41–41
(1)
(2)
(3)
Quantity of Libras
Demanded (Billions)
Dollar
Price of
Libras
Quantity of Libras
Supplied (Billions)
100
$5
325
200
4
200
300
3
100
400
2
75
The table indicates the dollar price of libras, the currency used in the hypothetical nation of
Libra. Assume that a system of freely floating exchange rates is in place. The equilibrium dollar
price of libras is
79.
(1)
(2)
(3)
Quantity of Libras
Demanded
(Billions)
Dollar
Price of
Libras
Quantity of
Libras Supplied
(Billions)
100
$5
325
200
4
200
300
3
100
400
2
75
The table indicates the dollar price of libras, the currency used in the hypothetical nation of
Libra. Assume that a system of freely floating exchange rates is in place. The exchange rate is
41–42
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A. 4 libras for one dollar.
B. 0.25 libra for one dollar.
C.
0.40 libra for one dollar.
D.
3 libras for one dollar.
80.
(1)
(2)
(3)
Quantity of Libras
Demanded
(Billions)
Dollar
Price of
Libras
Quantity of
Libras Supplied
(Billions)
100
$5
325
200
4
200
300
3
100
400
2
75
The table indicates the dollar price of libras, the currency used in the hypothetical nation of
Libra. Assume that a system of freely floating exchange rates is in place. Suppose that Libra
decided to import more U.S. products. We would expect the quantity of libras
81.
In 1985, the exchange rate between the U.S. dollar and the Japanese yen was $1 = 262 yen;
in 2003, the rate was $1 = 110 yen. Between 1985 and 2003, the
82.
In 1985, the exchange rate between the U.S. dollar and the Japanese yen was $1 = 262 yen;
in 2003, the rate was $1 = 110 yen. Which one of the following might be a plausible explanation
for the change in the dollar-yen exchange rate from 1985 to 2003?
83.
Under a system of flexible exchange rates, an increase in the international value of a nation‘s
currency will
84.
According to the purchasing power parity theory of exchange rates,
85.
The idea that freely floating exchange rates equate the buying power of national currencies is
called
86.
Assume that Japan and South Korea have flexible exchange rates. Other things equal, if
economic growth is more rapid in Japan than in South Korea,
87.
Assume that Brazil and Mexico have floating exchange rates. Other things unchanged, if the
price level is stable in Mexico, but Brazil experiences rapid inflation,
88.
Assume that Switzerland and Britain have floating exchange rates. Other things unchanged, if
a tight money policy raises interest rates in Britain as compared to Switzerland,
41–46
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Acc e s sibi l ity: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 41–03 Discuss how exchange rates are determined in currency markets
that have flexible exchange rates.
Test Bank: I
T o p i c : Flexible Exchange Rates
89.
Refer to the diagram, where D and S are the United States’ demand for and supply of Swiss
francs. At the equilibrium exchange rate, E, the United States’ balance of payments is in
equilibrium. A shift of the demand curve to D’ might be the result of
90.
Refer to the diagram, where D and S are the United States’ demand for and supply of Swiss
francs. At the equilibrium exchange rate, E, the United States’ balance of payments is in
equilibrium. Given a change in demand from D to D’, the United States could maintain the dollar
price of Swiss francs by
91.
Refer to the diagram, where D and S are the United States’ demand for and supply of Swiss
francs. At the equilibrium exchange rate, E, the United States’ balance of payments is in
equilibrium. Under a system of flexible exchange rates, the shift in demand from D to D’ will
92.
Refer to the diagram, where D and S are the United States’ demand for and supply of Swiss
francs. At the equilibrium exchange rate, E, the United States’ balance of payments is in
equilibrium. Under a system of fixed exchange rates, the shift in demand from D to D’ will cause
93.
If the United States has full employment and the dollar dramatically depreciates in value, we
can expect (other things equal)
41–50
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 41–03 Discuss how exchange rates are determined in currency markets
that have flexible exchange rates.
Test Bank: I
T o p i c : Flexible Exchange Rates
94.
Suppose interest rates fall sharply in the United States but are unchanged in Great Britain.
Other things equal, under a system of freely floating exchange rates, we can expect the demand
for pounds in the United States to
95.
Assume that, under a system of floating exchange rates, Mexicans decide to increase their
investments in the United States. As a result,
96.
Which of the following problems will most likely occur with a system of flexible exchange
rates?
97.
Refer to the diagram. The initial demand for and supply of pesos are shown by D1 and S1.
Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos
from D1 to D2. If the United States was operating under a fixed exchange rate system, the U.S.
government would
41–52
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Difficulty: 02 Medium
Learning Objective: 41-04 Describe the differences between flexible and fixed exchange rates,
including how changes in foreign exchange reserves bring about automatic changes in the
domestic money supply under a fixed exchange rate.
Test Bank: I
T o p i c : Fixed Exchange Rates
Type: Graph
98.
Refer to the diagram, where D and S are the United States’ demand for and supply of Swiss
francs. At the equilibrium exchange rate, E, the United States’ balance of payments is in
equilibrium. Under a system of fixed exchange rates, the shift in demand from D to D’ will
require the United States to
99.
If the United States decided to fix its exchange rate with Japan, this would
100.
The official reserves of a nation’s central bank include
101.
Refer to the diagram. The initial demand for and supply of pesos are shown by D1 and S1.
Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos
from D1 to D2. If the United States was operating under a fixed exchange rate system, the U.S.
government would
have to
102.
Suppose that the United States decides to fix the dollar-euro exchange rate. If the U.S.
central bank observes that the quantity supplied of euros exceeds the quantity demanded of
euros at the fixed exchange rate, to maintain the exchange rate, the U.S. central bank will
103.
If the United States experiences an increase in foreign exchange reserves,
104.
Suppose that the United States fixes the dollar-pound exchange rate. In the process of
maintaining the fixed exchange rate, if the U.S. central bank starts to realize reduced reserves of
pounds, this suggests that
41–56
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Test Bank: I
T o p i c : Fixed Exchange Rates
105.
Suppose that the United States fixes the dollar-pound exchange rate. In the process of
maintaining the fixed exchange rate, the U.S. central bank regularly finds itself in a position of
having to increase its reserves of pounds. Based on this, we could conclude that
106.
A central bank engaging in sterilization is attempting to
107.
Suppose that a central bank that fixes its exchange rate against other currencies is facing a
regular increase of foreign exchange reserves. To offset unwanted changes in the domestic
money supply, the central bank could
108.
In saying that the present system of floating exchange rates is managed, we mean that
109.
The exchange rate system currently used by the industrially advanced nations is
41–58
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Acc e s sibi l ity: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 41–05 Explain the current system of managed floating exchange rates.
Test Bank: I
T o p i c : The Current Exchange Rate System: The Managed Float
110.
Under the managed floating system of exchange rates,
111.
A government may be able to reduce the international value of its currency by
112.
The current system of exchange rates can best be described as
41–59
113.
Which of the following lists of exchange-rate systems is arranged in proper historical order,
from earliest to most current?
114.
When a government buys or sells foreign exchange in the foreign exchange market in order
to alter the supply or demand for currency and push the exchange rate in a desired direction, this
is known as
115.
Suppose that the economically largest nations collectively decided that the dollar is too
strong (high in value) relative to the yen. These nations might
116.
When it is reported that a nation is experiencing a “balance of payments deficit,” this is best
interpreted to mean that the nation is experiencing
117.
In recent years, the United States has had large