Question 1

Why might a developing country choose to peg the value of its currency to the dollar?

Accepted Answer

The dollar is a relatively stable currency,so by pegging the value of a country's currency to the dollar,the country provides reassurance that debts will be paid in a currency whose value doesn't fluctuate dramatically.This reduces the risk foreigners face in collecting returns on investments in that country.In addition,if imports are a significant fraction of the goods consumers buy,a decrease in the value of the country's currency can result in higher inflation.By pegging the country's currency,these fluctuations in the exchange rate don't occur,so inflation may be lower.

Question 2

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were ________ than they had planned while the Thai government continued trying to defend the peg,because the baht had been pegged ________ the equilibrium exchange rate for the baht.

Accepted Answer

A)  higher; above 
B)  higher; below 
C)  lower; above 
D)  lower; below 
A)  higher; above 
B)  higher; below 
C)  lower; above 
D)  lower; below A

Question 3

Although the pegged exchange rate between the yuan and the dollar has undervalued the yuan,China has been reluctant to abandon the peg for fear that abandoning the peg would

Accepted Answer

A)  increase exports and increase the current account deficit. 
B)  reduce capital inflows. 
C)  reduce exports and reduce economic growth. 
D)  increase Chinese holdings of dollars. 
A)  increase exports and increase the current account deficit. 
B)  reduce capital inflows. 
C)  reduce exports and reduce economic growth. 
D)  increase Chinese holdings of dollars. C

Question 4

During the Chinese experience with pegging the yuan to the dollar,the yuan was undervalued.As a result,

Accepted Answer

A)  there was a surplus of yuan on the market that the Chinese government had to purchase to maintain the peg, depleting China's reserves of dollars. 
B)  there was a surplus of dollars on the market that the Chinese government had to purchase to maintain the peg. 
C)  the prices of Chinese exports were higher than they would have been without the peg. 
D)  the equilibrium value of the yuan was below the pegged value of the yuan. 
A)  there was a surplus of yuan on the market that the Chinese government had to purchase to maintain the peg, depleting China's reserves of dollars. 
B)  there was a surplus of dollars on the market that the Chinese government had to purchase to maintain the peg. 
C)  the prices of Chinese exports were higher than they would have been without the peg. 
D)  the equilibrium value of the yuan was below the pegged value of the yuan.

Question 5

Figure 30-3
  
-Refer to Figure 30-3.At what level should the Thai government peg its currency to the dollar to make Thai exports cheaper to the United States?

Accepted Answer

A)  greater than $.03/baht 
B)  less than $.03/baht 
C)  equal to $.03/baht 
D)  $1/baht 
A)  greater than $.03/baht 
B)  less than $.03/baht 
C)  equal to $.03/baht 
D)  $1/baht

Question 6

In order to support an undervalued euro,the European Central Bank must ________ dollars.Over time,this action will cause the rate of inflation in the EU to ________.

Accepted Answer

A)  buy; decrease 
B)  buy; increase 
C)  sell; increase 
D)  sell; decrease 
A)  buy; decrease 
B)  buy; increase 
C)  sell; increase 
D)  sell; decrease

Question 7

Members of the European Union decided to adopt a single currency by what year?

Accepted Answer

A)  2008 
B)  2005 
C)  1999 
D)  1992 
A)  2008 
B)  2005 
C)  1999 
D)  1992

Question 8

One reason purchasing power parity does not exactly hold is that many goods are not traded internationally.

Accepted Answer

A) True 
 B)False

Question 9

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,purchasing power parity predicts that

Accepted Answer

A)  the dollar will appreciate as the demand for dollars falls in the long run. 
B)  the dollar will appreciate as the supply of dollars falls in the long run. 
C)  the dollar will depreciate as the demand for dollars falls in the long run. 
D)  the dollar will depreciate as the supply of dollars rises in the long run. 
A)  the dollar will appreciate as the demand for dollars falls in the long run. 
B)  the dollar will appreciate as the supply of dollars falls in the long run. 
C)  the dollar will depreciate as the demand for dollars falls in the long run. 
D)  the dollar will depreciate as the supply of dollars rises in the long run.

Question 10

Which of the following is not an advantage to a country of choosing to fix its exchange rate against a major currency,rather than choosing a floating exchange rate?

Accepted Answer

A)  Pegging allows the country more flexibility in conducting monetary policy. 
B)  Pegging helps avoid inflation in imported goods caused by currency depreciation for countries with significant levels of imports. 
C)  Pegging insures that interest payments stemming from foreign loans do not fluctuate with the value of the currency. 
D)  Pegging reduces the uncertainty caused by currency fluctuations and thereby simplifies business planning. 
A)  Pegging allows the country more flexibility in conducting monetary policy. 
B)  Pegging helps avoid inflation in imported goods caused by currency depreciation for countries with significant levels of imports. 
C)  Pegging insures that interest payments stemming from foreign loans do not fluctuate with the value of the currency. 
D)  Pegging reduces the uncertainty caused by currency fluctuations and thereby simplifies business planning.

Question 11

Under the Bretton Woods exchange rate system,set up in 1944,which of the following was true?

Accepted Answer

A)  Americans could sell their dollars to the American government in exchange for gold. 
B)  Americans could sell their dollars to the American government in exchange for silver. 
C)  Americans could sell their dollars to foreign central banks in exchange for gold. 
D)  Foreign central banks could sell their dollars to the American government in exchange for gold. 
A)  Americans could sell their dollars to the American government in exchange for gold. 
B)  Americans could sell their dollars to the American government in exchange for silver. 
C)  Americans could sell their dollars to foreign central banks in exchange for gold. 
D)  Foreign central banks could sell their dollars to the American government in exchange for gold.

Question 12

Figure 30-5
  
-Refer to Figure 30-5.The Chinese government pegs the yuan to the dollar,at one of the specified exchange rates on the graph,such that it undervalues its currency.Using the figure above,this would generate a

Accepted Answer

A)  a shortage of yuan equal to 400 million. 
B)  a shortage of yuan equal to 200 million. 
C)  a surplus of yuan equal to 200 million. 
D)  a surplus of yuan equal to 400 million. 
E)  a surplus of yuan equal to 300 million. 
A)  a shortage of yuan equal to 400 million. 
B)  a shortage of yuan equal to 200 million. 
C)  a surplus of yuan equal to 200 million. 
D)  a surplus of yuan equal to 400 million. 
E)  a surplus of yuan equal to 300 million.

Question 13

The International Monetary Fund was created to facilitate the borrowing and lending of dollar reserves to central banks of the countries' participating in the Bretton Wood System.

Accepted Answer

A) True 
 B)False

Question 14

The United States abandoned the Bretton Woods system of exchange rates in

Accepted Answer

A)  the 1920s. 
B)  the 1940s. 
C)  the 1970s. 
D)  the 1990s. 
A)  the 1920s. 
B)  the 1940s. 
C)  the 1970s. 
D)  the 1990s.

Question 15

If the implied exchange rate between Big Mac prices in the United States and Poland is 2.13 zlotys per dollar,but the actual exchange rate between the United States and Poland is 3.16 zlotys per dollar,which of the following would you expect to see?

Accepted Answer

A)  an appreciation of the dollar 
B)  an increase in the demand for zlotys 
C)  an increase in the demand for dollars 
D)  Both A and C are correct. 
A)  an appreciation of the dollar 
B)  an increase in the demand for zlotys 
C)  an increase in the demand for dollars 
D)  Both A and C are correct.

Question 16

If currencies around the world are based on the gold standard,and Japan raises the amount of gold for which the yen will trade,then holding all else constant,

Accepted Answer

A)  the yen will depreciate against the dollar. 
B)  the yen will appreciate against the dollar. 
C)  the value of the yen relative to the dollar will stay constant. 
D)  the value of U.S. exports to Japan in terms of the yen will increase. 
A)  the yen will depreciate against the dollar. 
B)  the yen will appreciate against the dollar. 
C)  the value of the yen relative to the dollar will stay constant. 
D)  the value of U.S. exports to Japan in terms of the yen will increase.

Question 17

The central bank of the European Union is called the

Accepted Answer

A)  Bundesbank. 
B)  Banco Europe. 
C)  Federal Reserve. 
D)  European Central Bank. 
A)  Bundesbank. 
B)  Banco Europe. 
C)  Federal Reserve. 
D)  European Central Bank.

Question 18

In the United States today,how much gold will the Federal Reserve give you in exchange for $1?

Accepted Answer

A)  none 
B)  $1 worth of gold (based on the market price of an ounce of gold at the time you redeem the gold) 
C)  1 ounce of gold 
D)  1/35th of an ounce of gold 
A)  none 
B)  $1 worth of gold (based on the market price of an ounce of gold at the time you redeem the gold) 
C)  1 ounce of gold 
D)  1/35th of an ounce of gold

Question 19

China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan has been ________ at the pegged exchange rate,the Chinese government ________ its reserves of dollars as the government purchased more ________ to maintain the pegged exchange rate.

Accepted Answer

A)  undervalued; increased; dollars 
B)  undervalued; decreased; yuan 
C)  overvalued; decreased; yuan 
D)  overvalued; increased; yuan 
A)  undervalued; increased; dollars 
B)  undervalued; decreased; yuan 
C)  overvalued; decreased; yuan 
D)  overvalued; increased; yuan

Question 20

If the purchasing power of a dollar is greater than the purchasing power of the yen,purchasing power parity would predict that

Accepted Answer

A)  in the short run, exchange rates will move to equalize the purchasing power of the dollar and the yen. 
B)  in the long run, exchange rates will move to equalize the purchasing power of the dollar and the yen. 
C)  in the long run, interest rates will move to equalize the purchasing power of the dollar and the yen. 
D)  in the short run, interest rates will move to equalize the purchasing power of the dollar and the yen. 
A)  in the short run, exchange rates will move to equalize the purchasing power of the dollar and the yen. 
B)  in the long run, exchange rates will move to equalize the purchasing power of the dollar and the yen. 
C)  in the long run, interest rates will move to equalize the purchasing power of the dollar and the yen. 
D)  in the short run, interest rates will move to equalize the purchasing power of the dollar and the yen.

Why might a developing country choose to peg the value of its currency to the dollar?

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were than they had planned while the Thai government continued trying to defend the peg,because the baht had been pegged the equilibrium exchange rate for the baht.

Although the pegged exchange rate between the yuan and the dollar has undervalued the yuan,China has been reluctant to abandon the peg for fear that abandoning the peg would

During the Chinese experience with pegging the yuan to the dollar,the yuan was undervalued.As a result,

Figure 30-3 -Refer to Figure 30-3.At what level should the Thai government peg its currency to the dollar to make Thai exports cheaper to the United States?

In order to support an undervalued euro,the European Central Bank must dollars.Over time,this action will cause the rate of inflation in the EU to .

Members of the European Union decided to adopt a single currency by what year?

One reason purchasing power parity does not exactly hold is that many goods are not traded internationally.

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,purchasing power parity predicts that

Which of the following is not an advantage to a country of choosing to fix its exchange rate against a major currency,rather than choosing a floating exchange rate?

Under the Bretton Woods exchange rate system,set up in 1944,which of the following was true?

Figure 30-5 -Refer to Figure 30-5.The Chinese government pegs the yuan to the dollar,at one of the specified exchange rates on the graph,such that it undervalues its currency.Using the figure above,this would generate a

The International Monetary Fund was created to facilitate the borrowing and lending of dollar reserves to central banks of the countries' participating in the Bretton Wood System.

The United States abandoned the Bretton Woods system of exchange rates in

If the implied exchange rate between Big Mac prices in the United States and Poland is 2.13 zlotys per dollar,but the actual exchange rate between the United States and Poland is 3.16 zlotys per dollar,which of the following would you expect to see?

If currencies around the world are based on the gold standard,and Japan raises the amount of gold for which the yen will trade,then holding all else constant,

The central bank of the European Union is called the

In the United States today,how much gold will the Federal Reserve give you in exchange for $1?

China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan has been at the pegged exchange rate,the Chinese government its reserves of dollars as the government purchased more to maintain the pegged exchange rate.

If the purchasing power of a dollar is greater than the purchasing power of the yen,purchasing power parity would predict that

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency,government Price Setting,and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

Filters

Exam 19: The International Financial System

Why might a developing country choose to peg the value of its currency to the dollar?

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were ________ than they had planned while the Thai government continued trying to defend the peg,because the baht had been pegged ________ the equilibrium exchange rate for the baht.

Although the pegged exchange rate between the yuan and the dollar has undervalued the yuan,China has been reluctant to abandon the peg for fear that abandoning the peg would

During the Chinese experience with pegging the yuan to the dollar,the yuan was undervalued.As a result,

Figure 30-3 -Refer to Figure 30-3.At what level should the Thai government peg its currency to the dollar to make Thai exports cheaper to the United States?

In order to support an undervalued euro,the European Central Bank must ________ dollars.Over time,this action will cause the rate of inflation in the EU to ________.

Members of the European Union decided to adopt a single currency by what year?

One reason purchasing power parity does not exactly hold is that many goods are not traded internationally.

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,purchasing power parity predicts that

Which of the following is not an advantage to a country of choosing to fix its exchange rate against a major currency,rather than choosing a floating exchange rate?

Under the Bretton Woods exchange rate system,set up in 1944,which of the following was true?

Figure 30-5 -Refer to Figure 30-5.The Chinese government pegs the yuan to the dollar,at one of the specified exchange rates on the graph,such that it undervalues its currency.Using the figure above,this would generate a

The International Monetary Fund was created to facilitate the borrowing and lending of dollar reserves to central banks of the countries' participating in the Bretton Wood System.

The United States abandoned the Bretton Woods system of exchange rates in

If the implied exchange rate between Big Mac prices in the United States and Poland is 2.13 zlotys per dollar,but the actual exchange rate between the United States and Poland is 3.16 zlotys per dollar,which of the following would you expect to see?

If currencies around the world are based on the gold standard,and Japan raises the amount of gold for which the yen will trade,then holding all else constant,

The central bank of the European Union is called the

In the United States today,how much gold will the Federal Reserve give you in exchange for $1?

China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan has been ________ at the pegged exchange rate,the Chinese government ________ its reserves of dollars as the government purchased more ________ to maintain the pegged exchange rate.

If the purchasing power of a dollar is greater than the purchasing power of the yen,purchasing power parity would predict that

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency,government Price Setting,and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

Filters

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were than they had planned while the Thai government continued trying to defend the peg,because the baht had been pegged the equilibrium exchange rate for the baht.

In order to support an undervalued euro,the European Central Bank must dollars.Over time,this action will cause the rate of inflation in the EU to .

China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan has been at the pegged exchange rate,the Chinese government its reserves of dollars as the government purchased more to maintain the pegged exchange rate.