Page 1
1.
When the dollar value of the Swiss franc was very high following the financial crisis in
2008:
A)
Swiss exports were more expensive in the United States.
B)
Swiss exports were less expensive in the United States.
C)
the Swiss National Bank sold Swiss francs to increase its value.
D)
the Swiss National Bank bought francs to decrease its value.
2.
Open-economy macroeconomics deals with:
A)
reducing regulations on business.
B)
the relationships between economies of different nations.
C)
reducing employment discrimination.
D)
providing financial information to investors.
3.
Economists summarize a country’s transactions with other countries with a(n) _____
account.
A)
circular flow
B)
balance of payments
C)
exchange rate
D)
purchasing power parity
4.
If the United States imports more goods from Japan than it exports to Japan, how will
the difference be financed?
A)
U.S. consumers will borrow money from domestic banks.
B)
The United States will buy more Japanese assets.
C)
The United States will sell assets, generating a liability that obligates Americans to
pay for those imports in the future.
D)
The United States will sell assets to the Japanese, which would reduce its
liabilities.
5.
When the United States gives foreign aid to developing nations in Africa, the _____
account is affected.
A)
current
B)
financial
C)
reserve
D)
foreign exchange
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6.
The difference between a country’s exports and imports of goods alone—not including
services—is the:
A)
merchandise trade balance.
B)
balance of payments on good and services.
C)
balance of payments on current account.
D)
current account.
Use the following to answer questions 7-10:
Table: International Transactions
7.
(Table: International Transactions) Look at the table International Transactions. The
merchandise trade balance is:
A)
$51,000.
B)
$48,000.
C)
$46,000.
D)
$2,000.
8.
(Table: International Transactions) Look at the table International Transactions. The
balance of payments on goods and services is:
A)
$51,000.
B)
$48,000.
C)
$3,000.
D)
–$29,000.
9.
(Table: International Transactions) Look at the table International Transactions. The
balance on current account is:
A)
$29,000.
B)
$22,000.
C)
–$8,000.
D)
–$29,000.
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10.
(Table: International Transactions) Look at the table International Transactions. What
additional capital inflows are needed to equilibrate the balance of payments?
A)
–$29,000
B)
$20,000
C)
$29,000
D)
$80,000
11.
If the balance of payments on financial account is $25, the balance of payments on
goods and services is –$20, and the statistical discrepancy in the financial account is $2,
then the sum of net international transfer payments and net international factor income
is:
A)
–$7.
B)
–$5.
C)
$7.
D)
$47.
12.
Which of the following would be included in the U.S. current account?
A)
a factory in Japan purchased by a firm in the United States
B)
stock in a U.S. company sold to someone in Japan
C)
a dividend on stock in a U.S. company paid to someone in Japan
D)
a bond issued by a firm in Japan sold to someone in the United States
13.
When a Japanese investor buys stock in General Motors, the _____ account is affected.
A)
current
B)
financial
C)
reserve
D)
foreign exchange
14.
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
current account is:
A)
$250 billion.
B)
–$250 billion.
C)
$50 billion.
D)
–$50 billion.
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15.
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:
A)
$250 billion.
B)
–$250 billion.
C)
$50 billion.
D)
–$50 billion.
16.
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 of the following illustrates the difference
and/or similarity between these two transactions?
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.
17.
If a country has a current account deficit, it must have a:
A)
financial account surplus.
B)
balance of payment surplus.
C)
financial account deficit.
D)
balance of payments deficit.
18.
Which of the following would be included in the U.S. financial account?
A)
a computer made in the United States and exported to Britain
B)
a computer made in Britain and imported into the United States
C)
interest on a U.S. bond sold to someone living overseas
D)
the value of a bond from a U.S. company sold to someone living in Britain
19.
Which of the following would NOT be included in the U.S. financial account?
A)
a Japanese factory purchased by a U.S. company
B)
U.S. stock sold to someone in Japan
C)
a Japanese bond sold to someone in the United States
D)
a Chinese video game imported into the United States
20.
Which of the following would be included in the U.S. current account?
A)
public purchases and sales of financial assets
B)
trade balance
C)
financial account balance
D)
private purchases and sales of financial assets
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21.
If a country has a positive balance of payments on the current account, then it must:
A)
be exporting too much.
B)
be importing too much.
C)
have a surplus on the financial account.
D)
have a deficit on the financial account.
22.
Money flows into the United States from other countries as a result of:
A)
U.S. purchases of foreign goods and services.
B)
payments to foreign owners of U.S. assets.
C)
domestic purchases of U.S. goods and services.
D)
transfer payments from foreign sources to U.S. residents.
23.
Money flows into the United States from other countries as a direct result of:
A)
foreign purchases of U.S. goods and services.
B)
U.S. purchases of foreign goods and services.
C)
U.S. investment in foreign companies.
D)
U.S. purchases of foreign assets.
24.
The balance between spending flowing into a country from other countries and spending
flowing out of that country to other countries is the:
A)
singular account.
B)
euro–dollar account.
C)
universal exchange account.
D)
balance of payments.
25.
A family from New York City eats in a restaurant in Mexico City. In the accounting for
U.S. international transactions, this transaction would appear in the _____, and it would
be entered as a payment _____ foreigners.
A)
current account; to
B)
current account; from
C)
financial account; to
D)
financial account; from
26.
A Peruvian financial investor purchases a sporting goods store in Colorado Springs. In
the accounting for U.S. international transactions, this transaction would appear in the
_____, and it would be entered as a payment _____ foreigners.
A)
current account; from
B)
current account; to
C)
financial account; from
D)
financial account; to
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27.
A family from Peru eats in a restaurant in Salt Lake City. In the accounting for U.S.
international transactions, this transaction would appear in the _____, and it would be
entered as a payment _____ foreigners.
A)
current account; from
B)
current account; to
C)
financial account; from
D)
financial account; to
28.
A financial investor from Los Angeles purchases bonds issued by the government of
Peru. In the accounting for U.S. international transactions, this transaction would appear
in the _____, and it would be entered as a payment _____ foreigners.
A)
current account; from
B)
current account; to
C)
financial account; from
D)
financial account; to
29.
A statement of spending that flows into and out of the country for purchases of assets
during a particular period is the nation’s:
A)
current account.
B)
financial account.
C)
universal exchange position.
D)
statistical discrepancy.
30.
A country has a financial account surplus if the balance on the:
A)
financial account is negative.
B)
financial account is positive.
C)
current account is zero.
D)
current account is positive.
31.
A country has a capital account deficit if the balance on the:
A)
financial account is negative.
B)
financial account is positive.
C)
current account is negative.
D)
current account is zero.
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32.
A surplus in the current account means there will be:
A)
a surplus in the financial account.
B)
a deficit in the financial account.
C)
a balanced financial account.
D)
either a surplus or a deficit in the financial account.
33.
A deficit in the current account means there will be:
A)
a surplus in the financial account.
B)
a deficit in the financial account.
C)
a balanced financial account.
D)
either a surplus or a deficit in the financial account.
34.
A current account surplus occurs when:
A)
the balance on the current account is positive.
B)
net exports are negative.
C)
spending flowing out of the country exceeds spending flowing into the country.
D)
imports exceed exports.
35.
A current account deficit exists when:
A)
the balance on current account is negative.
B)
spending flowing out of the country is less than spending flowing into the country.
C)
net exports are positive.
D)
an economy buys less from foreigners than it sells to them.
36.
A _____ balance on the financial account means a _____.
A)
positive; financial account surplus.
B)
negative; financial account surplus.
C)
positive; financial account deficit.
D)
positive; current account surplus.
37.
A current account deficit is generally a result of:
A)
imports exceeding exports.
B)
U.S. purchases of bonds issued by foreign corporations.
C)
a large amount of U.S. purchases of foreign real estate.
D)
exports exceeding imports.
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38.
A current account surplus is generally a result of:
A)
imports exceeding exports.
B)
sales of stock in U.S. companies to citizens of foreign countries.
C)
a large influx of foreign investment income.
D)
exports exceeding imports.
39.
When there is a deficit in the U.S. balance of payments on the current account, we pay
for the difference by:
A)
allowing the price of currency to rise.
B)
allowing the price of currency to fall.
C)
buying assets from other countries.
D)
selling assets to other countries.
40.
In 2010, the $471 billion deficit on the U.S. current account was offset by a surplus of
$255 billion on financial account. This difference is the result of a:
A)
budget deficit.
B)
statistical discrepancy.
C)
trade deficit.
D)
national debt.
41.
If the merchandise trade balance is –$15, net international transfer payments and net
international factor income are $4, the balance of payments on goods and services is
–$25, and the balance of payments on the financial account is $18, then the statistical
discrepancy in the financial account is:
A)
$15.
B)
$3.
C)
–$3.
D)
–$1.
42.
The difference between a country’s exports and its imports of goods and services is
known as the:
A)
trade balance.
B)
balance of payments on goods and services.
C)
balance of payments on current account.
D)
balance of exchange.
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43.
The difference between a country’s balance of payments on goods and services and the
merchandise trade balance is that:
A)
the merchandise trade balance does not include exports and imports of services.
B)
the balance of payments does not include exports and imports of services.
C)
the merchandise trade balance does not include imports of goods and services.
D)
the balance of payments does not include imports of goods and services.
44.
A country’s balance of payments on financial account is the:
A)
difference between the dollar value of a country’s exports and its imports of goods
and services.
B)
difference between the dollar value of a country’s exports and its imports of goods
only.
C)
difference between the country’s sale of assets to foreigners and its purchases of
assets from foreigners.
D)
same value as the country’s merchandise trade balance.
Use the following to answer questions 45-47:
45.
(Table: Balance of Payment) Refer to the table Balance of Payments. In this case, the
country’s balance of payments on goods and services is:
A)
$375 billion.
B)
–$375 billion.
C)
$4,045 billion.
D)
$355 billion.
46.
(Table: Balance of Payment) Refer to the table Balance of Payments. The country’s
balance of payments on current account is:
A)
$355 billion.
B)
–$395 billion.
C)
$375 billion.
D)
–$355 billion.
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47.
(Table: Balance of Payment) Refer to the table Balance of Payments. The country’s
balance of payments on financial account is:
A)
zero.
B)
$375 billion.
C)
$355 billion.
D)
–$355 billion.
48.
If a country runs a deficit on its balance of payments for goods and services, to pay for
its imports, it must:
A)
raise taxes.
B)
print new money.
C)
sell assets to foreigners.
D)
decrease its exports.
49.
The relationship between a country’s balance of payments on current account (CA) and
its balance of payments on financial account (FA) is described by all of the following
EXCEPT:
A)
CA + FA = 0.
B)
CA = FA.
C)
CA = –FA.
D)
FA = –CA.
50.
The United States exports corn to other nations. In the U.S. balance of payments
account, this transaction is entered as a payment _____ foreigners in the _____ account.
A)
from; current
B)
from; financial
C)
to; current
D)
to; financial
51.
A Japanese banker buys some newly issued U.S. Treasury bonds. In the U.S. balance of
payments account, this transaction is entered as a payment _____ foreigners in the
_____ account.
A)
from; current
B)
to; current
C)
to; financial
D)
from; financial
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52.
Microsoft, a Seattle software company, purchases a new office building in Vancouver.
In the U.S. balance of payments account, this transaction is entered as a payment _____
foreigners in the _____ account.
A)
from; current
B)
to; financial
C)
to; current
D)
from; financial
53.
U.S. retailers import toys from China. In the U.S. balance of payments account, this
transaction is entered as a payment _____ foreigners in the _____ account.
A)
to; financial
B)
from; financial
C)
to; current
D)
from; current
54.
A U.S. firm buys a new Volvo, built in Sweden. In the U.S. balance of payments, this
transaction causes the balance on the _____ account to _____.
A)
current; decrease
B)
current; increase
C)
financial; decrease
D)
financial; increase
55.
After a hurricane devastates New Orleans, a Canadian charity sends $1 million to the
United States to help the survivors rebuild their homes. In the U.S. balance of payments,
this transaction causes the balance on the _____ account to _____.
A)
current; decrease
B)
current; increase
C)
financial; decrease
D)
financial; increase
56.
A Brazilian bank buys shares of stock in Intel, a U.S. high-tech company. In the U.S.
balance of payments, this transaction causes the balance on the _____ account to _____.
A)
current; decrease
B)
current; increase
C)
financial; decrease
D)
financial; increase
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57.
An U.S. deposits $10,000 in an account in a London bank. In the U.S. balance of
payments, this transaction causes the balance on the _____ account to _____.
A)
financial; increase
B)
financial; decrease
C)
current; decrease
D)
current; increase
58.
The difference between GDP and GNP is that:
A)
GNP includes international factor income.
B)
GDP includes international factor income.
C)
GNP includes the money supply.
D)
GDP includes the money supply.
59.
Economists usually use GDP rather than GNP because they are tracking:
A)
only transactions on the current account.
B)
only transactions on the financial account.
C)
production rather than income.
D)
income rather than production.
60.
Suppose the equilibrium interest rate in the U.S. market for loanable funds is 3% prior
to any international capital flows in the United States. The equilibrium interest rate in
the Japanese market for loanable funds is 7%. If lenders in both nations believe that
loans to foreigners are just as good as loans to their own citizens, capital will flow from
_____, making interest rates _____ in Japan and _____ in the United States.
A)
the United States to Japan; rise; fall
B)
Japan to the United States; fall; rise
C)
Japan to the United States; rise; fall
D)
the United States to Japan; fall; rise
Use the following to answer questions 61-63:
Scenario: Japan and the United States
Suppose that the interest rate in the United States is 4%, in Japan it is 7%, and financial assets in
the two countries are equal in risk.
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61.
(Scenario: Japan and the United States) Refer to the scenario Japan and the United
States. Assuming that loans in India and the United States carry equal risk, this implies
that:
A)
U.S. lenders will lend to borrowers in India.
B)
Indian lenders will lend to U.S. borrowers.
C)
the interest rate in India will increase further as compared to the U.S. interest rate.
D)
the central bank of India has adopted a more expansionary monetary policy.
62.
(Scenario: Japan and the United States) Refer to the scenario Japan and the United
States. As a result:
A)
capital will flow from Japan to the United States.
B)
capital will flow from the United States to Japan.
C)
capital will not flow between Japan and the United States.
D)
Japan will export more goods to the United States.
63.
(Scenario: Japan and the United States) Refer to the scenario Japan and the United
States. The implication is that:
A)
interest rates in Japan will increase.
B)
interest rates in the United States will decrease.
C)
the capital flow between Japan and the United States eventually will render the
interest rates equal.
D)
the interest rates in both countries will remain unchanged.
64.
Direct foreign investment means the purchase of:
A)
stock in foreign companies.
B)
bonds of a foreign country.
C)
bank loans in a foreign country.
D)
factories in a foreign country.
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Use the following to answer questions 65-67:
Figure: The Loanable Funds Model in the U.S. Market
65.
(Figure: The Loanable Funds Model in the U.S. Market) Look at the figure The
Loanable Funds Model in the U.S. Market. If the actual interest rate is higher than 4% in
the U.S. market, then the quantity supplied of loanable funds will be _____ the quantity
of loanable funds demanded.
A)
greater than
B)
less than
C)
equal to
D)
unrelated to
66.
(Figure: The Loanable Funds Model in the U.S. Market) Look at the figure The
Loanable Funds Model in the U.S. Market. If the actual interest rate is less than 4% in
the U.S. market, then the quantity supplied of loanable funds will be _____ the quantity
of loanable funds demanded.
A)
greater than
B)
less than
C)
equal to
D)
unrelated to
67.
(Figure: The Loanable Funds Model in the U.S. Market) Look at the figure The
Loanable Funds Model in the U.S. Market. If the actual interest rate is equal to 4% in
the U.S. market, then the quantity supplied of loanable funds will be _____ the quantity
of loanable funds demanded.
A)
greater than
B)
less than
C)
equal to
D)
unrelated to
Page 15
Use the following to answer questions 68-75:
Figure: International Capital Flows
68.
(Figure: International Capital Flows) Look at the figure International Capital Flows.
Assume that each country’s equilibrium interest rate is 4%. To reconcile the apparent
disequilibrium in both markets, assuming that assets and liabilities are viewed as
homogeneous, capital _____ will _____ interest rates.
A)
outflow from the United States; lower U.S.
B)
outflow from Britain; lower British
C)
outflow from Britain; raise British
D)
inflow to the United States; raise U.S.
69.
(Figure: International Capital Flows) Look at the figure International Capital Flows. At
an interest rate of 4%, the quantity of loanable funds demanded by U.S. borrowers is
_____ the quantity of loanable funds supplied by U.S. lenders.
A)
greater than
B)
less than
C)
equal to
D)
not related to
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70.
(Figure: International Capital Flows) Look at the figure International Capital Flows. At
an interest rate of 4%, the quantity of loanable funds supplied by U.S. lenders is _____
the quantity of loanable funds demanded by U.S. borrowers.
A)
greater than
B)
less than
C)
equal to
D)
not related to
71.
(Figure: International Capital Flows) Look at the figure International Capital Flows. At
an interest rate of 4%, the quantity of loanable funds supplied by British lenders is
_____ the quantity of loanable funds demanded by British borrowers.
A)
greater than
B)
less than
C)
equal to
D)
not related to
72.
(Figure: International Capital Flows) Look at the figure International Capital Flows. At
an interest rate of 4%, the quantity of loanable funds demanded by British borrowers is
_____ the quantity of loanable funds supplied by British lenders.
A)
greater than
B)
less than
C)
equal to
D)
not related to
73.
(Figure: International Capital Flows) Look at the figure International Capital Flows. At
an interest rate of 4%, the total quantity of loanable funds demanded across the two
markets is _____ the total quantity of loanable funds supplied by lenders.
A)
greater than
B)
less than
C)
equal to
D)
not related to
74.
(Figure: International Capital Flows) Look at the figure International Capital Flows. At
an interest rate of 4%, the excess of loanable funds supplied by _____ lenders will be
exported to _____ borrowers.
A)
U.S.; British
B)
British; U.S.
C)
U.S. or British; British or U.S.
D)
U.S.; worldwide
Page 17
75.
(Figure: International Capital Flows) Look at the figure International Capital Flows. At
an interest rate of 4%, the shortage of loanable funds available to _____ borrowers will
be satisfied by _____ lenders.
A)
U.S.; British
B)
British; U.S.
C)
U.S. or British; British or U.S.
D)
British; worldwide
76.
In the absence of international capital flows, the equilibrium interest rate in the U.S.
market for loanable funds is 3%, while in Germany it is 7%. International borrowing
and lending between the United States and Germany may result in a common interest
rate of _____ and _____.
A)
5%; capital inflows to the United States matching the capital outflows from
Germany
B)
3%; massive capital inflows from Germany to the United States
C)
4%; capital outflows from the United States matching the capital inflows to
Germany
D)
7%; massive capital inflows from the United States to Germany
77.
Interest rates between two countries tend to converge if:
A)
both countries have a financial account surplus.
B)
both countries have a current account surplus.
C)
the residents of the two countries believe that a foreign asset is as good as a
domestic one.
D)
the residents of the two countries prefer domestic assets to foreign assets.
78.
If asset owners in Japan and the United States consider Japanese and U.S. assets as good
substitutes for each other and if the U.S. interest rate is 5% and the Japanese interest rate
is 2%, then all of the following will occur EXCEPT that:
A)
financial inflows will reduce the U.S. interest rate.
B)
financial outflows will increase the Japanese interest rate.
C)
the interest rate gap between the United States and Japan will diminish.
D)
loanable funds will be exported from the United States to Japan.
79.
If asset owners in Japan and the United States consider Japanese and U.S. assets as good
substitutes for each other and if the U.S. interest rate is 5% while the Japanese interest
rate is 2%:
A)
financial inflows will reduce the U.S. interest rate.
B)
financial outflows will reduce the Japanese interest rate.
C)
the interest rate gap between the United States and Japan will grow.
D)
financial inflows will increase the U.S. interest rate.
Page 18
80.
When interest rates are higher in country A than in other countries:
A)
other countries will borrow more from country A.
B)
capital will flow into country A.
C)
capital will flow out of country A.
D)
country A will lend more to other countries.
81.
In countries with rapidly growing economies, like China and India, the demand for
loanable funds is _____ and interest rates are _____ than in countries with slowly
growing economies.
A)
larger; higher
B)
larger; lower
C)
smaller; higher
D)
smaller; lower
82.
Capital tends to move from:
A)
less developed to more developed countries.
B)
poorer countries to wealthier countries.
C)
slow-growing countries to fast-growing countries.
D)
fast-growing countries to slow-growing countries.
83.
The underlying motives behind capital flows reflect international differences in:
A)
savings.
B)
investment opportunities.
C)
technology.
D)
both savings and investment opportunities.
84.
In the early twenty-first century, the United States has had a current account:
A)
surplus.
B)
deficit.
C)
balance equal to zero.
D)
deficit and a capital account deficit.
85.
According to Ben Bernanke, the primary cause of the U.S. current account deficit of the
early 2000s was:
A)
political unrest in developing African nations.
B)
the war against terror.
C)
the decreasing productivity of U.S. workers.
D)
a global savings glut that decreased interest rates and led to an excess of investment
over savings in the United States.
Page 19
86.
The global savings glut of the early 2000s was caused primarily by:
A)
financial crises in the late 1990s and early 2000s that led to an increase in savings
in some relatively poor countries.
B)
the high price of oil.
C)
the impact of global warming on agriculture.
D)
trade restrictions.
87.
Capital tends to:
A)
flow toward countries with high political risk.
B)
flow toward countries with low political risk.
C)
ignore political risk and focus on returns.
D)
ignore political risk in the current time frame.
88.
Capital flows as a share of world savings and investment today are much smaller than
they were over a century ago. Which of the following is a likely explanation?
A)
lack of restrictions on migration
B)
the absence of political risks
C)
higher political risks and restrictions on migration
D)
greater economic integration in the present
89.
Foreign currencies are traded in the _____ market.
A)
stock
B)
bond
C)
commodities
D)
foreign exchange
90.
Currencies can be exchanged for each other in the _____ market.
A)
loanable funds
B)
foreign exchange
C)
resource
D)
goods and services
91.
The behavior of the balance of payments on goods and services is determined in the
international _____ market.
A)
goods and services
B)
loanable funds
C)
money
D)
stock
Page 20
92.
The behavior of the financial accounts is determined in the international _____ market.
A)
goods and services
B)
loanable funds
C)
money
D)
stock
93.
Suppose that the value of the euro fell from $1.32 on April 30, 2012, to $1.24 on July 5,
2012. This implies that during this period the euro _____ and the dollar _____.
A)
depreciated; appreciated
B)
appreciated; depreciated
C)
depreciated; fluctuated
D)
appreciated; did not change
94.
If the rate of exchange is €1 = US$2, then US$1 =
A)
€0.50.
B)
€2.
C)
$0.50.
D)
$2.00.
95.
The exchange rate is the _____ between countries.
A)
interest rate differential
B)
balance of trade differential
C)
relative price of currencies
D)
relative price of gold
96.
If the exchange rate is $1 = ¥110, a $20,000 Ford truck costs _____ in Japan.
A)
¥20,000
B)
¥18,182
C)
¥2.2 million
D)
¥3 million
97.
When the value of a pound sterling changes from US$1.50 to US$2, it follows that the:
A)
U.S. dollar has depreciated.
B)
pound sterling has depreciated.
C)
U.S. dollar has appreciated.
D)
value of a U.S. dollar has gone from £0.5 to £0.6.
Page 21
98.
If the value of a U.S. dollar changes from ¥120 to ¥110, it follows that:
A)
the yen is depreciating and the dollar is appreciating.
B)
U.S. goods become cheaper for Japanese consumers.
C)
Japanese goods become cheaper for U.S. consumers.
D)
U.S. services become more expensive for Japanese firms.
99.
If the U.S. dollar changes from $1 = €1 to $0.80 = €1:
A)
the dollar has depreciated relative to the euro.
B)
the dollar has been fixed by the United States and the euro bloc.
C)
the dollar has appreciated relative to the euro.
D)
U.S. goods are now cheaper in the eurozone.
100.
If the U.S. dollar changes from $1 = ¥200 to $1 = ¥100, then:
A)
the dollar has depreciated relative to the yen.
B)
the dollar has been fixed by the United States and Japan.
C)
the dollar has appreciated relative to the yen.
D)
U.S. goods are now more expensive in Japan.
101.
If the exchange rate is $1 = 12.95 Mexican pesos, then the price of a $10,000 Harley
Davidson motorcycle is _____ pesos in Mexico.
A)
10,000
B)
772.2
C)
12,950
D)
129,500
102.
If the exchange rate is initially $1 = 12.95 pesos but changes to $1 = 15 pesos, then the
dollar has _____ and the price in Mexico of a $10,000 U.S.-built Harley Davidson
motorcycle has _____.
A)
depreciated; decreased
B)
depreciated; increased
C)
appreciated; increased
D)
appreciated; decreased
103.
When a currency appreciates, the prices of its exports to other countries will:
A)
increase.
B)
decrease.
C)
remain constant.
D)
fluctuate randomly.
Page 22
104.
When a currency depreciates, the prices of its exports to other countries will:
A)
increase.
B)
decrease.
C)
remain constant.
D)
fluctuate randomly.
105.
When a currency appreciates, the prices of its imports from other countries will:
A)
increase.
B)
decrease.
C)
remain constant.
D)
fluctuate randomly.
106.
When a currency depreciates, the prices of its imports from other countries will:
A)
increase.
B)
decrease.
C)
remain constant.
D)
fluctuate randomly.
107.
If the pound sterling appreciates against the dollar:
A)
British imports and exports have become more expensive.
B)
U.S. imports and exports have become more expensive.
C)
British imports and exports have become less expensive.
D)
British exports have become more expensive but the price of U.S. exports to
Britain has fallen.
108.
When the value of the euro changes from $1.30 to $1.20, it follows that:
A)
European Union imports from the United States increase.
B)
U.S. exports to the European Union increase.
C)
U.S. imports from the European Union increase.
D)
European Union exports to the United States decrease.
109.
When the dollar appreciates relative to the Canadian dollar:
A)
Canadian goods become more expensive in the United States.
B)
U.S. goods become more expensive in Canada.
C)
U.S. residents tend to buy more from Canada, since the United States has a weak
currency.
D)
the United States sells more goods to Canada.
Page 23
110.
When the U.S. dollar price of a foreign currency rises:
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.
111.
If the U.S. dollar appreciates, we expect all of the following EXCEPT that:
A)
Americans will buy more foreign currency.
B)
Americans will buy more goods from abroad.
C)
U.S. exports to other countries will decline.
D)
Americans will buy fewer goods from abroad.
112.
Suppose that the United States and European Union are the only trading partners in the
world. If interest rates in the United States are significantly lower than those in the
European Union, we would expect:
A)
the supply of the dollar to fall, appreciating the dollar.
B)
the demand for the dollar to fall, depreciating the dollar.
C)
the supply of euros to increase, depreciating the euro.
D)
the demand for euros to decrease, depreciating the euro.
113.
Suppose that the United States and European Union are the only trading partners in the
world. If the United States lowers import restrictions from the European Union, we
would expect:
A)
the demand for euros to increase, appreciating the euro.
B)
the demand for the dollar to increase, appreciating the dollar.
C)
the supply of dollars to increase, appreciating the dollar.
D)
the supply of euros to increase, depreciating the euro.
114.
Suppose that the United States and European Union are the only trading partners in the
world. If the European Union imposes some import tariffs on U.S. goods, we would
expect:
A)
the supply of the euro to decrease, depreciating the euro.
B)
the demand for the dollar to decrease, depreciating the dollar.
C)
the demand for the dollar to increase, appreciating the dollar.
D)
the supply of the dollar to decrease, depreciating the dollar.
Page 24
Use the following to answer questions 115-119:
Figure: Change in the Demand for U.S. Dollars
115.
(Figure: Change in the Demand for U.S. Dollars) Look at the figure Change in the
Demand for U.S. Dollars. The change from D1 to D2 will occur, all other things being
equal, if the:
A)
supply of euros decreases.
B)
demand for euros increases.
C)
demand for euros decreases.
D)
demand for dollars increases.
116.
(Figure: Change in the Demand for U.S. Dollars) Look at the figure Change in the
Demand for U.S. Dollars. The change from D1 to D2 will occur, all other things being
equal, if:
A)
interest rates are higher in Europe.
B)
interest rates are higher in the United States.
C)
interest rates in the United States and Europe are equal.
D)
inflation is higher in Europe.
117.
(Figure: Change in the Demand for U.S. Dollars) Look at the figure Change in the
Demand for U.S. Dollars. A flow of capital from Europe to the United States would
cause a movement in this foreign exchange market that is best represented by the shift
from:
A)
D2 to D1.
B)
E2 to E1.
C)
D1 to D2.
D)
E1 to E2.
Page 25
118.
(Figure: Change in the Demand for U.S. Dollars) Look at the figure Change in the
Demand for U.S. Dollars. A movement from E1 to E2 in this foreign exchange market
would cause Americans to purchase _____ goods and services from Europe.
A)
the same amount of
B)
fewer
C)
more
D)
The answer cannot be determined from the information provided.
119.
(Figure: Change in the Demand for U.S. Dollars) Look at the figure Change in the
Demand for U.S. Dollars. A movement from E2 to E1 in this foreign exchange market
would cause Americans to purchase _____ goods and services from Europe.
A)
the same amount of
B)
less
C)
more
D)
The answer cannot be determined from the information provided.
120.
As the balance of payments in the financial account_____, the balance of payments on
current account increases and the U.S. dollar _____.
A)
increases; depreciates
B)
decreases; depreciates
C)
increases; appreciates
D)
decreases; appreciates
121.
All other things being equal, if the economy of Europe expands rapidly and this
increases tourism dramatically in the United States:
A)
the euro will appreciate.
B)
the U.S. dollar will appreciate.
C)
the demand for the dollar will fall.
D)
the supply of the euro will fall.
122.
If Europeans begin to view the United States as a more attractive investment
opportunity, the outcome will be a(n) _____ of the dollar, which will _____.
A)
depreciation; raise U.S. exports
B)
appreciation; discourage Europeans from buying U.S. goods and services
C)
depreciation; lower U.S. exports
D)
depreciation; persuade Europeans to buy more U.S. products
Page 26
123.
In the foreign exchange market, when the demand for the euro increases, the
equilibrium U.S. dollar price of the euro _____ and the U.S. dollar _____.
A)
rises; appreciates
B)
falls; depreciates
C)
falls; appreciates
D)
rises; depreciates
124.
In the foreign exchange market, an increase in the rate of return available in the
eurozone, all other things equal, will shift the _____ curve for the _____ to the _____,
and the euro will _____.
A)
demand; euro; right; appreciate
B)
supply; euro; right; depreciate
C)
demand; euro; left; depreciate
D)
demand; U.S. dollar; right; appreciate
125.
If the supply of U.S. dollars in Britain increases, then all of the following occurs
EXCEPT that:
A)
the dollar depreciates against the pound.
B)
the pound sterling appreciates against the dollar.
C)
the dollar price of the pound increases.
D)
the dollar appreciates.
126.
If the demand for pounds sterling in the United States rises, then:
A)
the U.S. dollar appreciates.
B)
the pound sterling price of the U.S. dollar increases.
C)
the U.S. dollar price of the pound sterling increases.
D)
the pound depreciates.
127.
Suppose interest rates rise in the United States. We expect capital _____ to (from) the
United States and the U.S. dollar price of foreign currencies to _____, all other things
equal.
A)
outflows; fall
B)
outflows; rise
C)
inflows; fall
D)
inflows; rise
Page 27
128.
If foreign countries are increasing their demand for U.S. financial assets, then we can
expect the U.S. dollar to _____ and the current account balance to _____, all other
things equal.
A)
appreciate; increase
B)
appreciate; decrease
C)
depreciate; increase
D)
depreciate; decrease
129.
If the U.S. dollar appreciates relative to currencies in other countries, then U.S. imports
will _____ and exports will _____.
A)
increase; increase
B)
decrease; decrease
C)
decrease; increase
D)
increase; decrease
130.
If the U.S. dollar depreciates relative to currencies in other countries, then U.S. imports
will _____ and exports will _____.
A)
increase; increase
B)
decrease; decrease
C)
decrease; increase
D)
increase; decrease
131.
Consider the demand for and the supply of the U.S. dollar. The exchange rate is
measured in terms of yen per dollar. If the demand for the U.S. dollar decreases, all of
the following will be true EXCEPT that:
A)
the demand curve for dollars will shift to the left.
B)
the Japanese will buy more U.S. goods.
C)
Americans will buy more Japanese goods.
D)
the exchange rate of yen per U.S. dollar will fall.
132.
The Japanese will demand U.S. dollars in all of the following cases EXCEPT:
A)
to buy real estate in New York City.
B)
to buy a GM car in Japan.
C)
to see a Hollywood movie in Tokyo.
D)
to invest in Japanese stocks.
Page 28
133.
If Japanese buyers demand more U.S. dollars, then the dollar will _____, the yen will
_____, the U.S. balance of payments on current account will _____, and the U.S.
balance of payments on financial account will _____.
A)
appreciate; depreciate; rise; fall
B)
depreciate; appreciate; rise; fall
C)
appreciate; depreciate; rise; rise
D)
appreciate; depreciate; fall; rise
134.
If a country’s currency appreciates, all other things equal, exports _____ and imports
_____ .
A)
increase; increase
B)
increase; decrease
C)
decrease; increase
D)
decrease; decrease
135.
If a country’s currency depreciates, all other things equal, exports _____ and imports
_____ .
A)
increase; increase
B)
increase; decrease
C)
decrease; increase
D)
decrease; decrease
136.
Which of the following would demand dollars in the foreign exchange market?
I. Americans who want to buy U.S. goods, services, and assets
II. Americans who want to buy European goods, services, and assets
III. Europeans who want to buy U.S. goods, services, and assets
A)
I only
B)
II only
C)
III only
D)
I, II, and III
137.
Which of the following would supply dollars in the foreign exchange market?
I. Americans who want to buy U.S. goods, services, and assets
II. Americans who want to buy European goods, services, and assets
III. Europeans who want to buy U.S. goods, services, and assets
A)
I only
B)
II only
C)
III only
D)
I, II, and III
Page 29
138.
Which of the following would demand euros in the foreign exchange market?
I. Americans who want to buy U.S. goods, services, and assets
II. Americans who want to buy European goods, services, and assets
III. Europeans who want to buy U.S. goods, services, and assets
A)
I only
B)
II only
C)
III only
D)
I, II, and III
139.
Which of the following would supply euros in the foreign exchange market?
I. Americans who want to buy U.S. goods, services, and assets
II. Americans who want to buy European goods, services, and assets
III. Europeans who want to buy U.S. goods, services, and assets
A)
I only
B)
II only
C)
III only
D)
I, II, and III
140.
If the exchange rate is 8 yuan per U.S. dollar, the U.S. price index is 145, and the
Chinese price index is 206, the real exchange rate is _____ yuan.
A)
11.36
B)
7.62
C)
5.63
D)
0.08
141.
If the exchange rate is ¥200 per U.S. dollar, the U.S. price level is 120, and the Japanese
price level is 600, then the real exchange rate is:
A)
¥1.
B)
¥40.
C)
¥1,000.
D)
¥2,400.
142.
If the exchange rate is $1.50 per euro, the U.S. price level is 180, and the eurozone price
level is 120, then the real exchange rate per euro is:
A)
$1.
B)
$1.50.
C)
$2.40.
D)
$1.20.
Page 30
143.
Between 1993 and 2013, the Mexican peso fell against the U.S. dollar by almost
three-fourths of its original value. However, economists have concluded that this did not
result in a corresponding fall in the price of Mexican products expressed in dollars.
What explains this apparent paradox?
A)
Interest rates in the United States were increasing.
B)
Inflation in the United States was moving up steadily.
C)
The inflation rate in Mexico over that same period was higher than that of the
United States.
D)
The real exchange rate had fallen.
144.
Suppose the yen falls from ¥800 to ¥1,200 to the dollar and the price level in Japan
increases by 50% but there is no change in the price level in the United States. Which of
the following is TRUE?
A)
The nominal exchange rate of the yen has appreciated against the dollar.
B)
The nominal exchange rate of the dollar has depreciated against the yen.
C)
The real exchange rate has decreased.
D)
The real exchange rate has remained unchanged.
145.
Suppose the U.S. dollar depreciates nominally against the Mexican peso by 5%. The
price level in the United States increases by 7%, but Mexico’s price level does not
change. From this we can conclude that:
A)
U.S. goods became cheaper relative to Mexican goods.
B)
U.S. goods became more expensive relative to Mexican goods.
C)
There was no change in the real exchange rate.
D)
The real exchange rate for the United States depreciated.
146.
The real exchange rate between the U.S. dollar and the Canadian dollar will remain
constant if an increase in the value of the U.S. dollar against the Canadian dollar is
offset by:
A)
inflation in the United States.
B)
inflation in Canada.
C)
worldwide deflation.
D)
inflation in the United States and in Canada.
147.
The current account responds to changes in:
A)
the nominal exchange rate.
B)
the real exchange rate.
C)
the interest rate.
D)
both the nominal and real exchange rates.
Page 31
148.
If the Chinese government wants to keep the real and nominal exchange rates between
the yuan and the U.S. dollar fixed at 8 yuan per dollar without government intervention
in the foreign exchange market, the _____ rate in China must be _____ that in the
United States.
A)
inflation; equal to
B)
interest; higher than
C)
inflation; constantly lower than
D)
inflation; constantly higher than
149.
The real exchange rate between the U.S. dollar and the Indian rupee is the:
A)
exchange rate between the dollar and the rupee.
B)
exchange rate between the dollar and the rupee divided by the price level in India.
C)
amount of Indian rupees per dollar multiplied by the relative price levels in the
United States and India.
D)
official exchange rate between the dollar and the rupee quoted by the banks in the
United States and India.
Use the following to answer questions 150-151:
Scenario: Exchange Rate between the United States and India
Suppose that initially the nominal exchange rate was 40 rupees per dollar but it is now 50 rupees
per dollar.
150.
(Scenario: Exchange Rate between the United States and India) Look at the scenario
Exchange Rate between the United States and India. If the nominal exchange rate is 50
rupees per dollar and the inflation rate in India is 25%, while the aggregate price level
has remained unchanged in the United States, the real exchange rate between the U.S.
dollar and the Indian rupee:
A)
remains unchanged at 40.
B)
remains unchanged at 50.
C)
increases from 40 to 50.
D)
increases by more than 25%.
151.
(Scenario: Exchange Rate between the United States and India) Consider the scenario
Exchange Rate between the United States and India. The real exchange rate will change
by the greatest amount when the U.S. inflation rate is _____and the Indian inflation rate
is _____.
A)
zero; zero
B)
5%; 2%
C)
2%; 12%
D)
5%; 5%
Page 32
Use the following to answer questions 152-154:
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.
152.
(Scenario: Purchasing Power Parity) Look at the scenario Purchasing Power Parity.
What is the purchasing power parity of the pound?
A)
$5
B)
$2.50
C)
$1.25
D)
$0.80
153.
(Scenario: Purchasing Power Parity) Look at the scenario Purchasing Power Parity. To
have purchasing power parity, the pound must:
A)
appreciate.
B)
depreciate.
C)
remain constant.
D)
be purchased in foreign exchange markets.
154.
(Scenario: Purchasing Power Parity) Look at the scenario Purchasing Power Parity. For
there to be purchasing power parity, the nominal exchange rate for the dollar must be:
A)
£2.
B)
£1.25.
C)
£1.
D)
£0.40.
155.
According to the principle of purchasing power parity, if a 20-ml bottle of Diet Coke
costs €0.80 in Paris, £0.50 in London, and $1.10 in Chicago, the exchange rate between
the:
A)
euro and the pound should be €0.40 = £1.
B)
U.S. dollar and the euro should be $0.72 = €1.
C)
U.S. dollar and the pound should be $0.45 = £1.
D)
euro and the pound should be €1.60 = £1.
Page 33
156.
Purchasing power parity refers to:
A)
the number of units of foreign currency a dollar will buy.
B)
the amount of foreign assets the United States is buying.
C)
the amount of U.S. assets a foreign country is buying.
D)
the nominal exchange rate for which a market basket would cost the same in each
country.
157.
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.
A)
¥110
B)
¥120
C)
¥125
D)
¥112
158.
European automakers moved to the United States in the 1990s and early 2000s:
A)
to take advantage of the low cost of health care for autoworkers.
B)
because the euro had appreciated.
C)
because the dollar had appreciated.
D)
to use plants that U.S. auto manufacturers had abandoned.
159.
U.S. exports increased in 2006 because:
A)
NAFTA was repealed.
B)
a global currency was established.
C)
the dollar depreciated.
D)
the dollar appreciated.
Use the following to answer questions 160-165:
Scenario: Exchange Rates
The value of a euro goes from US$1.25 to US$1.50.
160.
(Scenario: Exchange Rates) Look at the scenario Exchange Rates. The euro has:
A)
depreciated.
B)
appreciated.
C)
been devalued.
D)
not been affected for use in international trade.
Page 34
161.
(Scenario: Exchange Rates) Look at the scenario Exchange Rates. The dollar has:
A)
depreciated.
B)
appreciated.
C)
been revalued.
D)
not been affected for use in international trade.
162.
(Scenario: Exchange Rates) Look at the scenario Exchange Rates. The exchange rate for
the dollar has changed from:
A)
€0.25 to €0.50.
B)
€1.25 to €1.50.
C)
€0.80 to €0.67.
D)
€0.67 to €0.80.
163.
(Scenario: Exchange Rates) Look at the scenario Exchange Rates. French exports to the
United States will:
A)
be cheaper.
B)
be more expensive.
C)
be unaffected.
D)
increase.
164.
(Scenario: Exchange Rates) Look at the scenario Exchange Rates. In Germany, exports
will _____ and imports will _____.
A)
increase; decrease
B)
increase; increase
C)
decrease; increase
D)
decrease; decrease
165.
(Scenario: Exchange Rates) Look at the scenario Exchange Rates. In the United States,
exports will _____ and imports will _____.
A)
increase; decrease
B)
increase; increase
C)
decrease; increase
D)
decrease; decrease
166.
If the U.S. dollar depreciates, other things being equal:
A)
the U.S. financial account is in surplus.
B)
exports from the United States to other countries will decrease.
C)
it falls in value against some other currency.
D)
the U.S. current account is in deficit.
Page 35
167.
The rule that governs a country’s policy toward its exchange rate is known as:
A)
the fixed exchange rate system.
B)
the floating exchange rate system.
C)
an exchange rate regime.
D)
the rules of exchange.
168.
A fixed exchange rate is:
A)
determined by the market.
B)
set by government.
C)
set by the International Monetary Fund.
D)
determined by the United Nations.
169.
A floating exchange rate is:
A)
determined by the market.
B)
set by government.
C)
set by the International Monetary Fund.
D)
determined by the United Nations.
170.
A system in which exchange rates are set by government policy is a ____ system.
A)
universal exchange
B)
floating exchange rate
C)
commodity standard
D)
fixed exchange rate
171.
Fixed exchange rates are determined by the:
A)
policies of the domestic government.
B)
forces of demand and supply in the developed countries.
C)
forces of demand and supply in the foreign exchange market.
D)
forces of demand and supply in the domestic money market.
172.
The nominal exchange rate is:
I. the evaluation and ranking of different global stock exchanges.
II. the price of a country’s money in terms of another country’s money.
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
Page 36
173.
A rule governing policy for the exchange rate is:
I. the terms of trade.
II. an exchange rate regime.
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
174.
Government purchases or sales of currency in the foreign exchange market constitute:
I. a floating exchange rate regime.
II. foreign exchange controls.
III. exchange market intervention.
A)
I only
B)
II only
C)
III only
D)
I, II, and III
175.
Licensing systems that limit the right of individuals to buy foreign currency are:
I. floating exchange rate regimes.
II. foreign exchange controls.
III. exchange market interventions.
A)
I only
B)
II only
C)
III only
D)
I, II, and III
176.
Foreign exchange reserves are:
I. stocks of foreign currency.
II. gold and silver.
III. bonds of foreign governments.
A)
I only
B)
II only
C)
III only
D)
I, II, and III
Use the following to answer questions 177-182:
Scenario: Gizmovia
The Republic of Gizmovia wants to maintain the exchange rate of its currency, the gizmo, at
$0.50, but the current exchange rate for the gizmo is $0.40.
Page 37
177.
(Scenario: Gizmovia) Look at the scenario Gizmovia. At the target rate of $0.50:
A)
the quantity demanded of gizmos equals the quantity supplied.
B)
there is a surplus of gizmos.
C)
there is a shortage of gizmos.
D)
the quantity demanded of gizmos is greater than the quantity supplied.
178.
(Scenario: Gizmovia) Look at the scenario Gizmovia. If Gizmovia uses exchange
market intervention to increase the value of its currency to $0.50, it should _____
gizmos and _____ dollars in the foreign exchange market.
A)
sell; sell
B)
sell; buy
C)
buy; sell
D)
buy; buy
179.
(Scenario: Gizmovia) Look at the scenario Gizmovia. If Gizmovia uses monetary policy
to bring the exchange rate for the gizmo to $0.50, it should _____ interest rates by
_____ the money supply.
A)
decrease; decreasing
B)
decrease; increasing
C)
increase; increasing
D)
increase; decreasing
180.
(Scenario: Gizmovia) Look at the scenario Gizmovia. If Gizmovia uses monetary policy
to bring the exchange rate for the gizmo to $0.50, it should _____ interest rates, which
will _____ capital inflows of gizmos.
A)
decrease; decrease
B)
decrease; increase
C)
increase; increase
D)
increase; decrease
181.
(Scenario: Gizmovia) Look at the scenario Gizmovia. If Gizmovia uses monetary policy
to bring the exchange rate for the gizmo to $0.50, it should _____ interest rates, which
will _____ capital outflows of gizmos.
A)
decrease; decrease
B)
decrease; increase
C)
increase; increase
D)
increase; decrease
Page 38
182.
(Scenario: Gizmovia) Look at the scenario Gizmovia. If Gizmovia uses foreign
exchange controls, it should require licenses to _____ gizmos and _____ dollars.
A)
buy; buy
B)
buy; sell
C)
sell; sell
D)
sell; buy
Use the following to answer questions 183-187:
Scenario: Gizmovia II
The Republic of Gizmovia wants to maintain the exchange rate of its currency, the gizmo, at
$0.50, but the current exchange rate for the gizmo is $0.75.
183.
(Scenario: Gizmovia II) Look at the scenario Gizmovia II. At the target rate of $0.50:
A)
the quantity demanded of gizmos equals the quantity supplied.
B)
there is a surplus of gizmos.
C)
there is a shortage of gizmos.
D)
the quantity demanded of gizmos is greater than the quantity supplied.
184.
(Scenario: Gizmovia II) Look at the scenario Gizmovia II. If Gizmovia uses exchange
market intervention to decrease the value of its currency to $0.50, it should _____
gizmos and _____ dollars in the foreign exchange market.
A)
sell; sell
B)
sell; buy
C)
buy; sell
D)
buy; buy
185.
(Scenario: Gizmovia II) Look at the scenario Gizmovia II. If Gizmovia uses monetary
policy to bring the exchange rate for the gizmo to $0.50, it should _____ interest rates,
which will _____ capital inflows of gizmos.
A)
decrease; decrease
B)
decrease; increase
C)
increase; increase
D)
increase; decrease
Page 39
186.
(Scenario: Gizmovia II) Look at the scenario Gizmovia II. If Gizmovia uses monetary
policy to bring the exchange rate for the gizmo to $0.50, it should _____ interest rates,
which will _____ capital outflows of gizmos.
A)
decrease; decrease
B)
decrease; increase
C)
increase; increase
D)
increase; decrease
187.
(Scenario: Gizmovia II) Look at the scenario Gizmovia II. If Gizmovia uses foreign
exchange controls, it should require licenses to _____ gizmos and _____ dollars.
A)
buy; buy
B)
buy; sell
C)
sell; sell
D)
sell; buy
188.
Which of the following is a method to maintain a fixed exchange rate?
I. exchange market intervention
II. monetary policy
III. foreign exchange controls
A)
I only
B)
II only
C)
III only
D)
I, II, and III
189.
If the equilibrium exchange rate is below 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 the domestic currency by foreigners.
A)
I only
B)
II only
C)
III only
D)
I, II, and III
190.
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.
A)
I only
B)
II only
C)
III only
D)
I, II, and III
Page 40
191.
A floating exchange rate:
I. leaves monetary policy available for domestic stabilization.
II. reduces the uncertainty of international trade.
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
192.
A floating exchange rate:
I. leaves monetary policy available for domestic stabilization.
II. is less expensive to maintain than a fixed exchange rate.
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
193.
A floating exchange rate:
I. leaves monetary policy available for domestic stabilization.
II. is less expensive to maintain than a fixed exchange rate.
III. adds uncertainty to international trade.
A)
I only
B)
II only
C)
III only
D)
I, II, and III
194.
A fixed exchange rate:
I. leaves monetary policy available for domestic stabilization.
II. reduces the uncertainty of international trade.
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
195.
A fixed exchange rate:
I. leaves monetary policy available for domestic stabilization.
II. is less expensive to maintain than a floating exchange rate.
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
Page 41
196.
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.
A)
I only
B)
II only
C)
III only
D)
I, II, and III
197.
If a government fixes the exchange rate _____ the market equilibrium, there will be a
shortage of the domestic currency and a tendency for the exchange rate (U.S. dollars per
unit of the other currency) to _____.
A)
below; fall
B)
above; rise
C)
below; rise
D)
above; fall
198.
If a government wants to increase the value of its currency in foreign exchange markets,
it can:
A)
use contractionary monetary policy.
B)
use expansionary monetary policy.
C)
decrease interest rates.
D)
sell its currency.
199.
Which of the following would NOT maintain a fixed exchange rate?
A)
trading currency in the foreign exchange market
B)
changing monetary policy to shift the supply and demand curves for its own
currency
C)
implementing foreign exchange controls
D)
passing a law requiring that the exchange rate remain fixed
200.
If a government fixes the exchange rate so as to generate a surplus of the domestic
currency, the exchange rate (U.S. dollars per unit of the other currency) will tend to
_____. To maintain the fixed exchange rate, the government must _____ the domestic
currency.
A)
fall; increase the international demand for
B)
rise; increase the international demand for
C)
fall; decrease the international demand for
D)
fall; increase the domestic supply of
Page 42
201.
Assume that the foreign exchange market is trading the domestic currency at a rate (U.S.
dollars per unit of the domestic currency) above the rate fixed by the government. To
maintain the fixed exchange rate, the government must:
A)
decrease foreign exchange reserves.
B)
lower the domestic interest rate.
C)
facilitate the domestic purchase of foreign financial assets.
D)
raise the domestic interest rate.
202.
A depreciation of a currency below the exchange rate fixed by its government can be
countered by all of the following measures EXCEPT by:
A)
decreasing capital flows out of the country.
B)
limiting the domestic purchase of foreign financial assets.
C)
decreasing capital flows into the country.
D)
decreasing foreign exchange reserves.
203.
To fix its exchange rate, a government can use:
A)
competition.
B)
exchange market intervention.
C)
speculation.
D)
arbitrage.
Use the following to answer questions 204-205:
Figure: Exchange Market Intervention
Page 43
204.
(Figure: Exchange Market Intervention) Look at panel (a) in the figure Exchange
Market Intervention. Which of the following approaches could the Genovian
government use to raise the value of the geno above its present equilibrium exchange
rate and into the target range?
A)
use its own currency to buy U.S. dollars
B)
shift the demand for genos to the right by raising interest rates in Genovia
C)
eliminate the exchange controls that limit the right of Genovian citizens to buy
U.S. dollars
D)
tighten the exchange controls that limit purchases of U.S. dollars by Genovian
citizens
205.
(Figure: Exchange Market Intervention) Look at panel (b) in the figure Exchange
Market Intervention. Which of the following approaches could the Genovian
government use to decrease the value of the geno below its present equilibrium
exchange rate and into the target range?
A)
use its own currency to buy U.S. dollars
B)
shift the demand for genos to the right by increasing interest rates in Genovia
C)
eliminate exchange controls that limit the right of Genovian citizens to sell foreign
currency
D)
tighten the exchange controls that limit purchases of U.S. dollars by Genovian
citizens
206.
Foreign exchange controls are:
A)
fixed exchange rates.
B)
a government licensing system that limits the amount of foreign currency an
individual can buy.
C)
floating exchange rates.
D)
international limits on exchange rates.
207.
When countries seek to maintain fixed exchange rates through intervention, their
governments or central banks:
A)
never have to intervene in currency markets because the exchange rate is fixed.
B)
may have to stop printing domestic currency.
C)
must buy domestic currency when foreign demand for it increases.
D)
must sell domestic currency when foreign demand for it increases.
Page 44
208.
A country wants to maintain a fixed exchange rate with the dollar, but at the current
exchange rate its currency is in excess. The country can adopt all of the following
policies to maintain its exchange rate EXCEPT:
A)
buy domestic currency and sell U.S. dollars in the foreign exchange market.
B)
sell domestic currency and buy U.S. dollars in the foreign exchange market.
C)
impose foreign exchange controls.
D)
contract the money supply to raise domestic interest rates.
209.
“Foreign exchange controls” refers to the:
A)
fixed exchange rate system maintained by a country.
B)
restrictions imposed by a country on the amount of foreign exchange that its central
bank can hold.
C)
system of a common currency used by several countries, such as the euro.
D)
licensing systems that limit the rights of individuals to buy foreign currency.
210.
A floating exchange rate:
A)
retains the ability of monetary policy to help stabilize the economy.
B)
reduces the ability of monetary policy to stabilize the economy.
C)
reduces the uncertainty faced by business firms.
D)
makes foreign goods easier to price.
211.
One of the advantages of adopting a fixed exchange rate system is that it:
A)
reduces uncertainty.
B)
reduces the need for fiscal policy.
C)
increases the strength of monetary policy.
D)
does not require the country to maintain any large foreign exchange reserve.
212.
One limitation of maintaining a fixed exchange rate system is that:
A)
it subjects the country’s exchange rate to wide fluctuations in the foreign exchange
market.
B)
it provides an incentive for the country to change its inflation policy frequently.
C)
the country may not be able to use monetary policy to achieve other goals, such as
full employment.
D)
it leads to wide fluctuations in the growth rate.
213.
The advantage of a fixed exchange rate is that it:
A)
leaves monetary policy available for macroeconomic stabilization.
B)
eliminates the possibility of the twin deficits.
C)
eliminates uncertainty about the value of a currency.
D)
tends to create trade surpluses.
Page 45
214.
Which of the following is NOT true of a fixed exchange rate system?
A)
It is good for business.
B)
Foreign exchange reserves are costly.
C)
It keeps a country from using inflationary policies.
D)
It makes pursuing domestic macroeconomic objectives easier.
215.
A major drawback of a floating exchange rate is the:
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.
216.
All of the following are major drawbacks of a fixed exchange rate EXCEPT that:
A)
exchange controls must be imposed at the cost of administrative red tape and
corruption.
B)
resources must be diverted to the accumulation of large foreign exchange reserves.
C)
monetary policy cannot be used to stabilize output and the inflation rate.
D)
commerce among countries is more uncertain and riskier.
217.
With a fixed exchange rate regime, monetary policy is:
A)
fully flexible.
B)
limited in its ability to shift aggregate demand to the right.
C)
limited in its ability to shift aggregate supply to the right.
D)
independent of exchange rate issues.
218.
The Bretton Woods monetary system:
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.
219.
The Bretton Woods agreement called for:
A)
each currency’s value to be flexible relative to other currencies.
B)
maintaining fixed exchange rates by government intervention.
C)
most nations to adopt the euro as their official currency.
D)
what amounted to a floating exchange rate.
Page 46
220.
The result of the meeting of representatives of the Allied Nations at Bretton Woods,
New Hampshire, in 1944 was:
A)
the North American Free Trade Agreement.
B)
a system of floating exchange rates.
C)
a system of fixed exchange rates.
D)
the Treaty of Ghent.
221.
After the Bretton Woods agreement broke down in 1971, the U.S. and most
industrialized countries adopted:
A)
the euro.
B)
the bitcoin.
C)
a system of fixed exchange rates.
D)
a system of floating exchange rates.
222.
Why did China buy $450 billion in foreign exchange reserves in 2010?
A)
to encourage free trade between all nations
B)
to keep the yuan from depreciating
C)
to keep the yuan from appreciating
D)
to slow down the growth of the Chinese economy
223.
China’s exchange rate policy:
A)
led to current account deficits in the early 2000s.
B)
led to the supply of yuan exceeding the demand for yuan.
C)
is floating rate policy.
D)
is a fixed rate policy.
224.
The primary economic disadvantage of adopting the euro for Britain is:
A)
the loss of the ability to conduct an independent monetary policy.
B)
the loss of national pride.
C)
a decrease in international trade and growth of GDP.
D)
the risk of a higher rate of unemployment.
225.
Which of the following countries did NOT adopt the euro?
I. Britain
II. Switzerland
III. Sweden
A)
I only
B)
II only
C)
III only
D)
I,II, and III
Page 47
226.
Which of the following was an argument IN FAVOR of Britain’s adopting the euro?
I. Using the same currency as many other European countries would expand trade and
increase productivity.
II. Using the euro would increase the effectiveness of monetary policy.
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
227.
Which of the following was an argument AGAINST Britain’s adopting the euro?
I. Using the same currency as many other European countries would discourage trade
and decrease productivity.
II. Using the euro would decrease the effectiveness of monetary policy.
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
228.
The euro was established in:
A)
1865.
B)
1933.
C)
1999.
D)
2008.
229.
Devaluation of a currency occurs under _____ exchange rates when the price of the
domestic currency in terms of foreign currency _____.
A)
flexible; falls
B)
flexible; rises
C)
fixed; falls
D)
fixed; rises
230.
In terms of foreign currency, a revaluation makes:
A)
domestic goods cheaper relative to foreign goods.
B)
both domestic and foreign goods less expensive.
C)
both domestic and foreign goods more expensive.
D)
domestic goods more expensive relative to foreign goods.
Page 48
231.
Which of the following statements regarding exchange rate intervention is FALSE?
A)
A devaluation can be used to increase exports and reduce imports.
B)
A devaluation can be used to eliminate a recessionary gap.
C)
A revaluation can be used to eliminate a recessionary gap.
D)
Devaluations and revaluations can be used to eliminate shortages or surpluses in
the foreign exchange market.
232.
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 _____.
A)
revaluated; appreciated
B)
appreciated; devaluated
C)
devaluated; appreciated
D)
appreciated; revaluated
233.
A revaluation _____ exports and _____ imports.
A)
increases; decreases
B)
decreases; increases
C)
increases; increases
D)
decreases; decreases
234.
Under fixed exchange rates, a devaluation:
A)
decreases aggregate demand.
B)
increases aggregate demand.
C)
decreases aggregate supply.
D)
increases aggregate supply.
235.
Under fixed exchange rates, a revaluation decreases aggregate demand by:
A)
increasing exports.
B)
reducing imports.
C)
causing a financial account deficit.
D)
decreasing exports.
236.
Devaluation is reduction in the:
A)
value of a currency due to inflation.
B)
value of a currency in a floating exchange rate system.
C)
value of a currency in a fixed exchange rate system.
D)
rate of inflation of a country.
Page 49
237.
Which of the following countries switched from fixed to floating exchange rates?
I. Britain
II. Argentina
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
238.
A reduction in the value of a currency that is set under a fixed exchange rate regime is
a(n):
A)
depreciation.
B)
devaluation.
C)
appreciation.
D)
revaluation.
239.
An increase in the value of a currency that is set under a fixed exchange rate regime is
a(n):
A)
depreciation.
B)
devaluation.
C)
appreciation.
D)
revaluation.
240.
A reduction in the value of a currency that is determined under a floating exchange rate
regime is a(n):
A)
depreciation.
B)
devaluation.
C)
appreciation.
D)
revaluation.
241.
An increase in the value of a currency that is determined under a floating exchange rate
regime is a(n):
A)
depreciation.
B)
devaluation.
C)
appreciation.
D)
revaluation.
Page 50
242.
The Venezuelan bolivar trades at a fixed exchange rate. If Venezuela uses monetary
policy to change the exchange rate of the bolivar from $0.16 to $0.20, the bolivar has:
A)
depreciated.
B)
been devalued.
C)
appreciated.
D)
been revalued.
243.
The Danish krone is a fixed exchange rate currency. If Denmark intervenes in the
foreign exchange market to change the krone from $0.18 to $0.15, the krone has:
A)
depreciated.
B)
been devalued.
C)
appreciated.
D)
been revalued.
244.
The pound sterling floats. If its exchange rate changes from $1.68 to $1.75, the pound
has:
A)
depreciated.
B)
been devalued.
C)
appreciated.
D)
been revalued.
245.
The pound sterling floats. If the exchange rate for the pound changes from $1.68 to
$1.60, the pound has:
A)
depreciated.
B)
been devalued.
C)
appreciated.
D)
been revalued.
246.
A devaluation will make exports _____expensive and imports _____ expensive.
A)
more; more
B)
more; less
C)
less; less
D)
less; more
247.
A revaluation will make exports _____expensive and imports _____ expensive.
A)
more; more
B)
more; less
C)
less; less
D)
less; more
Page 51
248.
After a devaluation, all other things equal, exports will likely _____ and imports will
likely _____ .
A)
increase; increase
B)
decrease; decrease
C)
increase; decrease
D)
decrease; increase
249.
After a revaluation, all other things equal, exports will likely _____ and imports will
likely _____ .
A)
increase; increase
B)
decrease; decrease
C)
increase; decrease
D)
decrease; increase
250.
After a devaluation, all other things equal, a country’s balance of payments on the
current account will likely:
A)
increase.
B)
decrease.
C)
remain the same.
D)
fluctuate randomly.
251.
After a revaluation, all other things equal, a country’s balance of payments on the
current account will likely:
A)
increase.
B)
decrease.
C)
remain the same.
D)
fluctuate randomly.
252.
A devaluation can help reduce a(n):
I. inflationary gap.
II. deflationary gap.
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
Page 52
253.
A revaluation can help reduce a(n):
I. inflationary gap
II. deflationary gap
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
254.
A revaluation can help reduce:
I. shortages of domestic currency.
II. surpluses of domestic currency.
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
255.
A devaluation can help reduce:
I. shortages of domestic currency.
II. surpluses of domestic currency.
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
256.
The 2001 devaluation of the Argentine peso had all of the following effects EXCEPT:
A)
promoting Argentine exports.
B)
helping close a recessionary gap.
C)
reducing the deficit of the current account.
D)
helping close an inflationary gap.
257.
A decrease in U.S. interest rates causes the dollar to _____ and aggregate demand to
_____.
A)
depreciate; increase
B)
depreciate; decrease
C)
appreciate; increase
D)
appreciate; decrease
Page 53
258.
An increase in U.S. interest rates causes a decrease in aggregate demand by _____
investment spending, _____ the dollar, and _____.
A)
increasing; appreciating; increasing imports
B)
decreasing; appreciating; increasing imports
C)
increasing; depreciating; increasing exports
D)
decreasing; depreciating; decreasing exports
259.
With a floating exchange rate:
A)
monetary policy is ineffective.
B)
monetary policy is not independent.
C)
a central bank can use an independent monetary policy.
D)
an independent fiscal policy cannot be used.
260.
Expansionary monetary policy in the United States causes U.S. interest rates to _____
and the dollar to _____.
A)
rise; appreciate
B)
rise; depreciate
C)
fall; appreciate
D)
fall; depreciate
261.
Suppose a country has floated its currency and the central bank sets an expansionary
monetary policy. Which of the following is LIKELY to occur?
A)
Interest rates will fall and capital will flow in.
B)
Interest rates will rise and capital will flow out.
C)
Interest rates will fall and capital will flow out.
D)
Its exchange rate will appreciate.
262.
Suppose a country has floated its currency and the central bank sets a contractionary
monetary policy. Which of the following is LIKELY to occur?
A)
The country’s currency will depreciate.
B)
Interest rates will rise, the currency will appreciate, and any inflationary gap will
shrink.
C)
Interest rates will fall, which will reduce aggregate demand.
D)
Net exports will be larger.
Page 54
263.
A reduction in the interest rate has _____ impact on aggregate demand with _____
exchange rates than with _____ exchange rates.
A)
a smaller; floating; fixed
B)
a larger; floating; fixed
C)
the same; fixed; floating
D)
the same; floating; fixed
264.
Under a floating exchange rate regime, raising the interest rate has all of the following
effects EXCEPT:
A)
increasing foreign imports.
B)
reducing capital outflows.
C)
increasing domestic investment spending.
D)
reducing domestic exports.
265.
The difference between a fixed and a floating exchange rate regime is that with a _____
rate system, the _____, whereas with a _____ rate system it does not.
A)
fixed; central bank retains its ability to use independent monetary policy; floating
B)
floating; central bank retains its ability to use independent monetary policy; fixed
C)
fixed; government can use independent fiscal policy; floating
D)
floating; government can use independent fiscal policy; fixed
266.
If a country with floating exchange rates uses an expansionary monetary policy, the
domestic interest rate _____, demand for the domestic currency _____, supply of the
domestic currency _____, and the effect on the exchange rate is _____.
A)
falls; falls; rises; ambiguous
B)
rises; rises; falls; an increase
C)
falls; falls; rises; a decrease
D)
falls; remains unchanged; rises; a decrease
267.
If a country with a floating exchange rate follows a contractionary monetary policy,
with everything else remaining unchanged, it leads to a(n) _____ in interest rates and
a(n) _____ in the currency.
A)
increase; depreciation
B)
decrease; appreciation
C)
decrease; depreciation
D)
increase; appreciation
Page 55
268.
All else equal, if the Federal Reserve decreases the money supply, interest rates will
_____ and the dollar will _____ against other currencies.
A)
increase; depreciate
B)
decrease; depreciate
C)
decrease; appreciate
D)
increase; appreciate
269.
If the U.S. is in a recessionary gap, the appropriate policy is to _____ the money supply
to _____ interest rates.
A)
increase; increase
B)
increase; decrease
C)
decrease; increase
D)
decrease; decrease
270.
When the interest rate in the U.S. decreases as a result of expansionary monetary policy,
investment spending _____ and consumption _____ .
A)
increases; increases
B)
increases; decreases
C)
decreases; increases
D)
decreases; decreases
271.
As a result of expansionary monetary policy, lower U.S. interest rates will result in a(n)
_____ in the demand for dollars and a(n) _____ in the supply of dollars.
A)
increase; increase
B)
increase; decrease
C)
decrease; increase
D)
decrease; decrease
272.
Expansionary monetary policy in the United States will cause the dollar to:
A)
appreciate.
B)
be revalued.
C)
depreciate.
D)
be devalued.
273.
When the dollar depreciates, exports _____ and imports _____ .
A)
increase; increase
B)
increase; decrease
C)
decrease; increase
D)
decrease; decrease
Page 56
274.
A depreciated dollar will cause aggregate demand to:
A)
increase.
B)
decrease.
C)
remain constant.
D)
fluctuate randomly.
275.
If the U.S. is in an inflationary gap, the appropriate policy is to _____ the money supply
to _____ interest rates.
A)
increase; increase
B)
increase; decrease
C)
decrease; increase
D)
decrease; decrease
276.
When the interest rate in the U.S. increases as a result of contractionary monetary
policy, investment spending _____ and consumption _____ .
A)
increases; increases
B)
increases; decreases
C)
decreases; increases
D)
decreases; decreases
277.
As a result of contractionary monetary policy, higher U.S. interest rates will result in
a(n) _____ in the demand for dollars and a(n) _____ in the supply of dollars.
A)
increase; increase
B)
increase; decrease
C)
decrease; increase
D)
decrease; decrease
278.
Contractionary monetary policy in the United States will cause the dollar to:
A)
appreciate.
B)
be revalued.
C)
depreciate.
D)
be devalued.
279.
When the dollar appreciates, exports will _____ and imports will _____ .
A)
increase; increase
B)
increase; decrease
C)
decrease; increase
D)
decrease; decrease
Page 57
280.
An appreciated dollar will cause aggregate demand to:
A)
increase.
B)
decrease.
C)
remain constant.
D)
fluctuate randomly.
281.
Countries A and B are important trading partners. Country A is in a recession. Country
B will be better insulated from the recession originating in country A if country _____
has a _____ exchange rate system.
A)
B; fixed
B)
B; floating
C)
A; fixed
D)
A; floating
282.
China has fixed the exchange rate between the yuan and the U.S. dollar. Therefore, a
recession in China _____ U.S. _____ to China more than if the exchange rate floated.
A)
raises; exports
B)
reduces; imports
C)
raises; imports
D)
reduces; exports
283.
Adopting a floating exchange rate regime:
A)
makes the domestic economy less susceptible to business cycles abroad.
B)
limits the use of monetary policy to stabilize the economy.
C)
makes the domestic economy more susceptible to business cycles abroad.
D)
commits the country to maintaining low inflation rates.
284.
An advantage to floating exchange rates is that they help:
A)
insulate countries from currency fluctuations.
B)
insulate countries from recessions starting in other countries.
C)
keep exports from replacing domestic jobs.
D)
keep export prices down.
285.
Which of the following statements is TRUE?
A)
The financial account balance is the negative of the current account balance.
B)
A country’s balance on current account will be less than its balance on financial
account if exchange rates are allowed to float freely.
C)
If the market for a nation’s currency is in equilibrium, a financial account surplus
necessarily means a current account surplus.
D)
Exchange rates don’t affect either financial accounts or current accounts.
Page 58
286.
All other things unchanged, an increase in the value of the dollar against the euro _____
U.S. net exports and shifts the aggregate demand curve to the _____.
A)
increases; right
B)
decreases; right
C)
increases; left
D)
decreases; left
287.
All other things unchanged, a decrease in the value of the dollar against the euro _____
U.S. net exports and shifts the aggregate demand curve to the _____.
A)
increases; right
B)
decreases; right
C)
increases; left
D)
decreases; left
288.
According to the principle of purchasing power parity, the 2001 devaluation of the
Argentine peso:
A)
increased the inflation rate in Argentina relative to the inflation rate in the United
States.
B)
made Argentine imports from the United States cheaper.
C)
decreased the inflation rate in Argentina relative to the inflation rate in the United
States.
D)
had no impact on the Argentine inflation rate.
289.
A country’s balance of payments on financial account is the difference between the
country’s sales of assets to foreigners and its purchases of assets from foreigners during
a given period.
A)
True
B)
False
290.
The value of accounting services purchased by clients in China is included in the
merchandise trade balance.
A)
True
B)
False
291.
Included in the financial account is the income U.S. residents earn on assets owned in
other countries.
A)
True
B)
False
Page 59
292.
A change in the U.S. balance of payments on financial account generates an equal and
opposite reaction in the balance of payments on current account.
A)
True
B)
False
293.
If the current account is in surplus, the financial account must also be in surplus.
A)
True
B)
False
294.
Toyota’s factory in San Antonio is an example of direct foreign investment.
A)
True
B)
False
295.
Countries with government budget surpluses are likely to have capital inflows, all other
things equal.
A)
True
B)
False
296.
The exchange rate ensures that the balance of payments really does balance.
A)
True
B)
False
297.
The exchange rate is determined in the commodities markets.
A)
True
B)
False
298.
When a currency becomes more valuable in terms of other currencies, it appreciates.
A)
True
B)
False
299.
When a currency becomes more valuable in terms of other currencies, it depreciates.
A)
True
B)
False
300.
If the exchange rate for the euro is $1.38, $1 exchanges for €0.7246.
A)
True
B)
False
Page 60
301.
If the exchange rate for the yen is $0.009784, $1 exchanges for ¥9.784.
A)
True
B)
False
302.
If the euro depreciates, then a Mediterranean cruise will be cheaper for U.S. tourists.
A)
True
B)
False
303.
If the euro depreciates, then a Chevrolet will be cheaper for Italians.
A)
True
B)
False
304.
If the exchange rate for the U.S. dollar changes from $1.25 per euro to $1.50 per euro,
then the dollar depreciates.
A)
True
B)
False
305.
If the dollar value of the pound falls, then the dollar has depreciated.
A)
True
B)
False
306.
In the foreign exchange market for dollars and pounds, the demand for dollars is also the
supply of pounds.
A)
True
B)
False
307.
Demand for pounds sterling in the foreign exchange market might come from people in
Britain who want to buy U.S. goods, services, and assets.
A)
True
B)
False
308.
The supply of pounds sterling in the foreign exchange market might come from people
in Britain who want to buy U.S. goods, services, and assets.
A)
True
B)
False
Page 61
309.
If a country’s currency appreciates, all other things equal, its exports and imports will
increase.
A)
True
B)
False
310.
If a country’s currency appreciates, all other things equal, its exports will decrease and
its imports will increase.
A)
True
B)
False
311.
If the U.S. receives increased capital inflows from Europe, the dollar will depreciate.
A)
True
B)
False
312.
If the dollar appreciates because of a capital inflow from Asia, the balance on the U.S.
financial account will increase and the balance on the current account will decrease.
A)
True
B)
False
313.
Real exchange rates are those that are recognized by the International Monetary Fund.
A)
True
B)
False
314.
Assume the nominal exchange rate is £0.593 per dollar, the price level in the United
States is 250, and the price level in Britain is 225. The real exchange rate is £0.659 per
dollar.
A)
True
B)
False
315.
The current account responds to changes in both real and nominal exchange rates.
A)
True
B)
False
316.
If the nominal exchange rate and the price level fall, then the real exchange rate will fall
as well.
A)
True
B)
False
Page 62
317.
If the price levels in two countries are equal, then the real exchange rate between their
currencies equals the nominal exchange rate.
A)
True
B)
False
318.
The purchasing power parity between two currencies is the exchange rate at which a
given basket of goods and services would cost the same amount in each country.
A)
True
B)
False
319.
Suppose that a Ford costs $20,000 in the United States and £10,000 in Britain.
Purchasing power parity is an exchange rate of £2 per dollar.
A)
True
B)
False
320.
According to purchasing power parity, if the price of a Big Mac is lower in India and
China than in Europe, then the currencies of India and China are undervalued.
A)
True
B)
False
321.
If there is purchasing power parity between currencies, a Big Mac will be cheaper in
countries whose currency has appreciated.
A)
True
B)
False
322.
Fixed exchange rates are set by the market.
A)
True
B)
False
323.
An exchange rate regime is a rule governing policy for the exchange rate.
A)
True
B)
False
324.
The nominal exchange rate is the number of times that a unit of currency changes hands
in a year.
A)
True
B)
False
Page 63
325.
Since governments control the quantity of the currency of their country, they have more
control over exchange rates than other prices.
A)
True
B)
False
326.
A fixed exchange rate means that supply and demand of the currency determine its
exchange rate.
A)
True
B)
False
327.
A country has a floating exchange rate if the government lets the exchange rate go
wherever the market may take it.
A)
True
B)
False
328.
A fixed exchange rate means that the government keeps the exchange rate against some
other currency at or near a particular target.
A)
True
B)
False
329.
All countries must have either a fixed or floating exchange rate, since there are no
possible compromises between the two policies.
A)
True
B)
False
330.
Some countries have exchange rate policies that lie somewhere between fixed and
floating exchange rates, such as rates that are managed by the government to avoid wide
swings.
A)
True
B)
False
331.
If a government fixes the exchange rate below the market equilibrium rate, there will be
a surplus of its currency.
A)
True
B)
False
Page 64
332.
If a government fixes the exchange rate above the market equilibrium rate, there will be
a surplus of its currency.
A)
True
B)
False
333.
If the government wants to increase the value of its currency in foreign exchange
markets, it can sell its domestic currency in the foreign exchange market.
A)
True
B)
False
334.
If the government wants to decrease the value of its currency in foreign exchange
markets, it can sell its domestic currency in the foreign exchange market.
A)
True
B)
False
335.
If the government wants to increase the value of its currency in foreign exchange
markets, it can use expansionary monetary policy.
A)
True
B)
False
336.
If the government wants to decrease the value of its currency in foreign exchange
markets, it can use expansionary monetary policy.
A)
True
B)
False
337.
If the government wants to increase the value of its currency in foreign exchange
markets, it can limit the ability of foreigners to buy its currency.
A)
True
B)
False
338.
If the government wants to decrease the value of its currency in foreign exchange
markets, it can limit the ability of foreigners to buy its currency.
A)
True
B)
False
339.
Foreign exchange controls are the same thing as floating exchange rates.
A)
True
B)
False
Page 65
340.
Exchange market intervention is government trading in the foreign exchange market to
maintain a target exchange rate for its currency.
A)
True
B)
False
341.
Foreign exchange reserves are gold and silver that a government maintains to buy its
currency in foreign exchange markets.
A)
True
B)
False
342.
Foreign exchange reserves are stocks of foreign currencies that a government maintains
to buy its currency in foreign exchange markets.
A)
True
B)
False
343.
Foreign exchange controls are systems of a common currency used by a group of
countries, such as the Asian Tigers.
A)
True
B)
False
344.
If the target exchange rate of a fixed currency is below the equilibrium exchange rate, to
reach the target rate, the government should sell that currency and buy foreign
currencies.
A)
True
B)
False
345.
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.
A)
True
B)
False
346.
If the target exchange rate of a fixed currency is above the equilibrium exchange rate, to
reach the target rate, the government should raise interest rates.
A)
True
B)
False
Page 66
347.
If the target exchange rate of a fixed currency is above the equilibrium exchange rate, to
reach the target rate, the government should lower interest rates.
A)
True
B)
False
348.
If the target exchange rate of a fixed currency is above the equilibrium exchange rate, to
reach the target rate, the government should encourage capital inflows.
A)
True
B)
False
349.
If the target exchange rate of a fixed currency is above the equilibrium exchange rate, to
reach the target rate, the government should encourage capital inflows.
A)
True
B)
False
350.
If the target exchange rate of a fixed currency is below the equilibrium exchange rate, to
reach the target rate, the government should limit the ability of foreigners to buy its
currency.
A)
True
B)
False
351.
If the target exchange rate of a fixed currency is below the equilibrium exchange rate, to
reach the target rate, the government should limit the ability of its citizens to buy foreign
currencies.
A)
True
B)
False
352.
If a fixed currency is below its target exchange rate, the government will sell its own
currency in foreign exchange markets.
A)
True
B)
False
353.
Governments can use foreign exchange controls to help them fix the value of their
currency.
A)
True
B)
False
Page 67
354.
Since they reduce uncertainty, fixed exchange rates are good for business.
A)
True
B)
False
355.
The Bretton Woods agreement called for a flexible exchange rate system.
A)
True
B)
False
356.
The Bretton Woods agreement was abandoned in the early 1990s.
A)
True
B)
False
357.
If a country fixes its exchange rate, it loses its ability to use monetary policy for
macroeconomic stabilization.
A)
True
B)
False
358.
Fixed exchange rates lead to more stable conditions for international trade.
A)
True
B)
False
359.
Floating exchange rates lead to more stable conditions for international trade.
A)
True
B)
False
360.
Foreign exchange controls may distort incentives for international trade.
A)
True
B)
False
361.
Foreign exchange controls decrease the costs of red tape and corruption surrounding
international trade.
A)
True
B)
False
Page 68
362.
The benefits of floating exchange rates served as one of the motivations for the
international system of floating rates established after World War II.
A)
True
B)
False
363.
The benefits of fixed exchange rates served as one of the motivations for the
international system of fixed rates established after World War II.
A)
True
B)
False
364.
If a country adopts a fixed rate, it is committing not to engage in inflationary policies
because inflationary policies would destabilize the exchange rate.
A)
True
B)
False
365.
A floating rate can be expensive because it requires that a country keep large amounts of
foreign currency on hand—usually a low-return investment.
A)
True
B)
False
366.
A fixed rate can be expensive because it requires that a country keep large amounts of
foreign currency on hand—usually a low-return investment.
A)
True
B)
False
367.
A floating rate system eliminates uncertainty about the future value of a currency.
A)
True
B)
False
368.
A fixed rate system eliminates uncertainty about the future value of a currency.
A)
True
B)
False
369.
Foreign exchange controls, unlike tariffs and quotas, do not distort incentives for trade
between countries.
A)
True
B)
False
Page 69
370.
The 1944 Bretton Woods agreement established a system of fixed exchange rates among
major currencies.
A)
True
B)
False
371.
In the 1970s most European countries were unhappy with floating exchange rates
because they made each country’s domestic monetary policy ineffective.
A)
True
B)
False
372.
The Exchange Rate Mechanism established a target zone for European exchange rates
during the late 1980s and 1990s.
A)
True
B)
False
373.
Since the adoption of the euro in 2001, monetary policy has become much more
effective in individual European countries.
A)
True
B)
False
374.
In the early 2000s, Chinese exports led to a large surplus on its current account.
A)
True
B)
False
375.
China’s current account surplus and private capital inflows resulted in an equilibrium
exchange rate below the target exchange rate.
A)
True
B)
False
376.
To maintain its target exchange rate for the yuan, China had to sell yuan and buy dollars
and other currencies.
A)
True
B)
False
377.
Many of China’s trading partners feel that the yuan is undervalued.
A)
True
B)
False
Page 70
378.
Britain, Sweden, and Switzerland chose not to adopt the euro in 1999.
A)
True
B)
False
379.
The euro was devised in 1944.
A)
True
B)
False
380.
An argument in favor of Britain’s adopting the euro was that using the same currency as
many other European countries would expand trade and increase productivity.
A)
True
B)
False
381.
An argument in favor of Britain’s adopting the euro was that using the same currency as
many other European countries would make monetary policy more effective.
A)
True
B)
False
382.
An argument against Britain’s adopting the euro was that using the euro would make
trade more difficult and decrease British productivity.
A)
True
B)
False
383.
An argument against Britain’s adopting the euro was that using the euro would make
monetary policy less effective.
A)
True
B)
False
384.
The first country to adopt the euro was Great Britain.
A)
True
B)
False
385.
A devaluation of a currency tends to decrease the current account deficit.
A)
True
B)
False
Page 71
386.
If a country revalues its currency, it increases its aggregate demand.
A)
True
B)
False
387.
Britain has changed from a fixed exchange rate regime to a floating exchange rate
regime.
A)
True
B)
False
388.
A reduction in the value of a fixed rate currency is called a depreciation.
A)
True
B)
False
389.
A reduction in the value of a fixed rate currency is called a devaluation.
A)
True
B)
False
390.
An increase in the value of a fixed rate currency is called an appreciation.
A)
True
B)
False
391.
An increase in the value of a fixed rate currency is called a revaluation.
A)
True
B)
False
392.
A reduction in the value of a floating currency is called a devaluation.
A)
True
B)
False
393.
A reduction in the value of a floating currency is called a depreciation.
A)
True
B)
False
394.
An increase in the value of a floating currency is called an appreciation.
A)
True
B)
False
Page 72
395.
An increase in the value of a floating currency is called a revaluation.
A)
True
B)
False
396.
The Cuban peso is on a fixed rate. If the government of Cuba uses foreign exchange
controls to change the exchange rate of the peso from $1 to $1.20, the Cuban peso has
been revalued.
A)
True
B)
False
397.
The Chinese yuan is on a fixed rate. If the government of China uses monetary policy to
change the exchange rate of the yuan from $0.16 to $0.10, the Chinese yuan has
appreciated.
A)
True
B)
False
398.
The Japanese yen is a floating currency. If the exchange rate for the yen changes from
$0.0098 to $0.01, the yen has appreciated.
A)
True
B)
False
399.
The Canadian dollar is a floating currency. If the exchange rate for the Canadian dollar
changes from US$0.95 to US$0.98, the Canadian dollar has appreciated.
A)
True
B)
False
400.
A devaluation will make exports less expensive and imports more expensive.
A)
True
B)
False
401.
A revaluation will make exports less expensive and imports more expensive.
A)
True
B)
False
402.
After a devaluation, all other things equal, probably exports will increase and imports
will decrease.
A)
True
B)
False
Page 73
403.
After a revaluation, all other things equal, probably exports will increase and imports
will decrease.
A)
True
B)
False
404.
After a devaluation, all other things equal, a country’s balance of payments on the
current account will likely increase.
A)
True
B)
False
405.
After a revaluation, all other things equal, a country’s balance of payments on the
current account will likely increase.
A)
True
B)
False
406.
A devaluation can help reduce an inflationary gap.
A)
True
B)
False
407.
A revaluation can help reduce an inflationary gap.
A)
True
B)
False
408.
A revaluation can help reduce shortages of domestic currency.
A)
True
B)
False
409.
A devaluation can help reduce shortages of domestic currency.
A)
True
B)
False
410.
Floating exchange rates help insulate countries from recessions in other countries.
A)
True
B)
False
Page 74
411.
All other things equal, an expansionary monetary policy in Britain will decrease British
interest rates and increase the demand for and decrease the supply of the pound sterling.
A)
True
B)
False
412.
All other things equal, a contractionary monetary policy in Canada will decrease
Canadian interest rates and increase the demand for and decrease the supply of the
Canadian dollar.
A)
True
B)
False
413.
All other things equal, a contractionary monetary policy will cause the domestic
currency to appreciate.
A)
True
B)
False
414.
All other things equal, an expansionary monetary policy will cause the domestic
currency to appreciate.
A)
True
B)
False
415.
All other things equal, a depreciation of the domestic currency will cause aggregate
demand to increase.
A)
True
B)
False
416.
All other things equal, an appreciation of the domestic currency will cause aggregate
demand to increase.
A)
True
B)
False
417.
A recession in the United States could begin with our trading partners.
A)
True
B)
False
Page 75
418.
Other things equal, a recession in Mexico would cause U.S. exports to Mexico to
increase and U.S. aggregate demand to increase.
A)
True
B)
False
419.
If exports from the United States decrease because of a recession in Europe, all other
things equal, the demand for the dollar will decrease.
A)
True
B)
False
420.
If exports from the United States decrease because of a recession in Japan, all other
things equal, the dollar will appreciate.
A)
True
B)
False
421.
Consider the following transactions. How would they be entered in the U.S. balance of
payments accounts?
a. A U.S. citizen purchases a shirt produced in Mexico.
b. A bank in Mexico City purchases a U.S. Treasury bond.
c. A U.S. company buys an office building in Mexico City.
422.
Suppose a nation has a trade deficit on goods and services in the current account. Does
this imply that the total balance of the current account is a deficit?
423.
Suppose the economy of Alpha in 2008 imported $800 billion in goods and $400 billion
in services. The nation exported $500 billion in goods and $600 billion in services.
Citizens of foreign nations also purchased $200 billion of Alpha’s assets.
a. What was the merchandise trade balance?
b. What was the balance of payments on the current account?
c. What was the balance of payments on the financial account, and what was the value
of Alpha’s purchases of assets from the rest of the world?
424.
Suppose that the United States and Canada are the only trading partners in the world and
the U.S. Congress passes more restrictive import policies. Assuming that the Canadian
Parliament does not retaliate, what will happen to the U.S. balance of payments on the
current account? All else equal, how will more restrictive import policies affect the U.S.
balance of payments on the financial account? Explain the thinking behind your
conclusions.
Page 76
425.
Suppose that on January 1 the exchange rate was ¥120 per U.S. dollar. On December 31
of that year, it was ¥125 per dollar. Over the course of that year, did the dollar
appreciate or depreciate against the yen? Did the change in the exchange rate make U.S.
goods and services more or less attractive to Japanese consumers? Explain.
426.
Suppose that on January 1 the exchange rate was 15 Mexican pesos per U.S. dollar. On
December 31 of that year, a person needed 11 pesos to buy a dollar. Over the course of
that year, did the dollar appreciate or depreciate against the peso? Did the change in the
exchange rate make U.S. goods and services more or less attractive to Mexican
consumers? Explain.
427.
Suppose that on January 1 the exchange rate was US$1.40 per euro. On December 31 of
that year, a person needed $1.45 to buy a euro. Over the course of that year, did the
dollar appreciate or depreciate against the euro? Did the change in the exchange rate
make it easier or more difficult for U.S. college students to spend a semester at a
European university? Explain.
428.
Donald owns several hotels in U.S. tourism destinations. Much of Donald’s hotel
revenue comes from Europeans. Suppose the U.S. dollar depreciates against the euro.
Explain how this will affect Donald’s hotel business.
429.
Suppose that the United States and Canada are the only trading partners in the world.
What will happen to the value of the U.S. dollar if the U.S. Congress passes more
restrictive import policies? Explain.
430.
Suppose that the U.S. adopts a fixed exchange rate regime, and the target rate is €1.50
per dollar. If the current rate is €1.25 per dollar, what can the U.S. do to reach the target
rate?
431.
Suppose that China’s target exchange rate for the yuan is below its equilibrium exchange
rate. What is the possible disadvantage of using monetary policy to achieve the target
exchange rate?
432.
What are the costs of fixing the exchange rate?
433.
What are the advantages and disadvantages of fixed and floating exchange rates?
Page 77
434.
Explain two purposes of devaluation and revaluation in a fixed exchange rate regime.
435.
Explain the impact of an expansionary monetary policy in the United States, where
exchange rates are floating.
436.
Suppose the Federal Reserve is concerned about an inflationary gap, and as a result the
Fed reduces the money supply. All else equal, how will this affect the value of the dollar
in global currency markets? Explain.
437.
Explain how floating exchange rates in the United States can help insulate the U.S.
economy from a recession in Europe.
438.
A country’s balance of payments accounts:
A)
measure only a country’s exports and imports of goods and services.
B)
summarize a country’s transactions with other countries.
C)
are always positive.
D)
measure only the sales of assets to foreigners and the purchases of assets by
foreigners.
439.
If a country’s current account is positive, its:
A)
financial account is also positive.
B)
balance of payments is positive.
C)
financial account is negative.
D)
balance of payments is negative.
440.
The merchandise trade balance:
A)
is the difference between sales of assets to foreigners and purchases of assets by
foreigners.
B)
is the difference between a country’s exports and imports of goods.
C)
includes the value of services traded.
D)
is not part of the current account.
441.
A country’s balance of payments is made up of:
A)
the current account and merchandise trade account.
B)
the current account and financial account.
C)
the financial account and the services account.
D)
the financial account alone.
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442.
Which of the following is a payment from the United States to foreigners?
A)
the dollar value of tea the United States imports from India
B)
the dollar value of services provided to Canada
C)
the dollar value of tourism by visitors from the European Union
D)
the fees for financial services provided by the United States to China
443.
If the country’s balance of payments on the current account is positive:
A)
the balance of payments on the financial account is also positive.
B)
the balance of payments on the financial account is negative, so that the sum of the
accounts equals zero.
C)
a country’s flow of funds into the country is greater than the flow of funds out of
the country.
D)
the country’s imports are greater than its exports.
444.
In 2013, the United States:
A)
had a current account deficit.
B)
operated on a fixed exchange rate.
C)
also had a financial account deficit.
D)
operated on the gold standard.
445.
A decrease in capital flows into a country, holding everything else constant, will:
A)
increase its current account.
B)
be recorded as an increase in its balance of financial account.
C)
decrease the balance of payments on the current account.
D)
make the balance of payments negative.
446.
Countries A and B trade freely with each other. Suppose interest rates in the loanable
funds market in country A are lower than in the country B. This means:
A)
funds will flow from country A to country B.
B)
this interest rate differential will persist as long as citizens view domestic assets as
substitutes for foreign assets.
C)
funds will flow from country B to country A.
D)
interest rate differentials cannot be changed.
447.
A country that contracts its money supply will MOST likely have a(n):
A)
increase in the level of investment spending.
B)
increase in the demand for its currency in the foreign exchange market.
C)
increase in the supply of its currency in the foreign exchange market.
D)
a lowering of its interest rate.
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448.
If a country’s loanable funds market is initially in equilibrium and then there are capital
outflows, this will result in a _____ in the equilibrium interest rate, while the
equilibrium quantity of loanable funds will _____.
A)
fall; increase
B)
rise; decrease
C)
fall; decrease
D)
rise; increase
449.
A shift to the left of the demand for loanable funds could be caused by:
A)
more business investment spending financed through borrowing.
B)
less business investment spending financed through borrowing.
C)
a loosening of requirements needed to borrow funds.
D)
a more promising-looking economy.
450.
Fast-growing economies often have a greater demand for loanable funds than do
slower-growing economies because fast-growing economies:
A)
also have high private savings rates.
B)
have more investment opportunities.
C)
tend to have high public savings rates.
D)
tend to have a surplus balance of payments most of the time.
451.
Holding everything else constant, a decrease in political risk in a country will MOST
likely cause:
A)
capital inflows into that country to increase.
B)
capital inflows into that country to decrease.
C)
the supply of loanable funds in that country to decrease.
D)
the country to become a politically riskier place to invest.
452.
When a country’s currency depreciates:
A)
foreigners find the country’s goods to be cheaper.
B)
the country’s exports fall.
C)
the country’s imports rise.
D)
foreign goods become cheaper.
453.
Suppose a U.S. dollar initially trades for €1.20. After a few months, the U.S. dollar
trades for €1.40. This means:
A)
the dollar has depreciated.
B)
the dollar has appreciated.
C)
it now costs more U.S. dollars to buy euro-denominated goods.
D)
one can expect to see less euro goods bought by U.S. citizens.
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454.
Holding everything else constant, if the U.S. dollar falls against the Mexican peso:
A)
U.S. goods will look cheaper to Mexico.
B)
U.S. goods will look more expensive to Mexico.
C)
Mexico’s goods will look cheaper to the United States.
D)
one peso buys fewer U.S. dollars.
455.
A currency has depreciated when:
A)
that currency buys less foreign goods than it did previously.
B)
that currency buys more foreign goods than it did previously.
C)
one unit of that currency buys more units of a foreign currency than it did
previously.
D)
domestic goods become more expensive to holders of that currency.
456.
When a country’s currency undergoes a real appreciation:
A)
exports fall and imports rise.
B)
exports rise and imports fall.
C)
the merchandise trade balance becomes positive.
D)
exports and imports do not change.
457.
The United States dollar–Mexican peso exchange market is initially in equilibrium.
Suppose there is a decrease in demand for U.S. dollars. Holding everything else
constant, this will result in a movement along the _____ of U.S. dollars and a(n) _____
in pesos per U.S. dollar.
A)
supply of; increase
B)
demand for; increase
C)
supply of; decrease
D)
demand for; decrease
458.
To determine the real exchange rate, one needs to know:
A)
the nominal exchange rate and the aggregate price level in both countries.
B)
the amount of exports and imports.
C)
the balance of payments.
D)
the purchasing power parity.
459.
The nominal exchange rate:
A)
is adjusted for inflation.
B)
always equals purchasing power parity.
C)
is unadjusted for inflation.
D)
affects the current account.
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460.
When purchasing power parity is lower than the nominal exchange rate, over time one
can expect:
A)
the exchange rate to fall.
B)
the exchange rate to rise.
C)
purchasing power parity to fall.
D)
purchasing power parity to rise.
461.
If a country wishes to raise the exchange rate above its equilibrium value in the foreign
exchange market, it will notice:
A)
a surplus of its currency at the desired exchange rate.
B)
a shortage of its currency at the desired exchange rate.
C)
that it can achieve this rate by expanding the money supply.
D)
that it must increase the supply of its currency in the foreign exchange market.
462.
If a country finds its fixed rate currency falling:
A)
it can use foreign exchange reserves to purchase some of its currency.
B)
it can add to its foreign exchange reserves by selling some of its currency.
C)
it cannot use monetary policy to maintain its exchange rate.
D)
it will allow its currency devaluate.
463.
A government can target its exchange rate only if it:
A)
is willing to give up use of monetary policy to stabilize its economy.
B)
continues to use monetary policy for exchange market intervention and to stabilize
its economy.
C)
increases the amount of uncertainty in the foreign exchange markets.
D)
sets inflationary policies.
464.
A country with a fixed exchange rate regime:
A)
tends to increase uncertainty regarding the value of its currency.
B)
allows countries to use both fiscal and monetary policies to stabilize their
economy.
C)
reduces a country’s bias toward inflationary policies.
D)
reduces the amount of foreign currency a country must hold.
465.
Countries that follow floating exchange rate regimes:
A)
tend to insulate themselves from economic fluctuations in other countries.
B)
give up the ability to use monetary policy as a stabilization tool.
C)
find that they are susceptible to economic fluctuations in other countries.
D)
give up the ability to use fiscal policy as a stabilization tool.
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466.
A revaluation of a currency, holding everything else constant:
A)
makes foreign goods more attractive in the domestic economy.
B)
leads to an increase in aggregate demand and can therefore be expansionary.
C)
increases the balance of payments account toward a surplus.
D)
leads to a merchandise trade surplus.
467.
A country with a recessionary gap and a fixed exchange rate will be helped most by
a(n):
A)
revaluation of its currency.
B)
devaluation of its currency.
C)
expansionary monetary policy.
D)
No policy option will aid this country.
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Answer Key
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