Question 1

Assume that a country's currency is appreciating. Which of the following conditions would be less likely to be true of this country?

Accepted Answer

A)  The country has a relatively high rate of inflation. 
B)  The GDP of the country is growing very fast. 
C)  The country has a relatively high rate of inflation 
D)  Inflation is increasing at an increasing rate. 
E)  The country has a relatively low rate of inflation. 
A)  The country has a relatively high rate of inflation. 
B)  The GDP of the country is growing very fast. 
C)  The country has a relatively high rate of inflation 
D)  Inflation is increasing at an increasing rate. 
E)  The country has a relatively low rate of inflation.

Question 2

The real exchange rate is equal to the:

Accepted Answer

A)  nominal exchange rate divided by the ratio of the price levels. 
B)  ratio of the price levels divided by the nominal exchange rate. 
C)  import price index divided by the nominal exchange rate. 
D)  import price index divided by the CPI. 
E)  import price index divided by the PPI. 
A)  nominal exchange rate divided by the ratio of the price levels. 
B)  ratio of the price levels divided by the nominal exchange rate. 
C)  import price index divided by the nominal exchange rate. 
D)  import price index divided by the CPI. 
E)  import price index divided by the PPI.

Question 3

Explain the relationship between the real exchange rate and real interest rates.

Accepted Answer

The relationship between the real exchan

Question 4

An example of depreciation of the dollar would be if the number of Mexican pesos a dollar would purchase went from _____ to _____.

Accepted Answer

A)  100, 125 
B)  125, 150 
C)  150, 180 
D)  200, 180 
E)  20, 50 
A)  100, 125 
B)  125, 150 
C)  150, 180 
D)  200, 180 
E)  20, 50

Question 5

Purchasing power parity is the theory that states that changes in relative prices between countries are determined by changes in the exchange rate.

Accepted Answer

A) True 
 B)False

Question 6

PPP should be thought of as a short-run concept.

Accepted Answer

A) True 
 B)False

Question 7

The demand for foreign exchange results from:

Accepted Answer

A)  the domestic demand for foreign goods. 
B)  the foreign demand for domestic goods. 
C)  the domestic supply of export goods. 
D)  foreign tourists visiting the domestic country. 
E)  currency substitution. 
A)  the domestic demand for foreign goods. 
B)  the foreign demand for domestic goods. 
C)  the domestic supply of export goods. 
D)  foreign tourists visiting the domestic country. 
E)  currency substitution.

Question 8

An exchange rate is the price of one country's currency in terms of another currency.

Accepted Answer

A) True 
 B)False

Question 9

If U.S. prices increase with no change in Japanese prices, the supply of yen would:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  increase at a fast rate. 
E)  increase at a slow rate. 
A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  increase at a fast rate. 
E)  increase at a slow rate.

Question 10

Suppose that you had to forecast the exchange rate for a country for the next year. What factors would you have to consider?

Accepted Answer

When forecasting the exchange rate for a

Question 11

The two most important factors that would shift the U.S. demand for Mexican pesos are changes in incomes and relative prices.

Accepted Answer

A) True 
 B)False

Question 12

The supply of foreign exchange can shift in response to changes in the exchange rate.

Accepted Answer

A) True 
 B)False

Question 13

If a pair of pants costs $40 dollars in the U.S. and 500 pesos in Mexico and the exchange rate is $1 per peso, then a trader could make a profit exporting pants from Mexico to the U.S.

Accepted Answer

A) True 
 B)False

Question 14

In general, inflation has little effect on exchange rates.

Accepted Answer

A) True 
 B)False

Question 15

Since the demand and supply of foreign exchange are both unstable, then the exchange rate tends to be unstable.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that pizza prices increase by 5% while the general price level has increased by 2%. In real terms pizza prices have increased by:

Accepted Answer

A)  1%. 
B)  3%. 
C)  5%. 
D)  8%. 
E)  10%. 
A)  1%. 
B)  3%. 
C)  5%. 
D)  8%. 
E)  10%.

Question 17

If the exchange rate is equal to the ratio of the domestic and foreign price indexes then:

Accepted Answer

A)  the currency is said to be undervalued. 
B)  one currency is said to be overvalued. 
C)  relative purchasing power parity holds. 
D)  absolute purchasing power parity holds. 
E)  arbitrage is profitable. 
A)  the currency is said to be undervalued. 
B)  one currency is said to be overvalued. 
C)  relative purchasing power parity holds. 
D)  absolute purchasing power parity holds. 
E)  arbitrage is profitable.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

The real exchange rate is equal to the nominal exchange minus any transaction costs.

Accepted Answer

A) True 
 B)False

Question 20

Exchange-rate volatility creates a bias against _____ goods and a bias towards _____ domestic goods.

Accepted Answer

A)  imported, foreign 
B)  imported, domestic 
C)  domestic, imported 
D)  new, old 
E)  old, new 
A)  imported, foreign 
B)  imported, domestic 
C)  domestic, imported 
D)  new, old 
E)  old, new

Assume that a country's currency is appreciating. Which of the following conditions would be less likely to be true of this country?

The real exchange rate is equal to the:

Explain the relationship between the real exchange rate and real interest rates.

An example of depreciation of the dollar would be if the number of Mexican pesos a dollar would purchase went from _ to _.

Purchasing power parity is the theory that states that changes in relative prices between countries are determined by changes in the exchange rate.

PPP should be thought of as a short-run concept.

The demand for foreign exchange results from:

An exchange rate is the price of one country's currency in terms of another currency.

If U.S. prices increase with no change in Japanese prices, the supply of yen would:

Suppose that you had to forecast the exchange rate for a country for the next year. What factors would you have to consider?

The two most important factors that would shift the U.S. demand for Mexican pesos are changes in incomes and relative prices.

The supply of foreign exchange can shift in response to changes in the exchange rate.

If a pair of pants costs $40 dollars in the U.S. and 500 pesos in Mexico and the exchange rate is $1 per peso, then a trader could make a profit exporting pants from Mexico to the U.S.

In general, inflation has little effect on exchange rates.

Since the demand and supply of foreign exchange are both unstable, then the exchange rate tends to be unstable.

Suppose that pizza prices increase by 5% while the general price level has increased by 2%. In real terms pizza prices have increased by:

If the exchange rate is equal to the ratio of the domestic and foreign price indexes then:

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

The real exchange rate is equal to the nominal exchange minus any transaction costs.

Exchange-rate volatility creates a bias against _ goods and a bias towards _ domestic goods.

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

Assume that a country's currency is appreciating. Which of the following conditions would be less likely to be true of this country?

The real exchange rate is equal to the:

Explain the relationship between the real exchange rate and real interest rates.

An example of depreciation of the dollar would be if the number of Mexican pesos a dollar would purchase went from _____ to _____.

Purchasing power parity is the theory that states that changes in relative prices between countries are determined by changes in the exchange rate.

PPP should be thought of as a short-run concept.

The demand for foreign exchange results from:

An exchange rate is the price of one country's currency in terms of another currency.

If U.S. prices increase with no change in Japanese prices, the supply of yen would:

Suppose that you had to forecast the exchange rate for a country for the next year. What factors would you have to consider?

The two most important factors that would shift the U.S. demand for Mexican pesos are changes in incomes and relative prices.

The supply of foreign exchange can shift in response to changes in the exchange rate.

If a pair of pants costs $40 dollars in the U.S. and 500 pesos in Mexico and the exchange rate is $1 per peso, then a trader could make a profit exporting pants from Mexico to the U.S.

In general, inflation has little effect on exchange rates.

Since the demand and supply of foreign exchange are both unstable, then the exchange rate tends to be unstable.

Suppose that pizza prices increase by 5% while the general price level has increased by 2%. In real terms pizza prices have increased by:

If the exchange rate is equal to the ratio of the domestic and foreign price indexes then:

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

The real exchange rate is equal to the nominal exchange minus any transaction costs.

Exchange-rate volatility creates a bias against _____ goods and a bias towards _____ domestic goods.

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

An example of depreciation of the dollar would be if the number of Mexican pesos a dollar would purchase went from _ to _.

Exchange-rate volatility creates a bias against _ goods and a bias towards _ domestic goods.