Question 1

Why are foreign investors more likely to invest in U.S. government bonds than in U.S. corporate stocks and bonds?

Accepted Answer

Foreign investors are more likely to buy

Question 2

Figure 30-11  
-Refer to Figure 30-11. The graph above depicts supply and demand for British pounds during a trading day. At a fixed exchange rate of $2.00 per pound, the pound is ________ versus the dollar. A ________ of the pound 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 3

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 4

In order to maintain an undervalued yuan to encourage a trade surplus, the Chinese government must buy dollars and increase the supply of yuan.

Accepted Answer

A) True 
 B)False

Question 5

Actions taken by investors who sell a country's currency in anticipation of buying it back later at a lower price is known as

Accepted Answer

A)  purchasing power parity. 
B)  currency arbitrage. 
C)  destabilizing speculation. 
D)  exchange rate manipulation. 
A)  purchasing power parity. 
B)  currency arbitrage. 
C)  destabilizing speculation. 
D)  exchange rate manipulation.

Question 6

The "Big Mac Theory of Exchange Rates" tests the accuracy of the purchasing power parity theory. In July 2013, the Economist reported that the average price of a Big Mac in the United States was $4.56. In Mexico, the average price of a Big Mac at that time was 37 pesos. If the exchange rate between the dollar and the peso was 13.60 pesos per dollar, explain how it would be profitable to buy Big Macs in Mexico instead of in the United States.

Accepted Answer

If a Big Mac costs $4.56 in the United S

Question 7

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 8

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

Accepted Answer

A) True 
 B)False

Question 9

China began pegging its currency, the yuan, to the dollar in 1994. Because the yuan was ________ at the pegged exchange rate, the Chinese government increased its reserves of ________ as the government purchased more ________ to maintain the pegged exchange rate.

Accepted Answer

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

Question 10

Suppose the United States decides to go back on the gold standard. This should

Accepted Answer

A)  decrease the Federal Reserve's ability to pursue active monetary policy. 
B)  increase the effectiveness of contractionary monetary policy. 
C)  increase the effectiveness of expansionary monetary policy. 
D)  improve the Federal Reserve's ability to target inflation. 
A)  decrease the Federal Reserve's ability to pursue active monetary policy. 
B)  increase the effectiveness of contractionary monetary policy. 
C)  increase the effectiveness of expansionary monetary policy. 
D)  improve the Federal Reserve's ability to target inflation.

Question 11

Figure 30-5  
-Refer to Figure 30-5. Suppose the pegged exchange rate is $0.11/yuan. Because of safety concerns and numerous product recalls, U.S. consumers lower their demand for Chinese products. Using the figure above, this would

Accepted Answer

A)  increase the surplus of Chinese yuan. 
B)  decrease the surplus of Chinese yuan. 
C)  decrease the shortage of Chinese yuan. 
D)  increase the shortage of Chinese yuan. 
A)  increase the surplus of Chinese yuan. 
B)  decrease the surplus of Chinese yuan. 
C)  decrease the shortage of Chinese yuan. 
D)  increase the shortage of Chinese yuan.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

If one U.S. dollar could be exchanged for one Australian dollar in 1970, and one U.S. dollar can now be exchanged for 0.98 Australian dollars, which of the following is true?

Accepted Answer

A)  The U.S. dollar gained value against the Australian dollar. 
B)  The Australian dollar lost value against the U.S. dollar. 
C)  The Australian dollar gained value against the U.S. dollar. 
D)  Both A and C are true. 
A)  The U.S. dollar gained value against the Australian dollar. 
B)  The Australian dollar lost value against the U.S. dollar. 
C)  The Australian dollar gained value against the U.S. dollar. 
D)  Both A and C are true.

Question 14

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. 
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.

Question 15

What determined the exchange rates among currencies under the gold standard, and what caused the gold standard to collapse?

Accepted Answer

Under the gold standard, the exchange ra

Question 16

During what period of time did the United States most consistently adhere to the gold standard?

Accepted Answer

A)  from the nineteenth century until the 1930s 
B)  from the eighteenth century until the nineteenth century 
C)  from 1914 until 1929 
D)  from 1944 until 1980 
A)  from the nineteenth century until the 1930s 
B)  from the eighteenth century until the nineteenth century 
C)  from 1914 until 1929 
D)  from 1944 until 1980

Question 17

When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely, they began to ________ in Thailand and exchange ________. This change in investment by foreigners is termed capital flight.

Accepted Answer

A)  purchase more investments; dollars for baht to purchase these investments 
B)  sell off their investments; the baht they received for dollars 
C)  sell off their investments; the dollars they received for baht 
D)  purchase more investments; baht for dollars to purchase these investments 
A)  purchase more investments; dollars for baht to purchase these investments 
B)  sell off their investments; the baht they received for dollars 
C)  sell off their investments; the dollars they received for baht 
D)  purchase more investments; baht for dollars to purchase these investments

Question 18

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

Accepted Answer

A)  an increase in inflation in the United States relative to other countries 
B)  an increase in the demand for American goods relative to goods from other countries 
C)  a decrease in U.S. tariffs on foreign goods 
D)  an increase in the supply of dollars on the foreign exchange market 
A)  an increase in inflation in the United States relative to other countries 
B)  an increase in the demand for American goods relative to goods from other countries 
C)  a decrease in U.S. tariffs on foreign goods 
D)  an increase in the supply of dollars on the foreign exchange market

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

If two countries adhere to a gold standard, the exchange rate for their currencies is fixed.

Accepted Answer

A) True 
 B)False

Exam 30: The International Financial System

Why are foreign investors more likely to invest in U.S. government bonds than in U.S. corporate stocks and bonds?

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 order to maintain an undervalued yuan to encourage a trade surplus, the Chinese government must buy dollars and increase the supply of yuan.

Actions taken by investors who sell a country's currency in anticipation of buying it back later at a lower price is known as

If interest rates in the United States fall,

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

China began pegging its currency, the yuan, to the dollar in 1994. Because the yuan was ________ at the pegged exchange rate, the Chinese government increased its reserves of ________ as the government purchased more ________ to maintain the pegged exchange rate.

Suppose the United States decides to go back on the gold standard. This should

Figure 30-5 -Refer to Figure 30-5. Suppose the pegged exchange rate is $0.11/yuan. Because of safety concerns and numerous product recalls, U.S. consumers lower their demand for Chinese products. Using the figure above, this would

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

If one U.S. dollar could be exchanged for one Australian dollar in 1970, and one U.S. dollar can now be exchanged for 0.98 Australian dollars, which of the following is true?

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

What determined the exchange rates among currencies under the gold standard, and what caused the gold standard to collapse?

During what period of time did the United States most consistently adhere to the gold standard?

When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely, they began to ________ in Thailand and exchange ________. This change in investment by foreigners is termed capital flight.

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

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

If two countries adhere to a gold standard, the exchange rate for their currencies is fixed.

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

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

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

China began pegging its currency, the yuan, to the dollar in 1994. Because the yuan was at the pegged exchange rate, the Chinese government increased its reserves of as the government purchased more to maintain the pegged exchange rate.

When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely, they began to in Thailand and exchange . This change in investment by foreigners is termed capital flight.