Question 1

There is an exchange rate between

Accepted Answer

A)  every pair of currencies. 
B)  the world's major currencies but not between the currencies of less-developed countries. 
C)  currencies on a fixed exchange rate system but not for those on a floating rate system. 
D)  the currencies of the European Union but not for the nations outside the European Union. 
A)  every pair of currencies. 
B)  the world's major currencies but not between the currencies of less-developed countries. 
C)  currencies on a fixed exchange rate system but not for those on a floating rate system. 
D)  the currencies of the European Union but not for the nations outside the European Union. A

Question 2

Which of the following statements is correct?

Accepted Answer

A)  In the short run, interest rate differentials have the greatest impact on exchange rates. 
B)  In the medium run, differences in growth rates of aggregate demand have the greatest impact on exchange rates. 
C)  In the long run, price and inflation differentials have the greatest impact on exchange rates. 
D)  All of the above are correct. 
A)  In the short run, interest rate differentials have the greatest impact on exchange rates. 
B)  In the medium run, differences in growth rates of aggregate demand have the greatest impact on exchange rates. 
C)  In the long run, price and inflation differentials have the greatest impact on exchange rates. 
D)  All of the above are correct. D

Question 3

Fixed exchange rates are rates set by government decisions and maintained by government actions.

Accepted Answer

A) True 
 B)False  True

Question 4

If the exchange rate of the Swiss franc is 1.61 francs per dollar, then the Swiss franc is worth about

Accepted Answer

A)  15 cents. 
B)  57 cents 
C)  62 cents. 
D)  $15.70. 
A)  15 cents. 
B)  57 cents 
C)  62 cents. 
D)  $15.70.

Question 5

Purchasing-power parity theory states that relative prices in any two countries determine the exchange rate between their currencies.

Accepted Answer

A) True 
 B)False

Question 6

When the dollar buys less foreign currency, there has been a depreciation of the dollar.

Accepted Answer

A) True 
 B)False

Question 7

Figure 19-2
 
Of the graphs in Figure 19-2, where the broken line represents the fixed exchange rate, which one shows a reduction in the price level in Japan that would reduce a balance of payments deficit?

Accepted Answer

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

Question 8

Under a gold standard, a balance of payments deficit automatically

Accepted Answer

A)  raised interest rates. 
B)  decreased exports. 
C)  increased domestic prices. 
D)  increased imports. 
A)  raised interest rates. 
B)  decreased exports. 
C)  increased domestic prices. 
D)  increased imports.

Question 9

Differentiate between the current account balance and the capital account balance.

Accepted Answer

The current account balance includes int

Question 10

Appreciation is the term used to describe

Accepted Answer

A)  the conversion of one currency into another currency in the free market. 
B)  a reduction in the official value of a currency. 
C)  the upward movement of currencies in a free market. 
D)  an increase in the official value of a currency. 
A)  the conversion of one currency into another currency in the free market. 
B)  a reduction in the official value of a currency. 
C)  the upward movement of currencies in a free market. 
D)  an increase in the official value of a currency.

Question 11

The Bretton Woods agreements in 1944

Accepted Answer

A)  established the International Monetary Fund. 
B)  sanctioned world trade on the gold-exchange system. 
C)  allowed nations to devalue their currencies under certain conditions. 
D)  All of the above are correct. 
A)  established the International Monetary Fund. 
B)  sanctioned world trade on the gold-exchange system. 
C)  allowed nations to devalue their currencies under certain conditions. 
D)  All of the above are correct.

Question 12

According to the purchasing-power parity theory, differences in domestic inflation rates are a major cause of exchange rate movements.

Accepted Answer

A) True 
 B)False

Question 13

Under a gold standard,

Accepted Answer

A)  with a balance of payments deficit, interest rates would fall and attract foreign capital. 
B)  a deficit in the balance of payments increased a nation's money supply automatically. 
C)  all currencies were defined in terms of gold. 
D)  when a nation had a deficit in its balance of payments, more gold was flowing in than was flowing out. 
E)  All of the above are correct. 
A)  with a balance of payments deficit, interest rates would fall and attract foreign capital. 
B)  a deficit in the balance of payments increased a nation's money supply automatically. 
C)  all currencies were defined in terms of gold. 
D)  when a nation had a deficit in its balance of payments, more gold was flowing in than was flowing out. 
E)  All of the above are correct.

Question 14

The gold standard established fixed exchange rates among all countries.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following do most economists consider to be the most basic measure of a nation's international transactions?

Accepted Answer

A)  Balance on current account 
B)  Balance on capital account 
C)  Balance of merchandise trade 
D)  Balance on long-term capital 
A)  Balance on current account 
B)  Balance on capital account 
C)  Balance of merchandise trade 
D)  Balance on long-term capital

Question 16

In a floating exchange market, the exchange rate for pesos and yen will not change when

Accepted Answer

A)  the yen trades at a rate below the equilibrium level. 
B)  the peso trades at a rate above the equilibrium level. 
C)  the currencies trade at the equilibrium exchange rate. 
D)  it will change in all of these situations. 
A)  the yen trades at a rate below the equilibrium level. 
B)  the peso trades at a rate above the equilibrium level. 
C)  the currencies trade at the equilibrium exchange rate. 
D)  it will change in all of these situations.

Question 17

If inflation in the United States is higher than in Japan, what will happen to the exchange rate between the U.S. dollar and the Japanese yen?

Accepted Answer

A)  The dollar and yen will both depreciate. 
B)  The dollar and yen will both appreciate. 
C)  The dollar will depreciate and the yen will appreciate. 
D)  The dollar will appreciate and the yen will depreciate. 
A)  The dollar and yen will both depreciate. 
B)  The dollar and yen will both appreciate. 
C)  The dollar will depreciate and the yen will appreciate. 
D)  The dollar will appreciate and the yen will depreciate.

Question 18

If market forces change the exchange rate value of one dollar from 80 yen to 83.25 yen, then the dollar has

Accepted Answer

A)  appreciated. 
B)  depreciated. 
C)  been revalued. 
D)  been devalued. 
A)  appreciated. 
B)  depreciated. 
C)  been revalued. 
D)  been devalued.

Question 19

To "cure" their balance of payments deficits without altering exchange rates, Southeast Asian countries in 1997 were forced to create

Accepted Answer

A)  more inflation. 
B)  recessions. 
C)  faster economic growth. 
D)  money at an accelerated rate. 
A)  more inflation. 
B)  recessions. 
C)  faster economic growth. 
D)  money at an accelerated rate.

Question 20

Many experts believe that the major determinant of exchange rates in the short run is relative

Accepted Answer

A)  price levels. 
B)  income levels. 
C)  money supplies. 
D)  interest rates. 
A)  price levels. 
B)  income levels. 
C)  money supplies. 
D)  interest rates.

Exam 35: The International Monetary System: Order or Disorder

There is an exchange rate between

Which of the following statements is correct?

Fixed exchange rates are rates set by government decisions and maintained by government actions.

If the exchange rate of the Swiss franc is 1.61 francs per dollar, then the Swiss franc is worth about

Purchasing-power parity theory states that relative prices in any two countries determine the exchange rate between their currencies.

When the dollar buys less foreign currency, there has been a depreciation of the dollar.

Figure 19-2 Of the graphs in Figure 19-2, where the broken line represents the fixed exchange rate, which one shows a reduction in the price level in Japan that would reduce a balance of payments deficit?

Under a gold standard, a balance of payments deficit automatically

Differentiate between the current account balance and the capital account balance.

Appreciation is the term used to describe

The Bretton Woods agreements in 1944

According to the purchasing-power parity theory, differences in domestic inflation rates are a major cause of exchange rate movements.

Under a gold standard,

The gold standard established fixed exchange rates among all countries.

Which of the following do most economists consider to be the most basic measure of a nation's international transactions?

In a floating exchange market, the exchange rate for pesos and yen will not change when

If inflation in the United States is higher than in Japan, what will happen to the exchange rate between the U.S. dollar and the Japanese yen?

If market forces change the exchange rate value of one dollar from 80 yen to 83.25 yen, then the dollar has

To "cure" their balance of payments deficits without altering exchange rates, Southeast Asian countries in 1997 were forced to create

Many experts believe that the major determinant of exchange rates in the short run is relative

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

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

Contemporary Issues in the Us Economy

Filters