Question 1

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,purchasing power parity predicts that

Accepted Answer

A)  the dollar is undervalued. 
B)  the dollar is overvalued. 
C)  the real is undervalued. 
D)  both B and C are correct. 
A)  the dollar is undervalued. 
B)  the dollar is overvalued. 
C)  the real is undervalued. 
D)  both B and C are correct.

Question 2

Both countries involved in a pegging of currency must agree to the terms of the pegging.

Accepted Answer

A) True 
 B)False

Question 3

By 2011,how many European countries were members of the European Union?

Accepted Answer

A)  12 
B)  15 
C)  27 
D)  57 
A)  12 
B)  15 
C)  27 
D)  57

Question 4

Among countries that purchased U.S.stocks and bonds in 2010,China was the biggest customer,accounting for over 50 percent of all purchases.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Question 7

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 8

The central bank of the European Union is called the

Accepted Answer

A)  Bundesbank. 
B)  Banco Europe. 
C)  Federal Reserve. 
D)  European Central Bank. 
A)  Bundesbank. 
B)  Banco Europe. 
C)  Federal Reserve. 
D)  European Central Bank.

Question 9

How were countries whose industries competed with Chinese industry affected by a yuan that was pegged to the dollar?

Accepted Answer

A)  Because the yuan was undervalued at the pegged exchange rate, the level of Chinese exports remained higher than they would have been if the exchange rate was allowed to float freely. 
B)  Because the yuan was overvalued at the pegged exchange rate, competing firms from other countries feared that abandoning the peg would lead to an increase in Chinese exports. 
C)  Competitors feared that the declining value of the dollar would continue to make Chinese goods more expensive. 
D)  Because China's population is so large relative to other countries, the pegged exchange rate made the goods of foreign competing firms much less expensive than domestic Chinese goods. 
A)  Because the yuan was undervalued at the pegged exchange rate, the level of Chinese exports remained higher than they would have been if the exchange rate was allowed to float freely. 
B)  Because the yuan was overvalued at the pegged exchange rate, competing firms from other countries feared that abandoning the peg would lead to an increase in Chinese exports. 
C)  Competitors feared that the declining value of the dollar would continue to make Chinese goods more expensive. 
D)  Because China's population is so large relative to other countries, the pegged exchange rate made the goods of foreign competing firms much less expensive than domestic Chinese goods.

Question 10

In 2010,foreign purchases of U.S.corporate stocks and bonds

Accepted Answer

A)  doubled. 
B)  fell. 
C)  grew at a faster pace than foreign investment in U.S. government bonds. 
D)  grew at a faster pace than foreign investment in U.S. corporate bonds. 
A)  doubled. 
B)  fell. 
C)  grew at a faster pace than foreign investment in U.S. government bonds. 
D)  grew at a faster pace than foreign investment in U.S. corporate bonds.

Question 11

An increase in the value of the U.S.dollar will

Accepted Answer

A)  reduce Canadian demand for winter homes in Arizona. 
B)  increase Canadian demand for winter homes in Arizona. 
C)  reduce the cost of homes in Arizona for Canadian buyers. 
D)  increase the cost of homes in Arizona for American buyers. 
A)  reduce Canadian demand for winter homes in Arizona. 
B)  increase Canadian demand for winter homes in Arizona. 
C)  reduce the cost of homes in Arizona for Canadian buyers. 
D)  increase the cost of homes in Arizona for American buyers.

Question 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

Under the Bretton Woods system,the World Trade Organization (WTO)provided foreign currency loans to central banks and approved adjustments to the agreed upon fixed exchange rates.

Accepted Answer

A) True 
 B)False

Question 15

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 16

If currencies around the world are based on the gold standard,and Japan raises the amount of gold for which the yen will trade,then holding all else constant,

Accepted Answer

A)  the yen will depreciate against the dollar. 
B)  the yen will appreciate against the dollar. 
C)  the value of the yen relative to the dollar will stay constant. 
D)  the value of U.S. exports to Japan in terms of the yen will increase. 
A)  the yen will depreciate against the dollar. 
B)  the yen will appreciate against the dollar. 
C)  the value of the yen relative to the dollar will stay constant. 
D)  the value of U.S. exports to Japan in terms of the yen will increase.

Question 17

In what year was the Bretton Woods system of currency exchange set up?

Accepted Answer

A)  1912 
B)  1924 
C)  1944 
D)  1969 
A)  1912 
B)  1924 
C)  1944 
D)  1969

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

Under which exchange rate system was a dollar redeemable for gold only if the dollar was presented by a foreign central bank?

Accepted Answer

A)  the gold standard 
B)  a managed float exchange rate system 
C)  the Bretton Woods System 
D)  a fiat system 
A)  the gold standard 
B)  a managed float exchange rate system 
C)  the Bretton Woods System 
D)  a fiat system

Exam 30: The International Financial System

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,purchasing power parity predicts that

Both countries involved in a pegging of currency must agree to the terms of the pegging.

By 2011,how many European countries were members of the European Union?

Among countries that purchased U.S.stocks and bonds in 2010,China was the biggest customer,accounting for over 50 percent of all purchases.

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

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

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

The central bank of the European Union is called the

How were countries whose industries competed with Chinese industry affected by a yuan that was pegged to the dollar?

In 2010,foreign purchases of U.S.corporate stocks and bonds

An increase in the value of the U.S.dollar will

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

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

Under the Bretton Woods system,the World Trade Organization (WTO)provided foreign currency loans to central banks and approved adjustments to the agreed upon fixed exchange rates.

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 Japan raises the amount of gold for which the yen will trade,then holding all else constant,

In what year was the Bretton Woods system of currency exchange set up?

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

Under which exchange rate system was a dollar redeemable for gold only if the dollar was presented by a foreign central bank?

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

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