Question 1

A depreciation of a country's currency always lowers the domestic firm's profits.

Accepted Answer

A) True 
 B)False

Question 2

If two countries adhere to a gold standard,the exchange rate for their currencies is fixed.

Accepted Answer

A) True 
 B)False

Question 3

If interest rates in the United States rise,

Accepted Answer

A) the value of the dollar will fall as foreign investors sell their U.S.investments. 
B) the value of the dollar will rise as the foreign investors increase their holdings of U.S.investments. 
C) the value of the dollar will fall as foreign investors increase their holdings of U.S.investments. 
D) the value of the dollar will rise as foreign investors sell their U.S.investments. 
A) the value of the dollar will fall as foreign investors sell their U.S.investments. 
B) the value of the dollar will rise as the foreign investors increase their holdings of U.S.investments. 
C) the value of the dollar will fall as foreign investors increase their holdings of U.S.investments. 
D) the value of the dollar will rise as foreign investors sell their U.S.investments.

Question 4

Figure 19-11  
-Refer to Figure 19-11.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 5

Figure 19-2  
-Refer to Figure 19-2.Which of the following would cause the change depicted in the figure above?

Accepted Answer

A) Lack of investment in infrastructure causes U.S.productivity to fall relative to Chinese productivity. 
B) Tainted cat food from China causes U.S.consumers to decrease their preferences for Chinese goods relative to U.S.goods. 
C) A new trade agreement with China results in the United States removing all tariffs on clothing imported from China. 
D) The Chinese increase their preferences for goods produced in the United States. 
A) Lack of investment in infrastructure causes U.S.productivity to fall relative to Chinese productivity. 
B) Tainted cat food from China causes U.S.consumers to decrease their preferences for Chinese goods relative to U.S.goods. 
C) A new trade agreement with China results in the United States removing all tariffs on clothing imported from China. 
D) The Chinese increase their preferences for goods produced in the United States.

Question 6

If interest rates in the United States fall,

Accepted Answer

A) the value of the dollar will fall as foreign investors decrease their holdings of U.S.investments. 
B) the value of the dollar will rise as foreign investors increase their holdings of U.S.investments. 
C) the value of the dollar will fall as foreign investors increase their holdings of U.S.investments. 
D) the value of the dollar will rise as foreign investors decrease their holdings of U.S.investments. 
A) the value of the dollar will fall as foreign investors decrease their holdings of U.S.investments. 
B) the value of the dollar will rise as foreign investors increase their holdings of U.S.investments. 
C) the value of the dollar will fall as foreign investors increase their holdings of U.S.investments. 
D) the value of the dollar will rise as foreign investors decrease their holdings of U.S.investments.

Question 7

How will the exchange rate (foreign currency per dollar)respond to an increase in preference for imported goods 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 8

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 9

The Danish currency,the krone,is pegged to the euro at a rate of 7.46 kroner (kroner is the plural of krone)to the euro.At the pegged exchange rate,how many euros would be exchanged for one krone?

Accepted Answer

A) 0.07 
B) 0.13 
C) 1.76 
D) 7.46 
A) 0.07 
B) 0.13 
C) 1.76 
D) 7.46

Question 10

Compared to a situation in which there is no change in the value of the dollar relative to the peso,in which of the following situations would you be worse off?

Accepted Answer

A) you borrow 10,000 pesos,you earn income in dollars,the dollar appreciates 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 appreciates 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 11

Under pressure from Japan,the United States,and Europe,China announced it switched from pegging the yuan against the dollar to linking the value of the yuan to a 'basket' of currencies.The result of this change was

Accepted Answer

A) the value of the yuan increased slightly relative to the dollar. 
B) the value of the yuan has become very responsive to changes in demand and supply in the foreign currency market. 
C) the value of the yuan has increased dramatically and is beginning to remove the trade imbalance between the United States and China. 
D) the value of the yuan has decreased dramatically and has further spurred Chinese exports. 
A) the value of the yuan increased slightly relative to the dollar. 
B) the value of the yuan has become very responsive to changes in demand and supply in the foreign currency market. 
C) the value of the yuan has increased dramatically and is beginning to remove the trade imbalance between the United States and China. 
D) the value of the yuan has decreased dramatically and has further spurred Chinese exports.

Question 12

Increasing a fixed exchange rate is called a revaluation.

Accepted Answer

A) True 
 B)False

Question 13

The "Big Mac Theory of Exchange Rates" tests the accuracy of the 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,explain how it would be profitable to buy Big Macs in Mexico instead of in the United States.

Accepted Answer

If a Big Mac costs $4.79 in the United S

Question 14

Countries that abandoned the gold standard early in the Great Depression suffered an average decline in production of 3 percent between 1929 and 1934.Countries that stayed on the gold standard until 1933 or later suffered an average decline in production of

Accepted Answer

A) 12 percent. 
B) 18 percent. 
C) 24 percent. 
D) > 30 percent. 
A) 12 percent. 
B) 18 percent. 
C) 24 percent. 
D) > 30 percent.

Question 15

If the purchasing power of a dollar is greater than the purchasing power of the yen,purchasing power parity would predict that

Accepted Answer

A) in the short run,exchange rates will move to equalize the purchasing power of the dollar and the yen. 
B) in the long run,exchange rates will move to equalize the purchasing power of the dollar and the yen. 
C) in the long run,interest rates will move to equalize the purchasing power of the dollar and the yen. 
D) in the short run,interest rates will move to equalize the purchasing power of the dollar and the yen. 
A) in the short run,exchange rates will move to equalize the purchasing power of the dollar and the yen. 
B) in the long run,exchange rates will move to equalize the purchasing power of the dollar and the yen. 
C) in the long run,interest rates will move to equalize the purchasing power of the dollar and the yen. 
D) in the short run,interest rates will move to equalize the purchasing power of the dollar and the yen.

Question 16

Should European nations which are not currently using the euro choose to adopt the euro as their currency,these countries would risk giving up the ability to use ________ to stabilize their economies in the event of a recession.

Accepted Answer

A) expansionary fiscal policy 
B) contractionary fiscal policy 
C) expansionary monetary policy 
D) contractionary monetary policy 
A) expansionary fiscal policy 
B) contractionary fiscal policy 
C) expansionary monetary policy 
D) contractionary monetary policy

Question 17

The current exchange rate system has which of the following characteristics?

Accepted Answer

A) The United States allows the dollar to float against other major currencies. 
B) All developing countries allow their currencies to float against the dollar and other major currencies. 
C) The countries of the European Union have adopted the gold standard. 
D) Several developing countries in Asia have adopted the Bretton Woods system. 
E) The current global foreign exchange system is a fixed system. 
A) The United States allows the dollar to float against other major currencies. 
B) All developing countries allow their currencies to float against the dollar and other major currencies. 
C) The countries of the European Union have adopted the gold standard. 
D) Several developing countries in Asia have adopted the Bretton Woods system. 
E) The current global foreign exchange system is a fixed system.

Question 18

In order to reduce or eliminate a chronic shortage in the market for a currency under a fixed exchange rate system,we must devalue the currency.

Accepted Answer

A) True 
 B)False

Question 19

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 20

All of the following are considered among the four most important determinants in explaining exchange rate fluctuations in the long run except

Accepted Answer

A) tariffs and quotas. 
B) preferences for domestic and foreign goods. 
C) interest rates. 
D) relative rates of productivity growth across countries. 
A) tariffs and quotas. 
B) preferences for domestic and foreign goods. 
C) interest rates. 
D) relative rates of productivity growth across countries.

A depreciation of a country's currency always lowers the domestic firm's profits.

If two countries adhere to a gold standard,the exchange rate for their currencies is fixed.

If interest rates in the United States rise,

Figure 19-11 -Refer to Figure 19-11.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 19-2 -Refer to Figure 19-2.Which of the following would cause the change depicted in the figure above?

If interest rates in the United States fall,

How will the exchange rate (foreign currency per dollar)respond to an increase in preference for imported goods in the United States in the long run?

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

The Danish currency,the krone,is pegged to the euro at a rate of 7.46 kroner (kroner is the plural of krone)to the euro.At the pegged exchange rate,how many euros would be exchanged for one krone?

Compared to a situation in which there is no change in the value of the dollar relative to the peso,in which of the following situations would you be worse off?

Under pressure from Japan,the United States,and Europe,China announced it switched from pegging the yuan against the dollar to linking the value of the yuan to a 'basket' of currencies.The result of this change was

Increasing a fixed exchange rate is called a revaluation.

Countries that abandoned the gold standard early in the Great Depression suffered an average decline in production of 3 percent between 1929 and 1934.Countries that stayed on the gold standard until 1933 or later suffered an average decline in production of

If the purchasing power of a dollar is greater than the purchasing power of the yen,purchasing power parity would predict that

Should European nations which are not currently using the euro choose to adopt the euro as their currency,these countries would risk giving up the ability to use ________ to stabilize their economies in the event of a recession.

The current exchange rate system has which of the following characteristics?

In order to reduce or eliminate a chronic shortage in the market for a currency under a fixed exchange rate system,we must devalue the currency.

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

All of the following are considered among the four most important determinants in explaining exchange rate fluctuations in the long run except

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

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

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

Exam 19: The International Financial System

A depreciation of a country's currency always lowers the domestic firm's profits.

If two countries adhere to a gold standard,the exchange rate for their currencies is fixed.

If interest rates in the United States rise,

Figure 19-11 -Refer to Figure 19-11.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 19-2 -Refer to Figure 19-2.Which of the following would cause the change depicted in the figure above?

If interest rates in the United States fall,

How will the exchange rate (foreign currency per dollar)respond to an increase in preference for imported goods in the United States in the long run?

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

The Danish currency,the krone,is pegged to the euro at a rate of 7.46 kroner (kroner is the plural of krone)to the euro.At the pegged exchange rate,how many euros would be exchanged for one krone?

Compared to a situation in which there is no change in the value of the dollar relative to the peso,in which of the following situations would you be worse off?

Under pressure from Japan,the United States,and Europe,China announced it switched from pegging the yuan against the dollar to linking the value of the yuan to a 'basket' of currencies.The result of this change was

Increasing a fixed exchange rate is called a revaluation.

Countries that abandoned the gold standard early in the Great Depression suffered an average decline in production of 3 percent between 1929 and 1934.Countries that stayed on the gold standard until 1933 or later suffered an average decline in production of

If the purchasing power of a dollar is greater than the purchasing power of the yen,purchasing power parity would predict that

Should European nations which are not currently using the euro choose to adopt the euro as their currency,these countries would risk giving up the ability to use ________ to stabilize their economies in the event of a recession.

The current exchange rate system has which of the following characteristics?

In order to reduce or eliminate a chronic shortage in the market for a currency under a fixed exchange rate system,we must devalue the currency.

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

All of the following are considered among the four most important determinants in explaining exchange rate fluctuations in the long run except

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

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

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

Figure 19-11 -Refer to Figure 19-11.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.