Question 1

An unexpected increase in the U.S.money supply leads to:

Accepted Answer

A)  an immediate reduction in the U.S. interest rate 
B)  an immediate larger dollar depreciation 
C)  a gradual appreciation of the dollar over time 
D)  all of the above 
A)  an immediate reduction in the U.S. interest rate 
B)  an immediate larger dollar depreciation 
C)  a gradual appreciation of the dollar over time 
D)  all of the above D

Question 2

The portfolio balance approach:

Accepted Answer

A)  can be regarded as an extension of the monetary approach 
B)  deals with money and other domestic and foreign financial assets 
C)  can more readily be extended than the monetary approach to deals with the real sector 
D)  all of the above 
A)  can be regarded as an extension of the monetary approach 
B)  deals with money and other domestic and foreign financial assets 
C)  can more readily be extended than the monetary approach to deals with the real sector 
D)  all of the above D

Question 3

According to the portfolio balance approach,an increase in domestic real income or GDP leads domestic residents to increase the demand for the:

Accepted Answer

A)  domestic money 
B)  domestic bond 
C)  foreign bond 
D)  all of the above 
A)  domestic money 
B)  domestic bond 
C)  foreign bond 
D)  all of the above A

Question 4

According to the monetary approach to the balance of payments,a deficit in the nation's balance of payments results from:

Accepted Answer

A)  an excess in the nation's stock of money supply that is not eliminated or corrected by the nation's monetary authorities 
B)  an excess in the stock of money demanded in the nation that is not satisfied by domestic monetary authorities 
C)  an excess in the stock of money demanded in the other nation that is not satisfied by the other nation's monetary authorities 
D)  an excess of imports over exports in the nation 
A)  an excess in the nation's stock of money supply that is not eliminated or corrected by the nation's monetary authorities 
B)  an excess in the stock of money demanded in the nation that is not satisfied by domestic monetary authorities 
C)  an excess in the stock of money demanded in the other nation that is not satisfied by the other nation's monetary authorities 
D)  an excess of imports over exports in the nation

Question 5

The monetary approach assumes that the following assumption holds:

Accepted Answer

A)  domestic and foreign bonds are perfect substitutes 
B)  covered interest arbitrage holds 
C)  expectations do not affect the future spot exchange rate. 
D)  the risk premium is positive 
A)  domestic and foreign bonds are perfect substitutes 
B)  covered interest arbitrage holds 
C)  expectations do not affect the future spot exchange rate. 
D)  the risk premium is positive

Question 6

Since the creation of the euro,forecasts have

Accepted Answer

A)  accurately predicted changes in the euro. 
B)  correctly predicted changes in the euro most of the time. 
C)  not been used to chart movements in the euro. 
D)  not been able to correctly chart movements in the euro. 
A)  accurately predicted changes in the euro. 
B)  correctly predicted changes in the euro most of the time. 
C)  not been used to chart movements in the euro. 
D)  not been able to correctly chart movements in the euro.

Question 7

The relative PPP theory gives better results:

Accepted Answer

A)  in the long run than in the short run 
B)  when structural changes take place 
C)  the greater is the level of commodity aggregation 
D)  in tests including developed and developing countries 
A)  in the long run than in the short run 
B)  when structural changes take place 
C)  the greater is the level of commodity aggregation 
D)  in tests including developed and developing countries

Question 8

According to the portfolio balance approach,an increase in the expected appreciation of the foreign currency leads domestic residents to increase:

Accepted Answer

A)  the demand for domestic money 
B)  the demand for the domestic bond 
C)  the demand for the foreign bond 
D)  the risk premium 
A)  the demand for domestic money 
B)  the demand for the domestic bond 
C)  the demand for the foreign bond 
D)  the risk premium

Question 9

According to the monetary approach to the balance of payments a non-reserve currency nation:

Accepted Answer

A)  has no control over its money supply in the long-run under fixed exchange rates 
B)  has no control over its money supply in the short-run under fixed exchange rates 
C)  has no control over its money supply in the long-run under flexible exchange rates 
D)  retains complete control over its money supply in the long-run 
A)  has no control over its money supply in the long-run under fixed exchange rates 
B)  has no control over its money supply in the short-run under fixed exchange rates 
C)  has no control over its money supply in the long-run under flexible exchange rates 
D)  retains complete control over its money supply in the long-run

Question 10

What is the empirical evidence for the monetary and portfolio balance model of exchange rate determination?

Accepted Answer

Initial papers by Frenkel (1976),Bilson

Question 11

If the United States rate of inflation is 2% and the German rate of inflation is 5%,what would relative purchasing power parity predict about the value of the euro relative to the dollar,all other things equal?

Accepted Answer

The euro would depre

Question 12

The monetary base of the nation refers to the:

Accepted Answer

A)  domestic credit created by the nation's monetary authorities or the domestic assets backing of the nation's money supply 
B)  international reserves of the nation 
C)  domestic credit created by the nation's monetary authorities or the domestic assets backing of the nation's money supply plus the international reserves of the nation 
D)  legal reserve requirements in the nation 
A)  domestic credit created by the nation's monetary authorities or the domestic assets backing of the nation's money supply 
B)  international reserves of the nation 
C)  domestic credit created by the nation's monetary authorities or the domestic assets backing of the nation's money supply plus the international reserves of the nation 
D)  legal reserve requirements in the nation

Question 13

Explain the fundamental difference between modern exchange rate theories and traditional exchange rate theories.

Accepted Answer

Modern exchange rate theories,such as th

Question 14

Which of the following statements is true with respect to the monetary approach to the balance of payments:

Accepted Answer

A)  the interest differential in favor of the dollar equals the expected rate of appreciation of the euro 
B)  the interest differential in favor of the dollar equals the expected rate of depreciation of the dollar 
C)  the interest differential in favor of the pound equals the expected rate of depreciation of the pound 
D)  all of the above 
A)  the interest differential in favor of the dollar equals the expected rate of appreciation of the euro 
B)  the interest differential in favor of the dollar equals the expected rate of depreciation of the dollar 
C)  the interest differential in favor of the pound equals the expected rate of depreciation of the pound 
D)  all of the above

Question 15

Suppose that the price level in the United States is 135 and the price level in Germany is 234.What would absolute purchasing power parity theory predict the dollar/euro exchange rate to be?

Accepted Answer

135 = 235/

Question 16

According to the monetary approach to the balance of payments,a surplus nation will have to give up in the long-run its goal of:

Accepted Answer

A)  price stability 
B)  fixed exchange rate 
C)  price stability or fixed exchange rate 
D)  price stability and fixed exchange rate 
A)  price stability 
B)  fixed exchange rate 
C)  price stability or fixed exchange rate 
D)  price stability and fixed exchange rate

Question 17

The monetary approach to the balance of payments:

Accepted Answer

A)  views the balance of payments as an essentially monetary phenomenon 
B)  rests on the purchasing power-parity theory 
C)  postulates that money plays the crucial role in the long run both as a disturbance and adjustment in the nation's balance of payments 
D)  all of the above 
A)  views the balance of payments as an essentially monetary phenomenon 
B)  rests on the purchasing power-parity theory 
C)  postulates that money plays the crucial role in the long run both as a disturbance and adjustment in the nation's balance of payments 
D)  all of the above

Question 18

A Big Mac costs 6.60 lira in Turkey and $4.20 in the United States.If the actual exchange rate is 1.85 lire/dollar,the Turkish lira is _________,and U.S.tourists will find that Big Macs are _______ than in the United States.

Accepted Answer

A)  overvalued, more expensive 
B)  overvalued, less expensive 
C)  undervalued, more expensive 
D)  undervalued, less expensive 
A)  overvalued, more expensive 
B)  overvalued, less expensive 
C)  undervalued, more expensive 
D)  undervalued, less expensive

Question 19

Which is correct with respect to the absolute purchasing power parity theory?

Accepted Answer

A)  It postulates that the exchange rate between two currencies is equal to the ratio of the price levels in the two nations 
B)  it does not take into consideration transportation costs or other obstructions to the flow of international trade 
C)  can be very misleading 
D)  all of the above 
A)  It postulates that the exchange rate between two currencies is equal to the ratio of the price levels in the two nations 
B)  it does not take into consideration transportation costs or other obstructions to the flow of international trade 
C)  can be very misleading 
D)  all of the above

Question 20

If the legal reserve requirement of the nation is 25%,the money multiplier in the nation is:

Accepted Answer

A)  2 
B)  4 
C)  5 
D)  6 
A)  2 
B)  4 
C)  5 
D)  6

Exam 15: Exchange Rate Determination

An unexpected increase in the U.S.money supply leads to:

The portfolio balance approach:

According to the portfolio balance approach,an increase in domestic real income or GDP leads domestic residents to increase the demand for the:

According to the monetary approach to the balance of payments,a deficit in the nation's balance of payments results from:

The monetary approach assumes that the following assumption holds:

Since the creation of the euro,forecasts have

The relative PPP theory gives better results:

According to the portfolio balance approach,an increase in the expected appreciation of the foreign currency leads domestic residents to increase:

According to the monetary approach to the balance of payments a non-reserve currency nation:

What is the empirical evidence for the monetary and portfolio balance model of exchange rate determination?

If the United States rate of inflation is 2% and the German rate of inflation is 5%,what would relative purchasing power parity predict about the value of the euro relative to the dollar,all other things equal?

The monetary base of the nation refers to the:

Explain the fundamental difference between modern exchange rate theories and traditional exchange rate theories.

Which of the following statements is true with respect to the monetary approach to the balance of payments:

Suppose that the price level in the United States is 135 and the price level in Germany is 234.What would absolute purchasing power parity theory predict the dollar/euro exchange rate to be?

According to the monetary approach to the balance of payments,a surplus nation will have to give up in the long-run its goal of:

The monetary approach to the balance of payments:

A Big Mac costs 6.60 lira in Turkey and $4.20 in the United States.If the actual exchange rate is 1.85 lire/dollar,the Turkish lira is _________,and U.S.tourists will find that Big Macs are _______ than in the United States.

Which is correct with respect to the absolute purchasing power parity theory?

If the legal reserve requirement of the nation is 25%,the money multiplier in the nation is:

Introduction

The Law of Comparative Advantage

The Standard Theory of International Trade

Demand and Supply, offer Curves, and the Terms of Trade

Factor Endowments and the Heckscherohlin Theory

Economies of Scale, imperfect Competition, and International Trade

Economic Growth and International Trade

Trade Restrictions: Tariffs

Nontariff Trade Barriers and the New Protectionism

Economic Integration: Customs Unions and Free Trade Areas

International Trade and Economic Development

International Resource Movements and Multinational Corporations

Balance of Payments

Foreign Exchange Markets and Exchange Rates

The Price Adjustment Mechanism With Flexible and Fixed Exchange Rates

The Income Adjustment Mechanism and Synthesis of Automatic Adjustments

Open Economy Macroeconomics: Adjustment Policies

Prices and Output in an Open Economy: Aggregate Demand and Aggregate Supply

Flexible Versus Fixed Exchange Rates, the European Monetary System, and Macroeconomic Policy Coordination

The International Monetary System: Past, present, and Future Answers to Selected Problems on Web

Filters

A Big Mac costs 6.60 lira in Turkey and $4.20 in the United States.If the actual exchange rate is 1.85 lire/dollar,the Turkish lira is ___,and U.S.tourists will find that Big Macs are _ than in the United States.