Question 1

When the government fixes its exchange rate

Accepted Answer

A)  it creates an unfavorable balance of trade 
B)  it creates trade surpluses 
C)  it does so to allow the exchange rate to reach equilibrium 
D)  it acts as an arbitrager 
E)  it is not unlike a government policy to control agricultural prices 
A)  it creates an unfavorable balance of trade 
B)  it creates trade surpluses 
C)  it does so to allow the exchange rate to reach equilibrium 
D)  it acts as an arbitrager 
E)  it is not unlike a government policy to control agricultural prices

Question 2

Tariffs and quotas are forms of exchange controls.

Accepted Answer

A) True 
 B)False

Question 3

Capital accounts measure

Accepted Answer

A)  the foreign asset holdings of a nation and that nation's asset holding abroad 
B)  d and e 
C)  changes in the foreign asset holdings of a nation and the difference between its exports and imports 
D)  the difference between a nation's exports and imports 
E)  changes in the foreign asset holdings of a nation and that nation's asset holdings abroad 
A)  the foreign asset holdings of a nation and that nation's asset holding abroad 
B)  d and e 
C)  changes in the foreign asset holdings of a nation and the difference between its exports and imports 
D)  the difference between a nation's exports and imports 
E)  changes in the foreign asset holdings of a nation and that nation's asset holdings abroad

Question 4

The interest rate on some Brazilian bank accounts is 700 percent per year. If you put 1 Brazilian real (Brazil's currency) in a bank today, it will be worth 8 reals next year! Why then don't we all wire our U.S. dollars to Brazilian banks?

Accepted Answer

A)  The Brazilian government keeps the exchange rate fixed during the year, which wipes out your financial gain. 
B)  The Brazilian balance of payments becomes negative, which results in higher taxes, much of it from your financial gain. 
C)  The U.S. government prohibits U.S. investment in foreign financial institutions. 
D)  People engaging in arbitrage will quickly adjust the rates to make the Brazilian interest rate no more attractive than U.S. interest rates. 
E)  The exchange rate reals per dollar adjusts during the year so that you are no better off once you convert your reals back into dollars. 
A)  The Brazilian government keeps the exchange rate fixed during the year, which wipes out your financial gain. 
B)  The Brazilian balance of payments becomes negative, which results in higher taxes, much of it from your financial gain. 
C)  The U.S. government prohibits U.S. investment in foreign financial institutions. 
D)  People engaging in arbitrage will quickly adjust the rates to make the Brazilian interest rate no more attractive than U.S. interest rates. 
E)  The exchange rate reals per dollar adjusts during the year so that you are no better off once you convert your reals back into dollars.

Question 5

The total amount of outstanding IOUs a nation is obligated to repay other nations and international organizations is called

Accepted Answer

A)  current account 
B)  balance of payments 
C)  international trade 
D)  the market will shift it from fixed to floating 
E)  capital account 
A)  current account 
B)  balance of payments 
C)  international trade 
D)  the market will shift it from fixed to floating 
E)  capital account

Question 6

Historical note: The IMF was formed in

Accepted Answer

A)  1790 
B)  1812 
C)  1890 
D)  1944 
E)  1974 
A)  1790 
B)  1812 
C)  1890 
D)  1944 
E)  1974

Question 7

The Jordanian government might consider devaluing its currency (the dinar)

Accepted Answer

A)  if domestic inflation is high 
B)  if Jordan has a large trade deficit 
C)  if Jordan has achieved full employment 
D)  if the dollar is appreciated 
E)  if Jordan has a large trade surplus 
A)  if domestic inflation is high 
B)  if Jordan has a large trade deficit 
C)  if Jordan has achieved full employment 
D)  if the dollar is appreciated 
E)  if Jordan has a large trade surplus

Question 8

Exchange controls in Peru _________.

Accepted Answer

A)  reduce quotas 
B)  are illegal 
C)  reduce tariffs 
D)  are designed to float the exchange rate 
E)  will ease the pressure on Peru's foreign exchange reserves if its exchange rate is fixed 
A)  reduce quotas 
B)  are illegal 
C)  reduce tariffs 
D)  are designed to float the exchange rate 
E)  will ease the pressure on Peru's foreign exchange reserves if its exchange rate is fixed

Question 9

If Sabrina exchanges dollars for Japanese yen, she

Accepted Answer

A)  causes the balance of payments to become unbalanced, in the short run 
B)  engages in arbitrage 
C)  supplies yen on the foreign exchange market 
D)  supplies dollars on the foreign exchange market 
E)  first demands dollars then uses them to buy Japanese goods which can be converted into yen 
A)  causes the balance of payments to become unbalanced, in the short run 
B)  engages in arbitrage 
C)  supplies yen on the foreign exchange market 
D)  supplies dollars on the foreign exchange market 
E)  first demands dollars then uses them to buy Japanese goods which can be converted into yen

Question 10

If a disequilibrium occurs in the foreign exchange market, what are possible solutions? Why might governments choose not to let the price of their currencies adjust to clear the market?

Accepted Answer

Governments can devalue their currencies

Question 11

Explain the essential difference between fixed and flexible exchange rate systems.

Accepted Answer

Fixed exchange rates involve an official

Question 12

-Exhibit FF-1 depicts the foreign exchange market for yen per dollar and dollars per yen. The demand curve in graph FF-1(A) reflects

Accepted Answer

A)  U.S. citizens' demand for Japanese-made goods 
B)  Japanese demand for U.S.-made goods 
C)  U.S. businesses supplying the Japanese 
D)  Japanese businesses supplying the U.S 
E)  the U.S. government supplying dollars on the international market 
A)  U.S. citizens' demand for Japanese-made goods 
B)  Japanese demand for U.S.-made goods 
C)  U.S. businesses supplying the Japanese 
D)  Japanese businesses supplying the U.S 
E)  the U.S. government supplying dollars on the international market

Question 13

The term "a strong U.S. dollar" means that the dollar

Accepted Answer

A)  is in equilibrium on the foreign exchange market 
B)  does not fluctuate greatly 
C)  has been depreciating 
D)  has been appreciating 
E)  buys more than one unit of a foreign currency 
A)  is in equilibrium on the foreign exchange market 
B)  does not fluctuate greatly 
C)  has been depreciating 
D)  has been appreciating 
E)  buys more than one unit of a foreign currency

Question 14

Foreign exchange reserves are critical to an effective floating exchange rate system.

Accepted Answer

A) True 
 B)False

Question 15

Import controls that can help a government maintain a fixed exchange rate, which if left to the foreign exchange market would depreciate, are

Accepted Answer

A)  lowering tariffs and increasing quotas so that more international trade occurs 
B)  raising tariffs and decreasing quotas so that its country's demand for foreign exchange decreases 
C)  requiring exporters to turn over their foreign exchange to the government at a fixed exchange rate 
D)  having the IMF loan the government enough foreign exchange to get through the crisis 
E)  causing a devaluation of the nation's currency so that exports rise and imports fall 
A)  lowering tariffs and increasing quotas so that more international trade occurs 
B)  raising tariffs and decreasing quotas so that its country's demand for foreign exchange decreases 
C)  requiring exporters to turn over their foreign exchange to the government at a fixed exchange rate 
D)  having the IMF loan the government enough foreign exchange to get through the crisis 
E)  causing a devaluation of the nation's currency so that exports rise and imports fall

Question 16

Over the past two decades the U.S. balance on current accounts has

Accepted Answer

A)  been in deficit 
B)  generated surpluses 
C)  been very erratic, swinging from deficits to surpluses to deficits 
D)  essentially been in balance 
E)  declined in importance compared to the balance on capital account 
A)  been in deficit 
B)  generated surpluses 
C)  been very erratic, swinging from deficits to surpluses to deficits 
D)  essentially been in balance 
E)  declined in importance compared to the balance on capital account

Question 17

The purpose of the IMF is to

Accepted Answer

A)  make short-term loans to countries facing balance of payments problems 
B)  help governments combat their inflation 
C)  fix exchange rates 
D)  administer the foreign exchange market 
E)  buy and sell IMF bonds to keep the world's currencies in equilibrium 
A)  make short-term loans to countries facing balance of payments problems 
B)  help governments combat their inflation 
C)  fix exchange rates 
D)  administer the foreign exchange market 
E)  buy and sell IMF bonds to keep the world's currencies in equilibrium

Question 18

Low productivity in the U.S. appreciates the dollar in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 19

An increasing trade deficit for Micromania will, ceteris paribus, lead to a devaluation of Micros (Micromania's currency) in world currency markets.

Accepted Answer

A) True 
 B)False

Question 20

-Refer to Exhibit FF-4. If the U.S. government wants to maintain the foreign exchange rate at 100 yen = $1, and the demand for dollars on the foreign exchange market shifts from D to D', the government must

Accepted Answer

A)  depreciate the exchange rate of other currencies 
B)  supply dollars to the foreign exchange market 
C)  demand dollars from the foreign exchange market 
D)  depreciate the dollar 
E)  appreciate the dollar 
A)  depreciate the exchange rate of other currencies 
B)  supply dollars to the foreign exchange market 
C)  demand dollars from the foreign exchange market 
D)  depreciate the dollar 
E)  appreciate the dollar

Exam 20: Exchange Rates, Balance of Payments, and International Debt

When the government fixes its exchange rate

Tariffs and quotas are forms of exchange controls.

Capital accounts measure

The interest rate on some Brazilian bank accounts is 700 percent per year. If you put 1 Brazilian real (Brazil's currency) in a bank today, it will be worth 8 reals next year! Why then don't we all wire our U.S. dollars to Brazilian banks?

The total amount of outstanding IOUs a nation is obligated to repay other nations and international organizations is called

Historical note: The IMF was formed in

The Jordanian government might consider devaluing its currency (the dinar)

Exchange controls in Peru _________.

If Sabrina exchanges dollars for Japanese yen, she

If a disequilibrium occurs in the foreign exchange market, what are possible solutions? Why might governments choose not to let the price of their currencies adjust to clear the market?

Explain the essential difference between fixed and flexible exchange rate systems.

-Exhibit FF-1 depicts the foreign exchange market for yen per dollar and dollars per yen. The demand curve in graph FF-1(A) reflects

The term "a strong U.S. dollar" means that the dollar

Foreign exchange reserves are critical to an effective floating exchange rate system.

Import controls that can help a government maintain a fixed exchange rate, which if left to the foreign exchange market would depreciate, are

Over the past two decades the U.S. balance on current accounts has

The purpose of the IMF is to

Low productivity in the U.S. appreciates the dollar in the foreign exchange market.

An increasing trade deficit for Micromania will, ceteris paribus, lead to a devaluation of Micros (Micromania's currency) in world currency markets.

-Refer to Exhibit FF-4. If the U.S. government wants to maintain the foreign exchange rate at 100 yen = $1, and the demand for dollars on the foreign exchange market shifts from D to D', the government must

Introduction

Production Possibilities and Opportunity Costs

Demand and Supply

Elasticity

Happiness, Utility, and Consumer Choice

Price Ceilings and Price Floors

Entrepreneurship and Business Ownership

Costs of Production

Maximizing Profit

Identifying Markets and Market Structures

Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

Price and Output Determination Under Oligopoly

Antitrust and Regulation

Externalities, Market Failure, and Public Choice

Wage Rates in Competitive Labor Markets

Wages and Employment: Monopsony and Labor Unions

Interest, Rent, and Profit

Income Distribution and Poverty

International Trade

The Economic Problems of Less-Developed Economies

Filters

-Refer to Exhibit FF-4. If the U.S. government wants to maintain the foreign exchange rate at 100 yen = $1, and the demand for dollars on the foreign exchange market shifts from D to D^', the government must