Question 1

If the equilibrium exchange rate between U.S. dollars and Japanese yen is $0.01 = 1 yen but currently the exchange rate is $0.0089 = 1 yen, then a __________ exists.

Accepted Answer

A) shortage of dollars 
B) surplus of dollars 
C) surplus of yen 
D) shortage of yen 
E) b and d 
A) shortage of dollars 
B) surplus of dollars 
C) surplus of yen 
D) shortage of yen 
E) b and d

Question 2

In the long run, the purchasing power parity theory predicts exchange rates accurately, particularly when there is a large difference in inflation rates across countries.

Accepted Answer

A) True 
 B)False

Question 3

Suppose the governments of Mexico and the United States agree to a fixed exchange rate. Describe some of the options available to the Mexican government if the peso was persistently overvalued, creating a surplus of pesos on the foreign exchange market. Be sure to explain how each of these options would be expected to impact the supply and/or demand for Mexican pesos.

Accepted Answer

The Mexican government could buy pesos (

Question 4

According to information presented in the textbook, research by economists Bloom, Draca, and Van Reenen revealed that imports from China were associated with not only lower consumer goods prices, but also a ______________ cost of inputs for domestic firms, a(n) ______________ in the variety of products those domestic firms sold, and a(n) _______________ in U.S. productivity.

Accepted Answer

A) lower; increase; increase 
B) higher; decrease; increase 
C) lower; increase; decrease 
D) higher; increase; decrease 
E) lower; decrease; decrease 
A) lower; increase; increase 
B) higher; decrease; increase 
C) lower; increase; decrease 
D) higher; increase; decrease 
E) lower; decrease; decrease

Question 5

A "devaluation" occurs when

Accepted Answer

A) the official price of a currency is raised. 
B) the official price of a currency is lowered. 
C) a nation's currency depreciates under a flexible exchange rate system. 
D) a nation's currency appreciates under a flexible exchange rate system. 
E) none of the above 
A) the official price of a currency is raised. 
B) the official price of a currency is lowered. 
C) a nation's currency depreciates under a flexible exchange rate system. 
D) a nation's currency appreciates under a flexible exchange rate system. 
E) none of the above

Question 6

Exhibit 34-5
U.S. $ Equivalent Foreign Currency per U.S. $
   ​
​
-Refer to Exhibit 34-5. Based on the information provided in this table, between Monday and Tuesday, the U.S. dollar ____________ against the Thai baht and the baht _____________ against the U.S. dollar.

Accepted Answer

A) appreciated; appreciated 
B) depreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated 
A) appreciated; appreciated 
B) depreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated

Question 7

Suppose that prices in the United States rise relative to prices in Japan. We expect that

Accepted Answer

A) the dollar will appreciate and the yen will depreciate. 
B) the dollar will depreciate and the yen will appreciate. 
C) both the dollar and the yen will appreciate. 
D) both the dollar and the yen will depreciate. 
A) the dollar will appreciate and the yen will depreciate. 
B) the dollar will depreciate and the yen will appreciate. 
C) both the dollar and the yen will appreciate. 
D) both the dollar and the yen will depreciate.

Question 8

As the dollar price of a foreign currency (for example, dollars per yen) decreases, foreign goods will be __________ expensive, __________ foreign goods will be purchased, and __________ foreign currency will be demanded.

Accepted Answer

A) less; more; more 
B) less; more; less 
C) more; fewer; less 
D) more; fewer; more 
A) less; more; more 
B) less; more; less 
C) more; fewer; less 
D) more; fewer; more

Question 9

Which of the following exchange rates between the dollar and the peso would an American buyer of Mexican goods most prefer?

Accepted Answer

A) $0.10 = 1 peso 
B) $0.08 = 1 peso 
C) $0.06 = 1 peso 
D) $0.04 = 1 peso 
A) $0.10 = 1 peso 
B) $0.08 = 1 peso 
C) $0.06 = 1 peso 
D) $0.04 = 1 peso

Question 10

If Americans demand goods produced in Mexico, it leads to a demand for Mexican pesos and a supply of U.S. dollars on the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 11

As the dollar price of a foreign currency (for example, dollars per yen) increases, __________ dollars will be demanded by foreigners, U.S. goods will be __________ expensive for foreigners, __________ U.S. goods will be purchased by foreigners, and __________ foreign currency will be supplied to the foreign exchange market.

Accepted Answer

A) more; less; more; more 
B) more; less; more; less 
C) fewer; more; fewer; less 
D) fewer; more; fewer; more 
A) more; less; more; more 
B) more; less; more; less 
C) fewer; more; fewer; less 
D) fewer; more; fewer; more

Question 12

Suppose the current exchange rate between the U.S. dollar and the Mexican peso is $0.12 = 1 peso. Furthermore, suppose the price level in the United States rises 25 percent at a time when the Mexican price level is stable. According to the purchasing power parity theory, what will be the new equilibrium exchange rate?

Accepted Answer

A) $0.15 = 1 peso 
B) $0.09 = 1 peso 
C) $0.13 = 1 peso 
D) $0.08 = 1 peso 
A) $0.15 = 1 peso 
B) $0.09 = 1 peso 
C) $0.13 = 1 peso 
D) $0.08 = 1 peso

Question 13

If $1 is equal to 120 yen, then 1 yen is equal to approximately

Accepted Answer

A) $1.20 
B) $0.94 
C) $0.83 
D) $0.0083 
E) none of the above 
A) $1.20 
B) $0.94 
C) $0.83 
D) $0.0083 
E) none of the above

Question 14

Assume that there are only two countries in the world, the United States and Japan. What creates the demand for and supply of Japanese yen on the foreign exchange market? Name three different things that could cause the yen to appreciate in value.

Accepted Answer

The demand for Japanese yen would come f

Question 15

Suppose that on Monday, a Big Mac cost $3.00 in the United States and 310 Japanese yen in Japan. On Monday, the exchange rate was $1 = 85 yen. According to the purchasing power parity theory, the yen was __________ by approximately __________ percent.

Accepted Answer

A) overvalued; 22 
B) undervalued; 40 
C) overvalued; 29 
D) undervalued; 22 
E) overvalued; 18 
A) overvalued; 22 
B) undervalued; 40 
C) overvalued; 29 
D) undervalued; 22 
E) overvalued; 18

Question 16

Americans buying Japanese cars create a

Accepted Answer

A) demand for U.S.dollars and supply of Japanese yen. 
B) demand for both U.S.dollars and Japanese yen. 
C) supply of U.S.dollars and demand for Japanese yen. 
D) supply of both U.S.dollars and Japanese yen. 
A) demand for U.S.dollars and supply of Japanese yen. 
B) demand for both U.S.dollars and Japanese yen. 
C) supply of U.S.dollars and demand for Japanese yen. 
D) supply of both U.S.dollars and Japanese yen.

Question 17

According to information provided in the textbook, research by economists Autor, Dorn, and Hanson revealed that during the period 1990 to 2007, U.S. regions that faced more competition from Chinese imports had _____________ unemployment rates and ______________ wages than U.S. regions that faced less competition from Chinese imports.

Accepted Answer

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

Question 18

If real interest rates in Japan fall relative to real interest rates in the United States, the yen will likely __________ in terms of the dollar and the dollar will likely __________ in terms of the yen.

Accepted Answer

A) appreciate; depreciate 
B) depreciate; appreciate 
C) remain unaffected; remain unaffected 
D) remain unaffected; appreciate 
E) remain unaffected; depreciate 
A) appreciate; depreciate 
B) depreciate; appreciate 
C) remain unaffected; remain unaffected 
D) remain unaffected; appreciate 
E) remain unaffected; depreciate

Question 19

Suppose that labor is mobile between countries A and B. If the relative demand for goods rises in country A, then labor can flow from ______________. It may be possible in this situation for countries A and B to __________________ which would help to___________________.

Accepted Answer

A) country A to country B; fix the exchange rate between the two countries (or have a common currency); eliminate the risks associated with having a flexible exchange rate. 
B) country B to country A; impose trade restrictions upon one another; increase employment in country A 
C) country B to country A; fix the exchange rate between the two countries (or have a common currency); eliminate the risks associated with having a flexible exchange rate 
D) country A to country B; adopt flexible exchange rates; reduce the risk of exchange rate fluctuations 
A) country A to country B; fix the exchange rate between the two countries (or have a common currency); eliminate the risks associated with having a flexible exchange rate. 
B) country B to country A; impose trade restrictions upon one another; increase employment in country A 
C) country B to country A; fix the exchange rate between the two countries (or have a common currency); eliminate the risks associated with having a flexible exchange rate 
D) country A to country B; adopt flexible exchange rates; reduce the risk of exchange rate fluctuations

Question 20

The Mexican demand for American goods leads to

Accepted Answer

A) the demand for Mexican pesos and the supply of U.S.dollars on the foreign exchange market. 
B) the demand for U.S.dollars and the demand for Mexican pesos on the foreign exchange market. 
C) the demand for U.S.dollars and the supply of Mexican pesos on the foreign exchange market. 
D) the demand for U.S.dollars and the supply of U.S.dollars on the foreign exchange market. 
A) the demand for Mexican pesos and the supply of U.S.dollars on the foreign exchange market. 
B) the demand for U.S.dollars and the demand for Mexican pesos on the foreign exchange market. 
C) the demand for U.S.dollars and the supply of Mexican pesos on the foreign exchange market. 
D) the demand for U.S.dollars and the supply of U.S.dollars on the foreign exchange market.

Exam 34: International Finance

If the equilibrium exchange rate between U.S. dollars and Japanese yen is $0.01 = 1 yen but currently the exchange rate is $0.0089 = 1 yen, then a __________ exists.

In the long run, the purchasing power parity theory predicts exchange rates accurately, particularly when there is a large difference in inflation rates across countries.

A "devaluation" occurs when

Exhibit 34-5 U.S. $ Equivalent Foreign Currency per U.S. $ ​ ​ -Refer to Exhibit 34-5. Based on the information provided in this table, between Monday and Tuesday, the U.S. dollar ____________ against the Thai baht and the baht _____________ against the U.S. dollar.

Suppose that prices in the United States rise relative to prices in Japan. We expect that

As the dollar price of a foreign currency (for example, dollars per yen) decreases, foreign goods will be __________ expensive, __________ foreign goods will be purchased, and __________ foreign currency will be demanded.

Which of the following exchange rates between the dollar and the peso would an American buyer of Mexican goods most prefer?

If Americans demand goods produced in Mexico, it leads to a demand for Mexican pesos and a supply of U.S. dollars on the foreign exchange market.

If $1 is equal to 120 yen, then 1 yen is equal to approximately

Assume that there are only two countries in the world, the United States and Japan. What creates the demand for and supply of Japanese yen on the foreign exchange market? Name three different things that could cause the yen to appreciate in value.

Suppose that on Monday, a Big Mac cost $3.00 in the United States and 310 Japanese yen in Japan. On Monday, the exchange rate was $1 = 85 yen. According to the purchasing power parity theory, the yen was __________ by approximately __________ percent.

Americans buying Japanese cars create a

If real interest rates in Japan fall relative to real interest rates in the United States, the yen will likely __________ in terms of the dollar and the dollar will likely __________ in terms of the yen.

Suppose that labor is mobile between countries A and B. If the relative demand for goods rises in country A, then labor can flow from ______________. It may be possible in this situation for countries A and B to __________________ which would help to___________________.

The Mexican demand for American goods leads to

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II Gdp and Real Gdp

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Keynesian Macroeconomics and Economic Instability a Critique of the Self Regulating Economy

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Exhibit 34-5 U.S. $ Equivalent Foreign Currency per U.S. $ -Refer to Exhibit 34-5. Based on the information provided in this table, between Monday and Tuesday, the U.S. dollar against the Thai baht and the baht _ against the U.S. dollar.

As the dollar price of a foreign currency (for example, dollars per yen) decreases, foreign goods will be expensive, foreign goods will be purchased, and __ foreign currency will be demanded.

Suppose that on Monday, a Big Mac cost $3.00 in the United States and 310 Japanese yen in Japan. On Monday, the exchange rate was $1 = 85 yen. According to the purchasing power parity theory, the yen was by approximately percent.

If real interest rates in Japan fall relative to real interest rates in the United States, the yen will likely in terms of the dollar and the dollar will likely in terms of the yen.

Suppose that labor is mobile between countries A and B. If the relative demand for goods rises in country A, then labor can flow from . It may be possible in this situation for countries A and B to which would help to_______.