Question 1

According to the text, there are two reasons we care so much about exchange rates. List and fully explain these reasons in your own words.

Accepted Answer

The two reasons we care so much about exchange rates are:

1. International trade: Exchange rates play a crucial role in international trade as they determine the relative value of different currencies. When a country's currency strengthens, its goods become more expensive for foreign buyers, which can lead to a decrease in exports. On the other hand, a weaker currency can make a country's exports more competitive in the global market. Therefore, businesses and governments closely monitor exchange rates to assess their impact on trade and adjust their strategies accordingly.

2. Investment and capital flows: Exchange rates also influence investment decisions and capital flows between countries. A strong currency can attract foreign investors looking for higher returns, while a weak currency may discourage investment. Additionally, exchange rate fluctuations can affect the value of foreign assets and liabilities, impacting the overall financial stability of a country. As a result, investors and policymakers pay close attention to exchange rates to anticipate potential risks and opportunities in the global financial market.

Question 2

One indicator of international financial openness in advanced countries is that:

Accepted Answer

A)  defaults by borrowers have decreased significantly. 
B)  cross-border financial transactions in advanced nations have increased tenfold. 
C)  restrictions on mortgage lending or bank capital requirements have decreased. 
D)  governments no longer try to control interest rates. 
A)  defaults by borrowers have decreased significantly. 
B)  cross-border financial transactions in advanced nations have increased tenfold. 
C)  restrictions on mortgage lending or bank capital requirements have decreased. 
D)  governments no longer try to control interest rates. B

Question 3

If in January 2007, $1 = 110 yen, and in July 2007, $1 = 90 yen, then a Harley Davidson motorcycle that cost $8,000 in January would now cost _______ in Japan in July.

Accepted Answer

A)  180,000 yen 
B)  880,000 yen 
C)  720,000 yen 
D)  890,000 yen 
A)  180,000 yen 
B)  880,000 yen 
C)  720,000 yen 
D)  890,000 yen C

Question 4

What are the differences between a policy, a regime, and an institution?

Accepted Answer

A policy is a set of principles or rules

Question 5

Following its 2001 currency crisis, Argentina's unemployment:

Accepted Answer

A)  fell back to the pre-2001 level. 
B)  was lower than during the crisis but higher than before. 
C)  was at an all-time high. 
D)  was unresponsive to the crisis. 
A)  fell back to the pre-2001 level. 
B)  was lower than during the crisis but higher than before. 
C)  was at an all-time high. 
D)  was unresponsive to the crisis.

Question 6

Assume that in 2006, the dollar-euro exchange rate was 1 and in 2007 it was .75. If you have $100 million in assets in Germany in 2006, then in 2007 your assets in Germany are:

Accepted Answer

A)  lower by 75 million euro. 
B)  higher by 75 million euro. 
C)  worth $133.33 million. 
D)  worth less than in 2006. 
A)  lower by 75 million euro. 
B)  higher by 75 million euro. 
C)  worth $133.33 million. 
D)  worth less than in 2006.

Question 7

Emerging market countries are:

Accepted Answer

A)  countries with high levels of income per person that are well-integrated into the global economy. 
B)  mainly countries that are growing and becoming more integrated into the global economy. 
C)  mainly countries that are not yet well-integrated into the global economy and are not democratic. 
D)  countries with low levels of income per person. 
A)  countries with high levels of income per person that are well-integrated into the global economy. 
B)  mainly countries that are growing and becoming more integrated into the global economy. 
C)  mainly countries that are not yet well-integrated into the global economy and are not democratic. 
D)  countries with low levels of income per person.

Question 8

Poor governance often results in:

Accepted Answer

A)  insurgency and chaos. 
B)  more poverty and macroeconomic shocks. 
C)  less equality but more efficiency. 
D)  the rich putting their money in overseas banks. 
A)  insurgency and chaos. 
B)  more poverty and macroeconomic shocks. 
C)  less equality but more efficiency. 
D)  the rich putting their money in overseas banks.

Question 9

Which of the following would count as an emerging market?

Accepted Answer

A)  Canada 
B)  Poland 
C)  Ireland 
D)  Bangladesh 
A)  Canada 
B)  Poland 
C)  Ireland 
D)  Bangladesh

Question 10

Problems in developing nations can involve:

Accepted Answer

A)  governments with corrupt officials that increase the costs of starting and maintaining businesses. 
B)  too much emphasis on sound business practices and efficiency. 
C)  good institutions and reasonable taxes, which provide sufficient infrastructure for new business. 
D)  government that is too large to be effective. 
A)  governments with corrupt officials that increase the costs of starting and maintaining businesses. 
B)  too much emphasis on sound business practices and efficiency. 
C)  good institutions and reasonable taxes, which provide sufficient infrastructure for new business. 
D)  government that is too large to be effective.

Question 11

Globalization of financial markets provides benefits to nations but also carries risk to international stability due to:

Accepted Answer

A)  unmanageable debt and subsequent defaults. 
B)  political infighting regarding whose currency will be the world leader. 
C)  military conflict over control of vital assets. 
D)  accumulation of wealth. 
A)  unmanageable debt and subsequent defaults. 
B)  political infighting regarding whose currency will be the world leader. 
C)  military conflict over control of vital assets. 
D)  accumulation of wealth.

Question 12

Which of the following would count as a developing country?

Accepted Answer

A)  Mexico 
B)  Italy 
C)  Guatemala 
D)  Germany 
A)  Mexico 
B)  Italy 
C)  Guatemala 
D)  Germany

Question 13

In 2009, the area with the largest trade deficit was:

Accepted Answer

A)  China. 
B)  the Eurozone. 
C)  the United States. 
D)  Japan. 
A)  China. 
B)  the Eurozone. 
C)  the United States. 
D)  Japan.

Question 14

In Argentina, when the exchange rate was floated in 2002, all of the following took place, EXCEPT a sharp:

Accepted Answer

A)  decline in the exchange rate of the peso. 
B)  increase in the level of poverty. 
C)  increase in inflation. 
D)  decline in unemployment rates. 
A)  decline in the exchange rate of the peso. 
B)  increase in the level of poverty. 
C)  increase in inflation. 
D)  decline in unemployment rates.

Question 15

Whenever gross national income is less than gross national expenditure for some time, a nation will experience a(n):

Accepted Answer

A)  deficit in its current account. 
B)  surplus in its current account. 
C)  increase in GDP, since firms' sales will rise. 
D)  rise in national wealth. 
A)  deficit in its current account. 
B)  surplus in its current account. 
C)  increase in GDP, since firms' sales will rise. 
D)  rise in national wealth.

Question 16

Since 1990, which of the following did NOT have an exchange rate crisis?

Accepted Answer

A)  China 
B)  Korea 
C)  Argentina 
D)  Russia 
A)  China 
B)  Korea 
C)  Argentina 
D)  Russia

Question 17

Understanding how a nation's economy works requires a complete understanding of the:

Accepted Answer

A)  political system. 
B)  level of imports and exports. 
C)  exchange rate with other currencies. 
D)  tax system. 
A)  political system. 
B)  level of imports and exports. 
C)  exchange rate with other currencies. 
D)  tax system.

Question 18

A country's external wealth is equal to:

Accepted Answer

A)  its exports minus imports. 
B)  its overall debt. 
C)  its foreign assets minus its foreign liabilities. 
D)  the amount foreigners have invested in the United States. 
A)  its exports minus imports. 
B)  its overall debt. 
C)  its foreign assets minus its foreign liabilities. 
D)  the amount foreigners have invested in the United States.

Question 19

The main lessons of the study of international macroeconomics are that:

Accepted Answer

A)  there is a consensus regarding the best policies to follow. 
B)  poor countries will become rich if they just adopt the institutions of the rich countries. 
C)  financial openness will quickly lead to economic growth. 
D)  the best policies to follow depend on the institutional structure of a country and the specific situation. 
A)  there is a consensus regarding the best policies to follow. 
B)  poor countries will become rich if they just adopt the institutions of the rich countries. 
C)  financial openness will quickly lead to economic growth. 
D)  the best policies to follow depend on the institutional structure of a country and the specific situation.

Question 20

The great divergence refers to:

Accepted Answer

A)  the widening U.S. trade deficit. 
B)  the growing gap between rich and poor workers. 
C)  the growing Chinese trade surplus. 
D)  the gap in income per capita between rich and poor nations. 
A)  the widening U.S. trade deficit. 
B)  the growing gap between rich and poor workers. 
C)  the growing Chinese trade surplus. 
D)  the gap in income per capita between rich and poor nations.

Exam 12: The Global Macroeconomy

According to the text, there are two reasons we care so much about exchange rates. List and fully explain these reasons in your own words.

One indicator of international financial openness in advanced countries is that:

If in January 2007, $1 = 110 yen, and in July 2007, $1 = 90 yen, then a Harley Davidson motorcycle that cost $8,000 in January would now cost _______ in Japan in July.

What are the differences between a policy, a regime, and an institution?

Following its 2001 currency crisis, Argentina's unemployment:

Assume that in 2006, the dollar-euro exchange rate was 1 and in 2007 it was .75. If you have $100 million in assets in Germany in 2006, then in 2007 your assets in Germany are:

Emerging market countries are:

Poor governance often results in:

Which of the following would count as an emerging market?

Problems in developing nations can involve:

Globalization of financial markets provides benefits to nations but also carries risk to international stability due to:

Which of the following would count as a developing country?

In 2009, the area with the largest trade deficit was:

In Argentina, when the exchange rate was floated in 2002, all of the following took place, EXCEPT a sharp:

Whenever gross national income is less than gross national expenditure for some time, a nation will experience a(n):

Since 1990, which of the following did NOT have an exchange rate crisis?

Understanding how a nation's economy works requires a complete understanding of the:

A country's external wealth is equal to:

The main lessons of the study of international macroeconomics are that:

The great divergence refers to:

Trade in the Global Economy

Trade and Technology: The Ricardian Model

Gains and Losses From Trade in the Specific-Factors Model

Trade and Resources: the Heckscher-Ohlin Model

Movement of Labor and Capital Between Countries

Increasing Returns to Scale and Monopolistic Competition

Offshoring of Goods and Services

Import Tariffs and Quotas Under Perfect Competition

Import Tariffs and Quotas Under Imperfect Competition

Export Subsidies in Agriculture and High-Technology Industries

International Agreements: Trade, Labor, and the Environment

Introduction to Exchange Rates and the Foreign Exchange Market

Exchange Rates I: the Monetary Approach in the Long Run

Exchange Rates II: the Asset Approach in the Short Run

National and International Accounts: Income, Wealth, and the Balance of Payments

Balance of Payments I: the Gains From Financial Globalization

Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies in the Short Run

Fixed Versus Floating: International Monetary Experience

Exchange Rate Crises: How Pegs Work and How They Break

The Euro

Topics in International Macroeconomics

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