Question 1

The law of one price is a statement of comparative advantage in terms of currencies.

Accepted Answer

A) True 
 B)False

Question 2

What is the difference between direct and indirect quotes of the exchange rate? Give an example of each.

Accepted Answer

In the context of foreign exchange (fore

Question 3

Describe what the terms appreciation and depreciation mean.

Accepted Answer

Appreciation and depreciation are terms

Question 4

Suppose that U.S. prices are rising faster than Mexican prices. In this case the demand for Mexican products is likely to:

Accepted Answer

A)  rise. 
B)  fall. 
C)  remain constant. 
D)  have a parallel demand for U.S. products. 
E)  not likely to change the exchange rate. 
A)  rise. 
B)  fall. 
C)  remain constant. 
D)  have a parallel demand for U.S. products. 
E)  not likely to change the exchange rate.

Question 5

If foreign prices rise relative to domestic prices then the supply of foreign exchange will increase.

Accepted Answer

A) True 
 B)False

Question 6

If foreign income rises then:

Accepted Answer

A)  the supply of foreign exchange will increase. 
B)  the supply of foreign exchange will decrease. 
C)  the supply of foreign exchange will shift to the left. 
D)  the supply of foreign exchange will stay the same. 
E)  the exchange rate will not change. 
A)  the supply of foreign exchange will increase. 
B)  the supply of foreign exchange will decrease. 
C)  the supply of foreign exchange will shift to the left. 
D)  the supply of foreign exchange will stay the same. 
E)  the exchange rate will not change.

Question 7

Suppose that a basket of goods costs $1,000 in the U.S. and the same basket of goods costs 200 zlotys in Poland. Explain what would happen to the dollar/zloty exchange rate if prices in the U.S. did not change but the price of the basket in Poland went to 500 zlotys.

Accepted Answer

If a basket of goods costs $1,000 in the

Question 8

The Producer Price Index in Botswana is identical to the Producer Price Index in Belgium.

Accepted Answer

A) True 
 B)False

Question 9

The principle that the change in the bilateral exchange rate should be equal to the difference in the national inflation rates is known as:

Accepted Answer

A)  the MacPPP standard. 
B)  absolute PPP. 
C)  relative PPP. 
D)  arbitrage. 
E)  the interest parity condition. 
A)  the MacPPP standard. 
B)  absolute PPP. 
C)  relative PPP. 
D)  arbitrage. 
E)  the interest parity condition.

Question 10

The percentage change in the exchange rate should be equal to the difference between the percentage change in price levels is a statement of:

Accepted Answer

A)  the consumer price index. 
B)  absolute purchasing power parity. 
C)  relative purchasing power parity. 
D)  the law of one price. 
E)  inflation parity. 
A)  the consumer price index. 
B)  absolute purchasing power parity. 
C)  relative purchasing power parity. 
D)  the law of one price. 
E)  inflation parity.

Question 11

Suppose that Japanese prices are falling and everything else has remained constant then:

Accepted Answer

A)  the dollar/yen exchange rate will appreciate caused by a decrease in the demand for yen. 
B)  the dollar/yen exchange rate will depreciate caused by a decrease in the demand for yen. 
C)  the dollar/yen exchange rate will appreciate caused by a decrease in the supply of yen. 
D)  the dollar/yen exchange rate will depreciate caused by a decrease in the supply of yen. 
E)  the Japanese demand for dollars will increase. 
A)  the dollar/yen exchange rate will appreciate caused by a decrease in the demand for yen. 
B)  the dollar/yen exchange rate will depreciate caused by a decrease in the demand for yen. 
C)  the dollar/yen exchange rate will appreciate caused by a decrease in the supply of yen. 
D)  the dollar/yen exchange rate will depreciate caused by a decrease in the supply of yen. 
E)  the Japanese demand for dollars will increase.

Question 12

Deviations from PPP can be caused by:

Accepted Answer

A)  quotas. 
B)  tariffs. 
C)  transportation costs. 
D)  None of the above 
E)  All of the above 
A)  quotas. 
B)  tariffs. 
C)  transportation costs. 
D)  None of the above 
E)  All of the above

Question 13

A leftward shift of the supply of foreign exchange will cause a depreciation of the currency.

Accepted Answer

A) True 
 B)False

Question 14

Import competing industries in the U.S. are likely to resist:

Accepted Answer

A)  an appreciation of the dollar because U.S. imports would become more expensive. 
B)  a depreciation of the dollar because U.S. imports would become more expensive. 
C)  an appreciation of the dollar because U.S. imports would become less expensive. 
D)  a depreciation of the dollar because U.S. imports would become less expensive. 
E)  None of the above 
A)  an appreciation of the dollar because U.S. imports would become more expensive. 
B)  a depreciation of the dollar because U.S. imports would become more expensive. 
C)  an appreciation of the dollar because U.S. imports would become less expensive. 
D)  a depreciation of the dollar because U.S. imports would become less expensive. 
E)  None of the above

Question 15

Relative PPP states that the percentage change in the exchange rate should equal the difference in the percentage change in price levels.

Accepted Answer

A) True 
 B)False

Question 16

Purchasing power parity is a theory that states that changes in exchange rates between countries are related to changes in relative prices.

Accepted Answer

A) True 
 B)False

Question 17

The demand for foreign exchange slopes downwards and to the right.

Accepted Answer

A) True 
 B)False

Question 18

When the dollar appreciates, then we might expect (everything else equal) that imports in the U.S. will _____ and exports will _____.

Accepted Answer

A)  rise, fall 
B)  rise, rise 
C)  fall, fall 
D)  fall, rise 
E)  rise, remain unchanged 
A)  rise, fall 
B)  rise, rise 
C)  fall, fall 
D)  fall, rise 
E)  rise, remain unchanged

Question 19

If the foreign exchange value of the Euro changes from .95 dollars to 1.05 dollars, then the dollar has depreciated against the Euro.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following would not cause problems in calculating PPP?

Accepted Answer

A)  differences in the calculation of the Producer Price Index across countries 
B)  barriers to trade 
C)  international differences in market structures 
D)  international differences in calculating interest rates 
E)  international differences in income 
A)  differences in the calculation of the Producer Price Index across countries 
B)  barriers to trade 
C)  international differences in market structures 
D)  international differences in calculating interest rates 
E)  international differences in income

The law of one price is a statement of comparative advantage in terms of currencies.

What is the difference between direct and indirect quotes of the exchange rate? Give an example of each.

Describe what the terms appreciation and depreciation mean.

Suppose that U.S. prices are rising faster than Mexican prices. In this case the demand for Mexican products is likely to:

If foreign prices rise relative to domestic prices then the supply of foreign exchange will increase.

If foreign income rises then:

Suppose that a basket of goods costs $1,000 in the U.S. and the same basket of goods costs 200 zlotys in Poland. Explain what would happen to the dollar/zloty exchange rate if prices in the U.S. did not change but the price of the basket in Poland went to 500 zlotys.

The Producer Price Index in Botswana is identical to the Producer Price Index in Belgium.

The principle that the change in the bilateral exchange rate should be equal to the difference in the national inflation rates is known as:

The percentage change in the exchange rate should be equal to the difference between the percentage change in price levels is a statement of:

Suppose that Japanese prices are falling and everything else has remained constant then:

Deviations from PPP can be caused by:

A leftward shift of the supply of foreign exchange will cause a depreciation of the currency.

Import competing industries in the U.S. are likely to resist:

Relative PPP states that the percentage change in the exchange rate should equal the difference in the percentage change in price levels.

Purchasing power parity is a theory that states that changes in exchange rates between countries are related to changes in relative prices.

The demand for foreign exchange slopes downwards and to the right.

When the dollar appreciates, then we might expect (everything else equal) that imports in the U.S. will _ and exports will _.

If the foreign exchange value of the Euro changes from .95 dollars to 1.05 dollars, then the dollar has depreciated against the Euro.

Which of the following would not cause problems in calculating PPP?

Introduction: An Overview of the World Economy

Why Countries Trade

Comparative Advantage and the Production Possibilities Frontier

Factor Endowments and the Commodity Composition of Trade

Intra-Industry Trade

The Firm in the World Economy

International Factor Movements

Tariffs

Nontariff Distortions to Trade

International Trade Policy

Regional Economic Arrangements

International Trade and Economic Growth

National Income Accounting and the Balance of Payments

Money, Interest Rates, and the Exchange Rate

Open Economy Macroeconomics

Macroeconomic Policy and Floating Exchange Rates

Fixed Exchange Rates and Currency Unions

International Monetary Arrangements

Capital Flows and the Developing Countries

Filters

Exam 14: Exchange Rates and Their Determination: A Basic Model

The law of one price is a statement of comparative advantage in terms of currencies.

What is the difference between direct and indirect quotes of the exchange rate? Give an example of each.

Describe what the terms appreciation and depreciation mean.

Suppose that U.S. prices are rising faster than Mexican prices. In this case the demand for Mexican products is likely to:

If foreign prices rise relative to domestic prices then the supply of foreign exchange will increase.

If foreign income rises then:

Suppose that a basket of goods costs $1,000 in the U.S. and the same basket of goods costs 200 zlotys in Poland. Explain what would happen to the dollar/zloty exchange rate if prices in the U.S. did not change but the price of the basket in Poland went to 500 zlotys.

The Producer Price Index in Botswana is identical to the Producer Price Index in Belgium.

The principle that the change in the bilateral exchange rate should be equal to the difference in the national inflation rates is known as:

The percentage change in the exchange rate should be equal to the difference between the percentage change in price levels is a statement of:

Suppose that Japanese prices are falling and everything else has remained constant then:

Deviations from PPP can be caused by:

A leftward shift of the supply of foreign exchange will cause a depreciation of the currency.

Import competing industries in the U.S. are likely to resist:

Relative PPP states that the percentage change in the exchange rate should equal the difference in the percentage change in price levels.

Purchasing power parity is a theory that states that changes in exchange rates between countries are related to changes in relative prices.

The demand for foreign exchange slopes downwards and to the right.

When the dollar appreciates, then we might expect (everything else equal) that imports in the U.S. will _____ and exports will _____.

If the foreign exchange value of the Euro changes from .95 dollars to 1.05 dollars, then the dollar has depreciated against the Euro.

Which of the following would not cause problems in calculating PPP?

Introduction: An Overview of the World Economy

Why Countries Trade

Comparative Advantage and the Production Possibilities Frontier

Factor Endowments and the Commodity Composition of Trade

Intra-Industry Trade

The Firm in the World Economy

International Factor Movements

Tariffs

Nontariff Distortions to Trade

International Trade Policy

Regional Economic Arrangements

International Trade and Economic Growth

National Income Accounting and the Balance of Payments

Money, Interest Rates, and the Exchange Rate

Open Economy Macroeconomics

Macroeconomic Policy and Floating Exchange Rates

Fixed Exchange Rates and Currency Unions

International Monetary Arrangements

Capital Flows and the Developing Countries

Filters

When the dollar appreciates, then we might expect (everything else equal) that imports in the U.S. will _ and exports will _.