Question 1

A Big Mac costs $4.07 in Canada and 8.63 zlotys in Poland.If the exchange rate is 3 zlotys per Canadian, purchasing power parity predicts that

Accepted Answer

A) the Canadian dollar is correctly valued. 
B) the Canadian is dollar overvalued. 
C) the zloty is overvalued. 
D) the zloty is correctly valued. 
E) both the zloty and Canadian dollar are undervalued. 
A) the Canadian dollar is correctly valued. 
B) the Canadian is dollar overvalued. 
C) the zloty is overvalued. 
D) the zloty is correctly valued. 
E) both the zloty and Canadian dollar are undervalued.

Question 2

A Big Mac costs $4.00 in Canada and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar, purchasing power parity predicts that

Accepted Answer

A) the dollar will appreciate as the demand for dollars falls in the long run. 
B) the dollar will appreciate as the supply of dollars falls in the long run. 
C) the dollar will depreciate as the demand for dollars falls in the long run. 
D) the dollar will depreciate as the supply of dollars rises in the long run. 
E) the dollar will appreciate as the United States grows more slowly than Brazil. 
A) the dollar will appreciate as the demand for dollars falls in the long run. 
B) the dollar will appreciate as the supply of dollars falls in the long run. 
C) the dollar will depreciate as the demand for dollars falls in the long run. 
D) the dollar will depreciate as the supply of dollars rises in the long run. 
E) the dollar will appreciate as the United States grows more slowly than Brazil.

Question 3

Describe the four determinants of exchange rates in the long run.

Accepted Answer

One determinant of exchange rates in the

Question 4

An increase in the value of the U.S.dollar relative to the Canadian dollar would be ________ for Canadian owners of U.S.houses who wish to sell those houses, and ________ for Canadian manufacturers operating factories in the United States that export their products back to Canada.

Accepted Answer

A) good news; good news 
B) good news; bad news 
C) bad news; good news 
D) bad news; bad news 
A) good news; good news 
B) good news; bad news 
C) bad news; good news 
D) bad news; bad news

Question 5

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

Accepted Answer

A) an increase in inflation in Canada relative to other countries 
B) an increase in the demand for Canadian goods relative to goods from other countries 
C) a decrease in Canadian tariffs on foreign goods 
D) an increase in the supply of dollars on the foreign exchange market 
E) a slow down in Canadian productivity growth relative to other countries 
A) an increase in inflation in Canada relative to other countries 
B) an increase in the demand for Canadian goods relative to goods from other countries 
C) a decrease in Canadian tariffs on foreign goods 
D) an increase in the supply of dollars on the foreign exchange market 
E) a slow down in Canadian productivity growth relative to other countries

Question 6

The year in which euro coins and paper currency were introduced and participating "eurozone" countries withdrew old domestic currencies from circulation was

Accepted Answer

A) 2007. 
B) 2002. 
C) 1999. 
D) 1995. 
E) 1957. 
A) 2007. 
B) 2002. 
C) 1999. 
D) 1995. 
E) 1957.

Question 7

China began pegging its currency, the yuan, to the U.S.dollar in 1994.Because the yuan has been ________ at the pegged exchange rate, the Chinese government ________ its reserves of U.S.dollars as the government purchased more ________ to maintain the pegged exchange rate.

Accepted Answer

A) undervalued; increased; dollars 
B) undervalued; decreased; yuan 
C) overvalued; decreased; yuan 
D) overvalued; increased; yuan 
A) undervalued; increased; dollars 
B) undervalued; decreased; yuan 
C) overvalued; decreased; yuan 
D) overvalued; increased; yuan

Question 8

Why might a country raise interest rates in the face of an exchange rate crisis?

Accepted Answer

If the value of a country's currency is

Question 9

Which of the following is a drawback to having a common currency across countries, as in the European Union?

Accepted Answer

A) A common currency increases barriers to trade across countries, reducing opportunities for economic growth. 
B) With a common currency, individual countries are no longer able to run independent monetary policies. 
C) Having a common currency implies that the prices of goods across countries must always be the same, regardless of consumer preferences for goods across countries. 
D) Having a common currency allows for coordinated monetary policy. 
E) None of the above is a drawback to a common currency. 
A) A common currency increases barriers to trade across countries, reducing opportunities for economic growth. 
B) With a common currency, individual countries are no longer able to run independent monetary policies. 
C) Having a common currency implies that the prices of goods across countries must always be the same, regardless of consumer preferences for goods across countries. 
D) Having a common currency allows for coordinated monetary policy. 
E) None of the above is a drawback to a common currency.

Question 10

In the late 1990s, as foreign investors began to sell off investments they had made in Thailand, they traded in their baht for dollars.The result of this was

Accepted Answer

A) pressure for the value of the baht to decline. 
B) pressure for the value of the baht to rise. 
C) an increase in the equilibrium value of the baht. 
D) a decrease in the supply of the baht in foreign exchange markets. 
E) improved liquidity in the market for baht. 
A) pressure for the value of the baht to decline. 
B) pressure for the value of the baht to rise. 
C) an increase in the equilibrium value of the baht. 
D) a decrease in the supply of the baht in foreign exchange markets. 
E) improved liquidity in the market for baht.

Question 11

Figure 15.2   Alt text for Figure 15.2: In figure 15.2, a graph illustrates the quantity of dollars traded against the exchange rate.
Long description for Figure 15.2: The x-axis is labelled, quantity of dollars traded per day.The y-axis is labelled, exchange rate, yuan against the Canadian dollar, with values 8.08 yaun and 8.10 yaun marked.Supply curve S is a straight line which slopes up from the bottom left corner to the top right corner.2 parallel straight line demand curves, D1 and D2 slope down from the top left corner to the bottom right corner, with curve D2 plotted to the right of curve D1.Curve S intersects curve D1 at point A, with a y-axis value of 8.08 yaun.Curve S intersects curve D2 at point B, with a y-axis value of 8.10 yuan.Points A and B are connected to their corresponding values on the y-axis with dotted lines.The difference between the y-axis values is indicated with a up pointing arrow.
-Refer to Figure 15.2.Which of the following would cause the change depicted in the figure above?

Accepted Answer

A) Lack of investment in infrastructure causes Canadian productivity to fall relative to Chinese productivity. 
B) Tainted cat food from China causes Canadian consumers to decrease their preferences for Chinese goods relative to Canadian goods. 
C) A new trade agreement with China results in Canada removing all tariffs on clothing imported from China. 
D) An expansionary monetary policy causes an increase in the price level of Canadian goods relative to Chinese goods. 
E) The Chinese yuan becomes recognized as an international reserve currency. 
A) Lack of investment in infrastructure causes Canadian productivity to fall relative to Chinese productivity. 
B) Tainted cat food from China causes Canadian consumers to decrease their preferences for Chinese goods relative to Canadian goods. 
C) A new trade agreement with China results in Canada removing all tariffs on clothing imported from China. 
D) An expansionary monetary policy causes an increase in the price level of Canadian goods relative to Chinese goods. 
E) The Chinese yuan becomes recognized as an international reserve currency.

Question 12

Gold stored by Bank of Canada backs all Canadian currency.

Accepted Answer

A) True 
 B)False

Question 13

Canada abandoned the ________ because the government wanted to rapidly expand the money supply in response to the Great Depression.

Accepted Answer

A) gold standard 
B) Bretton Woods system 
C) managed float 
D) floating exchange rate system 
E) international monetary fund 
A) gold standard 
B) Bretton Woods system 
C) managed float 
D) floating exchange rate system 
E) international monetary fund

Question 14

Figure 15.3   Alt text for Figure 15.3: In figure 15.3, a graph illustrates the quantity of bahts traded against the exchange rate.
Long description for Figure 15.3: The x-axis is labelled, quantity of bahts traded, with value 180 marked.The y-axis is labelled exchange rate, Canadian dollar against the baht, with value 0.03 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 (160, 0.30), which is connected to the corresponding x and y-axes values with dotted lines.
-Refer to Figure 15.3.If the Thai government pegs its currency to the dollar at a value above $.03/baht, we would say the currency is

Accepted Answer

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

Question 15

Canadian currency continues to be backed by the gold standard to this day.

Accepted Answer

A) True 
 B)False

Question 16

Under the Bretton Woods exchange rate system, set up in 1944, which of the following was true?

Accepted Answer

A) Americans could sell their dollars to the American government in exchange for gold. 
B) Americans could sell their dollars to the American government in exchange for silver. 
C) Americans could sell their dollars to foreign central banks in exchange for gold. 
D) Foreign central banks could sell their dollars to the American government in exchange for gold. 
E) Americans were required to pay for imports from other countries with gold. 
A) Americans could sell their dollars to the American government in exchange for gold. 
B) Americans could sell their dollars to the American government in exchange for silver. 
C) Americans could sell their dollars to foreign central banks in exchange for gold. 
D) Foreign central banks could sell their dollars to the American government in exchange for gold. 
E) Americans were required to pay for imports from other countries with gold.

Question 17

The ________ in Canada is best described as a floating 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 
E) exchange rate system in use until the 1930s 
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 
E) exchange rate system in use until the 1930s

Question 18

Figure 15.9   Alt text for Figure 15.9: In figure 15.9, a graph illustrates the quantity of euros traded against the exchange rate.
Long description for Figure 15.9: The x-axis is labelled, quantity of euros traded in millions per day.The y-axis is labelled, exchange rate, Canadian dollar against the euro.A straight line supply curve, S, slopes up from the bottom left corner to the top right corner.2 straight line demand curves, D1 and D2, slope down from the top left corner to the bottom right corner.Curve D2 is plotted to the right of curve D1.The difference between the curves is indicated by a right pointing arrow.Curve S intersects curves D1 and D2 at points A (500, 1.25)and B (700, 1.50).Point (200, 1.00)is plotted near the bottom of curve S.Point (950, 1.75)is plotted near the top of curve S.Point (500, 1.75)is plotted near the top of curve D2.Points (900, 1.25)and point (1,000, 1.00)are plotted near the bottom of curve D2.Point (200,1.75)is plotted near the top of curve D1.Point (700, 1.00)is plotted near the bottom of curve D1.All points are connected to their corresponding values on the x and y-axes with dotted lines.
-Refer to Figure 15.9.The equilibrium exchange rate is at A, $1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.At the pegged exchange rate,

Accepted Answer

A) there is a shortage of euros equal to 500 million. 
B) there is a surplus of euros equal to 300 million. 
C) there is a shortage of euros equal to 200 million. 
D) there is a surplus of euros equal to 700 million. 
E) there is a surplus of euros equal to 900 million. 
A) there is a shortage of euros equal to 500 million. 
B) there is a surplus of euros equal to 300 million. 
C) there is a shortage of euros equal to 200 million. 
D) there is a surplus of euros equal to 700 million. 
E) there is a surplus of euros equal to 900 million.

Question 19

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

Accepted Answer

If the Canadian dollar is "undervalued",

Question 20

The fact that the prices for McDonald's Big Mac sandwich are not the same around the world illustrates one reason why purchasing power does not hold: Many goods are not traded internationally.

Accepted Answer

A) True 
 B)False

A Big Mac costs $4.07 in Canada and 8.63 zlotys in Poland.If the exchange rate is 3 zlotys per Canadian, purchasing power parity predicts that

A Big Mac costs $4.00 in Canada and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar, purchasing power parity predicts that

Describe the four determinants of exchange rates in the long run.

An increase in the value of the U.S.dollar relative to the Canadian dollar would be for Canadian owners of U.S.houses who wish to sell those houses, and for Canadian manufacturers operating factories in the United States that export their products back to Canada.

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

The year in which euro coins and paper currency were introduced and participating "eurozone" countries withdrew old domestic currencies from circulation was

China began pegging its currency, the yuan, to the U.S.dollar in 1994.Because the yuan has been at the pegged exchange rate, the Chinese government its reserves of U.S.dollars as the government purchased more to maintain the pegged exchange rate.

Why might a country raise interest rates in the face of an exchange rate crisis?

Which of the following is a drawback to having a common currency across countries, as in the European Union?

In the late 1990s, as foreign investors began to sell off investments they had made in Thailand, they traded in their baht for dollars.The result of this was

Gold stored by Bank of Canada backs all Canadian currency.

Canada abandoned the ________ because the government wanted to rapidly expand the money supply in response to the Great Depression.

Canadian currency continues to be backed by the gold standard to this day.

Under the Bretton Woods exchange rate system, set up in 1944, which of the following was true?

The ________ in Canada is best described as a floating exchange rate system.

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

The fact that the prices for McDonald's Big Mac sandwich are not the same around the world illustrates one reason why purchasing power does not hold: Many goods are not traded internationally.

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

Exam 15: The International Financial System

A Big Mac costs $4.07 in Canada and 8.63 zlotys in Poland.If the exchange rate is 3 zlotys per Canadian, purchasing power parity predicts that

A Big Mac costs $4.00 in Canada and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar, purchasing power parity predicts that

Describe the four determinants of exchange rates in the long run.

An increase in the value of the U.S.dollar relative to the Canadian dollar would be ________ for Canadian owners of U.S.houses who wish to sell those houses, and ________ for Canadian manufacturers operating factories in the United States that export their products back to Canada.

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

The year in which euro coins and paper currency were introduced and participating "eurozone" countries withdrew old domestic currencies from circulation was

China began pegging its currency, the yuan, to the U.S.dollar in 1994.Because the yuan has been ________ at the pegged exchange rate, the Chinese government ________ its reserves of U.S.dollars as the government purchased more ________ to maintain the pegged exchange rate.

Why might a country raise interest rates in the face of an exchange rate crisis?

Which of the following is a drawback to having a common currency across countries, as in the European Union?

In the late 1990s, as foreign investors began to sell off investments they had made in Thailand, they traded in their baht for dollars.The result of this was

Gold stored by Bank of Canada backs all Canadian currency.

Canada abandoned the ________ because the government wanted to rapidly expand the money supply in response to the Great Depression.

Canadian currency continues to be backed by the gold standard to this day.

Under the Bretton Woods exchange rate system, set up in 1944, which of the following was true?

The ________ in Canada is best described as a floating exchange rate system.

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

The fact that the prices for McDonald's Big Mac sandwich are not the same around the world illustrates one reason why purchasing power does not hold: Many goods are not traded internationally.

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

An increase in the value of the U.S.dollar relative to the Canadian dollar would be for Canadian owners of U.S.houses who wish to sell those houses, and for Canadian manufacturers operating factories in the United States that export their products back to Canada.

China began pegging its currency, the yuan, to the U.S.dollar in 1994.Because the yuan has been at the pegged exchange rate, the Chinese government its reserves of U.S.dollars as the government purchased more to maintain the pegged exchange rate.