Question 1

If U.S. residents boycott German goods, then

Accepted Answer

A)  the demand for euros will decrease in the foreign exchange market. 
B)  the supply of euros will decrease in the foreign exchange market. 
C)  German goods will be more expensive in Germany. 
D)  the euro will appreciate. 
E)  there is no effect on the euro. 
A)  the demand for euros will decrease in the foreign exchange market. 
B)  the supply of euros will decrease in the foreign exchange market. 
C)  German goods will be more expensive in Germany. 
D)  the euro will appreciate. 
E)  there is no effect on the euro. A

Question 2

Undervaluation of a currency helps exporters sell more goods to foreign buyers.

Accepted Answer

A) True 
 B)False  True

Question 3

A flexible exchange rate policy

Accepted Answer

A)  is one in which the central bank has flexibility in determining exchange rates. 
B)  has not been used in the United States since the Great Depression. 
C)  is one in which the exchange rate is determined in the foreign exchange market. 
D)  gives the president the power to determine exchange rates when negotiating free trade agreements with other countries. 
E)  has been adopted universally throughout the world economy. 
A)  is one in which the central bank has flexibility in determining exchange rates. 
B)  has not been used in the United States since the Great Depression. 
C)  is one in which the exchange rate is determined in the foreign exchange market. 
D)  gives the president the power to determine exchange rates when negotiating free trade agreements with other countries. 
E)  has been adopted universally throughout the world economy. C

Question 4

The Eurozone is an example of a combination of both fixed and flexible exchange rate system.

Accepted Answer

A) True 
 B)False

Question 5

As a result of undervaluation,

Accepted Answer

A)  domestic consumers can buy more foreign goods. 
B)  exporters can sell more goods to foreign buyers. 
C)  domestic currency is artificially more valuable. 
D)  the government faces a flexible exchange rate. 
E)  consumers pay more for domestic goods. 
A)  domestic consumers can buy more foreign goods. 
B)  exporters can sell more goods to foreign buyers. 
C)  domestic currency is artificially more valuable. 
D)  the government faces a flexible exchange rate. 
E)  consumers pay more for domestic goods.

Question 6

The central bank for the EMU is

Accepted Answer

A)  Bank of England. 
B)  the Riksbank. 
C)  the Federal Reserve. 
D)  European Central Bank. 
E)  None of these: The EMU does not have a central bank. 
A)  Bank of England. 
B)  the Riksbank. 
C)  the Federal Reserve. 
D)  European Central Bank. 
E)  None of these: The EMU does not have a central bank.

Question 7

The criteria for joining the EMU was laid out by

Accepted Answer

A)  the Treaty of Maastricht in 1992. 
B)  the Tokyo Round in 1979. 
C)  the Uruguay Round in 1986. 
D)  the Treaty of Versailles in 1919. 
E)  the Recovery and Reinvestment Act of 2009. 
A)  the Treaty of Maastricht in 1992. 
B)  the Tokyo Round in 1979. 
C)  the Uruguay Round in 1986. 
D)  the Treaty of Versailles in 1919. 
E)  the Recovery and Reinvestment Act of 2009.

Question 8

All else equal, an increase in the demand for the U.S. dollar results in an appreciation of the dollar.

Accepted Answer

A) True 
 B)False

Question 9

A depreciation of the dollar relative to the euro means that

Accepted Answer

A)  a dollar can be exchanged for more euros. 
B)  the United States will export more goods to France. 
C)  the United States will import more goods from Germany. 
D)  the United States will export fewer goods to France. 
E)  interest rates in the United States are increasing relative to the interest rates in the euro zone. 
A)  a dollar can be exchanged for more euros. 
B)  the United States will export more goods to France. 
C)  the United States will import more goods from Germany. 
D)  the United States will export fewer goods to France. 
E)  interest rates in the United States are increasing relative to the interest rates in the euro zone.

Question 10

Demand for the Mexican peso is determined by

Accepted Answer

A)  how stable the peso keeps its value. 
B)  the demand for Mexican goods by other countries. 
C)  the supply of Mexican goods to other countries. 
D)  the demand for other countries' goods in those countries. 
E)  the supply of other countries' goods in those countries. 
A)  how stable the peso keeps its value. 
B)  the demand for Mexican goods by other countries. 
C)  the supply of Mexican goods to other countries. 
D)  the demand for other countries' goods in those countries. 
E)  the supply of other countries' goods in those countries.

Question 11

The theory of purchasing power parity predicts that a country's currency will depreciate if its inflation is higher, all else equal.

Accepted Answer

A) True 
 B)False

Question 12

According to the theory of purchasing power parity, if the domestic country's inflation rate decreases while the inflation rates in other countries remain unchanged, then

Accepted Answer

A)  the domestic currency will appreciate over time. 
B)  the domestic currency will depreciate over time. 
C)  the exchange rate of the domestic currency will remain unchanged but the exchange rates of other currencies will appreciate. 
D)  the exchange rate of the domestic currency will fluctuate over time. 
E)  nothing will occur because of the law of one price. 
A)  the domestic currency will appreciate over time. 
B)  the domestic currency will depreciate over time. 
C)  the exchange rate of the domestic currency will remain unchanged but the exchange rates of other currencies will appreciate. 
D)  the exchange rate of the domestic currency will fluctuate over time. 
E)  nothing will occur because of the law of one price.

Question 13

If there is an increase in the U.S. demand for European goods, then

Accepted Answer

A)  both the dollar and the euro will appreciate. 
B)  both the dollar and the euro will depreciate. 
C)  the dollar will depreciate against the euro. 
D)  the dollar will appreciate against the euro. 
E)  the exchange rate between the dollar and the euro will remain unchanged, but their exchange rates will appreciate against other currencies. 
A)  both the dollar and the euro will appreciate. 
B)  both the dollar and the euro will depreciate. 
C)  the dollar will depreciate against the euro. 
D)  the dollar will appreciate against the euro. 
E)  the exchange rate between the dollar and the euro will remain unchanged, but their exchange rates will appreciate against other currencies.

Question 14

Which of the following is a rationale for countries joining the Eurozone?

Accepted Answer

A)  Increased central bank independence 
B)  Free trade with countries outside the Eurozone 
C)  More trade and investment flows with a common currency 
D)  Improvement of countercyclical policy capabilities 
E)  The need for independent fiscal policy 
A)  Increased central bank independence 
B)  Free trade with countries outside the Eurozone 
C)  More trade and investment flows with a common currency 
D)  Improvement of countercyclical policy capabilities 
E)  The need for independent fiscal policy

Question 15

Suppose the foreign exchange market is in equilibrium. Now the interest rate in the United States rises while the interest rate in Germany remains the same. What will happen to the euro in the foreign exchange market? Explain.

Accepted Answer

An increase in the U.S. interest rate, a

Question 16

The fixing of exchange rates in Europe means that, if Italy experiences an expansion and the others do not,

Accepted Answer

A)  Italy will have to drop out of the fixed exchange rate system to regain control over its inflation. 
B)  Italy can use fiscal policy but not monetary policy to cool down the economy. 
C)  Italy cannot use fiscal or monetary policy to cool down the economy. 
D)  Italy can use monetary policy but not fiscal policy to cool down the economy. 
E)  inflation will spiral out of control in Italy. 
A)  Italy will have to drop out of the fixed exchange rate system to regain control over its inflation. 
B)  Italy can use fiscal policy but not monetary policy to cool down the economy. 
C)  Italy cannot use fiscal or monetary policy to cool down the economy. 
D)  Italy can use monetary policy but not fiscal policy to cool down the economy. 
E)  inflation will spiral out of control in Italy.

Question 17

The data for the inflation rates and currency exchange rates of the United States, Japan and Brazil over the period 1980-2010 confirm that

Accepted Answer

A)  the U.S. dollar appreciated against the currency of a country with a relatively lower inflation rate. 
B)  the U.S. dollar appreciated against the currency of a country with a relatively higher inflation rate. 
C)  the U.S. dollar appreciated regardless of the inflation rates in other countries. 
D)  the U.S. dollar depreciated regardless of the inflation rates in other countries. 
E)  the U.S. dollar was fixed. 
A)  the U.S. dollar appreciated against the currency of a country with a relatively lower inflation rate. 
B)  the U.S. dollar appreciated against the currency of a country with a relatively higher inflation rate. 
C)  the U.S. dollar appreciated regardless of the inflation rates in other countries. 
D)  the U.S. dollar depreciated regardless of the inflation rates in other countries. 
E)  the U.S. dollar was fixed.

Question 18

An appreciation of a country's currency

Accepted Answer

A)  decreases its exports and increases its imports. 
B)  increases its imports and decreases its exports. 
C)  decreases both its exports and imports. 
D)  increases both its exports and imports. 
E)  has no effect on its exports or imports. 
A)  decreases its exports and increases its imports. 
B)  increases its imports and decreases its exports. 
C)  decreases both its exports and imports. 
D)  increases both its exports and imports. 
E)  has no effect on its exports or imports.

Question 19

If two countries have a fixed exchange rate, they will both have

Accepted Answer

A)  lower inflation. 
B)  interest rates that move in the same direction. 
C)  more stable economies. 
D)  fixed interest rates at differential levels. 
E)  interest rates that move in the opposite direction. 
A)  lower inflation. 
B)  interest rates that move in the same direction. 
C)  more stable economies. 
D)  fixed interest rates at differential levels. 
E)  interest rates that move in the opposite direction.

Question 20

All else equal, an increase in the U.S. interest rate will likely lead to

Accepted Answer

A)  an appreciation of the dollar. 
B)  a depreciation of the dollar. 
C)  a decrease in the value of the dollar. 
D)  an increase in U.S. net exports. 
E)  less foreign investment in the United States. 
A)  an appreciation of the dollar. 
B)  a depreciation of the dollar. 
C)  a decrease in the value of the dollar. 
D)  an increase in U.S. net exports. 
E)  less foreign investment in the United States.

Exam 19: International Finance

If U.S. residents boycott German goods, then

Undervaluation of a currency helps exporters sell more goods to foreign buyers.

A flexible exchange rate policy

The Eurozone is an example of a combination of both fixed and flexible exchange rate system.

As a result of undervaluation,

The central bank for the EMU is

The criteria for joining the EMU was laid out by

All else equal, an increase in the demand for the U.S. dollar results in an appreciation of the dollar.

A depreciation of the dollar relative to the euro means that

Demand for the Mexican peso is determined by

The theory of purchasing power parity predicts that a country's currency will depreciate if its inflation is higher, all else equal.

According to the theory of purchasing power parity, if the domestic country's inflation rate decreases while the inflation rates in other countries remain unchanged, then

If there is an increase in the U.S. demand for European goods, then

Which of the following is a rationale for countries joining the Eurozone?

Suppose the foreign exchange market is in equilibrium. Now the interest rate in the United States rises while the interest rate in Germany remains the same. What will happen to the euro in the foreign exchange market? Explain.

The fixing of exchange rates in Europe means that, if Italy experiences an expansion and the others do not,

The data for the inflation rates and currency exchange rates of the United States, Japan and Brazil over the period 1980-2010 confirm that

An appreciation of a country's currency

If two countries have a fixed exchange rate, they will both have

All else equal, an increase in the U.S. interest rate will likely lead to

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Capital and Financial Markets

Economic Growth and Globalization

International Trade

Reading, Understanding, and Creating Graphs

the Miracle of Compound Growth

Present Discounted Value

Deriving the Growth Accounting Formula

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