Question 1

Explain the effect of an expansionary fiscal policy on the exchange rate of the U.S.dollar through the price path.

Accepted Answer

Expansionary fiscal policy increase aggr

Question 2

Refer to the graph shown. An exchange rate of $2.95 per dinar creates excess:

Accepted Answer

A) supply of dinar that will cause the dinar to lose value, unless dinar are sold by the government. 
B) supply of dinar that will cause the dinar to lose value, unless dinar are bought by the government. 
C) demand for dinar that will cause the dinar to gain value, unless dinar are sold by the government. 
D) supply of dinar that will cause the dinar to gain value, unless dinar are bought by the government. 
A) supply of dinar that will cause the dinar to lose value, unless dinar are sold by the government. 
B) supply of dinar that will cause the dinar to lose value, unless dinar are bought by the government. 
C) demand for dinar that will cause the dinar to gain value, unless dinar are sold by the government. 
D) supply of dinar that will cause the dinar to gain value, unless dinar are bought by the government.

Question 3

If a basket of goods costs 10 dollars in the United States and 11 euros in Belgium, then purchasing power parity will exist if the exchange rate between the euro and the dollar is:

Accepted Answer

A) 11 euros per dollar. 
B) 10 dollars per euro. 
C) 1.1 euros per dollar. 
D) 1.1 dollars per euro. 
A) 11 euros per dollar. 
B) 10 dollars per euro. 
C) 1.1 euros per dollar. 
D) 1.1 dollars per euro.

Question 4

When the euro appreciated significantly against the U.S. dollar, European policymakers were concerned.To stop the appreciation of the euro, the European Central Bank could have adopted a macroeconomic policy that:

Accepted Answer

A) reduced both the supply and demand for euros. 
B) reduced the supply of euros but increased the demand. 
C) increased both the supply and the demand for euros. 
D) reduced the demand for euros but increased the supply. 
A) reduced both the supply and demand for euros. 
B) reduced the supply of euros but increased the demand. 
C) increased both the supply and the demand for euros. 
D) reduced the demand for euros but increased the supply.

Question 5

Which of the following is a disadvantage of the European Monetary Union to member countries?

Accepted Answer

A) Greater clout for European consumers 
B) Loss of some national identity 
C) Greater price transparency 
D) The expected creation of new reserve currency, the euro 
A) Greater clout for European consumers 
B) Loss of some national identity 
C) Greater price transparency 
D) The expected creation of new reserve currency, the euro

Question 6

Contractionary monetary policy tends to:

Accepted Answer

A) reduce the interest rate, reduce capital inflows, and lower the value of the dollar. 
B) reduce the interest rate, increase capital inflows, and lower the value of the dollar. 
C) raise the interest rate, reduce capital inflows, and raise the value of the dollar. 
D) raise the interest rate, raise capital inflows, and raise the value of the dollar. 
A) reduce the interest rate, reduce capital inflows, and lower the value of the dollar. 
B) reduce the interest rate, increase capital inflows, and lower the value of the dollar. 
C) raise the interest rate, reduce capital inflows, and raise the value of the dollar. 
D) raise the interest rate, raise capital inflows, and raise the value of the dollar.

Question 7

The Bretton Woods system:

Accepted Answer

A) established the rules of the game of the gold standard. 
B) committed the participating countries to a system of floating exchange rates. 
C) committed the participating countries to a system of fixed exchange rates. 
D) was set up as a result of the U.S. balance of payments crisis in the early 1970s. 
A) established the rules of the game of the gold standard. 
B) committed the participating countries to a system of floating exchange rates. 
C) committed the participating countries to a system of fixed exchange rates. 
D) was set up as a result of the U.S. balance of payments crisis in the early 1970s.

Question 8

The Bretton Woods system is best described as a:

Accepted Answer

A) pure floating exchange rate system. 
B) partially-flexible exchange rate system or "dirty float." 
C) pure gold standard system. 
D) fixed exchange rate system. 
A) pure floating exchange rate system. 
B) partially-flexible exchange rate system or "dirty float." 
C) pure gold standard system. 
D) fixed exchange rate system.

Question 9

Under the existing system of partially-flexible exchange rates, a country experiencing what it believes is a long-term balance of payments deficit might be expected to:

Accepted Answer

A) sell its own currency in the foreign exchange market. 
B) buy its own currency in the foreign exchange market. 
C) let its currency lose value. 
D) let its currency gain value. 
A) sell its own currency in the foreign exchange market. 
B) buy its own currency in the foreign exchange market. 
C) let its currency lose value. 
D) let its currency gain value.

Question 10

Partially-flexible exchange rates:

Accepted Answer

A) provide governments with a more independent monetary policy than flexible exchange rates. 
B) produce fewer exchange rate changes in general than fixed exchange rates. 
C) mix market forces with government intervention in a way that allows exchange rates to respond to speculative pressures. 
D) mix market forces with government intervention in a way that permits the exchange rate to respond to long-term balance of payments problems. 
A) provide governments with a more independent monetary policy than flexible exchange rates. 
B) produce fewer exchange rate changes in general than fixed exchange rates. 
C) mix market forces with government intervention in a way that allows exchange rates to respond to speculative pressures. 
D) mix market forces with government intervention in a way that permits the exchange rate to respond to long-term balance of payments problems.

Question 11

For many years, China tightly managed its currency through intervention and capital controls, effectively pegging the yuan to the U.S. dollar (a rate of about 8 yuan per dollar). Which of the exchange rate regimes discussed in the textbook did China have at that time?

Accepted Answer

A) Fixed exchange rate 
B) Flexible exchange rate 
C) Partially-flexible exchange rate 
D) Purchasing-power-parity exchange rate 
A) Fixed exchange rate 
B) Flexible exchange rate 
C) Partially-flexible exchange rate 
D) Purchasing-power-parity exchange rate

Question 12

A country with a balance of payments deficit that wants to maintain the current exchange rate:

Accepted Answer

A) gains official reserves. 
B) loses official reserves. 
C) gains foreign liabilities. 
D) loses foreign assets. 
A) gains official reserves. 
B) loses official reserves. 
C) gains foreign liabilities. 
D) loses foreign assets.

Question 13

Contractionary monetary policy generally:

Accepted Answer

A) pushes a country's exchange rate down. 
B) has no effect upon the exchange rate. 
C) pushes a country's exchange rate up. 
D) only affects the value of a country's exports. 
A) pushes a country's exchange rate down. 
B) has no effect upon the exchange rate. 
C) pushes a country's exchange rate up. 
D) only affects the value of a country's exports.

Question 14

The part of the balance of payments account that lists all payments related to the buying and selling of assets is called the:

Accepted Answer

A) current account. 
B) financial and capital account. 
C) government financial account. 
D) balance of trade. 
A) current account. 
B) financial and capital account. 
C) government financial account. 
D) balance of trade.

Question 15

What are four economic advantages and three disadvantages of adopting a common currency,such as the euro?

Accepted Answer

The advantages are:
(1)It eliminates the

Question 16

Macroeconomic policy is:

Accepted Answer

A) not affected by the choice of an exchange rate system. 
B) limited the most under fixed exchange rates. 
C) limited the most under partially-flexible exchange rates. 
D) limited the most under flexible exchange rates. 
A) not affected by the choice of an exchange rate system. 
B) limited the most under fixed exchange rates. 
C) limited the most under partially-flexible exchange rates. 
D) limited the most under flexible exchange rates.

Question 17

If the euro becomes an international reserve currency, the EU may enjoy:

Accepted Answer

A) interest-free loans that finance trade deficits. 
B) interest-free loans that promote trade surpluses. 
C) high-interest loans that finance trade deficits. 
D) high-interest loans that promote trade surpluses. 
A) interest-free loans that finance trade deficits. 
B) interest-free loans that promote trade surpluses. 
C) high-interest loans that finance trade deficits. 
D) high-interest loans that promote trade surpluses.

Question 18

Partially-flexible exchange rates are:

Accepted Answer

A) superior to both fixed and flexible exchange rates. 
B) superior to fixed but not flexible exchange rates. 
C) superior to flexible but not fixed exchange rates. 
D) not necessarily superior to either fixed or flexible exchange rates. 
A) superior to both fixed and flexible exchange rates. 
B) superior to fixed but not flexible exchange rates. 
C) superior to flexible but not fixed exchange rates. 
D) not necessarily superior to either fixed or flexible exchange rates.

Question 19

The direct impact of contractionary monetary policy is to:

Accepted Answer

A) raise U.S. income, increase U.S. imports, and raise the value of the dollar. 
B) raise U.S. income, increase U.S. imports, and lower the value of the dollar. 
C) lower U.S. income, reduce U.S. imports, and raise the value of the dollar. 
D) lower U.S. income, reduce U.S. imports, and lower the value of the dollar. 
A) raise U.S. income, increase U.S. imports, and raise the value of the dollar. 
B) raise U.S. income, increase U.S. imports, and lower the value of the dollar. 
C) lower U.S. income, reduce U.S. imports, and raise the value of the dollar. 
D) lower U.S. income, reduce U.S. imports, and lower the value of the dollar.

Question 20

The difference between the value of goods exported and imported is the:

Accepted Answer

A) current account balance. 
B) financial and capital account balance. 
C) government financial balance. 
D) balance of merchandise trade. 
A) current account balance. 
B) financial and capital account balance. 
C) government financial balance. 
D) balance of merchandise trade.

Exam 35: International Financial Policy

Explain the effect of an expansionary fiscal policy on the exchange rate of the U.S.dollar through the price path.

Refer to the graph shown. An exchange rate of $2.95 per dinar creates excess:

If a basket of goods costs 10 dollars in the United States and 11 euros in Belgium, then purchasing power parity will exist if the exchange rate between the euro and the dollar is:

When the euro appreciated significantly against the U.S. dollar, European policymakers were concerned.To stop the appreciation of the euro, the European Central Bank could have adopted a macroeconomic policy that:

Which of the following is a disadvantage of the European Monetary Union to member countries?

Contractionary monetary policy tends to:

The Bretton Woods system:

The Bretton Woods system is best described as a:

Under the existing system of partially-flexible exchange rates, a country experiencing what it believes is a long-term balance of payments deficit might be expected to:

Partially-flexible exchange rates:

For many years, China tightly managed its currency through intervention and capital controls, effectively pegging the yuan to the U.S. dollar (a rate of about 8 yuan per dollar). Which of the exchange rate regimes discussed in the textbook did China have at that time?

A country with a balance of payments deficit that wants to maintain the current exchange rate:

Contractionary monetary policy generally:

The part of the balance of payments account that lists all payments related to the buying and selling of assets is called the:

What are four economic advantages and three disadvantages of adopting a common currency,such as the euro?

Macroeconomic policy is:

If the euro becomes an international reserve currency, the EU may enjoy:

Partially-flexible exchange rates are:

The direct impact of contractionary monetary policy is to:

The difference between the value of goods exported and imported is the:

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

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Oligopoly and Antitrust Policy

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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

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

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Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

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Inflation, Deflation, and Macro Policy

Macro Policy in a Global Setting

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