Question 1

A change in the exchange rate affects aggregate demand but not aggregate supply.

Accepted Answer

A) True 
 B)False  False

Question 2

Which currency trade is consistent with the current exchange rates of 500 Chilean pesos for US$1 and £1 for US$1.50?

Accepted Answer

A)  1,250 Chilean pesos for £2. 
B)  1,000 Chilean pesos for £2 
C)  £10 for 750 Chilean pesos 
D)  1,500 Chilean pesos for £2 
A)  1,250 Chilean pesos for £2. 
B)  1,000 Chilean pesos for £2 
C)  £10 for 750 Chilean pesos 
D)  1,500 Chilean pesos for £2 D

Question 3

In the United States, the exchange rate for the dollar is determined by:

Accepted Answer

A)  the Federal Reserve Board. 
B)  the Secretary of the Treasury. 
C)  the forces of demand and supply. 
D)  gold reserves held in Fort Knox. 
A)  the Federal Reserve Board. 
B)  the Secretary of the Treasury. 
C)  the forces of demand and supply. 
D)  gold reserves held in Fort Knox. C

Question 4

The real exchange rate between the currencies of two countries takes into account the price levels of both countries.

Accepted Answer

A) True 
 B)False

Question 5

The value of a country's fixed exchange rate is determined by:

Accepted Answer

A)  the country's currency board. 
B)  the country's government or central bank. 
C)  the central bank of the country to which its currency is pegged. 
D)  supply of and demand for the country's currency. 
A)  the country's currency board. 
B)  the country's government or central bank. 
C)  the central bank of the country to which its currency is pegged. 
D)  supply of and demand for the country's currency.

Question 6

Foreign aid transfers are part of the _____ account.

Accepted Answer

A)  capital 
B)  foreign aid 
C)  current 
D)  trade 
A)  capital 
B)  foreign aid 
C)  current 
D)  trade

Question 7

The demand for U.S. dollars in the foreign exchange market comes from _____, while the supply of dollars comes from _____.

Accepted Answer

A)  foreigners who want to make transactions in dollars; Americans who sell dollars to purchase foreign currencies 
B)  U.S. banks that sell securities to foreigners; foreign banks that sell securities to Americans 
C)  U.S. companies that want to be paid in dollars; foreign companies that want to be paid in their own currency 
D)  speculators who believe the dollar will depreciate; speculators who believe the dollar will appreciate 
A)  foreigners who want to make transactions in dollars; Americans who sell dollars to purchase foreign currencies 
B)  U.S. banks that sell securities to foreigners; foreign banks that sell securities to Americans 
C)  U.S. companies that want to be paid in dollars; foreign companies that want to be paid in their own currency 
D)  speculators who believe the dollar will depreciate; speculators who believe the dollar will appreciate

Question 8

The basic rules of supply and demand do not apply in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the French decide they like American goods so much that they want to buy more from the United States. What is the MOST likely chain of events that will arise from this scenario?

Accepted Answer

A)  The French compete with the Germans for euros used to purchase dollars; the euro appreciates and the dollar depreciates; and U.S. goods become cheaper. 
B)  Americans supply more dollars; the dollar depreciates; and U.S. goods become less expensive. 
C)  Americans see the increased demand for U.S. goods and raise prices in the United States, which leads to an appreciation of the euro. 
D)  The French demand more dollars; the dollar appreciates; and U.S. goods become more expensive. 
A)  The French compete with the Germans for euros used to purchase dollars; the euro appreciates and the dollar depreciates; and U.S. goods become cheaper. 
B)  Americans supply more dollars; the dollar depreciates; and U.S. goods become less expensive. 
C)  Americans see the increased demand for U.S. goods and raise prices in the United States, which leads to an appreciation of the euro. 
D)  The French demand more dollars; the dollar appreciates; and U.S. goods become more expensive.

Question 10

Which of these generates the largest volume of international commercial transactions?

Accepted Answer

A)  goods 
B)  services 
C)  financial assets 
D)  gold 
A)  goods 
B)  services 
C)  financial assets 
D)  gold

Question 11

In 2015, the United States ran both a _____ account deficit and a _____ account surplus.

Accepted Answer

A)  current; capital 
B)  capital; trade 
C)  capital; current 
D)  trade; current 
A)  current; capital 
B)  capital; trade 
C)  capital; current 
D)  trade; current

Question 12

If capital is perfectly mobile and a country has floating exchange rates, expansionary _____ policy will be _____, and contractionary _____ policy will be _____.

Accepted Answer

A)  fiscal; reinforced; monetary; hampered 
B)  fiscal; hampered; monetary; reinforced 
C)  fiscal; reinforced; fiscal; hampered 
D)  monetary; hampered; monetary; reinforced 
A)  fiscal; reinforced; monetary; hampered 
B)  fiscal; hampered; monetary; reinforced 
C)  fiscal; reinforced; fiscal; hampered 
D)  monetary; hampered; monetary; reinforced

Question 13

(Table) The current account balance is: $$\begin{array}{l}
\text { Balance of Payments (billions of U.S. dollars) }\
\begin{array} { l c } 
\hline \text { Component } & \text { Amount } \
\text { Exports } & \$ 1,800 \
\text { Imports } & 2,300 \
\text { Income received } & 490 \
\text { Income payments } & 540 \
\text { Net transfers } & - 100 \
\text { Increase in foreign-owned } & \
\text { assets in the United States } & 700 \
\text { Increase in U.S.-owned } & \
\text { assets abroad } &100  
\end{array}
\end{array}$$

Accepted Answer

A)  -$650 billion. 
B)  $500 billion. 
C)  -$500 billion. 
D)  $650 billion. 
A)  -$650 billion. 
B)  $500 billion. 
C)  -$500 billion. 
D)  $650 billion.

Question 14

The Big Mac index is an attempt to measure:

Accepted Answer

A)  purchasing power parity. 
B)  the real exchange rate. 
C)  the current account. 
D)  the capital account. 
A)  purchasing power parity. 
B)  the real exchange rate. 
C)  the current account. 
D)  the capital account.

Question 15

Which item is NOT a determinant of the demand for foreign currency?

Accepted Answer

A)  a desire for foreign goods and services 
B)  income 
C)  the exchange rate 
D)  inflation 
A)  a desire for foreign goods and services 
B)  income 
C)  the exchange rate 
D)  inflation

Question 16

The Bretton Woods agreement:

Accepted Answer

A)  set up a fixed exchange rate system that was maintained by purchases and sales of gold. 
B)  denounced the establishment of the World Bank. 
C)  set up a fixed exchange rate system maintained by purchases and sales of currency. 
D)  encouraged countries to devalue their currencies to help their trade deficits. 
A)  set up a fixed exchange rate system that was maintained by purchases and sales of gold. 
B)  denounced the establishment of the World Bank. 
C)  set up a fixed exchange rate system maintained by purchases and sales of currency. 
D)  encouraged countries to devalue their currencies to help their trade deficits.

Question 17

Suppose the exchange rate is US$1 = ¥100. This means that:

Accepted Answer

A)  it takes US$100 to purchase 1 yen. 
B)  someone with US$1 can purchase 100 yen. 
C)  the yen will soon fall in value. 
D)  the exchange rate is out of balance because it should be 1 yen per dollar. 
A)  it takes US$100 to purchase 1 yen. 
B)  someone with US$1 can purchase 100 yen. 
C)  the yen will soon fall in value. 
D)  the exchange rate is out of balance because it should be 1 yen per dollar.

Question 18

Under a fixed exchange rate system, expansionary monetary policy is _____due to changes brought about through the _____ account.

Accepted Answer

A)  hampered; capital 
B)  hampered; current 
C)  reinforced; capital 
D)  reinforced; current 
A)  hampered; capital 
B)  hampered; current 
C)  reinforced; capital 
D)  reinforced; current

Question 19

If the Federal Reserve increases the money supply to bring down the federal funds rate:

Accepted Answer

A)  the value of the dollar will decrease in foreign exchange markets. 
B)  the current account deficit will increase. 
C)  the value of the dollar will increase in foreign exchange markets. 
D)  the capital account surplus will increase. 
A)  the value of the dollar will decrease in foreign exchange markets. 
B)  the current account deficit will increase. 
C)  the value of the dollar will increase in foreign exchange markets. 
D)  the capital account surplus will increase.

Question 20

Last year when Laura attended a business conference in Berlin, the exchange rate was €0.7 for US$1. This year she plans to attend that same conference and she notes that the exchange rate is €0.8 for US$1. Laura estimates that her lodging and meals will be _____ expensive than last year.

Accepted Answer

A)  13% more 
B)  13% less 
C)  87% more 
D)  87% less 
A)  13% more 
B)  13% less 
C)  87% more 
D)  87% less

A change in the exchange rate affects aggregate demand but not aggregate supply.

Which currency trade is consistent with the current exchange rates of 500 Chilean pesos for US$1 and £1 for US$1.50?

In the United States, the exchange rate for the dollar is determined by:

The real exchange rate between the currencies of two countries takes into account the price levels of both countries.

The value of a country's fixed exchange rate is determined by:

Foreign aid transfers are part of the _____ account.

The demand for U.S. dollars in the foreign exchange market comes from _, while the supply of dollars comes from _.

The basic rules of supply and demand do not apply in the foreign exchange market.

Suppose the French decide they like American goods so much that they want to buy more from the United States. What is the MOST likely chain of events that will arise from this scenario?

Which of these generates the largest volume of international commercial transactions?

In 2015, the United States ran both a _ account deficit and a _ account surplus.

If capital is perfectly mobile and a country has floating exchange rates, expansionary ___ policy will be _, and contractionary _ policy will be ___.

(Table) The current account balance is: Balance of Payments (billions of U.S. dollars) Component Amount Exports \ 1,800 Imports 2,300 Income received 490 Income payments 540 Net transfers -100 Increase in foreign-owned assets in the United States 700 Increase in U.S.-owned assets abroad 100

The Big Mac index is an attempt to measure:

Which item is NOT a determinant of the demand for foreign currency?

The Bretton Woods agreement:

Suppose the exchange rate is US$1 = ¥100. This means that:

Under a fixed exchange rate system, expansionary monetary policy is _due to changes brought about through the _ account.

If the Federal Reserve increases the money supply to bring down the federal funds rate:

Last year when Laura attended a business conference in Berlin, the exchange rate was €0.7 for US$1. This year she plans to attend that same conference and she notes that the exchange rate is €0.8 for US$1. Laura estimates that her lodging and meals will be _____ expensive than last year.

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Filters

Exam 16: Open Economy Macroeconomics

A change in the exchange rate affects aggregate demand but not aggregate supply.

Which currency trade is consistent with the current exchange rates of 500 Chilean pesos for US$1 and £1 for US$1.50?

In the United States, the exchange rate for the dollar is determined by:

The real exchange rate between the currencies of two countries takes into account the price levels of both countries.

The value of a country's fixed exchange rate is determined by:

Foreign aid transfers are part of the _____ account.

The demand for U.S. dollars in the foreign exchange market comes from _____, while the supply of dollars comes from _____.

The basic rules of supply and demand do not apply in the foreign exchange market.

Suppose the French decide they like American goods so much that they want to buy more from the United States. What is the MOST likely chain of events that will arise from this scenario?

Which of these generates the largest volume of international commercial transactions?

In 2015, the United States ran both a _____ account deficit and a _____ account surplus.

If capital is perfectly mobile and a country has floating exchange rates, expansionary _____ policy will be _____, and contractionary _____ policy will be _____.

(Table) The current account balance is: Balance of Payments (billions of U.S. dollars) Component Amount Exports \ 1,800 Imports 2,300 Income received 490 Income payments 540 Net transfers -100 Increase in foreign-owned assets in the United States 700 Increase in U.S.-owned assets abroad 100

The Big Mac index is an attempt to measure:

Which item is NOT a determinant of the demand for foreign currency?

The Bretton Woods agreement:

Suppose the exchange rate is US$1 = ¥100. This means that:

Under a fixed exchange rate system, expansionary monetary policy is _____due to changes brought about through the _____ account.

If the Federal Reserve increases the money supply to bring down the federal funds rate:

Last year when Laura attended a business conference in Berlin, the exchange rate was €0.7 for US$1. This year she plans to attend that same conference and she notes that the exchange rate is €0.8 for US$1. Laura estimates that her lodging and meals will be _____ expensive than last year.

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Filters

The demand for U.S. dollars in the foreign exchange market comes from _, while the supply of dollars comes from _.

In 2015, the United States ran both a _ account deficit and a _ account surplus.

If capital is perfectly mobile and a country has floating exchange rates, expansionary ___ policy will be _, and contractionary _ policy will be ___.

Under a fixed exchange rate system, expansionary monetary policy is _due to changes brought about through the _ account.