Question 1

If the purchasing power of a dollar is greater than the purchasing power of the yen, purchasing power parity would predict that

Accepted Answer

A) in the short run, exchange rates will move to equalize the purchasing power of the dollar and the yen. 
B) in the long run, exchange rates will move to equalize the purchasing power of the dollar and the yen. 
C) in the long run, interest rates will move to equalize the purchasing power of the dollar and the yen. 
D) in the short run, interest rates will move to equalize the purchasing power of the dollar and the yen. 
E) in the short run, Canada will grow more quickly than Japan. 
A) in the short run, exchange rates will move to equalize the purchasing power of the dollar and the yen. 
B) in the long run, exchange rates will move to equalize the purchasing power of the dollar and the yen. 
C) in the long run, interest rates will move to equalize the purchasing power of the dollar and the yen. 
D) in the short run, interest rates will move to equalize the purchasing power of the dollar and the yen. 
E) in the short run, Canada will grow more quickly than Japan.

Question 2

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

Accepted Answer

A) overvalued. 
B) undervalued. 
C) achieving purchasing power parity. 
D) depreciated. 
E) None of the above is correct. 
A) overvalued. 
B) undervalued. 
C) achieving purchasing power parity. 
D) depreciated. 
E) None of the above is correct.

Question 3

Figure 15.4   Alt text for Figure 15.4: In figure 15.4, a graph illustrates the quantity of pounds traded against the exchange rate.
Long description for Figure 15.4: The x-axis is labelled, quantity of pounds traded in millions per day.The y-axis is labelled, exchange rate, Canadian dollar against the pound.A straight line supply curve, S, slopes up from the middle left to the top right corner.2 straight line demand curves, D1 and D2, have 2 slightly different slopes.Both curves slope down from the top left corner to the bottom right corner.Curve D2 is plotted to the left of curve D1.The difference between the curves is indicated by a left pointing arrow.Curve S intersects curves D1 and D2 at points A (500, 3.00)and B (300, 2.00).Point (300, 4.00)is plotted near the top of curve D1, and point (100, 4.00)is plotted near the top of curve D2.All points are connected to their corresponding values on the x and y-axes with dotted lines.
-Refer to Figure 15.4.The equilibrium exchange rate is originally at A, $3/pound.Suppose the British government pegs its currency at $4/pound.Speculators expect that the value of the pound will drop and this shifts the demand curve for pounds to D2.If the government abandons the peg, the equilibrium exchange rate would be

Accepted Answer

A) more than $4/pound. 
B) $4/pound. 
C) $3/pound. 
D) $2/pound. 
E) less than $2/pound. 
A) more than $4/pound. 
B) $4/pound. 
C) $3/pound. 
D) $2/pound. 
E) less than $2/pound.

Question 4

If currencies around the world are based on the gold standard, and Japan raises the amount of gold for which the yen will trade, then holding all else constant,

Accepted Answer

A) the yen will depreciate against the dollar. 
B) the yen will appreciate against the dollar. 
C) the value of the yen relative to the dollar will stay constant. 
D) the value of U.S.exports to Japan in terms of the yen will increase. 
E) the yen will depreciate against currencies not using the gold standard. 
A) the yen will depreciate against the dollar. 
B) the yen will appreciate against the dollar. 
C) the value of the yen relative to the dollar will stay constant. 
D) the value of U.S.exports to Japan in terms of the yen will increase. 
E) the yen will depreciate against currencies not using the gold standard.

Question 5

The "Big Mac Theory of Exchange Rates" tests the accuracy of the purchasing power parity theory.In July 2011, the Economist reported that the average price of a Big Mac in the U.S.was $4.07.In Mexico, the average price of a Big Mac at that time was 32 pesos.What is the "implied exchange rate" between the peso and the dollar?

Accepted Answer

A) 1.30 pesos per dollar 
B) 4.17 pesos per dollar 
C) 7.86 pesos per dollar 
D) 12.72 pesos per dollar 
E) 14.36 pesos per dollar 
A) 1.30 pesos per dollar 
B) 4.17 pesos per dollar 
C) 7.86 pesos per dollar 
D) 12.72 pesos per dollar 
E) 14.36 pesos per dollar

Question 6

Figure 15.11   Alt text for Figure 15.11: In figure 15.11, a graph illustrates the quantity of riyal traded against the exchange rate.
Long description for Figure 15.11: The x-axis is labelled, quantity of riyal traded in millions per day.The y-axis is labelled, exchange rate, dollar against the riyal.Supply curve S is a straight line which slopes up from the bottom right corner to the top left corner.Demand curve D is a straight line which slopes down from the top left corner to the bottom right corner.Curves S and D intersect at point (80, $0.27).The point (60, $0.35)is plotted near the top of curve D.The point (130, $0.35)is plotted near the top of curve S.All points are connected to their corresponding values on the x and y-axes with dotted lines.
-Refer to Figure 15.11.According to the graph, is there a surplus or shortage of Saudi Arabian riyal in exchange for Canadian dollars? To maintain the pegged exchange rate, will the Saudi central bank need to buy riyal in exchange for dollars or sell riyal in exchange for dollars? How many riyal will the Saudi central bank need to buy or sell?

Accepted Answer

There is a surplus of riyal in exchange

Question 7

What factors are not important in determining exchange rate fluctuations in the Canadian dollar in the long run?

Accepted Answer

A) relative price levels across countries 
B) relative rates of productivity growth across countries 
C) foreign preferences for Canadian goods 
D) speculating in currency markets 
E) Canadian preferences for foreign goods 
A) relative price levels across countries 
B) relative rates of productivity growth across countries 
C) foreign preferences for Canadian goods 
D) speculating in currency markets 
E) Canadian preferences for foreign goods

Question 8

Figure 15.5   Alt text for Figure 15.5: In figure 15.5, a graph illustrates the quantity of yuan traded against the exchange rate.
Long description for Figure 15.5: The x-axis is labelled, quantity of yuan traded in millions per day.The y-axis is labelled, exchange rate, Canadian dollar against the yuan.Supply curve S, is a straight line which slopes up from the bottom left corner to the top right corner.Demand curve D, is a straight line which slopes down from the top left corner to the bottom right corner.The curves intersect at point A, (600, 0.13).Point A, and unmarked points (800, 0.11), (500, $0.14), (700, $0.14), and (400, 0.11)are all connected to their corresponding values on the x and y-axes with dotted lines.
-Refer to Figure 15.5.Suppose the Chinese government decides to abandon pegging the yuan to the U.S.dollar at a rate which undervalues the yuan.Using the figure above, the equilibrium exchange rate would be ________ and Chinese exports to the United States would ________ in price.

Accepted Answer

A) $0.11/yuan; decrease 
B) $0.11/yuan; increase 
C) $0.14/yuan; increase 
D) $0.13/yuan; increase 
E) $0.13/yuan; decrease 
A) $0.11/yuan; decrease 
B) $0.11/yuan; increase 
C) $0.14/yuan; increase 
D) $0.13/yuan; increase 
E) $0.13/yuan; decrease

Question 9

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) Canadian productivity falls relative to European productivity. 
B) Canadians decrease their preferences for goods produced in the EU relative to Canadian goods. 
C) The European Union increases its quotas on Italian wine. 
D) The price level of goods produced in the EU decreases relative to the price level of goods produced in Canada. 
E) A fall in the Canadian interest rate relative to interest rates in European. 
A) Canadian productivity falls relative to European productivity. 
B) Canadians decrease their preferences for goods produced in the EU relative to Canadian goods. 
C) The European Union increases its quotas on Italian wine. 
D) The price level of goods produced in the EU decreases relative to the price level of goods produced in Canada. 
E) A fall in the Canadian interest rate relative to interest rates in European.

Question 10

Foreign purchases of stocks and bonds issued by Canadian corporations ________ between 1995 and 2007 and ________ in 2010.

Accepted Answer

A) increased at a slow but steady pace; increased dramatically 
B) remained stagnant; declined sharply 
C) increased dramatically; soared again 
D) decreased slightly; increased slightly 
E) increased at a slow but uneven pace; fell sharply 
A) increased at a slow but steady pace; increased dramatically 
B) remained stagnant; declined sharply 
C) increased dramatically; soared again 
D) decreased slightly; increased slightly 
E) increased at a slow but uneven pace; fell sharply

Question 11

Under which exchange rate system was a dollar redeemable for gold only if the dollar was presented by a foreign central bank?

Accepted Answer

A) the gold standard 
B) a managed float exchange rate system 
C) the Bretton Woods System 
D) a fiat system 
E) the international monetary fund system 
A) the gold standard 
B) a managed float exchange rate system 
C) the Bretton Woods System 
D) a fiat system 
E) the international monetary fund system

Question 12

From the beginning of 2002 until 2015, the value of the Canadian dollar has ________ relative to the U.S.dollar and ________ relative to the Japanese yen.

Accepted Answer

A) appreciated then depreciated; depreciated 
B) appreciated then depreciated; appreciated slightly 
C) depreciated then appreciated; appreciated slightly 
D) depreciated; depreciated 
E) depreciated then appreciated; depreciated 
A) appreciated then depreciated; depreciated 
B) appreciated then depreciated; appreciated slightly 
C) depreciated then appreciated; appreciated slightly 
D) depreciated; depreciated 
E) depreciated then appreciated; depreciated

Question 13

Exchange rates under the Bretton Woods system were determined by relative supplies of gold held by countries within the system.

Accepted Answer

A) True 
 B)False

Question 14

Figure 15.4   Alt text for Figure 15.4: In figure 15.4, a graph illustrates the quantity of pounds traded against the exchange rate.
Long description for Figure 15.4: The x-axis is labelled, quantity of pounds traded in millions per day.The y-axis is labelled, exchange rate, Canadian dollar against the pound.A straight line supply curve, S, slopes up from the middle left to the top right corner.2 straight line demand curves, D1 and D2, have 2 slightly different slopes.Both curves slope down from the top left corner to the bottom right corner.Curve D2 is plotted to the left of curve D1.The difference between the curves is indicated by a left pointing arrow.Curve S intersects curves D1 and D2 at points A (500, 3.00)and B (300, 2.00).Point (300, 4.00)is plotted near the top of curve D1, and point (100, 4.00)is plotted near the top of curve D2.All points are connected to their corresponding values on the x and y-axes with dotted lines.
-Refer to Figure 15.4.The equilibrium exchange rate is at A, $3/pound.Suppose the British government pegs its currency at $4/pound.Speculators expect that the value of the pound will drop and this shifts the demand curve for pounds to D2.After the shift,

Accepted Answer

A) there is a shortage of pounds equal to 600 million. 
B) there is a surplus of pounds equal to 400 million. 
C) there is a shortage of pounds equal to 400 million. 
D) there is a surplus of pounds equal to 600 million. 
E) there is a shortage of pounds equal to 200 million. 
A) there is a shortage of pounds equal to 600 million. 
B) there is a surplus of pounds equal to 400 million. 
C) there is a shortage of pounds equal to 400 million. 
D) there is a surplus of pounds equal to 600 million. 
E) there is a shortage of pounds equal to 200 million.

Question 15

How could you profit from a situation in which the cost of t-shirts was 15 dollars in Canada, 10 euros in Spain, and the exchange rate was 2 dollars per euro?

Accepted Answer

A) Buy t-shirts in spain and sell them in Canada. 
B) There is no opportunity for profit in this example. 
C) Sell Canadian dollars to buy euros and wait for the value of the euro to rise. 
D) Buy t-shirts in Canada and sell them in Spain. 
E) Lobby the federal government to impose a tariff on Spanish made t-shirts. 
A) Buy t-shirts in spain and sell them in Canada. 
B) There is no opportunity for profit in this example. 
C) Sell Canadian dollars to buy euros and wait for the value of the euro to rise. 
D) Buy t-shirts in Canada and sell them in Spain. 
E) Lobby the federal government to impose a tariff on Spanish made t-shirts.

Question 16

The Bretton Woods system was established in 1944 and remained in place until the early 1970s.

Accepted Answer

A) True 
 B)False

Question 17

You decide to work in London (UK)for the next 5 years, accumulate some savings, then move back to Canada and convert your savings from British pounds to Canadian dollars.At the time of your move, economists predict that consumers in Canada 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 since the declining Canadian preference for British goods should increase the value of the pound compared to the Canadian dollar, which would decrease the value of your savings when converted to Canadian dollars. 
B) You should be discouraged since the declining Canadian preference for British goods should decrease the value of the pound compared to the Canadian dollar, which would decrease the value of your savings when converted to Canadian dollars. 
C) You should be encouraged since the declining Canadian preference for British goods should decrease the value of the pound compared to the Canadian dollar, which would raise the value of your savings when converted to Canadian dollars. 
D) You should be encouraged since the declining Canadian preference for British goods should increase the value of the pound compared to the Canadian dollar, which would raise the value of your savings when converted to Canadian dollars. 
A) You should be discouraged since the declining Canadian preference for British goods should increase the value of the pound compared to the Canadian dollar, which would decrease the value of your savings when converted to Canadian dollars. 
B) You should be discouraged since the declining Canadian preference for British goods should decrease the value of the pound compared to the Canadian dollar, which would decrease the value of your savings when converted to Canadian dollars. 
C) You should be encouraged since the declining Canadian preference for British goods should decrease the value of the pound compared to the Canadian dollar, which would raise the value of your savings when converted to Canadian dollars. 
D) You should be encouraged since the declining Canadian preference for British goods should increase the value of the pound compared to the Canadian dollar, which would raise the value of your savings when converted to Canadian dollars.

Question 18

The Bretton Woods system ended in

Accepted Answer

A) the 1920s. 
B) the 1940s. 
C) the 1970s. 
D) the 1990s. 
E) the 2000s. 
A) the 1920s. 
B) the 1940s. 
C) the 1970s. 
D) the 1990s. 
E) the 2000s.

Question 19

China began pegging its currency, the yuan, to the U.S.dollar in 1994.Because the yuan was ________ at the pegged exchange rate, the level of Chinese exports remained ________ than they would have been if the exchange rate had been allowed to float freely.

Accepted Answer

A) undervalued; higher 
B) undervalued; lower 
C) overvalued; higher 
D) overvalued; lower 
E) appropriate valued; higher 
A) undervalued; higher 
B) undervalued; lower 
C) overvalued; higher 
D) overvalued; lower 
E) appropriate valued; higher

Question 20

If, at the current exchange rate between the Canadian dollar and the South African rand of 6.92 rand per Canadian dollar, the Canadian dollar is "undervalued," how do you expect demand and supply in the foreign exchange markets to respond?

Accepted Answer

A) The demand for the Canadian dollar will rise, while the supply of the rand will fall. 
B) The demand for the Canadian dollar will fall, while the supply of the rand will rise. 
C) The supply of the Canadian dollar will fall, while the demand for the rand will fall. 
D) The supply of the Canadian dollar will fall, while the demand for the rand will rise. 
E) The demand for the Canadian dollar and the rand will both fall. 
A) The demand for the Canadian dollar will rise, while the supply of the rand will fall. 
B) The demand for the Canadian dollar will fall, while the supply of the rand will rise. 
C) The supply of the Canadian dollar will fall, while the demand for the rand will fall. 
D) The supply of the Canadian dollar will fall, while the demand for the rand will rise. 
E) The demand for the Canadian dollar and the rand will both fall.

If the purchasing power of a dollar is greater than the purchasing power of the yen, purchasing power parity would predict that

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

If currencies around the world are based on the gold standard, and Japan raises the amount of gold for which the yen will trade, then holding all else constant,

What factors are not important in determining exchange rate fluctuations in the Canadian dollar in the long run?

Foreign purchases of stocks and bonds issued by Canadian corporations between 1995 and 2007 and in 2010.

Under which exchange rate system was a dollar redeemable for gold only if the dollar was presented by a foreign central bank?

From the beginning of 2002 until 2015, the value of the Canadian dollar has relative to the U.S.dollar and relative to the Japanese yen.

Exchange rates under the Bretton Woods system were determined by relative supplies of gold held by countries within the system.

How could you profit from a situation in which the cost of t-shirts was 15 dollars in Canada, 10 euros in Spain, and the exchange rate was 2 dollars per euro?

The Bretton Woods system was established in 1944 and remained in place until the early 1970s.

The Bretton Woods system ended in

China began pegging its currency, the yuan, to the U.S.dollar in 1994.Because the yuan was at the pegged exchange rate, the level of Chinese exports remained than they would have been if the exchange rate had been allowed to float freely.

If, at the current exchange rate between the Canadian dollar and the South African rand of 6.92 rand per Canadian dollar, the Canadian dollar is "undervalued," how do you expect demand and supply in the foreign exchange markets to respond?

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

If the purchasing power of a dollar is greater than the purchasing power of the yen, purchasing power parity would predict that

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

If currencies around the world are based on the gold standard, and Japan raises the amount of gold for which the yen will trade, then holding all else constant,

What factors are not important in determining exchange rate fluctuations in the Canadian dollar in the long run?

Foreign purchases of stocks and bonds issued by Canadian corporations ________ between 1995 and 2007 and ________ in 2010.

Under which exchange rate system was a dollar redeemable for gold only if the dollar was presented by a foreign central bank?

From the beginning of 2002 until 2015, the value of the Canadian dollar has ________ relative to the U.S.dollar and ________ relative to the Japanese yen.

Exchange rates under the Bretton Woods system were determined by relative supplies of gold held by countries within the system.

How could you profit from a situation in which the cost of t-shirts was 15 dollars in Canada, 10 euros in Spain, and the exchange rate was 2 dollars per euro?

The Bretton Woods system was established in 1944 and remained in place until the early 1970s.

The Bretton Woods system ended in

China began pegging its currency, the yuan, to the U.S.dollar in 1994.Because the yuan was ________ at the pegged exchange rate, the level of Chinese exports remained ________ than they would have been if the exchange rate had been allowed to float freely.

If, at the current exchange rate between the Canadian dollar and the South African rand of 6.92 rand per Canadian dollar, the Canadian dollar is "undervalued," how do you expect demand and supply in the foreign exchange markets to respond?

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

Filters

Foreign purchases of stocks and bonds issued by Canadian corporations between 1995 and 2007 and in 2010.

From the beginning of 2002 until 2015, the value of the Canadian dollar has relative to the U.S.dollar and relative to the Japanese yen.

China began pegging its currency, the yuan, to the U.S.dollar in 1994.Because the yuan was at the pegged exchange rate, the level of Chinese exports remained than they would have been if the exchange rate had been allowed to float freely.