Question 1

The decline in the gold standard was due to the economic instability caused by:

Accepted Answer

A)  World War I 
B)  the American Civil War 
C)  the creation of the euro 
D)  persistent large U.S. trade deficits 
E)  the flexibility of gold prices 
A)  World War I 
B)  the American Civil War 
C)  the creation of the euro 
D)  persistent large U.S. trade deficits 
E)  the flexibility of gold prices A

Question 2

The reason that the law of one price might fail in the short run is that prices are sticky and the nominal exchange rate is a financial price and adjusts rapidly to new information.

Accepted Answer

A) True 
 B)False  True

Question 3

The Southeast Asian crisis began in:

Accepted Answer

A)  Thailand 
B)  China 
C)  North Korea 
D)  the Philippines 
E)  Malaysia 
A)  Thailand 
B)  China 
C)  North Korea 
D)  the Philippines 
E)  Malaysia A

Question 4

The hedge fund Long-Term Capital Management included two Nobel Prize winners:

Accepted Answer

A)  Douglas North and Robert Fogel 
B)  Bela Balassa and Paul Samuelson 
C)  Alan Greenspan and Ben Bernanke 
D)  Robert Lucas and Robert Solow 
E)  Myron Scholes and Robert Merton 
A)  Douglas North and Robert Fogel 
B)  Bela Balassa and Paul Samuelson 
C)  Alan Greenspan and Ben Bernanke 
D)  Robert Lucas and Robert Solow 
E)  Myron Scholes and Robert Merton

Question 5

Over the last two centuries of exchange rate "regimes," the history can be divided into three phases. In chronological order they are:

Accepted Answer

A)  the gold standard, the Bretton Woods standard, and the era of floating exchange rates 
B)  the Bretton Woods standard, the gold standard, and the era of floating exchange rates 
C)  the era of floating exchange rates, the gold standard, and the Bretton Woods standard 
D)  the gold standard, the Bretton Woods standard, and the EMS 
E)  the silver standard, the Bretton Woods standard, and the era of floating exchange rates 
A)  the gold standard, the Bretton Woods standard, and the era of floating exchange rates 
B)  the Bretton Woods standard, the gold standard, and the era of floating exchange rates 
C)  the era of floating exchange rates, the gold standard, and the Bretton Woods standard 
D)  the gold standard, the Bretton Woods standard, and the EMS 
E)  the silver standard, the Bretton Woods standard, and the era of floating exchange rates

Question 6

Consider the two exchange rates, in period 1 and period 2: $$E _ { 1 } = \frac { \$ U S 1.35 } { € 1 } \text { and } E _ { 2 } = \frac { \$ U S 1.31 } { € 1 }$$ .
Over this time, the:

Accepted Answer

A)  dollar has depreciated 
B)  euro has appreciated 
C)  dollar has neither appreciated nor depreciated 
D)  euro has depreciated 
E)  euro has neither appreciated nor depreciated 
A)  dollar has depreciated 
B)  euro has appreciated 
C)  dollar has neither appreciated nor depreciated 
D)  euro has depreciated 
E)  euro has neither appreciated nor depreciated

Question 7

Refer to the following figure when answering  
Figure 20.4: AS/AD Model  
-Use the aggregate supply/aggregate demand model in Figure 20.4 to answer the following scenario. The European Central Bank reduces its interest rates, while the Federal Reserve maintains its federal funds rate. The economy initially moves from point ________ to point ________.

Accepted Answer

A)  a; d 
B)  c; d 
C)  b; c 
D)  a; b 
E)  a; c 
A)  a; d 
B)  c; d 
C)  b; c 
D)  a; b 
E)  a; c

Question 8

In the short run, the real exchange rate moves with:

Accepted Answer

A)  the law of one price 
B)  unanticipated changes in the nominal exchange rate 
C)  the quantity theory of money 
D)  monetary policy 
E)  the relative prices in the two economies 
A)  the law of one price 
B)  unanticipated changes in the nominal exchange rate 
C)  the quantity theory of money 
D)  monetary policy 
E)  the relative prices in the two economies

Question 9

Which of the following explains why the law of one price might NOT hold?

Accepted Answer

A)  trade barriers 
B)  transportation costs 
C)  institutions 
D)  differences in preferences 
E)  All of these answers are correct. 
A)  trade barriers 
B)  transportation costs 
C)  institutions 
D)  differences in preferences 
E)  All of these answers are correct.

Question 10

Why might Mexico choose to maintain a fixed exchange rate to the U.S. dollar?

Accepted Answer

A)  to help it maintain low and stable inflation 
B)  to "import" the reputation of the U.S. Federal Reserve 
C)  to maintain exchange rate stability 
D)  to reduce exchange risk 
E)  All of these answers are correct. 
A)  to help it maintain low and stable inflation 
B)  to "import" the reputation of the U.S. Federal Reserve 
C)  to maintain exchange rate stability 
D)  to reduce exchange risk 
E)  All of these answers are correct.

Question 11

The real exchange rate can be decomposed into two parts: the ________ and the ________.

Accepted Answer

A)  nominal exchange rate; ratio of the domestic price level to the world price level 
B)  nominal exchange rate; difference between the domestic and foreign interest rates 
C)  interest rate differential; difference between the domestic and foreign inflation rates 
D)  nominal exchange rate; ratio of the price of exported goods to imported goods 
E)  interest rate differential; ratio of the domestic price level to the world price level 
A)  nominal exchange rate; ratio of the domestic price level to the world price level 
B)  nominal exchange rate; difference between the domestic and foreign interest rates 
C)  interest rate differential; difference between the domestic and foreign inflation rates 
D)  nominal exchange rate; ratio of the price of exported goods to imported goods 
E)  interest rate differential; ratio of the domestic price level to the world price level

Question 12

The value of the exchange rate matters in the long run.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following explains why the law of one price might NOT hold?

Accepted Answer

A)  similar preferences 
B)  differences in currencies 
C)  transportation costs 
D)  similar taxes 
E)  All of these answers are correct. 
A)  similar preferences 
B)  differences in currencies 
C)  transportation costs 
D)  similar taxes 
E)  All of these answers are correct.

Question 14

Consider the two exchange rates in period 1 and period 2: $$E _ { 1 } = \frac { R s 46.6 } { \$ 1 } \text { and } E _ { 1 } = \frac { R s 53.4 } { \$ 1 }$$ 
.
(Rs is the Indian rupee.)
Over this time, the dollar has depreciated.

Accepted Answer

A) True 
 B)False

Question 15

The Big Mac index is compiled by:

Accepted Answer

A)  the Financial Times 
B)  The Wall Street Journal 
C)  The American Economic Review 
D)  The Economist 
E)  Forbes 
A)  the Financial Times 
B)  The Wall Street Journal 
C)  The American Economic Review 
D)  The Economist 
E)  Forbes

Question 16

The end of the Bretton Woods standard was in about ________, due to ________.

Accepted Answer

A)  1981; rising U.S. inflation 
B)  1971; falling U.S. inflation 
C)  1929; the stock market crash 
D)  1971; rising U.S. inflation 
E)  1999; the creation of the euro 
A)  1981; rising U.S. inflation 
B)  1971; falling U.S. inflation 
C)  1929; the stock market crash 
D)  1971; rising U.S. inflation 
E)  1999; the creation of the euro

Question 17

During the 1990s, the Yugoslavian countries of Croatia, Serbia, and Bosnia (among others) engaged in a civil war. One of the economic impacts of this war was hyperinflation, particularly in Serbia. What would have been the cause of this inflation? And as finance minister, what solution would you provide to end the inflationary spiral?

Accepted Answer

The inflation was caused by financing th

Question 18

Including the interest rate gap, the net export function becomes:

Accepted Answer

A)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } - \bar { b } _ { n x } \left( R _ { t } - \bar { r } \right) + \bar { b } _ { n x } \left( \bar { R } ^ { w } - \bar { r } \right)$ 
B)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } - \bar { b } _ { n x } \left( R _ { t } - R ^ { w } \right)$ 
C)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } + \bar { b } _ { n x } \left( \bar { R } ^ { w } - \bar { r } \right)$ 
D)  $\frac { N X } { \bar { Y } } = \bar { a } _ { n x '}$ because $R _ { t } = \bar { R } ^ { w }$ 
E)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } + \bar { b } _ { n x } \left( R _ { t } + \bar { R } ^ { w } \right)$ 
A)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } - \bar { b } _ { n x } \left( R _ { t } - \bar { r } \right) + \bar { b } _ { n x } \left( \bar { R } ^ { w } - \bar { r } \right)$ 
B)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } - \bar { b } _ { n x } \left( R _ { t } - R ^ { w } \right)$ 
C)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } + \bar { b } _ { n x } \left( \bar { R } ^ { w } - \bar { r } \right)$ 
D)  $\frac { N X } { \bar { Y } } = \bar { a } _ { n x '}$ because $R _ { t } = \bar { R } ^ { w }$ 
E)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } + \bar { b } _ { n x } \left( R _ { t } + \bar { R } ^ { w } \right)$

Question 19

Including the interest rate gap, the IS curve function becomes:

Accepted Answer

A)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } - \bar { b } _ { n x } \left( R _ { t } - \bar { r } \right) + \bar { b } _ { n x } \left( \bar { R } ^ { w } - \bar { r } \right)$ 
B)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } - \bar { b } _ { n x } \left( R _ { t } - \bar { R } ^ { w } \right)$ 
C)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } + \bar { b } _ { n x } \left( \bar { R } ^ { w } - \bar { r } \right)$ 
D)  $\frac { N X } { \bar { Y } } = \bar { a } _ { n x' }$ because $R _ { t } - \bar { R } ^ { w }$ 
E)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } + \bar { b } _ { n x } \left( R _ { t } + \bar { R } ^ { w } \right)$ 
A)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } - \bar { b } _ { n x } \left( R _ { t } - \bar { r } \right) + \bar { b } _ { n x } \left( \bar { R } ^ { w } - \bar { r } \right)$ 
B)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } - \bar { b } _ { n x } \left( R _ { t } - \bar { R } ^ { w } \right)$ 
C)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } + \bar { b } _ { n x } \left( \bar { R } ^ { w } - \bar { r } \right)$ 
D)  $\frac { N X } { \bar { Y } } = \bar { a } _ { n x' }$ because $R _ { t } - \bar { R } ^ { w }$ 
E)  $\frac { N X _ { t } } { \bar { Y } _ { t } } = \bar { a } _ { n x } + \bar { b } _ { n x } \left( R _ { t } + \bar { R } ^ { w } \right)$

Question 20

The Economist's Big Mac index is useful for examining the:

Accepted Answer

A)  Balassa-Samuelson effect 
B)  real interest rate parity 
C)  differences in real interest rates across countries 
D)  nominal exchange rate 
E)  differences in population sizes across countries 
A)  Balassa-Samuelson effect 
B)  real interest rate parity 
C)  differences in real interest rates across countries 
D)  nominal exchange rate 
E)  differences in population sizes across countries

The decline in the gold standard was due to the economic instability caused by:

The reason that the law of one price might fail in the short run is that prices are sticky and the nominal exchange rate is a financial price and adjusts rapidly to new information.

The Southeast Asian crisis began in:

The hedge fund Long-Term Capital Management included two Nobel Prize winners:

Over the last two centuries of exchange rate "regimes," the history can be divided into three phases. In chronological order they are:

Consider the two exchange rates, in period 1 and period 2: $E _ { 1 } = \frac { \$ U S 1.35 } { € 1 } \text { and } E _ { 2 } = \frac { \$ U S 1.31 } { € 1 }$ . Over this time, the:

In the short run, the real exchange rate moves with:

Which of the following explains why the law of one price might NOT hold?

Why might Mexico choose to maintain a fixed exchange rate to the U.S. dollar?

The real exchange rate can be decomposed into two parts: the and the .

The value of the exchange rate matters in the long run.

Which of the following explains why the law of one price might NOT hold?

Consider the two exchange rates in period 1 and period 2: $E _ { 1 } = \frac { R s 46.6 } { \$ 1 } \text { and } E _ { 1 } = \frac { R s 53.4 } { \$ 1 }$ . (Rs is the Indian rupee.) Over this time, the dollar has depreciated.

The Big Mac index is compiled by:

The end of the Bretton Woods standard was in about , due to .

Including the interest rate gap, the net export function becomes:

Including the interest rate gap, the IS curve function becomes:

The Economist's Big Mac index is useful for examining the:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Dsge Models: the Frontier of Business Cycle Research

Consumption

Investment

The Government and the Macroeconomy

International Trade

Parting Thoughts

Filters

Exam 20: Exchange Rates and International Finance

The decline in the gold standard was due to the economic instability caused by:

The reason that the law of one price might fail in the short run is that prices are sticky and the nominal exchange rate is a financial price and adjusts rapidly to new information.

The Southeast Asian crisis began in:

The hedge fund Long-Term Capital Management included two Nobel Prize winners:

Over the last two centuries of exchange rate "regimes," the history can be divided into three phases. In chronological order they are:

Consider the two exchange rates, in period 1 and period 2: E1=$US1.35€1 and E2=$US1.31€1E _ { 1 } = \frac { \$ U S 1.35 } { € 1 } \text { and } E _ { 2 } = \frac { \$ U S 1.31 } { € 1 }E1​=€1$US1.35​ and E2​=€1$US1.31​ . Over this time, the:

In the short run, the real exchange rate moves with:

Which of the following explains why the law of one price might NOT hold?

Why might Mexico choose to maintain a fixed exchange rate to the U.S. dollar?

The real exchange rate can be decomposed into two parts: the ________ and the ________.

The value of the exchange rate matters in the long run.

Which of the following explains why the law of one price might NOT hold?

Consider the two exchange rates in period 1 and period 2: E1=Rs46.6$1 and E1=Rs53.4$1E _ { 1 } = \frac { R s 46.6 } { \$ 1 } \text { and } E _ { 1 } = \frac { R s 53.4 } { \$ 1 }E1​=$1Rs46.6​ and E1​=$1Rs53.4​ . (Rs is the Indian rupee.) Over this time, the dollar has depreciated.

The Big Mac index is compiled by:

The end of the Bretton Woods standard was in about ________, due to ________.

Including the interest rate gap, the net export function becomes:

Including the interest rate gap, the IS curve function becomes:

The Economist's Big Mac index is useful for examining the:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Dsge Models: the Frontier of Business Cycle Research

Consumption

Investment

The Government and the Macroeconomy

International Trade

Parting Thoughts

Filters

Consider the two exchange rates, in period 1 and period 2: $E _ { 1 } = \frac { \$ U S 1.35 } { € 1 } \text { and } E _ { 2 } = \frac { \$ U S 1.31 } { € 1 }$ . Over this time, the:

The real exchange rate can be decomposed into two parts: the and the .

Consider the two exchange rates in period 1 and period 2: $E _ { 1 } = \frac { R s 46.6 } { \$ 1 } \text { and } E _ { 1 } = \frac { R s 53.4 } { \$ 1 }$ . (Rs is the Indian rupee.) Over this time, the dollar has depreciated.

The end of the Bretton Woods standard was in about , due to .