Question 1

When the euro was launched in January 1999,its price was $1.18.Eighteen months later,its price was $0.94.Over this period,the euro

Accepted Answer

A)  appreciated, making EMU member countries' goods more attractive to consumers in the United States. 
B)  appreciated, making EMU member countries' goods less attractive to consumers in the United States. 
C)  depreciated, making EMU member countries' goods more attractive to consumers in the United States. 
D)  depreciated, making EMU member countries' goods less attractive to consumers in the United States. 
E)  neither appreciated nor depreciated. Only EMU prices have changed; the desirability of the goods is not affected. 
A)  appreciated, making EMU member countries' goods more attractive to consumers in the United States. 
B)  appreciated, making EMU member countries' goods less attractive to consumers in the United States. 
C)  depreciated, making EMU member countries' goods more attractive to consumers in the United States. 
D)  depreciated, making EMU member countries' goods less attractive to consumers in the United States. 
E)  neither appreciated nor depreciated. Only EMU prices have changed; the desirability of the goods is not affected.

Question 2

The number of U.S.dollars it takes to purchase a British pound is called the

Accepted Answer

A)  purchasing parity price. 
B)  balance of payments. 
C)  equation of exchange. 
D)  appreciation price ratio. 
E)  exchange rate. 
A)  purchasing parity price. 
B)  balance of payments. 
C)  equation of exchange. 
D)  appreciation price ratio. 
E)  exchange rate.

Question 3

Under a gold standard,exchange rates

Accepted Answer

A)  reflect balance-of-payments surpluses and deficits. 
B)  are set by the International Monetary Fund. 
C)  equal the amount of gold a nation needs to back its money. 
D)  are determined by the equation of exchange. 
E)  are effectively fixed. 
A)  reflect balance-of-payments surpluses and deficits. 
B)  are set by the International Monetary Fund. 
C)  equal the amount of gold a nation needs to back its money. 
D)  are determined by the equation of exchange. 
E)  are effectively fixed.

Question 4

Under a flexible exchange rate system,the equilibrium price of one currency in terms of another is

Accepted Answer

A)  unaffected by international differences in relative price levels. 
B)  equal to the ratio of the amount of gold in a unit of each currency. 
C)  regularly adjusted by the International Monetary Fund within a fixed range. 
D)  determined by supply and demand. 
E)  more likely to appreciate than depreciate. 
A)  unaffected by international differences in relative price levels. 
B)  equal to the ratio of the amount of gold in a unit of each currency. 
C)  regularly adjusted by the International Monetary Fund within a fixed range. 
D)  determined by supply and demand. 
E)  more likely to appreciate than depreciate.

Question 5

The following question are based on the following diagram, showing the market for Swiss francs. Assume Switzerland and the United States are engaged in a system of fixed exchange rates. The official rate is $0.40 per franc.
  
-If the Swiss government does nothing and the U.S.government attempts to remedy the situation by buying and selling currencies,it must ________ billion worth of Swiss francs.

Accepted Answer

A)  buy $150 
B)  buy $120 
C)  buy $80 
D)  sell $80 
E)  sell $40 
A)  buy $150 
B)  buy $120 
C)  buy $80 
D)  sell $80 
E)  sell $40

Question 6

If the United States and Britain were both on the gold standard,trade would be brought into balance because

Accepted Answer

A)  one country would eventually run out of gold. 
B)  both countries would eventually run out of gold. 
C)  as a country's gold balance declines, it would have to import more and more to compensate for the loss. 
D)  changes in the British and U.S. money supplies brought about by gold flows would cause their respective domestic price levels to change. 
E)  the country with the positive export balance would export gold to the country with the negative export balance, causing the imbalance to disappear. 
A)  one country would eventually run out of gold. 
B)  both countries would eventually run out of gold. 
C)  as a country's gold balance declines, it would have to import more and more to compensate for the loss. 
D)  changes in the British and U.S. money supplies brought about by gold flows would cause their respective domestic price levels to change. 
E)  the country with the positive export balance would export gold to the country with the negative export balance, causing the imbalance to disappear.

Question 7

The following question are based on the following graph, showing the market for pesos. Mexico and the United States are engaged in a system of flexible exchange rates.
  
-If people in Mexico decide to purchase shares of stock on the U.S.stock exchange,the exchange rate (in terms of the dollar to the peso)

Accepted Answer

A)  rises because demand increases. 
B)  falls because demand increases. 
C)  falls because demand decreases. 
D)  rises because demand decreases. 
E)  falls because supply increases. 
A)  rises because demand increases. 
B)  falls because demand increases. 
C)  falls because demand decreases. 
D)  rises because demand decreases. 
E)  falls because supply increases.

Question 8

One argument for a system of fixed exchange rates such as that established under the Bretton Woods agreement in 1944 is that fixed exchange rates

Accepted Answer

A)  prevent countries from having chronic balance-of-payments deficits. 
B)  maintain the price of gold. 
C)  help all countries carry out domestic full-employment monetary and fiscal policies. 
D)  minimize volatility in international currency markets. 
E)  eliminate the need for governments to buy and sell their own currencies in foreign exchange markets. 
A)  prevent countries from having chronic balance-of-payments deficits. 
B)  maintain the price of gold. 
C)  help all countries carry out domestic full-employment monetary and fiscal policies. 
D)  minimize volatility in international currency markets. 
E)  eliminate the need for governments to buy and sell their own currencies in foreign exchange markets.

Question 9

Under the gold standard,a country with a rising price level

Accepted Answer

A)  must decrease the price of gold. 
B)  sees its currency appreciate. 
C)  imports more than it exports. 
D)  eventually runs out of gold. 
E)  has an inflow of gold. 
A)  must decrease the price of gold. 
B)  sees its currency appreciate. 
C)  imports more than it exports. 
D)  eventually runs out of gold. 
E)  has an inflow of gold.

Question 10

Under a system of fixed exchange rates,a balance-of-payments deficit or surplus is measured by

Accepted Answer

A)  determining if the total amount of foreign currency bought equals the total amount sold. 
B)  calculating the changes in the exchange rate. 
C)  the rate of increase or decrease in domestic price levels. 
D)  the rate of appreciation or depreciation of a currency. 
E)  calculating the central bank's purchases or sales of currency. 
A)  determining if the total amount of foreign currency bought equals the total amount sold. 
B)  calculating the changes in the exchange rate. 
C)  the rate of increase or decrease in domestic price levels. 
D)  the rate of appreciation or depreciation of a currency. 
E)  calculating the central bank's purchases or sales of currency.

Question 11

If merchandise exports exceed merchandise imports,the country has a

Accepted Answer

A)  positive investment balance. 
B)  gold exchange standard. 
C)  balance-of-payments deficit. 
D)  favorable balance of trade. 
E)  leveraged trade advantage. 
A)  positive investment balance. 
B)  gold exchange standard. 
C)  balance-of-payments deficit. 
D)  favorable balance of trade. 
E)  leveraged trade advantage.

Question 12

The exchange rate system that has prevailed since 1973 is best described as

Accepted Answer

A)  fixed. 
B)  flexible. 
C)  indexed. 
D)  pegged. 
E)  the gold standard. 
A)  fixed. 
B)  flexible. 
C)  indexed. 
D)  pegged. 
E)  the gold standard.

Question 13

Which of the following describes the world's experience with the gold standard since the nineteenth century?

Accepted Answer

A)  Prior to World War I, it was unfavorable because of the flexibility of exchange rates. 
B)  After World War I, differences among nations in their rates of inflation caused a gold exchange standard to be established in the 1920s. 
C)  Downward inflexibility of wages and prices invalidated the Hume adjustment mechanism after World War I. 
D)  For the most part, it worked well until after World War II, when the International Monetary Fund was established. 
E)  The gold and gold exchange standards worked well until the early 1980s when gold skyrocketed and nations had to adopt flexible exchange rates. 
A)  Prior to World War I, it was unfavorable because of the flexibility of exchange rates. 
B)  After World War I, differences among nations in their rates of inflation caused a gold exchange standard to be established in the 1920s. 
C)  Downward inflexibility of wages and prices invalidated the Hume adjustment mechanism after World War I. 
D)  For the most part, it worked well until after World War II, when the International Monetary Fund was established. 
E)  The gold and gold exchange standards worked well until the early 1980s when gold skyrocketed and nations had to adopt flexible exchange rates.

Question 14

Given our experience with the gold standard and the Bretton Woods agreement,most economists today would probably agree that

Accepted Answer

A)  both floating and fixed exchange rate systems are less desirable than the gold standard. 
B)  floating exchange rate systems offer a definite advantage over fixed exchange rate systems. 
C)  fixed exchange rate systems offer a decided advantage over floating exchange rate systems. 
D)  neither floating nor fixed exchange rate systems can operate effectively in today's world market. 
E)  fixed and floating exchange rate systems should be employed simultaneously to have a beneficial impact. 
A)  both floating and fixed exchange rate systems are less desirable than the gold standard. 
B)  floating exchange rate systems offer a definite advantage over fixed exchange rate systems. 
C)  fixed exchange rate systems offer a decided advantage over floating exchange rate systems. 
D)  neither floating nor fixed exchange rate systems can operate effectively in today's world market. 
E)  fixed and floating exchange rate systems should be employed simultaneously to have a beneficial impact.

Question 15

Under which of the following systems does a government commit itself to keep fluctuations in its monetary unit within a narrow range?

Accepted Answer

A)  the gold standard 
B)  the multinational exchange standard 
C)  flexible exchange rates 
D)  equation of exchange rates 
E)  fixed exchange rates 
A)  the gold standard 
B)  the multinational exchange standard 
C)  flexible exchange rates 
D)  equation of exchange rates 
E)  fixed exchange rates

Question 16

Under a system of flexible exchange rates,balance-of-payments deficits and surpluses show up

Accepted Answer

A)  in a country's central bank purchases and sales of foreign currencies. 
B)  in gold flows into and out of the country. 
C)  as changes in exchange rates rather than as central bank transactions. 
D)  as the net difference between debit and credit items in the balance of payments accounts. 
E)  in the unilateral transfer account in the balance-of-payments accounts. 
A)  in a country's central bank purchases and sales of foreign currencies. 
B)  in gold flows into and out of the country. 
C)  as changes in exchange rates rather than as central bank transactions. 
D)  as the net difference between debit and credit items in the balance of payments accounts. 
E)  in the unilateral transfer account in the balance-of-payments accounts.

Question 17

The exchange rate system for which the International Monetary Fund was designed is best described as

Accepted Answer

A)  fixed. 
B)  flexible. 
C)  floating. 
D)  indexed. 
E)  the gold standard. 
A)  fixed. 
B)  flexible. 
C)  floating. 
D)  indexed. 
E)  the gold standard.

Question 18

If under freely fluctuating exchange rates,1 U.S.dollar exchanges for either 9 Swedish krona or 1.7 Swiss francs,1 Swedish krona exchanges for how many Swiss francs?

Accepted Answer

A)  0.111 
B)  0.189 
C)  0.588 
D)  1.000 
E)  5.294 
A)  0.111 
B)  0.189 
C)  0.588 
D)  1.000 
E)  5.294

Question 19

The 1973 abandonment of the Bretton Woods system was largely brought about by the

Accepted Answer

A)  bankruptcy of the International Monetary Fund. 
B)  reestablishment of the gold exchange standard. 
C)  appreciation of the U.S. dollar. 
D)  growing U.S. dollar glut in foreign exchange markets. 
E)  aftermath of Watergate. 
A)  bankruptcy of the International Monetary Fund. 
B)  reestablishment of the gold exchange standard. 
C)  appreciation of the U.S. dollar. 
D)  growing U.S. dollar glut in foreign exchange markets. 
E)  aftermath of Watergate.

Question 20

Under a gold exchange standard

Accepted Answer

A)  all currencies are directly convertible into gold at fixed rates. 
B)  the monetary price of gold is allowed to fluctuate freely in response to supply and demand. 
C)  balance-of-payments surpluses and deficits will not occur. 
D)  gold is directly convertible into special drawing rights called paper gold. 
E)  the dollar is convertible into gold at a fixed price, and thus other currencies via fixed exchange rates are indirectly convertible into gold. 
A)  all currencies are directly convertible into gold at fixed rates. 
B)  the monetary price of gold is allowed to fluctuate freely in response to supply and demand. 
C)  balance-of-payments surpluses and deficits will not occur. 
D)  gold is directly convertible into special drawing rights called paper gold. 
E)  the dollar is convertible into gold at a fixed price, and thus other currencies via fixed exchange rates are indirectly convertible into gold.

Exam 28: Exchange Rates and the Balance of Payments

When the euro was launched in January 1999,its price was $1.18.Eighteen months later,its price was $0.94.Over this period,the euro

The number of U.S.dollars it takes to purchase a British pound is called the

Under a gold standard,exchange rates

Under a flexible exchange rate system,the equilibrium price of one currency in terms of another is

If the United States and Britain were both on the gold standard,trade would be brought into balance because

One argument for a system of fixed exchange rates such as that established under the Bretton Woods agreement in 1944 is that fixed exchange rates

Under the gold standard,a country with a rising price level

Under a system of fixed exchange rates,a balance-of-payments deficit or surplus is measured by

If merchandise exports exceed merchandise imports,the country has a

The exchange rate system that has prevailed since 1973 is best described as

Which of the following describes the world's experience with the gold standard since the nineteenth century?

Given our experience with the gold standard and the Bretton Woods agreement,most economists today would probably agree that

Under which of the following systems does a government commit itself to keep fluctuations in its monetary unit within a narrow range?

Under a system of flexible exchange rates,balance-of-payments deficits and surpluses show up

The exchange rate system for which the International Monetary Fund was designed is best described as

If under freely fluctuating exchange rates,1 U.S.dollar exchanges for either 9 Swedish krona or 1.7 Swiss francs,1 Swedish krona exchanges for how many Swiss francs?

The 1973 abandonment of the Bretton Woods system was largely brought about by the

Under a gold exchange standard

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