Question 1

Purchasing power parity is the theory that, in the long run, exchange rates move to equalize

Accepted Answer

A)  nominal interest rates across countries. 
B)  real GDP across countries. 
C)  corporate profits across countries. 
D)  the relative purchasing power of currencies across countries. 
A)  nominal interest rates across countries. 
B)  real GDP across countries. 
C)  corporate profits across countries. 
D)  the relative purchasing power of currencies across countries.

Question 2

The Bretton Woods system confronted severe problems in the 1960s, problems which included

Accepted Answer

A)  some countries with overvalued currencies refused to devalue their currencies. 
B)  dollars held by foreign central banks exceeded gold reserves held by the United States. 
C)  the increased demand for gold brought about by lifting the prohibition against U.S. citizens owning gold. 
D)  all of the above 
A)  some countries with overvalued currencies refused to devalue their currencies. 
B)  dollars held by foreign central banks exceeded gold reserves held by the United States. 
C)  the increased demand for gold brought about by lifting the prohibition against U.S. citizens owning gold. 
D)  all of the above

Question 3

When the Bretton Woods system was set up, the United States agreed initially to buy and sell gold at a price of ________ per ounce.

Accepted Answer

A)  $24 
B)  $35 
C)  $42 
D)  $48 
A)  $24 
B)  $35 
C)  $42 
D)  $48

Question 4

In order to support an undervalued euro, the European Central Bank must ________ dollars. Over time, this action will cause the rate of inflation in the EU to ________.

Accepted Answer

A)  buy; decrease 
B)  buy; increase 
C)  sell; increase 
D)  sell; decrease 
A)  buy; decrease 
B)  buy; increase 
C)  sell; increase 
D)  sell; decrease

Question 5

The currency adopted by most countries in Western Europe is referred to as the

Accepted Answer

A)  euro. 
B)  Eurodollar. 
C)  yen. 
D)  pound. 
A)  euro. 
B)  Eurodollar. 
C)  yen. 
D)  pound.

Question 6

If currencies around the world are based on the gold standard, and Japan raises the amount of gold for which the yen will trade, then holding all else constant

Accepted Answer

A)  the yen will depreciate against the dollar. 
B)  the yen will appreciate against the dollar. 
C)  the value of the yen relative to the dollar will stay constant. 
D)  U.S. exports to Japan will decrease. 
A)  the yen will depreciate against the dollar. 
B)  the yen will appreciate against the dollar. 
C)  the value of the yen relative to the dollar will stay constant. 
D)  U.S. exports to Japan will decrease.

Question 7

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were ________ than they had planned because the baht had been pegged ________ the equilibrium exchange rate for the baht.

Accepted Answer

A)  higher; above 
B)  higher; below 
C)  lower; above 
D)  lower; below 
A)  higher; above 
B)  higher; below 
C)  lower; above 
D)  lower; below

Question 8

Which of the following is most important in explaining exchange rate fluctuations in the short run?

Accepted Answer

A)  relative price levels across countries 
B)  preferences for domestic and foreign goods 
C)  interest rates 
D)  relative rates of productivity growth across countries 
A)  relative price levels across countries 
B)  preferences for domestic and foreign goods 
C)  interest rates 
D)  relative rates of productivity growth across countries

Question 9

Under the Bretton Woods system, a fixed exchange rate supported by central banks was known as a(n) ________ exchange rate.

Accepted Answer

A)  par 
B)  equilibrium 
C)  fundamental 
D)  target 
A)  par 
B)  equilibrium 
C)  fundamental 
D)  target

Question 10

The German central bank, the Bundesbank, faced the risk of increased inflation caused by its actions to support an overvalued deutsche mark in the 1960s.

Accepted Answer

A) True 
 B)False

Question 11

In what year was the Bretton Woods system of currency exchange set up?

Accepted Answer

A)  1912 
B)  1924 
C)  1944 
D)  1969 
A)  1912 
B)  1924 
C)  1944 
D)  1969

Question 12

How will the exchange rate (foreign currency per dollar) respond to a decrease in the relative rate of productivity growth in the United States in the long run?

Accepted Answer

A)  Exchange rates will rise. 
B)  Exchange rates will fall. 
C)  Exchange rates will be unaffected by changes in the relative rate of productivity growth in the United States, both in the short run and in the long run. 
D)  The exchange rate will be affected in the short run, but not in the long run. 
A)  Exchange rates will rise. 
B)  Exchange rates will fall. 
C)  Exchange rates will be unaffected by changes in the relative rate of productivity growth in the United States, both in the short run and in the long run. 
D)  The exchange rate will be affected in the short run, but not in the long run.

Question 13

How will the exchange rate (foreign currency per dollar) respond to an increase in the relative rate of productivity growth in the United States in the long run?

Accepted Answer

A)  Exchange rates will rise. 
B)  Exchange rates will fall. 
C)  Exchange rates will be unaffected by changes in the relative rate of productivity growth in the United States, both in the short run and in the long run. 
D)  The exchange rate will be affected in the short run, but not in the long run. 
A)  Exchange rates will rise. 
B)  Exchange rates will fall. 
C)  Exchange rates will be unaffected by changes in the relative rate of productivity growth in the United States, both in the short run and in the long run. 
D)  The exchange rate will be affected in the short run, but not in the long run.

Question 14

If, at the current exchange rate between the dollar and the South African rand of 6.92 rand per dollar, the dollar is "undervalued," how do you expect demand and supply in the foreign exchange markets to respond?

Accepted Answer

A)  The demand for the dollar will rise, while the supply of the rand will fall. 
B)  The demand for the dollar will fall, while the supply of the rand will rise. 
C)  The demand for the dollar will rise, while the supply of the rand will rise. 
D)  The supply of the dollar will fall, while the demand for the rand will rise. 
A)  The demand for the dollar will rise, while the supply of the rand will fall. 
B)  The demand for the dollar will fall, while the supply of the rand will rise. 
C)  The demand for the dollar will rise, while the supply of the rand will rise. 
D)  The supply of the dollar will fall, while the demand for the rand will rise.

Question 15

The current exchange rate system in the United States is best described as a

Accepted Answer

A)  silver standard. 
B)  managed float exchange rate system. 
C)  fixed exchange rate system. 
D)  gold standard. 
A)  silver standard. 
B)  managed float exchange rate system. 
C)  fixed exchange rate system. 
D)  gold standard.

Question 16

Firms in Thailand that had ________ while the baht was pegged to the dollar faced interest payments that were higher than they had planned once the Thai government abandoned the peg because the baht had been pegged ________ the equilibrium exchange rate for the baht.

Accepted Answer

A)  borrowed dollars; above 
B)  borrowed baht; above 
C)  borrowed dollars; below 
D)  borrowed baht; below 
A)  borrowed dollars; above 
B)  borrowed baht; above 
C)  borrowed dollars; below 
D)  borrowed baht; below

Question 17

International flows of capital increase both efficiency and growth in countries around the world.

Accepted Answer

A) True 
 B)False

Question 18

A persistent surplus of pounds at a given fixed exchange rate (in dollars per pound) is evidence that the pound is ________ versus the dollar. This surplus can be reduced or eliminated through a ________ of the pound.

Accepted Answer

A)  undervalued; devaluation 
B)  undervalued; revaluation 
C)  overvalued; revaluation 
D)  overvalued; devaluation 
A)  undervalued; devaluation 
B)  undervalued; revaluation 
C)  overvalued; revaluation 
D)  overvalued; devaluation

Question 19

Figure 30-1  
-Refer to Figure 30-1. Which of the following would cause the change depicted in the figure above?

Accepted Answer

A)  European productivity rises relative to American productivity. 
B)  Americans increase their preferences for goods produced in the EU relative to American goods. 
C)  The U.S. removes a quota on wristwatches from the European Union. 
D)  The price level of goods produced in the EU increases relative to the price level of goods produced in the United States. 
A)  European productivity rises relative to American productivity. 
B)  Americans increase their preferences for goods produced in the EU relative to American goods. 
C)  The U.S. removes a quota on wristwatches from the European Union. 
D)  The price level of goods produced in the EU increases relative to the price level of goods produced in the United States.

Question 20

If the average productivity of American firms is rising more quickly than the average productivity of Indian firms, which of the following would you expect to see? (India's currency is the rupee.)

Accepted Answer

A)  an increase in the value of the rupee relative to the dollar 
B)  a decrease in the prices of Indian products 
C)  a decrease in the quantity demanded of Indian products relative to American products 
D)  an increase in the quantity demanded of Indian products relative to American products 
A)  an increase in the value of the rupee relative to the dollar 
B)  a decrease in the prices of Indian products 
C)  a decrease in the quantity demanded of Indian products relative to American products 
D)  an increase in the quantity demanded of Indian products relative to American products

Exam 30: The International Financial System

Purchasing power parity is the theory that, in the long run, exchange rates move to equalize

The Bretton Woods system confronted severe problems in the 1960s, problems which included

When the Bretton Woods system was set up, the United States agreed initially to buy and sell gold at a price of ________ per ounce.

In order to support an undervalued euro, the European Central Bank must ________ dollars. Over time, this action will cause the rate of inflation in the EU to ________.

The currency adopted by most countries in Western Europe is referred to as the

If currencies around the world are based on the gold standard, and Japan raises the amount of gold for which the yen will trade, then holding all else constant

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were ________ than they had planned because the baht had been pegged ________ the equilibrium exchange rate for the baht.

Which of the following is most important in explaining exchange rate fluctuations in the short run?

Under the Bretton Woods system, a fixed exchange rate supported by central banks was known as a(n) ________ exchange rate.

The German central bank, the Bundesbank, faced the risk of increased inflation caused by its actions to support an overvalued deutsche mark in the 1960s.

In what year was the Bretton Woods system of currency exchange set up?

How will the exchange rate (foreign currency per dollar) respond to a decrease in the relative rate of productivity growth in the United States in the long run?

How will the exchange rate (foreign currency per dollar) respond to an increase in the relative rate of productivity growth in the United States in the long run?

If, at the current exchange rate between the dollar and the South African rand of 6.92 rand per dollar, the dollar is "undervalued," how do you expect demand and supply in the foreign exchange markets to respond?

The current exchange rate system in the United States is best described as a

Firms in Thailand that had ________ while the baht was pegged to the dollar faced interest payments that were higher than they had planned once the Thai government abandoned the peg because the baht had been pegged ________ the equilibrium exchange rate for the baht.

International flows of capital increase both efficiency and growth in countries around the world.

A persistent surplus of pounds at a given fixed exchange rate (in dollars per pound) is evidence that the pound is ________ versus the dollar. This surplus can be reduced or eliminated through a ________ of the pound.

Figure 30-1 -Refer to Figure 30-1. Which of the following would cause the change depicted in the figure above?

If the average productivity of American firms is rising more quickly than the average productivity of Indian firms, which of the following would you expect to see? (India's currency is the rupee.)

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

Filters

In order to support an undervalued euro, the European Central Bank must dollars. Over time, this action will cause the rate of inflation in the EU to .

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were than they had planned because the baht had been pegged the equilibrium exchange rate for the baht.

Firms in Thailand that had while the baht was pegged to the dollar faced interest payments that were higher than they had planned once the Thai government abandoned the peg because the baht had been pegged the equilibrium exchange rate for the baht.

A persistent surplus of pounds at a given fixed exchange rate (in dollars per pound) is evidence that the pound is versus the dollar. This surplus can be reduced or eliminated through a of the pound.