Question 1

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

Accepted Answer

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

Question 2

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 gain international reserves. 
C) see its money stock continue to rise. 
D) all of the above. 
A) see its central bank gain domestic government bonds. 
B) see its central bank gain international reserves. 
C) see its money stock continue to rise. 
D) all of the above.

Question 3

If the home inflation rate is 9% 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) rise value by 4%. 
D) fall in value by 4%. 
A) rise in value by 5%. 
B) fall in value by 5%. 
C) rise value by 4%. 
D) fall in value by 4%.

Question 4

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

Accepted Answer

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

Question 5

Fixed exchange rates:

Accepted Answer

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

Question 6

Floating exchange rates:

Accepted Answer

A) make transactions between countries more difficult. 
B) make monetary policy interdependent between the countries. 
C) constrain monetary policy officials. 
D) all of the above. 
A) make transactions between countries more difficult. 
B) make monetary policy interdependent between the countries. 
C) constrain monetary policy officials. 
D) all of the above.

Question 7

Fixed exchange rates:

Accepted Answer

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

Question 8

The interest rate differential between two countries is the real interest rate.

Accepted Answer

A) True 
 B)False

Question 9

Relative purchasing power parity implies a country will see its currency keep the same 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 equal to the foreign inflation rate. 
D) its price level is equal to 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 equal to the foreign inflation rate. 
D) its price level is equal to the foreign price level.

Question 10

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

Accepted Answer

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

Question 11

When absolute purchasing power parity holds, the real exchange rate is 1.

Accepted Answer

A) True 
 B)False

Question 12

Flexible exchange rates are determined by:

Accepted Answer

A) the market. 
B) the home country government. 
C) the UN. 
D) the International Monetary Fund. 
A) the market. 
B) the home country government. 
C) the UN. 
D) the International Monetary Fund.

Question 13

The real exchange rate is:

Accepted Answer

A) foreign good per home good. 
B) nominal exchange rate divided by the ratio of the foreign price level to the home price level. 
C) the number of units of foreign currency per one unit of the home currency. 
D) all of the above. 
A) foreign good per home good. 
B) nominal exchange rate divided by the ratio of the foreign price level to the home price level. 
C) the number of units of foreign currency per one unit of the home currency. 
D) all of the above.

Question 14

What are the advantages of fixed and floating exchange rates?

Accepted Answer

An advantage of fixed exchange rates is

Question 15

A depreciation is when the value of a country's currency:

Accepted Answer

A) is fixed by the government. 
B) rises in value in the exchange market. 
C) falls in value in the exchange market. 
D) is fixed in relationship to gold. 
A) is fixed by the government. 
B) rises in value in the exchange market. 
C) falls in value in the exchange market. 
D) is fixed in relationship to gold.

Question 16

Under a fixed exchange rate regime, losses of international reserves imply that:

Accepted Answer

A) the pressure on a country that needs to devalue it currency is greater. 
B) the pressure on a country that needs to revalue its currency is greater. 
C) countries are not under much pressure to change the value of their currency. 
D) countries can not change the value of their currencies. 
A) the pressure on a country that needs to devalue it currency is greater. 
B) the pressure on a country that needs to revalue its currency is greater. 
C) countries are not under much pressure to change the value of their currency. 
D) countries can not change the value of their currencies.

Question 17

A devaluation is when a country:

Accepted Answer

A) allows its currency's value to float. 
B) raises the fixed value of its currency. 
C) lowers the fixed value of its currency. 
D) allows its currency value to be set by the market. 
A) allows its currency's value to float. 
B) raises the fixed value of its currency. 
C) lowers the fixed value of its currency. 
D) allows its currency value to be set by the market.

Question 18

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

Accepted Answer

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

Question 19

If the home inflation rate is 5% and the foreign inflation rate is 9%, 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) rise value by 4%. 
D) fall in value by 4%. 
A) rise in value by 5%. 
B) fall in value by 5%. 
C) rise value by 4%. 
D) fall in value by 4%.

Question 20

A revaluation is when a country:

Accepted Answer

A) allows its currency's value to float. 
B) raises the fixed value of its currency. 
C) lowers the fixed value of its currency. 
D) allows its currency value to be set by the market. 
A) allows its currency's value to float. 
B) raises the fixed value of its currency. 
C) lowers the fixed value of its currency. 
D) allows its currency value to be set by the market.

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

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

If the home inflation rate is 9% and the foreign inflation rate is 5%, then by relative purchasing power parity the home country would expect is exchange rate to:

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

Fixed exchange rates:

Floating exchange rates:

Fixed exchange rates:

The interest rate differential between two countries is the real interest rate.

Relative purchasing power parity implies a country will see its currency keep the same value, if

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

When absolute purchasing power parity holds, the real exchange rate is 1.

Flexible exchange rates are determined by:

The real exchange rate is:

What are the advantages of fixed and floating exchange rates?

A depreciation is when the value of a country's currency:

Under a fixed exchange rate regime, losses of international reserves imply that:

A devaluation is when a country:

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

If the home inflation rate is 5% and the foreign inflation rate is 9%, then by relative purchasing power parity the home country would expect is exchange rate to:

A revaluation is when a country:

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

Exam 19: Exchange Rates

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

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

If the home inflation rate is 9% and the foreign inflation rate is 5%, then by relative purchasing power parity the home country would expect is exchange rate to:

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

Fixed exchange rates:

Floating exchange rates:

Fixed exchange rates:

The interest rate differential between two countries is the real interest rate.

Relative purchasing power parity implies a country will see its currency keep the same value, if

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

When absolute purchasing power parity holds, the real exchange rate is 1.

Flexible exchange rates are determined by:

The real exchange rate is:

What are the advantages of fixed and floating exchange rates?

A depreciation is when the value of a country's currency:

Under a fixed exchange rate regime, losses of international reserves imply that:

A devaluation is when a country:

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

If the home inflation rate is 5% and the foreign inflation rate is 9%, then by relative purchasing power parity the home country would expect is exchange rate to:

A revaluation is when a country:

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