Question 1

If a currency increases in value in response to market forces, this 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 2

What is a depreciation to one country must be an appreciation to the other.

Accepted Answer

A) True 
 B)False

Question 3

The exchange rate of Country X is set by government decisions and maintained by government actions. Country X follows a

Accepted Answer

A)  floating exchange rate policy. 
B)  free market exchange rate policy. 
C)  pegged exchange rate policy. 
D)  fixed exchange rate policy. 
A)  floating exchange rate policy. 
B)  free market exchange rate policy. 
C)  pegged exchange rate policy. 
D)  fixed exchange rate policy.

Question 4

Is it possible for a currency to appreciate relative to one currency, and depreciate relative to another?

Accepted Answer

A)  No, a currency rises or falls against all currencies. 
B)  No, this could happen only under the gold standard. 
C)  Yes, but only if all governments agree on the new rates. 
D)  Yes, this is possible in a world of floating rates. 
A)  No, a currency rises or falls against all currencies. 
B)  No, this could happen only under the gold standard. 
C)  Yes, but only if all governments agree on the new rates. 
D)  Yes, this is possible in a world of floating rates.

Question 5

In 2001, the Argentine peso was overvalued relative to the U.S. dollar.

Accepted Answer

A) True 
 B)False

Question 6

Why did the Bretton Woods system ultimately break down?

Accepted Answer

A)  The refusal of OPEC countries to accept payment for oil in gold. 
B)  The refusal of surplus countries to devalue as required by law. 
C)  An inability to devalue the U.S. dollar despite chronic payments deficits. 
D)  An inability to adequately measure balance of payments surpluses and deficits. 
A)  The refusal of OPEC countries to accept payment for oil in gold. 
B)  The refusal of surplus countries to devalue as required by law. 
C)  An inability to devalue the U.S. dollar despite chronic payments deficits. 
D)  An inability to adequately measure balance of payments surpluses and deficits.

Question 7

Assuming free trade between countries, exchange rates will change so that goods cost the same in all countries. This concept is known as the

Accepted Answer

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

Question 8

Under the Bretton Woods system, devaluation was

Accepted Answer

A)  normal. 
B)  routine. 
C)  rare. 
D)  a last resort. 
A)  normal. 
B)  routine. 
C)  rare. 
D)  a last resort.

Question 9

If U.S. securities pay 7 percent interest, and if Great Britain's securities pay 5 percent interest, then

Accepted Answer

A)  pounds depreciate relative to dollars. 
B)  pounds appreciate relative to dollars. 
C)  Great Britain's imports will rise. 
D)  Great Britain's exports will fall. 
A)  pounds depreciate relative to dollars. 
B)  pounds appreciate relative to dollars. 
C)  Great Britain's imports will rise. 
D)  Great Britain's exports will fall.

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

If interest rates in the United States are higher than interest rates in Europe, what is most likely to happen?

Accepted Answer

A)  Supply of dollars will increase, causing appreciation of the dollar. 
B)  Supply of euros will increase, causing appreciation of the euro. 
C)  Demand for dollars will increase causing appreciation of the dollar. 
D)  Demand for dollars will decrease, causing depreciation of the dollar. 
A)  Supply of dollars will increase, causing appreciation of the dollar. 
B)  Supply of euros will increase, causing appreciation of the euro. 
C)  Demand for dollars will increase causing appreciation of the dollar. 
D)  Demand for dollars will decrease, causing depreciation of the dollar.

Question 12

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 13

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 14

When a government influences the exchange rate of its currency, it is said to be practicing "dirty floating."

Accepted Answer

A) True 
 B)False

Question 15

If one country has higher inflation than another, its exchange rate should depreciate.

Accepted Answer

A) True 
 B)False

Question 16

The exchange rate states the price, in terms of one currency at which another currency can be bought.

Accepted Answer

A) True 
 B)False

Question 17

The U.S. Secretary of the Treasury met with the Japanese Finance Minister to discuss possible cuts in the Japanese discount rate. The likely outcome of currency speculation in response to this news is that

Accepted Answer

A)  the dollar will depreciate. 
B)  the dollar will appreciate. 
C)  the yen will appreciate. 
D)  both the dollar and yen will appreciate. 
A)  the dollar will depreciate. 
B)  the dollar will appreciate. 
C)  the yen will appreciate. 
D)  both the dollar and yen will appreciate.

Question 18

A country running a balance of payments surplus in a fixed exchange rate system may have to ____ its currency.

Accepted Answer

A)  depreciate 
B)  devalue 
C)  revalue 
D)  appreciate 
A)  depreciate 
B)  devalue 
C)  revalue 
D)  appreciate

Question 19

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 20

The term "dirty float" is used to describe a

Accepted Answer

A)  black market in foreign currencies. 
B)  floating currency that is "managed" by central bank authorities. 
C)  nation that switches from free to fixed exchange rates. 
D)  currency system used only in inflationary periods. 
A)  black market in foreign currencies. 
B)  floating currency that is "managed" by central bank authorities. 
C)  nation that switches from free to fixed exchange rates. 
D)  currency system used only in inflationary periods.

Exam 35: The International Monetary System: Order or Disorder

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

What is a depreciation to one country must be an appreciation to the other.

The exchange rate of Country X is set by government decisions and maintained by government actions. Country X follows a

Is it possible for a currency to appreciate relative to one currency, and depreciate relative to another?

In 2001, the Argentine peso was overvalued relative to the U.S. dollar.

Why did the Bretton Woods system ultimately break down?

Assuming free trade between countries, exchange rates will change so that goods cost the same in all countries. This concept is known as the

Under the Bretton Woods system, devaluation was

If U.S. securities pay 7 percent interest, and if Great Britain's securities pay 5 percent interest, then

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

If interest rates in the United States are higher than interest rates in Europe, what is most likely to happen?

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

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

When a government influences the exchange rate of its currency, it is said to be practicing "dirty floating."

If one country has higher inflation than another, its exchange rate should depreciate.

The exchange rate states the price, in terms of one currency at which another currency can be bought.

The U.S. Secretary of the Treasury met with the Japanese Finance Minister to discuss possible cuts in the Japanese discount rate. The likely outcome of currency speculation in response to this news is that

A country running a balance of payments surplus in a fixed exchange rate system may have to ____ its currency.

The Bretton Woods agreements

The term "dirty float" is used to describe a

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

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 Us Economy

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