[QUESTION]
107. An expansionary U.S. fiscal policy will:
A. decrease the value of the dollar if U.S. interest rates fall enough.
B. increase the value of the dollar if U.S. interest rates rise enough.
C. increase the value of the dollar if U.S. income and the U.S. price level increase enough.
D. increase the value of the dollar in all cases.
108. Considering primary effects through the price level, interest rates, and income only,
expansionary fiscal policy:
A. increases both the supply and demand for dollars.
B. reduces the supply of dollars and increases the demand.
C. increases the supply of dollars but reduces the demand.
D. reduces both the supply and demand for dollars.
109. Considering primary effects through the price level, interest rates, and income only,
contractionary fiscal policy:
A. increases both the supply and demand for dollars.
B. increases the supply of dollars but reduces the demand.
C. reduces the supply of dollars but increases the demand.
D. reduces both the supply and demand for dollars.
110. The exchange rate effects of fiscal policy are:
A. ambiguous because the price and income effects goes against the interest rate effect.
B. ambiguous because the price and interest rate effects goes against the income effect.
C. clear because the price and interest rate effects dominate the income effect.
D. clear because the price and income effects dominate the interest rate effect.
111. Which of the following statements is true?
A. Expansionary fiscal and monetary policy both tend to increase the exchange rate of an
economy.
B. Expansionary monetary policy tends to lower the exchange rate of an economy. The effects
of expansionary fiscal policy are unclear.
C. Expansionary fiscal policy tends to increase the exchange rate of an economy. The effects of
expansionary monetary policy are unclear.
D. The effects of both expansionary fiscal and monetary policy on the exchange rate of an
economy are unclear.
112. The combination of expansionary U.S. monetary policy and contractionary U.S. fiscal
policy should:
A. reduce the exchange rate if prices and income do not change.
B. not affect the exchange rate if prices and income do not change.
C. raise the exchange rate if prices and income do not change.
D. have an ambiguous effect on the exchange rate if prices and income do not change.
113. Refer to the graph shown. U.S. fiscal policy is most likely to shift the demand for dollars
from D1 to D2 if it increases U.S.:
A. interest rates.
B. income.
C. prices.
D. imports.
114. Refer to the graph shown. The shift in the graph from D1 to D2 shows how an
expansionary U.S. fiscal policy can cause an increase in:
A. prices that raise the dollar’s value.
B. interest rates that reduce the dollar’s value.
C. prices that reduce the dollar’s value.
D. interest rates that raise the dollar’s value.
115. Refer to the graph shown. The shift in the graph from D1 to D2 shows how a
contractionary U.S. fiscal policy can cause a decrease in:
A. prices that raises the dollar’s value.
B. interest rates that reduces the dollar’s value.
C. prices that reduces the dollar’s value.
D. interest rates that raises the dollar’s value.
116. Refer to the graph shown. The shift in the graph from D1 to D2 is least likely to be caused
by:
A. expansionary fiscal policy that raises U.S. interest rates.
B. expansionary fiscal policy that raises U.S. income.
C. contractionary fiscal policy that reduces U.S. prices.
D. contractionary fiscal policy that increases U.S. exports.
117. Self-fulfilling expectations challenge the idea of a well-functioning market, particularly in
the exchange rate market because the exchange rate:
A. may not be driven by supply and demand forces.
B. is determined by rumors.
C. is determined by traders and speculators.
D. may be driven by supply and demand forces.
118. A contractionary monetary policy tends to be more effective than a contractionary fiscal
policy at strengthening the value of the exchange rate because a contractionary monetary policy:
A. increases the interest rate and decreases exports while a contractionary fiscal policy decreases
both the interest rate and exports.
B. decreases the interest rate and increases imports while a contractionary fiscal policy increases
both the interest rate and imports.
C. increases the interest rate and decreases imports while contractionary fiscal policy decreases
both the interest rate and imports.
D. decreases the interest rate and increases exports while a contractionary fiscal policy increases
both the interest rate and exports.
119. If the government chooses not to buy or sell foreign currencies, it has a:
A. partially flexible exchange rate.
B. flexible exchange rate.
C. fixed exchange rate.
D. gold standard.
120. The United States would not need official reserves if it wanted to increase the:
A. supply of dollars and drive up the dollar price of foreign currencies.
B. supply of dollars and drive down the dollar price of foreign currencies.
C. demand for dollars and drive up the dollar price of foreign currencies.
D. demand for dollars and drive down the dollar price of foreign currencies.
121. Purchasing power parity is used to estimate equilibrium:
A. exchange rates.
B. inflation rates.
C. interest rates.
D. price levels.
122. Purchasing power parity is used to estimate:
A. changes in both short-run and long-run exchange rates.
B. only changes in short-run exchange rates.
C. only changes in long-run exchange rates.
D. changes in price levels, not exchange rates.
123. If a basket of goods costs $10 in the United States and 100,000 rubles in Russia, then
purchasing power parity will exist if the exchange rate between the ruble and the dollar is:
A. 1,000 rubles per dollar.
B. 10,000 rubles per dollar.
C. 0.01 dollars per ruble.
D. 0.1 dollars per ruble.
124. If a basket of goods costs 10 dollars in the United States and 11 euros in Belgium, then
purchasing power parity will exist if the exchange rate between the euro and the dollar is:
A. 11 euros per dollar.
B. 10 dollars per euro.
C. 1.1 euros per dollar.
D. 1.1 dollars per euro.
125. Suppose a McDonald’s Big Mac costs 30 pesos in Argentina. At the same time, suppose the
exchange rate between the peso and the euro is roughly 15 pesos per euro. According to
purchasing power parity, a Big Mac in Europe should cost:
A. 0.50 euros.
B. 2 euros.
C. 15 euros.
D. 30 euros.
126. Suppose 500,000 yen buys a basket of goods in Japan. If, at the existing exchange rate, it
costs more than 500,000 yen to buy the same basket of goods in the United States, then
purchasing power parity implies that the:
A. dollar is undervalued.
B. yen is overvalued.
C. dollar should cost fewer yen.
D. dollar should cost more yen.
127. Suppose 60,000 pesos buys a basket of goods in Mexico. If, at the existing exchange rate, it
costs less than 60,000 pesos to buy the same basket of goods in the United States, then
purchasing power parity implies that the:
A. dollar is overvalued.
B. peso is undervalued.
C. dollar should cost fewer pesos.
D. dollar should cost more pesos.
128. Suppose a McDonald’s Big Mac costs 29 pesos in Mexico and the exchange rate between
the peso and the Canadian dollar is 10 pesos per Canadian dollar. According to purchasing power
parity, a Canadian Big Mac should cost:
A. 0.34 Canadian dollars.
B. 2.90 Canadian dollars.
C. 5.80 Canadian dollars.
D. 290 Canadian dollars.
129. Suppose a given basket of goods and services costs 6 dollars in the United States and 4,500
won in Korea. If the exchange rate is 900 won per dollar, purchasing power parity implies that
the:
A. exchange rate has attained its long run equilibrium value.
B. dollar must appreciate to restore purchasing power parity.
C. dollar must depreciate to restore purchasing power parity.
D. won must depreciate to restore purchasing power parity.
130. Suppose a given basket of goods and services costs 15 dollars in the United States and
14,250 won in Korea. If the exchange rate is 900 won per dollar, purchasing power parity
implies that the:
A. exchange rate has attained its long run equilibrium value.
B. dollar must appreciate to restore purchasing power parity.
C. dollar must depreciate to restore purchasing power parity.
D. won must appreciate to restore purchasing power parity.
131. Suppose a given basket of goods and services costs 9 dollars in the Australia and 5,400
baht in Thailand. If the exchange rate is 600 baht per Australian dollar, purchasing power parity
implies that the:
A. exchange rate has attained its long run equilibrium value.
B. Australian dollar must appreciate to restore purchasing power parity.
C. Australian dollar must depreciate to restore purchasing power parity.
D. baht must depreciate to restore purchasing power parity.
132. Purchasing power parity is criticized because it:
A. does not account for trade in assets.
B. includes the trade in assets.
C. does not apply when exchange rates are flexible.
D. uses the wrong basket of goods to compute purchasing power parity exchange rates.
133. Critics of purchasing power parity argue that:
A. it does not account for trade in goods.
B. it cannot explain exchange rate changes in the long run.
C. it does not apply when exchange rates are flexible.
D. long-run equilibrium exchange rates are never attained.
134. The actual exchange rate of the real, Brazil’s currency, is 2.40 real per U.S. dollar.
According to the PPP estimation, the exchange rate should be 1.20 real per U.S. dollar. This
implies that the real is:
A. undervalued by 50 percent.
B. overvalued by 50 percent.
C. undervalued by 20 percent.
D. overvalued by 20 percent.
135. The actual exchange rate of the real, Brazil’s currency, is 2.50 real per U.S. dollar.
According to the latest PPP estimations, the real is undervalued by 40 percent. This implies that
the PPP exchange rate is:
A. 1.20 real per dollar.
B. 1.40 real per dollar.
C. 1.50 real per dollar.
D. 2.00 real per dollar.
136. The real exchange rate is the exchange rate that:
A. a person actually pays after the mark-up charged by the bank is included.
B. would exist if there were no government intervention in the market.
C. would exist if there were no currency speculation.
D. eliminates changes in exchange rates due to differences in inflation.