Question 1

In order to maintain an undervalued yuan to encourage a trade surplus,the Chinese government must buy dollars and increase the supply of yuan.

Accepted Answer

A) True 
 B)False

Question 2

International flows of capital increase both efficiency and growth in countries around the world.

Accepted Answer

A) True 
 B)False

Question 3

Americans,other than jewelers or rare coin collectors,were not allowed to own gold from the early 1930s until the

Accepted Answer

A) 1950s. 
B) 1960s. 
C) 1970s. 
D) 1980s. 
A) 1950s. 
B) 1960s. 
C) 1970s. 
D) 1980s.

Question 4

Suppose the U.S.dollar is backed by one-sixth of an ounce of gold and the British pound is backed by one-third of an ounce of gold.The exchange rate between the U.S.dollar and the British pound equals ________ per pound.

Accepted Answer

A) $0.50 
B) $1.00 
C) $1.50 
D) $2.00 
A) $0.50 
B) $1.00 
C) $1.50 
D) $2.00

Question 5

The Bulgarian currency,the lev,is pegged to the euro at a rate of 1.96 leva (leva is the plural of lev)to the euro.At the pegged exchange rate,how many euros would be exchanged for one lev?

Accepted Answer

A) 0.51 
B) 1.00 
C) 1.96 
D) 3.84 
A) 0.51 
B) 1.00 
C) 1.96 
D) 3.84

Question 6

The "Big Mac Theory of Exchange Rates" tests the accuracy of purchasing power parity theory.In July 2015,the Economist reported that the average price of a Big Mac in the United States was $4.79.In Mexico,the average price of a Big Mac at that time was 49 pesos.If the exchange rate between the dollar and the peso was 13.60 pesos per dollar,how would purchasing power parity predict the exchange rate will change in the long run? Support your answer graphically.

Accepted Answer

The dollar in this example is "overvalue

Question 7

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were ________ than they had planned because the baht had been pegged ________ the equilibrium exchange rate for the baht.

Accepted Answer

A) higher;above 
B) higher;below 
C) lower;above 
D) lower;below 
A) higher;above 
B) higher;below 
C) lower;above 
D) lower;below

Question 8

Figure 30-10  
-Refer to Figure 30-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then a revaluation of the currency would have

Accepted Answer

A) increased the price of British exports to the United States. 
B) increased the price of imports to Britain. 
C) led to a current account surplus. 
D) led to a balance of trade surplus. 
A) increased the price of British exports to the United States. 
B) increased the price of imports to Britain. 
C) led to a current account surplus. 
D) led to a balance of trade surplus.

Question 9

Under the Bretton Woods system,a fixed exchange rate supported by central banks was known as a(n)________ exchange rate.

Accepted Answer

A) par 
B) equilibrium 
C) fundamental 
D) target 
A) par 
B) equilibrium 
C) fundamental 
D) target

Question 10

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 11

A persistent shortage or surplus of a currency under the Bretton Woods system was evidence of

Accepted Answer

A) failure to support the existing fixed exchange rate by central banks. 
B) fundamental disequilibrium in the country's exchange rate. 
C) speculation against the currency by speculators in world exchange markets. 
D) all of the above 
A) failure to support the existing fixed exchange rate by central banks. 
B) fundamental disequilibrium in the country's exchange rate. 
C) speculation against the currency by speculators in world exchange markets. 
D) all of the above

Question 12

What factors are not important in determining exchange rate fluctuations in the long run?

Accepted Answer

A) relative price levels across countries 
B) relative rates of productivity growth across countries 
C) preferences for domestic and foreign goods across countries 
D) speculating in currency markets 
A) relative price levels across countries 
B) relative rates of productivity growth across countries 
C) preferences for domestic and foreign goods across countries 
D) speculating in currency markets

Question 13

U.S.currency continues to be backed by the gold standard to this day.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

If the dollar is "overvalued," that mean

Question 15

Figure 30-11  
-Refer to Figure 30-11.The graph above depicts supply and demand for British pounds during a trading day.At a fixed exchange rate of $2.00 per pound,the pound is ________ versus the dollar.A ________ of the pound would correct the fundamental disequilibrium that exists in this market.

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 16

In the United States today,the U.S.dollar is backed by

Accepted Answer

A) gold. 
B) silver. 
C) U.S.Treasury securities. 
D) none of the above 
A) gold. 
B) silver. 
C) U.S.Treasury securities. 
D) none of the above

Question 17

What are capital controls? Why might a financial crisis lead to a reconsideration of using capital controls,and what problems might result from the reinstatement of capital controls?

Accepted Answer

Capital controls refer to limits on the

Question 18

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

Accepted Answer

A) a decrease in inflation in the United States relative to other countries 
B) a decrease in the demand for American goods relative to goods from other countries 
C) an increase in U.S.tariffs on foreign goods 
D) a decrease in the supply of dollars on the foreign exchange market 
A) a decrease in inflation in the United States relative to other countries 
B) a decrease in the demand for American goods relative to goods from other countries 
C) an increase in U.S.tariffs on foreign goods 
D) a decrease in the supply of dollars on the foreign exchange market

Question 19

Figure 30-5  
-Refer to Figure 30-5.Suppose the Chinese government decides to abandon pegging the yuan to the dollar at a rate which undervalues the yuan.Using the figure above,the equilibrium exchange rate would be ________ and Chinese exports to the United States would ________ in price.

Accepted Answer

A) $0.11/yuan;decrease 
B) $0.11/yuan;increase 
C) $0.14/yuan;increase 
D) $0.13/yuan;increase 
E) $0.13/yuan;decrease 
A) $0.11/yuan;decrease 
B) $0.11/yuan;increase 
C) $0.14/yuan;increase 
D) $0.13/yuan;increase 
E) $0.13/yuan;decrease

Question 20

When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely,they began to sell off their investments in Thailand and exchange the baht they received for dollars.This reduction in investment by foreigners is termed

Accepted Answer

A) foreign direct investment. 
B) capital flight. 
C) capital inflow. 
D) stabilizing capitalization. 
A) foreign direct investment. 
B) capital flight. 
C) capital inflow. 
D) stabilizing capitalization.

Exam 30: The International Financial System

In order to maintain an undervalued yuan to encourage a trade surplus,the Chinese government must buy dollars and increase the supply of yuan.

International flows of capital increase both efficiency and growth in countries around the world.

Americans,other than jewelers or rare coin collectors,were not allowed to own gold from the early 1930s until the

Suppose the U.S.dollar is backed by one-sixth of an ounce of gold and the British pound is backed by one-third of an ounce of gold.The exchange rate between the U.S.dollar and the British pound equals ________ per pound.

The Bulgarian currency,the lev,is pegged to the euro at a rate of 1.96 leva (leva is the plural of lev)to the euro.At the pegged exchange rate,how many euros would be exchanged for one lev?

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were ________ than they had planned because the baht had been pegged ________ the equilibrium exchange rate for the baht.

Figure 30-10 -Refer to Figure 30-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then a revaluation of the currency would have

Under the Bretton Woods system,a fixed exchange rate supported by central banks was known as a(n)________ exchange rate.

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

A persistent shortage or surplus of a currency under the Bretton Woods system was evidence of

What factors are not important in determining exchange rate fluctuations in the long run?

U.S.currency continues to be backed by the gold standard to this day.

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

Figure 30-11 -Refer to Figure 30-11.The graph above depicts supply and demand for British pounds during a trading day.At a fixed exchange rate of $2.00 per pound,the pound is ________ versus the dollar.A ________ of the pound would correct the fundamental disequilibrium that exists in this market.

In the United States today,the U.S.dollar is backed by

What are capital controls? Why might a financial crisis lead to a reconsideration of using capital controls,and what problems might result from the reinstatement of capital controls?

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

Figure 30-5 -Refer to Figure 30-5.Suppose the Chinese government decides to abandon pegging the yuan to the dollar at a rate which undervalues the yuan.Using the figure above,the equilibrium exchange rate would be ________ and Chinese exports to the United States would ________ in price.

When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely,they began to sell off their investments in Thailand and exchange the baht they received for dollars.This reduction in investment by foreigners is termed

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

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were than they had planned because the baht had been pegged the equilibrium exchange rate for the baht.

Figure 30-11 -Refer to Figure 30-11.The graph above depicts supply and demand for British pounds during a trading day.At a fixed exchange rate of $2.00 per pound,the pound is versus the dollar.A of the pound would correct the fundamental disequilibrium that exists in this market.

Figure 30-5 -Refer to Figure 30-5.Suppose the Chinese government decides to abandon pegging the yuan to the dollar at a rate which undervalues the yuan.Using the figure above,the equilibrium exchange rate would be and Chinese exports to the United States would in price.