Question 1

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

Accepted Answer

There is no grand organizing principle i

Question 2

In a floating exchange market, the exchange rate for pesos and yen will not change when:

Accepted Answer

A) ​the yen trades at a rate below the equilibrium level 
B) ​the peso trades at a rate above the equilibrium level 
C) ​the currencies trade at the equilibrium exchange rate 
D) ​it will change in all of these situations 
A) ​the yen trades at a rate below the equilibrium level 
B) ​the peso trades at a rate above the equilibrium level 
C) ​the currencies trade at the equilibrium exchange rate 
D) ​it will change in all of these situations

Question 3

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 4

A country, such as Argentina in 2002, that is buying its own currency to maintain a given exchange rate

Accepted Answer

A) has a balance of payments surplus. 
B) has an undervalued currency. 
C) has an overvalued currency. 
D) need not fear a "run" on its currency. 
A) has a balance of payments surplus. 
B) has an undervalued currency. 
C) has an overvalued currency. 
D) need not fear a "run" on its currency.

Question 5

A freely floating exchange rate brings some risks to people who are actively engaged in foreign trade.

Accepted Answer

A) True 
 B)False

Question 6

After being introduced in 1999, the euro

Accepted Answer

A) increased in value through 2008. 
B) decreased in value through 2008. 
C) increased in value through 2000 but then decreased in value through 2008. 
D) decreased in value through 2000 but then increased in value through 2008. 
A) increased in value through 2008. 
B) decreased in value through 2008. 
C) increased in value through 2000 but then decreased in value through 2008. 
D) decreased in value through 2000 but then increased in value through 2008.

Question 7

If British government bonds pay a higher interest rate than U.S.government bonds, the dollar should appreciate.

Accepted Answer

A) True 
 B)False

Question 8

One disadvantage of the gold standard was that no nation had control of its domestic monetary policies.

Accepted Answer

A) True 
 B)False

Question 9

If the dollar depreciates, it can be said that

Accepted Answer

A) foreign countries no longer respect the United States. 
B) it falls in value within the United States. 
C) it takes fewer dollars to buy foreign currencies. 
D) other currencies appreciate. 
A) foreign countries no longer respect the United States. 
B) it falls in value within the United States. 
C) it takes fewer dollars to buy foreign currencies. 
D) other currencies appreciate.

Question 10

The purchasing power parity theory is useful in making ____ predictions about exchange rates and their fluctuations.

Accepted Answer

A) long-run 
B) intermediate-run 
C) medium-run 
D) short-run 
A) long-run 
B) intermediate-run 
C) medium-run 
D) short-run

Question 11

The recent experience in Greece, Portugal, and Ireland make the euro

Accepted Answer

A) seem very unlikely to fail because of decreasing debt levels. 
B) seem very unlikely to fail because of increasing interest rates. 
C) seem somewhat likely to fail because of increasing debt levels. 
D) seem somewhat likely to fail because of increasing interest rates. 
A) seem very unlikely to fail because of decreasing debt levels. 
B) seem very unlikely to fail because of increasing interest rates. 
C) seem somewhat likely to fail because of increasing debt levels. 
D) seem somewhat likely to fail because of increasing interest rates.

Question 12

Why does anyone demand foreign currency?

Accepted Answer

A) international trade in goods and services 
B) international trade in financial assets 
C) purchases of physical assets overseas 
D) All of the above are correct. 
A) international trade in goods and services 
B) international trade in financial assets 
C) purchases of physical assets overseas 
D) All of the above are correct.

Question 13

In 2007, the value of the U.S.dollar

Accepted Answer

A) increased relative to the euro. 
B) decreased relative to the euro. 
C) remained stable relative to the euro. 
D) was equal to the value of the euro. 
A) increased relative to the euro. 
B) decreased relative to the euro. 
C) remained stable relative to the euro. 
D) was equal to the value of the euro.

Question 14

The purchasing power parity theory of exchange rate determination states that

Accepted Answer

A) in the short run, rates will adjust to parity. 
B) in the long run, the rate reflects differences in price levels between the two countries. 
C) in the long run, a government agency sets the rate at parity. 
D) in the short run, the cost of labor really sets the exchange rate. 
A) in the short run, rates will adjust to parity. 
B) in the long run, the rate reflects differences in price levels between the two countries. 
C) in the long run, a government agency sets the rate at parity. 
D) in the short run, the cost of labor really sets the exchange rate.

Question 15

Which of the following companies would gain from foreign currency depreciation?

Accepted Answer

A) companies which borrow in foreign currency. 
B) companies which export goods and services. 
C) companies which invest in the foreign equity markets. 
D) companies which buy bonds issued by the foreign government. 
A) companies which borrow in foreign currency. 
B) companies which export goods and services. 
C) companies which invest in the foreign equity markets. 
D) companies which buy bonds issued by the foreign government.

Question 16

Under the gold standard,

Accepted Answer

A) no nation had control of its domestic monetary policy, and therefore no nation could control its aggregate demand. 
B) the world's commerce was at the mercy of gold discoveries. 
C) discoveries of gold meant higher prices in the long run and higher real economic activity in the short run. 
D) All of the above are correct. 
A) no nation had control of its domestic monetary policy, and therefore no nation could control its aggregate demand. 
B) the world's commerce was at the mercy of gold discoveries. 
C) discoveries of gold meant higher prices in the long run and higher real economic activity in the short run. 
D) All of the above are correct.

Question 17

A prolonged recession in Europe should decrease the

Accepted Answer

A) supply of U.S.dollars. 
B) demand for U.S.dollars. 
C) supply of U.S.goods and services. 
D) demand by Americans for euros. 
A) supply of U.S.dollars. 
B) demand for U.S.dollars. 
C) supply of U.S.goods and services. 
D) demand by Americans for euros.

Question 18

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 19

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 20

If the quantity of euro demanded were greater than the quantity supplied, then the price of the

Accepted Answer

A) euro would rise. 
B) euro would fall. 
C) dollar would rise. 
D) euro would be in equilibrium. 
A) euro would rise. 
B) euro would fall. 
C) dollar would rise. 
D) euro would be in equilibrium.

Exam 36: The International Monetary System: Order or Disorder

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

In a floating exchange market, the exchange rate for pesos and yen will not change when:

The current role of the International Monetary Fund is one of

A country, such as Argentina in 2002, that is buying its own currency to maintain a given exchange rate

A freely floating exchange rate brings some risks to people who are actively engaged in foreign trade.

After being introduced in 1999, the euro

If British government bonds pay a higher interest rate than U.S.government bonds, the dollar should appreciate.

One disadvantage of the gold standard was that no nation had control of its domestic monetary policies.

If the dollar depreciates, it can be said that

The purchasing power parity theory is useful in making ____ predictions about exchange rates and their fluctuations.

The recent experience in Greece, Portugal, and Ireland make the euro

Why does anyone demand foreign currency?

In 2007, the value of the U.S.dollar

The purchasing power parity theory of exchange rate determination states that

Which of the following companies would gain from foreign currency depreciation?

Under the gold standard,

A prolonged recession in Europe should decrease the

The Bretton Woods agreements

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

If the quantity of euro demanded were greater than the quantity supplied, then the price of the

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

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

He 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

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