Question 1

The main component of the monetary union created by the Treaty of Maastricht is a(n)

Accepted Answer

A)  single currency. 
B)  gold standard. 
C)  bilateral barter system of currencies. 
D)  unified stock market. 
A)  single currency. 
B)  gold standard. 
C)  bilateral barter system of currencies. 
D)  unified stock market.

Question 2

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 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

The International Monetary Fund was established to manage the Bretton Woods System.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 7

An area in which the United States has had a sizable surplus in its balance of payments is sales of ____ to foreigners.

Accepted Answer

A)  goods 
B)  energy 
C)  assets 
D)  automobiles 
A)  goods 
B)  energy 
C)  assets 
D)  automobiles

Question 8

The chief cause of short-run changes in exchange rates is

Accepted Answer

A)  the world's political situation. 
B)  "hot money" chasing high interest rates. 
C)  changes in consumer tastes. 
D)  central bank interventions. 
A)  the world's political situation. 
B)  "hot money" chasing high interest rates. 
C)  changes in consumer tastes. 
D)  central bank interventions.

Question 9

The Bretton Woods system worked fairly well for a number of years, but it finally broke down over

Accepted Answer

A)  lack of agreement on how to settle the problems of the surplus nations. 
B)  its inability to devalue the U.S. dollar. 
C)  the huge debts of the IMF to less-developed countries. 
D)  the controversies generated by surplus nations wanting to devalue their currencies. 
A)  lack of agreement on how to settle the problems of the surplus nations. 
B)  its inability to devalue the U.S. dollar. 
C)  the huge debts of the IMF to less-developed countries. 
D)  the controversies generated by surplus nations wanting to devalue their currencies.

Question 10

The rate at which one currency is traded for another is called a(n)

Accepted Answer

A)  prime rate. 
B)  trade rate. 
C)  exchange rate. 
D)  money rate. 
A)  prime rate. 
B)  trade rate. 
C)  exchange rate. 
D)  money rate.

Question 11

The advantage of a system of fixed exchange rates over one where exchange rates are flexible is that

Accepted Answer

A)  the government gains more control over the economy. 
B)  floating exchange rates impose risks on importers and exporters from unpredictable exchange rates. 
C)  exchange controls become unnecessary. 
D)  fiscal and monetary policy can focus more on domestic conditions. 
A)  the government gains more control over the economy. 
B)  floating exchange rates impose risks on importers and exporters from unpredictable exchange rates. 
C)  exchange controls become unnecessary. 
D)  fiscal and monetary policy can focus more on domestic conditions.

Question 12

Under floating exchange rates, investors who speculate on international currency values provide a valuable service by assuming the risks of those who do not wish to speculate.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

The exchange rate between yen and dollars at one point in 2010 was 83 yen per dollar. If a Big Mac, fries, and a Coke cost $3.91 in San Francisco, how much should the same order cost in yen in Osaka?

Accepted Answer

A)  0.03 
B)  325 
C)  392 
D)  422 
A)  0.03 
B)  325 
C)  392 
D)  422

Question 16

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 17

The current role of the International Monetary Fund is one of

Accepted Answer

A)  supervising a system of fixed exchange rates. 
B)  providing assistance to countries with currency or debt problems. 
C)  setting exchange rates based on a gold-exchange standard. 
D)  acting as a lender of last resort to central banks. 
A)  supervising a system of fixed exchange rates. 
B)  providing assistance to countries with currency or debt problems. 
C)  setting exchange rates based on a gold-exchange standard. 
D)  acting as a lender of last resort to central banks.

Question 18

Assume that an economic boom occurs in the United States, so that the United States has a much higher growth rate than other nations. What will happen to the exchange rate of the U.S. dollar?

Accepted Answer

The boom in the United States will lead

Question 19

The purchasing power parity theory of exchange rate determination maintains that

Accepted Answer

A)  the exchange rate between two nations' currencies is determined by the percent of gold that backs each nation's currency. 
B)  the exchange rate between two nations' currencies adjusts to reflect differences in the price levels in the two nations. 
C)  in the short run, exchange rates are determined by central bank intervention in the currency markets. 
D)  the exchange rate between two currencies is determined by the debt that each nation owes to the World Bank. 
A)  the exchange rate between two nations' currencies is determined by the percent of gold that backs each nation's currency. 
B)  the exchange rate between two nations' currencies adjusts to reflect differences in the price levels in the two nations. 
C)  in the short run, exchange rates are determined by central bank intervention in the currency markets. 
D)  the exchange rate between two currencies is determined by the debt that each nation owes to the World Bank.

Question 20

What happened to the peso when the Argentine government succumbed to the market forces in 2002?

Accepted Answer

A)  Revalued 
B)  Devalued 
C)  Depreciated 
D)  Appreciated 
A)  Revalued 
B)  Devalued 
C)  Depreciated 
D)  Appreciated

Exam 35: The International Monetary System: Order or Disorder

The main component of the monetary union created by the Treaty of Maastricht is a(n)

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?

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

The International Monetary Fund was established to manage the Bretton Woods System.

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?

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

An area in which the United States has had a sizable surplus in its balance of payments is sales of ____ to foreigners.

The chief cause of short-run changes in exchange rates is

The Bretton Woods system worked fairly well for a number of years, but it finally broke down over

The rate at which one currency is traded for another is called a(n)

The advantage of a system of fixed exchange rates over one where exchange rates are flexible is that

Under floating exchange rates, investors who speculate on international currency values provide a valuable service by assuming the risks of those who do not wish to speculate.

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

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

The exchange rate between yen and dollars at one point in 2010 was 83 yen per dollar. If a Big Mac, fries, and a Coke cost $3.91 in San Francisco, how much should the same order cost in yen in Osaka?

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

The current role of the International Monetary Fund is one of

Assume that an economic boom occurs in the United States, so that the United States has a much higher growth rate than other nations. What will happen to the exchange rate of the U.S. dollar?

The purchasing power parity theory of exchange rate determination maintains that

What happened to the peso when the Argentine government succumbed to the market forces in 2002?

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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