Question 1

Assume that Tom sells a crate of Florida oranges to a retailer in Canada and Susan sells a U.S. bond to a customer in Britain. Which statement illustrates the difference and/or similarity between these two transactions?

Accepted Answer

A)  Only Tom will actually receive U.S. dollars as a result of this transaction. 
B)  The sale of the bond generates a liability, while the sale of the oranges does not. 
C)  Both sales generate an asset for the United States. 
D)  Both sales generate a liability for the United States.

Question 2

A major drawback of a floating exchange rate is the:

Accepted Answer

A)  opportunity cost associated with the accumulation of foreign exchange reserves. 
B)  uncertainty about the value of goods traded internationally. 
C)  increased discipline on monetary policy. 
D)  distorted incentives for the normal flow of imports and exports.

Question 3

The Bretton Woods monetary system:

Accepted Answer

A)  was abandoned by the United States in 1996. 
B)  broke down in 1971. 
C)  was abandoned by the United States, but the dollar is still backed by gold. 
D)  remains in effect today.

Question 4

When the interest rate in the United States decreases as a result of expansionary monetary policy, investment spending _____ and consumption _____ .

Accepted Answer

A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  decreases; decreases

Question 5

When the Mexican government changes the fixed rate of pesos per U.S. dollar from 1.5 to 3.0, the peso is _____. When the equilibrium exchange rate of U.S. dollars per euro changes from 1.15 to 1.30, the euro is _____.

Accepted Answer

A)  revaluated; appreciated 
B)  appreciated; devaluated 
C)  devaluated; appreciated 
D)  appreciated; revaluated

Question 6

Scenario: Purchasing Power Parity A car costs $30,000 in the United States and the exchange rate is $1 = £0.50. The same car costs £12,000 in Britain. For there to be purchasing power parity, the nominal exchange rate for the dollar must be:

Accepted Answer

A)  £2. 
B)  £1.25. 
C)  £1. 
D)  £0.40.

Question 7

A fixed exchange rate: I. makes monetary policy less effective for domestic stabilization.
II) is more expensive to maintain than a fixed exchange rate.
III) reduces uncertainty in international trade.

Accepted Answer

A)  I only 
B)  II only 
C)  III only 
D)  I, II, and III

Question 8

The difference between GDP and GNP is that:

Accepted Answer

A)  GNP includes international factor income. 
B)  GDP includes international factor income. 
C)  GNP includes the money supply. 
D)  GDP includes the money supply.

Question 9

The underlying motives behind capital flows reflect international differences in:

Accepted Answer

A)  savings. 
B)  investment opportunities. 
C)  technology. 
D)  both savings and investment opportunities.

Question 10

An increase in the value of a fixed rate currency is called a revaluation.

Accepted Answer

A) True 
 B)False

Question 11

If the United States exports $100 billion of goods and services and imports $150 billion of goods and services and there is no other factor income or transfers, the balance on the financial account is:

Accepted Answer

A)  $250 billion. 
B)  -$250 billion. 
C)  $50 billion. 
D)  -$50 billion.

Question 12

If the equilibrium exchange rate is above the target rate, the government should: I. buy its domestic currency in foreign exchange markets.
II) engage in expansionary monetary policy.
III) restrict the purchase of foreign currencies.

Accepted Answer

A)  I only 
B)  II only 
C)  III only 
D)  I, II, and III

Question 13

The 1944 Bretton Woods agreement established a system of fixed exchange rates among major currencies.

Accepted Answer

A) True 
 B)False

Question 14

A hamburger costs $8 in the United States and ¥960 in Japan. The nominal exchange rate is ¥110 per dollar. The inflation rates in the United States and in Japan are 2% and 4%, respectively. The purchasing power parity is _____ per dollar.

Accepted Answer

A)  ¥110 
B)  ¥120 
C)  ¥125 
D)  ¥112

Question 15

If the target exchange rate of a fixed currency is above the equilibrium exchange rate, to reach the target rate, the government should sell that currency and buy foreign currencies.

Accepted Answer

A) True 
 B)False

Question 16

When the U.S. dollar price of a foreign currency rises:

Accepted Answer

A)  it becomes cheaper for foreigners to buy U.S. goods. 
B)  it becomes cheaper to buy foreign goods in the United States. 
C)  foreign goods go down in price. 
D)  we need fewer dollars to buy the foreign currency.

Question 17

A reduction in the value of a fixed rate currency is called a depreciation.

Accepted Answer

A) True 
 B)False

Question 18

After a revaluation, all other things equal, probably exports will increase and imports will decrease.

Accepted Answer

A) True 
 B)False

Question 19

All other things being equal, if the economy of Europe expands rapidly and this increases tourism dramatically in the United States, the:

Accepted Answer

A)  euro will appreciate. 
B)  U.S. dollar will appreciate. 
C)  demand for the dollar will fall. 
D)  supply of the euro will fall.

Question 20

From early 2014 to early 2016 the dollar rose about _____% on average.

Accepted Answer

A)  5 
B)  10 
C)  15 
D)  20

Exam 18: International Macroeconomics

Assume that Tom sells a crate of Florida oranges to a retailer in Canada and Susan sells a U.S. bond to a customer in Britain. Which statement illustrates the difference and/or similarity between these two transactions?

A major drawback of a floating exchange rate is the:

The Bretton Woods monetary system:

When the interest rate in the United States decreases as a result of expansionary monetary policy, investment spending _ and consumption _ .

When the Mexican government changes the fixed rate of pesos per U.S. dollar from 1.5 to 3.0, the peso is _. When the equilibrium exchange rate of U.S. dollars per euro changes from 1.15 to 1.30, the euro is _.

Scenario: Purchasing Power Parity A car costs $30,000 in the United States and the exchange rate is $1 = £0.50. The same car costs £12,000 in Britain. For there to be purchasing power parity, the nominal exchange rate for the dollar must be:

A fixed exchange rate: I. makes monetary policy less effective for domestic stabilization. II) is more expensive to maintain than a fixed exchange rate. III) reduces uncertainty in international trade.

The difference between GDP and GNP is that:

The underlying motives behind capital flows reflect international differences in:

An increase in the value of a fixed rate currency is called a revaluation.

If the United States exports $100 billion of goods and services and imports $150 billion of goods and services and there is no other factor income or transfers, the balance on the financial account is:

If the equilibrium exchange rate is above the target rate, the government should: I. buy its domestic currency in foreign exchange markets. II) engage in expansionary monetary policy. III) restrict the purchase of foreign currencies.

The 1944 Bretton Woods agreement established a system of fixed exchange rates among major currencies.

A hamburger costs $8 in the United States and ¥960 in Japan. The nominal exchange rate is ¥110 per dollar. The inflation rates in the United States and in Japan are 2% and 4%, respectively. The purchasing power parity is _____ per dollar.

If the target exchange rate of a fixed currency is above the equilibrium exchange rate, to reach the target rate, the government should sell that currency and buy foreign currencies.

When the U.S. dollar price of a foreign currency rises:

A reduction in the value of a fixed rate currency is called a depreciation.

After a revaluation, all other things equal, probably exports will increase and imports will decrease.

All other things being equal, if the economy of Europe expands rapidly and this increases tourism dramatically in the United States, the:

From early 2014 to early 2016 the dollar rose about _____% on average.