Question 1

Which of the following is an example of moral hazard?

Accepted Answer

A)  When a family's belongings are protected against theft and they take special care to look after the house. 
B)  An individual buys a new auto insurance policy which includes a special payment if the car skids on the ice and the person then begins driving recklessly on ice. 
C)  When a country expects assistance in the event of a currency crisis and therefore takes special care to avoid such a crisis. 
D)  When decision-makers expect special assistance in the event of an unfavorable outcome and their behavior changes in such a way to avoid that outcome entirely. 
E)  When a person with health insurance takes great care not to catch a serious cold. 
A)  When a family's belongings are protected against theft and they take special care to look after the house. 
B)  An individual buys a new auto insurance policy which includes a special payment if the car skids on the ice and the person then begins driving recklessly on ice. 
C)  When a country expects assistance in the event of a currency crisis and therefore takes special care to avoid such a crisis. 
D)  When decision-makers expect special assistance in the event of an unfavorable outcome and their behavior changes in such a way to avoid that outcome entirely. 
E)  When a person with health insurance takes great care not to catch a serious cold.

Question 2

In the market for euros,if the current exchange rate is below the equilibrium rate,

Accepted Answer

A)  the quantity supplied and the quantity demanded for euros are equal. 
B)  there is an excess supply of euros and the exchange rate will fall. 
C)  there is an excess demand for euros and the exchange rate will rise. 
D)  the exchange rate will neither rise nor fall. 
E)  there is an excess demand for euros and the exchange rate will fall. 
A)  the quantity supplied and the quantity demanded for euros are equal. 
B)  there is an excess supply of euros and the exchange rate will fall. 
C)  there is an excess demand for euros and the exchange rate will rise. 
D)  the exchange rate will neither rise nor fall. 
E)  there is an excess demand for euros and the exchange rate will fall.

Question 3

Suppose the U.S.price level rose at the same time the Mexican price level remained constant.Which of the following would occur?

Accepted Answer

A)  The demand for pesos would increase. 
B)  The supply of pesos would decrease. 
C)  The supply of pesos would increase. 
D)  The demand for pesos would decrease. 
E)  The supply of pesos would stay constant. 
A)  The demand for pesos would increase. 
B)  The supply of pesos would decrease. 
C)  The supply of pesos would increase. 
D)  The demand for pesos would decrease. 
E)  The supply of pesos would stay constant.

Question 4

The dominant forces causing changes in exchange rates in the very short run are

Accepted Answer

A)  changes in relative interest rates 
B)  changing expectations regarding future exchange rates 
C)  economic fluctuations 
D)  the erratic spending patterns of tourists 
E)  changes in relative interest rates and in expectations of future exchange rates 
A)  changes in relative interest rates 
B)  changing expectations regarding future exchange rates 
C)  economic fluctuations 
D)  the erratic spending patterns of tourists 
E)  changes in relative interest rates and in expectations of future exchange rates

Question 5

If the price of a foreign currency rises,we say there has been an appreciation of the domestic currency.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is an important factor in exchange rate movements in the very short run?

Accepted Answer

A)  Changes in relative GDPs. 
B)  Changes in relative tastes for foreign goods. 
C)  Changes in relative interest rates. 
D)  Changes in inflation. 
E)  None of the above. 
A)  Changes in relative GDPs. 
B)  Changes in relative tastes for foreign goods. 
C)  Changes in relative interest rates. 
D)  Changes in inflation. 
E)  None of the above.

Question 7

Under a managed float,if U.S.demand for British goods drops,which of the following actions would the Bank of England need to take in order to stop any movement in the dollar-pound exchange rate?

Accepted Answer

A)  Buy British pounds for dollars in order to shift the demand curve for pounds leftward 
B)  Sell British pounds for dollars in order to shift the supply curve for pounds leftward 
C)  Sell British pounds for dollars in order to shift the supply curve for pounds rightward 
D)  Buy British pounds for dollars in order to shift the demand curve for pounds rightward 
E)  Do nothing,since purchasing power parity will correct the situation in the short run. 
A)  Buy British pounds for dollars in order to shift the demand curve for pounds leftward 
B)  Sell British pounds for dollars in order to shift the supply curve for pounds leftward 
C)  Sell British pounds for dollars in order to shift the supply curve for pounds rightward 
D)  Buy British pounds for dollars in order to shift the demand curve for pounds rightward 
E)  Do nothing,since purchasing power parity will correct the situation in the short run.

Question 8

The higher the price of a foreign currency,the more expensive that foreign country's goods and services are to individuals in the domestic economy.

Accepted Answer

A) True 
 B)False

Question 9

If the dollar-pound exchange rate is $2.00 per pound,then a shirt priced at 25 pounds will cost an American

Accepted Answer

A)  $25 
B)  $50 
C)  $26 
D)  $27 
E)  an amount that cannot be calculated without additional information. 
A)  $25 
B)  $50 
C)  $26 
D)  $27 
E)  an amount that cannot be calculated without additional information.

Question 10

Which of the following would not shift the demand for pounds curve to the right?

Accepted Answer

A)  An increase in real U.S.GDP. 
B)  A decrease in U.S.interest rates. 
C)  A decrease in real U.S.GDP. 
D)  An increased taste for British goods by Americans. 
E)  None of the above. 
A)  An increase in real U.S.GDP. 
B)  A decrease in U.S.interest rates. 
C)  A decrease in real U.S.GDP. 
D)  An increased taste for British goods by Americans. 
E)  None of the above.

Question 11

If the dollars per peso exchange rate fell,

Accepted Answer

A)  few firms would want to relocate to Mexico 
B)  the demand for pesos would fall 
C)  more Americans would travel to Mexico 
D)  Americans would buy fewer Mexican goods 
E)  the demand for pesos curve would shift inward 
A)  few firms would want to relocate to Mexico 
B)  the demand for pesos would fall 
C)  more Americans would travel to Mexico 
D)  Americans would buy fewer Mexican goods 
E)  the demand for pesos curve would shift inward

Question 12

The 1997-1998 Asian crisis began in .

Accepted Answer

A)  China. 
B)  Japan. 
C)  Taiwan. 
D)  South Korea. 
E)  Thailand. 
A)  China. 
B)  Japan. 
C)  Taiwan. 
D)  South Korea. 
E)  Thailand.

Question 13

If a country fixes its exchange rate below the equilibrium value,

Accepted Answer

A)  the result is an excess supply of that currency 
B)  there will be downward pressure on the exchange rate 
C)  its GDP will increase 
D)  its GDP will decrease 
E)  it will have to sell its own currency in order to eliminate the excess demand 
A)  the result is an excess supply of that currency 
B)  there will be downward pressure on the exchange rate 
C)  its GDP will increase 
D)  its GDP will decrease 
E)  it will have to sell its own currency in order to eliminate the excess demand

Question 14

If newspaper headlines detailed an increased American interest in British goods,which of the following would we expect to observe in the market for pounds?

Accepted Answer

A)  An increase in supply,a depreciation of the pound,and a larger number of pounds traded 
B)  An increase in demand,a depreciation of the pound,and a smaller number of pounds traded 
C)  An increase in demand,an appreciation of the pound,and a larger number of pounds traded 
D)  A decrease in demand,a depreciation of the pound,and a smaller number of pounds traded 
E)  A decrease in supply,an appreciation of the pound,and a smaller number of pounds traded. 
A)  An increase in supply,a depreciation of the pound,and a larger number of pounds traded 
B)  An increase in demand,a depreciation of the pound,and a smaller number of pounds traded 
C)  An increase in demand,an appreciation of the pound,and a larger number of pounds traded 
D)  A decrease in demand,a depreciation of the pound,and a smaller number of pounds traded 
E)  A decrease in supply,an appreciation of the pound,and a smaller number of pounds traded.

Question 15

Which of the following would lead to an increase in the demand for British pounds?

Accepted Answer

A)  A declining interest in British goods 
B)  A decrease in the U.S.interest rate relative to the British interest rate 
C)  Expectations that the exchange rate will fall 
D)  A decrease of the U.S.price level relative to the British price level 
E)  A decrease in the exchange rate. 
A)  A declining interest in British goods 
B)  A decrease in the U.S.interest rate relative to the British interest rate 
C)  Expectations that the exchange rate will fall 
D)  A decrease of the U.S.price level relative to the British price level 
E)  A decrease in the exchange rate.

Question 16

In a foreign exchange market,one country's currency is exchanged for another's.

Accepted Answer

A) True 
 B)False

Question 17

In the short run,movements in exchange rates are caused largely by economic fluctuations.

Accepted Answer

A) True 
 B)False

Question 18

If the dollar price of a foreign currency increases,there will be a(n)

Accepted Answer

A)  rightward movement along the supply of foreign exchange curve 
B)  leftward movement along the supply of foreign exchange curve 
C)  leftward shift of the supply of foreign exchange curve 
D)  rightward shift of the supply of foreign exchange curve 
E)  tendency for the supply of foreign exchange curve to become flatter 
A)  rightward movement along the supply of foreign exchange curve 
B)  leftward movement along the supply of foreign exchange curve 
C)  leftward shift of the supply of foreign exchange curve 
D)  rightward shift of the supply of foreign exchange curve 
E)  tendency for the supply of foreign exchange curve to become flatter

Question 19

"Hot money" is

Accepted Answer

A)  funds that can be moved from one type of investment to another on very short notice. 
B)  money that is stolen and used to buy financial instruments. 
C)  money that is used by a central bank when a currency is appreciating,or becoming "hot." 
D)  funds that are being saved by a financial institution for good or "hot" times. 
E)  money earned from very high-risk investments in less developed countries. 
A)  funds that can be moved from one type of investment to another on very short notice. 
B)  money that is stolen and used to buy financial instruments. 
C)  money that is used by a central bank when a currency is appreciating,or becoming "hot." 
D)  funds that are being saved by a financial institution for good or "hot" times. 
E)  money earned from very high-risk investments in less developed countries.

Question 20

The International Monetary Fund was established in part to help avoid foreign currency crises.

Accepted Answer

A) True 
 B)False

Which of the following is an example of moral hazard?

In the market for euros,if the current exchange rate is below the equilibrium rate,

Suppose the U.S.price level rose at the same time the Mexican price level remained constant.Which of the following would occur?

The dominant forces causing changes in exchange rates in the very short run are

If the price of a foreign currency rises,we say there has been an appreciation of the domestic currency.

Which of the following is an important factor in exchange rate movements in the very short run?

Under a managed float,if U.S.demand for British goods drops,which of the following actions would the Bank of England need to take in order to stop any movement in the dollar-pound exchange rate?

The higher the price of a foreign currency,the more expensive that foreign country's goods and services are to individuals in the domestic economy.

If the dollar-pound exchange rate is $2.00 per pound,then a shirt priced at 25 pounds will cost an American

Which of the following would not shift the demand for pounds curve to the right?

If the dollars per peso exchange rate fell,

The 1997-1998 Asian crisis began in .

If a country fixes its exchange rate below the equilibrium value,

If newspaper headlines detailed an increased American interest in British goods,which of the following would we expect to observe in the market for pounds?

Which of the following would lead to an increase in the demand for British pounds?

In a foreign exchange market,one country's currency is exchanged for another's.

In the short run,movements in exchange rates are caused largely by economic fluctuations.

If the dollar price of a foreign currency increases,there will be a(n)

"Hot money" is

The International Monetary Fund was established in part to help avoid foreign currency crises.

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Filters

Exam 17: Exchange Rates and Macroeconomic Policy

Which of the following is an example of moral hazard?

In the market for euros,if the current exchange rate is below the equilibrium rate,

Suppose the U.S.price level rose at the same time the Mexican price level remained constant.Which of the following would occur?

The dominant forces causing changes in exchange rates in the very short run are

If the price of a foreign currency rises,we say there has been an appreciation of the domestic currency.

Which of the following is an important factor in exchange rate movements in the very short run?

Under a managed float,if U.S.demand for British goods drops,which of the following actions would the Bank of England need to take in order to stop any movement in the dollar-pound exchange rate?

The higher the price of a foreign currency,the more expensive that foreign country's goods and services are to individuals in the domestic economy.

If the dollar-pound exchange rate is $2.00 per pound,then a shirt priced at 25 pounds will cost an American

Which of the following would not shift the demand for pounds curve to the right?

If the dollars per peso exchange rate fell,

The 1997-1998 Asian crisis began in .

If a country fixes its exchange rate below the equilibrium value,

If newspaper headlines detailed an increased American interest in British goods,which of the following would we expect to observe in the market for pounds?

Which of the following would lead to an increase in the demand for British pounds?

In a foreign exchange market,one country's currency is exchanged for another's.

In the short run,movements in exchange rates are caused largely by economic fluctuations.

If the dollar price of a foreign currency increases,there will be a(n)

"Hot money" is

The International Monetary Fund was established in part to help avoid foreign currency crises.

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Filters