Question 1

All of the following,except one,are implications of the purchasing power parity theory.Which is the exception?

Accepted Answer

A) The relative prices of products in different countries should be the same. 
B) Exchange rates will adjust to ensure that the cost of living in one country is the same as that in another. 
C) Inflation should lead to the depreciation of that country's currency. 
D) One hour's labour,of a given quality,should pay the same (though in different currencies)in all countries. 
E) The currencies of different countries should be at par. 
A) The relative prices of products in different countries should be the same. 
B) Exchange rates will adjust to ensure that the cost of living in one country is the same as that in another. 
C) Inflation should lead to the depreciation of that country's currency. 
D) One hour's labour,of a given quality,should pay the same (though in different currencies)in all countries. 
E) The currencies of different countries should be at par.

Question 2

If a Canadian hockey stick has a price of $32,how much does it cost in:
a)Europe,assuming an exchange rate of 1 euro = $1.60 Can.
b)China,assuming an exchange rate of 1 Yuan = $0.20 Can.

Accepted Answer

a)20 euros

Question 3

"Assuming net transfers are equal to zero,a trade deficit implies a current account deficit." Evaluate this statement.

Accepted Answer

Uncertain.It depends on net foreign fact

Question 4

Advocates of flexible exchange rates argue all of the following except one.Which is the exception?

Accepted Answer

A) A country with flexible exchange rates cannot have a balance of payments deficit nor suffer its consequences. 
B) The problems of inflation and unemployment can be addressed by a country without concerning itself with external disruptions. 
C) World trade will be greater with flexible exchange rates because international prices will more accurately reflect market conditions. 
D) Fixed exchange rates often distort the patterns of output and trade. 
E) Flexible exchange rates automatically produce balance of payments surpluses which can be used,for instance,to pay off the national debt. 
A) A country with flexible exchange rates cannot have a balance of payments deficit nor suffer its consequences. 
B) The problems of inflation and unemployment can be addressed by a country without concerning itself with external disruptions. 
C) World trade will be greater with flexible exchange rates because international prices will more accurately reflect market conditions. 
D) Fixed exchange rates often distort the patterns of output and trade. 
E) Flexible exchange rates automatically produce balance of payments surpluses which can be used,for instance,to pay off the national debt.

Question 5

The country of Lancore,which was on a fixed exchange-rate system and had an undervalued currency,has just adopted a flexible exchange-rate system.Which of the following statements is correct?

Accepted Answer

A) Lancores's currency will depreciate and its exports will increase as a result. 
B) Lancores's currency will appreciate and its exports will increase as a result. 
C) Lancores's currency will depreciate and its exports will decrease as a result. 
D) Lancores's currency will appreciate and its exports will decrease as a result. 
A) Lancores's currency will depreciate and its exports will increase as a result. 
B) Lancores's currency will appreciate and its exports will increase as a result. 
C) Lancores's currency will depreciate and its exports will decrease as a result. 
D) Lancores's currency will appreciate and its exports will decrease as a result.

Question 6

The following table contains hypothetical data for Canada's balance of payments in a particular year.
  
-Refer to the information above to answer this question.Which of the following reflects the state of Canada's capital account?

Accepted Answer

A) It has a deficit of $10 billion. 
B) It has a deficit of $20 billion. 
C) It has a surplus of $5 billion. 
D) It has a surplus of $30 billion. 
A) It has a deficit of $10 billion. 
B) It has a deficit of $20 billion. 
C) It has a surplus of $5 billion. 
D) It has a surplus of $30 billion.

Question 7

Which of the following will increase Canada's effective exchange rate?

Accepted Answer

A) Depreciation of the Canadian dollar. 
B) Depreciation of the American dollar. 
C) Appreciation of the American dollar. 
D) Appreciation of the Mexican peso. 
A) Depreciation of the Canadian dollar. 
B) Depreciation of the American dollar. 
C) Appreciation of the American dollar. 
D) Appreciation of the Mexican peso.

Question 8

All of the following,except one,would help to explain differences in purchasing power between countries.Which is the exception?

Accepted Answer

A) Many services are not traded internationally. 
B) Financial assets are seldom traded internationally. 
C) The existence of transportation and insurance costs. 
D) The expression of particular preferences by consumers. 
E) The existence of tariffs and other trade restrictions. 
A) Many services are not traded internationally. 
B) Financial assets are seldom traded internationally. 
C) The existence of transportation and insurance costs. 
D) The expression of particular preferences by consumers. 
E) The existence of tariffs and other trade restrictions.

Question 9

Which of the following is the result of an overvalued fixed exchange rate?

Accepted Answer

A) Inflation. 
B) Depletion of official international reserves. 
C) Increase in aggregate demand. 
D) Decrease in imports. 
A) Inflation. 
B) Depletion of official international reserves. 
C) Increase in aggregate demand. 
D) Decrease in imports.

Question 10

Assuming a fixed exchange-rate system,which of the following would contribute to a Canadian balance of payments deficit?

Accepted Answer

A) Leonard Cohen and Shania Twain team up for a giant outdoor concert in Shanghai. 
B) The number of Indian tourists visiting Canada increases significantly. 
C) The United States increases its tariff on Canadian softwood lumber. 
D) A wealthy Taiwanese family builds a mansion in Calgary. 
E) Honda builds a new assembly plant outside Montreal. 
A) Leonard Cohen and Shania Twain team up for a giant outdoor concert in Shanghai. 
B) The number of Indian tourists visiting Canada increases significantly. 
C) The United States increases its tariff on Canadian softwood lumber. 
D) A wealthy Taiwanese family builds a mansion in Calgary. 
E) Honda builds a new assembly plant outside Montreal.

Question 11

An increase in the supply of the Canadian dollar will have what effect?

Accepted Answer

A) The exchange rate will fall and the quantity of dollars traded will fall. 
B) The exchange rate will fall and the quantity of dollars traded will rise. 
C) The exchange rate will rise and the quantity of dollars traded will fall. 
D) The exchange rate will rise and the quantity of dollars traded will rise. 
A) The exchange rate will fall and the quantity of dollars traded will fall. 
B) The exchange rate will fall and the quantity of dollars traded will rise. 
C) The exchange rate will rise and the quantity of dollars traded will fall. 
D) The exchange rate will rise and the quantity of dollars traded will rise.

Question 12

The following table shows the price,in Canadian dollars,of utops,the currency used in the hypothetical economy of Utopia.Assume that a system of flexible exchange rates is in place.
  
-Refer to the information above to answer this question.Suppose that Utopia decided to import more products from Canada.What would we expect?

Accepted Answer

A) That the demand for utops would rise and the dollar would appreciate 
B) That the demand for utops would fall and the dollar would depreciate. 
C) That the supply of utops would rise and the dollar would appreciate. 
D) That the supply of utops would fall and the dollar would depreciate. 
A) That the demand for utops would rise and the dollar would appreciate 
B) That the demand for utops would fall and the dollar would depreciate. 
C) That the supply of utops would rise and the dollar would appreciate. 
D) That the supply of utops would fall and the dollar would depreciate.

Question 13

Suppose the price of a camera in Canada is $35 and in the United States it is $30.If the nominal exchange rate is $0.90 American dollar per Canada dollar,what is the value of Canada's real exchange rate?

Accepted Answer

A) 0.85 
B) 0.90 
C) 1.00 
D) 1.05 
E) 1.17 
A) 0.85 
B) 0.90 
C) 1.00 
D) 1.05 
E) 1.17

Question 14

-Refer to the graph above to answer this question.What might cause a shift of the demand curve from D1 to D2?

Accepted Answer

A) An increase in interest rates in Canada. 
B) An increase in Swiss prices relative to Canadian prices. 
C) A recession in Canada. 
D) An increase in interest rates in Switzerland. 
A) An increase in interest rates in Canada. 
B) An increase in Swiss prices relative to Canadian prices. 
C) A recession in Canada. 
D) An increase in interest rates in Switzerland.

Question 15

Which of the following is true of a currency devaluation?

Accepted Answer

A) It refers to the value of a currency increasing. 
B) It refers to a fixed exchange rate being lowered. 
C) It is not possible now that the gold standard has been abandoned. 
D) It is something governments aspire to but seldom achieve. 
A) It refers to the value of a currency increasing. 
B) It refers to a fixed exchange rate being lowered. 
C) It is not possible now that the gold standard has been abandoned. 
D) It is something governments aspire to but seldom achieve.

Question 16

Which of the following are ways that a government can defend an overvalued exchange rate?

Accepted Answer

A) Introducing quotas or tariffs. 
B) Introducing foreign exchange controls. 
C) Negotiating voluntary export restrictions. 
D) Creating a recession at home. 
E) Introducing quotas or tariffs,introducing foreign exchange controls,negotiating voluntary export restrictions,and creating a recession at home. 
A) Introducing quotas or tariffs. 
B) Introducing foreign exchange controls. 
C) Negotiating voluntary export restrictions. 
D) Creating a recession at home. 
E) Introducing quotas or tariffs,introducing foreign exchange controls,negotiating voluntary export restrictions,and creating a recession at home.

Question 17

The following table shows the hypothetical data of exchange rates and the price of lattes.
   a)Using the relative price of latte,determine the latte exchange rate in the three countries.
_____ Chinese Yuan = $1 Canadian
_____ Japanese yen = $1 Canadian
_____ British pound = $1 Canadian
b)Compared with the latte exchange rates,are the actual exchange rates overvalued or undervalued?
Chinese Yuan is __________
Japanese yen is __________
British pound is __________
c)Given your answers in b),would you expect Canadian exports to each of these countries to increase or decrease?
Canadian exports to China will __________
Canadian exports to Japan will __________
Canadian exports to the United Kingdom will __________

Accepted Answer

a)12 Chinese Yuan = $1 Canadian
100 Japa

Question 18

Which of the following is true if the Canadian dollar becomes overvalued?

Accepted Answer

A) There will be a surplus of Canadian dollars. 
B) There will be a shortage of Canadian dollars. 
C) The Canadian dollar will appreciate. 
D) The money supply will increase. 
E) Exports and imports will increase. 
A) There will be a surplus of Canadian dollars. 
B) There will be a shortage of Canadian dollars. 
C) The Canadian dollar will appreciate. 
D) The money supply will increase. 
E) Exports and imports will increase.

Question 19

Assuming flexible exchange rates,explain how a shortage of Canadian dollars in the foreign exchange market is eliminated.

Accepted Answer

A shortage occurs in the foreign exchang

Question 20

Assuming flexible exchange rates,which of the following would result in an increase in a country's exchange rate?

Accepted Answer

A) The purchase by the central bank of its own currency. 
B) The purchase by the central bank of foreign currencies. 
C) The sale by the central bank of its own currencies. 
D) The central bank decreasing the country's interest rates. 
E) The government imposing an export tax. 
A) The purchase by the central bank of its own currency. 
B) The purchase by the central bank of foreign currencies. 
C) The sale by the central bank of its own currencies. 
D) The central bank decreasing the country's interest rates. 
E) The government imposing an export tax.

All of the following,except one,are implications of the purchasing power parity theory.Which is the exception?

If a Canadian hockey stick has a price of $32,how much does it cost in: a)Europe,assuming an exchange rate of 1 euro = $1.60 Can. b)China,assuming an exchange rate of 1 Yuan = $0.20 Can.

"Assuming net transfers are equal to zero,a trade deficit implies a current account deficit." Evaluate this statement.

Advocates of flexible exchange rates argue all of the following except one.Which is the exception?

The country of Lancore,which was on a fixed exchange-rate system and had an undervalued currency,has just adopted a flexible exchange-rate system.Which of the following statements is correct?

The following table contains hypothetical data for Canada's balance of payments in a particular year. -Refer to the information above to answer this question.Which of the following reflects the state of Canada's capital account?

Which of the following will increase Canada's effective exchange rate?

All of the following,except one,would help to explain differences in purchasing power between countries.Which is the exception?

Which of the following is the result of an overvalued fixed exchange rate?

Assuming a fixed exchange-rate system,which of the following would contribute to a Canadian balance of payments deficit?

An increase in the supply of the Canadian dollar will have what effect?

Suppose the price of a camera in Canada is $35 and in the United States it is $30.If the nominal exchange rate is $0.90 American dollar per Canada dollar,what is the value of Canada's real exchange rate?

-Refer to the graph above to answer this question.What might cause a shift of the demand curve from D1 to D2?

Which of the following is true of a currency devaluation?

Which of the following are ways that a government can defend an overvalued exchange rate?

Which of the following is true if the Canadian dollar becomes overvalued?

Assuming flexible exchange rates,explain how a shortage of Canadian dollars in the foreign exchange market is eliminated.

Assuming flexible exchange rates,which of the following would result in an increase in a country's exchange rate?

The Economic Problem

Demand and Supply: an Introduction

Measuring the Economy 1: GDP and Economic Growth

Measuring the Economy 2: Unemployment and Inflation

Aggregate Demand and Supply

Aggregate Expenditures

Fiscal Policy

Money and Banking

The Money Market and Monetary Policy

International Trade

Macroeconomic Policy Revisited

A Walk Through the Twentieth Century and Beyond

Filters

Exam 11: Exchange Rates and the Balance of Payments

All of the following,except one,are implications of the purchasing power parity theory.Which is the exception?

If a Canadian hockey stick has a price of $32,how much does it cost in: a)Europe,assuming an exchange rate of 1 euro = $1.60 Can. b)China,assuming an exchange rate of 1 Yuan = $0.20 Can.

"Assuming net transfers are equal to zero,a trade deficit implies a current account deficit." Evaluate this statement.

Advocates of flexible exchange rates argue all of the following except one.Which is the exception?

The country of Lancore,which was on a fixed exchange-rate system and had an undervalued currency,has just adopted a flexible exchange-rate system.Which of the following statements is correct?

The following table contains hypothetical data for Canada's balance of payments in a particular year. -Refer to the information above to answer this question.Which of the following reflects the state of Canada's capital account?

Which of the following will increase Canada's effective exchange rate?

All of the following,except one,would help to explain differences in purchasing power between countries.Which is the exception?

Which of the following is the result of an overvalued fixed exchange rate?

Assuming a fixed exchange-rate system,which of the following would contribute to a Canadian balance of payments deficit?

An increase in the supply of the Canadian dollar will have what effect?

Suppose the price of a camera in Canada is $35 and in the United States it is $30.If the nominal exchange rate is $0.90 American dollar per Canada dollar,what is the value of Canada's real exchange rate?

-Refer to the graph above to answer this question.What might cause a shift of the demand curve from D1 to D2?

Which of the following is true of a currency devaluation?

Which of the following are ways that a government can defend an overvalued exchange rate?

Which of the following is true if the Canadian dollar becomes overvalued?

Assuming flexible exchange rates,explain how a shortage of Canadian dollars in the foreign exchange market is eliminated.

Assuming flexible exchange rates,which of the following would result in an increase in a country's exchange rate?

The Economic Problem

Demand and Supply: an Introduction

Measuring the Economy 1: GDP and Economic Growth

Measuring the Economy 2: Unemployment and Inflation

Aggregate Demand and Supply

Aggregate Expenditures

Fiscal Policy

Money and Banking

The Money Market and Monetary Policy

International Trade

Macroeconomic Policy Revisited

A Walk Through the Twentieth Century and Beyond

Filters