Question 1

The current system of international finance is a

Accepted Answer

A) gold standard 
B) fixed exchange rate system 
C) floating exchange rate system 
D) managed float exchange rate system 
E) pooled currency exchange system 
A) gold standard 
B) fixed exchange rate system 
C) floating exchange rate system 
D) managed float exchange rate system 
E) pooled currency exchange system

Question 2

The gold standard

Accepted Answer

A) has been in operation since the establishment of the Federal Reserve Board 
B) has been in operation since shortly after World War I 
C) has been in operation since the Bretton Woods agreement was signed 
D) was in operation for about 50 years before World War I 
E) was in operation from the date of the Bretton Woods agreement until the devaluation of the U.S.dollar in 1971 
A) has been in operation since the establishment of the Federal Reserve Board 
B) has been in operation since shortly after World War I 
C) has been in operation since the Bretton Woods agreement was signed 
D) was in operation for about 50 years before World War I 
E) was in operation from the date of the Bretton Woods agreement until the devaluation of the U.S.dollar in 1971

Question 3

The current account shows transactions in goods and services; the capital account shows purchases and sales of assets; and the official reserve transactions account shows movement of international reserves.

Accepted Answer

A) True 
 B)False

Question 4

If the British pound appreciates,U.S.television stations need fewer dollars to buy episodes of a Britcom from the British Broadcasting Company.

Accepted Answer

A) True 
 B)False

Question 5

A rightward shift of the Canadian demand curve for foreign exchange will

Accepted Answer

A) decrease the price of foreign exchange in Canada 
B) decrease the value of the Canadian dollar 
C) increase the value of the Canadian dollar 
D) make foreign goods less expensive in terms of Canadian dollars 
E) make Canadian goods more expensive in terms of foreign exchange 
A) decrease the price of foreign exchange in Canada 
B) decrease the value of the Canadian dollar 
C) increase the value of the Canadian dollar 
D) make foreign goods less expensive in terms of Canadian dollars 
E) make Canadian goods more expensive in terms of foreign exchange

Question 6

As long as trade across borders is unrestricted and exchange rates adjust freely,the purchasing power parity theory predicts that the exchange rate between two national currencies will adjust in the

Accepted Answer

A) short run because of the actions of arbitrageurs 
B) long run to reflect differences in the nations' price levels 
C) long run to reflect changes in the governments' trade policies 
D) short run because of the actions of speculators 
E) long run to reflect differences in military power 
A) short run because of the actions of arbitrageurs 
B) long run to reflect differences in the nations' price levels 
C) long run to reflect changes in the governments' trade policies 
D) short run because of the actions of speculators 
E) long run to reflect differences in military power

Question 7

One feature of the gold standard was that

Accepted Answer

A) countries had almost complete control over their own monetary policies 
B) surplus could cause the money supply to decrease 
C) slow gold production could lead to deflation 
D) exchange rates were unstable 
E) each currency was worth the same as other currencies 
A) countries had almost complete control over their own monetary policies 
B) surplus could cause the money supply to decrease 
C) slow gold production could lead to deflation 
D) exchange rates were unstable 
E) each currency was worth the same as other currencies

Question 8

If the purchasing power parity theory were literally true

Accepted Answer

A) we should see some nations devaluing their currencies relative to the U.S.dollar while other nations revalue their currencies 
B) the price of a traded good should be the same everywhere in the world 
C) the price of a Big Mac should be the same everywhere in the world 
D) the exchange rate should be the same everywhere in the world 
E) prices should tend toward equality with exchange rates 
A) we should see some nations devaluing their currencies relative to the U.S.dollar while other nations revalue their currencies 
B) the price of a traded good should be the same everywhere in the world 
C) the price of a Big Mac should be the same everywhere in the world 
D) the exchange rate should be the same everywhere in the world 
E) prices should tend toward equality with exchange rates

Question 9

Exhibit 18-4  
-Suppose the Swiss government wants to set the exchange rate at A in Exhibit 18-4.The appropriate action for the government to take after the demand shift shown is

Accepted Answer

A) to reduce its demand for dollars from Canada 
B) to reduce its supply of francs to Canada 
C) to increase its supply of francs to Canada 
D) to raise the price of foreign exchange in Canada 
E) to increase the U.S.demand for goods and services from Switzerland 
A) to reduce its demand for dollars from Canada 
B) to reduce its supply of francs to Canada 
C) to increase its supply of francs to Canada 
D) to raise the price of foreign exchange in Canada 
E) to increase the U.S.demand for goods and services from Switzerland

Question 10

Exhibit 18-4  
-If Switzerland were trying to peg its exchange rate at A,in response to the shift in demand from D to D' shown in Exhibit 18-4,it would try to

Accepted Answer

A) shift the demand curve to the right to establish equilibrium at point x 
B) shift the supply curve to the left to establish equilibrium at point x 
C) shift the supply curve to the right to establish equilibrium at point z 
D) support the new equilibrium at point y 
E) move down along its supply curve to intersect the old demand curve at point x 
A) shift the demand curve to the right to establish equilibrium at point x 
B) shift the supply curve to the left to establish equilibrium at point x 
C) shift the supply curve to the right to establish equilibrium at point z 
D) support the new equilibrium at point y 
E) move down along its supply curve to intersect the old demand curve at point x

Question 11

The balance of payments summarizes the transactions that occur during a given time period between

Accepted Answer

A) the government of one country and the government of another country 
B) the national government and local governments in the same country 
C) individuals,firms,and government of one country and individuals,firms,and governments throughout the rest of the world 
D) individuals,firms,and governments of two countries 
E) non-government residents (individuals and firms)of two countries 
A) the government of one country and the government of another country 
B) the national government and local governments in the same country 
C) individuals,firms,and government of one country and individuals,firms,and governments throughout the rest of the world 
D) individuals,firms,and governments of two countries 
E) non-government residents (individuals and firms)of two countries

Question 12

Which of the following is not a criticism of flexible exchange rates?

Accepted Answer

A) All of the following. 
B) They are volatile,which increases risks for importers and exporters. 
C) They could affect employment and increase demand for trade restrictions. 
D) They do not allow for discretionary monetary policy. 
E) They allow central banks to follow expansionary monetary policies. 
A) All of the following. 
B) They are volatile,which increases risks for importers and exporters. 
C) They could affect employment and increase demand for trade restrictions. 
D) They do not allow for discretionary monetary policy. 
E) They allow central banks to follow expansionary monetary policies.

Question 13

If foreigners increase their ownership of U.S.assets,this would help to offset

Accepted Answer

A) a deficit in the U.S.current account 
B) a deficit in the U.S.capital account 
C) a surplus in the U.S.current account 
D) a surplus in the U.S.capital account 
E) a surplus in the total balance of payments 
A) a deficit in the U.S.current account 
B) a deficit in the U.S.capital account 
C) a surplus in the U.S.current account 
D) a surplus in the U.S.capital account 
E) a surplus in the total balance of payments

Question 14

Today's exchange rate system can be described as

Accepted Answer

A) a fixed exchange rate system 
B) a freely floating exchange rate system 
C) a pegged exchange rate system 
D) a flexible exchange rate system 
E) a managed float 
A) a fixed exchange rate system 
B) a freely floating exchange rate system 
C) a pegged exchange rate system 
D) a flexible exchange rate system 
E) a managed float

Question 15

If the exchange rate changes from 1 euro per U.S.dollar to 1.2 euros per U.S.dollar,the Euro has

Accepted Answer

A) appreciated,since its value has increased 
B) appreciated,since the price of U.S.dollars has increased 
C) appreciated,making U.S.goods cheaper in Euros 
D) depreciated,since its value has declined 
E) depreciated,since its value has increased 
A) appreciated,since its value has increased 
B) appreciated,since the price of U.S.dollars has increased 
C) appreciated,making U.S.goods cheaper in Euros 
D) depreciated,since its value has declined 
E) depreciated,since its value has increased

Question 16

The debit side of the current account includes the imports of

Accepted Answer

A) goods only 
B) goods and services 
C) services only 
D) services and resources only 
E) financial assets 
A) goods only 
B) goods and services 
C) services only 
D) services and resources only 
E) financial assets

Question 17

Which of the following is not considered a resident when calculating the balance of payments?

Accepted Answer

A) governments 
B) capital equipment 
C) organizations 
D) firms 
E) people 
A) governments 
B) capital equipment 
C) organizations 
D) firms 
E) people

Question 18

In determining the exchange rate between the Canadian dollar and British pound,if Canadian income increases,then

Accepted Answer

A) the Canadian demand for pounds increases 
B) the price of pounds decreases 
C) the Canadian demand for pounds decreases 
D) the Canadian supply of pounds increases 
E) the supply of Canadian dollars decreases 
A) the Canadian demand for pounds increases 
B) the price of pounds decreases 
C) the Canadian demand for pounds decreases 
D) the Canadian supply of pounds increases 
E) the supply of Canadian dollars decreases

Question 19

If the current account is in deficit,imports of goods and services exceed exports of goods and services (plus net unilateral transfers).

Accepted Answer

A) True 
 B)False

Question 20

From the U.S.perspective,a drop in the price of foreign exchange means that

Accepted Answer

A) fewer U.S.dollars are needed to purchase foreign currency 
B) more U.S.dollars are needed to purchase foreign currency 
C) worldwide,imports will become more expensive 
D) worldwide,exports will become cheaper 
E) transaction costs on international markets will decrease 
A) fewer U.S.dollars are needed to purchase foreign currency 
B) more U.S.dollars are needed to purchase foreign currency 
C) worldwide,imports will become more expensive 
D) worldwide,exports will become cheaper 
E) transaction costs on international markets will decrease

Exam 20: International Finance

The current system of international finance is a

The gold standard

The current account shows transactions in goods and services; the capital account shows purchases and sales of assets; and the official reserve transactions account shows movement of international reserves.

If the British pound appreciates,U.S.television stations need fewer dollars to buy episodes of a Britcom from the British Broadcasting Company.

A rightward shift of the Canadian demand curve for foreign exchange will

As long as trade across borders is unrestricted and exchange rates adjust freely,the purchasing power parity theory predicts that the exchange rate between two national currencies will adjust in the

One feature of the gold standard was that

If the purchasing power parity theory were literally true

Exhibit 18-4 -Suppose the Swiss government wants to set the exchange rate at A in Exhibit 18-4.The appropriate action for the government to take after the demand shift shown is

Exhibit 18-4 -If Switzerland were trying to peg its exchange rate at A,in response to the shift in demand from D to D' shown in Exhibit 18-4,it would try to

The balance of payments summarizes the transactions that occur during a given time period between

Which of the following is not a criticism of flexible exchange rates?

If foreigners increase their ownership of U.S.assets,this would help to offset

Today's exchange rate system can be described as

If the exchange rate changes from 1 euro per U.S.dollar to 1.2 euros per U.S.dollar,the Euro has

The debit side of the current account includes the imports of

Which of the following is not considered a resident when calculating the balance of payments?

In determining the exchange rate between the Canadian dollar and British pound,if Canadian income increases,then

If the current account is in deficit,imports of goods and services exceed exports of goods and services (plus net unilateral transfers).

From the U.S.perspective,a drop in the price of foreign exchange means that

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Introduction to Macroeconomics

Tracking the Useconomy

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Baggregate Expenditure and Aggregate Demand

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understanding Graphs

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