Question 1

An increase in a fixed exchange rate from $2.00 per pound to $2.10 per pound is called a(n)________ of the pound.

Accepted Answer

A) devaluation 
B) depreciation 
C) appreciation 
D) revaluation 
A) devaluation 
B) depreciation 
C) appreciation 
D) revaluation

Question 2

Explain why international capital markets have expanded since the 1980s.

Accepted Answer

Many governments have removed restrictio

Question 3

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 4

If interest rates in the United States fall,

Accepted Answer

A) the value of the dollar will fall as foreign investors decrease their holdings of U.S.investments. 
B) the value of the dollar will rise as foreign investors increase their holdings of U.S.investments. 
C) the value of the dollar will fall as foreign investors increase their holdings of U.S.investments. 
D) the value of the dollar will rise as foreign investors decrease their holdings of U.S.investments. 
A) the value of the dollar will fall as foreign investors decrease their holdings of U.S.investments. 
B) the value of the dollar will rise as foreign investors increase their holdings of U.S.investments. 
C) the value of the dollar will fall as foreign investors increase their holdings of U.S.investments. 
D) the value of the dollar will rise as foreign investors decrease their holdings of U.S.investments.

Question 5

The gold in Fort Knox backs all U.S.currency.

Accepted Answer

A) True 
 B)False

Question 6

Figure 19-12  
-Refer to Figure 19-12.The graph above,depicts supply and demand for U.S.dollars during a trading day.At a fixed exchange rate of 0.30 pounds per dollar,the dollar is ________ versus the pound.A ________ of the dollar would correct the fundamental disequilibrium that exists in this market.

Accepted Answer

A) undervalued; devaluation 
B) undervalued; revaluation 
C) overvalued; revaluation 
D) overvalued; devaluation 
A) undervalued; devaluation 
B) undervalued; revaluation 
C) overvalued; revaluation 
D) overvalued; devaluation

Question 7

Figure 19-8  
-Refer to Figure 19-8.The equilibrium exchange rate is originally 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.If the European Central Bank abandons the peg,the equilibrium exchange rate would be

Accepted Answer

A) $1.00/euro. 
B) $1.25/euro. 
C) $1.50/euro. 
D) $1.75/euro. 
A) $1.00/euro. 
B) $1.25/euro. 
C) $1.50/euro. 
D) $1.75/euro.

Question 8

If a country's currency is determined only by the demand and supply for that country's currency,the country is said to have a

Accepted Answer

A) floating exchange rate. 
B) fixed exchange rate. 
C) gold standard. 
D) managed float. 
A) floating exchange rate. 
B) fixed exchange rate. 
C) gold standard. 
D) managed float.

Question 9

Figure 19-1  
-Refer to Figure 19-1.Which of the following would cause the change depicted in the figure above?

Accepted Answer

A) European productivity rises relative to American productivity. 
B) Americans decrease their preferences for goods produced in the EU relative to American 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 the United States. 
A) European productivity rises relative to American productivity. 
B) Americans decrease their preferences for goods produced in the EU relative to American 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 the United States.

Question 10

Suppose an economy's exchange rate system is the gold standard and vast tracks of gold are discovered,as is what happened in the United States in 1849.If the economy is at full employment,what should this discovery do?

Accepted Answer

A) It should raise the money supply but have no impact on the price level. 
B) It should raise the money supply and cause inflation. 
C) It should raise the money supply and cause disinflation. 
D) It should lower the money supply and cause deflation. 
E) it should not change the money supply. 
A) It should raise the money supply but have no impact on the price level. 
B) It should raise the money supply and cause inflation. 
C) It should raise the money supply and cause disinflation. 
D) It should lower the money supply and cause deflation. 
E) it should not change the money supply.

Question 11

Foreign portfolio investment in the United States has continually declined since 1995.

Accepted Answer

A) True 
 B)False

Question 12

Figure 19-5  
-Refer to Figure 19-5.The Chinese government pegs the yuan to the dollar,at one of the specified exchange rates on the graph,such that it overvalues its currency.Using the figure above,this would generate

Accepted Answer

A) a shortage of yuan equal to 500 million. 
B) a shortage of yuan equal to 100 million. 
C) a surplus of yuan equal to 200 million. 
D) a surplus of yuan equal to 700 million. 
A) a shortage of yuan equal to 500 million. 
B) a shortage of yuan equal to 100 million. 
C) a surplus of yuan equal to 200 million. 
D) a surplus of yuan equal to 700 million.

Question 13

Under the Bretton Woods system,U.S.dollars were redeemable for ________ only if the dollars were presented by a foreign central bank.

Accepted Answer

A) silver 
B) foreign currency 
C) gold 
D) U.S.Treasury bonds 
A) silver 
B) foreign currency 
C) gold 
D) U.S.Treasury bonds

Question 14

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. 
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.

Question 15

In the United States today,how much gold will the Federal Reserve give you in exchange for $1?

Accepted Answer

A) none 
B) $1 worth of gold (based on the market price of an ounce of gold at the time you redeem the gold) 
C) 1 ounce of gold 
D) 1/35th of an ounce of gold 
A) none 
B) $1 worth of gold (based on the market price of an ounce of gold at the time you redeem the gold) 
C) 1 ounce of gold 
D) 1/35th of an ounce of gold

Question 16

Article Summary
Cuba has announced its intentions to end its dual currency system which has been in place since 1994. Presently, Cuba has two official currencies, the national peso (CUP) and the convertible peso (CUC). The national peso is the currency used by most businesses and citizens, and the convertible peso was designed to be used primarily in the tourism industry and for foreign trade. The coveted convertible peso is pegged to the U.S. dollar and is worth 25 times the national peso, despite the government treating them as having equal value in official accounts, trading on a one-for-one basis for official state entities. Few Cubans other than those with government ties have access to convertible pesos, which allows them to enjoy a much improved lifestyle due to the currency's relative value. One exception is people working in the tourist-centered hospitality industries, such as waiters and hotel staff, who receive convertible pesos as tips, often earning them more than medical and legal professionals who are paid in national pesos. The currency unification is expected to be a gradual process, taking up to 18 months, and could involve both a devaluing of the convertible peso and a revaluing of the national peso.
Source: Hannah Strange, "Cuba to end dual currency as part of Castro's economic reforms," Telegraph, October 22, 2013.

-Refer to the Article Summary.The convertible peso (CUC),which is pegged to the U.S.dollar,is worth 25 times the national peso,yet Cuban officials treat the convertible peso and the national peso as being of equal value.This indicates that the national peso is ________ compared to the convertible peso,and would need to be ________ to for the two currencies have equal value in the marketplace.

Accepted Answer

A) undervalued; revalued 
B) undervalued; devalued 
C) overvalued; revalued 
D) overvalued; devalued 
A) undervalued; revalued 
B) undervalued; devalued 
C) overvalued; revalued 
D) overvalued; devalued

Question 17

You are made better off in which of the following situations?

Accepted Answer

A) you borrow 10,000 pesos,you earn income in dollars,the dollar depreciates against the peso,you must pay back the loan in pesos 
B) you borrow $10,000,you earn income in pesos,the dollar depreciates against the peso,you must pay back the loan in dollars 
C) you borrow $10,000,you earn income in pesos,the dollar appreciates against the peso,you must pay back the loan in dollars 
D) you borrow 10,000 pesos,you earn income in pesos,the dollar depreciates against the peso,you must pay back the loan in pesos 
A) you borrow 10,000 pesos,you earn income in dollars,the dollar depreciates against the peso,you must pay back the loan in pesos 
B) you borrow $10,000,you earn income in pesos,the dollar depreciates against the peso,you must pay back the loan in dollars 
C) you borrow $10,000,you earn income in pesos,the dollar appreciates against the peso,you must pay back the loan in dollars 
D) you borrow 10,000 pesos,you earn income in pesos,the dollar depreciates against the peso,you must pay back the loan in pesos

Question 18

If the rate of productivity growth in the United States exceeds the rate of productivity growth in Great Britain we would expect the U.S.dollar to depreciate in value against the British pound.

Accepted Answer

A) True 
 B)False

Question 19

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. 
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.

Question 20

Purchasing power parity is the theory that,in the long run,exchange rates should be at a level such that equivalent amounts of any country's currency

Accepted Answer

A) will equalize nominal interest rates across countries. 
B) are valued inversely relative to the size of its GDP. 
C) should earn the same real rate of return. 
D) allow one to buy the same amount of goods and services. 
A) will equalize nominal interest rates across countries. 
B) are valued inversely relative to the size of its GDP. 
C) should earn the same real rate of return. 
D) allow one to buy the same amount of goods and services.

An increase in a fixed exchange rate from $2.00 per pound to $2.10 per pound is called a(n)________ of the pound.

Explain why international capital markets have expanded since the 1980s.

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.

If interest rates in the United States fall,

The gold in Fort Knox backs all U.S.currency.

Figure 19-12 -Refer to Figure 19-12.The graph above,depicts supply and demand for U.S.dollars during a trading day.At a fixed exchange rate of 0.30 pounds per dollar,the dollar is versus the pound.A of the dollar would correct the fundamental disequilibrium that exists in this market.

If a country's currency is determined only by the demand and supply for that country's currency,the country is said to have a

Figure 19-1 -Refer to Figure 19-1.Which of the following would cause the change depicted in the figure above?

Suppose an economy's exchange rate system is the gold standard and vast tracks of gold are discovered,as is what happened in the United States in 1849.If the economy is at full employment,what should this discovery do?

Foreign portfolio investment in the United States has continually declined since 1995.

Figure 19-5 -Refer to Figure 19-5.The Chinese government pegs the yuan to the dollar,at one of the specified exchange rates on the graph,such that it overvalues its currency.Using the figure above,this would generate

Under the Bretton Woods system,U.S.dollars were redeemable for ________ only if the dollars were presented by a foreign central bank.

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

In the United States today,how much gold will the Federal Reserve give you in exchange for $1?

You are made better off in which of the following situations?

If the rate of productivity growth in the United States exceeds the rate of productivity growth in Great Britain we would expect the U.S.dollar to depreciate in value against the British pound.

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

Purchasing power parity is the theory that,in the long run,exchange rates should be at a level such that equivalent amounts of any country's currency

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

Exam 19: The International Financial System

An increase in a fixed exchange rate from $2.00 per pound to $2.10 per pound is called a(n)________ of the pound.

Explain why international capital markets have expanded since the 1980s.

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.

If interest rates in the United States fall,

The gold in Fort Knox backs all U.S.currency.

If a country's currency is determined only by the demand and supply for that country's currency,the country is said to have a

Figure 19-1 -Refer to Figure 19-1.Which of the following would cause the change depicted in the figure above?

Suppose an economy's exchange rate system is the gold standard and vast tracks of gold are discovered,as is what happened in the United States in 1849.If the economy is at full employment,what should this discovery do?

Foreign portfolio investment in the United States has continually declined since 1995.

Figure 19-5 -Refer to Figure 19-5.The Chinese government pegs the yuan to the dollar,at one of the specified exchange rates on the graph,such that it overvalues its currency.Using the figure above,this would generate

Under the Bretton Woods system,U.S.dollars were redeemable for ________ only if the dollars were presented by a foreign central bank.

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

In the United States today,how much gold will the Federal Reserve give you in exchange for $1?

You are made better off in which of the following situations?

If the rate of productivity growth in the United States exceeds the rate of productivity growth in Great Britain we would expect the U.S.dollar to depreciate in value against the British pound.

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

Purchasing power parity is the theory that,in the long run,exchange rates should be at a level such that equivalent amounts of any country's currency

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