Question 1

All other things equal, a depreciation of the domestic currency will cause aggregate demand to increase.

Accepted Answer

A) True 
 B)False

Question 2

With a floating exchange rate:

Accepted Answer

A) monetary policy is ineffective. 
B) monetary policy is not independent. 
C) a central bank can use an independent monetary policy. 
D) an independent fiscal policy cannot be used. 
A) monetary policy is ineffective. 
B) monetary policy is not independent. 
C) a central bank can use an independent monetary policy. 
D) an independent fiscal policy cannot be used.

Question 3

Suppose a nation has a trade deficit on goods and services in the current account. Does this imply that the total balance of the current account is a deficit?

Accepted Answer

Not necessarily. The current account als

Question 4

A devaluation will make exports less expensive and imports more expensive.

Accepted Answer

A) True 
 B)False

Question 5

A country that contracts its money supply will MOST likely have a(n):

Accepted Answer

A) increase in the level of investment spending. 
B) increase in the demand for its currency in the foreign exchange market. 
C) increase in the supply of its currency in the foreign exchange market. 
D) a lowering of its interest rate. 
A) increase in the level of investment spending. 
B) increase in the demand for its currency in the foreign exchange market. 
C) increase in the supply of its currency in the foreign exchange market. 
D) a lowering of its interest rate.

Question 6

Use the following to answer questions:
Table: International Transactions  
-(Table: International Transactions) Look at the table International Transactions. The merchandise trade balance is:

Accepted Answer

A) $51,000. 
B) $48,000. 
C) $46,000. 
D) $2,000. 
A) $51,000. 
B) $48,000. 
C) $46,000. 
D) $2,000.

Question 7

China has fixed the exchange rate between the yuan and the U.S. dollar. Therefore, a recession in China _____ U.S. _____ to China more than if the exchange rate floated.

Accepted Answer

A) raises; exports 
B) reduces; imports 
C) raises; imports 
D) reduces; exports 
A) raises; exports 
B) reduces; imports 
C) raises; imports 
D) reduces; exports

Question 8

Suppose that a Ford costs $20,000 in the United States and £10,000 in Britain. Purchasing power parity is an exchange rate of £2 per dollar.

Accepted Answer

A) True 
 B)False

Question 9

All other things equal, an expansionary monetary policy in Britain will decrease British interest rates and increase the demand for and decrease the supply of the pound sterling.

Accepted Answer

A) True 
 B)False

Question 10

If a country's currency appreciates, all other things equal, its exports and imports will increase.

Accepted Answer

A) True 
 B)False

Question 11

Suppose that the United States and European Union are the only trading partners in the world. If interest rates in the United States are significantly lower than those in the European Union, we would expect:

Accepted Answer

A) the supply of the dollar to fall, appreciating the dollar. 
B) the demand for the dollar to fall, depreciating the dollar. 
C) the supply of euros to increase, depreciating the euro. 
D) the demand for euros to decrease, depreciating the euro. 
A) the supply of the dollar to fall, appreciating the dollar. 
B) the demand for the dollar to fall, depreciating the dollar. 
C) the supply of euros to increase, depreciating the euro. 
D) the demand for euros to decrease, depreciating the euro.

Question 12

If a country finds its fixed rate currency falling:

Accepted Answer

A) it can use foreign exchange reserves to purchase some of its currency. 
B) it can add to its foreign exchange reserves by selling some of its currency. 
C) it cannot use monetary policy to maintain its exchange rate. 
D) it will allow its currency devaluate. 
A) it can use foreign exchange reserves to purchase some of its currency. 
B) it can add to its foreign exchange reserves by selling some of its currency. 
C) it cannot use monetary policy to maintain its exchange rate. 
D) it will allow its currency devaluate.

Question 13

Assume that Tom sells a crate of Florida oranges to a retailer in Canada and Susan sells a U.S. bond to a customer in Britain. Which of the following illustrates the difference and/or similarity between these two transactions?

Accepted Answer

A) Only Tom will actually receive U.S. dollars as a result of this transaction. 
B) The sale of the bond generates a liability, while the sale of the oranges does not. 
C) Both sales generate an asset for the United States. 
D) Both sales generate a liability for the United States. 
A) Only Tom will actually receive U.S. dollars as a result of this transaction. 
B) The sale of the bond generates a liability, while the sale of the oranges does not. 
C) Both sales generate an asset for the United States. 
D) Both sales generate a liability for the United States.

Question 14

One limitation of maintaining a fixed exchange rate system is that:

Accepted Answer

A) it subjects the country's exchange rate to wide fluctuations in the foreign exchange market. 
B) it provides an incentive for the country to change its inflation policy frequently. 
C) the country may not be able to use monetary policy to achieve other goals, such as full employment. 
D) it leads to wide fluctuations in the growth rate. 
A) it subjects the country's exchange rate to wide fluctuations in the foreign exchange market. 
B) it provides an incentive for the country to change its inflation policy frequently. 
C) the country may not be able to use monetary policy to achieve other goals, such as full employment. 
D) it leads to wide fluctuations in the growth rate.

Question 15

As a result of contractionary monetary policy, higher U.S. interest rates will result in a(n) _____ in the demand for dollars and a(n) _____ in the supply of dollars.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease 
A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease

Question 16

In the foreign exchange market for dollars and pounds, the demand for dollars is also the supply of pounds.

Accepted Answer

A) True 
 B)False

Question 17

If the pound sterling appreciates against the dollar:

Accepted Answer

A) British imports and exports have become more expensive. 
B) U.S. imports and exports have become more expensive. 
C) British imports and exports have become less expensive. 
D) British exports have become more expensive but the price of U.S. exports to Britain has fallen. 
A) British imports and exports have become more expensive. 
B) U.S. imports and exports have become more expensive. 
C) British imports and exports have become less expensive. 
D) British exports have become more expensive but the price of U.S. exports to Britain has fallen.

Question 18

Which of the following countries switched from fixed to floating exchange rates?
I. Britain
II. Argentina

Accepted Answer

A) I only 
B) II only 
C) I and II 
D) neither I nor II 
A) I only 
B) II only 
C) I and II 
D) neither I nor II

Question 19

Which of the following would NOT be included in the U.S. financial account?

Accepted Answer

A) a Japanese factory purchased by a U.S. company 
B) U.S. stock sold to someone in Japan 
C) a Japanese bond sold to someone in the United States 
D) a Chinese video game imported into the United States 
A) a Japanese factory purchased by a U.S. company 
B) U.S. stock sold to someone in Japan 
C) a Japanese bond sold to someone in the United States 
D) a Chinese video game imported into the United States

Question 20

If a country adopts a fixed rate, it is committing not to engage in inflationary policies because inflationary policies would destabilize the exchange rate.

Accepted Answer

A) True 
 B)False

All other things equal, a depreciation of the domestic currency will cause aggregate demand to increase.

With a floating exchange rate:

Suppose a nation has a trade deficit on goods and services in the current account. Does this imply that the total balance of the current account is a deficit?

A devaluation will make exports less expensive and imports more expensive.

A country that contracts its money supply will MOST likely have a(n):

Use the following to answer questions: Table: International Transactions -(Table: International Transactions) Look at the table International Transactions. The merchandise trade balance is:

China has fixed the exchange rate between the yuan and the U.S. dollar. Therefore, a recession in China _ U.S. _ to China more than if the exchange rate floated.

Suppose that a Ford costs $20,000 in the United States and £10,000 in Britain. Purchasing power parity is an exchange rate of £2 per dollar.

All other things equal, an expansionary monetary policy in Britain will decrease British interest rates and increase the demand for and decrease the supply of the pound sterling.

If a country's currency appreciates, all other things equal, its exports and imports will increase.

Suppose that the United States and European Union are the only trading partners in the world. If interest rates in the United States are significantly lower than those in the European Union, we would expect:

If a country finds its fixed rate currency falling:

Assume that Tom sells a crate of Florida oranges to a retailer in Canada and Susan sells a U.S. bond to a customer in Britain. Which of the following illustrates the difference and/or similarity between these two transactions?

One limitation of maintaining a fixed exchange rate system is that:

As a result of contractionary monetary policy, higher U.S. interest rates will result in a(n) _ in the demand for dollars and a(n) _ in the supply of dollars.

In the foreign exchange market for dollars and pounds, the demand for dollars is also the supply of pounds.

If the pound sterling appreciates against the dollar:

Which of the following countries switched from fixed to floating exchange rates? I. Britain II. Argentina

Which of the following would NOT be included in the U.S. financial account?

If a country adopts a fixed rate, it is committing not to engage in inflationary policies because inflationary policies would destabilize the exchange rate.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Exam 19: Open-Economy Macroeconomics

All other things equal, a depreciation of the domestic currency will cause aggregate demand to increase.

With a floating exchange rate:

Suppose a nation has a trade deficit on goods and services in the current account. Does this imply that the total balance of the current account is a deficit?

A devaluation will make exports less expensive and imports more expensive.

A country that contracts its money supply will MOST likely have a(n):

Use the following to answer questions: Table: International Transactions -(Table: International Transactions) Look at the table International Transactions. The merchandise trade balance is:

China has fixed the exchange rate between the yuan and the U.S. dollar. Therefore, a recession in China _____ U.S. _____ to China more than if the exchange rate floated.

Suppose that a Ford costs $20,000 in the United States and £10,000 in Britain. Purchasing power parity is an exchange rate of £2 per dollar.

All other things equal, an expansionary monetary policy in Britain will decrease British interest rates and increase the demand for and decrease the supply of the pound sterling.

If a country's currency appreciates, all other things equal, its exports and imports will increase.

Suppose that the United States and European Union are the only trading partners in the world. If interest rates in the United States are significantly lower than those in the European Union, we would expect:

If a country finds its fixed rate currency falling:

Assume that Tom sells a crate of Florida oranges to a retailer in Canada and Susan sells a U.S. bond to a customer in Britain. Which of the following illustrates the difference and/or similarity between these two transactions?

One limitation of maintaining a fixed exchange rate system is that:

As a result of contractionary monetary policy, higher U.S. interest rates will result in a(n) _____ in the demand for dollars and a(n) _____ in the supply of dollars.

In the foreign exchange market for dollars and pounds, the demand for dollars is also the supply of pounds.

If the pound sterling appreciates against the dollar:

Which of the following countries switched from fixed to floating exchange rates? I. Britain II. Argentina

Which of the following would NOT be included in the U.S. financial account?

If a country adopts a fixed rate, it is committing not to engage in inflationary policies because inflationary policies would destabilize the exchange rate.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

China has fixed the exchange rate between the yuan and the U.S. dollar. Therefore, a recession in China _ U.S. _ to China more than if the exchange rate floated.

As a result of contractionary monetary policy, higher U.S. interest rates will result in a(n) _ in the demand for dollars and a(n) _ in the supply of dollars.