Question 1

Contractionary monetary policy tends to push the U.S. price level:

Accepted Answer

A) down and lower the exchange rate. 
B) up and lower the exchange rate. 
C) down and raise the exchange rate. 
D) up and raise the exchange rate. 
A) down and lower the exchange rate. 
B) up and lower the exchange rate. 
C) down and raise the exchange rate. 
D) up and raise the exchange rate.

Question 2

If the euro becomes an international reserve currency, the:

Accepted Answer

A) demand for it will decrease, causing it to depreciate. 
B) demand for it will increase, causing it to appreciate. 
C) supply of it will increase, causing it to appreciate. 
D) supply of it will decrease, causing it to depreciate. 
A) demand for it will decrease, causing it to depreciate. 
B) demand for it will increase, causing it to appreciate. 
C) supply of it will increase, causing it to appreciate. 
D) supply of it will decrease, causing it to depreciate.

Question 3

Expansionary monetary policy generally:

Accepted Answer

A) raises U.S. interest rates. 
B) increases the inflow of financial capital. 
C) increases the U.S. exchange rate. 
D) pushes down the value of the U.S. dollar. 
A) raises U.S. interest rates. 
B) increases the inflow of financial capital. 
C) increases the U.S. exchange rate. 
D) pushes down the value of the U.S. dollar.

Question 4

The formation of the European Monetary Union:

Accepted Answer

A) reduced exchange rate instability and made it easier for members to manage their own economies. 
B) reduced exchange rate instability but made it harder for members to manage their own economies. 
C) increased exchange rate instability but made it easier for members to manage their own economies. 
D) increased exchange rate instability and made it harder for members to manage their own economies. 
A) reduced exchange rate instability and made it easier for members to manage their own economies. 
B) reduced exchange rate instability but made it harder for members to manage their own economies. 
C) increased exchange rate instability but made it easier for members to manage their own economies. 
D) increased exchange rate instability and made it harder for members to manage their own economies.

Question 5

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

Accepted Answer

A) inflow and a reduction in its money supply. 
B) outflow and a reduction in its money supply. 
C) inflow and an increase in its money supply. 
D) outflow and an increase in its money supply. 
A) inflow and a reduction in its money supply. 
B) outflow and a reduction in its money supply. 
C) inflow and an increase in its money supply. 
D) outflow and an increase in its money supply.

Question 6

Purchasing power parity is criticized because it:

Accepted Answer

A) does not account for trade in assets. 
B) includes the trade in assets. 
C) does not apply when exchange rates are flexible. 
D) uses the wrong basket of goods to compute purchasing power parity exchange rates. 
A) does not account for trade in assets. 
B) includes the trade in assets. 
C) does not apply when exchange rates are flexible. 
D) uses the wrong basket of goods to compute purchasing power parity exchange rates.

Question 7

The real exchange rate is the exchange rate that:

Accepted Answer

A) a person actually pays after the mark-up charged by the bank is included. 
B) would exist if there were no government intervention in the market. 
C) would exist if there were no currency speculation. 
D) eliminates changes in exchange rates due to differences in inflation. 
A) a person actually pays after the mark-up charged by the bank is included. 
B) would exist if there were no government intervention in the market. 
C) would exist if there were no currency speculation. 
D) eliminates changes in exchange rates due to differences in inflation.

Question 8

The balance of payment account is made up of:

Accepted Answer

A) a current account and a financial and capital account. 
B) an import account and an export account. 
C) an investment account and a consumption account. 
D) a monetary account and a fiscal account. 
A) a current account and a financial and capital account. 
B) an import account and an export account. 
C) an investment account and a consumption account. 
D) a monetary account and a fiscal account.

Question 9

Consider the following supply and demand for Mexican pesos:   Suppose income in Mexico increases.Demonstrate graphically and explain verbally the impact this will have on the market for pesos illustrated above.

Accepted Answer

The increase in income will re

Question 10

What is the difference between the balance of trade and the balance of payments?

Accepted Answer

A) The balance of trade is only part of the balance of payments. 
B) The balance of payments is only part of the balance of trade. 
C) The two are different parts of the balance of merchandise accounts. 
D) The two are different parts of the balance of financial and capital accounts. 
A) The balance of trade is only part of the balance of payments. 
B) The balance of payments is only part of the balance of trade. 
C) The two are different parts of the balance of merchandise accounts. 
D) The two are different parts of the balance of financial and capital accounts.

Question 11

Which of the following would most likely cause an increase in the supply of dollars?

Accepted Answer

A) An expansionary fiscal policy that raised U.S. income and increased U.S. imports 
B) An expansionary fiscal policy that raised U.S. income and reduced U.S. imports 
C) A contractionary fiscal policy that reduced U.S. income and lowered U.S. imports 
D) A contractionary fiscal policy that reduced U.S. income and increased U.S. imports 
A) An expansionary fiscal policy that raised U.S. income and increased U.S. imports 
B) An expansionary fiscal policy that raised U.S. income and reduced U.S. imports 
C) A contractionary fiscal policy that reduced U.S. income and lowered U.S. imports 
D) A contractionary fiscal policy that reduced U.S. income and increased U.S. imports

Question 12

Define the balance of payments,and briefly describe its two components.

Accepted Answer

The balance of payments is a country's r

Question 13

Purchasing power parity is used to estimate equilibrium:

Accepted Answer

A) exchange rates. 
B) inflation rates. 
C) interest rates. 
D) price levels. 
A) exchange rates. 
B) inflation rates. 
C) interest rates. 
D) price levels.

Question 14

Higher U.S. interest rates usually cause:

Accepted Answer

A) foreign capital to leave the United States. 
B) no change in foreign investment in the United States. 
C) a drop in the U.S. dollar exchange rate. 
D) foreign capital to enter the United States. 
A) foreign capital to leave the United States. 
B) no change in foreign investment in the United States. 
C) a drop in the U.S. dollar exchange rate. 
D) foreign capital to enter the United States.

Question 15

If the financial and capital account has a deficit, the:

Accepted Answer

A) balance of payments must have a deficit. 
B) balance of payments must have a surplus. 
C) balance on the current account must have a deficit. 
D) balance on the current account must have a surplus. 
A) balance of payments must have a deficit. 
B) balance of payments must have a surplus. 
C) balance on the current account must have a deficit. 
D) balance on the current account must have a surplus.

Question 16

Considering primarily the effects through the price level, interest rates, and income, expansionary fiscal policy:

Accepted Answer

A) increases both the supply and demand for dollars. 
B) reduces the supply of dollars and increases the demand. 
C) increases the supply of dollars but reduces the demand. 
D) reduces both the supply and demand for dollars. 
A) increases both the supply and demand for dollars. 
B) reduces the supply of dollars and increases the demand. 
C) increases the supply of dollars but reduces the demand. 
D) reduces both the supply and demand for dollars.

Question 17

Expansionary monetary policy tends to:

Accepted Answer

A) lower the U.S. interest rate and increase the U.S. exchange rate. 
B) lower the U.S. interest rate and decrease the U.S. exchange rate. 
C) increase the U.S. interest rate and decrease the U.S. exchange rate. 
D) increase the U.S. interest rate and increase the U.S. exchange rate. 
A) lower the U.S. interest rate and increase the U.S. exchange rate. 
B) lower the U.S. interest rate and decrease the U.S. exchange rate. 
C) increase the U.S. interest rate and decrease the U.S. exchange rate. 
D) increase the U.S. interest rate and increase the U.S. exchange rate.

Question 18

Purchasing power parity is used to estimate:

Accepted Answer

A) changes in both short-run and long-run exchange rates. 
B) only changes in short-run exchange rates. 
C) only changes in long-run exchange rates. 
D) changes in price levels, not exchange rates. 
A) changes in both short-run and long-run exchange rates. 
B) only changes in short-run exchange rates. 
C) only changes in long-run exchange rates. 
D) changes in price levels, not exchange rates.

Question 19

Suppose a given basket of goods and services costs 6 dollars in the United States and 4,500 won in Korea. If the exchange rate is 900 won per dollar, purchasing power parity implies that the:

Accepted Answer

A) exchange rate has attained its long run equilibrium value. 
B) dollar must appreciate to restore purchasing power parity. 
C) dollar must depreciate to restore purchasing power parity. 
D) won must depreciate to restore purchasing power parity. 
A) exchange rate has attained its long run equilibrium value. 
B) dollar must appreciate to restore purchasing power parity. 
C) dollar must depreciate to restore purchasing power parity. 
D) won must depreciate to restore purchasing power parity.

Question 20

In 1923, Germany experienced a very severe inflation. As prices in Germany rose, the demand in the foreign exchange market for U.S. dollars:

Accepted Answer

A) rose and the supply of them fell, increasing their value. 
B) rose and the supply of them also rose, decreasing their value. 
C) fell and the supply of them also fell, increasing their value. 
D) fell and the supply of them rose, decreasing their value. 
A) rose and the supply of them fell, increasing their value. 
B) rose and the supply of them also rose, decreasing their value. 
C) fell and the supply of them also fell, increasing their value. 
D) fell and the supply of them rose, decreasing their value.

Exam 35: International Financial Policy

Contractionary monetary policy tends to push the U.S. price level:

If the euro becomes an international reserve currency, the:

Expansionary monetary policy generally:

The formation of the European Monetary Union:

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

Purchasing power parity is criticized because it:

The real exchange rate is the exchange rate that:

The balance of payment account is made up of:

Consider the following supply and demand for Mexican pesos: Suppose income in Mexico increases.Demonstrate graphically and explain verbally the impact this will have on the market for pesos illustrated above.

What is the difference between the balance of trade and the balance of payments?

Which of the following would most likely cause an increase in the supply of dollars?

Define the balance of payments,and briefly describe its two components.

Purchasing power parity is used to estimate equilibrium:

Higher U.S. interest rates usually cause:

If the financial and capital account has a deficit, the:

Considering primarily the effects through the price level, interest rates, and income, expansionary fiscal policy:

Expansionary monetary policy tends to:

Purchasing power parity is used to estimate:

Suppose a given basket of goods and services costs 6 dollars in the United States and 4,500 won in Korea. If the exchange rate is 900 won per dollar, purchasing power parity implies that the:

In 1923, Germany experienced a very severe inflation. As prices in Germany rose, the demand in the foreign exchange market for U.S. dollars:

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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