Question 1

List the advantages and disadvantages of a flexible exchange rate system.

Accepted Answer

Flexible exchange rates allow orderly incremental adjustments in exchange rates,rather than large jumps (advantage).They allow speculation in currency markets,contributing to volatility in exchange rates and departure of rates from underlying fundamentals (disadvantage).They allow governments flexibility in conducting domestic monetary and fiscal policy (both an advantage and a disadvantage).

Question 2

The actual exchange rate of the real, Brazil's currency, is 2.50 real per U.S. dollar. According to the latest PPP estimations, the real is undervalued by 40 percent. This implies that the PPP exchange rate is:

Accepted Answer

A) 1.20 real per dollar. 
B) 1.40 real per dollar. 
C) 1.50 real per dollar. 
D) 2.00 real per dollar. 
A) 1.20 real per dollar. 
B) 1.40 real per dollar. 
C) 1.50 real per dollar. 
D) 2.00 real per dollar. C

Question 3

Refer to the graph shown. The shift in the graph from D1 to D2 shows how a contractionary U.S. fiscal policy can cause a decrease in:

Accepted Answer

A) prices that raises the dollar's value. 
B) interest rates that reduces the dollar's value. 
C) prices that reduces the dollar's value. 
D) interest rates that raises the dollar's value. 
A) prices that raises the dollar's value. 
B) interest rates that reduces the dollar's value. 
C) prices that reduces the dollar's value. 
D) interest rates that raises the dollar's value. A

Question 4

Considering its effects through income, the price level, and interest rates only, contractionary fiscal policy causes the value of a country's currency to:

Accepted Answer

A) fall. 
B) rise. 
C) remain unchanged. 
D) move unpredictably. 
A) fall. 
B) rise. 
C) remain unchanged. 
D) move unpredictably.

Question 5

If a European billionaire buys stock in General Motors, then the purchase will be recorded in the:

Accepted Answer

A) U.S. current account. 
B) European current account. 
C) European financial and capital account. 
D) U.S. government financial account. 
A) U.S. current account. 
B) European current account. 
C) European financial and capital account. 
D) U.S. government financial account.

Question 6

What are the three pathways through which monetary policy can influence exchange rates?

Accepted Answer

Monetary policy influences exc

Question 7

Refer to the graph shown. An increase in American interest rates would shift:

Accepted Answer

A) D1 right and S1 left, causing an appreciation of the euro. 
B) D1 right and S1 right, causing a depreciation of the euro. 
C) D1 left and S1 left, causing an appreciation of the euro. 
D) D1 left and S1 right, causing a depreciation of the euro. 
A) D1 right and S1 left, causing an appreciation of the euro. 
B) D1 right and S1 right, causing a depreciation of the euro. 
C) D1 left and S1 left, causing an appreciation of the euro. 
D) D1 left and S1 right, causing a depreciation of the euro.

Question 8

How can a country influence its exchange rate through expansionary monetary policy?

Accepted Answer

Monetary policy affects exchange rates i

Question 9

Suppose a McDonald's Big Mac costs 30 pesos in Argentina. At the same time, suppose the exchange rate between the peso and the euro is roughly 15 pesos per euro. According to purchasing power parity, a Big Mac in Europe should cost:

Accepted Answer

A) 0.50 euros. 
B) 2 euros. 
C) 15 euros. 
D) 30 euros. 
A) 0.50 euros. 
B) 2 euros. 
C) 15 euros. 
D) 30 euros.

Question 10

Some economists believe that if Greece had its own currency, it would not have been as vulnerable to a financial crisis as was the case with being in the Eurozone.

Accepted Answer

A) True 
 B)False

Question 11

Because of the European Monetary Union, each EU member is now:

Accepted Answer

A) better able to manage its own economy. 
B) less able to manage its own economy. 
C) less susceptible to external shocks. 
D) less susceptible to internal shocks. 
A) better able to manage its own economy. 
B) less able to manage its own economy. 
C) less susceptible to external shocks. 
D) less susceptible to internal shocks.

Question 12

Contractionary monetary policy tends to:

Accepted Answer

A) lower U.S. prices, make exports more expensive relative to imports, and lower the value of the dollar. 
B) lower U.S. prices, make exports cheaper relative to imports, and raise the value of the dollar. 
C) raise U.S. prices, make exports cheaper relative to imports, and raise the value of the dollar. 
D) raise U.S. prices, make exports more expensive relative to imports, and lower the value of the dollar. 
A) lower U.S. prices, make exports more expensive relative to imports, and lower the value of the dollar. 
B) lower U.S. prices, make exports cheaper relative to imports, and raise the value of the dollar. 
C) raise U.S. prices, make exports cheaper relative to imports, and raise the value of the dollar. 
D) raise U.S. prices, make exports more expensive relative to imports, and lower the value of the dollar.

Question 13

Demonstrate graphically and explain in words the effect of a decrease in demand for Japanese yen on the exchange rate for yens.

Accepted Answer

When the demand for yens decre

Question 14

Fiscal policy affects:

Accepted Answer

A) both the supply and demand for a currency. 
B) the demand for a currency but not the supply. 
C) the supply of a currency but not the demand. 
D) neither the supply of a currency nor the demand. 
A) both the supply and demand for a currency. 
B) the demand for a currency but not the supply. 
C) the supply of a currency but not the demand. 
D) neither the supply of a currency nor the demand.

Question 15

In 2002, the euro replaced the currencies of most of the members of the European Union. The euro has:

Accepted Answer

A) reduced monetary policy flexibility for the individual EU countries. 
B) increased monetary policy flexibility for the individual EU countries. 
C) increased transaction costs among EU countries. 
D) increased macroeconomic independency among EU countries. 
A) reduced monetary policy flexibility for the individual EU countries. 
B) increased monetary policy flexibility for the individual EU countries. 
C) increased transaction costs among EU countries. 
D) increased macroeconomic independency among EU countries.

Question 16

Canadian imports involve an:

Accepted Answer

A) outflow of Canadian dollars from Canada to foreigners. 
B) inflow of Canadian dollars from foreigners to Canada. 
C) outflow of foreign currencies from Canada to foreigners. 
D) inflow of foreign currencies from foreigners to Canada. 
A) outflow of Canadian dollars from Canada to foreigners. 
B) inflow of Canadian dollars from foreigners to Canada. 
C) outflow of foreign currencies from Canada to foreigners. 
D) inflow of foreign currencies from foreigners to Canada.

Question 17

(a)Why is the supply of dollars upward sloping? Why is the demand for dollars downward sloping?
(b)Given the private supply and demand for the dollar shown below,if the government wants to keep the exchange rate value of the dollar at P0 by intervening in the exchange market,what must it do?
(c)How does this action show up on the balance of payments account?
(d)At an exchange rate of P0,does the country have a private balance of payments surplus or deficit? Or is it in balance?

Accepted Answer

(a)The supply of dollars is determined b

Question 18

Suppose the market for Japanese yen is as illustrated in the following supply and demand diagram:   If the private market price is P1 but the government wants to facilitate exports by having a price of P0,what can it do?

Accepted Answer

To maintain the price of yen a

Question 19

What is a fixed exchange rate policy? What must the government do to fix its exchange rate?

Accepted Answer

A fixed exchange rate policy is the poli

Question 20

In the balance of payments account, imports and exports are listed as part of:

Accepted Answer

A) the current account. 
B) the financial and capital account. 
C) the statistical discrepancy. 
D) net transfers. 
A) the current account. 
B) the financial and capital account. 
C) the statistical discrepancy. 
D) net transfers.

Exam 35: International Financial Policy

List the advantages and disadvantages of a flexible exchange rate system.

The actual exchange rate of the real, Brazil's currency, is 2.50 real per U.S. dollar. According to the latest PPP estimations, the real is undervalued by 40 percent. This implies that the PPP exchange rate is:

Refer to the graph shown. The shift in the graph from D1 to D2 shows how a contractionary U.S. fiscal policy can cause a decrease in:

Considering its effects through income, the price level, and interest rates only, contractionary fiscal policy causes the value of a country's currency to:

If a European billionaire buys stock in General Motors, then the purchase will be recorded in the:

What are the three pathways through which monetary policy can influence exchange rates?

Refer to the graph shown. An increase in American interest rates would shift:

How can a country influence its exchange rate through expansionary monetary policy?

Suppose a McDonald's Big Mac costs 30 pesos in Argentina. At the same time, suppose the exchange rate between the peso and the euro is roughly 15 pesos per euro. According to purchasing power parity, a Big Mac in Europe should cost:

Some economists believe that if Greece had its own currency, it would not have been as vulnerable to a financial crisis as was the case with being in the Eurozone.

Because of the European Monetary Union, each EU member is now:

Contractionary monetary policy tends to:

Demonstrate graphically and explain in words the effect of a decrease in demand for Japanese yen on the exchange rate for yens.

Fiscal policy affects:

In 2002, the euro replaced the currencies of most of the members of the European Union. The euro has:

Canadian imports involve an:

Suppose the market for Japanese yen is as illustrated in the following supply and demand diagram: If the private market price is P1 but the government wants to facilitate exports by having a price of P0,what can it do?

What is a fixed exchange rate policy? What must the government do to fix its exchange rate?

In the balance of payments account, imports and exports are listed as part of:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

Filters

Suppose the market for Japanese yen is as illustrated in the following supply and demand diagram: If the private market price is P₁ but the government wants to facilitate exports by having a price of P₀,what can it do?