Question 1

The Big Mac index is a measure of how well the purchasing power parity theory works.

Accepted Answer

A) True 
 B)False

Question 2

If exchange rates are determined in a floating rate system, what determines the value of a U.S. dollar in terms of euros?

Accepted Answer

A)  Government exchange rate policies 
B)  IMF rules and policies 
C)  Demand and supply 
D)  Central bank interventions

Question 3

To try and stave off a devaluation of its fixed currency, Argentina was required to

Accepted Answer

A)  lower interest rates. 
B)  reduce tax levels. 
C)  increase its money supplies. 
D)  increase interest rates.

Question 4

On May 12, 2011, it cost U.S. $1.44 to buy 1 euro. How many euros would U.S. $1 buy?

Accepted Answer

A)  0.69 
B)  1.44 
C)  1.69 
D)  2.44

Question 5

An economic boom in the United States will tend to cause booms in other countries because as U.S. GDP rises, U.S.

Accepted Answer

A)  tariffs will automatically fall. 
B)  exports will rise. 
C)  imports will rise. 
D)  exports will fall.

Question 6

Figure 19-2

Of the graphs in Figure 19-2, which one shows the effect of an increase in interest rates in Japan?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4

Question 7

The recent experiences in Greece, Portugal, and Ireland make the euro

Accepted Answer

A)  seem very unlikely to fail because of decreasing debt levels. 
B)  seem very unlikely to fail because of increasing interest rates. 
C)  seem somewhat likely to fail because of increasing debt levels. 
D)  seem somewhat likely to fail because of increasing interest rates.

Question 8

One disadvantage of the gold standard was that no nation had control of its domestic monetary policies.

Accepted Answer

A) True 
 B)False

Question 9

The demand for euros would come from

Accepted Answer

A)  American exports to Europe. 
B)  European demand for U.S. government bonds. 
C)  American demand for European real estate. 
D)  All of the above are correct.

Question 10

If the dollar depreciates , it can be said that

Accepted Answer

A)  foreign countries no longer respect the United States. 
B)  it falls in value within the United States. 
C)  it takes fewer dollars to buy foreign currencies. 
D)  other currencies appreciate.

Question 11

It presently costs 50 Canadian dollars for a lift ticket at Whistler Ski Resort in British Columbia. If the current value of the Canadian dollar is 0.68 U.S. dollars, how many U.S. dollars does it cost to ski at Whistler?

Accepted Answer

A)  $16.00 
B)  $34.00 
C)  $73.50 
D)  $156.25

Question 12

Under the gold standard,

Accepted Answer

A)  each nation had discretion over its monetary policy. 
B)  trade-deficit nations had less control over their money supply than trade-surplus nations. 
C)  trade-surplus nations had less control over their money supply than trade-deficit nations. 
D)  no nation had control over its domestic monetary policy.

Question 13

Balance of payments surpluses arise whenever the exchange rate is pegged at an artificially low level.

Accepted Answer

A) True 
 B)False

Question 14

Who among the following is most likely to favor an appreciation of the U.S. dollar?

Accepted Answer

A)  A German professor visiting Chicago 
B)  An American farmer who depends on exports 
C)  An American professor on a tour of Austrian universities 
D)  Disney World in Orlando, Florida, a popular destination for foreign tourists

Question 15

After being introduced in 1999, the euro

Accepted Answer

A)  increased in value through 2008. 
B)  decreased in value through 2008. 
C)  increased in value through 2000 but then decreased in value through 2008. 
D)  decreased in value through 2000 but then increased in value through 2008.

Question 16

If Americans decide to buy more South African diamonds, what is the effect in the foreign market?

Accepted Answer

A)  It will increase demand for U.S. dollars. 
B)  It will decrease demand for U.S. dollars. 
C)  It will increase supply of U.S. dollars. 
D)  It will decrease supply of U.S. dollars.

Question 17

Exchange rates in what is termed the "medium run"

Accepted Answer

A)  will be altered by an economic upswing because consumers buy more goods including imports when disposable income goes up. 
B)  will be unaffected by economic changes in personal income or consumption spending. 
C)  will appreciate for a country having an economic boom when others are not. 
D)  All of the above are correct.

Question 18

The currency value of Agraria is set by government decree. Which of the following happens when the government alters the exchange rate so that its currency can buy more units of foreign currency?

Accepted Answer

A)  Reflation 
B)  Devaluation 
C)  Appreciation 
D)  Revaluation

Question 19

If the U.S. purchases oil from Venezuela, what is the effect in the foreign-exchange market?

Accepted Answer

A)  It will increase demand for U.S. dollars. 
B)  It will decrease demand for U.S. dollars. 
C)  It will increase supply of U.S. dollars. 
D)  It will decrease supply of U.S. dollars.

Question 20

Suppose a Lexus LS400 and a Mercedes C300 are considered to be of equivalent value. The Lexus sells for 6,000,000 Japanese yen in Tokyo and the Mercedes sells for 50,000 euros in Stuttgart. Using the purchasing power parity theory, explain the exchange rate between the yen and the euro.

Accepted Answer

The answer of Suppose a Lexus LS400 and a Mercedes...

Exam 35: The International Monetary System: Order or Disorder

The Big Mac index is a measure of how well the purchasing power parity theory works.

If exchange rates are determined in a floating rate system, what determines the value of a U.S. dollar in terms of euros?

To try and stave off a devaluation of its fixed currency, Argentina was required to

On May 12, 2011, it cost U.S. $1.44 to buy 1 euro. How many euros would U.S. $1 buy?

An economic boom in the United States will tend to cause booms in other countries because as U.S. GDP rises, U.S.

Figure 19-2 Of the graphs in Figure 19-2, which one shows the effect of an increase in interest rates in Japan?

The recent experiences in Greece, Portugal, and Ireland make the euro

One disadvantage of the gold standard was that no nation had control of its domestic monetary policies.

The demand for euros would come from

If the dollar depreciates , it can be said that

It presently costs 50 Canadian dollars for a lift ticket at Whistler Ski Resort in British Columbia. If the current value of the Canadian dollar is 0.68 U.S. dollars, how many U.S. dollars does it cost to ski at Whistler?

Under the gold standard,

Balance of payments surpluses arise whenever the exchange rate is pegged at an artificially low level.

Who among the following is most likely to favor an appreciation of the U.S. dollar?

After being introduced in 1999, the euro

If Americans decide to buy more South African diamonds, what is the effect in the foreign market?

Exchange rates in what is termed the "medium run"

The currency value of Agraria is set by government decree. Which of the following happens when the government alters the exchange rate so that its currency can buy more units of foreign currency?

If the U.S. purchases oil from Venezuela, what is the effect in the foreign-exchange market?

Suppose a Lexus LS400 and a Mercedes C300 are considered to be of equivalent value. The Lexus sells for 6,000,000 Japanese yen in Tokyo and the Mercedes sells for 50,000 euros in Stuttgart. Using the purchasing power parity theory, explain the exchange rate between the yen and the euro.