Question 1

To stop a speculative attack interest rates must be ____, which will _____ aggregate demand.

Accepted Answer

A)  increased; increase 
B)  increased; decrease 
C)  decreased; decrease 
D)  decreased; increase 
A)  increased; increase 
B)  increased; decrease 
C)  decreased; decrease 
D)  decreased; increase

Question 2

Holding all else constant, an increase in U.S. real GDP will ______ the supply for dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S. dollar exchange rate.

Accepted Answer

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

Question 3

The following table provides nominal exchange rates for the U.S. dollar.   Based on these data, the nominal exchange rate equals approximately ______ pesos per Canadian dollar or, equivalently, ______ Canadian dollars per peso.

Accepted Answer

A)  0.672; 1.488 
B)  9.259; 0.108 
C)  6.222; 0.161 
D)  7.771; 0.129 
A)  0.672; 1.488 
B)  9.259; 0.108 
C)  6.222; 0.161 
D)  7.771; 0.129

Question 4

Proponents of fixed exchange rates, who argue that these rates eliminate uncertainty and therefore promote international trade, sometimes fail to recognize:

Accepted Answer

A)  that fixed exchange rates may not remain fixed forever. 
B)  that fixed exchange rates are more volatile than flexible exchange rates. 
C)  that exchange rates do not matter to businesses, so the uncertainty has no impact. 
D)  that international trade is bad for the economy and should not be promoted. 
A)  that fixed exchange rates may not remain fixed forever. 
B)  that fixed exchange rates are more volatile than flexible exchange rates. 
C)  that exchange rates do not matter to businesses, so the uncertainty has no impact. 
D)  that international trade is bad for the economy and should not be promoted.

Question 5

The purchasing power parity theory is not a good explanation of how nominal exchange rates are determined in the short run because:

Accepted Answer

A)  there is no evidence that low inflation is associated with less rapid nominal exchange rate depreciation. 
B)  most nominal exchange rates are fixed and foreign exchange markets do not bring the supply and demand for currencies into equilibrium. 
C)  most goods and services are traded internationally and are standardized. 
D)  many goods and services are not traded internationally and not all internationally-traded goods are standardized. 
A)  there is no evidence that low inflation is associated with less rapid nominal exchange rate depreciation. 
B)  most nominal exchange rates are fixed and foreign exchange markets do not bring the supply and demand for currencies into equilibrium. 
C)  most goods and services are traded internationally and are standardized. 
D)  many goods and services are not traded internationally and not all internationally-traded goods are standardized.

Question 6

If one euro nation is experiencing rapid growth and inflation while another is facing sluggish growth and recession:

Accepted Answer

A)  the European Central Bank ought to employ a tight monetary policy. 
B)  the European Central Bank ought to employ an easy monetary policy. 
C)  the two countries will disagree about the monetary policy that ought to be employed by the European Central Bank. 
D)  only an appreciation of the euro can help both countries simultaneously. 
A)  the European Central Bank ought to employ a tight monetary policy. 
B)  the European Central Bank ought to employ an easy monetary policy. 
C)  the two countries will disagree about the monetary policy that ought to be employed by the European Central Bank. 
D)  only an appreciation of the euro can help both countries simultaneously.

Question 7

For a given nominal exchange rate and domestic price level, a decrease in the foreign price level ______ the real exchange rate.

Accepted Answer

A)  increases 
B)  decreases 
C)  may either increase or decrease 
D)  offsets any change in 
A)  increases 
B)  decreases 
C)  may either increase or decrease 
D)  offsets any change in

Question 8

When the nominal exchange changes from 120 yen per dollar to 110 yen per dollar, the dollar has:

Accepted Answer

A)  appreciated. 
B)  depreciated. 
C)  become overvalued. 
D)  become undervalued. 
A)  appreciated. 
B)  depreciated. 
C)  become overvalued. 
D)  become undervalued.

To stop a speculative attack interest rates must be , which will _ aggregate demand.

Holding all else constant, an increase in U.S. real GDP will the supply for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S. dollar exchange rate.

The following table provides nominal exchange rates for the U.S. dollar. Based on these data, the nominal exchange rate equals approximately pesos per Canadian dollar or, equivalently, Canadian dollars per peso.

Proponents of fixed exchange rates, who argue that these rates eliminate uncertainty and therefore promote international trade, sometimes fail to recognize:

The purchasing power parity theory is not a good explanation of how nominal exchange rates are determined in the short run because:

If one euro nation is experiencing rapid growth and inflation while another is facing sluggish growth and recession:

For a given nominal exchange rate and domestic price level, a decrease in the foreign price level ______ the real exchange rate.

When the nominal exchange changes from 120 yen per dollar to 110 yen per dollar, the dollar has:

Thinking Like an Economist

Supply and Demand

International Trade and Trade Policy

Macroeconomics: the Birds-Eye View of the Economy

Measuring Economic Activity: GDP, Unemployment, and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money, The Federal Reserve, and Global Financial Markets

Short-Term Economic Fluctuations and Fiscal Policy

Stabilizing the Economy: The Role of the Fed

Inflation and Aggregate Supply

Filters

Exam 13: Exchange Rates and the Open Economy

To stop a speculative attack interest rates must be ____, which will _____ aggregate demand.

Holding all else constant, an increase in U.S. real GDP will ______ the supply for dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S. dollar exchange rate.

The following table provides nominal exchange rates for the U.S. dollar. Based on these data, the nominal exchange rate equals approximately ______ pesos per Canadian dollar or, equivalently, ______ Canadian dollars per peso.

Proponents of fixed exchange rates, who argue that these rates eliminate uncertainty and therefore promote international trade, sometimes fail to recognize:

The purchasing power parity theory is not a good explanation of how nominal exchange rates are determined in the short run because:

If one euro nation is experiencing rapid growth and inflation while another is facing sluggish growth and recession:

For a given nominal exchange rate and domestic price level, a decrease in the foreign price level ______ the real exchange rate.

When the nominal exchange changes from 120 yen per dollar to 110 yen per dollar, the dollar has:

Thinking Like an Economist

Supply and Demand

International Trade and Trade Policy

Macroeconomics: the Birds-Eye View of the Economy

Measuring Economic Activity: GDP, Unemployment, and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money, The Federal Reserve, and Global Financial Markets

Short-Term Economic Fluctuations and Fiscal Policy

Stabilizing the Economy: The Role of the Fed

Inflation and Aggregate Supply

Filters

To stop a speculative attack interest rates must be , which will _ aggregate demand.

Holding all else constant, an increase in U.S. real GDP will the supply for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S. dollar exchange rate.

The following table provides nominal exchange rates for the U.S. dollar. Based on these data, the nominal exchange rate equals approximately pesos per Canadian dollar or, equivalently, Canadian dollars per peso.