Question 1

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 2

One major reason why the purchasing power parity theory does not always predict exchange rates accurately is that the theory focuses on trade in

Accepted Answer

A) monies. 
B) goods and services. 
C) stocks and bonds. 
D) physical assets. 
A) monies. 
B) goods and services. 
C) stocks and bonds. 
D) physical assets.

Question 3

A federal deficit that raises interest rates will, everything else being equal,

Accepted Answer

A) lead to a dollar depreciation. 
B) decrease imports. 
C) reduce exports. 
D) reduce the balance of trade deficit. 
A) lead to a dollar depreciation. 
B) decrease imports. 
C) reduce exports. 
D) reduce the balance of trade deficit.

Question 4

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 5

Why does anyone demand foreign currency?

Accepted Answer

A) International trade in goods and services 
B) International trade in financial assets 
C) Purchases of physical assets overseas 
D) All of the above are correct. 
A) International trade in goods and services 
B) International trade in financial assets 
C) Purchases of physical assets overseas 
D) All of the above are correct.

Question 6

If a currency decreases in value in response to market forces, this process is known as

Accepted Answer

A) devaluation. 
B) depreciation. 
C) deflation. 
D) degeneration. 
A) devaluation. 
B) depreciation. 
C) deflation. 
D) degeneration.

Question 7

The gold standard prevented a nation from controlling its domestic economy through monetary policy.

Accepted Answer

A) True 
 B)False

Question 8

If the United States experiences an economic boom, compared to other countries, how will this affect the value of the U.S.dollar?

Accepted Answer

A) It will fall because other nations would be forced to raise their interest rates. 
B) It will fall because the United States will import more goods and services, leading to an increased supply of dollars. 
C) It will rise because U.S.GDP would be rising faster than other countries. 
D) It will rise because the Fed will have to lower U.S.interest rates. 
A) It will fall because other nations would be forced to raise their interest rates. 
B) It will fall because the United States will import more goods and services, leading to an increased supply of dollars. 
C) It will rise because U.S.GDP would be rising faster than other countries. 
D) It will rise because the Fed will have to lower U.S.interest rates.

Question 9

The currency value of Agraria is set by government decree.Which of the following happens when the government alters the exchange rate so that its currency can buy more units of foreign currency?

Accepted Answer

A) Reflation 
B) Devaluation 
C) Appreciation 
D) Revaluation 
A) Reflation 
B) Devaluation 
C) Appreciation 
D) Revaluation

Question 10

A prolonged recession in Europe should decrease the

Accepted Answer

A) supply of U.S.dollars. 
B) demand for U.S.dollars. 
C) supply of U.S.goods and services. 
D) demand by Americans for euros. 
A) supply of U.S.dollars. 
B) demand for U.S.dollars. 
C) supply of U.S.goods and services. 
D) demand by Americans for euros.

Question 11

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.

Question 12

Figure 19-3
​  
-Of the graphs in Figure 19-3, where the dotted line shows the actual exchange rate, which one shows a country with an undervalued currency and a balance of trade surplus?

Accepted Answer

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

Question 13

Everything else being equal, one can expect the euro to appreciate relative to the dollar if

Accepted Answer

A) Americans decrease their travel to Germany. 
B) the Germans add to their holdings of U.S.Treasury bills. 
C) Americans purchase land in Germany and build factories. 
D) American exports to Germany increase. 
A) Americans decrease their travel to Germany. 
B) the Germans add to their holdings of U.S.Treasury bills. 
C) Americans purchase land in Germany and build factories. 
D) American exports to Germany increase.

Question 14

The prospect of a recession in the United States would probably cause the dollar to

Accepted Answer

A) depreciate because interest rates would be expected to rise. 
B) depreciate because imports would be expected to rise. 
C) appreciate because imports would be expected to fall. 
D) appreciate because interest rates would be expected to decrease. 
A) depreciate because interest rates would be expected to rise. 
B) depreciate because imports would be expected to rise. 
C) appreciate because imports would be expected to fall. 
D) appreciate because interest rates would be expected to decrease.

Question 15

Why is the international financial system today often called a "nonsystem"?

Accepted Answer

There is no grand organizing principle i

Question 16

If Wisconsin cheddar cheese sells for $3.00 per pound in the United States and for 27.90 pesos in Mexico, what is the exchange rate between the dollar and the peso (assuming PPP holds)?

Accepted Answer

A) $1 = 2.79 pesos 
B) $1 = 7.90 pesos 
C) $1 = 9.30 pesos 
D) $1 = 27.90 pesos 
A) $1 = 2.79 pesos 
B) $1 = 7.90 pesos 
C) $1 = 9.30 pesos 
D) $1 = 27.90 pesos

Question 17

If Japanese tourists visit Yellowstone Park, 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 18

A country with an overvalued currency

Accepted Answer

A) will have a balance of payments deficit. 
B) will suffer losses of foreign reserves. 
C) must intervene in the foreign-exchange market to buy its own currency. 
D) All of the above are correct. 
A) will have a balance of payments deficit. 
B) will suffer losses of foreign reserves. 
C) must intervene in the foreign-exchange market to buy its own currency. 
D) All of the above are correct.

Question 19

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 20

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.

Exam 35: The International Monetary System: Order or Disorder

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

One major reason why the purchasing power parity theory does not always predict exchange rates accurately is that the theory focuses on trade in

A federal deficit that raises interest rates will, everything else being equal,

Under the Bretton Woods agreements,

Why does anyone demand foreign currency?

If a currency decreases in value in response to market forces, this process is known as

The gold standard prevented a nation from controlling its domestic economy through monetary policy.

If the United States experiences an economic boom, compared to other countries, how will this affect the value of the U.S.dollar?

The currency value of Agraria is set by government decree.Which of the following happens when the government alters the exchange rate so that its currency can buy more units of foreign currency?

A prolonged recession in Europe should decrease the

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

Figure 19-3 ​ -Of the graphs in Figure 19-3, where the dotted line shows the actual exchange rate, which one shows a country with an undervalued currency and a balance of trade surplus?

Everything else being equal, one can expect the euro to appreciate relative to the dollar if

The prospect of a recession in the United States would probably cause the dollar to

Why is the international financial system today often called a "nonsystem"?

If Wisconsin cheddar cheese sells for $3.00 per pound in the United States and for 27.90 pesos in Mexico, what is the exchange rate between the dollar and the peso (assuming PPP holds)?

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

A country with an overvalued currency

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

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

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

Filters

Figure 19-3 -Of the graphs in Figure 19-3, where the dotted line shows the actual exchange rate, which one shows a country with an undervalued currency and a balance of trade surplus?