Question 1

The ________ in the United States is best described as a managed float exchange rate system.

Accepted Answer

A)  earliest used exchange rate system 
B)  current exchange rate system 
C)  exchange rate system used prior to the great depression 
D)  exchange rate system set up at the end of World War II 
A)  earliest used exchange rate system 
B)  current exchange rate system 
C)  exchange rate system used prior to the great depression 
D)  exchange rate system set up at the end of World War II

Question 2

You decide to work in London for the next 5 years,accumulate some savings,then move back to the United States and convert your savings from British pounds to dollars. At the time of your move,economists predict that consumers in the United States have lost their affinity for British products,and expect that this declining preference for British products will continue for the next decade. How should this influence your decision to work and save in London?

Accepted Answer

A)  You should be discouraged as the declining U.S. preference for British goods should increase the value of the pound to the dollar and decrease the value of your savings when converted to dollars. 
B)  You should be discouraged as the declining U.S. preference for British goods should decrease the value of the pound to the dollar and decrease the value of your savings when converted to dollars. 
C)  You should be encouraged as the declining U.S. preference for British goods should decrease the value of the pound to the dollar and raise the value of your savings when converted to dollars. 
D)  You should be encouraged as the declining U.S. preference for British goods should increase the value of the pound to the dollar and raise the value of your savings when converted to dollars. 
A)  You should be discouraged as the declining U.S. preference for British goods should increase the value of the pound to the dollar and decrease the value of your savings when converted to dollars. 
B)  You should be discouraged as the declining U.S. preference for British goods should decrease the value of the pound to the dollar and decrease the value of your savings when converted to dollars. 
C)  You should be encouraged as the declining U.S. preference for British goods should decrease the value of the pound to the dollar and raise the value of your savings when converted to dollars. 
D)  You should be encouraged as the declining U.S. preference for British goods should increase the value of the pound to the dollar and raise the value of your savings when converted to dollars.

Question 3

The "Big Mac Theory of Exchange Rates" tests the accuracy of purchasing power parity theory.In July 2011,The Economist reported that the average price of a Big Mac in the United States was $4.07.In Switzerland,the average price of a Big Mac at that time was 6.50 Swiss francs.If the exchange rate between the dollar and the Swiss franc was 0.93 Swiss francs per dollar,how would purchasing power parity predict the exchange rate will change in the long run? Support your answer graphically.

Accepted Answer

The dollar in this example is "undervalu

Question 4

If a firm in Thailand borrows dollars from a U.S.bank,its interest payments on the loan in bahts will decrease if the baht appreciates against the dollar.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following would decrease the value of the dollar in the long run?

Accepted Answer

A)  a decrease in inflation in the United States relative to other countries 
B)  a decrease in the demand for American goods relative to goods from other countries 
C)  an increase in U.S. tariffs on foreign goods 
D)  a decrease in the supply of dollars on the foreign exchange market 
A)  a decrease in inflation in the United States relative to other countries 
B)  a decrease in the demand for American goods relative to goods from other countries 
C)  an increase in U.S. tariffs on foreign goods 
D)  a decrease in the supply of dollars on the foreign exchange market

Question 6

Figure 30-3
  
-Refer to Figure 30-3. If the Indian government pegs its currency to the dollar at a value below $.02/rupee,we would say the currency is

Accepted Answer

A)  undervalued. 
B)  overvalued. 
C)  parity valued. 
D)  equilibrium valued. 
A)  undervalued. 
B)  overvalued. 
C)  parity valued. 
D)  equilibrium valued.

Question 7

When the Bretton Woods system was set up,the United States agreed initially to buy and sell gold at a price of ________ per ounce.

Accepted Answer

A)  $24 
B)  $35 
C)  $42 
D)  $48 
A)  $24 
B)  $35 
C)  $42 
D)  $48

Question 8

In 1931,the first major country to abandon the gold standard - in order to increase its policy options in face of the Great Depression - was

Accepted Answer

A)  Great Britain. 
B)  the United States. 
C)  Germany. 
D)  France. 
A)  Great Britain. 
B)  the United States. 
C)  Germany. 
D)  France.

Question 9

The Danish currency,the krone,is pegged to the euro at a rate of 7.43 kroner (kroner is the plural of krone)to the euro.At the pegged exchange rate,how many euros would be exchanged for one krone?

Accepted Answer

A)  0.135 
B)  1.00 
C)  2.48 
D)  7.43 
A)  0.135 
B)  1.00 
C)  2.48 
D)  7.43

Question 10

Figure 30-3
  
-Refer to Figure 30-3. Which of the following is true?

Accepted Answer

A)  U.S imports are more expensive at exchange rates greater than $.02/rupee than at the equilibrium exchange rate. 
B)  The rupee is overvalued at exchange rates less than $.02/rupee. 
C)  To achieve an exchange rate greater than $.02/rupee, the Reserve Bank of India must buy surplus dollars with rupees. 
D)  Indian exports to the United States are more expensive at exchange rates greater than $.02/rupee than at the equilibrium exchange rate. 
A)  U.S imports are more expensive at exchange rates greater than $.02/rupee than at the equilibrium exchange rate. 
B)  The rupee is overvalued at exchange rates less than $.02/rupee. 
C)  To achieve an exchange rate greater than $.02/rupee, the Reserve Bank of India must buy surplus dollars with rupees. 
D)  Indian exports to the United States are more expensive at exchange rates greater than $.02/rupee than at the equilibrium exchange rate.

Question 11

If inflation in Mexico is lower than it is in the United States,

Accepted Answer

A)  the purchasing power of the peso in buying Mexican goods will fall relative to the dollar. 
B)  the value of the dollar will rise in the long run. 
C)  the value of the peso will rise in the long run. 
D)  the purchasing power of the dollar in buying American goods will rise relative to the peso. 
A)  the purchasing power of the peso in buying Mexican goods will fall relative to the dollar. 
B)  the value of the dollar will rise in the long run. 
C)  the value of the peso will rise in the long run. 
D)  the purchasing power of the dollar in buying American goods will rise relative to the peso.

Question 12

If the purchasing power of the dollar is less than the purchasing power of the British pound,purchasing power parity predicts that the exchange rate will

Accepted Answer

A)  increase if the exchange rate is greater than 1 pound per dollar. 
B)  decrease if the exchange rate is less than 1 pound per dollar. 
C)  be equal to the relative purchasing power across the currencies in the long run. 
D)  All of the above are correct. 
A)  increase if the exchange rate is greater than 1 pound per dollar. 
B)  decrease if the exchange rate is less than 1 pound per dollar. 
C)  be equal to the relative purchasing power across the currencies in the long run. 
D)  All of the above are correct.

Question 13

In Thailand in the late 1990s,there was pressure for the value of the baht to decline as foreign investors began to

Accepted Answer

A)  sell off investments they had made in Thailand and traded in their baht for dollars. 
B)  sell off investments they had made in Thailand and traded in their dollars for baht. 
C)  increase their investments in Thailand and exchanged their baht for dollars. 
D)  increase their investments in Thailand and exchanged their dollars for baht. 
A)  sell off investments they had made in Thailand and traded in their baht for dollars. 
B)  sell off investments they had made in Thailand and traded in their dollars for baht. 
C)  increase their investments in Thailand and exchanged their baht for dollars. 
D)  increase their investments in Thailand and exchanged their dollars for baht.

Question 14

What do reports that the dollar is "undervalued" mean? How will foreign exchange markets respond to this information? Support your answer graphically.

Accepted Answer

If the dollar is "undervalued",that mean

Question 15

Figure 30-4
  
-Refer to Figure 30-4.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D₂. After the shift,

Accepted Answer

A)  there is a shortage of euro equal to 1,000 million. 
B)  there is a surplus of euro equal to 400 million. 
C)  there is a shortage of euro equal to 800 million. 
D)  there is a surplus of euro equal to 500 million. 
A)  there is a shortage of euro equal to 1,000 million. 
B)  there is a surplus of euro equal to 400 million. 
C)  there is a shortage of euro equal to 800 million. 
D)  there is a surplus of euro equal to 500 million.

Question 16

What are capital controls? Why might a financial crisis lead to a reconsideration of using capital controls,and what problems might result from the reinstatement of capital controls?

Accepted Answer

Capital controls refer to limits on the

Question 17

The model of purchasing power parity is the only way to determine whether a country's currency is undervalued or overvalued.

Accepted Answer

A) True 
 B)False

Question 18

Figure 30-5
  
-Refer to Figure 30-5. Suppose the pegged exchange rate is $0.14/yuan and U.S.consumers increase their demand for Chinese products. Using the figure above,this would

Accepted Answer

A)  increase the surplus of Chinese yuan. 
B)  decrease the surplus of Chinese yuan. 
C)  decrease the shortage of Chinese yuan. 
D)  increase the shortage of Chinese yuan. 
A)  increase the surplus of Chinese yuan. 
B)  decrease the surplus of Chinese yuan. 
C)  decrease the shortage of Chinese yuan. 
D)  increase the shortage of Chinese yuan.

Question 19

Figure 30-7
  
-Under the Bretton Woods system,central bankers could obtain foreign currency loans from the

Accepted Answer

A)  U.S. Treasury Department. 
B)  World Trade Organization. 
C)  International Monetary Fund. 
D)  Bank of England. 
A)  U.S. Treasury Department. 
B)  World Trade Organization. 
C)  International Monetary Fund. 
D)  Bank of England.

Question 20

A currency pegged at a value above the market equilibrium exchange rate is

Accepted Answer

A)  overvalued. 
B)  undervalued. 
C)  achieving purchasing power parity. 
D)  depreciating in value relative to its pegged currency. 
A)  overvalued. 
B)  undervalued. 
C)  achieving purchasing power parity. 
D)  depreciating in value relative to its pegged currency.

The ________ in the United States is best described as a managed float exchange rate system.

If a firm in Thailand borrows dollars from a U.S.bank,its interest payments on the loan in bahts will decrease if the baht appreciates against the dollar.

Which of the following would decrease the value of the dollar in the long run?

Figure 30-3 -Refer to Figure 30-3. If the Indian government pegs its currency to the dollar at a value below $.02/rupee,we would say the currency is

When the Bretton Woods system was set up,the United States agreed initially to buy and sell gold at a price of ________ per ounce.

In 1931,the first major country to abandon the gold standard - in order to increase its policy options in face of the Great Depression - was

The Danish currency,the krone,is pegged to the euro at a rate of 7.43 kroner (kroner is the plural of krone)to the euro.At the pegged exchange rate,how many euros would be exchanged for one krone?

Figure 30-3 -Refer to Figure 30-3. Which of the following is true?

If inflation in Mexico is lower than it is in the United States,

If the purchasing power of the dollar is less than the purchasing power of the British pound,purchasing power parity predicts that the exchange rate will

In Thailand in the late 1990s,there was pressure for the value of the baht to decline as foreign investors began to

What do reports that the dollar is "undervalued" mean? How will foreign exchange markets respond to this information? Support your answer graphically.

Figure 30-4 -Refer to Figure 30-4.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D₂. After the shift,

What are capital controls? Why might a financial crisis lead to a reconsideration of using capital controls,and what problems might result from the reinstatement of capital controls?

The model of purchasing power parity is the only way to determine whether a country's currency is undervalued or overvalued.

Figure 30-5 -Refer to Figure 30-5. Suppose the pegged exchange rate is $0.14/yuan and U.S.consumers increase their demand for Chinese products. Using the figure above,this would

Figure 30-7 -Under the Bretton Woods system,central bankers could obtain foreign currency loans from the

A currency pegged at a value above the market equilibrium exchange rate is

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

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Exam 19: The International Financial System

The ________ in the United States is best described as a managed float exchange rate system.

If a firm in Thailand borrows dollars from a U.S.bank,its interest payments on the loan in bahts will decrease if the baht appreciates against the dollar.

Which of the following would decrease the value of the dollar in the long run?

Figure 30-3 -Refer to Figure 30-3. If the Indian government pegs its currency to the dollar at a value below $.02/rupee,we would say the currency is

When the Bretton Woods system was set up,the United States agreed initially to buy and sell gold at a price of ________ per ounce.

In 1931,the first major country to abandon the gold standard - in order to increase its policy options in face of the Great Depression - was

The Danish currency,the krone,is pegged to the euro at a rate of 7.43 kroner (kroner is the plural of krone)to the euro.At the pegged exchange rate,how many euros would be exchanged for one krone?

Figure 30-3 -Refer to Figure 30-3. Which of the following is true?

If inflation in Mexico is lower than it is in the United States,

If the purchasing power of the dollar is less than the purchasing power of the British pound,purchasing power parity predicts that the exchange rate will

In Thailand in the late 1990s,there was pressure for the value of the baht to decline as foreign investors began to

What do reports that the dollar is "undervalued" mean? How will foreign exchange markets respond to this information? Support your answer graphically.

Figure 30-4 -Refer to Figure 30-4.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D₂. After the shift,

What are capital controls? Why might a financial crisis lead to a reconsideration of using capital controls,and what problems might result from the reinstatement of capital controls?

The model of purchasing power parity is the only way to determine whether a country's currency is undervalued or overvalued.

Figure 30-5 -Refer to Figure 30-5. Suppose the pegged exchange rate is $0.14/yuan and U.S.consumers increase their demand for Chinese products. Using the figure above,this would

Figure 30-7 -Under the Bretton Woods system,central bankers could obtain foreign currency loans from the

A currency pegged at a value above the market equilibrium exchange rate is

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

Filters