Question 1

The central bank of the European Union is called the

Accepted Answer

A) Bundesbank. 
B) Banco Europe. 
C) Federal Reserve. 
D) European Central Bank. 
E) The Riksbanken. 
A) Bundesbank. 
B) Banco Europe. 
C) Federal Reserve. 
D) European Central Bank. 
E) The Riksbanken.

Question 2

Both countries involved in a pegging of currency must agree to the terms of the pegging.

Accepted Answer

A) True 
 B)False

Question 3

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

Question 4

The Latvian currency, the lat, is pegged to the euro at a rate of 0.71 lats to the euro.At the pegged exchange rate, how many euros would be exchanged for one lat?

Accepted Answer

A) 0.29 
B) 0.71 
C) 1.41 
D) 1.71 
E) 71 
A) 0.29 
B) 0.71 
C) 1.41 
D) 1.71 
E) 71

Question 5

Under a floating exchange rate, the exchange rate

Accepted Answer

A) will change whenever the price of gold changes. 
B) is controlled by central bank intervention. 
C) is determined by the interaction of supply of the currency and demand for the currency. 
D) is pegged against the euro. 
E) is determined by price of gold. 
A) will change whenever the price of gold changes. 
B) is controlled by central bank intervention. 
C) is determined by the interaction of supply of the currency and demand for the currency. 
D) is pegged against the euro. 
E) is determined by price of gold.

Question 6

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 
E) 74.3 
A) 0.135 
B) 1.00 
C) 2.48 
D) 7.43 
E) 74.3

Question 7

If interest rates in Canada rise,

Accepted Answer

A) the value of the dollar will fall as foreign investors sell their Canadian investments. 
B) the value of the dollar will rise as the foreign investors increase their holdings of Canadian investments. 
C) the value of the dollar will fall as foreign investors increase their holdings of Canadian investments. 
D) the value of the dollar will rise as foreign investors sell their Canadian investments. 
E) the value of the dollar will remain unchanged as equal numbers of foreign investors sell and buy Canadian investments. 
A) the value of the dollar will fall as foreign investors sell their Canadian investments. 
B) the value of the dollar will rise as the foreign investors increase their holdings of Canadian investments. 
C) the value of the dollar will fall as foreign investors increase their holdings of Canadian investments. 
D) the value of the dollar will rise as foreign investors sell their Canadian investments. 
E) the value of the dollar will remain unchanged as equal numbers of foreign investors sell and buy Canadian investments.

Question 8

If purchasing power parity tells us that if the exchange rate is a pound for a dollar, then price of a haircut in London should cost the same as a haircut in Toronto.

Accepted Answer

A) True 
 B)False

Question 9

The currency adopted by most countries in Western Europe is referred to as the

Accepted Answer

A) euro. 
B) Eurodollar. 
C) yen. 
D) pound. 
E) the rouble. 
A) euro. 
B) Eurodollar. 
C) yen. 
D) pound. 
E) the rouble.

Question 10

Figure 15.8   Alt text for Figure 15.8: In figure 15.8, a graph illustrates the quantity of rupees traded against the exchange rate.
Long description for Figure 15.8: The x-axis is labelled, quantity of rupees traded.The y-axis is labelled exchange rate, Canadian dollar against the rupee, with value 0.02 marked.A straight line supply curve, S, slopes up from the bottom left corner to the top right corner.A straight line demand curve, D, slopes down from the top left corner to the bottom right corner.Curves S and D intersect at point with a y-axis value of 0.02, which is connected to the corresponding y-axis value with a dotted line.
-Refer to Figure 15.8.If the Indian government pegs its currency to the Canadian dollar at a value above $.02/rupee, we would say the currency is

Accepted Answer

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

Question 11

What does it mean when one currency is "pegged" against another currency?

Accepted Answer

One currency is pegged against

Question 12

Under the gold standard, to increase the money supply in the country, the government must

Accepted Answer

A) simply print more currency. 
B) have enough gold to back up the increase in the money supply. 
C) buy foreign currencies with dollars to increase foreign currency reserves. 
D) increase the value of the country's currency on foreign exchange markets. 
E) sell reserves of gold to the Federal Reserve of the United States. 
A) simply print more currency. 
B) have enough gold to back up the increase in the money supply. 
C) buy foreign currencies with dollars to increase foreign currency reserves. 
D) increase the value of the country's currency on foreign exchange markets. 
E) sell reserves of gold to the Federal Reserve of the United States.

Question 13

If a country sets a pegged exchange rate that is below the equilibrium exchange rate, how can the country maintain the peg?

Accepted Answer

A) by purchasing surplus domestic currency at the pegged rate 
B) by selling surplus domestic currency at the pegged rate 
C) by purchasing surplus domestic currency at the equilibrium exchange rate 
D) by decreasing the pegged exchange rate 
E) by decreasing the supply of domestic currency 
A) by purchasing surplus domestic currency at the pegged rate 
B) by selling surplus domestic currency at the pegged rate 
C) by purchasing surplus domestic currency at the equilibrium exchange rate 
D) by decreasing the pegged exchange rate 
E) by decreasing the supply of domestic currency

Question 14

Expanding, contracting, and managing the money supply is easier for a central bank under the gold standard.

Accepted Answer

A) True 
 B)False

Question 15

If the current price of a Big Mac is 30,500 rupiahs in Indonesia and $4.79 in the United States, what exchange rate does the Big Mac Theory of exchange rates predict?

Accepted Answer

A) 6367 rupiahs per dollar 
B) 0)0002 rupiahs per dollar 
C) 1 rupiahs per dollar 
D) 6336 rupiahs per dollar 
E) 1460.95 rupiahs per dollar 
A) 6367 rupiahs per dollar 
B) 0)0002 rupiahs per dollar 
C) 1 rupiahs per dollar 
D) 6336 rupiahs per dollar 
E) 1460.95 rupiahs per dollar

Question 16

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

Accepted Answer

If the dollar is "overvalued," that mean

Question 17

If a country's currency ________ a major currency, its exchange rate is fixed.

Accepted Answer

A) is exchanged in currency markets for 
B) depreciates against 
C) is pegged to 
D) has a floating exchange rate value that is equal to 
E) appropriately valued relative to 
A) is exchanged in currency markets for 
B) depreciates against 
C) is pegged to 
D) has a floating exchange rate value that is equal to 
E) appropriately valued relative to

Question 18

In 1991, Argentina decided to peg its currency (the Argentinean peso)to the U.S.dollar.To maintain the peg, Argentina had to purchase surplus pesos on the foreign exchange market, depleting its reserves of dollars to such an extent that it eventually had to abandon the peg.Show graphically what this implies about the peg relative to the equilibrium exchange rate in the market for the Argentinean peso.

Accepted Answer

If Argentina had to purchase s

Question 19

Figure 15.6   Alt text for Figure 15.6: In figure 15.6, a graph illustrates the quantity of euros traded against the exchange rate.
Long description for Figure 15.6: The x-axis is labelled, quantity of euros traded per day.The y-axis is labelled, exchange rate, Canadian dollar against the euro, with values 1.00 and 1.05 dollars marked.A straight line supply curve, S slopes up from the bottom left corner to the top right corner.2 parallel straight line demand curves, D1 and D2 slope down form the top left corner to the bottom right corner.Curve D2 is plotted to the left of curve D1.The change from curve D1 to curve D2 is indicated by a left pointing arrow.Curve S intersects curve D1 at point A, with a y-axis value of 1.05.Curve S intersects curve D2 at point B, with a y-axis value of 1.00.Points A and B are connected to their corresponding x and y-axis values with dotted lines.The difference between the y-axis values is indicated with a down pointing arrow.
-Refer to Figure 15.6.Which of the following would cause the change depicted in the figure above?

Accepted Answer

A) European productivity rises relative to Canadian productivity. 
B) Canadians decrease their preferences for goods produced in the EU relative to Canadian goods. 
C) The European Union increases its quotas on German wristwatches. 
D) The price level of goods produced in the EU increases relative to the price level of goods produced in Canada. 
E) An increase in European interest rates relative to Canadian interest rates. 
A) European productivity rises relative to Canadian productivity. 
B) Canadians decrease their preferences for goods produced in the EU relative to Canadian goods. 
C) The European Union increases its quotas on German wristwatches. 
D) The price level of goods produced in the EU increases relative to the price level of goods produced in Canada. 
E) An increase in European interest rates relative to Canadian interest rates.

Question 20

If the implied exchange rate between Big Mac prices in Canada and Poland is 2.13 zlotys per dollar, but the actual exchange rate between Canada and Poland is 3.16 zlotys per dollar, which of the following would you expect to see?

Accepted Answer

A) an appreciation of the dollar 
B) an increase in the demand for zlotys 
C) an increase in the demand for dollars 
D) Both A and C are correct. 
A) an appreciation of the dollar 
B) an increase in the demand for zlotys 
C) an increase in the demand for dollars 
D) Both A and C are correct.

The central bank of the European Union is called the

Both countries involved in a pegging of currency must agree to the terms of the pegging.

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

The Latvian currency, the lat, is pegged to the euro at a rate of 0.71 lats to the euro.At the pegged exchange rate, how many euros would be exchanged for one lat?

Under a floating exchange rate, the exchange rate

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?

If interest rates in Canada rise,

If purchasing power parity tells us that if the exchange rate is a pound for a dollar, then price of a haircut in London should cost the same as a haircut in Toronto.

The currency adopted by most countries in Western Europe is referred to as the

What does it mean when one currency is "pegged" against another currency?

Under the gold standard, to increase the money supply in the country, the government must

If a country sets a pegged exchange rate that is below the equilibrium exchange rate, how can the country maintain the peg?

Expanding, contracting, and managing the money supply is easier for a central bank under the gold standard.

If the current price of a Big Mac is 30,500 rupiahs in Indonesia and $4.79 in the United States, what exchange rate does the Big Mac Theory of exchange rates predict?

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

If a country's currency ________ a major currency, its exchange rate is fixed.

If the implied exchange rate between Big Mac prices in Canada and Poland is 2.13 zlotys per dollar, but the actual exchange rate between Canada and Poland is 3.16 zlotys per dollar, which of the following would you expect to see?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Supply and Demand

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 Bank of Canada

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Bank of Canada Policy

Macroeconomics in an Open Economy

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Exam 15: The International Financial System

The central bank of the European Union is called the

Both countries involved in a pegging of currency must agree to the terms of the pegging.

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

The Latvian currency, the lat, is pegged to the euro at a rate of 0.71 lats to the euro.At the pegged exchange rate, how many euros would be exchanged for one lat?

Under a floating exchange rate, the exchange rate

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?

If interest rates in Canada rise,

If purchasing power parity tells us that if the exchange rate is a pound for a dollar, then price of a haircut in London should cost the same as a haircut in Toronto.

The currency adopted by most countries in Western Europe is referred to as the

What does it mean when one currency is "pegged" against another currency?

Under the gold standard, to increase the money supply in the country, the government must

If a country sets a pegged exchange rate that is below the equilibrium exchange rate, how can the country maintain the peg?

Expanding, contracting, and managing the money supply is easier for a central bank under the gold standard.

If the current price of a Big Mac is 30,500 rupiahs in Indonesia and $4.79 in the United States, what exchange rate does the Big Mac Theory of exchange rates predict?

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

If a country's currency ________ a major currency, its exchange rate is fixed.

If the implied exchange rate between Big Mac prices in Canada and Poland is 2.13 zlotys per dollar, but the actual exchange rate between Canada and Poland is 3.16 zlotys per dollar, which of the following would you expect to see?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Supply and Demand

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 Bank of Canada

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Bank of Canada Policy

Macroeconomics in an Open Economy

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