51. Refer to Table 14.1. Assume that Toyota Inc. imports steel from U.S. suppliers, whose costs are denominated in
dollars, while all other inputs are obtained from Japanese suppliers whose costs are denominated in yen. If the yen’s
exchange value appreciates from 200 yen = $1 to 100 yen = $1, the yen cost of a Toyota automobile equals:
a.
2,400,000 yen
b.
3,000,000 yen
c.
3,600,000 yen
d.
4,200,000 yen
c
Challenging
United States – DISC: International trade & fina – DISC: International trade & finance
United States – PA – DISC: International trade & fina – DISC: International trade & finance
Cost Cutting Strategies of Manufacturers in Response to Currency Appreciation
52. Refer to Table 14.1. Assume that Toyota Inc. imports steel from U.S. suppliers, whose costs are denominated in
dollars, while all other inputs are obtained from Japanese suppliers whose costs are denominated in yen. If the yen’s
exchange value appreciates from 200 yen = $1 to 100 yen = $1, the dollar-equivalent cost of a Toyota automobile equals:
a.
$24,000
b.
$30,000
c.
$36,000
d.
$42,000
c
Challenging
United States – DISC: International trade & fina – DISC: International trade & finance
United States – PA – DISC: International trade & fina – DISC: International trade & finance
Cost Cutting Strategies of Manufacturers in Response to Currency Appreciation
53. The lag that occurs between changes in relative prices and the quantities of goods traded is the
a.
Recognition lag
b.
Recovery lag
c.
Implementation lag
d.
Legislative lag
Easy
United States – BPRPOG: Analysis
Challenging
United States – DISC: International trade & fina – DISC: International trade & finance
United States – PA – DISC: International trade & fina – DISC: International trade & finance
Cost Cutting Strategies of Manufacturers in Response to Currency Appreciation
54. The Marshall-Lerner condition illustrates
a.
The price effects of a nation’s currency depreciation on its trade deficit
b.
The price effects of a nation’s currency appreciation on its trade deficit
c.
The effect of fixed exchange rate systems on the trade balance
d.
None of the above
NATIONAL STANDARDS:
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STATE STANDARDS:
United States – PA – DISC: International trade & fina – DISC: International trade & finance
55. The absorption approach to currency depreciation focuses on the
a.
b.
c.
d.
NATIONAL STANDARDS:
United States – BPRPOG: Analysis
STATE STANDARDS:
United States – PA – DISC: International trade & fina – DISC: International trade & finance
The Absorption Approach to Currency Depreciation
56. Reversing balance of payments disequilibria may came at the expense of
a.
Economic relations with our trading partners
b.
Domestic recession
c.
Price inflation
d.
All of the above
NATIONAL STANDARDS:
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STATE STANDARDS:
United States – PA – DISC: International trade & fina – DISC: International trade & finance
The Absorption Approach to Currency Depreciation
Figure 14.1 US market for Imported Toyotas
STATE STANDARDS:
United States – PA – DISC: International trade & fina – DISC: International trade & finance
Cost Cutting Strategies of Manufacturers in Response to Currency Appreciation
57. In Figure 14.1, D represents the US demand curve for Toyotas and MC0 represents the marginal cost of producing
Toyotas. A shift in the marginal cost curve from MC0 to MC1 represents
a.
an appreciation of the dollar relative to the yen
b.
an appreciation of the yen relative to the dollar
c.
a depreciation of the dollar relative to the yen
d.
neither an appreciation nor a depreciation of the dollar relative to the yen
58. In Figure 14.1, D represents the US demand curve for Toyotas and MC0 represents the marginal cost of producing
Toyotas. Assume that Toyota behaves like a monopolist in the US market. A shift in the marginal cost curve from MC0
to MC1 leads to
a.
a complete pass-through ot the depreciation of the dollar
b.
a complete pass-through of the appreciation of the dollar
c.
a partial pass-through of the depreciation of the dollar
d.
a partial pass-through of the appreciation of the dollar
NATIONAL STANDARDS:
United States – DISC: International trade & fina – DISC: International trade & finance
Effects of Exchange Rate Changes on Costs and Prices
Figure 14.2 The US Market for Imported Toyotas
NATIONAL STANDARDS:
United States – DISC: International trade & fina – DISC: International trade & finance
Effects of Exchange Rate Changes on Costs and Prices
59. In Figure 14.2, D represents the US demand curve for Toyotas and MC0 represents the marginal cost of producing
Toyotas. A shift in the marginal cost curve from MC0 to MC2 represents
a.
an appreciation of the dollar relative to the yen
b.
a depreciation of the yen relative to the dollar
c.
a depreciation of the dollar relative to the yen
d.
neither an appreciation nor a depreciation of the dollar relative to the yen
60. In Figure 14.2, D represents the US demand curve for Toyotas and MC0 represents the marginal cost of producing
Toyotas. Assume that Toyota behaves like a monopolist in the US market. A shift in the marginal cost curve from MC0
to MC2 leads to
a.
a complete pass-through ot the depreciation of the dollar
b.
a complete pass-through of the appreciation of the dollar
c.
a partial pass-through of the depreciation of the dollar
d.
a partial pass-through of the appreciation of the dollar
c
Challenging
United States – DISC: International trade & fina – DISC: International trade & finance
Effects of Exchange Rate Changes on Costs and Prices
61. Currency devaluation is initiated by governmental policy rather than the free-market forces of supply and demand.
a.
True
b.
False
True
c
Challenging
United States – DISC: International trade & fina – DISC: International trade & finance
Effects of Exchange Rate Changes on Costs and Prices
62. If a currency’s exchange rate is overvalued, a government would likely initiate actions to revalue the currency.
a.
True
b.
False
False
Moderate
63. If a currency’s exchange rate is undervalued, a government would likely initiate actions to devalue the currency.
a.
True
b.
False
False
Moderate
64. The purpose of currency devaluation is to cause a depreciation in a currency’s exchange value.
a.
True
b.
False
True
Moderate
65. The purpose of currency revaluation is to cause an appreciation in a currency’s exchange value.
a.
True
b.
False
True
Moderate
Moderate
66. Assume that General Motors employs labor and materials, whose costs are denominated in dollars, in the production
of automobiles. If the dollar’s exchange value depreciates by 10 percent against the yen, the yen-denominated cost of a
GM vehicle rises by 10 percent.
a.
True
b.
False
True
Moderate
67. Assume that General Motors employs labor and materials, whose costs are denominated in dollars, in the production
of automobiles. If the dollar’s exchange value appreciates by 10 percent against the yen, the yen-denominated cost of a
GM vehicle falls by 10 percent.
a.
True
b.
False
True
Moderate
68. Appreciation of the dollar’s exchange value worsens the international competitiveness of Boeing Inc., whereas a dollar
depreciation improves its international competitiveness.
a.
True
b.
False
True
Moderate
69. When manufacturing automobiles, suppose that General Motors uses labor and materials whose costs are denominated
in dollars and pounds respectively. If the dollar’s exchange value appreciates by 15 percent against the pound, the pound-
denominated cost of a GM vehicle rises by 15 percent.
a.
True
b.
False
70. According to the absorption approach, currency devaluation best improves a country’s trade balance when its economy
is at maximum capacity.
a.
True
b.
False
False
Moderate
71. When manufacturing computer software, suppose that Microsoft Inc. uses labor and materials whose costs are
denominated in dollars and francs respectively. If the dollar’s exchange value depreciates 10 percent against the franc, the
franc-denominated cost of the firm’s software falls by 10 percent.
a.
True
b.
False
False
Moderate
72. When producing jetliners, suppose that Boeing employs labor and materials whose costs are denominated in dollars
and marks respectively. If the dollar’s exchange value depreciates 20 percent against the mark, the mark-denominated cost
of a Boeing jetliner falls by an amount less than 20 percent.
a.
True
b.
False
True
Moderate
False
Moderate
73. As yen-denominated costs become a larger portion of Ford’s total costs, a dollar appreciation results in a smaller
increase in the yen-denominated cost of a Ford auto than occurs when all input costs are dollar denominated.
a.
True
b.
False
74. A depreciation of the dollar results in Whirlpool dishwashers becoming less competitive in Europe.
a.
True
b.
False
False
Moderate
75. By decreasing the relative production costs of U.S. companies, a dollar appreciation tends to lower U.S. export prices
in foreign-currency terms, which induces an increase in the amount of U.S. goods exported abroad.
a.
True
b.
False
False
Moderate
76. By increasing relative U.S. production costs, a dollar depreciation tends to increase U.S. export prices in foreign–
currency terms, which results in an increase in the quantity of U.S. goods exported abroad.
a.
True
b.
False
False
Moderate
True
Moderate
77. Suppose the exchange value of the franc rises against the currencies of Switzerland’s major trading partners. To
protect themselves from decreases in foreign sales caused by the mark’s appreciation, Swiss companies could shift
production to countries whose currencies had depreciated against the mark.
a.
True
b.
False
78. In the early 1990s, the yen sharply appreciated against the dollar. To protect themselves from export reductions caused
by the yen’s appreciation, Japanese auto companies transferred increasing amounts of auto production from the United
States to Japan.
a.
True
b.
False
False
Moderate
79. The elasticity approach to currency depreciation emphasizes the income effects of depreciation.
a.
True
b.
False
True
Moderate
80. The elasticity approach to currency depreciation emphasizes the relative price effects of depreciation and suggests that
depreciation best improves a country’s trade balance when the elasticities of demand for the country’s imports and exports
are high.
a.
True
b.
False
True
Moderate
True
Moderate
81. The absorption approach to currency devaluation deals with the income effects of devaluation while the elasticity
approach to devaluation deals with the price effects of devaluation.
a.
True
b.
False
True
Moderate
82. According to the absorption approach, an increase in domestic expenditures must occur for currency devaluation to
promote balance of trade equilibrium.
a.
True
b.
False
False
Moderate
83. The monetary approach emphasizes the effects of currency depreciation on the purchasing power of money, and the
resulting impact on domestic expenditure levels.
a.
True
b.
False
True
Moderate
84. According to the Marshall-Lerner condition, currency depreciation will worsen a country’s balance of trade if the
country’s elasticity of demand for imports plus the foreign demand elasticity for the country’s exports exceeds 1.0.
a.
True
b.
False
False
Moderate
85. The Marshall-Lerner condition asserts that if the sum of a country’s elasticity of demand for imports and the foreign
elasticity of demand for the country‘s exports equals 1.0, a depreciation of the country‘s currency will not affect its balance
of trade.
a.
True
b.
False
False
Moderate
86. Suppose the U.S. price elasticity of demand for imports equals 0.4 and the foreign demand elasticity for the U.S.
exports equals 0.2. According to the Marshall-Lerner condition, a depreciation of the dollar’s exchange value will improve
the U.S. balance of trade.
a.
True
b.
False
True
Moderate
87. The Marshall-Lerner condition suggests that if the sum of a country’s elasticity of demand for imports and the foreign
elasticity of demand for the country‘s exports exceeds 1.0, an appreciation of the country’s exchange rate will worsen its
balance of trade.
a.
True
b.
False
True
Moderate
88. Suppose the U.S. price elasticity of demand for imports equals 1.2 and the foreign elasticity of demand for U.S.
exports equals 1.5. According to the Marshall-Lerner condition, an appreciation of the dollar’s exchange value would
worsen the U.S. balance of trade.
a.
True
b.
False
89. Empirical research suggests that most countries’ price elasticities of demand for imports and exports are very inelastic,
suggesting that currency depreciation would result in a worsening of a country’s balance of trade.
a.
True
b.
False
False
Moderate
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90. The J-curve effect implies that in the short run a currency depreciation will result in a balance of trade surplus for the
home country. As time passes, however, the home country’s balance of trade will move toward deficit.
a.
True
b.
False
False
Moderate
United States – BPRPOG: Analysis
United States – PA – DISC: International trade & fina – DISC: International trade & finance
J-Curve Effect: Time Path of Depreciation
91. Suppose the dollar appreciates 10 percent against the Swiss franc. According to the J-curve effect, the U.S. balance of
trade will initially worsen, but then improve as time passes.
a.
True
b.
False
True
Moderate
United States – BPRPOG: Analysis
United States – PA – DISC: International trade & fina – DISC: International trade & finance
J-Curve Effect: Time Path of Depreciation
92. The J-curve effect implies that the price elasticity of demand for imports and exports is more elastic in the short run
than in the long run.
True
Moderate
United States – BPRPOG: Analysis
United States – PA – DISC: International trade & fina – DISC: International trade & finance
a.
True
b.
False
93. The extent to which changing currency values result in changing prices of imports and exports is known as the J-curve
effect.
a.
True
b.
False
False
Moderate
94. Complete currency pass through suggests that if the dollar’s exchange value depreciates by 10 percent, imports will
become 10 percent more expensive to Americans while U.S. exports will become 10 percent cheaper to foreigners.
a.
True
b.
False
True
Challenging
95. Partial currency pass-through implies that if the dollar’s exchange value appreciates by 10 percent, imports would
become, say, 6 percent more expensive to Americans while U.S. exports would become, say, 8 percent cheaper to
foreigners.
a.
True
b.
False
False
Challenging
False
Moderate
96. Suppose the U.S. economy is operating at full capacity and the dollar’s exchange value depreciates. According to the
absorption approach, the United States would have to accept reductions in domestic spending if the U.S. trade balance is
to improve as a result of the depreciation.
a.
True
b.
False
97. How do demand elasticities influence a country’s trade position when exchange rates change?
Moderate
98. How is the absorption approach used for analyzing the effects of currency devaluation?
Moderate
99. What is a pass-through relationship?
Moderate
True
Moderate
100. How do movements in exchange rates affect domestic costs, in the presence of foreign sourcing?