Question 1

Suppose that Mexican prices are rising more quickly than U.S. 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 affect the exchange rate. 
A)  rise. 
B)  fall. 
C)  remain constant. 
D)  have a parallel demand for U.S. products. 
E)  not affect the exchange rate.

Question 2

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

Accepted Answer

A)  rise. 
B)  fall. 
C)  remain constant. 
D)  fall at an increasing rate. 
E)  not affect the exchange rate. 
A)  rise. 
B)  fall. 
C)  remain constant. 
D)  fall at an increasing rate. 
E)  not affect the exchange rate.

Question 3

U.S. export industries are likely to resist:

Accepted Answer

A)  an appreciation of the dollar because U.S. exports would become more expensive. 
B)  a depreciation of the dollar because U.S. exports would become more expensive. 
C)  an appreciation of the dollar because U.S. exports would become less expensive. 
D)  a depreciation of the dollar because U.S. exports would become less expensive. 
E)  a depreciation of the dollar that makes exports more expensive. 
A)  an appreciation of the dollar because U.S. exports would become more expensive. 
B)  a depreciation of the dollar because U.S. exports would become more expensive. 
C)  an appreciation of the dollar because U.S. exports would become less expensive. 
D)  a depreciation of the dollar because U.S. exports would become less expensive. 
E)  a depreciation of the dollar that makes exports more expensive.

Question 4

Purchasing power parity means that:

Accepted Answer

A)  exchange rates are the same in different foreign-exchange markets at any given time. 
B)  interest rates will be the same across countries at any given time. 
C)  exchange rates will adjust to offset differing inflation rates between countries. 
D)  the law of one price will never hold. 
E)  inflation does not affect exchange rates. 
A)  exchange rates are the same in different foreign-exchange markets at any given time. 
B)  interest rates will be the same across countries at any given time. 
C)  exchange rates will adjust to offset differing inflation rates between countries. 
D)  the law of one price will never hold. 
E)  inflation does not affect exchange rates.

Question 5

Discuss the factors that would tend to cause the real exchange rate to change in the long run.

Accepted Answer

The real exchange rate, which measures t

Question 6

Write and explain an equation that explains the concept of purchasing power parity.

Accepted Answer

The concept of purchasing power parity (

Question 7

If the foreign exchange value of the dollar changes from 130 yen to 110 yen, then the dollar has appreciated against the yen.

Accepted Answer

A) True 
 B)False

Question 8

Absolute 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 9

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

Accepted Answer

A) True 
 B)False

Question 10

If relative PPP holds, then absolute PPP will hold.

Accepted Answer

A) True 
 B)False

Question 11

If the initial exchange rate is $2 per pound and then rises to $3 per pound, we would say that the pound has:

Accepted Answer

A)  appreciated against the dollar. 
B)  depreciated against the dollar. 
C)  appreciated against the pound. 
D)  depreciated against the pound. 
E)  dollarized against the pound. 
A)  appreciated against the dollar. 
B)  depreciated against the dollar. 
C)  appreciated against the pound. 
D)  depreciated against the pound. 
E)  dollarized against the pound.

Question 12

If the money supply in the U.S. is rising faster than the money supply in Japan one would expect the dollar to appreciate against the yen.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following factors does not tend to cause a change in the supply of foreign exchange?

Accepted Answer

A)  Changes in foreign income 
B)  Changes in domestic prices 
C)  Changes in foreign prices 
D)  Changes in the exchange rate 
E)  None of the above 
A)  Changes in foreign income 
B)  Changes in domestic prices 
C)  Changes in foreign prices 
D)  Changes in the exchange rate 
E)  None of the above

Question 14

Why does the supply of foreign exchange slope upwards? What factors would cause this curve to shift?

Accepted Answer

The supply curve of foreign exchange slo

Question 15

The demand for foreign exchange comes from the demand by domestic residents for foreign goods and services.

Accepted Answer

A) True 
 B)False

Question 16

Empirical tests of PPP often fail as a short-run predictor of future nominal exchange rates.

Accepted Answer

A) True 
 B)False

Question 17

As the dollar depreciates:

Accepted Answer

A)  the quantity supplied of foreign exchange increases. 
B)  the quantity supplied of foreign exchange decreases. 
C)  the supply of foreign exchange decreases. 
D)  the supply of foreign exchange increases. 
E)  the supply of foreign exchange does not change. 
A)  the quantity supplied of foreign exchange increases. 
B)  the quantity supplied of foreign exchange decreases. 
C)  the supply of foreign exchange decreases. 
D)  the supply of foreign exchange increases. 
E)  the supply of foreign exchange does not change.

Question 18

A period of exceptionally strong economic growth would tend to:

Accepted Answer

A)  cause the currency to depreciate. 
B)  cause the currency to appreciate. 
C)  have no effect on the exchange rate in the short run. 
D)  have no effect on the exchange rate in the long run. 
E)  cause a rapid appreciation of the currency. 
A)  cause the currency to depreciate. 
B)  cause the currency to appreciate. 
C)  have no effect on the exchange rate in the short run. 
D)  have no effect on the exchange rate in the long run. 
E)  cause a rapid appreciation of the currency.

Question 19

If domestic income is increasing rapidly and domestic prices are rising faster than foreign prices, what will happen to the exchange rate?

Accepted Answer

If domestic income is increasing rapidly

Question 20

If local prices increase relative to foreign prices, then the local currency would tend to appreciate.

Accepted Answer

A) True 
 B)False

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

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

U.S. export industries are likely to resist:

Purchasing power parity means that:

Discuss the factors that would tend to cause the real exchange rate to change in the long run.

Write and explain an equation that explains the concept of purchasing power parity.

If the foreign exchange value of the dollar changes from 130 yen to 110 yen, then the dollar has appreciated against the yen.

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

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

If relative PPP holds, then absolute PPP will hold.

If the initial exchange rate is $2 per pound and then rises to $3 per pound, we would say that the pound has:

If the money supply in the U.S. is rising faster than the money supply in Japan one would expect the dollar to appreciate against the yen.

Which of the following factors does not tend to cause a change in the supply of foreign exchange?

Why does the supply of foreign exchange slope upwards? What factors would cause this curve to shift?

The demand for foreign exchange comes from the demand by domestic residents for foreign goods and services.

Empirical tests of PPP often fail as a short-run predictor of future nominal exchange rates.

As the dollar depreciates:

A period of exceptionally strong economic growth would tend to:

If domestic income is increasing rapidly and domestic prices are rising faster than foreign prices, what will happen to the exchange rate?

If local prices increase relative to foreign prices, then the local currency would tend to appreciate.

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

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

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

U.S. export industries are likely to resist:

Purchasing power parity means that:

Discuss the factors that would tend to cause the real exchange rate to change in the long run.

Write and explain an equation that explains the concept of purchasing power parity.

If the foreign exchange value of the dollar changes from 130 yen to 110 yen, then the dollar has appreciated against the yen.

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

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

If relative PPP holds, then absolute PPP will hold.

If the initial exchange rate is $2 per pound and then rises to $3 per pound, we would say that the pound has:

If the money supply in the U.S. is rising faster than the money supply in Japan one would expect the dollar to appreciate against the yen.

Which of the following factors does not tend to cause a change in the supply of foreign exchange?

Why does the supply of foreign exchange slope upwards? What factors would cause this curve to shift?

The demand for foreign exchange comes from the demand by domestic residents for foreign goods and services.

Empirical tests of PPP often fail as a short-run predictor of future nominal exchange rates.

As the dollar depreciates:

A period of exceptionally strong economic growth would tend to:

If domestic income is increasing rapidly and domestic prices are rising faster than foreign prices, what will happen to the exchange rate?

If local prices increase relative to foreign prices, then the local currency would tend to appreciate.

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