Question 1

The ________ system of currency exchange was set up in 1944.

Accepted Answer

A) gold standard 
B) Bretton Woods 
C) managed float 
D) flexible 
E) eurozone 
A) gold standard 
B) Bretton Woods 
C) managed float 
D) flexible 
E) eurozone

Question 2

All of the following explain why purchasing power parity does not completely explain long-run fluctuations in exchange rates, except

Accepted Answer

A) not all goods and services produced in any country are traded internationally. 
B) consumer preferences for goods and services differ across countries. 
C) some countries impose barriers to trade. 
D) most countries have free markets with little, if any, government regulation. 
A) not all goods and services produced in any country are traded internationally. 
B) consumer preferences for goods and services differ across countries. 
C) some countries impose barriers to trade. 
D) most countries have free markets with little, if any, government regulation.

Question 3

When the value of a currency is determined mostly by demand and supply, but with occasional government intervention, the exchange rate system is defined as

Accepted Answer

A) fixed. 
B) floating. 
C) managed float. 
D) Bretton Woods. 
E) mixed economy. 
A) fixed. 
B) floating. 
C) managed float. 
D) Bretton Woods. 
E) mixed economy.

Question 4

If inflation in Mexico is lower than it is in Canada,

Accepted Answer

A) the purchasing power of the peso in buying Mexican goods will fall relative to the Canadian dollar. 
B) the value of the Canadian 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 Canadian dollar in buying Canadian goods will rise relative to the peso. 
A) the purchasing power of the peso in buying Mexican goods will fall relative to the Canadian dollar. 
B) the value of the Canadian 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 Canadian dollar in buying Canadian goods will rise relative to the peso.

Question 5

China has been accused of deliberately undervaluing its currency, the yuan, in order to

Accepted Answer

A) increase its exports. 
B) increase its imports. 
C) prevent deflation. 
D) maintain purchasing power parity. 
E) reduce capital inflows. 
A) increase its exports. 
B) increase its imports. 
C) prevent deflation. 
D) maintain purchasing power parity. 
E) reduce capital inflows.

Question 6

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.Speculators expect that the value of the euro will rise, and this shifts the demand curve for euros to D2.After the shift,

Accepted Answer

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

Question 7

An easy way to determine if a currency is undervalued at a point in time is to use the model of purchasing power parity.

Accepted Answer

A) True 
 B)False

Question 8

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.Which of the following is true?

Accepted Answer

A) Canadian 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 Canadian dollars with rupees. 
D) Indian exports to Canada are more expensive at exchange rates greater than $.02/rupee than at the equilibrium exchange rate. 
E) Indian interest rates will be lower than Canadian interest rates if the exchange rate is greater than $0.02/rupee. 
A) Canadian 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 Canadian dollars with rupees. 
D) Indian exports to Canada are more expensive at exchange rates greater than $.02/rupee than at the equilibrium exchange rate. 
E) Indian interest rates will be lower than Canadian interest rates if the exchange rate is greater than $0.02/rupee.

Question 9

If the rate of productivity growth in Canada exceeds the rate of productivity growth in Great Britain we would expect the Canadian dollar to depreciate in value against the British pound.

Accepted Answer

A) True 
 B)False

Question 10

A Big Mac costs $4.00 in Canada and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar, what is the dollar cost of a Big Mac in Brazil?

Accepted Answer

A) $0.89 
B) $2.25 
C) $4.50 
D) $8.00 
E) $9.00 
A) $0.89 
B) $2.25 
C) $4.50 
D) $8.00 
E) $9.00

Question 11

What explains the appreciation of the Japanese yen relative to the Canadian dollar from 1970 to the early 1990s?

Accepted Answer

A) Japanese productivity rose faster than Canadian productivity. 
B) Japanese inflation rose faster than Canadian inflation. 
C) Canadian consumers reduced their preferences for Japanese goods. 
D) High tariffs and restrictive quotas in Canada caused the value of the dollar to decline. 
E) Japanese monetary policy was more expansionary than Canadian monetary policy. 
A) Japanese productivity rose faster than Canadian productivity. 
B) Japanese inflation rose faster than Canadian inflation. 
C) Canadian consumers reduced their preferences for Japanese goods. 
D) High tariffs and restrictive quotas in Canada caused the value of the dollar to decline. 
E) Japanese monetary policy was more expansionary than Canadian monetary policy.

Question 12

International flows of capital increase both efficiency and growth in countries around the world.

Accepted Answer

A) True 
 B)False

Question 13

Should European nations which are not currently using the euro choose to adopt the euro as their currency, these countries would risk giving up the ability to use ________ to stabilize their economies in the event of a recession.

Accepted Answer

A) increased government spending 
B) increased tax rates 
C) reductions in key interest rates 
D) banking regulation 
E) labour standards 
A) increased government spending 
B) increased tax rates 
C) reductions in key interest rates 
D) banking regulation 
E) labour standards

Question 14

The current exchange rate system in Canada is best described as a

Accepted Answer

A) silver standard. 
B) floating exchange rate system. 
C) fixed exchange rate system. 
D) gold standard. 
E) the Bretton Woods system. 
A) silver standard. 
B) floating exchange rate system. 
C) fixed exchange rate system. 
D) gold standard. 
E) the Bretton Woods system.

Question 15

If the rate of inflation in Canada exceeds the rate of inflation in Great Britain, we would expect the Canadian dollar to depreciate in value against the British pound.

Accepted Answer

A) True 
 B)False

Question 16

Will the use of the euro help increase economic growth in countries in the European Union? Will it help individual countries using the euro in times of recession? Explain.

Accepted Answer

While a common currency makes it easier

Question 17

The currencies of Poland and Iceland (the zloty and the krona, respectively)declined in value relative to the euro following the financial crisis of 2008.This means that the

Accepted Answer

A) zloty and krona appreciated in value against the euro. 
B) euro depreciated in value against the zloty and the krona. 
C) zloty and krona depreciated in value against the euro. 
D) zloty depreciated in value against the krona. 
E) Both A and B are correct. 
A) zloty and krona appreciated in value against the euro. 
B) euro depreciated in value against the zloty and the krona. 
C) zloty and krona depreciated in value against the euro. 
D) zloty depreciated in value against the krona. 
E) Both A and B are correct.

Question 18

In the late 1990s, when foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely, they began to sell off their investments in Thailand and exchange the baht they received for dollars.This reduction in investment by foreigners is termed

Accepted Answer

A) foreign direct investment. 
B) capital flight. 
C) capital inflow. 
D) stabilizing capitalization. 
E) bank run. 
A) foreign direct investment. 
B) capital flight. 
C) capital inflow. 
D) stabilizing capitalization. 
E) bank run.

Question 19

Why do countries peg their currencies, and what problems can result from pegging?

Accepted Answer

Countries peg their currencies to make p

Question 20

Which of the following would prevent the purchasing power of currencies being equal in the long run?

Accepted Answer

A) barriers to trade 
B) universal preferences 
C) free trade agreements between countries 
D) expansionary monetary policy in one country 
E) improved transportation links between countries 
A) barriers to trade 
B) universal preferences 
C) free trade agreements between countries 
D) expansionary monetary policy in one country 
E) improved transportation links between countries

The ________ system of currency exchange was set up in 1944.

All of the following explain why purchasing power parity does not completely explain long-run fluctuations in exchange rates, except

When the value of a currency is determined mostly by demand and supply, but with occasional government intervention, the exchange rate system is defined as

If inflation in Mexico is lower than it is in Canada,

China has been accused of deliberately undervaluing its currency, the yuan, in order to

An easy way to determine if a currency is undervalued at a point in time is to use the model of purchasing power parity.

If the rate of productivity growth in Canada exceeds the rate of productivity growth in Great Britain we would expect the Canadian dollar to depreciate in value against the British pound.

A Big Mac costs $4.00 in Canada and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar, what is the dollar cost of a Big Mac in Brazil?

What explains the appreciation of the Japanese yen relative to the Canadian dollar from 1970 to the early 1990s?

International flows of capital increase both efficiency and growth in countries around the world.

Should European nations which are not currently using the euro choose to adopt the euro as their currency, these countries would risk giving up the ability to use ________ to stabilize their economies in the event of a recession.

The current exchange rate system in Canada is best described as a

If the rate of inflation in Canada exceeds the rate of inflation in Great Britain, we would expect the Canadian dollar to depreciate in value against the British pound.

Will the use of the euro help increase economic growth in countries in the European Union? Will it help individual countries using the euro in times of recession? Explain.

The currencies of Poland and Iceland (the zloty and the krona, respectively)declined in value relative to the euro following the financial crisis of 2008.This means that the

In the late 1990s, when foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely, they began to sell off their investments in Thailand and exchange the baht they received for dollars.This reduction in investment by foreigners is termed

Why do countries peg their currencies, and what problems can result from pegging?

Which of the following would prevent the purchasing power of currencies being equal in the long run?

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 ________ system of currency exchange was set up in 1944.

All of the following explain why purchasing power parity does not completely explain long-run fluctuations in exchange rates, except

When the value of a currency is determined mostly by demand and supply, but with occasional government intervention, the exchange rate system is defined as

If inflation in Mexico is lower than it is in Canada,

China has been accused of deliberately undervaluing its currency, the yuan, in order to

An easy way to determine if a currency is undervalued at a point in time is to use the model of purchasing power parity.

If the rate of productivity growth in Canada exceeds the rate of productivity growth in Great Britain we would expect the Canadian dollar to depreciate in value against the British pound.

A Big Mac costs $4.00 in Canada and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar, what is the dollar cost of a Big Mac in Brazil?

What explains the appreciation of the Japanese yen relative to the Canadian dollar from 1970 to the early 1990s?

International flows of capital increase both efficiency and growth in countries around the world.

Should European nations which are not currently using the euro choose to adopt the euro as their currency, these countries would risk giving up the ability to use ________ to stabilize their economies in the event of a recession.

The current exchange rate system in Canada is best described as a

If the rate of inflation in Canada exceeds the rate of inflation in Great Britain, we would expect the Canadian dollar to depreciate in value against the British pound.

Will the use of the euro help increase economic growth in countries in the European Union? Will it help individual countries using the euro in times of recession? Explain.

The currencies of Poland and Iceland (the zloty and the krona, respectively)declined in value relative to the euro following the financial crisis of 2008.This means that the

In the late 1990s, when foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely, they began to sell off their investments in Thailand and exchange the baht they received for dollars.This reduction in investment by foreigners is termed

Why do countries peg their currencies, and what problems can result from pegging?

Which of the following would prevent the purchasing power of currencies being equal in the long run?

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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