Question 1

Under fixed exchange rates a country's:

Accepted Answer

A) money supply is domestically controlled. 
B) inflation rate is fixed. 
C) monetary policy makers are independent. 
D) all of the above. 
A) money supply is domestically controlled. 
B) inflation rate is fixed. 
C) monetary policy makers are independent. 
D) all of the above. B

Question 2

Floating exchange rates:

Accepted Answer

A) make transactions between countries more difficult. 
B) make monetary policy independent. 
C) provide autonomy for monetary policy authorities. 
D) all of the above. 
A) make transactions between countries more difficult. 
B) make monetary policy independent. 
C) provide autonomy for monetary policy authorities. 
D) all of the above. D

Question 3

Purchasing power parity is the idea that:

Accepted Answer

A) the nominal exchange equals the ratio of the foreign price to the home price. 
B) the nominal exchange rate equals the foreign price time the home price. 
C) the nominal exchange equals the home price less the foreign price. 
A) the nominal exchange equals the ratio of the foreign price to the home price. 
B) the nominal exchange rate equals the foreign price time the home price. 
C) the nominal exchange equals the home price less the foreign price. A

Question 4

Purchasing power parity may not hold due to:

Accepted Answer

A) inflation. 
B) nontraded goods such as services. 
C) market clearing. 
D) all of the above. 
A) inflation. 
B) nontraded goods such as services. 
C) market clearing. 
D) all of the above.

Question 5

Fixed exchange rates:

Accepted Answer

A) make transactions between countries riskier compared to floating exchange rates. 
B) make monetary policy independent between the countries fixing their exchange rate. 
C) constrain monetary policy officials. 
D) all of the above. 
A) make transactions between countries riskier compared to floating exchange rates. 
B) make monetary policy independent between the countries fixing their exchange rate. 
C) constrain monetary policy officials. 
D) all of the above.

Question 6

Interest rate parity says that:

Accepted Answer

A) the interest rate differential is the growth rate of the nominal exchange rate. 
B) the interest rate differential is ratio of the foreign price level to the home price level. 
C) the interest rate differential is the growth rate of the real exchange rate. 
D) the interest rate differential is ratio of the home price level to the foreign price level. 
A) the interest rate differential is the growth rate of the nominal exchange rate. 
B) the interest rate differential is ratio of the foreign price level to the home price level. 
C) the interest rate differential is the growth rate of the real exchange rate. 
D) the interest rate differential is ratio of the home price level to the foreign price level.

Question 7

Fixed exchange rates:

Accepted Answer

A) facilitate transactions between countries compared to floating exchange rates. 
B) make monetary policy independent between the countries fixing their exchange rate. 
C) give domestic monetary policy officials more autonomy. 
D) all of the above. 
A) facilitate transactions between countries compared to floating exchange rates. 
B) make monetary policy independent between the countries fixing their exchange rate. 
C) give domestic monetary policy officials more autonomy. 
D) all of the above.

Question 8

If a country fixes its exchange rate, it gives up control of its money supply.

Accepted Answer

A) True 
 B)False

Question 9

If absolute purchasing power parity holds, under fixed exchange rates:

Accepted Answer

A) the home interest rate equals the foreign interest rate. 
B) the home inflation rate equals the foreign inflation rate. 
C) the growth rate of the nominal exchange rate is zero. 
D) all of the above. 
A) the home interest rate equals the foreign interest rate. 
B) the home inflation rate equals the foreign inflation rate. 
C) the growth rate of the nominal exchange rate is zero. 
D) all of the above.

Question 10

If a country with a fixed exchange rate tries to raise its money stock it will:

Accepted Answer

A) see its central bank gain domestic government bonds. 
B) see its central bank lose international reserves. 
C) see its money stock fall back to its initial level. 
D) all of the above. 
A) see its central bank gain domestic government bonds. 
B) see its central bank lose international reserves. 
C) see its money stock fall back to its initial level. 
D) all of the above.

Question 11

Non-traded goods include:

Accepted Answer

A) personal services like haircuts. 
B) durable goods like tv sets. 
C) consumer goods like shirts. 
D) all of the above. 
A) personal services like haircuts. 
B) durable goods like tv sets. 
C) consumer goods like shirts. 
D) all of the above.

Question 12

If the home interest rate is 5% and the foreign interest rate is 7%, then the difference in the expected inflation rates is:

Accepted Answer

A) 2%. 
B) 5%. 
C) -2%. 
D) -12%. 
A) 2%. 
B) 5%. 
C) -2%. 
D) -12%.

Question 13

Floating exchange rates:

Accepted Answer

A) make transactions between countries easier. 
B) make monetary policy independent. 
C) constrain monetary policy officials. 
D) all of the above. 
A) make transactions between countries easier. 
B) make monetary policy independent. 
C) constrain monetary policy officials. 
D) all of the above.

Question 14

If the home inflation rate is 5% and the foreign inflation rate is 5%, then by relative purchasing power parity the home country would expect is exchange rate to:

Accepted Answer

A) rise in value by 5%. 
B) fall in value by 5%. 
C) have no change in its value. 
D) fall in value by 10%. 
A) rise in value by 5%. 
B) fall in value by 5%. 
C) have no change in its value. 
D) fall in value by 10%.

Question 15

Floating exchange rates:

Accepted Answer

A) make transactions between countries easier. 
B) make monetary policy interdependent between the countries. 
C) provide autonomy for monetary policy authorities. 
D) all of the above. 
A) make transactions between countries easier. 
B) make monetary policy interdependent between the countries. 
C) provide autonomy for monetary policy authorities. 
D) all of the above.

Question 16

Relative purchasing power parity says that:

Accepted Answer

A) the growth rate of the nominal exchange rate is the foreign inflation rate less the home inflation rate. 
B) the growth rate of the nominal exchange rate is the foreign inflation rate times the home inflation rate. 
C) the growth rate of the nominal exchange rate is the home inflation rate plus the foreign inflation rate. 
D) the growth rate of the nominal exchange rate is the foreign inflation rate divided by the home inflation rate. 
A) the growth rate of the nominal exchange rate is the foreign inflation rate less the home inflation rate. 
B) the growth rate of the nominal exchange rate is the foreign inflation rate times the home inflation rate. 
C) the growth rate of the nominal exchange rate is the home inflation rate plus the foreign inflation rate. 
D) the growth rate of the nominal exchange rate is the foreign inflation rate divided by the home inflation rate.

Question 17

Relative purchasing power parity implies a country will see its currency rise in value, if

Accepted Answer

A) its inflation rate is lower than the foreign inflation rate. 
B) its price level is higher than the foreign price level. 
C) its inflation rate is higher than the foreign inflation rate. 
D) its price level is lower than the foreign price level. 
A) its inflation rate is lower than the foreign inflation rate. 
B) its price level is higher than the foreign price level. 
C) its inflation rate is higher than the foreign inflation rate. 
D) its price level is lower than the foreign price level.

Question 18

Relative purchasing power parity says that the country with the higher inflation rate will see its currency depreciate.

Accepted Answer

A) True 
 B)False

Question 19

What is a nominal exchange rate?

Accepted Answer

The nominal exchange rate is the amount

Question 20

If the home interest rate is 7% and the foreign interest rate is 5%, then the expected growth of the nominal exchange rate is:

Accepted Answer

A) 2%. 
B) 7%. 
C) -2%. 
D) -12%. 
A) 2%. 
B) 7%. 
C) -2%. 
D) -12%.

Under fixed exchange rates a country's:

Floating exchange rates:

Purchasing power parity is the idea that:

Purchasing power parity may not hold due to:

Fixed exchange rates:

Interest rate parity says that:

Fixed exchange rates:

If a country fixes its exchange rate, it gives up control of its money supply.

If absolute purchasing power parity holds, under fixed exchange rates:

If a country with a fixed exchange rate tries to raise its money stock it will:

Non-traded goods include:

If the home interest rate is 5% and the foreign interest rate is 7%, then the difference in the expected inflation rates is:

Floating exchange rates:

If the home inflation rate is 5% and the foreign inflation rate is 5%, then by relative purchasing power parity the home country would expect is exchange rate to:

Floating exchange rates:

Relative purchasing power parity says that:

Relative purchasing power parity implies a country will see its currency rise in value, if

Relative purchasing power parity says that the country with the higher inflation rate will see its currency depreciate.

What is a nominal exchange rate?

If the home interest rate is 7% and the foreign interest rate is 5%, then the expected growth of the nominal exchange rate is:

Thinking About Macroeconomics

National-Income Accounting: Gross Domestic Product and the Price Level

Introduction to Economic Growth

Working With the Solow Growth Model

Conditional Convergence and Long-Run Economic Growth

Macroeconomics Without Microeconomic Foundations

Markets, Prices, Supply, and Demand

Consumption, Saving, and Investment

An Equilibrium Business-Cycle Model

Capital Utilization and Unemployment

The Demand for Money and the Price Level

Inflation, Money Growth, and Interest Rates

Government Expenditure

Taxes

Public Debt

Money and Business Cycles I: the Price-Misperceptions Model

Money and Business Cycles Ii: Sticky Prices and Nominal Wage Rates

World Markets in Goods and Credit

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Exam 19: Exchange Rates

Under fixed exchange rates a country's:

Floating exchange rates:

Purchasing power parity is the idea that:

Purchasing power parity may not hold due to:

Fixed exchange rates:

Interest rate parity says that:

Fixed exchange rates:

If a country fixes its exchange rate, it gives up control of its money supply.

If absolute purchasing power parity holds, under fixed exchange rates:

If a country with a fixed exchange rate tries to raise its money stock it will:

Non-traded goods include:

If the home interest rate is 5% and the foreign interest rate is 7%, then the difference in the expected inflation rates is:

Floating exchange rates:

If the home inflation rate is 5% and the foreign inflation rate is 5%, then by relative purchasing power parity the home country would expect is exchange rate to:

Floating exchange rates:

Relative purchasing power parity says that:

Relative purchasing power parity implies a country will see its currency rise in value, if

Relative purchasing power parity says that the country with the higher inflation rate will see its currency depreciate.

What is a nominal exchange rate?

If the home interest rate is 7% and the foreign interest rate is 5%, then the expected growth of the nominal exchange rate is:

Thinking About Macroeconomics

National-Income Accounting: Gross Domestic Product and the Price Level

Introduction to Economic Growth

Working With the Solow Growth Model

Conditional Convergence and Long-Run Economic Growth

Macroeconomics Without Microeconomic Foundations

Markets, Prices, Supply, and Demand

Consumption, Saving, and Investment

An Equilibrium Business-Cycle Model

Capital Utilization and Unemployment

The Demand for Money and the Price Level

Inflation, Money Growth, and Interest Rates

Government Expenditure

Taxes

Public Debt

Money and Business Cycles I: the Price-Misperceptions Model

Money and Business Cycles Ii: Sticky Prices and Nominal Wage Rates

World Markets in Goods and Credit

Filters