Question 1

Relative price changes:

Accepted Answer

A)  determine exchange rate movements in the long run. 
B)  can change the exchange rate without changing the price levels. 
C)  are eliminated by arbitrage. 
D)  are always more significant than inflation. 
E)  cannot be empirically calculated. 
A)  determine exchange rate movements in the long run. 
B)  can change the exchange rate without changing the price levels. 
C)  are eliminated by arbitrage. 
D)  are always more significant than inflation. 
E)  cannot be empirically calculated.

Question 2

If the exchange rate were 100 yen equals one dollar, but purchasing power parity would require 110 for a dollar, then we would say the dollar is:

Accepted Answer

A)  undervalued. 
B)  overvalued. 
C)  inflationary. 
D)  below parity. 
E)  deflationary. 
A)  undervalued. 
B)  overvalued. 
C)  inflationary. 
D)  below parity. 
E)  deflationary.

Question 3

The decline of the U.S. dollar against the Euro will make imports from Europe less expensive in the U.S.

Accepted Answer

A) True 
 B)False

Question 4

How do changes in foreign income affect the exchange rate?

Accepted Answer

Changes in foreign income can have a sig

Question 5

Suppose that U.S. income is 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 dollar/yen exchange rate will not change. 
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 dollar/yen exchange rate will not change.

Question 6

An increase in the value of the currency is known as depreciation.

Accepted Answer

A) True 
 B)False

Question 7

The foreign exchange market is designed to transfer purchasing power from one currency to another.

Accepted Answer

A) True 
 B)False

Question 8

Suppose that inflation in the U.S. is 2 percent and 5 percent in the U.K. Show what would happen to the dollar/pound exchange rate?

Accepted Answer

The relationship between inflation rates

Question 9

As the Euro/dollar exchange rate increases:

Accepted Answer

A)  the demand for dollars increases. 
B)  the demand for dollars decreases. 
C)  the quantity demanded of dollars increases. 
D)  the quantity demanded of dollars decreases. 
E)  the demand for Euros does not change. 
A)  the demand for dollars increases. 
B)  the demand for dollars decreases. 
C)  the quantity demanded of dollars increases. 
D)  the quantity demanded of dollars decreases. 
E)  the demand for Euros does not change.

Question 10

_____ is a statement concerning prices and percentage changes in exchange rates over time.

Accepted Answer

A)  The law of one price 
B)  Absolute PPP 
C)  Relative PPP 
D)  Real PPP 
E)  Relative PPI 
A)  The law of one price 
B)  Absolute PPP 
C)  Relative PPP 
D)  Real PPP 
E)  Relative PPI

Question 11

The supply of foreign exchange slopes downwards and to the right.

Accepted Answer

A) True 
 B)False

Question 12

If the inflation differential between Mexico and the U.S. is greater than the percentage change in the peso/dollar exchange rate then purchasing power parity holds.

Accepted Answer

A) True 
 B)False

Question 13

Computer services are an example of:

Accepted Answer

A)  tradable services. 
B)  nontradable services. 
C)  tradable expenses. 
D)  nontradable expenses. 
E)  PPP 
A)  tradable services. 
B)  nontradable services. 
C)  tradable expenses. 
D)  nontradable expenses. 
E)  PPP

Question 14

Everything else constant, if income in the U.S. rises relative to income in the U.K. then the pound should appreciate against the dollar.

Accepted Answer

A) True 
 B)False

Question 15

As the dollar/Euro exchange rate decreases:

Accepted Answer

A)  the supply of Euros increases. 
B)  the supply of Euros decreases. 
C)  the quantity supplied of Euros increases. 
D)  the quantity supplied of Euros decreases. 
E)  the quantity demanded of Euros will not change. 
A)  the supply of Euros increases. 
B)  the supply of Euros decreases. 
C)  the quantity supplied of Euros increases. 
D)  the quantity supplied of Euros decreases. 
E)  the quantity demanded of Euros will not change.

Question 16

The inclusion of nontradable goods in price indexes makes the calculation of PPP more difficult.

Accepted Answer

A) True 
 B)False

Question 17

PPP is used as a benchmark to determine what an exchange rate should be.

Accepted Answer

A) True 
 B)False

Question 18

If the percentage change in the exchange rate is equal to the inflation differential between two countries, then relative PPP holds.

Accepted Answer

A) True 
 B)False

Question 19

Changes in the real exchange rate can be caused by which of the following?

Accepted Answer

A)  Changes in the foreign demand for domestically produced products 
B)  Changes in the real interest rate between countries 
C)  Changes in a country's productivity 
D)  All of the above 
E)  None of the above 
A)  Changes in the foreign demand for domestically produced products 
B)  Changes in the real interest rate between countries 
C)  Changes in a country's productivity 
D)  All of the above 
E)  None of the above

Question 20

If the dollar/peso exchange rate went from 200 pesos per dollar to 300 then the dollar has appreciated.

Accepted Answer

A) True 
 B)False

Relative price changes:

If the exchange rate were 100 yen equals one dollar, but purchasing power parity would require 110 for a dollar, then we would say the dollar is:

The decline of the U.S. dollar against the Euro will make imports from Europe less expensive in the U.S.

How do changes in foreign income affect the exchange rate?

Suppose that U.S. income is falling and everything else has remained constant then:

An increase in the value of the currency is known as depreciation.

The foreign exchange market is designed to transfer purchasing power from one currency to another.

Suppose that inflation in the U.S. is 2 percent and 5 percent in the U.K. Show what would happen to the dollar/pound exchange rate?

As the Euro/dollar exchange rate increases:

_____ is a statement concerning prices and percentage changes in exchange rates over time.

The supply of foreign exchange slopes downwards and to the right.

If the inflation differential between Mexico and the U.S. is greater than the percentage change in the peso/dollar exchange rate then purchasing power parity holds.

Computer services are an example of:

Everything else constant, if income in the U.S. rises relative to income in the U.K. then the pound should appreciate against the dollar.

As the dollar/Euro exchange rate decreases:

The inclusion of nontradable goods in price indexes makes the calculation of PPP more difficult.

PPP is used as a benchmark to determine what an exchange rate should be.

If the percentage change in the exchange rate is equal to the inflation differential between two countries, then relative PPP holds.

Changes in the real exchange rate can be caused by which of the following?

If the dollar/peso exchange rate went from 200 pesos per dollar to 300 then the dollar has appreciated.

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

Relative price changes:

If the exchange rate were 100 yen equals one dollar, but purchasing power parity would require 110 for a dollar, then we would say the dollar is:

The decline of the U.S. dollar against the Euro will make imports from Europe less expensive in the U.S.

How do changes in foreign income affect the exchange rate?

Suppose that U.S. income is falling and everything else has remained constant then:

An increase in the value of the currency is known as depreciation.

The foreign exchange market is designed to transfer purchasing power from one currency to another.

Suppose that inflation in the U.S. is 2 percent and 5 percent in the U.K. Show what would happen to the dollar/pound exchange rate?

As the Euro/dollar exchange rate increases:

_____ is a statement concerning prices and percentage changes in exchange rates over time.

The supply of foreign exchange slopes downwards and to the right.

If the inflation differential between Mexico and the U.S. is greater than the percentage change in the peso/dollar exchange rate then purchasing power parity holds.

Computer services are an example of:

Everything else constant, if income in the U.S. rises relative to income in the U.K. then the pound should appreciate against the dollar.

As the dollar/Euro exchange rate decreases:

The inclusion of nontradable goods in price indexes makes the calculation of PPP more difficult.

PPP is used as a benchmark to determine what an exchange rate should be.

If the percentage change in the exchange rate is equal to the inflation differential between two countries, then relative PPP holds.

Changes in the real exchange rate can be caused by which of the following?

If the dollar/peso exchange rate went from 200 pesos per dollar to 300 then the dollar has appreciated.

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