Question 1

Net exports plus net capital inflows equal:

Accepted Answer

A)  net capital outflows. 
B)  the international trade gap. 
C)  zero. 
D)  the trade balance. 
A)  net capital outflows. 
B)  the international trade gap. 
C)  zero. 
D)  the trade balance.

Question 2

If the nominal exchange rate is expressed as the number of units of domestic currency per unit of foreign currency, and that rate increases, then the domestic currency has:

Accepted Answer

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

Question 3

International capital flows are:

Accepted Answer

A)  purchases of foreign goods or services. 
B)  sales of domestic goods or services to foreigners. 
C)  exports plus imports. 
D)  purchases or sales of real and financial assets across international borders. 
A)  purchases of foreign goods or services. 
B)  sales of domestic goods or services to foreigners. 
C)  exports plus imports. 
D)  purchases or sales of real and financial assets across international borders.

Question 4

A decrease in the value of a currency relative to other currencies is called a(n):

Accepted Answer

A)  revaluation. 
B)  devaluation. 
C)  appreciation. 
D)  depreciation. 
A)  revaluation. 
B)  devaluation. 
C)  appreciation. 
D)  depreciation.

Question 5

At each value of the domestic interest rate, increases in the riskiness of domestic assets ______ capital inflows, ______ capital outflows, and ______ net capital inflows.

Accepted Answer

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

Question 6

When the Fed tightens U.S. monetary policy, domestic interest rates ______, making U.S. assets relatively more attractive to foreign investors, and ______ the equilibrium exchange rate.

Accepted Answer

A)  rise; increasing 
B)  fall; increasing 
C)  fall; decreasing 
D)  rise; decreasing 
A)  rise; increasing 
B)  fall; increasing 
C)  fall; decreasing 
D)  rise; decreasing

Question 7

The impact of monetary policy through exchange rates tends to ______ the impact of monetary policy through real interest rates.

Accepted Answer

A)  reinforce 
B)  contradict 
C)  totally negate 
D)  be exactly the same as 
A)  reinforce 
B)  contradict 
C)  totally negate 
D)  be exactly the same as

Question 8

A currency appreciation is a(n):

Accepted Answer

A)  increase in the value of a currency relative to other currencies. 
B)  decrease in the value of a currency relative to other currencies. 
C)  reduction in the official value of a currency in a fixed-exchange-rate system. 
D)  increase in the official value of a currency in a fixed-exchange-rate system. 
A)  increase in the value of a currency relative to other currencies. 
B)  decrease in the value of a currency relative to other currencies. 
C)  reduction in the official value of a currency in a fixed-exchange-rate system. 
D)  increase in the official value of a currency in a fixed-exchange-rate system.

Question 9

Net exports will tend to be low when the real exchange rate ____.

Accepted Answer

A)  is high 
B)  is low 
C)  equals the nominal exchange rate 
D)  depreciates 
A)  is high 
B)  is low 
C)  equals the nominal exchange rate 
D)  depreciates

Question 10

A flexible exchange rate is an exchange rate whose value:

Accepted Answer

A)  is determined by the law of one price. 
B)  varies according to the supply and demand for the currency in the foreign exchange market. 
C)  is established annually by the International Monetary Fund. 
D)  reflects the comparative advantage of the home country versus other foreign countries. 
A)  is determined by the law of one price. 
B)  varies according to the supply and demand for the currency in the foreign exchange market. 
C)  is established annually by the International Monetary Fund. 
D)  reflects the comparative advantage of the home country versus other foreign countries.

Question 11

A currency depreciation is a(n):

Accepted Answer

A)  increase in the value of a currency relative to other currencies. 
B)  decrease in the value of a currency relative to other currencies. 
C)  reduction in the official value of a currency in a fixed-exchange-rate system. 
D)  increase in the official value of a currency in a fixed-exchange-rate system. 
A)  increase in the value of a currency relative to other currencies. 
B)  decrease in the value of a currency relative to other currencies. 
C)  reduction in the official value of a currency in a fixed-exchange-rate system. 
D)  increase in the official value of a currency in a fixed-exchange-rate system.

Question 12

Someone who wants both the U.S. dollar to be ______ compared to other currencies and the value of U.S. net exports to be ______ wants two things that may be contradictory.

Accepted Answer

A)  floating; large 
B)  weak; small 
C)  strong; small 
D)  strong; large 
A)  floating; large 
B)  weak; small 
C)  strong; small 
D)  strong; large

Question 13

Tight monetary policy will ______ net exports as a result of a ______ currency.

Accepted Answer

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

Question 14

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 15

The purchasing power parity theory is not a good explanation of nominal exchange rate determination 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 16

Each of the following would increase the demand for U.S. dollars, shifting the demand curve for dollars to the right, EXCEPT:

Accepted Answer

A)  an increased preference for U.S.-made goods. 
B)  an increase in real GDP abroad. 
C)  an increase in the real interest rate on U.S. assets. 
D)  an appreciation of foreign currencies relative to the U.S. dollar. 
A)  an increased preference for U.S.-made goods. 
B)  an increase in real GDP abroad. 
C)  an increase in the real interest rate on U.S. assets. 
D)  an appreciation of foreign currencies relative to the U.S. dollar.

Question 17

A country's trade balance equals:

Accepted Answer

A)  the value of tariffs less the number of quotas. 
B)  the number of quotas less the value of tariffs. 
C)  the value of exports minus the value of imports. 
D)  the value of imports minus the value of exports. 
A)  the value of tariffs less the number of quotas. 
B)  the number of quotas less the value of tariffs. 
C)  the value of exports minus the value of imports. 
D)  the value of imports minus the value of exports.

Question 18

The following table provides nominal exchange rates for the U.S. dollar. $$\begin{array} { l c c } 
{ \text { Country } } & \text { Foreign currency/dollar } & \text { Dollar/foreign currency } \
\text { Canada (Canadian dollar) } & 1.488 & .672 \
\text { Mexico (peso) } & 9.259 & .108
\end{array}$$ 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 19

Benefits of net capital inflows to a country include all of the following EXCEPT:

Accepted Answer

A)  a larger pool of total savings. 
B)  a higher rate of investment in new capital. 
C)  a potentially higher growth rate. 
D)  interest and dividend payments owed to foreign investors. 
A)  a larger pool of total savings. 
B)  a higher rate of investment in new capital. 
C)  a potentially higher growth rate. 
D)  interest and dividend payments owed to foreign investors.

Question 20

In an open economy with flexible exchange rates, monetary policy affects ______ through changes in the real interest rate and affects ______ through changes in the exchange rate.

Accepted Answer

A)  taxes and saving; net exports 
B)  net exports; taxes and saving 
C)  productivity and growth; consumption 
D)  consumption and investment; net exports 
A)  taxes and saving; net exports 
B)  net exports; taxes and saving 
C)  productivity and growth; consumption 
D)  consumption and investment; net exports

Net exports plus net capital inflows equal:

If the nominal exchange rate is expressed as the number of units of domestic currency per unit of foreign currency, and that rate increases, then the domestic currency has:

International capital flows are:

A decrease in the value of a currency relative to other currencies is called a(n):

At each value of the domestic interest rate, increases in the riskiness of domestic assets capital inflows, capital outflows, and __ net capital inflows.

When the Fed tightens U.S. monetary policy, domestic interest rates , making U.S. assets relatively more attractive to foreign investors, and the equilibrium exchange rate.

The impact of monetary policy through exchange rates tends to ______ the impact of monetary policy through real interest rates.

A currency appreciation is a(n):

Net exports will tend to be low when the real exchange rate ____.

A flexible exchange rate is an exchange rate whose value:

A currency depreciation is a(n):

Someone who wants both the U.S. dollar to be compared to other currencies and the value of U.S. net exports to be wants two things that may be contradictory.

Tight monetary policy will net exports as a result of a currency.

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

The purchasing power parity theory is not a good explanation of nominal exchange rate determination in the short-run because:

Each of the following would increase the demand for U.S. dollars, shifting the demand curve for dollars to the right, EXCEPT:

A country's trade balance equals:

Benefits of net capital inflows to a country include all of the following EXCEPT:

In an open economy with flexible exchange rates, monetary policy affects through changes in the real interest rate and affects through changes in the exchange rate.

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Macroeconomics: the Birds-Eye View of the Economy

Measuring Economic Activity: Gdp and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

Workers, Wages, and Unemployment

Saving and Capital Formation

Money, Prices, and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economics Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: the Role of the Fed

Filters

Exam 15: Aggregate Demand, Aggregate Supply, and Inflation

Net exports plus net capital inflows equal:

If the nominal exchange rate is expressed as the number of units of domestic currency per unit of foreign currency, and that rate increases, then the domestic currency has:

International capital flows are:

A decrease in the value of a currency relative to other currencies is called a(n):

At each value of the domestic interest rate, increases in the riskiness of domestic assets ______ capital inflows, ______ capital outflows, and ______ net capital inflows.

When the Fed tightens U.S. monetary policy, domestic interest rates ______, making U.S. assets relatively more attractive to foreign investors, and ______ the equilibrium exchange rate.

The impact of monetary policy through exchange rates tends to ______ the impact of monetary policy through real interest rates.

A currency appreciation is a(n):

Net exports will tend to be low when the real exchange rate ____.

A flexible exchange rate is an exchange rate whose value:

A currency depreciation is a(n):

Someone who wants both the U.S. dollar to be ______ compared to other currencies and the value of U.S. net exports to be ______ wants two things that may be contradictory.

Tight monetary policy will ______ net exports as a result of a ______ currency.

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

The purchasing power parity theory is not a good explanation of nominal exchange rate determination in the short-run because:

Each of the following would increase the demand for U.S. dollars, shifting the demand curve for dollars to the right, EXCEPT:

A country's trade balance equals:

Benefits of net capital inflows to a country include all of the following EXCEPT:

In an open economy with flexible exchange rates, monetary policy affects ______ through changes in the real interest rate and affects ______ through changes in the exchange rate.

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Macroeconomics: the Birds-Eye View of the Economy

Measuring Economic Activity: Gdp and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

Workers, Wages, and Unemployment

Saving and Capital Formation

Money, Prices, and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economics Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: the Role of the Fed

Filters

At each value of the domestic interest rate, increases in the riskiness of domestic assets capital inflows, capital outflows, and __ net capital inflows.

When the Fed tightens U.S. monetary policy, domestic interest rates , making U.S. assets relatively more attractive to foreign investors, and the equilibrium exchange rate.

Someone who wants both the U.S. dollar to be compared to other currencies and the value of U.S. net exports to be wants two things that may be contradictory.

Tight monetary policy will net exports as a result of a currency.

In an open economy with flexible exchange rates, monetary policy affects through changes in the real interest rate and affects through changes in the exchange rate.