Deck 17: Exchange Rates and Macroeconomic Policy

Question 1

The exchange rate is

A) the rate at which one currency is traded for another
B) always constant
C) the tax a foreign nation imposes to change its currency into dollars
D) irrelevant to those who do not travel to foreign countries
E) controlled by the Federal Reserve

Answer 1

the rate at which one currency is traded for another

Question 2

The higher the price of a foreign currency,the more expensive that foreign country's goods and services are to individuals in the domestic economy.

Answer 2

True

Question 3

If the dollar-pound exchange rate is $1.00 per pound,then a shirt priced at 25 pounds will cost an American

A) $25
B) $50
C) $26
D) $27
E) an amount that cannot be calculated without additional information.

Answer 3

$25

Question 4

If the dollars per peso exchange rate fell,

A) few firms would want to relocate to Mexico
B) the demand for pesos would fall
C) more Americans would travel to Mexico
D) Americans would buy fewer Mexican goods
E) the demand for pesos curve would shift inward

Question 5

Which of the following changes would cause a movement along the U.S.demand curve for a foreign currency?

A) An increase in U.S.real GDP
B) A fall in U.S.real GDP
C) A rise in the U.S.interest rate
D) A change in the exchange rate
E) An expectation that the exchange rate is going to fall.

Question 6

In the market for euros,Americans want to buy euros

A) only to buy goods from European firms
B) primarily to buy services from European firms
C) only to buy European assets
D) only to buy European goods and assets
E) to buy European goods,services,and assets

Question 7

To an American,the demand curve for euros tells

A) that Americans do not want to purchase euros
B) how many euros Americans would want to buy in a given time period,at each different exchange rate
C) the real interest rate on foreign currency over time
D) how many Americans are willing to buy euros
E) how many euros have been purchased during a given time period

Question 8

If you know the number of euros that can be exchanged for one dollar,you can easily figure out the number of dollars needed to obtain one euro by finding the reciprocal of the exchange rate for dollars per euro.

Question 9

If the dollar-peso exchange rate is 0.01 dollars per peso,what is the rate of pesos per dollar?

A) 1 peso/dollar
B) 10 pesos/dollar
C) 0.1 peso/dollar
D) 1,000 pesos/dollar
E) 100 pesos/dollar

Question 10

If we know that the exchange rate is 0.8 dollars per euro,then we know that the exchange rate of euros per dollars is

A) 0.8
B) 1.8
C) 1.25
D) less than 1.0
E) 5

Question 11

The demand curve for a foreign currency

A) slopes upward
B) slopes downward
C) is horizontal
D) has a slope of 45 degrees
E) is vertical

Question 12

Which of the following best describes the foreign exchange market? It is a market where one country's

A) exports are traded for another country's imports
B) currency is traded for that of another
C) goods are traded for another country's services
D) imports are traded for another country's exports
E) services are traded for another country's goods

Question 13

If the dollar-pound exchange rate is $2.00 per pound,then a shirt priced at 25 pounds will cost an American

A) $25
B) $50
C) $26
D) $27
E) an amount that cannot be calculated without additional information.

Question 14

A decrease in the price of a foreign currency is represented graphically as

A) rightward movement along the demand curve for that currency
B) an upward shift of the demand curve
C) a downward shift of the demand curve
D) a horizontal line
E) a vertical line

Question 15

Which of the following is a reason why an American would demand British pounds?

A) To purchase British real estate
B) To purchase Japanese semiconductors
C) To purchase French government bonds
D) To purchase stocks on the New York Stock Exchange
E) To purchase a ticket to see a British film in the U.S.

Question 16

If the dollars per euro exchange rate increased,

A) Americans would purchase fewer European goods
B) more U.S.firms would want to relocate to Europe
C) more American tourists would travel to Europe
D) the demand for euros would increase
E) Europeans would become more highly respected

Question 17

The lower the price of a foreign currency,the more expensive that foreign country's goods and services are to individuals in the domestic economy.

Question 18

In a foreign exchange market,one country's currency is exchanged for another's.

Question 19

What does the demand curve for British pounds tell us?

A) The quantity of pounds people will want to sell at each different exchange rate
B) The quantity of pounds people will want to buy at each level of output
C) The quantity of pounds people will want to buy at each different exchange rate
D) The quantity of pounds people will want to sell in each different time period
E) The quantity of pounds people will want to buy at each different interest rate.

Question 20

If the pound-dollar exchange rate is 2 pounds per dollar,what is the rate of dollars per pound?

A) 4 dollars/pound
B) 2 dollars/pound
C) 5 dollars/pound
D) 0.50 dollars/pound
E) 2.50 dollars/pound

Question 21

Which of the following would lead to an increase in the demand for British pounds?

A) A declining interest in British goods
B) A decrease in the U.S.interest rate relative to the British interest rate
C) Expectations that the exchange rate will fall
D) A decrease of the U.S.price level relative to the British price level
E) A decrease in the exchange rate.

Question 22

The supply curve for a foreign currency typically

A) is horizontal
B) is vertical
C) slopes downward
D) slopes upward
E) none of the above.

Question 23

If the price of a British pound increases,more Britons will be willing to supply pounds to the foreign exchange market.

Question 24

If the dollar price of a foreign currency increases,there will be a(n)

A) rightward movement along the supply of foreign exchange curve
B) leftward movement along the supply of foreign exchange curve
C) leftward shift of the supply of foreign exchange curve
D) rightward shift of the supply of foreign exchange curve
E) tendency for the supply of foreign exchange curve to become flatter

Question 25

If the dollars per pound exchange rate falls,there is a(n)

A) rightward movement along a single supply of pounds curve
B) leftward movement along a single supply of pounds curve
C) leftward shift of the supply of pounds curve
D) rightward shift of the U.S.supply of pounds curve
E) tendency for the U.S.supply of pounds curve to become steeper

Question 26

Which of the following would lead to a decrease of the U.S.demand for euros?

A) A decrease in the U.S.interest rate,with no change in the European interest rate
B) An increase in U.S.GDP
C) Resurgence of interest in European precision tools
D) Expectations of a rise in the dollar price of the euro
E) A sudden increase in anti- European sentiment.

Question 27

A rise in U.S.real GDP would cause

A) leftward shifts of the demand curves for foreign currencies
B) rightward shifts of the demand curves for foreign currencies
C) rightward movements along the demand curves for foreign currencies
D) no change in the demand curves for foreign currencies
E) initial rightward movements along the demand curves for foreign currencies,followed by leftward shifts of those curves.

Question 28

If the Swiss price level fell relative to the British price level,there would be

A) a rightward movement along the supply of British pounds curve in the franc-pound market
B) a leftward movement along the supply of British pounds curve in the franc-pound market
C) a rightward shift of the supply of British pounds curve in the franc-pound market
D) a leftward shift of the supply of British pounds curve in the franc-pound market
E) no change of the supply of British pounds curve in the franc-pound market

Question 29

If the British price level rose relative to the Swiss price level,there would be

A) a rightward movement along the supply of Swiss francs curve in the pound-franc market
B) a leftward movement along the supply of Swiss francs curve in the pound-franc market
C) an increased supply of Swiss francs to the pound-franc market
D) a decreased supply of Swiss francs to the pound-franc market
E) no change of the supply of Swiss francs curve in the pound-franc market

Question 30

Refer to Figure 17-1.Assume the equilibrium exchange rate is $0.008 per yen at point A.If U.S.consumers decide to purchase more automobiles from Japan,then

A) nothing will happen
B) the supply curve will shift to S' and the demand curve will shift to D'
C) the supply curve will shift to S'
D) the exchange will rise to $0.012 per yen
E) exchange rate will return to $0.008 as soon as the market adjusts.

Question 31

If British tastes changed so that Britons began to desire more American goods,there would be

A) a rightward movement along the supply of British pounds curve in the dollar-pound market
B) a leftward movement along the supply of British pounds curve in the dollar-pound market
C) a rightward shift of the supply of British pounds curve in the dollar-pound market
D) a leftward shift of the supply of British pounds curve in the dollar-pound market
E) no change in the supply of British pounds curve in the dollar-pound market

Question 32

If British real GDP fell,there would be

A) a rightward movement along the supply of British pounds curve in the dollar-pound market
B) a leftward movement along the supply of British pounds curve in the dollar-pound market
C) an increased supply of British pounds to the dollar-pound market
D) a decreased supply of British pounds to the dollar-pound market
E) the tendency for the supply of British pounds curve to become steeper in the dollar-pound market

Question 33

Refer to Figure 17-1.Assume the equilibrium exchange rate is $0.008 per yen at point A.If U.S.consumers decide to purchase more automobiles from Japan,then

A) nothing will happen
B) the supply curve will shift to S' and the demand curve will shift to D'
C) the supply curve will shift to S'
D) the demand curve will shift to D'
E) exchange rate will return to $0.008 as soon as the market adjusts.

Question 34

Holders of a foreign currency are willing to supply that currency to Americans in exchange for dollars

A) only because they want to buy American goods
B) only because they want to purchase American services
C) primarily because they want to purchase American assets
D) because they want to purchase American goods,services and assets
E) because their governments force them to do so

Question 35

If Americans expect the dollar price of the British pound to rise,this expectation will cause

A) a rightward movement along the U.S.demand curve for pounds
B) a leftward shift of the U.S.demand curve for pounds
C) a rightward shift the U.S.demand curve for pounds
D) a leftward movement along the U.S.demand curve for pounds
E) no change in the U.S.demand curve for pounds

Question 36

If British real GDP rose relative to U.S.real GDP,there would be

A) a rightward movement along the supply of British pounds curve in the dollar-pound market
B) a leftward movement along the supply of British pounds curve in the dollar-pound market
C) a rightward shift of the supply of British pounds curve in the dollar-pound market
D) a leftward shift of the supply of British pounds curve in the dollar-pound market
E) the tendency for the supply of British pounds curve to become flatter in the dollar-pound market

Question 37

If the U.S.interest rate falls relative to the British interest rate,

A) the U.S.demand for pounds will not change
B) the U.S.demand for pounds will decrease
C) the U.S.demand for pounds will increase
D) there will be a rightward movement along the U.S.demand curve for pounds
E) there will be a leftward movement along the U.S.demand curve for pounds

Question 38

What does the supply curve for Mexican pesos tell us?

A) The number of pesos people will want to sell at each different exchange rate
B) The number of pesos people will want to sell at each level of output
C) The number of pesos people will want to buy at each different exchange rate
D) The number of pesos people will want to buy in each different time period
E) The number of pesos people will want to sell at each different interest rate.

Question 39

Which of the following would lead to a leftward movement along the supply curve of euros?

A) An increase in the U.S.interest rate relative to the European interest rate
B) An increase in the dollars per euro exchange rate
C) A decrease in Europe's GDP
D) A decrease in the dollar price of the euros
E) A decrease in the U.S.price level relative to the European price level.

Question 40

Which of the following would lead to a rightward movement along the demand curve for British pounds?

A) An increase in the dollar price of a pound
B) A decrease in U.S.GDP
C) A renewed interest in British beef products
D) A decrease in the dollar price of a pound
E) An increase in U.S.GDP.

Question 41

In the dollar-pound market,whenever there is an appreciation of the dollar,there is

A) an appreciation of the pound
B) a depreciation of the pound
C) a devaluation of the pound
D) a revaluation of the pound
E) no change in the value of the dollar

Question 42

In the market for British pounds,if the current exchange rate is above the equilibrium rate,

A) there is an excess supply of pounds and those who hold pounds will be able to sell them and make a profit
B) there is an excess supply of pounds and the exchange rate will fall
C) there is an excess demand for pounds and suppliers will not be able to supply enough pounds to meet the demand
D) there is an excess demand for pounds and the exchange rate will rise
E) the quantity of pounds supplied is barely sufficient to meet the quantity demanded

Question 43

In the dollar-pound market,the equilibrium price of the pound will change

A) only when there is a shift of the demand curve for pounds
B) only when there is a shift of the supply curve for pounds
C) only when there are shifts of both the supply for pounds and demand for pounds curves
D) whenever there is a shift of either the supply or demand curves for pounds
E) whenever there is movement along either the supply or the demand for pounds curves

Question 44

A floating exchange rate is one that is allowed to move freely between two points that have been determined by an exchange treaty.

Question 45

If the price of a foreign currency rises,we say there has been an appreciation of the domestic currency.

Question 46

Which of the following would lead to a leftward shift in the supply curve for Czech kroner?

A) A decrease in the dollar-krona exchange rate
B) An increase in the Czech Republic's GDP relative to U.S.GDP
C) Expectation that the dollar price of the krona will rise
D) Stronger Czech interest in U.S.audio CDs
E) An increase in the U.S.interest rate relative to the Czech interest rate.

Question 47

In a floating exchange rate system,the equilibrium exchange rate is determined

A) by the price of the foreign currency
B) by the government of the country issuing the foreign currency
C) by the interest rate in the country issuing the foreign currency
D) by the Federal Reserve
E) at the intersection of the demand curve and supply curve for the foreign currency

Question 48

Suppose that equilibrium in the dollar-pound market occurs where 300 million pounds are demanded at a price of $1.75 per pound.If the current exchange rate is $1.60 per pound,we know that

A) the dollar-pound market is in equilibrium
B) there is an excess demand for pounds,so the dollar price of the pound will rise
C) there is an excess demand for pounds,and the pound is overvalued
D) there is an excess supply of pounds,and the dollar price of the pound will rise
E) there is an excess supply of pounds,and the dollar price of the pound will fall

Question 49

If the demand for British pounds increases,

A) the equilibrium price of the pound will increase
B) the equilibrium price of the pound will decrease
C) the equilibrium price of the pound will not change
D) the equilibrium price of the pound will change,but we need additional information to predict the direction of the change
E) no one can predict what will happen

Question 50

Refer to Figure 17-2.If the dollar price of the guilder is $0.70,we would expect

A) Dutch exports to be very attractive to Americans
B) a recession in the United States
C) a decrease in the exchange rate until it achieves equilibrium at $0.50 per guilder
D) the demand curve for guilders to shift to the right
E) the supply of guilders curve to shift to the left.

Question 51

Suppose that equilibrium in the dollar-pound market occurs where 300 million pounds are demanded at a price of $1.65 per pound.If the current exchange rate is $1.80 per pound,there is will be a(n)

A) rightward movement along the supply of British pounds curve
B) leftward movement along the supply of British pounds curve
C) rightward shift of the supply of British pounds curve
D) leftward shift of the supply of British pounds curve
E) increase in the exchange rate

Question 52

Which of the following would lead to an increase in the supply of Russian rubles?

A) An increase in the dollar price of the ruble
B) An increase in Russian GDP
C) An increase in the U.S.price level relative to the Russian price level
D) A decrease in the dollar-ruble exchange rate
E) Expectation that the price of the ruble will rise.

Question 53

If U.S.goods became less desirable to the British,there would be

A) a rightward movement along the supply of British pounds curve in the dollar-pound market
B) a leftward movement along the supply of British pounds curve in the dollar-pound market
C) a rightward shift of the supply of British pounds curve in the dollar-pound market
D) a leftward shift of the supply of British pounds curve in the dollar-pound market
E) no change in the supply of British pounds curve in the dollar-pound market

Question 54

If the exchange rate (dollars per unit of foreign currency)has increased,we say there has been a(n)

A) appreciation of the foreign currency
B) depreciation of the foreign currency
C) revaluation of the foreign currency
D) devaluation of the foreign currency
E) fixing of the foreign currency

Question 55

If there is an excess supply of Tunisian dinars at a given exchange rate,what will lead the market into an equilibrium?

A) Finding themselves unable to buy all the dinars they want to buy,buyers will accept a lower price.
B) Finding themselves unable to buy all the dinars they want to buy,sellers will offer a lower price.
C) Finding themselves unable to sell all the dinars they want to sell,sellers accept a higher price.
D) Finding themselves unable to buy all the dinars they want to buy,buyers offer a higher price.
E) Finding themselves unable to sell all the dinars they want to sell,sellers accept a lower price.

Question 56

If newspaper headlines detailed an increased American interest in British goods,which of the following would we expect to observe in the market for pounds?

A) An increase in supply,a depreciation of the pound,and a larger number of pounds traded
B) An increase in demand,a depreciation of the pound,and a smaller number of pounds traded
C) An increase in demand,an appreciation of the pound,and a larger number of pounds traded
D) A decrease in demand,a depreciation of the pound,and a smaller number of pounds traded
E) A decrease in supply,an appreciation of the pound,and a smaller number of pounds traded.

Question 57

If Americans buy 100 million British pounds at an equilibrium exchange rate of $2 per pound,how many dollars are they supplying?

A) $2 million
B) $50 million
C) $2
D) $200 million
E) $100 million

Question 58

If Mexico's GDP drops,which of the following will happen in the market for pesos?

A) A rightward shift of the supply curve,a depreciation of the peso,and a larger number of pesos traded
B) A rightward shift of the demand curve,a depreciation of the peso,and a smaller number of pesos traded
C) A rightward shift of the demand curve,an appreciation of the peso,and a larger number of pesos traded
D) A leftward shift of the demand curve,a depreciation of the peso,and a smaller number of pesos traded
E) A leftward shift of the supply curve,an appreciation of the peso,and a smaller number of pesos traded.

Question 59

If the exchange rate (dollars per unit of foreign currency)has decreased because of a shift of the supply curve,the demand curve,or both,we say there has been a(n)

A) appreciation of the foreign currency
B) depreciation of the foreign currency
C) revaluation of the foreign currency
D) devaluation of the foreign currency
E) fixing of the foreign currency

Question 60

If the demand for British pounds decreases,

A) the equilibrium price of the pound will increase
B) the equilibrium price of the pound will decrease
C) the equilibrium price of the pound will not change
D) the equilibrium price of the pound will change,but we need additional information to predict the direction of the change
E) no one can predict what will happen

Question 61

If the U.S.interest rate falls while the British interest rate remains constant,which of the following will happen in the market for pounds?

A) A rightward shift of the demand curve,a leftward shift of the supply curve,and an appreciation of the pound
B) A leftward shift of the demand curve,a rightward shift of the supply curve,and an appreciation of the pound
C) A leftward shift of the demand curve,a leftward shift of the supply curve,and a depreciation of the pound
D) A rightward shift of the demand curve,a rightward shift of the supply curve,and an appreciation of the pound
E) A leftward shift of the demand curve,a rightward shift of the supply curve,and a depreciation of the pound.

Question 62

Suppose the same basket of goods costs $100 in the U.S.and 50 pounds in Britain.According to purchasing power parity,if the two countries' price levels do not change,what will be the exchange rate?

A) 2 dollars/pound
B) 4 dollars/pound
C) 5 dollars/pound
D) 0.50 dollars/pound
E) 50 dollars/pound

Question 63

Suppose the same basket of goods costs $200 in the U.S.and 100 pounds in Britain and that the exchange rate is $3 per pound.According to purchasing power parity,if the two countries' price levels do not change,what will happen to exchange rate?

A) The pound would appreciate until the exchange rate reaches $3 per pound.
B) The pound would depreciate until the exchange rate reaches $2 per pound.
C) The pound would depreciate until the exchange rate reaches $0.50 per pound.
D) The dollar price of a pound would remain at $10.
E) The pound would appreciate until the exchange rate reaches $4 per pound.

Question 64

If there is an increased interest in U.S.goods by Indian consumers,which of the following will happen in the market for Indian rupees?

A) A rightward shift of the supply curve,a depreciation of the rupee,and a larger number of rupees traded
B) A rightward shift of the demand curve,a depreciation of the rupee,and a smaller number of rupees traded
C) A rightward shift of the demand curve,an appreciation of the rupee,and a larger number of rupees traded
D) A leftward shift of the demand curve,a depreciation of the rupee,and a smaller number of rupees traded
E) A leftward shift of the supply curve,an appreciation of the rupee,and a smaller number of rupees traded.

Question 65

If the U.S.inflation rate is 3 percent annually and the Swiss inflation rate is 5 percent annually,by what percent would the dollar price of francs need to change according to purchasing power parity?

A) Depreciate by 5 percent
B) Appreciate by 3 percent
C) Appreciate by 5 percent
D) Depreciate by 2 percent
E) Appreciate by 2 percent.

Question 66

Which of the following describes the purchasing power parity theory of exchange rate determination?

A) The exchange rate will adjust in the long run until the interest rate is roughly the same in both countries.
B) The exchange rate will adjust in the long run until real GDP per capita is roughly the same in both countries.
C) The exchange rate will adjust in the long run until the average price of goods is roughly the same in both countries.
D) The exchange rate will adjust in the short run until the average price of goods is roughly the same in both countries.
E) Prices adjust in the short run until the exchange rate is roughly the same in both countries.

Question 67

In the long run,the currency of a country with a higher inflation rate will depreciate against the currency of a country with a lower inflation rate.

Question 68

For which of the following would purchasing power parity have the least relevance?

A) Pens
B) Toothpicks
C) Paper clips
D) Pencils
E) Shoe shines.

Question 69

In the long run,exchange rates

A) are determined by business cycle fluctuations
B) are determined by movements of hot money
C) will adjust until the price of a bundle of goods is the same in both countries
D) will reflect economic fluctuations in both countries
E) are still a mystery to most economists

Question 70

If U.S.GDP drops and South Korean GDP remains unchanged,which of the following will happen in the Korean won market?

A) A rightward shift of the supply curve,a depreciation of the won,and a larger number of won traded
B) A rightward shift of the demand curve,a depreciation of the won,and a smaller number of won traded
C) A rightward shift of the demand curve,an appreciation of the won,and a larger number of won traded
D) A leftward shift of the demand curve,a depreciation of the won,and a smaller number of won traded
E) A leftward shift of the supply curve,an appreciation of the won,and a smaller number of won traded.

Question 71

A reliable indicator of a healthy economy is an appreciating currency.

Question 72

The dominant forces causing changes in exchange rates in the very short run are

A) changes in relative interest rates
B) changing expectations regarding future exchange rates
C) economic fluctuations
D) the erratic spending patterns of tourists
E) changes in relative interest rates and in expectations of future exchange rates

Question 73

If the U.S.inflation rate falls relative to the Mexican inflation rate,which of the following will happen in the market for pesos?

A) A rightward shift of the demand curve,a leftward shift of the supply curve,and an appreciation of the peso
B) A leftward shift of the demand curve,a rightward shift of the supply curve,and an appreciation of the peso
C) A leftward shift of the demand curve,a leftward shift of the supply curve,and a depreciation of the peso
D) A rightward shift of the demand curve,a rightward shift of the supply curve,and an appreciation of the peso
E) A leftward shift of the demand curve,a rightward shift of the supply curve,and a depreciation of the peso.

Question 74

An appreciating currency is always a sign of economic health.

Question 75

Which of the following determines the exchange rate between two currencies in the long run?

A) Relative interest rates
B) Relative output levels
C) Expectations of future exchange rates
D) Relative price levels
E) Expectations of future interest rates.

Question 76

In the long run,if the inflation rate is positive,a currency depreciates to maintain purchasing power parity.

Question 77

In the short run,movements in exchange rates are caused largely by economic fluctuations.

Question 78

If there is a strong possibility that the dollar price of the Japanese yen will fall in the next few months,which of the following would we expect to happen right now in the market for yen?

A) A rightward shift of the demand curve,a leftward shift of the supply curve,and an appreciation of the yen
B) A leftward shift of the demand curve,a rightward shift of the supply curve,and an appreciation of the yen
C) A leftward shift of the demand curve,a leftward shift of the supply curve,and a depreciation of the yen
D) A rightward shift of the demand curve,a rightward shift of the supply curve,and an appreciation of the yen
E) A leftward shift of the demand curve,a rightward shift of the supply curve,and a depreciation of the yen.

Question 79

The most dramatic and rapid increases and decreases in exchange rates occur in the

A) very short run
B) short run
C) long run
D) very long run
E) triangular arbitrage market

Question 80

A reliable indicator of a healthy economy is a stable currency.