Question 1

Refer to the graph shown. The shift in the supply curve from S1 to S2 could not be the result of:

Accepted Answer

A) an increase in the U.S. inflation rate. 
B) a decrease in U.S. interest rates. 
C) expansionary monetary policy. 
D) contractionary monetary policy. 
A) an increase in the U.S. inflation rate. 
B) a decrease in U.S. interest rates. 
C) expansionary monetary policy. 
D) contractionary monetary policy.

Question 2

In your last vacation trip to Cancún, Mexico, you spent $1,000. This amount is recorded in the:

Accepted Answer

A) balance of merchandise trade as an export. 
B) balance of merchandise trade as an import. 
C) balance of trade as an export. 
D) balance of trade as an import. 
A) balance of merchandise trade as an export. 
B) balance of merchandise trade as an import. 
C) balance of trade as an export. 
D) balance of trade as an import.

Question 3

How is a country's exchange rate related to its balance of payments?

Accepted Answer

Exchange rates are determined by the dem

Question 4

If the actual euro/dollar exchange rate is greater than the purchasing power parity (PPP)exchange rate,is the dollar or euro overvalued? What if the actual exchange rate is lower than the PPP exchange rate?

Accepted Answer

If the actual euro/dollar exchange rate

Question 5

Refer to the graph shown. An increase in U.S. income would shift:

Accepted Answer

A) S1 left and cause the euro to gain value. 
B) S1 right and cause the euro to lose value. 
C) D1 right and cause the euro to gain value. 
D) D1 left and cause the euro to lose value. 
A) S1 left and cause the euro to gain value. 
B) S1 right and cause the euro to lose value. 
C) D1 right and cause the euro to gain value. 
D) D1 left and cause the euro to lose value.

Question 6

Refer to the graph shown. An exchange rate of $2.40 per dinar creates excess:

Accepted Answer

A) demand for 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) demand for dinar that will cause the dinar to gain value, unless dinar are bought by the government. 
A) demand for 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) demand for dinar that will cause the dinar to gain value, unless dinar are bought by the government.

Question 7

A contractionary monetary policy tends to be more effective than a contractionary fiscal policy at strengthening the value of the exchange rate, because a contractionary monetary policy:

Accepted Answer

A) increases the interest rate and decreases exports, while a contractionary fiscal policy decreases both the interest rate and exports. 
B) decreases the interest rate and increases imports, while a contractionary fiscal policy increases both the interest rate and imports. 
C) increases the interest rate and decreases imports, while contractionary fiscal policy decreases both the interest rate and imports. 
D) decreases the interest rate and increases exports, while a contractionary fiscal policy increases both the interest rate and exports. 
A) increases the interest rate and decreases exports, while a contractionary fiscal policy decreases both the interest rate and exports. 
B) decreases the interest rate and increases imports, while a contractionary fiscal policy increases both the interest rate and imports. 
C) increases the interest rate and decreases imports, while contractionary fiscal policy decreases both the interest rate and imports. 
D) decreases the interest rate and increases exports, while a contractionary fiscal policy increases both the interest rate and exports.

Question 8

The purchase of a meal by an American tourist at La Tour d'Argen (a restaurant in Paris)would find its way into the American balance of payments as a:

Accepted Answer

A) positive entry in the current account. 
B) positive entry in the financial and capital account. 
C) negative entry in the current account. 
D) negative entry in the financial and capital account. 
A) positive entry in the current account. 
B) positive entry in the financial and capital account. 
C) negative entry in the current account. 
D) negative entry in the financial and capital account.

Question 9

If the price level in the United States falls relative to the price level in foreign nations, U.S. exports:

Accepted Answer

A) increase and U.S. imports decrease, causing the demand for dollars to rise and the supply of dollars to fall. 
B) decrease and U.S. imports increase, causing the demand for dollars to fall and the supply of dollars to rise. 
C) decrease and U.S. imports decrease, causing the demand for dollars to rise and the supply of dollars to rise. 
D) increase and U.S. imports decrease, causing the demand for dollars to fall and the supply of dollars to rise. 
A) increase and U.S. imports decrease, causing the demand for dollars to rise and the supply of dollars to fall. 
B) decrease and U.S. imports increase, causing the demand for dollars to fall and the supply of dollars to rise. 
C) decrease and U.S. imports decrease, causing the demand for dollars to rise and the supply of dollars to rise. 
D) increase and U.S. imports decrease, causing the demand for dollars to fall and the supply of dollars to rise.

Question 10

Foreign exchange market intervention is most likely to stabilize exchange rates if:

Accepted Answer

A) exchange rate changes reflect changes in long-term economic fundamentals. 
B) exchange rate changes reflect short-term fluctuations around the long-term equilibrium exchange rate. 
C) governments overestimate the long-term equilibrium exchange rate. 
D) governments underestimate the long-term equilibrium exchange rate. 
A) exchange rate changes reflect changes in long-term economic fundamentals. 
B) exchange rate changes reflect short-term fluctuations around the long-term equilibrium exchange rate. 
C) governments overestimate the long-term equilibrium exchange rate. 
D) governments underestimate the long-term equilibrium exchange rate.

Question 11

Joining the Eurozone meant that countries could have unlimited budget deficits.

Accepted Answer

A) True 
 B)False

Question 12

During the last decade, the United States ran the largest trade deficits in its history. These trade deficits imply:

Accepted Answer

A) a U.S. balance of payments deficit. 
B) a U.S. private balance of payments surplus. 
C) a U.S. balance of payments equilibrium. 
D) nothing about the overall U.S. balance of payments. 
A) a U.S. balance of payments deficit. 
B) a U.S. private balance of payments surplus. 
C) a U.S. balance of payments equilibrium. 
D) nothing about the overall U.S. balance of payments.

Question 13

Explain the effect that a rise in a country's interest rate has on exchange rates.

Accepted Answer

When interest rates rise,capital flows i

Question 14

Exchange rate fundamentals, such as the income level, interest rates, and the price levels,:

Accepted Answer

A) do not affect exchange rates in the short run or the long run. 
B) affect exchange rates but are not as important as expectations in the long run. 
C) affect exchange rates and are more important than expectations in the long run. 
D) affect exchange rates, but only in the short run. 
A) do not affect exchange rates in the short run or the long run. 
B) affect exchange rates but are not as important as expectations in the long run. 
C) affect exchange rates and are more important than expectations in the long run. 
D) affect exchange rates, but only in the short run.

Question 15

Countries are unlikely to maintain fixed exchange rates for long periods of time because:

Accepted Answer

A) they lack the tools to do so. 
B) fixed exchange rates eventually produce very high levels of inflation. 
C) fixed exchange rates impede a nation's ability to use monetary and fiscal policy to pursue domestic macroeconomic goals. 
D) fixed exchange rates promote domestic macroeconomic goals at the expense of international macroeconomic goals. 
A) they lack the tools to do so. 
B) fixed exchange rates eventually produce very high levels of inflation. 
C) fixed exchange rates impede a nation's ability to use monetary and fiscal policy to pursue domestic macroeconomic goals. 
D) fixed exchange rates promote domestic macroeconomic goals at the expense of international macroeconomic goals.

Question 16

The buying of a currency by a government to maintain its value above its long-run equilibrium is called currency:

Accepted Answer

A) ceiling. 
B) management. 
C) stabilization. 
D) support. 
A) ceiling. 
B) management. 
C) stabilization. 
D) support.

Question 17

If General Motors buys steel from Russia, then the purchase will be recorded in the:

Accepted Answer

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

Question 18

If the United States wants to strengthen the value of the dollar, it should use:

Accepted Answer

A) contractionary fiscal policy. 
B) expansionary fiscal policy. 
C) contractionary monetary policy. 
D) expansionary monetary policy. 
A) contractionary fiscal policy. 
B) expansionary fiscal policy. 
C) contractionary monetary policy. 
D) expansionary monetary policy.

Question 19

Suppose a government wants to fix its currency at its long run equilibrium value and decides to use the purchasing power parity method to estimate the long-run equilibrium value of its currency.Many economists would say that the purchasing power parity method is not a good method to use.Explain their reasoning.

Accepted Answer

The purchasing power parity (PPP)method

Question 20

Refer to the graph shown. The purchase of shekels by tourists who enter the country 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.

Exam 35: International Financial Policy

Refer to the graph shown. The shift in the supply curve from S1 to S2 could not be the result of:

In your last vacation trip to Cancún, Mexico, you spent $1,000. This amount is recorded in the:

How is a country's exchange rate related to its balance of payments?

If the actual euro/dollar exchange rate is greater than the purchasing power parity (PPP)exchange rate,is the dollar or euro overvalued? What if the actual exchange rate is lower than the PPP exchange rate?

Refer to the graph shown. An increase in U.S. income would shift:

Refer to the graph shown. An exchange rate of $2.40 per dinar creates excess:

A contractionary monetary policy tends to be more effective than a contractionary fiscal policy at strengthening the value of the exchange rate, because a contractionary monetary policy:

The purchase of a meal by an American tourist at La Tour d'Argen (a restaurant in Paris)would find its way into the American balance of payments as a:

If the price level in the United States falls relative to the price level in foreign nations, U.S. exports:

Foreign exchange market intervention is most likely to stabilize exchange rates if:

Joining the Eurozone meant that countries could have unlimited budget deficits.

During the last decade, the United States ran the largest trade deficits in its history. These trade deficits imply:

Explain the effect that a rise in a country's interest rate has on exchange rates.

Exchange rate fundamentals, such as the income level, interest rates, and the price levels,:

Countries are unlikely to maintain fixed exchange rates for long periods of time because:

The buying of a currency by a government to maintain its value above its long-run equilibrium is called currency:

If General Motors buys steel from Russia, then the purchase will be recorded in the:

If the United States wants to strengthen the value of the dollar, it should use:

Refer to the graph shown. The purchase of shekels by tourists who enter the country would shift 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

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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