Question 1

The nominal exchange rate:

Accepted Answer

A) is adjusted for inflation. 
B) always equals purchasing power parity. 
C) is unadjusted for inflation. 
D) affects the current account. 
A) is adjusted for inflation. 
B) always equals purchasing power parity. 
C) is unadjusted for inflation. 
D) affects the current account.

Question 2

According to the principle of purchasing power parity, if a 20-ml bottle of Diet Coke costs €0.80 in Paris, £0.50 in London, and $1.10 in Chicago, the exchange rate between the:

Accepted Answer

A) euro and the pound should be €0.40 = £1. 
B) U.S. dollar and the euro should be $0.72 = €1. 
C) U.S. dollar and the pound should be $0.45 = £1. 
D) euro and the pound should be €1.60 = £1. 
A) euro and the pound should be €0.40 = £1. 
B) U.S. dollar and the euro should be $0.72 = €1. 
C) U.S. dollar and the pound should be $0.45 = £1. 
D) euro and the pound should be €1.60 = £1.

Question 3

The Danish krone is a fixed exchange rate currency. If Denmark intervenes in the foreign exchange market to change the krone from $0.18 to $0.15, the krone has:

Accepted Answer

A) depreciated. 
B) been devalued. 
C) appreciated. 
D) been revalued. 
A) depreciated. 
B) been devalued. 
C) appreciated. 
D) been revalued.

Question 4

Britain, Sweden, and Switzerland chose not to adopt the euro in 1999.

Accepted Answer

A) True 
 B)False

Question 5

Use the following to answer questions:
Figure: International Capital Flows  
-(Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the excess of loanable funds supplied by _____ lenders will be exported to _____ borrowers.

Accepted Answer

A) U.S.; British 
B) British; U.S. 
C) U.S. or British; British or U.S. 
D) U.S.; worldwide 
A) U.S.; British 
B) British; U.S. 
C) U.S. or British; British or U.S. 
D) U.S.; worldwide

Question 6

An U.S. deposits $10,000 in an account in a London bank. In the U.S. balance of payments, this transaction causes the balance on the _____ account to _____.

Accepted Answer

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

Question 7

If exports from the United States decrease because of a recession in Europe, all other things equal, the demand for the dollar will decrease.

Accepted Answer

A) True 
 B)False

Question 8

Foreign exchange controls are:

Accepted Answer

A) fixed exchange rates. 
B) a government licensing system that limits the amount of foreign currency an individual can buy. 
C) floating exchange rates. 
D) international limits on exchange rates. 
A) fixed exchange rates. 
B) a government licensing system that limits the amount of foreign currency an individual can buy. 
C) floating exchange rates. 
D) international limits on exchange rates.

Question 9

Included in the financial account is the income U.S. residents earn on assets owned in other countries.

Accepted Answer

A) True 
 B)False

Question 10

The pound sterling floats. If its exchange rate changes from $1.68 to $1.75, the pound has:

Accepted Answer

A) depreciated. 
B) been devalued. 
C) appreciated. 
D) been revalued. 
A) depreciated. 
B) been devalued. 
C) appreciated. 
D) been revalued.

Question 11

When countries seek to maintain fixed exchange rates through intervention, their governments or central banks:

Accepted Answer

A) never have to intervene in currency markets because the exchange rate is fixed. 
B) may have to stop printing domestic currency. 
C) must buy domestic currency when foreign demand for it increases. 
D) must sell domestic currency when foreign demand for it increases. 
A) never have to intervene in currency markets because the exchange rate is fixed. 
B) may have to stop printing domestic currency. 
C) must buy domestic currency when foreign demand for it increases. 
D) must sell domestic currency when foreign demand for it increases.

Question 12

Economists summarize a country's transactions with other countries with a(n) _____ account.

Accepted Answer

A) circular flow 
B) balance of payments 
C) exchange rate 
D) purchasing power parity 
A) circular flow 
B) balance of payments 
C) exchange rate 
D) purchasing power parity

Question 13

Suppose the equilibrium interest rate in the U.S. market for loanable funds is 3% prior to any international capital flows in the United States. The equilibrium interest rate in the Japanese market for loanable funds is 7%. If lenders in both nations believe that loans to foreigners are just as good as loans to their own citizens, capital will flow from _____, making interest rates _____ in Japan and _____ in the United States.

Accepted Answer

A) the United States to Japan; rise; fall 
B) Japan to the United States; fall; rise 
C) Japan to the United States; rise; fall 
D) the United States to Japan; fall; rise 
A) the United States to Japan; rise; fall 
B) Japan to the United States; fall; rise 
C) Japan to the United States; rise; fall 
D) the United States to Japan; fall; rise

Question 14

Use the following to answer questions :
Figure: The Loanable Funds Model in the U.S. Market  
-(Figure: The Loanable Funds Model in the U.S. Market) Look at the figure The Loanable Funds Model in the U.S. Market. If the actual interest rate is higher than 4% in the U.S. market, then the quantity supplied of loanable funds will be _____ the quantity of loanable funds demanded.

Accepted Answer

A) greater than 
B) less than 
C) equal to 
D) unrelated to 
A) greater than 
B) less than 
C) equal to 
D) unrelated to

Question 15

All other things being equal, if the economy of Europe expands rapidly and this increases tourism dramatically in the United States:

Accepted Answer

A) the euro will appreciate. 
B) the U.S. dollar will appreciate. 
C) the demand for the dollar will fall. 
D) the supply of the euro will fall. 
A) the euro will appreciate. 
B) the U.S. dollar will appreciate. 
C) the demand for the dollar will fall. 
D) the supply of the euro will fall.

Question 16

The Bretton Woods agreement called for:

Accepted Answer

A) each currency's value to be flexible relative to other currencies. 
B) maintaining fixed exchange rates by government intervention. 
C) most nations to adopt the euro as their official currency. 
D) what amounted to a floating exchange rate. 
A) each currency's value to be flexible relative to other currencies. 
B) maintaining fixed exchange rates by government intervention. 
C) most nations to adopt the euro as their official currency. 
D) what amounted to a floating exchange rate.

Question 17

Floating exchange rates lead to more stable conditions for international trade.

Accepted Answer

A) True 
 B)False

Question 18

U.S. retailers import toys from China. In the U.S. balance of payments account, this transaction is entered as a payment _____ foreigners in the _____ account.

Accepted Answer

A) to; financial 
B) from; financial 
C) to; current 
D) from; current 
A) to; financial 
B) from; financial 
C) to; current 
D) from; current

Question 19

An increase in the value of a fixed rate currency is called a revaluation.

Accepted Answer

A) True 
 B)False

Question 20

A revaluation can help reduce a(n):
I. inflationary gap
II. deflationary gap

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

The nominal exchange rate:

According to the principle of purchasing power parity, if a 20-ml bottle of Diet Coke costs €0.80 in Paris, £0.50 in London, and $1.10 in Chicago, the exchange rate between the:

The Danish krone is a fixed exchange rate currency. If Denmark intervenes in the foreign exchange market to change the krone from $0.18 to $0.15, the krone has:

Britain, Sweden, and Switzerland chose not to adopt the euro in 1999.

Use the following to answer questions: Figure: International Capital Flows -(Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the excess of loanable funds supplied by _ lenders will be exported to _ borrowers.

An U.S. deposits $10,000 in an account in a London bank. In the U.S. balance of payments, this transaction causes the balance on the _ account to _.

If exports from the United States decrease because of a recession in Europe, all other things equal, the demand for the dollar will decrease.

Foreign exchange controls are:

Included in the financial account is the income U.S. residents earn on assets owned in other countries.

The pound sterling floats. If its exchange rate changes from $1.68 to $1.75, the pound has:

When countries seek to maintain fixed exchange rates through intervention, their governments or central banks:

Economists summarize a country's transactions with other countries with a(n) _____ account.

All other things being equal, if the economy of Europe expands rapidly and this increases tourism dramatically in the United States:

The Bretton Woods agreement called for:

Floating exchange rates lead to more stable conditions for international trade.

U.S. retailers import toys from China. In the U.S. balance of payments account, this transaction is entered as a payment _ foreigners in the _ account.

An increase in the value of a fixed rate currency is called a revaluation.

A revaluation can help reduce a(n): I. inflationary gap II. deflationary gap

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

The nominal exchange rate:

According to the principle of purchasing power parity, if a 20-ml bottle of Diet Coke costs €0.80 in Paris, £0.50 in London, and $1.10 in Chicago, the exchange rate between the:

The Danish krone is a fixed exchange rate currency. If Denmark intervenes in the foreign exchange market to change the krone from $0.18 to $0.15, the krone has:

Britain, Sweden, and Switzerland chose not to adopt the euro in 1999.

Use the following to answer questions: Figure: International Capital Flows -(Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the excess of loanable funds supplied by _____ lenders will be exported to _____ borrowers.

An U.S. deposits $10,000 in an account in a London bank. In the U.S. balance of payments, this transaction causes the balance on the _____ account to _____.

If exports from the United States decrease because of a recession in Europe, all other things equal, the demand for the dollar will decrease.

Foreign exchange controls are:

Included in the financial account is the income U.S. residents earn on assets owned in other countries.

The pound sterling floats. If its exchange rate changes from $1.68 to $1.75, the pound has:

When countries seek to maintain fixed exchange rates through intervention, their governments or central banks:

Economists summarize a country's transactions with other countries with a(n) _____ account.

All other things being equal, if the economy of Europe expands rapidly and this increases tourism dramatically in the United States:

The Bretton Woods agreement called for:

Floating exchange rates lead to more stable conditions for international trade.

U.S. retailers import toys from China. In the U.S. balance of payments account, this transaction is entered as a payment _____ foreigners in the _____ account.

An increase in the value of a fixed rate currency is called a revaluation.

A revaluation can help reduce a(n): I. inflationary gap II. deflationary gap

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

Use the following to answer questions: Figure: International Capital Flows -(Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the excess of loanable funds supplied by _ lenders will be exported to _ borrowers.

An U.S. deposits $10,000 in an account in a London bank. In the U.S. balance of payments, this transaction causes the balance on the _ account to _.

U.S. retailers import toys from China. In the U.S. balance of payments account, this transaction is entered as a payment _ foreigners in the _ account.