B)  trade- feedback. 
C)  purchasing power parity. 
D)  the J- curve theory.

Question 12

The _______ states that goods that are easily tradable across two countries should sell at the same price, expressed in a common currency.

Accepted Answer

A)  trade feedback effect 
B)  price feedback effect 
C)  law of one price 
D)  balance of trade effect 
A)  trade feedback effect 
B)  price feedback effect 
C)  law of one price 
D)  balance of trade effect

Question 13

How do the nominal exchange rate and the real exchange rate differ?

Accepted Answer

The nominal exchange rate is the rate at

Question 14

Which of the following units of measurement would be appropriate for a real exchange rate?

Accepted Answer

A)  10 percent per year 
B)  3 bushels of Mexican corn per bushel of U.S. corn 
C)  150 yen per U.S. dollar 
D)  1 Mexican T- shirt per $5 
A)  10 percent per year 
B)  3 bushels of Mexican corn per bushel of U.S. corn 
C)  150 yen per U.S. dollar 
D)  1 Mexican T- shirt per $5

Question 15

Identify whether each of the following would lead to an appreciation or depreciation of the dollar. In each case, explain why the currency either appreciates or depreciates.
(a) U.S. citizens switch from buying stock in British companies to buying stock in U.S. companies.
(b) The inflation rate in the United States increases relative to the inflation rate in England.
(c) The money supply is increased in the United States.

Accepted Answer

(a) This causes the supply of dollars to

Question 16

An increase in U.S. imports from Mexico _______ the supply of dollars and _______ the demand for pesos.

Accepted Answer

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

Question 17

What was the U.S. response to the Mexican currency crisis of 1994?

Accepted Answer

A)  The U.S., along with other international agencies , arranged for Mexico to borrow dollars with an extended repayment period. 
B)  The U.S. converted the Mexican peso into US dollars to shield itself from the currency crisis. 
C)  The U.S. did not do anything, and allowed the Mexican economy to collapse. 
D)  The U.S. bought a lot of Mexican- made goods to increase Mexico's net exports. 
A)  The U.S., along with other international agencies , arranged for Mexico to borrow dollars with an extended repayment period. 
B)  The U.S. converted the Mexican peso into US dollars to shield itself from the currency crisis. 
C)  The U.S. did not do anything, and allowed the Mexican economy to collapse. 
D)  The U.S. bought a lot of Mexican- made goods to increase Mexico's net exports.

Question 18

There is an exchange rate between any two countries that use different currencies.

Accepted Answer

A) True 
 B)False

Question 19

Explain what effect an increase in the U.S. price level have on the U.S. dollar- Japanese yen exchange rate. Make sure you identify which currency appreciates.

Accepted Answer

When the U.S. price increases, the deman

Question 20

If the income from investments by Americans abroad is less than the income from investments by non- Americans in the U.S. , then net income from abroad is:

Accepted Answer

A)  zero. 
B)  decreasing. 
C)  positive. 
D)  negative. 
A)  zero. 
B)  decreasing. 
C)  positive. 
D)  negative.

Explain what is meant by purchasing power parity.

An excess supply of dollars will cause an appreciation of the pound relative to the dollar.

Fixed exchange rates facilitate international transactions.

Which of the following is an item in the U.S. current account?

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

Recall Application 4, "The Argentine Financial Crisis," to answer the question below: -The Argentine economy suffered a depression after the financial crisis in 2002 because:

One benefit of flexible exchange rates is that flexible exchange rates are

The Mexican financial crisis of 1994 was not caused by:

Figure 19.1 -Refer to Figure 19.1. The yen is currently at Point A. A depreciation of the yen causes a movement to Point _______.

The exchange rate is the rate at which one currency can be traded for another.

The theory of international exchange that holds that exchange rates are set so that the price of similar goods in different countries is the same as:

The _______ states that goods that are easily tradable across two countries should sell at the same price, expressed in a common currency.

How do the nominal exchange rate and the real exchange rate differ?

Which of the following units of measurement would be appropriate for a real exchange rate?

An increase in U.S. imports from Mexico _ the supply of dollars and _ the demand for pesos.

What was the U.S. response to the Mexican currency crisis of 1994?

There is an exchange rate between any two countries that use different currencies.

Explain what effect an increase in the U.S. price level have on the U.S. dollar- Japanese yen exchange rate. Make sure you identify which currency appreciates.

If the income from investments by Americans abroad is less than the income from investments by non- Americans in the U.S. , then net income from abroad is:

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

Explain what is meant by purchasing power parity.

An excess supply of dollars will cause an appreciation of the pound relative to the dollar.

Fixed exchange rates facilitate international transactions.

Which of the following is an item in the U.S. current account?

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

Recall Application 4, "The Argentine Financial Crisis," to answer the question below: -The Argentine economy suffered a depression after the financial crisis in 2002 because:

One benefit of flexible exchange rates is that flexible exchange rates are

The Mexican financial crisis of 1994 was not caused by:

Figure 19.1 -Refer to Figure 19.1. The yen is currently at Point A. A depreciation of the yen causes a movement to Point _______.

The exchange rate is the rate at which one currency can be traded for another.

The theory of international exchange that holds that exchange rates are set so that the price of similar goods in different countries is the same as:

The _______ states that goods that are easily tradable across two countries should sell at the same price, expressed in a common currency.

How do the nominal exchange rate and the real exchange rate differ?

Which of the following units of measurement would be appropriate for a real exchange rate?

An increase in U.S. imports from Mexico _______ the supply of dollars and _______ the demand for pesos.

What was the U.S. response to the Mexican currency crisis of 1994?

There is an exchange rate between any two countries that use different currencies.

Explain what effect an increase in the U.S. price level have on the U.S. dollar- Japanese yen exchange rate. Make sure you identify which currency appreciates.

If the income from investments by Americans abroad is less than the income from investments by non- Americans in the U.S. , then net income from abroad is:

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

An increase in U.S. imports from Mexico _ the supply of dollars and _ the demand for pesos.