Question 1

If the equilibrium exchange rate exceeds the par exchange rate in the market for pounds, the pound is overvalued.

Accepted Answer

A) True 
 B)False

Question 2

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 3

If currencies around the world are based on the gold standard, and the EU lowers the amount of gold for which the euro will trade, then holding all else constant,

Accepted Answer

A)  the euro will depreciate against the dollar. 
B)  the euro will appreciate against the dollar. 
C)  the value of the euro relative to the dollar will stay constant. 
D)  the value of U.S. exports to EU countries in terms of the euro will decrease. 
A)  the euro will depreciate against the dollar. 
B)  the euro will appreciate against the dollar. 
C)  the value of the euro relative to the dollar will stay constant. 
D)  the value of U.S. exports to EU countries in terms of the euro will decrease.

Question 4

How will the exchange rate (foreign currency per dollar) respond to a decrease in the relative rate of productivity growth in the United States in the long run?

Accepted Answer

A)  Exchange rates will rise. 
B)  Exchange rates will fall. 
C)  Exchange rates will be unaffected by changes in the relative rate of productivity growth in the United States, both in the short run and in the long run. 
D)  The exchange rate will be affected in the short run, but not in the long run. 
A)  Exchange rates will rise. 
B)  Exchange rates will fall. 
C)  Exchange rates will be unaffected by changes in the relative rate of productivity growth in the United States, both in the short run and in the long run. 
D)  The exchange rate will be affected in the short run, but not in the long run.

Question 5

The ________ in the United States is best described as a managed float 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 
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

Question 6

Because the value of the euro is determined by factors that affect the entire euro zone, during the recession of 2007-2009, individual countries using the euro

Accepted Answer

A)  were unable to have their exchange rates depreciate. 
B)  were more insulated from unemployment increases than most countries. 
C)  experienced a greater increase in exports than did most countries. 
D)  were able to use expansionary monetary policy to lessen the impact of the recession. 
A)  were unable to have their exchange rates depreciate. 
B)  were more insulated from unemployment increases than most countries. 
C)  experienced a greater increase in exports than did most countries. 
D)  were able to use expansionary monetary policy to lessen the impact of the recession.

Question 7

The "Big Mac Theory of Exchange Rates" tests the accuracy of 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 India, the average price of a Big Mac at that time was 90 rupees. What is the "implied exchange rate" between the yen and the dollar?

Accepted Answer

A)  0.05 rupees per dollar 
B)  19.74 rupees per dollar 
C)  46.72 rupees per dollar 
D)  410.4 rupees per dollar 
A)  0.05 rupees per dollar 
B)  19.74 rupees per dollar 
C)  46.72 rupees per dollar 
D)  410.4 rupees per dollar

Question 8

Expanding, contracting, and managing the money supply is easier for a central bank under the gold standard.

Accepted Answer

A) True 
 B)False

Question 9

Shares of stock and long-term debt, including corporate and government bonds and bank loans, are bought and sold on

Accepted Answer

A)  the stock market. 
B)  capital markets. 
C)  foreign exchange markets. 
D)  commodity markets. 
A)  the stock market. 
B)  capital markets. 
C)  foreign exchange markets. 
D)  commodity markets.

Question 10

When the value of a currency is determined ________, the exchange rate system is defined as managed float.

Accepted Answer

A)  only by supply and demand 
B)  by its issuing government 
C)  mostly by supply and demand, but with occasional government intervention 
D)  by its issuing government, with occasional readjustments in value 
A)  only by supply and demand 
B)  by its issuing government 
C)  mostly by supply and demand, but with occasional government intervention 
D)  by its issuing government, with occasional readjustments in value

Question 11

In 1991, Argentina decided to peg its currency (the Argentinean peso) to the U.S. dollar. To maintain the peg, Argentina had to purchase surplus pesos on the foreign exchange market, depleting its reserves of dollars to such an extent that it eventually had to abandon the peg. Show graphically what this implies about the peg relative to the equilibrium exchange rate in the market for the Argentinean peso.

Accepted Answer

If Argentina had to purchase s

Question 12

Although the pegged exchange rate between the yuan and the dollar has ________ the yuan, China has been reluctant to abandon the peg for fear that abandoning the peg would ________.

Accepted Answer

A)  undervalued; reduce exports 
B)  undervalued; reduce imports 
C)  overvalued; increase imports 
D)  overvalued; reduce exports 
A)  undervalued; reduce exports 
B)  undervalued; reduce imports 
C)  overvalued; increase imports 
D)  overvalued; reduce exports

Question 13

Figure 30-1  
-Refer to Figure 30-1. Which of the following would cause the change depicted in the figure above?

Accepted Answer

A)  U.S. productivity rises relative to European productivity. 
B)  Europeans decrease their preferences for U.S. goods relative to European goods. 
C)  The European Union increases its quotas on French wine. 
D)  an increase in the price level of U.S. goods relative to European goods 
A)  U.S. productivity rises relative to European productivity. 
B)  Europeans decrease their preferences for U.S. goods relative to European goods. 
C)  The European Union increases its quotas on French wine. 
D)  an increase in the price level of U.S. goods relative to European goods

Question 14

The currency adopted by most countries in Western Europe is referred to as the

Accepted Answer

A)  euro. 
B)  Eurodollar. 
C)  yen. 
D)  pound. 
A)  euro. 
B)  Eurodollar. 
C)  yen. 
D)  pound.

Question 15

All of the following actions were taken by the Thai government to help Thailand maintain its peg against the dollar in the 1990s except

Accepted Answer

A)  borrowing dollars from the International Monetary Fund in exchange for baht. 
B)  buying baht on the foreign exchange market to support higher demand for the baht. 
C)  increasing domestic interest rates to attract more foreign investors. 
D)  imposing restrictions on exports to the United States to prevent too many dollars from entering the economy. 
A)  borrowing dollars from the International Monetary Fund in exchange for baht. 
B)  buying baht on the foreign exchange market to support higher demand for the baht. 
C)  increasing domestic interest rates to attract more foreign investors. 
D)  imposing restrictions on exports to the United States to prevent too many dollars from entering the economy.

Question 16

If, at the current exchange rate between the dollar and the Norwegian kroner of 5.78 kroner per dollar, the dollar is "overvalued," how do you expect demand and supply in the foreign exchange markets to respond?

Accepted Answer

A)  The demand for the dollar will rise, while the supply of the kroner will fall. 
B)  The demand for the dollar will fall, while the supply of the kroner will rise. 
C)  The supply of the dollar will rise, while the demand for the kroner will fall. 
D)  The supply of the dollar will rise, while the demand for the kroner will rise. 
A)  The demand for the dollar will rise, while the supply of the kroner will fall. 
B)  The demand for the dollar will fall, while the supply of the kroner will rise. 
C)  The supply of the dollar will rise, while the demand for the kroner will fall. 
D)  The supply of the dollar will rise, while the demand for the kroner will rise.

Question 17

Figure 30-4  
-Refer to Figure 30-4. The equilibrium exchange rate is originally at A, $3/pound. Suppose the British government pegs its currency at $4/pound. Speculators expect that the value of the pound will drop and this shifts the demand curve for pounds to D2. If the government abandons the peg, the equilibrium exchange rate would be

Accepted Answer

A)  $4/pound. 
B)  $3/pound. 
C)  $2/pound. 
D)  less than $2/pound. 
A)  $4/pound. 
B)  $3/pound. 
C)  $2/pound. 
D)  less than $2/pound.

Question 18

During the Chinese experience with pegging the yuan to the dollar, the yuan was ________. As a result, there was a ________ of dollars on the market, and the Chinese government had to purchase dollars to maintain the peg.

Accepted Answer

A)  overvalued; shortage 
B)  undervalued; surplus 
C)  overvalued; surplus 
D)  undervalued; shortage 
A)  overvalued; shortage 
B)  undervalued; surplus 
C)  overvalued; surplus 
D)  undervalued; shortage

Question 19

Why might a developing country choose to peg the value of its currency to the dollar?

Accepted Answer

The dollar is a relatively stable curren

Question 20

If a country sets a pegged exchange rate that is above the equilibrium exchange rate, how can the country maintain the peg?

Accepted Answer

A)  by purchasing surplus domestic currency at the pegged rate 
B)  by selling surplus domestic currency at the pegged rate 
C)  by purchasing surplus domestic currency at the equilibrium exchange rate 
D)  by increasing the pegged exchange rate 
A)  by purchasing surplus domestic currency at the pegged rate 
B)  by selling surplus domestic currency at the pegged rate 
C)  by purchasing surplus domestic currency at the equilibrium exchange rate 
D)  by increasing the pegged exchange rate

Exam 30: The International Financial System

If the equilibrium exchange rate exceeds the par exchange rate in the market for pounds, the pound is overvalued.

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?

If currencies around the world are based on the gold standard, and the EU lowers the amount of gold for which the euro will trade, then holding all else constant,

How will the exchange rate (foreign currency per dollar) respond to a decrease in the relative rate of productivity growth in the United States in the long run?

The ________ in the United States is best described as a managed float exchange rate system.

Because the value of the euro is determined by factors that affect the entire euro zone, during the recession of 2007-2009, individual countries using the euro

Expanding, contracting, and managing the money supply is easier for a central bank under the gold standard.

Shares of stock and long-term debt, including corporate and government bonds and bank loans, are bought and sold on

When the value of a currency is determined ________, the exchange rate system is defined as managed float.

Although the pegged exchange rate between the yuan and the dollar has ________ the yuan, China has been reluctant to abandon the peg for fear that abandoning the peg would ________.

Figure 30-1 -Refer to Figure 30-1. Which of the following would cause the change depicted in the figure above?

The currency adopted by most countries in Western Europe is referred to as the

All of the following actions were taken by the Thai government to help Thailand maintain its peg against the dollar in the 1990s except

If, at the current exchange rate between the dollar and the Norwegian kroner of 5.78 kroner per dollar, the dollar is "overvalued," how do you expect demand and supply in the foreign exchange markets to respond?

During the Chinese experience with pegging the yuan to the dollar, the yuan was ________. As a result, there was a ________ of dollars on the market, and the Chinese government had to purchase dollars to maintain the peg.

Why might a developing country choose to peg the value of its currency to the dollar?

If a country sets a pegged exchange rate that is above the equilibrium exchange rate, how can the country maintain the peg?

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

Although the pegged exchange rate between the yuan and the dollar has the yuan, China has been reluctant to abandon the peg for fear that abandoning the peg would .

During the Chinese experience with pegging the yuan to the dollar, the yuan was . As a result, there was a of dollars on the market, and the Chinese government had to purchase dollars to maintain the peg.