Question 1

The exchange rate

Accepted Answer

A)  is the ratio of two countries' GDPs. 
B)  is the rate at which one country's money is flowing into another country. 
C)  states the price of one currency in terms of another currency. 
D)  is closely related to the concept of absolute advantage. 
A)  is the ratio of two countries' GDPs. 
B)  is the rate at which one country's money is flowing into another country. 
C)  states the price of one currency in terms of another currency. 
D)  is closely related to the concept of absolute advantage.

Question 2

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 3

If a country has a balance of payments deficit and wishes to maintain the fixed value of its currency, it will generally

Accepted Answer

A)  sell its own currency for foreign currencies. 
B)  buy its own currency with foreign reserves. 
C)  decrease taxes to increase domestic disposable income. 
D)  increase the money supply to keep interest rates down. 
A)  sell its own currency for foreign currencies. 
B)  buy its own currency with foreign reserves. 
C)  decrease taxes to increase domestic disposable income. 
D)  increase the money supply to keep interest rates down.

Question 4

Stronger economic performance often leads to currency appreciation because it improves prospects for investing in the country.

Accepted Answer

A) True 
 B)False

Question 5

Figure 19-2
 
Of the graphs in Figure 19-2, which one shows Japan practicing "dirty" floating to keep an undervalued currency?

Accepted Answer

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

Question 6

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 7

Because central banks intervene in currency markets, the term ____ has been used to describe the system.

Accepted Answer

A)  planned float 
B)  controlled float 
C)  flexible 
D)  dirty float 
A)  planned float 
B)  controlled float 
C)  flexible 
D)  dirty float

Question 8

Floating exchange rates are rates determined in free markets by the law of supply and demand.

Accepted Answer

A) True 
 B)False

Question 9

When exchange rates are set by government decree,

Accepted Answer

A)  appreciation is called devaluation. 
B)  depreciation is called devaluation. 
C)  depreciation is called deflation. 
D)  appreciation is called inflation. 
A)  appreciation is called devaluation. 
B)  depreciation is called devaluation. 
C)  depreciation is called deflation. 
D)  appreciation is called inflation.

Question 10

Demand for a country's financial assets leads to demand for its currency.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

There is no grand organizing principle i

Question 12

Purchasing-power parity plays a major role in long-run exchange rate movements.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Because the United States has had substantial deficits in goods and services, it has also necessarily had surpluses in

Accepted Answer

A)  the federal budget. 
B)  the sales of assets. 
C)  the sales of military goods. 
D)  its gold supplies. 
A)  the federal budget. 
B)  the sales of assets. 
C)  the sales of military goods. 
D)  its gold supplies.

Question 15

The supply of euros would come from

Accepted Answer

A)  American demand for European real estate. 
B)  European demand for U.S. government bonds. 
C)  Americans vacationing in Barcelona, Spain. 
D)  French supplies of wine to U.S. importers. 
A)  American demand for European real estate. 
B)  European demand for U.S. government bonds. 
C)  Americans vacationing in Barcelona, Spain. 
D)  French supplies of wine to U.S. importers.

Question 16

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 17

Under the gold standard of a century ago, the world's commerce

Accepted Answer

A)  nearly collapsed before the beginning of World War I. 
B)  was at the mercy of gold discoveries. 
C)  grew steadily without interruption from monetary disturbances. 
D)  grew when the gold stock grew slowly, and shrank when gold discoveries increased. 
A)  nearly collapsed before the beginning of World War I. 
B)  was at the mercy of gold discoveries. 
C)  grew steadily without interruption from monetary disturbances. 
D)  grew when the gold stock grew slowly, and shrank when gold discoveries increased.

Question 18

When the dollar buys more foreign currency, there has been appreciation of the dollar.

Accepted Answer

A) True 
 B)False

Question 19

Figure 19-2
 
Of the graphs in Figure 19-2, where the broken line represents the fixed exchange rates, which one shows how a balance of payments deficit could be reduced through a recession in Japan?

Accepted Answer

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

Question 20

Figure 19-1
 
Of the graphs in Figure 19-1, which one shows the effects of an economic boom in the United States and a depreciation of the dollar?

Accepted Answer

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

Exam 35: The International Monetary System: Order or Disorder

The exchange rate

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

If a country has a balance of payments deficit and wishes to maintain the fixed value of its currency, it will generally

Stronger economic performance often leads to currency appreciation because it improves prospects for investing in the country.

Figure 19-2 Of the graphs in Figure 19-2, which one shows Japan practicing "dirty" floating to keep an undervalued currency?

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

Because central banks intervene in currency markets, the term ____ has been used to describe the system.

Floating exchange rates are rates determined in free markets by the law of supply and demand.

When exchange rates are set by government decree,

Demand for a country's financial assets leads to demand for its currency.

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

Purchasing-power parity plays a major role in long-run exchange rate movements.

Adhering to a strict gold standard necessarily means that

Because the United States has had substantial deficits in goods and services, it has also necessarily had surpluses in

The supply of euros would come from

Under the Bretton Woods agreements,

Under the gold standard of a century ago, the world's commerce

When the dollar buys more foreign currency, there has been appreciation of the dollar.

Figure 19-2 Of the graphs in Figure 19-2, where the broken line represents the fixed exchange rates, which one shows how a balance of payments deficit could be reduced through a recession in Japan?

Figure 19-1 Of the graphs in Figure 19-1, which one shows the effects of an economic boom in the United States and a depreciation of the dollar?

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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