Question 1

Purchasing power parity is most useful

Accepted Answer

A)  for predicting short run exchange rate fluctuations 
B)  for predicting currency fluctuations for low-inflation nations 
C)  for explaining long run trends in exchange rates 
D)  in setting targets for monetary policy 
E)  as an explanation of why inflation is higher in some countries than others 
A)  for predicting short run exchange rate fluctuations 
B)  for predicting currency fluctuations for low-inflation nations 
C)  for explaining long run trends in exchange rates 
D)  in setting targets for monetary policy 
E)  as an explanation of why inflation is higher in some countries than others C

Question 2

Suppose that on a Monday,the US - UK bilateral exchange rate is such that $5 = £2. By Friday,$6 = £3. Then

Accepted Answer

A)  the pound has depreciated by 20% of its initial value 
B)  the dollar has appreciated by 20% of its initial value 
C)  the pound has appreciated by 30% of its initial value 
D)  the pound has depreciated by 25% of its initial value 
E)  neither currency has appreciated or depreciated 
A)  the pound has depreciated by 20% of its initial value 
B)  the dollar has appreciated by 20% of its initial value 
C)  the pound has appreciated by 30% of its initial value 
D)  the pound has depreciated by 25% of its initial value 
E)  neither currency has appreciated or depreciated A

Question 3

Which of the following countries has increasingly accumulated net foreign assets over the past 3 decades?

Accepted Answer

A)  US 
B)  UK 
C)  Germany 
D)  Japan 
E)  Israel 
A)  US 
B)  UK 
C)  Germany 
D)  Japan 
E)  Israel D

Question 4

The next questions refer to the following.
During a common base period, a basket of goods costs C$14,700 in Canada and US$10,000 in the US.
-Then purchasing power parity theory predicts that

Accepted Answer

A)  the real exchange rate will be 1.47 
B)  the US will experience 4.7% more inflation annually than Canada for 10 years 
C)  C$1 should exchange nominally for US$0.68 
D)  the Canadian dollar will depreciate by 47% against the US dollar 
E)  the US dollar will depreciate by 47% against the Canadian dollar 
A)  the real exchange rate will be 1.47 
B)  the US will experience 4.7% more inflation annually than Canada for 10 years 
C)  C$1 should exchange nominally for US$0.68 
D)  the Canadian dollar will depreciate by 47% against the US dollar 
E)  the US dollar will depreciate by 47% against the Canadian dollar

Question 5

If a country's investment in capital exceeds its savings,

Accepted Answer

A)  its interest rate must be above the equilibrium level 
B)  it has a capital account surplus 
C)  it is a net lender in the global market 
D)  it has reached a steady state 
E)  its government is running a budget deficit 
A)  its interest rate must be above the equilibrium level 
B)  it has a capital account surplus 
C)  it is a net lender in the global market 
D)  it has reached a steady state 
E)  its government is running a budget deficit

Question 6

The short run deterioration and long run improvement of the current account following a real depreciation of currency is called

Accepted Answer

A)  the J curve 
B)  the Laffer curve 
C)  the Phillips curve 
D)  the IS curve 
E)  the LM curve 
A)  the J curve 
B)  the Laffer curve 
C)  the Phillips curve 
D)  the IS curve 
E)  the LM curve

Question 7

Which of the following conditions would inhibit the Balassa-Samuelson effect?

Accepted Answer

A)  Slower productivity growth in services than manufacturing 
B)  A relatively large service sector compared to the manufacturing sector 
C)  The inability to import or export services 
D)  The immobility of labor between manufacturing and service sectors 
E)  Technological improvements in manufacturing 
A)  Slower productivity growth in services than manufacturing 
B)  A relatively large service sector compared to the manufacturing sector 
C)  The inability to import or export services 
D)  The immobility of labor between manufacturing and service sectors 
E)  Technological improvements in manufacturing

Question 8

The next questions refer to the following.
Consider a country that, during a given year, has
$20 billion in net exports of goods,
-$3 billion in net exports of services,
$3 billion in repatriated income,
-$7 billion in net overseas transfers,
-$25 billion in net direct investment,
$41 billion in net portfolio investment,
-$10 billion in other net investment, and no additional capital account transactions.
-This country is running

Accepted Answer

A)  a current account surplus of $13 billion 
B)  a current account deficit of $7 billion 
C)  a capital account surplus of $28 billion 
D)  a financial account deficit of $6 billion 
E)  a financial account surplus of $35 billion 
A)  a current account surplus of $13 billion 
B)  a current account deficit of $7 billion 
C)  a capital account surplus of $28 billion 
D)  a financial account deficit of $6 billion 
E)  a financial account surplus of $35 billion

Question 9

If an export firm is pricing to market,the firm benefits most from

Accepted Answer

A)  high tariffs in the importing countries 
B)  a strong domestic currency in the exporting country 
C)  depreciation of the exporting country's currency 
D)  being in a competitive industry where the law of one price holds 
E)  high transport costs to distant markets 
A)  high tariffs in the importing countries 
B)  a strong domestic currency in the exporting country 
C)  depreciation of the exporting country's currency 
D)  being in a competitive industry where the law of one price holds 
E)  high transport costs to distant markets

Question 10

An empirical fact that runs counter to purchasing power parity theory is

Accepted Answer

A)  that in the long run, the real exchange rate is one 
B)  that nations experiencing hyperinflation also experience nominal currency depreciations 
C)  the law of one price 
D)  that developing nations have lower price levels than developed nations 
E)  that gold has essentially the same value throughout the world 
A)  that in the long run, the real exchange rate is one 
B)  that nations experiencing hyperinflation also experience nominal currency depreciations 
C)  the law of one price 
D)  that developing nations have lower price levels than developed nations 
E)  that gold has essentially the same value throughout the world

Question 11

A nation with a current account surplus

Accepted Answer

A)  imports more than it exports 
B)  is a net borrower 
C)  has a future account shortage 
D)  has a positive level of net exports 
E)  has a price floor set above equilibrium 
A)  imports more than it exports 
B)  is a net borrower 
C)  has a future account shortage 
D)  has a positive level of net exports 
E)  has a price floor set above equilibrium

Question 12

Nominal bilateral exchange rates are published daily in newspapers. The Washington Post reported the following exchange rates for the US dollar ($) on June 16,2004.
   The table shows,for example,that $1 = ¥109.34 at that time. Which of the following must also have been true on that date?

Accepted Answer

A)  €1 = $0.822 
B)  €1 = ¥202.22 
C)  ¥1 = €133.02 
D)  £1 = €1.505 
E)  $1 = £1.8312 
A)  €1 = $0.822 
B)  €1 = ¥202.22 
C)  ¥1 = €133.02 
D)  £1 = €1.505 
E)  $1 = £1.8312

Question 13

A country's current account does not include

Accepted Answer

A)  income repatriated from operations overseas 
B)  foreign direct investment 
C)  net transfers from abroad 
D)  net exports of services 
E)  net exports of goods 
A)  income repatriated from operations overseas 
B)  foreign direct investment 
C)  net transfers from abroad 
D)  net exports of services 
E)  net exports of goods

Question 14

The next questions refer to the following.
The nation of North does 20% of its trade with East, 30% with West, and 50% with South. Suppose that, relative to a base year, North's currency appreciates 80% against East's currency, appreciates 40% against West's currency, and depreciates 10% against South's currency.
-If the exchange rate is defined according to British custom,then the effective exchange rate for North is now

Accepted Answer

A)  77 
B)  87 
C)  95 
D)  110 
E)  123 
A)  77 
B)  87 
C)  95 
D)  110 
E)  123

Question 15

An increase in a country's real exchange rate

Accepted Answer

A)  makes imports more affordable 
B)  causes net exports to rise 
C)  reduces the balance in the capital account 
D)  reduces the purchasing power of that country's currency 
E)  reduces the differential between real and nominal GDP 
A)  makes imports more affordable 
B)  causes net exports to rise 
C)  reduces the balance in the capital account 
D)  reduces the purchasing power of that country's currency 
E)  reduces the differential between real and nominal GDP

Question 16

As an international price index for studying purchasing power parity,the Economist's "Big Mac Index" suffers from several defects. A graduate student in Economics wishes to construct a somewhat better index. Among the following choices,the most suitable output for this purpose would be

Accepted Answer

A)  a haircut 
B)  a laptop computer 
C)  a two-bedroom apartment 
D)  a basket of goods consisting of a Dunlop radial tire, a 60-watt General Electric light bulb, a Nokia cell phone, and a 12-ounce can of Coca Cola 
E)  a basket of goods and services consisting of one acre of undeveloped land, a one-mile taxi cab ride, a one-year government bond, and one gallon of milk 
A)  a haircut 
B)  a laptop computer 
C)  a two-bedroom apartment 
D)  a basket of goods consisting of a Dunlop radial tire, a 60-watt General Electric light bulb, a Nokia cell phone, and a 12-ounce can of Coca Cola 
E)  a basket of goods and services consisting of one acre of undeveloped land, a one-mile taxi cab ride, a one-year government bond, and one gallon of milk

Question 17

Which of the following conditions leads to the greatest exchange rate pass-through?

Accepted Answer

A)  pricing to market by exporters 
B)  a small open economy 
C)  fixed exchange rates 
D)  a wide assortment of import-competing domestic goods 
E)  "dollarization" and currency unions, in which different nations adopt the same currency 
A)  pricing to market by exporters 
B)  a small open economy 
C)  fixed exchange rates 
D)  a wide assortment of import-competing domestic goods 
E)  "dollarization" and currency unions, in which different nations adopt the same currency

Question 18

Price inflation in non-tradable output due to productivity enhancements in tradable output is explained by

Accepted Answer

A)  Stolper-Samuelson theory 
B)  Balassa-Samuelson theory 
C)  Ricardian equivalence 
D)  Hecksher-Ohlin theory 
E)  The Harrod-Domar model 
A)  Stolper-Samuelson theory 
B)  Balassa-Samuelson theory 
C)  Ricardian equivalence 
D)  Hecksher-Ohlin theory 
E)  The Harrod-Domar model

Question 19

Which of the following does not explain why the law of one price fails?

Accepted Answer

A)  products have different standard sizes and features in different countries 
B)  transporting a good to a distant market raises its cost 
C)  goods imported across borders are often subject to tariffs 
D)  nominal exchange rates do not change as often as product prices 
E)  firms may set prices to be competitive in local markets regardless of production and distribution costs 
A)  products have different standard sizes and features in different countries 
B)  transporting a good to a distant market raises its cost 
C)  goods imported across borders are often subject to tariffs 
D)  nominal exchange rates do not change as often as product prices 
E)  firms may set prices to be competitive in local markets regardless of production and distribution costs

Question 20

Generalized to all goods and services,the law of one price becomes known as

Accepted Answer

A)  the law of many prices 
B)  exchange rate pass-through 
C)  pricing to market 
D)  purchasing power parity 
E)  price level equilibration 
A)  the law of many prices 
B)  exchange rate pass-through 
C)  pricing to market 
D)  purchasing power parity 
E)  price level equilibration

Purchasing power parity is most useful

Suppose that on a Monday,the US - UK bilateral exchange rate is such that $5 = £2. By Friday,$6 = £3. Then

Which of the following countries has increasingly accumulated net foreign assets over the past 3 decades?

The next questions refer to the following. During a common base period, a basket of goods costs C$14,700 in Canada and US$10,000 in the US. -Then purchasing power parity theory predicts that

If a country's investment in capital exceeds its savings,

The short run deterioration and long run improvement of the current account following a real depreciation of currency is called

Which of the following conditions would inhibit the Balassa-Samuelson effect?

If an export firm is pricing to market,the firm benefits most from

An empirical fact that runs counter to purchasing power parity theory is

A nation with a current account surplus

Nominal bilateral exchange rates are published daily in newspapers. The Washington Post reported the following exchange rates for the US dollar ($) on June 16,2004. The table shows,for example,that $1 = ¥109.34 at that time. Which of the following must also have been true on that date?

A country's current account does not include

An increase in a country's real exchange rate

As an international price index for studying purchasing power parity,the Economist's "Big Mac Index" suffers from several defects. A graduate student in Economics wishes to construct a somewhat better index. Among the following choices,the most suitable output for this purpose would be

Which of the following conditions leads to the greatest exchange rate pass-through?

Price inflation in non-tradable output due to productivity enhancements in tradable output is explained by

Which of the following does not explain why the law of one price fails?

Generalized to all goods and services,the law of one price becomes known as

What Is Macroeconomics

The Language of Macroeconomicsthe National Income Accounts

The Wealth of Nationsthe Supply Side

Capital Accumulation and Economic Growth

Total Factor Productivity, human Capital, and Technology

Endogenous Growth and Convergence

Unemployment and the Labor Market

International Trade

Globalization

Consumption Investment

Business Cycles

Money and Prices

Monetary Policy

Fiscal Policy and the Role of Government

Stabilization Policy

Financial Markets: Equities and Bonds

The Banking Sector

Sovereign Debt and Default

Exchange Rate Determination Iinominal Exchange Rates and Asset Markets

Currency Crises and Exchange Rate Systems

Filters

Exam 19: Exchange Rate Determination I the Real Exchange Rate

Purchasing power parity is most useful

Suppose that on a Monday,the US - UK bilateral exchange rate is such that $5 = £2. By Friday,$6 = £3. Then

Which of the following countries has increasingly accumulated net foreign assets over the past 3 decades?

The next questions refer to the following. During a common base period, a basket of goods costs C$14,700 in Canada and US$10,000 in the US. -Then purchasing power parity theory predicts that

If a country's investment in capital exceeds its savings,

The short run deterioration and long run improvement of the current account following a real depreciation of currency is called

Which of the following conditions would inhibit the Balassa-Samuelson effect?

If an export firm is pricing to market,the firm benefits most from

An empirical fact that runs counter to purchasing power parity theory is

A nation with a current account surplus

Nominal bilateral exchange rates are published daily in newspapers. The Washington Post reported the following exchange rates for the US dollar ($) on June 16,2004. The table shows,for example,that $1 = ¥109.34 at that time. Which of the following must also have been true on that date?

A country's current account does not include

An increase in a country's real exchange rate

As an international price index for studying purchasing power parity,the Economist's "Big Mac Index" suffers from several defects. A graduate student in Economics wishes to construct a somewhat better index. Among the following choices,the most suitable output for this purpose would be

Which of the following conditions leads to the greatest exchange rate pass-through?

Price inflation in non-tradable output due to productivity enhancements in tradable output is explained by

Which of the following does not explain why the law of one price fails?

Generalized to all goods and services,the law of one price becomes known as

What Is Macroeconomics

The Language of Macroeconomicsthe National Income Accounts

The Wealth of Nationsthe Supply Side

Capital Accumulation and Economic Growth

Total Factor Productivity, human Capital, and Technology

Endogenous Growth and Convergence

Unemployment and the Labor Market

International Trade

Globalization

Consumption Investment

Business Cycles

Money and Prices

Monetary Policy

Fiscal Policy and the Role of Government

Stabilization Policy

Financial Markets: Equities and Bonds

The Banking Sector

Sovereign Debt and Default

Exchange Rate Determination Iinominal Exchange Rates and Asset Markets

Currency Crises and Exchange Rate Systems

Filters