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DATE MODIFIED:
6/22/2016 3:24 PM
49. Refer to Figure 12.1. Should Swiss labor productivity rise, leading to a decrease in Swiss manufacturing costs, there
would occur a (an):
a.
Increase in the supply of francs and a depreciation of the dollar
b.
Increase in the supply of francs and an appreciation of the dollar
c.
Decrease in the demand for francs and an appreciation of the dollar
d.
Increase in the demand for francs and a depreciation of the dollar
ANSWER:
d
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Figure 12.1
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
50. Refer to Figure 12.1. If Switzerland experienced a disastrous wheat-crop failure, leading to additional wheat imports
from the United States, there would occur an:
a.
Increase in the supply of francs and an appreciation of the dollar
b.
Increase in the supply of francs and a depreciation of the dollar
c.
Increase in the demand for francs and a depreciation of the dollar
d.
Increase in the demand for francs and an appreciation of the dollar
ANSWER:
a
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Figure 12.1
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
51. Given floating exchange rates, if Japan increases its demand for Canadian goods at the same time that Canada
increases its demand for Japanese goods, then we would expect the yen’s exchange value to:
a.
Appreciate against the dollar
b.
Depreciate against the dollar
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Page 22
c.
Remain constant against the dollar
d.
Appreciate, depreciate, or remain constant against the dollar
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
52. Given floating exchange rates, assume that the Swiss decrease their import purchases from Italy while at the same
time the Italians increase their purchases of Swiss government securities. The first action by itself would lead to a (an)
____ of the franc against the lira while the second action by itself would lead to a (an) ____ of the franc against the lira.
a.
Appreciation, appreciation
b.
Depreciation, depreciation
c.
Appreciation, depreciation
d.
Depreciation, appreciation
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
53. Given floating exchange rates, a simultaneous decrease in the Canadian demand for British products and increase in
the British desire to invest in Canadian government securities would cause a (an):
a.
Appreciation of the pound against the dollar
b.
Depreciation of the pound against the dollar
c.
Unchanged pound/dollar exchange rate
d.
None of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
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NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
54. Assume a system of floating exchange rates. Due to a high savings rate, suppose the level of savings in Japan is in
excess of domestic investment needs. If Japanese residents invest abroad, the yen’s exchange value will ____ and the
Japanese trade balance will move toward ____.
a.
Appreciate, deficit
b.
Appreciate, surplus
c.
Depreciate, deficit
d.
Depreciate, surplus
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
55. Given a system of floating exchange rates, assume that Boeing Inc. of the United States places a large order, payable
in yen, with a Japanese contractor for jet engine parts. The immediate effect of this transaction will be a shift in the:
a.
Supply curve of yen to the left which causes the dollar to appreciate against the yen
b.
Supply curve of yen to the right which causes the dollar to depreciate against the yen
c.
Demand curve for yen to the left which causes the dollar to appreciate against the yen
d.
Demand curve for yen to the right which causes the dollar to depreciate against the yen
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
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Page 24
56. For purchasing-power parity to exist:
a.
Flows of currency in the trade account must be offset by flows of currency in the capital account
b.
The nominal interest rate must be equal to the real interest rate in all countries
c.
Converting a sum of funds from one currency to another does not alter its purchasing power
d.
A country’s trade account must always be in balance
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Inflation Rates, Purchasing-Power-Parity, and Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
57. Assume that interest rates in the United States and Britain are the same. If a U.S. resident anticipates that the exchange
value of the dollar is going to appreciate against the pound, she should:
a.
Borrow needed funds from British banks rather than U.S. banks
b.
Borrow needed funds from U.S. banks rather than British banks
c.
Convert U.S. dollars into British pounds
d.
Any of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
58. Given a system of floating exchange rates, if Canada’s labor productivity rises relative to the labor productivity of its
trading partners:
a.
Canadian imports will fall and the dollar will appreciate
b.
Canadian imports will fall and the dollar will depreciate
c.
Canadian imports will rise and the dollar will appreciate
d.
Canadian imports will rise and the dollar will depreciate
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
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QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
59. Assume that labor productivity growth is slower in the United States than in its trading partners. Given a system of
floating exchange rates, the impact of this growth differential for the United States will be:
a.
Increased exports and an appreciation of the dollar
b.
Increased exports and a depreciation of the dollar
c.
Increased imports and an appreciation of the dollar
d.
Increased imports and a depreciation of the dollar
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
60. Suppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to
purchasing-power parity, if the price of traded goods rises by 10 percent in the United States and remains constant in
Japan, the exchange rate will become
a.
72 yen per dollar
b.
81 yen per dollar
c.
99 yen per dollar
d.
108 yen per dollar
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Inflation Rates, Purchasing-Power-Parity, and Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
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DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
61. Suppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to
purchasing-power parity, if the price of traded goods rises by 5 percent in the United States and 15 percent in Japan, the
exchange rate will become:
a.
72 yen per dollar
b.
81 yen per dollar
c.
99 yen per dollar
d.
108 yen per dollar
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Inflation Rates, Purchasing-Power-Parity, and Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
62. Suppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to
purchasing power parity, if the price of traded goods falls by 5 percent in the United States and rises by 5 percent in Japan,
the exchange rate will become:
a.
72 yen per dollar
b.
81 yen per dollar
c.
99 yen per dollar
d.
108 yen per dollar
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Inflation Rates, Purchasing-Power-Parity, and Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
63. Suppose that the yen-dollar exchange rate changes from 85 yen per dollar to 80 yen per dollar. One can say that the:
a.
Yen has appreciated against the dollar and the dollar has depreciated against the yen
b.
Yen has depreciated against the dollar and the dollar has appreciated against the yen
c.
Yen has appreciated against the dollar and the dollar has appreciated against the yen
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Page 27
d.
Yen has depreciated against the dollar and the dollar has depreciated against the yen
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
64. Given a floating exchange rate system an increase in ____ would cause the dollar to appreciate against the euro.
a.
U.S. labor costs
b.
The U.S. money supply
c.
U.S. prices of goods
d.
U.S. real interest rates
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
65. Under a system of floating exchange rates, a Japanese trade surplus against Canada would result in a (an):
a.
Rise in the dollar price of the yen
b.
Fall in the dollar price of the yen
c.
Rise in the yen price of the dollar
d.
Unchanged dollar/yen exchange rate
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
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KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
66. When deciding between U.S. and British government securities, an American investor typically considers:
a.
U.S. and British interest rates and anticipated changes in the exchange rate
b.
Budget deficits of the U.S. government and British government
c.
Shifts in the demand for U.S. goods and British goods
d.
U.S. and British inflation rates and anticipated changes in the exchange rate
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
67. In the long run, exchange rates are primarily determined by:
a.
Agreements among governments of the world’s industrial countries
b.
Relative interest rates in developing countries and industrial countries
c.
Economic fundamentals such as relative productivity levels
d.
The rate at which country’s currencies exchange for gold
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
68. Increased tariffs on U.S. steel imports cause the dollar to ____ in the ____.
a.
Appreciate, long run
b.
Depreciate, long run
c.
Appreciate, short run
d.
Depreciate, short run
ANSWER:
a
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POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
69. Lower tariffs on U.S. agricultural imports cause the dollar to ____ in the ____.
a.
Appreciate, long run
b.
Depreciate, long run
c.
Appreciate, short run
d.
Depreciate, short run
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
70. Relatively high interest rates in the United States causes the dollar to ____ in the ____.
a.
Appreciate, long run
b.
Depreciate, long run
c.
Appreciate, short run
d.
Depreciate, short run
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
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Page 30
DATE MODIFIED:
6/22/2016 3:24 PM
71. The asset market theory of exchange rate determination suggests that the most important factor influencing the
demand for domestic and foreign securities is:
a.
Expected return on these assets relative to one another
b.
Ability of these assets to easily be converted into cash
c.
Riskiness of these assets relative to one another
d.
Level of government restrictions on trade and investment flows
ANSWER:
a
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
72. With floating exchange rates, easy credit and low short term interest rates lead to
a.
Exchange rate depreciation in the short run
b.
Exchange rate appreciation in the short run
c.
Exchange rate depreciation in the long run
d.
Exchange rate appreciation in the long run
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
73. With floating exchange rates, relatively high productivity growth for a nation leads to
a.
Exchange rate depreciation in the short run
b.
Exchange rate appreciation in the short run
c.
Exchange rate depreciation in the long run
d.
Exchange rate appreciation in the long run
ANSWER:
d
POINTS:
1
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Page 31
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
74. All of the following are important long-run determinants of exchange rates except
a.
Consumer tastes
b.
Trade policy
c.
Labor productivity
d.
Interest rates
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
75. The purchasing-power parity theory suffers from the problem
a.
Of choosing the appropriate price index
b.
That it overlooks the influence of capital flows
c.
That government policy may modify exchange rates
d.
All of the above
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Inflation Rates, Purchasing-Power-Parity, and Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
Copyright Cengage Learning. Powered by Cognero.
Page 32
Figure 12.3 Market for British Pounds
76. Consider Figure 12.3. The market is initially governed by demand curve D0 and supply curve S0. Suppose the
domestic price level rises rapidly in the United States but stays relatively constant in the United Kingdom, which supply
and demand curves depict the new situation?
a.
S1 and D2
b.
S2 and D1
c.
S0 and D2
d.
S0 and D1
ANSWER:
a
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Figure 12.3
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
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Page 33
77. Consider Figure 12.3. The market is initially governed by demand curve D0 and supply curve S0. Suppose US
productivity growth is faster than the UK, which supply and demand curves depict the new situation?
a.
S1 and D2
b.
S2 and D1
c.
S0 and D2
d.
S0 and D1
ANSWER:
b
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Figure 12.3
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
78. Consider Figure 12.3. The market is initially governed by demand curve D0 and supply curve S0. Suppose US
consumers develop stronger preferences for UK made goods, which supply and demand curves depict the new situation?
a.
S1 and D2
b.
S2 and D1
c.
S0 and D2
d.
S0 and D1
ANSWER:
c
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Figure 12.3
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
79. Consider Figure 12.3. The market is initially governed by demand curve D0 and supply curve S0. Suppose the US
government raises tariffs for UK made goods, which supply and demand curves depict the new situation?
a.
S1 and D2
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Page 34
b.
S2 and D1
c.
S0 and D2
d.
S0 and D1
ANSWER:
d
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Figure 12.3
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
80. In a free market, exchange rates are determined by market fundamentals and market expectations.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
What Determines Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
81. Concerning exchange-rate determination, market fundamentals include inflation rates, productivity levels, and
speculative opinion about future exchange rates.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
Copyright Cengage Learning. Powered by Cognero.
Page 35
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
82. Market expectations include news about market fundamentals, speculative opinion about future exchange rates, and
profitability and riskiness of investments.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
83. In a free market, the equilibrium exchange rate occurs at the point where the quantity demanded of a foreign currency
equals the quantity of that currency supplied.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
84. Exchange rates are determined by the unregulated forces of supply and demand for foreign currencies as long as
central banks do not intervene in the foreign exchange markets.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
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Page 36
QUESTION TYPE:
True / False
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
85. Over the long run, foreign exchange rates are determined by transfers of bank deposits that respond to differences in
real interest rates and to shifting expectations of future exchange rates.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
The figure below illustrates the supply and demand schedules of Swiss francs under a system of floating exchange rates.
Figure 12.2. The Market for Swiss Francs
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Page 37
86. Refer to Figure 12.2. If the United States decreases tariffs on imports from Switzerland, there would occur a decrease
in the demand for francs and a decrease in the dollar price of the franc.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
PREFACE NAME:
Figure 12.2
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
87. Refer to Figure 12.2. If Swiss manufacturing costs increase relative to those of the United States, there would occur an
increase in the supply of francs and an appreciation in the dollar’s exchange value.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
PREFACE NAME:
Figure 12.2
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
88. Refer to Figure 12.2. If the Federal Reserve adopts a restrictive monetary policy that leads to relatively high interest
rates in the United States, the demand for francs would decrease, the supply of francs would increase, and the dollar’s
exchange value would appreciate.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
Copyright Cengage Learning. Powered by Cognero.
Page 38
PREFACE NAME:
Figure 12.2
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
89. Refer to Figure 12.2. As the profitability of assets in Switzerland rises relative to the profitability of assets in the
United States, U.S. residents make additional investments in Switzerland; this leads to an increased demand for francs and
a depreciation of the dollar’s exchange value.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
PREFACE NAME:
Figure 12.2
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
90. Refer to Figure 12.2. If the rate of inflation in the United States is higher than the rate of inflation in Switzerland, the
demand for francs decreases, the supply of francs increases, and the dollar’s exchange value appreciates.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
PREFACE NAME:
Figure 12.2
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
91. Under floating exchange rates, short-run exchange rates are primarily determined by national differences in real
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Page 39
interest rates and shifting expectations of future exchange rates.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
92. Day-to-day influences on foreign exchange rates always cause rates to move in the same direction as changes in long-
term market fundamentals.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
93. With floating exchange rates, a country experiencing faster economic growth than its trading partners find its
currency’s exchange value appreciating.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Analytic Reflective Thi – BUSPROG: Reflective Thinking
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
Copyright Cengage Learning. Powered by Cognero.
Page 40
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
94. If U.S. labor productivity growth is 2 percent per annum and Swiss labor productivity growth is 6 percent per annum,
the dollar will depreciate against the franc under a system of floating exchange rates.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Analytic Reflective Thi – BUSPROG: Reflective Thinking
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
95. In 1985 and 1986 U.S. interest rates fell relative to interest rates in Japan. Under floating exchange rates, this would
lead to the dollar’s exchange value depreciating against the yen.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
96. A country having stronger preferences for imports than its trading partners have for its exports finds its demand for
foreign exchange rising more rapidly than its supply of foreign exchange.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False