Question 1

Which of the following countries use the euro?

Accepted Answer

A)  Greece 
B)  Italy 
C)  Portugal 
D)  Sweden 
E)  All of these answers are correct. 
A)  Greece 
B)  Italy 
C)  Portugal 
D)  Sweden 
E)  All of these answers are correct. E

Question 2

Under a currency board, the central bank holds ________, so that the domestic currency is fully backed by the foreign exchange.

Accepted Answer

A)  gold 
B)  foreign exchange reserves 
C)  domestic bonds 
D)  foreign exchange reserves and domestic bonds 
E)  None of these answers is correct. 
A)  gold 
B)  foreign exchange reserves 
C)  domestic bonds 
D)  foreign exchange reserves and domestic bonds 
E)  None of these answers is correct. B

Question 3

To extend the short run to include a more sophisticated version of the trade balance, we include:

Accepted Answer

A)  foreign income. 
B)  the gap between domestic and foreign inflation rates. 
C)  the changes in the money supply. 
D)  the gap between the domestic and foreign real interest rates. 
E)  differences in unemployment rates. 
A)  foreign income. 
B)  the gap between domestic and foreign inflation rates. 
C)  the changes in the money supply. 
D)  the gap between the domestic and foreign real interest rates. 
E)  differences in unemployment rates. D

Question 4

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 5

Refer to the following table when answering the following questions.
Table 20.1: Annual Average Exchange Rates: 2005-2015  
-Consider Table 20.1. According to the table, in 2010, one Australian dollar buys ________ Japanese yen.

Accepted Answer

A)  69.6 
B)  95.4 
C)  0.01 
D)  80.8 
E)  85.0 
A)  69.6 
B)  95.4 
C)  0.01 
D)  80.8 
E)  85.0

Question 6

Prior to the introduction of the euro, the euro area country with the lowest bond yields was:

Accepted Answer

A)  Switzerland. 
B)  Italy. 
C)  Greece. 
D)  Ireland. 
E)  Germany. 
A)  Switzerland. 
B)  Italy. 
C)  Greece. 
D)  Ireland. 
E)  Germany.

Question 7

Using the notation in the text, the long-run level of the exchange rate is:

Accepted Answer

A)    . 
B)    . 
C)    
D)    . 
E)  None of these answers is correct. 
A)    . 
B)    . 
C)    
D)    . 
E)  None of these answers is correct.

Question 8

In Europe, domestic lending by banks fell in which of following countries between 1998 and 2007?

Accepted Answer

A)  Greece 
B)  Italy 
C)  Spain 
D)  Germany 
E)  Portugal 
A)  Greece 
B)  Italy 
C)  Spain 
D)  Germany 
E)  Portugal

Question 9

Free flow of international assets is desirable because it allows countries to:

Accepted Answer

A)  borrow when times are bad in order to smooth consumption. 
B)  borrow when times are good in order to increase consumption. 
C)  buy in higher-value asset markets. 
D)  hold gold. 
E)  maintain price stability. 
A)  borrow when times are bad in order to smooth consumption. 
B)  borrow when times are good in order to increase consumption. 
C)  buy in higher-value asset markets. 
D)  hold gold. 
E)  maintain price stability.

Question 10

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 11

If the law of one price holds for all goods, the real exchange rate equals zero.

Accepted Answer

A) True 
 B)False

Question 12

If the law of one price holds for all goods in the long run:

Accepted Answer

A)    . 
B)    . 
C)    . 
D)    . 
E)    . 
A)    . 
B)    . 
C)    . 
D)    . 
E)    .

Question 13

If China wanted to maintain a fixed nominal exchange rate to the United States in the long run:

Accepted Answer

A)  the price level in China would have to move in tandem with the U.S. price level. 
B)  Chinese interest rates would have to move in tandem with U.S. interest rates. 
C)  the law of one price would have to hold for at least one good. 
D)  the Chinese would have to want to buy American goods. 
E)  the Chinese would want to sell their financial assets. 
A)  the price level in China would have to move in tandem with the U.S. price level. 
B)  Chinese interest rates would have to move in tandem with U.S. interest rates. 
C)  the law of one price would have to hold for at least one good. 
D)  the Chinese would have to want to buy American goods. 
E)  the Chinese would want to sell their financial assets.

Question 14

The Mexican peso crisis was precipitated, in part, by political turmoil.

Accepted Answer

A) True 
 B)False

Question 15

Let P denote the price of goods in the United States,   
denote the price of goods in the foreign country, and E denote the exchange rate, measured as the number of units of foreign currency that can be purchased with one dollar. According to the law of one price,

Accepted Answer

A) True 
 B)False

Question 16

The natural goal(s) of an international monetary system is/are:

Accepted Answer

A)  a stable exchange rate. 
B)  monetary policy autonomy. 
C)  free flow of international finance. 
D)  All of these answers are correct. 
E)  None of these answers is correct. 
A)  a stable exchange rate. 
B)  monetary policy autonomy. 
C)  free flow of international finance. 
D)  All of these answers are correct. 
E)  None of these answers is correct.

Question 17

Which of the following can be used to explain the failure of the law of one price with respect to Big Macs?

Accepted Answer

A)  transportation costs 
B)  wage equalization across borders 
C)  differences in money supply 
D)  over- or undervalued currency 
E)  real interest rate differences 
A)  transportation costs 
B)  wage equalization across borders 
C)  differences in money supply 
D)  over- or undervalued currency 
E)  real interest rate differences

Question 18

If a country is a member of a single currency area, it cannot use ________ to improve its competitiveness; rather, it should concentrate on its ________.

Accepted Answer

A)  fiscal policy; monetary policy 
B)  inflation; interest rates 
C)  exchange rates; unit labor costs 
D)  sovereign debt; short-term interest rates 
E)  tax policy; exchange rate 
A)  fiscal policy; monetary policy 
B)  inflation; interest rates 
C)  exchange rates; unit labor costs 
D)  sovereign debt; short-term interest rates 
E)  tax policy; exchange rate

Question 19

In the long run, what value should the real exchange rate have? Explain. In the short run, why is this likely not the case?

Accepted Answer

In the long run, the real exchange rate

Question 20

Bondholders of ________ debt became worried that it would ________ when its debt-to-GDP ratio ________ in 2010.

Accepted Answer

A)  Icelandic; be forced to pay reparations to U.K. and Dutch pensioners; exceeded 120 percent 
B)  Irish; cease trade; fell dramatically 
C)  Greek; default; exceeded 100 percent 
D)  Italian; restructure its debt; fell 200 percent 
E)  Spanish; renege on payments; rose 60 percent 
A)  Icelandic; be forced to pay reparations to U.K. and Dutch pensioners; exceeded 120 percent 
B)  Irish; cease trade; fell dramatically 
C)  Greek; default; exceeded 100 percent 
D)  Italian; restructure its debt; fell 200 percent 
E)  Spanish; renege on payments; rose 60 percent

Which of the following countries use the euro?

Under a currency board, the central bank holds ________, so that the domestic currency is fully backed by the foreign exchange.

To extend the short run to include a more sophisticated version of the trade balance, we include:

The Big Mac index is compiled by:

Refer to the following table when answering the following questions. Table 20.1: Annual Average Exchange Rates: 2005-2015 -Consider Table 20.1. According to the table, in 2010, one Australian dollar buys ________ Japanese yen.

Prior to the introduction of the euro, the euro area country with the lowest bond yields was:

Using the notation in the text, the long-run level of the exchange rate is:

In Europe, domestic lending by banks fell in which of following countries between 1998 and 2007?

Free flow of international assets is desirable because it allows countries to:

If the law of one price holds for all goods, the real exchange rate equals zero.

If the law of one price holds for all goods in the long run:

If China wanted to maintain a fixed nominal exchange rate to the United States in the long run:

The Mexican peso crisis was precipitated, in part, by political turmoil.

Let P denote the price of goods in the United States, denote the price of goods in the foreign country, and E denote the exchange rate, measured as the number of units of foreign currency that can be purchased with one dollar. According to the law of one price,

The natural goal(s) of an international monetary system is/are:

Which of the following can be used to explain the failure of the law of one price with respect to Big Macs?

If a country is a member of a single currency area, it cannot use to improve its competitiveness; rather, it should concentrate on its .

In the long run, what value should the real exchange rate have? Explain. In the short run, why is this likely not the case?

Bondholders of debt became worried that it would when its debt-to-GDP ratio in 2010.

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

Which of the following countries use the euro?

Under a currency board, the central bank holds ________, so that the domestic currency is fully backed by the foreign exchange.

To extend the short run to include a more sophisticated version of the trade balance, we include:

The Big Mac index is compiled by:

Refer to the following table when answering the following questions. Table 20.1: Annual Average Exchange Rates: 2005-2015 -Consider Table 20.1. According to the table, in 2010, one Australian dollar buys ________ Japanese yen.

Prior to the introduction of the euro, the euro area country with the lowest bond yields was:

Using the notation in the text, the long-run level of the exchange rate is:

In Europe, domestic lending by banks fell in which of following countries between 1998 and 2007?

Free flow of international assets is desirable because it allows countries to:

If the law of one price holds for all goods, the real exchange rate equals zero.

If the law of one price holds for all goods in the long run:

If China wanted to maintain a fixed nominal exchange rate to the United States in the long run:

The Mexican peso crisis was precipitated, in part, by political turmoil.

Let P denote the price of goods in the United States, denote the price of goods in the foreign country, and E denote the exchange rate, measured as the number of units of foreign currency that can be purchased with one dollar. According to the law of one price,

The natural goal(s) of an international monetary system is/are:

Which of the following can be used to explain the failure of the law of one price with respect to Big Macs?

If a country is a member of a single currency area, it cannot use ________ to improve its competitiveness; rather, it should concentrate on its ________.

In the long run, what value should the real exchange rate have? Explain. In the short run, why is this likely not the case?

Bondholders of ________ debt became worried that it would ________ when its debt-to-GDP ratio ________ in 2010.

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

If a country is a member of a single currency area, it cannot use to improve its competitiveness; rather, it should concentrate on its .

Bondholders of debt became worried that it would when its debt-to-GDP ratio in 2010.