Question 1

Figure 19-2
  
-Of the graphs in Figure 19-2, which one shows the effect of an increase in interest rates in Japan?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4 A

Question 2

A country with an undervalued currency

Accepted Answer

A)  will have a balance of payments deficit. 
B)  will accumulate reserves of foreign currencies. 
C)  will suffer losses of foreign reserves. 
D)  must intervene in the foreign exchange market to buy its own currency. 
A)  will have a balance of payments deficit. 
B)  will accumulate reserves of foreign currencies. 
C)  will suffer losses of foreign reserves. 
D)  must intervene in the foreign exchange market to buy its own currency. B

Question 3

The ability of a government to fix its currency's exchange rate is limited by the size of its reserves.

Accepted Answer

A) True 
 B)False  True

Question 4

Figure 19-3
  
-Of the graphs in Figure 19-3, where the dotted line shows the actual exchange rate, which one shows a country with an undervalued currency and a balance of trade surplus?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 5

Fixed exchange rates are fixed by

Accepted Answer

A)  international speculators who manipulate the world's currencies. 
B)  international demand and supply. 
C)  national governments. 
D)  All of the above are correct. 
A)  international speculators who manipulate the world's currencies. 
B)  international demand and supply. 
C)  national governments. 
D)  All of the above are correct.

Question 6

The Big Mac index uses prices of a common item to predict long-run changes in exchange rates.

Accepted Answer

A) True 
 B)False

Question 7

To try and stave off a devaluation of its fixed currency, Argentina was required to

Accepted Answer

A)  lower interest rates. 
B)  reduce tax levels. 
C)  increase their money supplies. 
D)  increase interest rates. 
A)  lower interest rates. 
B)  reduce tax levels. 
C)  increase their money supplies. 
D)  increase interest rates.

Question 8

Is it possible for a currency to appreciate relative to one currency, and depreciate relative to another?

Accepted Answer

A)  No, a currency rises or falls against all currencies. 
B)  No, this could happen only under the gold standard. 
C)  Yes, but only if all governments agree on the new rates. 
D)  Yes, this is possible in a world of floating rates. 
A)  No, a currency rises or falls against all currencies. 
B)  No, this could happen only under the gold standard. 
C)  Yes, but only if all governments agree on the new rates. 
D)  Yes, this is possible in a world of floating rates.

Question 9

The Bretton Woods system worked fairly well for a number of years, but it finally broke down over

Accepted Answer

A)  lack of agreement on how to settle the problems of the surplus nations. 
B)  its inability to devalue the U.S.dollar. 
C)  the huge debts of the IMF to less-developed countries. 
D)  the controversies generated by surplus nations wanting to devalue their currencies. 
A)  lack of agreement on how to settle the problems of the surplus nations. 
B)  its inability to devalue the U.S.dollar. 
C)  the huge debts of the IMF to less-developed countries. 
D)  the controversies generated by surplus nations wanting to devalue their currencies.

Question 10

Under the Bretton Woods system, a country with a balance of payments deficit

Accepted Answer

A)  could get loans from the U.S.government. 
B)  could devalue if deflationary policies failed to eliminate the deficit. 
C)  was not allowed to devalue under any circumstance. 
D)  was required to devalue its currency immediately. 
A)  could get loans from the U.S.government. 
B)  could devalue if deflationary policies failed to eliminate the deficit. 
C)  was not allowed to devalue under any circumstance. 
D)  was required to devalue its currency immediately.

Question 11

In general, speculators tend to make a floating exchange rate system more stable.

Accepted Answer

A) True 
 B)False

Question 12

On June 3, 2005, it cost 1.22 U.S.dollars to buy one euro.How many euros did it take to buy one U.S.dollar?

Accepted Answer

A)  0.82 euros 
B)  0.88 euros 
C)  1.22 euros 
D)  88 euros 
A)  0.82 euros 
B)  0.88 euros 
C)  1.22 euros 
D)  88 euros

Question 13

If a Mexican pension fund decides to purchase U.S.government bonds, what is the effect in the foreign exchange market?

Accepted Answer

A)  It will increase demand for U.S.dollars. 
B)  It will decrease demand for U.S.dollars. 
C)  It will increase supply of U.S.dollars. 
D)  It will decrease supply of U.S.dollars. 
A)  It will increase demand for U.S.dollars. 
B)  It will decrease demand for U.S.dollars. 
C)  It will increase supply of U.S.dollars. 
D)  It will decrease supply of U.S.dollars.

Question 14

The main component of the monetary union created by the Treaty of Maastricht is a(n)

Accepted Answer

A)  single currency. 
B)  gold standard. 
C)  bilateral barter system of currencies. 
D)  unified stock market. 
A)  single currency. 
B)  gold standard. 
C)  bilateral barter system of currencies. 
D)  unified stock market.

Question 15

Adhering to a strict fixed exchange rate system means that

Accepted Answer

A)  no country will experience inflation or recession. 
B)  each nation improves control over its money supply. 
C)  each nation loses some control of its monetary policy and its domestic economy. 
D)  each nation improves control over its fiscal policy and aggregate demand. 
A)  no country will experience inflation or recession. 
B)  each nation improves control over its money supply. 
C)  each nation loses some control of its monetary policy and its domestic economy. 
D)  each nation improves control over its fiscal policy and aggregate demand.

Question 16

Why did the Bretton Woods system ultimately break down?

Accepted Answer

A)  The refusal of OPEC countries to accept payment for oil in gold. 
B)  The refusal of surplus countries to devalue as required by law. 
C)  An inability to devalue the U.S.dollar despite chronic payments deficits. 
D)  An inability to adequately measure balance of payments surpluses and deficits. 
A)  The refusal of OPEC countries to accept payment for oil in gold. 
B)  The refusal of surplus countries to devalue as required by law. 
C)  An inability to devalue the U.S.dollar despite chronic payments deficits. 
D)  An inability to adequately measure balance of payments surpluses and deficits.

Question 17

If the dollar appreciates relative to other currencies, which of the following is true?

Accepted Answer

A)  It takes more foreign currency to buy a dollar. 
B)  It takes more dollars to buy a foreign currency. 
C)  U.S.exports will increase. 
D)  Foreign purchases of U.S.goods will increase. 
A)  It takes more foreign currency to buy a dollar. 
B)  It takes more dollars to buy a foreign currency. 
C)  U.S.exports will increase. 
D)  Foreign purchases of U.S.goods will increase.

Question 18

Table 19-1
 $\begin{array}{cc}
\text { American Coal } & \text { British Coal } \
\text { Cost per Ton } & \text { Cost per Ton } \
\hline \$ 150 & £ .75
\end{array}$
-From Table 19-1, what is the exchange rate between the dollar and the pound?

Accepted Answer

A)  One dollar is worth two pounds. 
B)  One pound is worth two dollars. 
C)  One pound is worth one dollar. 
D)  One pound is worth 50 cents. 
A)  One dollar is worth two pounds. 
B)  One pound is worth two dollars. 
C)  One pound is worth one dollar. 
D)  One pound is worth 50 cents.

Question 19

When a government intentionally lowers the value of its currency, that is called depreciation.

Accepted Answer

A) True 
 B)False

Question 20

Figure 19-3
  
-Of the graphs in Figure 19-3, where the dotted line shows the actual exchange rate, which one shows a country with an overvalued currency and a balance of trade deficit?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Exam 36: The International Monetary System: Order or Disorder?

Figure 19-2 -Of the graphs in Figure 19-2, which one shows the effect of an increase in interest rates in Japan?

A country with an undervalued currency

The ability of a government to fix its currency's exchange rate is limited by the size of its reserves.

Figure 19-3 -Of the graphs in Figure 19-3, where the dotted line shows the actual exchange rate, which one shows a country with an undervalued currency and a balance of trade surplus?

Fixed exchange rates are fixed by

The Big Mac index uses prices of a common item to predict long-run changes in exchange rates.

To try and stave off a devaluation of its fixed currency, Argentina was required to

Is it possible for a currency to appreciate relative to one currency, and depreciate relative to another?

The Bretton Woods system worked fairly well for a number of years, but it finally broke down over

Under the Bretton Woods system, a country with a balance of payments deficit

In general, speculators tend to make a floating exchange rate system more stable.

On June 3, 2005, it cost 1.22 U.S.dollars to buy one euro.How many euros did it take to buy one U.S.dollar?

If a Mexican pension fund decides to purchase U.S.government bonds, what is the effect in the foreign exchange market?

The main component of the monetary union created by the Treaty of Maastricht is a(n)

Adhering to a strict fixed exchange rate system means that

Why did the Bretton Woods system ultimately break down?

If the dollar appreciates relative to other currencies, which of the following is true?

Table 19-1 American Coal British Coal Cost per Ton Cost per Ton \ 150 £.75 -From Table 19-1, what is the exchange rate between the dollar and the pound?

When a government intentionally lowers the value of its currency, that is called depreciation.

Figure 19-3 -Of the graphs in Figure 19-3, where the dotted line shows the actual exchange rate, which one shows a country with an overvalued currency and a balance of trade deficit?

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

Exchange Rates and the Macroeconomy

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