Question 1

How were exchange rates determined under the gold standard? How did the Bretton Woods system differ from the gold standard?

Accepted Answer

Under the gold standard, exchange rates

Question 2

Figure 30-7  
-Refer to Figure 30-7. If the Indian government pegs its currency to the dollar at a value above $.02/rupee, we would say the currency is

Accepted Answer

A)  undervalued. 
B)  overvalued. 
C)  parity valued. 
D)  equilibrium valued. 
A)  undervalued. 
B)  overvalued. 
C)  parity valued. 
D)  equilibrium valued.

Question 3

European governments removed many restrictions on flows of capital into and out of Europe in the ________. This policy increased both U.S. investment in European stocks and bonds and European investment in U.S. stocks and bonds.

Accepted Answer

A)  1950s and 1960s 
B)  1960s and 1970s 
C)  1970s and 1980s 
D)  1980s and 1990s 
A)  1950s and 1960s 
B)  1960s and 1970s 
C)  1970s and 1980s 
D)  1980s and 1990s

Question 4

Figure 30-8  
-Refer to Figure 30-8. The equilibrium exchange rate is at A, $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. At the pegged exchange rate

Accepted Answer

A)  there is a shortage of euros equal to 500 million. 
B)  there is a surplus of euros equal to 300 million. 
C)  there is a shortage of euros equal to 200 million. 
D)  there is a surplus of euros equal to 700 million. 
A)  there is a shortage of euros equal to 500 million. 
B)  there is a surplus of euros equal to 300 million. 
C)  there is a shortage of euros equal to 200 million. 
D)  there is a surplus of euros equal to 700 million.

Question 5

Shares of stock and long-term debt, including corporate and government bonds and bank loans, are bought and sold on

Accepted Answer

A)  the stock market. 
B)  capital markets. 
C)  foreign exchange markets. 
D)  commodity markets. 
A)  the stock market. 
B)  capital markets. 
C)  foreign exchange markets. 
D)  commodity markets.

Question 6

Figure 30-4  
-Refer to Figure 30-4. The equilibrium exchange rate is originally at A, $3/pound. Suppose the British government pegs its currency at $4/pound. Speculators expect that the value of the pound will drop and this shifts the demand curve for pounds to D2. If the government abandons the peg, the equilibrium exchange rate would be

Accepted Answer

A)  $4/pound. 
B)  $3/pound. 
C)  $2/pound. 
D)  less than $2/pound. 
A)  $4/pound. 
B)  $3/pound. 
C)  $2/pound. 
D)  less than $2/pound.

Question 7

Figure 30-8  
-Refer to Figure 30-8. The equilibrium exchange rate is at A, $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D2. After the shift

Accepted Answer

A)  there is a shortage of euros equal to 1,000 million. 
B)  there is a surplus of euros equal to 400 million. 
C)  there is a shortage of euros equal to 800 million. 
D)  there is a surplus of euros equal to 500 million. 
A)  there is a shortage of euros equal to 1,000 million. 
B)  there is a surplus of euros equal to 400 million. 
C)  there is a shortage of euros equal to 800 million. 
D)  there is a surplus of euros equal to 500 million.

Question 8

By 2017, how many European countries were members of the European Union?

Accepted Answer

A)  12 
B)  17 
C)  28 
D)  57 
A)  12 
B)  17 
C)  28 
D)  57

Question 9

Figure 30-8  
-Refer to Figure 30-8. The equilibrium exchange rate is originally at A, $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D2. If the European Central Bank abandons the peg, the equilibrium exchange rate would be

Accepted Answer

A)  $1.00/euro. 
B)  $1.25/euro. 
C)  $1.50/euro. 
D)  $1.75/euro. 
A)  $1.00/euro. 
B)  $1.25/euro. 
C)  $1.50/euro. 
D)  $1.75/euro.

Question 10

If the rate of productivity growth in the United States exceeds the rate of productivity growth in Great Britain we would expect the U.S. dollar to depreciate in value against the British pound.

Accepted Answer

A) True 
 B)False

Question 11

U.S. dollars can currently be exchanged for gold by foreign central banks, but not by U.S. citizens.

Accepted Answer

A) True 
 B)False

Question 12

Why might a country raise interest rates in the face of an exchange rate crisis?

Accepted Answer

If the value of a country's currency is

Question 13

Describe the four determinants of exchange rates in the long run.

Accepted Answer

One determinant of exchange rates in the

Question 14

Countries that use the euro as their currency face similar concerns as countries did during the years of the gold standard in that each are (were)

Accepted Answer

A)  unable to conduct monetary policy. 
B)  unable to conduct fiscal policy. 
C)  using currency which is backed by gold. 
D)  using a floating currency. 
A)  unable to conduct monetary policy. 
B)  unable to conduct fiscal policy. 
C)  using currency which is backed by gold. 
D)  using a floating currency.

Question 15

If a country's currency ________ the dollar, its exchange rate is fixed.

Accepted Answer

A)  is exchanged in currency markets for 
B)  depreciates against 
C)  is pegged to 
D)  has a floating exchange rate value which is equal to 
A)  is exchanged in currency markets for 
B)  depreciates against 
C)  is pegged to 
D)  has a floating exchange rate value which is equal to

Question 16

China's exchange rate system from 1994 through 2005 is an example of

Accepted Answer

A)  a floating exchange rate system. 
B)  a managed float exchange rate system. 
C)  a fixed exchange rate system. 
D)  a flexible exchange rate system. 
E)  the Bretton Woods System. 
A)  a floating exchange rate system. 
B)  a managed float exchange rate system. 
C)  a fixed exchange rate system. 
D)  a flexible exchange rate system. 
E)  the Bretton Woods System.

Question 17

You decide to work in London for the next 5 years, accumulate some savings, then move back to the United States and convert your savings from British pounds to dollars. At the time of your move, economists predict that consumers in the United States have lost their affinity for British products, and expect that this declining preference for British products will continue for the next decade. How should this influence your decision to work and save in London?

Accepted Answer

A)  You should be discouraged as the declining U.S. preference for British goods should increase the value of the pound to the dollar and decrease the value of your savings when converted to dollars. 
B)  You should be discouraged as the declining U.S. preference for British goods should decrease the value of the pound to the dollar and decrease the value of your savings when converted to dollars. 
C)  You should be encouraged as the declining U.S. preference for British goods should decrease the value of the pound to the dollar and raise the value of your savings when converted to dollars. 
D)  You should be encouraged as the declining U.S. preference for British goods should increase the value of the pound to the dollar and raise the value of your savings when converted to dollars. 
A)  You should be discouraged as the declining U.S. preference for British goods should increase the value of the pound to the dollar and decrease the value of your savings when converted to dollars. 
B)  You should be discouraged as the declining U.S. preference for British goods should decrease the value of the pound to the dollar and decrease the value of your savings when converted to dollars. 
C)  You should be encouraged as the declining U.S. preference for British goods should decrease the value of the pound to the dollar and raise the value of your savings when converted to dollars. 
D)  You should be encouraged as the declining U.S. preference for British goods should increase the value of the pound to the dollar and raise the value of your savings when converted to dollars.

Question 18

The model of purchasing power parity is the only way to determine whether a country's currency is undervalued or overvalued.

Accepted Answer

A) True 
 B)False

Question 19

Figure 30-5  
-Refer to Figure 30-5. Suppose the pegged exchange rate is $0.11/yuan. Because of safety concerns and numerous product recalls, U.S. consumers lower their demand for Chinese products. Using the figure above, this would

Accepted Answer

A)  increase the surplus of Chinese yuan. 
B)  decrease the surplus of Chinese yuan. 
C)  decrease the shortage of Chinese yuan. 
D)  increase the shortage of Chinese yuan. 
A)  increase the surplus of Chinese yuan. 
B)  decrease the surplus of Chinese yuan. 
C)  decrease the shortage of Chinese yuan. 
D)  increase the shortage of Chinese yuan.

Question 20

If interest rates in the United States fall

Accepted Answer

A)  the value of the dollar will fall as foreign investors decrease their holdings of U.S. investments. 
B)  the value of the dollar will rise as foreign investors increase their holdings of U.S. investments. 
C)  the value of the dollar will fall as foreign investors increase their holdings of U.S. investments. 
D)  the value of the dollar will rise as foreign investors decrease their holdings of U.S. investments. 
A)  the value of the dollar will fall as foreign investors decrease their holdings of U.S. investments. 
B)  the value of the dollar will rise as foreign investors increase their holdings of U.S. investments. 
C)  the value of the dollar will fall as foreign investors increase their holdings of U.S. investments. 
D)  the value of the dollar will rise as foreign investors decrease their holdings of U.S. investments.

Exam 30: The International Financial System

How were exchange rates determined under the gold standard? How did the Bretton Woods system differ from the gold standard?

Figure 30-7 -Refer to Figure 30-7. If the Indian government pegs its currency to the dollar at a value above $.02/rupee, we would say the currency is

European governments removed many restrictions on flows of capital into and out of Europe in the ________. This policy increased both U.S. investment in European stocks and bonds and European investment in U.S. stocks and bonds.

Figure 30-8 -Refer to Figure 30-8. The equilibrium exchange rate is at A, $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. At the pegged exchange rate

Shares of stock and long-term debt, including corporate and government bonds and bank loans, are bought and sold on

Figure 30-8 -Refer to Figure 30-8. The equilibrium exchange rate is at A, $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D2. After the shift

By 2017, how many European countries were members of the European Union?

If the rate of productivity growth in the United States exceeds the rate of productivity growth in Great Britain we would expect the U.S. dollar to depreciate in value against the British pound.

U.S. dollars can currently be exchanged for gold by foreign central banks, but not by U.S. citizens.

Why might a country raise interest rates in the face of an exchange rate crisis?

Describe the four determinants of exchange rates in the long run.

Countries that use the euro as their currency face similar concerns as countries did during the years of the gold standard in that each are (were)

If a country's currency ________ the dollar, its exchange rate is fixed.

China's exchange rate system from 1994 through 2005 is an example of

The model of purchasing power parity is the only way to determine whether a country's currency is undervalued or overvalued.

Figure 30-5 -Refer to Figure 30-5. Suppose the pegged exchange rate is $0.11/yuan. Because of safety concerns and numerous product recalls, U.S. consumers lower their demand for Chinese products. Using the figure above, this would

If interest rates in the United States fall

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

Figure 30-8 -Refer to Figure 30-8. The equilibrium exchange rate is at A, $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D₂. After the shift