Question 1

Fixed exchange rates:

Accepted Answer

A) do not restrict exchange rate movements. 
B) limit foreign exchange market intervention. 
C) give governments great flexibility in their use of monetary policy. 
D) are difficult to maintain without sufficient official reserves. 
A) do not restrict exchange rate movements. 
B) limit foreign exchange market intervention. 
C) give governments great flexibility in their use of monetary policy. 
D) are difficult to maintain without sufficient official reserves.

Question 2

What kind of pressure will a surplus in the U.S.balance of payments account place on the value of the dollar?

Accepted Answer

A balance of payment surplus m

Question 3

Refer to the graph shown. A purchase of shekels by the Israeli government would shift the:

Accepted Answer

A) demand curve to the left and reduce the price of shekels. 
B) demand curve to the right and raise the price of shekels. 
C) supply curve to the right and reduce the price of shekels. 
D) supply curve to the left and raise the price of shekels. 
A) demand curve to the left and reduce the price of shekels. 
B) demand curve to the right and raise the price of shekels. 
C) supply curve to the right and reduce the price of shekels. 
D) supply curve to the left and raise the price of shekels.

Question 4

The actual exchange rate of the real, Brazil's currency, is 2.40 real per U.S. dollar. According to the PPP estimation, the exchange rate should be 1.20 real per U.S. dollar. This implies that the real is:

Accepted Answer

A) undervalued by 50 percent. 
B) overvalued by 50 percent. 
C) undervalued by 20 percent. 
D) overvalued by 20 percent. 
A) undervalued by 50 percent. 
B) overvalued by 50 percent. 
C) undervalued by 20 percent. 
D) overvalued by 20 percent.

Question 5

Consider the following supply and demand diagram for dollars in exchange for euros:   Describe and illustrate the impact each of the following will have on the supply and demand diagram shown above.
(a)Unemployment increases in Europe.
(b)Inflation in the U.S.drops to an all-time low relative to all other industrialized countries
(c)The European Central Bank raises interest rates.

Accepted Answer

(a)An increase in unemployment in Europe

Question 6

In the U.S. current account, most of the trade deficit results from an excess of imported:

Accepted Answer

A) goods and services. 
B) goods. 
C) services. 
D) transfers. 
A) goods and services. 
B) goods. 
C) services. 
D) transfers.

Question 7

You have recently been net surfing with your friends in Russia;the main topic of your recent e-mail exchange is the newest Drake album.You inform your friends in Russia that you can purchase the album at a U.S.seller for $11.99.You are told that in Russia the album costs 70,000 rubles.Suppose that the current dollar/ruble exchange rate is 1 ruble = $.000175 (or equivalently $1 = 5,714 rubles).According to the purchasing power parity view of exchange rate calculations,does the current exchange rate represent a long-run equilibrium exchange rate? Is the dollar overvalued or undervalued? The ruble? Explain.

Accepted Answer

According to the purchasing power parity

Question 8

In theory, a direct exchange rate policy can succeed if the objective is exchange rate stabilization. However, in practice, this success also depends on the:

Accepted Answer

A) level of the official reserves that the central bank holds. 
B) right estimation of the long-term equilibrium exchange rate. 
C) right estimation of the short-term equilibrium exchange rate. 
D) level of deviation between the official and the short-term exchange rate. 
A) level of the official reserves that the central bank holds. 
B) right estimation of the long-term equilibrium exchange rate. 
C) right estimation of the short-term equilibrium exchange rate. 
D) level of deviation between the official and the short-term exchange rate.

Question 9

Strategic currency stabilization:

Accepted Answer

A) involves frequent exchange rate intervention. 
B) involves carefully-timed exchange rate intervention. 
C) is successful only if the government does not attempt to affect market expectations. 
D) can be successful only if governments possess large amounts of official reserves. 
A) involves frequent exchange rate intervention. 
B) involves carefully-timed exchange rate intervention. 
C) is successful only if the government does not attempt to affect market expectations. 
D) can be successful only if governments possess large amounts of official reserves.

Question 10

Under the Bretton Woods system, whenever a country ran a short-term balance of payments deficit, it was:

Accepted Answer

A) obliged to contract its money supply. 
B) obliged to expand its money supply. 
C) likely to increase the value of its currency. 
D) possible for it to borrow from the IMF. 
A) obliged to contract its money supply. 
B) obliged to expand its money supply. 
C) likely to increase the value of its currency. 
D) possible for it to borrow from the IMF.

Question 11

The best exchange rate system:

Accepted Answer

A) is a fixed exchange rate system. 
B) is a flexible exchange rate system. 
C) is a partially-fixed exchange rate system. 
D) has not yet been determined. 
A) is a fixed exchange rate system. 
B) is a flexible exchange rate system. 
C) is a partially-fixed exchange rate system. 
D) has not yet been determined.

Question 12

For each of the following,state whether it creates a demand for or a supply of U.S.dollars:
(a)A Japanese automobile firm builds an assembly plant in Ohio.
(b)A U.S.importer purchases a shipload of Saudi Arabia oil.
(c)A U.S.student spends a summer in England studying in Oxford.
(d)A French exporter ships products to Argentina using an American freighter.
(e)Currency traders feel that the value of the U.S.dollar will fall in the near future and act on that feeling.

Accepted Answer

(a)Demand.
(b)Supply

Question 13

An expansionary U.S. fiscal policy will:

Accepted Answer

A) decrease the value of the dollar if U.S. interest rates fall enough. 
B) increase the value of the dollar if U.S. interest rates rise enough. 
C) increase the value of the dollar if U.S. income and the U.S. price level increase enough. 
D) increase the value of the dollar in all cases. 
A) decrease the value of the dollar if U.S. interest rates fall enough. 
B) increase the value of the dollar if U.S. interest rates rise enough. 
C) increase the value of the dollar if U.S. income and the U.S. price level increase enough. 
D) increase the value of the dollar in all cases.

Question 14

What is an exchange rate and how is it related to its balance of payments? What are the four fundamental determinants of a country's exchange rate and what is likely to happen to the exchange rate in the following cases?
(1)A fall in the U.S.interest rate relative to interest rates abroad (dollar).
(2)A higher inflation rate in Japan compared to other countries (yen).
(3)A severe recession in Europe (euro).
(4)The U.S.imposes a 15% tariff on Japanese imported cars (dollar).

Accepted Answer

An exchange rate is the rate at which on

Question 15

Which of the following is an advantage of the European Monetary Union?

Accepted Answer

A) Increased economies of scale 
B) Greater national identity 
C) Higher transaction costs 
D) Greater monetary independence for each member 
A) Increased economies of scale 
B) Greater national identity 
C) Higher transaction costs 
D) Greater monetary independence for each member

Question 16

Under the gold standard, a nation with a private balance of payments surplus would experience:

Accepted Answer

A) higher interest rates, lower inflation, and lower output. 
B) lower interest rates, lower inflation, and lower output. 
C) higher interest rates, higher inflation, and higher output. 
D) lower interest rates, higher inflation, and higher output. 
A) higher interest rates, lower inflation, and lower output. 
B) lower interest rates, lower inflation, and lower output. 
C) higher interest rates, higher inflation, and higher output. 
D) lower interest rates, higher inflation, and higher output.

Question 17

The government of Crossland wants to influence its exchange rate. It will do so by buying and selling:

Accepted Answer

A) currencies in its official reserves. 
B) commodities. 
C) goods and services from the current account. 
D) transfers. 
A) currencies in its official reserves. 
B) commodities. 
C) goods and services from the current account. 
D) transfers.

Question 18

What overall effect does contractionary monetary policy have on a country's exchange rate?

Accepted Answer

Contractionary monetary policy

Question 19

If the government chooses not to buy or sell foreign currencies, it has a:

Accepted Answer

A) partially-flexible exchange rate. 
B) flexible exchange rate. 
C) fixed exchange rate. 
D) gold standard. 
A) partially-flexible exchange rate. 
B) flexible exchange rate. 
C) fixed exchange rate. 
D) gold standard.

Question 20

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

Accepted Answer

Fixed exchange rate systems provide inte

Exam 35: International Financial Policy

Fixed exchange rates:

What kind of pressure will a surplus in the U.S.balance of payments account place on the value of the dollar?

Refer to the graph shown. A purchase of shekels by the Israeli government would shift the:

The actual exchange rate of the real, Brazil's currency, is 2.40 real per U.S. dollar. According to the PPP estimation, the exchange rate should be 1.20 real per U.S. dollar. This implies that the real is:

In the U.S. current account, most of the trade deficit results from an excess of imported:

In theory, a direct exchange rate policy can succeed if the objective is exchange rate stabilization. However, in practice, this success also depends on the:

Strategic currency stabilization:

Under the Bretton Woods system, whenever a country ran a short-term balance of payments deficit, it was:

The best exchange rate system:

An expansionary U.S. fiscal policy will:

Which of the following is an advantage of the European Monetary Union?

Under the gold standard, a nation with a private balance of payments surplus would experience:

The government of Crossland wants to influence its exchange rate. It will do so by buying and selling:

What overall effect does contractionary monetary policy have on a country's exchange rate?

If the government chooses not to buy or sell foreign currencies, it has a:

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

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

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