Question 1

From the beginning of 1973 until August 2015,the value of the dollar has ________ relative to the Canadian dollar and ________ relative to the Japanese yen.

Accepted Answer

A) appreciated;appreciated 
B) appreciated;depreciated 
C) depreciated;appreciated 
D) depreciated;depreciated 
A) appreciated;appreciated 
B) appreciated;depreciated 
C) depreciated;appreciated 
D) depreciated;depreciated

Question 2

What do reports that the dollar is "undervalued" mean? How will foreign exchange markets respond to this information? Support your answer graphically.

Accepted Answer

If the dollar is "undervalued," that mea

Question 3

The gold in Fort Knox backs all U.S.currency.

Accepted Answer

A) True 
 B)False

Question 4

China's exchange rate system from 1994 through 2005 is an example of

Accepted Answer

A) a floating exchange rate system. 
B) a managed float exchange rate system. 
C) a fixed exchange rate system. 
D) a flexible exchange rate system. 
E) the Bretton Woods System. 
A) a floating exchange rate system. 
B) a managed float exchange rate system. 
C) a fixed exchange rate system. 
D) a flexible exchange rate system. 
E) the Bretton Woods System.

Question 5

What explains the appreciation of the Japanese yen relative to the U.S.dollar from 1970 to the early 1990s?

Accepted Answer

A) Japanese productivity rose faster than U.S.productivity. 
B) Japanese inflation rose faster than U.S.inflation. 
C) U.S.consumers reduced their preferences for Japanese goods. 
D) High tariffs and restrictive quotas in the United States caused the value of the dollar to decline. 
A) Japanese productivity rose faster than U.S.productivity. 
B) Japanese inflation rose faster than U.S.inflation. 
C) U.S.consumers reduced their preferences for Japanese goods. 
D) High tariffs and restrictive quotas in the United States caused the value of the dollar to decline.

Question 6

During the Chinese experience with pegging the yuan to the dollar,the yuan was undervalued.As a result

Accepted Answer

A) there was a surplus of yuan on the market that the Chinese government had to purchase to maintain the peg,depleting China's reserves of dollars. 
B) there was a surplus of dollars on the market that the Chinese government had to purchase to maintain the peg. 
C) the prices of Chinese exports were higher than they would have been without the peg. 
D) the equilibrium value of the yuan was below the pegged value of the yuan. 
A) there was a surplus of yuan on the market that the Chinese government had to purchase to maintain the peg,depleting China's reserves of dollars. 
B) there was a surplus of dollars on the market that the Chinese government had to purchase to maintain the peg. 
C) the prices of Chinese exports were higher than they would have been without the peg. 
D) the equilibrium value of the yuan was below the pegged value of the yuan.

Question 7

A decrease in a fixed exchange rate from $1.75 per pound to $1.60 per pound is called a(n)________ of the pound.

Accepted Answer

A) devaluation 
B) depreciation 
C) appreciation 
D) revaluation 
A) devaluation 
B) depreciation 
C) appreciation 
D) revaluation

Question 8

A Big Mac costs $4.79 in the United States and 9.6 zlotys in Poland.If the exchange rate is 3 zlotys per dollar,purchasing power parity predicts that

Accepted Answer

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

Question 9

Figure 30-5  
-Refer to Figure 30-5.The Chinese government pegs the yuan to the dollar,at one of the specified exchange rates on the graph,such that it overvalues its currency.Using the figure above,this would generate

Accepted Answer

A) a shortage of yuan equal to 500 million. 
B) a shortage of yuan equal to 100 million. 
C) a surplus of yuan equal to 200 million. 
D) a surplus of yuan equal to 700 million. 
A) a shortage of yuan equal to 500 million. 
B) a shortage of yuan equal to 100 million. 
C) a surplus of yuan equal to 200 million. 
D) a surplus of yuan equal to 700 million.

Question 10

If the average productivity of Indian firms is rising more quickly than the average productivity of American firms,which of the following would you expect to see? (India's currency is the rupee. )

Accepted Answer

A) a decrease in the value of the rupee relative to the dollar 
B) an increase in the prices of Indian products 
C) an increase in the quantity demanded of Indian products relative to American products 
D) All of the above are correct. 
A) a decrease in the value of the rupee relative to the dollar 
B) an increase in the prices of Indian products 
C) an increase in the quantity demanded of Indian products relative to American products 
D) All of the above are correct.

Question 11

Which of the following is not an advantage to a country of choosing to fix its exchange rate against a major currency,rather than choosing a floating exchange rate?

Accepted Answer

A) Pegging allows the country more flexibility in conducting monetary policy. 
B) Pegging helps avoid inflation in imported goods caused by currency depreciation for countries with significant levels of imports. 
C) Pegging insures that interest payments stemming from foreign loans do not fluctuate with the value of the currency. 
D) Pegging reduces the uncertainty caused by currency fluctuations and thereby simplifies business planning. 
A) Pegging allows the country more flexibility in conducting monetary policy. 
B) Pegging helps avoid inflation in imported goods caused by currency depreciation for countries with significant levels of imports. 
C) Pegging insures that interest payments stemming from foreign loans do not fluctuate with the value of the currency. 
D) Pegging reduces the uncertainty caused by currency fluctuations and thereby simplifies business planning.

Question 12

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 13

A persistent shortage of yen at a given fixed exchange rate (in dollars per yen)is evidence that the yen is ________ versus the dollar.This shortage can be reduced or eliminated through a ________ of the yen.

Accepted Answer

A) undervalued;devaluation 
B) undervalued;revaluation 
C) overvalued;revaluation 
D) overvalued;devaluation 
A) undervalued;devaluation 
B) undervalued;revaluation 
C) overvalued;revaluation 
D) overvalued;devaluation

Question 14

Figure 30-4  
-Refer to Figure 30-4.The equilibrium exchange rate is 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.After the shift

Accepted Answer

A) there is a shortage of pounds equal to 600 million. 
B) there is a surplus of pounds equal to 400 million. 
C) there is a shortage of pounds equal to 400 million. 
D) there is a surplus of pounds equal to 600 million. 
E) there is a shortage of pounds equal to 200 million. 
A) there is a shortage of pounds equal to 600 million. 
B) there is a surplus of pounds equal to 400 million. 
C) there is a shortage of pounds equal to 400 million. 
D) there is a surplus of pounds equal to 600 million. 
E) there is a shortage of pounds equal to 200 million.

Question 15

Firms in Thailand that had ________ while the baht was pegged to the dollar faced interest payments that were higher than they had planned once the Thai government abandoned the peg because the baht had been pegged ________ the equilibrium exchange rate for the baht.

Accepted Answer

A) borrowed dollars;above 
B) borrowed baht;above 
C) borrowed dollars;below 
D) borrowed baht;below 
A) borrowed dollars;above 
B) borrowed baht;above 
C) borrowed dollars;below 
D) borrowed baht;below

Question 16

Under a floating exchange rate,the exchange rate

Accepted Answer

A) will change whenever the price of gold changes. 
B) is controlled by central bank intervention. 
C) is determined by the interaction of supply of the currency and demand for the currency. 
D) is pegged against the euro. 
A) will change whenever the price of gold changes. 
B) is controlled by central bank intervention. 
C) is determined by the interaction of supply of the currency and demand for the currency. 
D) is pegged against the euro.

Question 17

Figure 30-8  
-Refer to Figure 30-8.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D2.After the shift

Accepted Answer

A) there is a shortage of euros equal to 1,000 million. 
B) there is a surplus of euros equal to 400 million. 
C) there is a shortage of euros equal to 800 million. 
D) there is a surplus of euros equal to 500 million. 
A) there is a shortage of euros equal to 1,000 million. 
B) there is a surplus of euros equal to 400 million. 
C) there is a shortage of euros equal to 800 million. 
D) there is a surplus of euros equal to 500 million.

Question 18

If speculators believe a currency is soon going to be revalued,they will increase their demand for that currency.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Figure 30-5  
-Refer to Figure 30-5.The Chinese government pegs the yuan to the dollar,at one of the specified exchange rates on the graph,such that it undervalues its currency.Using the figure above,this would generate

Accepted Answer

A) a shortage of yuan equal to 400 million. 
B) a shortage of yuan equal to 200 million. 
C) a surplus of yuan equal to 200 million. 
D) a surplus of yuan equal to 400 million. 
E) a surplus of yuan equal to 300 million. 
A) a shortage of yuan equal to 400 million. 
B) a shortage of yuan equal to 200 million. 
C) a surplus of yuan equal to 200 million. 
D) a surplus of yuan equal to 400 million. 
E) a surplus of yuan equal to 300 million.

Exam 30: The International Financial System

From the beginning of 1973 until August 2015,the value of the dollar has ________ relative to the Canadian dollar and ________ relative to the Japanese yen.

What do reports that the dollar is "undervalued" mean? How will foreign exchange markets respond to this information? Support your answer graphically.

The gold in Fort Knox backs all U.S.currency.

China's exchange rate system from 1994 through 2005 is an example of

What explains the appreciation of the Japanese yen relative to the U.S.dollar from 1970 to the early 1990s?

During the Chinese experience with pegging the yuan to the dollar,the yuan was undervalued.As a result

A decrease in a fixed exchange rate from $1.75 per pound to $1.60 per pound is called a(n)________ of the pound.

A Big Mac costs $4.79 in the United States and 9.6 zlotys in Poland.If the exchange rate is 3 zlotys per dollar,purchasing power parity predicts that

Figure 30-5 -Refer to Figure 30-5.The Chinese government pegs the yuan to the dollar,at one of the specified exchange rates on the graph,such that it overvalues its currency.Using the figure above,this would generate

If the average productivity of Indian firms is rising more quickly than the average productivity of American firms,which of the following would you expect to see? (India's currency is the rupee. )

Which of the following is not an advantage to a country of choosing to fix its exchange rate against a major currency,rather than choosing a floating exchange rate?

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.

A persistent shortage of yen at a given fixed exchange rate (in dollars per yen)is evidence that the yen is ________ versus the dollar.This shortage can be reduced or eliminated through a ________ of the yen.

Figure 30-4 -Refer to Figure 30-4.The equilibrium exchange rate is 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.After the shift

Firms in Thailand that had ________ while the baht was pegged to the dollar faced interest payments that were higher than they had planned once the Thai government abandoned the peg because the baht had been pegged ________ the equilibrium exchange rate for the baht.

Under a floating exchange rate,the exchange rate

Figure 30-8 -Refer to Figure 30-8.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D2.After the shift

If speculators believe a currency is soon going to be revalued,they will increase their demand for that currency.

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

Figure 30-5 -Refer to Figure 30-5.The Chinese government pegs the yuan to the dollar,at one of the specified exchange rates on the graph,such that it undervalues its currency.Using the figure above,this would generate

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

From the beginning of 1973 until August 2015,the value of the dollar has relative to the Canadian dollar and relative to the Japanese yen.

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.

A persistent shortage of yen at a given fixed exchange rate (in dollars per yen)is evidence that the yen is versus the dollar.This shortage can be reduced or eliminated through a of the yen.

Firms in Thailand that had while the baht was pegged to the dollar faced interest payments that were higher than they had planned once the Thai government abandoned the peg because the baht had been pegged the equilibrium exchange rate for the baht.