Question 1

The idea behind the "Big Mac index" is a test of

Accepted Answer

A) interest rate parity theory. 
B) long-run equilibrium theory. 
C) purchasing power parity theory. 
D) exchange rate equalization theory. 
A) interest rate parity theory. 
B) long-run equilibrium theory. 
C) purchasing power parity theory. 
D) exchange rate equalization theory.

Question 2

Which of the following do most economists consider to be the most basic measure of a nation's international transactions?

Accepted Answer

A) Balance on current account 
B) Balance on capital account 
C) Balance of merchandise trade 
D) Balance on long-term capital 
A) Balance on current account 
B) Balance on capital account 
C) Balance of merchandise trade 
D) Balance on long-term capital

Question 3

Foreign direct investment leads to demand for a country's currency.

Accepted Answer

A) True 
 B)False

Question 4

Balance of payments surpluses arise whenever the exchange rate is pegged at an artificially low level.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following countries has gone so far as to adopt the U.S.dollar as its domestic currency?

Accepted Answer

A) Panama 
B) Ecuador 
C) Zimbabwe 
D) All of the above 
A) Panama 
B) Ecuador 
C) Zimbabwe 
D) All of the above

Question 6

International trade under a floating exchange rate system

Accepted Answer

A) has been trouble-free owing to the stabilizing role of speculators in the currency markets. 
B) has suffered from so many problems that the volume of trade has declined significantly. 
C) exposes businesses to unavoidable risks when exchange rates change. 
D) has been subject to wild runs on currencies that were on the verge of devaluation. 
A) has been trouble-free owing to the stabilizing role of speculators in the currency markets. 
B) has suffered from so many problems that the volume of trade has declined significantly. 
C) exposes businesses to unavoidable risks when exchange rates change. 
D) has been subject to wild runs on currencies that were on the verge of devaluation.

Question 7

If the dollar appreciates relative to other currencies, which of the following is true?

Accepted Answer

A) It takes more foreign currency to buy a dollar. 
B) It takes more dollars to buy a foreign currency. 
C) U.S.exports will increase. 
D) Foreign purchases of U.S.goods will increase. 
A) It takes more foreign currency to buy a dollar. 
B) It takes more dollars to buy a foreign currency. 
C) U.S.exports will increase. 
D) Foreign purchases of U.S.goods will increase.

Question 8

If Japanese tourists visit Yellowstone Park, what is the effect in the foreign-exchange market?

Accepted Answer

A) It will increase demand for Japanese yen. 
B) It will decrease demand for Japanese yen. 
C) It will increase supply of Japanese yen. 
D) It will decrease supply of Japanese yen. 
A) It will increase demand for Japanese yen. 
B) It will decrease demand for Japanese yen. 
C) It will increase supply of Japanese yen. 
D) It will decrease supply of Japanese yen.

Question 9

Adhering to a strict gold standard necessarily means that

Accepted Answer

A) each nation can vary its money supply in response to domestic economic conditions. 
B) no country will experience inflation. 
C) no country will have control over its monetary policy. 
D) no country will experience deflation. 
A) each nation can vary its money supply in response to domestic economic conditions. 
B) no country will experience inflation. 
C) no country will have control over its monetary policy. 
D) no country will experience deflation.

Question 10

Many experts believe that the major determinant of exchange rates in the short run is relative

Accepted Answer

A) price levels. 
B) income levels. 
C) money supplies. 
D) interest rates. 
A) price levels. 
B) income levels. 
C) money supplies. 
D) interest rates.

Question 11

Figure 19-1
​  
-Of the graphs in Figure 19-1, which one shows the effects of an increase in interest rates in Japan and a depreciation of the dollar?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 12

Countries with relatively low inflation rates will have appreciating currencies.

Accepted Answer

A) True 
 B)False

Question 13

If the U.S.exports passenger jet aircraft, what is the effect in the foreign-exchange market?

Accepted Answer

A) It will increase demand for U.S.dollars. 
B) It will decrease demand for U.S.dollars. 
C) It will increase supply of U.S.dollars. 
D) It will decrease supply of U.S.dollars. 
A) It will increase demand for U.S.dollars. 
B) It will decrease demand for U.S.dollars. 
C) It will increase supply of U.S.dollars. 
D) It will decrease supply of U.S.dollars.

Question 14

Which of the following statements is correct?

Accepted Answer

A) In the short run, interest rate differentials have the greatest impact on exchange rates. 
B) In the medium run, differences in growth rates of aggregate demand have the greatest impact on exchange rates. 
C) In the long run, price and inflation differentials have the greatest impact on exchange rates. 
D) All of the above are correct. 
A) In the short run, interest rate differentials have the greatest impact on exchange rates. 
B) In the medium run, differences in growth rates of aggregate demand have the greatest impact on exchange rates. 
C) In the long run, price and inflation differentials have the greatest impact on exchange rates. 
D) All of the above are correct.

Question 15

On May 12, 2011, it cost U.S.$1.64 to buy 1 British pound.How many British pounds would U.S.$1 buy?

Accepted Answer

A) 0.56 
B) 0.61 
C) 1.64 
D) 2.64 
A) 0.56 
B) 0.61 
C) 1.64 
D) 2.64

Question 16

If a currency increases in value as a result of government decree rather than market forces, the process is known as

Accepted Answer

A) reflation. 
B) revaluation. 
C) appreciation. 
D) value-added. 
A) reflation. 
B) revaluation. 
C) appreciation. 
D) value-added.

Question 17

On May 12, 2011, the U.S.dollar was worth 28 Russian rubles.How many U.S.dollars did it take to buy 1 Russian ruble?

Accepted Answer

A) 0.01 
B) 0.04 
C) 0.28 
D) 0.40 
A) 0.01 
B) 0.04 
C) 0.28 
D) 0.40

Question 18

To try and stave off a devaluation of its fixed currency, Argentina was required to

Accepted Answer

A) lower interest rates. 
B) reduce tax levels. 
C) increase its money supplies. 
D) increase interest rates. 
A) lower interest rates. 
B) reduce tax levels. 
C) increase its money supplies. 
D) increase interest rates.

Question 19

If the dollar depreciates relative to other currencies, which of the following is true?

Accepted Answer

A) It takes more foreign currency to buy a dollar. 
B) It takes more dollars to buy a foreign currency. 
C) U.S.exports will decrease. 
D) Foreign purchases of U.S.goods will decrease. 
A) It takes more foreign currency to buy a dollar. 
B) It takes more dollars to buy a foreign currency. 
C) U.S.exports will decrease. 
D) Foreign purchases of U.S.goods will decrease.

Question 20

Adhering to a strict fixed exchange rate system means that

Accepted Answer

A) no country will experience inflation or recession. 
B) each nation improves control over its money supply. 
C) each nation loses some control of its monetary policy and its domestic economy. 
D) each nation improves control over its fiscal policy and aggregate demand. 
A) no country will experience inflation or recession. 
B) each nation improves control over its money supply. 
C) each nation loses some control of its monetary policy and its domestic economy. 
D) each nation improves control over its fiscal policy and aggregate demand.

Exam 35: The International Monetary System: Order or Disorder

The idea behind the "Big Mac index" is a test of

Which of the following do most economists consider to be the most basic measure of a nation's international transactions?

Foreign direct investment leads to demand for a country's currency.

Balance of payments surpluses arise whenever the exchange rate is pegged at an artificially low level.

Which of the following countries has gone so far as to adopt the U.S.dollar as its domestic currency?

International trade under a floating exchange rate system

If the dollar appreciates relative to other currencies, which of the following is true?

If Japanese tourists visit Yellowstone Park, what is the effect in the foreign-exchange market?

Adhering to a strict gold standard necessarily means that

Many experts believe that the major determinant of exchange rates in the short run is relative

Figure 19-1 ​ -Of the graphs in Figure 19-1, which one shows the effects of an increase in interest rates in Japan and a depreciation of the dollar?

Countries with relatively low inflation rates will have appreciating currencies.

If the U.S.exports passenger jet aircraft, what is the effect in the foreign-exchange market?

Which of the following statements is correct?

On May 12, 2011, it cost U.S.$1.64 to buy 1 British pound.How many British pounds would U.S.$1 buy?

If a currency increases in value as a result of government decree rather than market forces, the process is known as

On May 12, 2011, the U.S.dollar was worth 28 Russian rubles.How many U.S.dollars did it take to buy 1 Russian ruble?

To try and stave off a devaluation of its fixed currency, Argentina was required to

If the dollar depreciates relative to other currencies, which of the following is true?

Adhering to a strict fixed exchange rate system means that

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

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Figure 19-1 -Of the graphs in Figure 19-1, which one shows the effects of an increase in interest rates in Japan and a depreciation of the dollar?