Question 1

Describe the four determinants of exchange rates in the long run.

Accepted Answer

One determinant of exchange rates in the

Question 2

When the value of a currency is determined mostly by demand and supply,but with occasional government intervention,the exchange rate system is defined as

Accepted Answer

A) fixed. 
B) floating. 
C) managed float. 
D) Bretton Woods. 
A) fixed. 
B) floating. 
C) managed float. 
D) Bretton Woods.

Question 3

Figure 30-7  
-Refer to Figure 30-7.At what level should the Indian government peg its currency to the dollar to make U.S.imports cheaper in India?

Accepted Answer

A) greater than $.02/rupee 
B) less than $.02/rupee 
C) equal to $.02/rupee 
D) $1/rupee 
A) greater than $.02/rupee 
B) less than $.02/rupee 
C) equal to $.02/rupee 
D) $1/rupee

Question 4

The ________ in the United States is best described as a managed float exchange rate system.

Accepted Answer

A) earliest used exchange rate system 
B) current exchange rate system 
C) exchange rate system used prior to the Great Depression 
D) exchange rate system set up at the end of World War II 
A) earliest used exchange rate system 
B) current exchange rate system 
C) exchange rate system used prior to the Great Depression 
D) exchange rate system set up at the end of World War II

Question 5

In 1991,Argentina decided to peg its currency (the Argentinean peso)to the U.S.dollar.To maintain the peg,Argentina had to purchase surplus pesos on the foreign exchange market,depleting its reserves of dollars to such an extent that it eventually had to abandon the peg.Show graphically what this implies about the peg relative to the equilibrium exchange rate in the market for the Argentinean peso.

Accepted Answer

If Argentina had to purchase s

Question 6

All of the following actions were taken by the Thai government to help Thailand maintain its peg against the dollar in the 1990s except

Accepted Answer

A) borrowing dollars from the International Monetary Fund in exchange for baht. 
B) buying baht on the foreign exchange market to support higher demand for the baht. 
C) increasing domestic interest rates to attract more foreign investors. 
D) imposing restrictions on exports to the United States to prevent too many dollars from entering the economy. 
A) borrowing dollars from the International Monetary Fund in exchange for baht. 
B) buying baht on the foreign exchange market to support higher demand for the baht. 
C) increasing domestic interest rates to attract more foreign investors. 
D) imposing restrictions on exports to the United States to prevent too many dollars from entering the economy.

Question 7

Figure 30-4  
-Refer to Figure 30-4.The equilibrium exchange rate is originally 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.If the government abandons the peg,the equilibrium exchange rate would be

Accepted Answer

A) $4/pound. 
B) $3/pound. 
C) $2/pound. 
D) less than $2/pound. 
A) $4/pound. 
B) $3/pound. 
C) $2/pound. 
D) less than $2/pound.

Question 8

What are the three main exchange rate systems,and how do they operate?

Accepted Answer

The three main exchange rate systems are

Question 9

Which of the following did not help Thailand maintain its peg against the dollar in the 1990s?

Accepted Answer

A) borrowing dollars from the International Monetary Fund in exchange for baht 
B) buying baht on the foreign exchange market to support higher demand for the baht 
C) increasing domestic interest rates to attract more foreign investors 
D) foreigners selling off new investments in Thailand 
A) borrowing dollars from the International Monetary Fund in exchange for baht 
B) buying baht on the foreign exchange market to support higher demand for the baht 
C) increasing domestic interest rates to attract more foreign investors 
D) foreigners selling off new investments in Thailand

Question 10

If a country's currency ________ the dollar,its exchange rate is fixed.

Accepted Answer

A) is exchanged in currency markets for 
B) depreciates against 
C) is pegged to 
D) has a floating exchange rate value which is equal to 
A) is exchanged in currency markets for 
B) depreciates against 
C) is pegged to 
D) has a floating exchange rate value which is equal to

Question 11

China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan was ________ at the pegged exchange rate,the Chinese government increased its reserves of ________ as the government purchased more ________ to maintain the pegged exchange rate.

Accepted Answer

A) undervalued;dollars;dollars 
B) undervalued;yuan;yuan 
C) overvalued;yuan;yuan 
D) overvalued;dollars;dollars 
A) undervalued;dollars;dollars 
B) undervalued;yuan;yuan 
C) overvalued;yuan;yuan 
D) overvalued;dollars;dollars

Question 12

Figure 30-3  
-Refer to Figure 30-3.At what level should the Thai government peg its currency to the dollar to make Thai exports cheaper to the United States?

Accepted Answer

A) greater than $.03/baht 
B) less than $.03/baht 
C) equal to $.03/baht 
D) $1/baht 
A) greater than $.03/baht 
B) less than $.03/baht 
C) equal to $.03/baht 
D) $1/baht

Question 13

Adoption of the euro as both a medium of exchange and unit of account in the EU countries serves to increase competition among European firms and decrease individual countries' monetary policy options when confronted by recessions and booms.

Accepted Answer

A) True 
 B)False

Question 14

How will the exchange rate (foreign currency per dollar)respond to a decrease in the relative rate of productivity growth in the United States in the long run?

Accepted Answer

A) Exchange rates will rise. 
B) Exchange rates will fall. 
C) Exchange rates will be unaffected by changes in the relative rate of productivity growth in the United States,both in the short run and in the long run. 
D) The exchange rate will be affected in the short run,but not in the long run. 
A) Exchange rates will rise. 
B) Exchange rates will fall. 
C) Exchange rates will be unaffected by changes in the relative rate of productivity growth in the United States,both in the short run and in the long run. 
D) The exchange rate will be affected in the short run,but not in the long run.

Question 15

The current exchange rate system in the United States is best described as a

Accepted Answer

A) silver standard. 
B) managed float exchange rate system. 
C) fixed exchange rate system. 
D) gold standard. 
A) silver standard. 
B) managed float exchange rate system. 
C) fixed exchange rate system. 
D) gold standard.

Question 16

If,at the current exchange rate between the dollar and the South African rand of 6.92 rand per dollar,the rand is "undervalued," how do you expect demand and supply in the foreign exchange markets to respond?

Accepted Answer

A) The demand for the dollar will fall,while the supply of the rand will rise. 
B) The demand for the dollar will rise,while the supply of the rand will fall. 
C) The supply of the dollar will rise,while the demand for the rand will rise. 
D) The supply of the dollar will rise,while the demand for the rand will fall. 
A) The demand for the dollar will fall,while the supply of the rand will rise. 
B) The demand for the dollar will rise,while the supply of the rand will fall. 
C) The supply of the dollar will rise,while the demand for the rand will rise. 
D) The supply of the dollar will rise,while the demand for the rand will fall.

Question 17

If the U.S.government removes tariffs it had placed on imports from countries that have been accused of deliberately undervaluing their currencies,the price of these imports will ________ and the demand for the undervalued currency will ________.

Accepted Answer

A) rise;rise 
B) rise;fall 
C) fall;rise 
D) fall;fall 
A) rise;rise 
B) rise;fall 
C) fall;rise 
D) fall;fall

Question 18

Figure 30-1  
-Refer to Figure 30-1.Which of the following would cause the change depicted in the figure above?

Accepted Answer

A) European productivity rises relative to American productivity. 
B) Americans increase their preferences for goods produced in the EU relative to American goods. 
C) The U.S.removes a quota on wristwatches from the European Union. 
D) The price level of goods produced in the EU increases relative to the price level of goods produced in the United States. 
A) European productivity rises relative to American productivity. 
B) Americans increase their preferences for goods produced in the EU relative to American goods. 
C) The U.S.removes a quota on wristwatches from the European Union. 
D) The price level of goods produced in the EU increases relative to the price level of goods produced in the United States.

Question 19

You are made better off in which of the following situations?

Accepted Answer

A) you borrow 10,000 pesos,you earn income in dollars,the dollar depreciates against the peso,you must pay back the loan in pesos 
B) you borrow $10,000,you earn income in pesos,the dollar depreciates against the peso,you must pay back the loan in dollars 
C) you borrow $10,000,you earn income in pesos,the dollar appreciates against the peso,you must pay back the loan in dollars 
D) you borrow 10,000 pesos,you earn income in pesos,the dollar depreciates against the peso,you must pay back the loan in pesos 
A) you borrow 10,000 pesos,you earn income in dollars,the dollar depreciates against the peso,you must pay back the loan in pesos 
B) you borrow $10,000,you earn income in pesos,the dollar depreciates against the peso,you must pay back the loan in dollars 
C) you borrow $10,000,you earn income in pesos,the dollar appreciates against the peso,you must pay back the loan in dollars 
D) you borrow 10,000 pesos,you earn income in pesos,the dollar depreciates against the peso,you must pay back the loan in pesos

Question 20

Pegging a country's exchange rate to the dollar can be advantageous if

Accepted Answer

A) the country does not trade much with the United States. 
B) investors believe the dollar to be more stable than the domestic country's currency. 
C) a country wishes to conduct independent monetary policy. 
D) imports are not a significant fraction of the goods the country's consumers buy. 
A) the country does not trade much with the United States. 
B) investors believe the dollar to be more stable than the domestic country's currency. 
C) a country wishes to conduct independent monetary policy. 
D) imports are not a significant fraction of the goods the country's consumers buy.

Exam 30: The International Financial System

Describe the four determinants of exchange rates in the long run.

When the value of a currency is determined mostly by demand and supply,but with occasional government intervention,the exchange rate system is defined as

Figure 30-7 -Refer to Figure 30-7.At what level should the Indian government peg its currency to the dollar to make U.S.imports cheaper in India?

The ________ in the United States is best described as a managed float exchange rate system.

All of the following actions were taken by the Thai government to help Thailand maintain its peg against the dollar in the 1990s except

What are the three main exchange rate systems,and how do they operate?

Which of the following did not help Thailand maintain its peg against the dollar in the 1990s?

If a country's currency ________ the dollar,its exchange rate is fixed.

China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan was ________ at the pegged exchange rate,the Chinese government increased its reserves of ________ as the government purchased more ________ to maintain the pegged exchange rate.

Figure 30-3 -Refer to Figure 30-3.At what level should the Thai government peg its currency to the dollar to make Thai exports cheaper to the United States?

Adoption of the euro as both a medium of exchange and unit of account in the EU countries serves to increase competition among European firms and decrease individual countries' monetary policy options when confronted by recessions and booms.

How will the exchange rate (foreign currency per dollar)respond to a decrease in the relative rate of productivity growth in the United States in the long run?

The current exchange rate system in the United States is best described as a

If,at the current exchange rate between the dollar and the South African rand of 6.92 rand per dollar,the rand is "undervalued," how do you expect demand and supply in the foreign exchange markets to respond?

If the U.S.government removes tariffs it had placed on imports from countries that have been accused of deliberately undervaluing their currencies,the price of these imports will ________ and the demand for the undervalued currency will ________.

Figure 30-1 -Refer to Figure 30-1.Which of the following would cause the change depicted in the figure above?

You are made better off in which of the following situations?

Pegging a country's exchange rate to the dollar can be advantageous if

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

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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

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Monopoly and Antitrust Policy

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Unemployment and Inflation

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Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

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Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

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China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan was at the pegged exchange rate,the Chinese government increased its reserves of as the government purchased more to maintain the pegged exchange rate.

If the U.S.government removes tariffs it had placed on imports from countries that have been accused of deliberately undervaluing their currencies,the price of these imports will and the demand for the undervalued currency will .