Question 1

Fixed exchange rates are determined in free markets by the forces of demand and supply.

Accepted Answer

A) True 
 B)False

Question 2

A country, such as Argentina in 2002, that is buying its own currency to maintain a given exchange rate

Accepted Answer

A)  has a balance of payments surplus. 
B)  has an undervalued currency. 
C)  has an overvalued currency. 
D)  need not fear a "run" on its currency. 
A)  has a balance of payments surplus. 
B)  has an undervalued currency. 
C)  has an overvalued currency. 
D)  need not fear a "run" on its currency.

Question 3

Explain the role of the International Monetary Fund.Discuss the criticisms leveled against this agency in the wake of economic crises of the 1990s.

Accepted Answer

The International Monetary Fund (IMF) ex

Question 4

Exchange rates determined by the forces of demand and supply are called

Accepted Answer

A)  fixed exchange rates. 
B)  floating exchange rates. 
C)  equilibrium exchange rates. 
D)  dirty exchange rates. 
A)  fixed exchange rates. 
B)  floating exchange rates. 
C)  equilibrium exchange rates. 
D)  dirty exchange rates.

Question 5

An economic recession in the United States would shift the demand for foreign currencies outward, that is, increase demand.

Accepted Answer

A) True 
 B)False

Question 6

In the long run, the chief determinant of exchange rate changes is a change in

Accepted Answer

A)  interest rates. 
B)  real GDP. 
C)  the price of gold. 
D)  price levels. 
A)  interest rates. 
B)  real GDP. 
C)  the price of gold. 
D)  price levels.

Question 7

Which of the following would cause an increase in the demand for U.S.dollars?

Accepted Answer

A)  an interest rate cut in the United States 
B)  an interest rate cut in Europe 
C)  an interest rate increase in Europe 
D)  a recession in Europe 
A)  an interest rate cut in the United States 
B)  an interest rate cut in Europe 
C)  an interest rate increase in Europe 
D)  a recession in Europe

Question 8

The supply of euros would come from

Accepted Answer

A)  American demand for European real estate. 
B)  European demand for U.S.government bonds. 
C)  Americans vacationing in Barcelona, Spain. 
D)  French supplies of wine to U.S.importers. 
A)  American demand for European real estate. 
B)  European demand for U.S.government bonds. 
C)  Americans vacationing in Barcelona, Spain. 
D)  French supplies of wine to U.S.importers.

Question 9

Purchasing power parity explains how exchange rates cause price differences between two countries.

Accepted Answer

A) True 
 B)False

Question 10

Speculators play an important role in a system of floating exchange rates because

Accepted Answer

A)  to make a profit, they must buy a currency when its value is low and sell it when its value is high. 
B)  their purchases and sales lead to wild gyrations in exchange rates and thus increase instability. 
C)  they place additional risks on businesses that need to purchase and sell foreign currency. 
D)  All of the above are correct. 
A)  to make a profit, they must buy a currency when its value is low and sell it when its value is high. 
B)  their purchases and sales lead to wild gyrations in exchange rates and thus increase instability. 
C)  they place additional risks on businesses that need to purchase and sell foreign currency. 
D)  All of the above are correct.

Question 11

In each of the following scenarios, explain why the euro will appreciate or depreciate in a system of floating exchange rates.A) A recession in Germany cuts German purchases of American goods.B) American investors are attracted by prospects for profit on the Frankfurt Stock Exchange.C) Interest rates on government bonds rise in the U.S.but remain stable in Germany.

Accepted Answer

A) The recession leads to a drop in impo

Question 12

A freely floating exchange rate brings some risks to people who are actively engaged in foreign trade.

Accepted Answer

A) True 
 B)False

Question 13

The exchange rate is the price of one currency in terms of another.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following companies would gain from foreign currency depreciation?

Accepted Answer

A)  companies which borrow in foreign currency. 
B)  companies which export goods and services. 
C)  companies which invest in the foreign equity markets. 
D)  companies which buy bonds issued by the foreign government. 
A)  companies which borrow in foreign currency. 
B)  companies which export goods and services. 
C)  companies which invest in the foreign equity markets. 
D)  companies which buy bonds issued by the foreign government.

Question 15

The Bretton Woods agreements

Accepted Answer

A)  established a system of fixed exchange rates based on the free convertibility of the U.S.dollar into gold. 
B)  established a system of fixed exchange rates based on the gold standard. 
C)  permitted countries with a balance of payments deficit to make regular devaluations of their currencies. 
D)  established GATT to police and manage exchange rates. 
A)  established a system of fixed exchange rates based on the free convertibility of the U.S.dollar into gold. 
B)  established a system of fixed exchange rates based on the gold standard. 
C)  permitted countries with a balance of payments deficit to make regular devaluations of their currencies. 
D)  established GATT to police and manage exchange rates.

Question 16

Under the Bretton Woods agreements,

Accepted Answer

A)  the IMF was created to punish countries that did not maintain fixed exchange rates. 
B)  a system of fixed exchange rates based on gold was established. 
C)  each country agreed to buy and sell its currency to maintain a fixed exchange rate. 
D)  All of the above are correct. 
A)  the IMF was created to punish countries that did not maintain fixed exchange rates. 
B)  a system of fixed exchange rates based on gold was established. 
C)  each country agreed to buy and sell its currency to maintain a fixed exchange rate. 
D)  All of the above are correct.

Question 17

The decline in the value of the dollar from 1985 to 1988 was beneficial to

Accepted Answer

A)  American tourists travelling to Europe. 
B)  firms importing goods into America. 
C)  American exporting businesses. 
D)  foreigners holding U.S.government bonds. 
A)  American tourists travelling to Europe. 
B)  firms importing goods into America. 
C)  American exporting businesses. 
D)  foreigners holding U.S.government bonds.

Question 18

At any given moment there is one exchange rate

Accepted Answer

A)  for currencies in the free world. 
B)  between every pair of currencies. 
C)  for all the world's currencies. 
D)  established by the Federal Reserve Board. 
A)  for currencies in the free world. 
B)  between every pair of currencies. 
C)  for all the world's currencies. 
D)  established by the Federal Reserve Board.

Question 19

Higher interest rates in Iceland and the Baltic states in 2008-2009 were necessary to protect the value of their currencies against capital flight.

Accepted Answer

A) True 
 B)False

Question 20

A deficit nation in a fixed exchange rate system can improve its balance of payments by increasing

Accepted Answer

A)  its money supply. 
B)  its interest rates. 
C)  its level of real GDP. 
D)  aggregate demand. 
A)  its money supply. 
B)  its interest rates. 
C)  its level of real GDP. 
D)  aggregate demand.

Exam 36: The International Monetary System: Order or Disorder?

Fixed exchange rates are determined in free markets by the forces of demand and supply.

A country, such as Argentina in 2002, that is buying its own currency to maintain a given exchange rate

Explain the role of the International Monetary Fund.Discuss the criticisms leveled against this agency in the wake of economic crises of the 1990s.

Exchange rates determined by the forces of demand and supply are called

An economic recession in the United States would shift the demand for foreign currencies outward, that is, increase demand.

In the long run, the chief determinant of exchange rate changes is a change in

Which of the following would cause an increase in the demand for U.S.dollars?

The supply of euros would come from

Purchasing power parity explains how exchange rates cause price differences between two countries.

Speculators play an important role in a system of floating exchange rates because

A freely floating exchange rate brings some risks to people who are actively engaged in foreign trade.

The exchange rate is the price of one currency in terms of another.

Which of the following companies would gain from foreign currency depreciation?

The Bretton Woods agreements

Under the Bretton Woods agreements,

The decline in the value of the dollar from 1985 to 1988 was beneficial to

At any given moment there is one exchange rate

Higher interest rates in Iceland and the Baltic states in 2008-2009 were necessary to protect the value of their currencies against capital flight.

A deficit nation in a fixed exchange rate system can improve its balance of payments by increasing

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

Exchange Rates and the Macroeconomy

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