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254.
Assume that U.S. and European governments adopt a system of flexible exchange rates. The
figure shows the market for euros. If more people in Europe decide to purchase U.S. cars, what
effect will this have on the market for euros?
255.
Assume that U.S. and European governments adopt a system of flexible exchange rates. The
figure shows the market for euros. One U.S. dollar will purchase how many euros?
256.
Assume that U.S. and European governments adopt a system of flexible exchange rates. The
figure shows the market for euros. If currency traders think the European economy will
experience a recession and the U.S. economy will not, then this event will most likely cause the
257.
With flexible exchange rates, an increase in U.S. interest rates can be expected to
41-124
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Acc e s si b i lity : 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: II
T o p ic : Flexible Exchange Rates
258.
Which is not a serious disadvantage associated with freely fluctuating exchange rates?
259.
To maintain a fixed exchange rate, the government can use the following tools, except
260.
Fixed exchange rates are often maintained by using all of the following tools except
41-125
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
B.
international monetary reserves held by central banks.
C.
controls on imports and exports, such as tariffs and quotas.
D.
domestic macroeconomic adjustments using monetary and fiscal policies.
261.
Suppose that the Mexican government decides to fix or peg the dollar-peso exchange rate at
P20 = $1. If foreign-exchange traders on one day want to exchange P40 million for dollars, to
enforce the peg the Mexican government will need to come up with
262.
Suppose that the Mexican government decides to fix or peg the dollar-peso exchange rate at
P20 = $1. If foreign-exchange traders on one day want to exchange $60 million for pesos, to
enforce the peg the Mexican government will need to come up with
41-126
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: 41-04 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: II
T o p ic : Fixed Exchange Rates
263.
Suppose that Econland has a fixed exchange-rate system. Econland’s government (its
central bank) will exchange as much local currency (say pesos) for foreign currency (say
dollars) and as much foreign currency (say dollars) for local currency (say pesos) as is
necessary to maintain the peg. Which
of the following statements is not true?
264.
Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso
to the U.S. dollar. If people’s demand for pesos increases in the foreign exchange markets, then
Econland’s foreign-exchange reserves will
41-127
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Diffi culty: 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: II
T o p ic : Fixed Exchange Rates
265.
Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso
to the U.S. dollar. If Econlanders’ demand for dollars increases in the foreign exchange markets,
then Econland’s foreign-exchange reserves will
266.
Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso
to the U.S. dollar. Which of the following statements is true?
41-128
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
domestic money supply under a fixed exchange rate.
Test Bank: II
T o p ic : Fixed Exchange Rates
267.
The graph shows the supply and demand curves for dollars in the pound/dollar market. Assume
that D1 and S1 are the initial demand for and supply of dollars. The exchange rate will be
268.
The graph shows the supply and demand curves for dollars in the pound/dollar market. Assume
that D1 and S1 are the initial demand for and supply of dollars. Now suppose that Great Britain
increases its imports of American products. Assuming freely floating exchange rates,
269.
The graph shows the supply and demand curves for dollars in the pound/dollar market. Assume
that D1 and S1 are the initial demand for and supply of dollars. Suppose that Britain's demand
for dollars increases from D1 to D2. If the British government wishes to fix the exchange rate at
the initial level,
then it would be faced with a problem of
270.
The graph shows the supply and demand curves for dollars in the pound/dollar market. Assume
that D1 and S1 are the initial demand for and supply of dollars. Suppose that Britain's demand
for dollars increases from D1 to D2. If the British government wishes to fix the exchange rate at
the initial level,
one possible way to do this is for the government to
271.
Refer to the graph, which shows the supply and demand for British pounds. D1 and S1 represent
the initial demand and supply curves. What will be the new market equilibrium point as
indicated in the graph if there is an increase in consumer spending by the British for American
products and a
decrease in consumer spending by Americans for British products?
272.
Refer to the graph, which shows the supply and demand for British pounds. D1 and S1 represent
the initial demand and supply curves. If there is a large increase in the number of American
tourists visiting Britain because of a major event like the Olympics or the World Cup, then what
should the British
government do if it wants to fix the exchange rate at its initial level?
273.
Refer to the graph, which shows the supply and demand for British pounds. D1 and S1 represent
the initial demand and supply curves. If the supply of British pounds in the foreign exchange
market shifts to S3, and the British government wants to fix the exchange rate at its initial level,
then it should
41-135
274.
Refer to the graph, which shows the supply and demand for British pounds. D1 and S1 represent
the initial demand and supply curves. If there is a huge increase in the desire of U.S. buyers to
consume UK products, and the British government starts buying U.S. dollars in order to fix the
exchange rate at
the initial level, then the new equilibrium will be at point
275.
Which statement is true of a world with a system of fixed exchange rates as opposed to one
with floating rates?
41-136
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
C.
It facilitates the transmission of shifts in economic conditions between countries.
D. It increases the role of the central banks in foreign exchange markets.
276.
Refer to the graph, which shows a change in the demand for pounds from D to D'. Under a
system of flexible exchange rates, the
41-137
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
including how changes in foreign exchange reserves bring about automatic changes in the
domestic money supply under a fixed exchange rate.
Test Bank: II
T o p ic : Fixed Exchange Rates
Type: Graph
277.
Refer to the graph, which shows a change in the demand for pounds from D to D'. Under a
system of fixed exchange rates, the
278.
Quantity of Euros
Supplied
Price
Quantity of Euros
Demanded
400
$1.10
100
360
1.00
200
300
0.90
300
286
0.80
400
287
0.70
500
The table shows the supply and demand schedules for the European euro. Under a flexible
exchange-rate system, what will be the rate of exchange for one euro?
279.
Quantity of Euros
Supplied
Price
Quantity of Euros
Demanded
400
$1.10
100
360
1.00
200
300
0.90
300
286
0.80
400
287
0.70
500
The table shows the supply and demand schedules for the European euro. Under a flexible
exchange-rate system, what will be the euro rate of exchange for one U.S. dollar?
41-139
280.
Quantity of Euros
Supplied
Price
Quantity of Euros
Demanded
400
$1.10
100
360
1.00
200
300
0.90
300
286
0.80
400
287
0.70
500
The table shows the supply and demand schedules for the European euro. If the U.S. government
decided to fix or peg the price of the euro at $1.00, it would have to
281.
Quantity of Euros
Supplied
Price
Quantity of Euros
Demanded
400
$1.10
100
360
1.00
200
