Question 1

If a country wants to fix its exchange rate at a rate that is lower than the market rate,what monetary or fiscal policy must it use? Explain.

Accepted Answer

To decrease the value of its currency,th

Question 2

Flexible exchange rates:

Accepted Answer

A) give governments a greater degree of flexibility in monetary policy than fixed exchange rates do. 
B) make it simpler to engage in international trade than fixed exchange rates do. 
C) produce smaller exchange rate fluctuations than fixed exchange rates do. 
D) impose a greater degree of discipline on the behavior of central banks than fixed exchange rates do. 
A) give governments a greater degree of flexibility in monetary policy than fixed exchange rates do. 
B) make it simpler to engage in international trade than fixed exchange rates do. 
C) produce smaller exchange rate fluctuations than fixed exchange rates do. 
D) impose a greater degree of discipline on the behavior of central banks than fixed exchange rates do.

Question 3

A country that fixes a price for its currency that is above the market price will:

Accepted Answer

A) accumulate official reserves. 
B) increase its money supply. 
C) lose official reserves. 
D) eventually increase the value of its currency. 
A) accumulate official reserves. 
B) increase its money supply. 
C) lose official reserves. 
D) eventually increase the value of its currency.

Question 4

Refer to the graph shown. The shift in the graph from D1 to D2 is least likely to be caused by:

Accepted Answer

A) expansionary fiscal policy that raises U.S. interest rates. 
B) expansionary fiscal policy that raises U.S. income. 
C) contractionary fiscal policy that reduces U.S. prices. 
D) contractionary fiscal policy that increases U.S. exports. 
A) expansionary fiscal policy that raises U.S. interest rates. 
B) expansionary fiscal policy that raises U.S. income. 
C) contractionary fiscal policy that reduces U.S. prices. 
D) contractionary fiscal policy that increases U.S. exports.

Question 5

What are the dangers associated with maintaining a high fixed exchange rate.

Accepted Answer

To maintain a fixed exchange rate,a coun

Question 6

Refer to the graph shown. A shift in the supply of dollars from S1 to S2 is most likely the result of:

Accepted Answer

A) a decrease in the U.S. price level relative to foreign prices. 
B) an increase in U.S. interest rates relative to foreign interest rates. 
C) an increase in U.S. incomes relative to foreign incomes. 
D) the U.S. government's attempt to support its own currency. 
A) a decrease in the U.S. price level relative to foreign prices. 
B) an increase in U.S. interest rates relative to foreign interest rates. 
C) an increase in U.S. incomes relative to foreign incomes. 
D) the U.S. government's attempt to support its own currency.

Question 7

Since the mid-1980s, the dollar's value has fallen from over 300 yen per dollar to about 136 yen per dollar. This trend might be explained by:

Accepted Answer

A) higher economic growth in Japan. 
B) lower interest rates in Japan. 
C) lower inflation in Japan. 
D) Japanese purchases of U.S. dollars. 
A) higher economic growth in Japan. 
B) lower interest rates in Japan. 
C) lower inflation in Japan. 
D) Japanese purchases of U.S. dollars.

Question 8

Where would each of the following appear in the balance of payments account?
(a)You order some tulip bulbs from a supplier in Holland.
(b)While on vacation in London,you pay to have your shoes repaired.
(c)A U.S.firm buys shares in a German company.
(d)You receive dividends from the ownership of a German company's stock.
(e)A Japanese citizen buys a U.S.bond.
(f)A U.S.company builds a manufacturing plant in Mexico.

Accepted Answer

(a)Current account: merchandise imports.

Question 9

Exchange rate expectations:

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 fundamentals in the short run. 
C) affect exchanges rates and are more important than fundamentals in the short run. 
D) affect exchange rates, but only in the long 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 fundamentals in the short run. 
C) affect exchanges rates and are more important than fundamentals in the short run. 
D) affect exchange rates, but only in the long run.

Question 10

What is the difference between currency support and currency stabilization?

Accepted Answer

Currency support refers to the buying of

Question 11

How does the balance of payments differ from the balance on goods and services? How do these balances relate to the international supply and demand for a nation's currency?

Accepted Answer

The balance of payments is a record of a

Question 12

U.S. imports involve an:

Accepted Answer

A) outflow of dollars from the United States to foreigners. 
B) inflow of dollars from foreigners to the U.S. economy. 
C) outflow of foreign currency from the United States to foreigners. 
D) inflow of foreign currency from foreigners to the U.S. economy. 
A) outflow of dollars from the United States to foreigners. 
B) inflow of dollars from foreigners to the U.S. economy. 
C) outflow of foreign currency from the United States to foreigners. 
D) inflow of foreign currency from foreigners to the U.S. economy.

Question 13

What is the difference between a fixed,flexible,and partially flexible exchange rate regime? What are the advantages and disadvantages of each of these exchange rate regimes?

Accepted Answer

A fixed exchange rate regime is one wher

Question 14

Expansionary monetary policy definitely lowers the exchange rate.

Accepted Answer

A) True 
 B)False

Question 15

In late 1994 and early 1995, the Mexican peso fell by more than 40 percent. In an effort to strengthen the peso, then Mexican President Zedillo concentrated on the effects inflation had on the value of the peso. His plan most likely included:

Accepted Answer

A) increasing government spending. 
B) increasing the money supply. 
C) increasing domestic taxes. 
D) decreasing domestic taxes. 
A) increasing government spending. 
B) increasing the money supply. 
C) increasing domestic taxes. 
D) decreasing domestic taxes.

Question 16

Refer to the graph shown. A sale 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 17

General Electric, a U.S. company, buys $50 million of Japanese securities. This transaction causes the U.S.:

Accepted Answer

A) current account balance to increase. 
B) current account balance to decrease. 
C) financial and capital account balance to increase. 
D) financial and capital account balance to decrease. 
A) current account balance to increase. 
B) current account balance to decrease. 
C) financial and capital account balance to increase. 
D) financial and capital account balance to decrease.

Question 18

Monetary policy affects exchange rates in all the following ways except:

Accepted Answer

A) the interest rate. 
B) taxes. 
C) price level and inflation. 
D) income. 
A) the interest rate. 
B) taxes. 
C) price level and inflation. 
D) income.

Question 19

What is an exchange rate,and what are the factors that influence it?

Accepted Answer

The exchange rate is the rate at which o

Question 20

From the late 1990s into the early 2000s, Hong Kong suffered from deflation. Most economists believed that the period of deflation ended and that inflation would begin to pick up slowly. Prices, however, were believed to be held in check because the Hong Kong dollar is pegged to the U.S. dollar. What does the monetary authority in Hong Kong have to do to peg its dollar to the U.S. dollar?

Accepted Answer

A) It does not allow free trade in U.S. dollars; the foreign exchange market is illegal. 
B) It will sell Hong Kong dollars when the price of the Hong Kong dollar drops and buy them when the price of the Hong Kong dollar rises. 
C) It will sell Hong Kong dollars when the price of the Hong Kong dollar rises and buy them when the price of the Hong Kong dollar drops. 
D) It will raise tariffs when the value of the Hong Kong dollar falls and lower them when the value of the Hong Kong dollar rises. 
A) It does not allow free trade in U.S. dollars; the foreign exchange market is illegal. 
B) It will sell Hong Kong dollars when the price of the Hong Kong dollar drops and buy them when the price of the Hong Kong dollar rises. 
C) It will sell Hong Kong dollars when the price of the Hong Kong dollar rises and buy them when the price of the Hong Kong dollar drops. 
D) It will raise tariffs when the value of the Hong Kong dollar falls and lower them when the value of the Hong Kong dollar rises.

Exam 35: International Financial Policy

If a country wants to fix its exchange rate at a rate that is lower than the market rate,what monetary or fiscal policy must it use? Explain.

Flexible exchange rates:

A country that fixes a price for its currency that is above the market price will:

Refer to the graph shown. The shift in the graph from D1 to D2 is least likely to be caused by:

What are the dangers associated with maintaining a high fixed exchange rate.

Refer to the graph shown. A shift in the supply of dollars from S1 to S2 is most likely the result of:

Since the mid-1980s, the dollar's value has fallen from over 300 yen per dollar to about 136 yen per dollar. This trend might be explained by:

Exchange rate expectations:

What is the difference between currency support and currency stabilization?

How does the balance of payments differ from the balance on goods and services? How do these balances relate to the international supply and demand for a nation's currency?

U.S. imports involve an:

What is the difference between a fixed,flexible,and partially flexible exchange rate regime? What are the advantages and disadvantages of each of these exchange rate regimes?

Expansionary monetary policy definitely lowers the exchange rate.

In late 1994 and early 1995, the Mexican peso fell by more than 40 percent. In an effort to strengthen the peso, then Mexican President Zedillo concentrated on the effects inflation had on the value of the peso. His plan most likely included:

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

General Electric, a U.S. company, buys $50 million of Japanese securities. This transaction causes the U.S.:

Monetary policy affects exchange rates in all the following ways except:

What is an exchange rate,and what are the factors that influence it?

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

Refer to the graph shown. A shift in the supply of dollars from S1 to S₂ is most likely the result of: