Deck 15: Open Economy Macroeconomics

Question 1

Everything else being equal,when the domestic currency appreciates against a foreign currency,________.

A) the nominal exchange rate goes up
B) the nominal exchange rate goes down
C) there is no change in the nominal exchange rate
D) there is no change in the real exchange rate

Answer 1

the nominal exchange rate goes up

Question 2

Assuming that 1 dollar trades for 50 rupees,what is the dollar cost of 750 rupees?

A) $5
B) $15
C) $50
D) $75

Answer 2

$15

Question 3

One dollar could be exchanged for 55 rupees in 2013 and for 60 rupees in 2014.This implies that the ________.

A) dollar appreciated in 2014
B) rupee appreciated in 2014
C) nominal exchange rate did not change in 2014
D) real exchange rate did not change in 2014

Answer 3

dollar appreciated in 2014

Question 4

If 1,000 British pounds buy more U.S.dollars today than they did yesterday,then the British pound has ________ and the U.S.dollar has ________.

A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated

Question 5

Which of the following situations illustrates a definite depreciation of the U.S.dollar?

A) The dollar exchanged for 200 yuan yesterday, and today it exchanges for 250 yuan.
B) The dollar exchanged for 200 yuan yesterday, and today it exchanges for 150 yen.
C) The dollar exchanged for 200 yuan yesterday, and today it exchanges for 250 yen.
D) The dollar exchanged for 200 yuan yesterday, and today it exchanges for 150 yuan.

Question 6

If the United States sells airplanes to Japan,the U.S.airplane manufacturers are paid with ________.

A) yen, the Japanese currency
B) dollars
C) international monetary credits
D) euros or another third-party currency

Question 7

Assume that at the beginning of 2012,1 dollar could be traded for 5 yuan.If in 2013,1 dollar was being traded for 6 yuan,it can be concluded that ________.

A) the dollar depreciated against the yuan and the yuan appreciated against the dollar in 2013
B) the dollar appreciated against the yuan and the yuan depreciated against the dollar in 2013
C) the nominal exchange rate did not change in 2013
D) the real exchange rate changed in 2013, assuming PPP holds

Question 8

The nominal exchange rate is the ________.

A) ratio of imports to exports
B) interest rate charged on international capital flows
C) price of domestic currency in terms of foreign currency
D) ratio of prices of domestic goods to prices of foreign goods

Question 9

A decrease in the value of the domestic currency in terms of the foreign currency means that ________.

A) the domestic currency has appreciated and the nominal exchange rate has risen
B) the domestic currency has depreciated and the nominal exchange rate has risen
C) the foreign currency has appreciated and the nominal exchange rate has fallen
D) the foreign currency has depreciated and the nominal exchange rate has fallen

Question 10

Last year the exchange rate between the U.S.dollar and the euro was 0.89.Today the exchange rate is 0.92.We can say that the dollar has ________ against the euro and the euro has ________ against the U.S.dollar.

A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated

Question 11

If 60 pesos can be exchanged for $5 in the foreign exchange market,which of the following represents the nominal exchange rate between the two currencies?

A) 12 dollars for 1 peso
B) 1 dollar for 12 pesos
C) 5 pesos for 1 dollar
D) 1 dollar for 60 pesos

Question 12

When Walmart sells toys imported from China,________.

A) the U.S. consumers pay in yuan, while the workers who produce the toys are paid in dollars
B) the U.S. consumers pay in dollars, while the workers who produce the toys are paid in yuan
C) the U.S. consumers pay in yuan, and the workers who produce the toys are also paid in yuan
D) the U.S. consumers pay in dollars, and the workers who produce the toys are also paid in dollars

Question 13

Everything else being equal,when the domestic currency depreciates against a foreign currency,________.

A) the nominal exchange rate goes up
B) the nominal exchange rate goes down
C) there is no change in the nominal exchange rate
D) there is no change in the real exchange rate

Question 14

The nominal exchange rate is a price.

Question 15

An increase in the value of the domestic currency in terms of the foreign currency means that ________.

A) the domestic currency has appreciated and the nominal exchange rate has risen
B) the domestic currency has depreciated and the nominal exchange rate has fallen
C) the domestic currency has appreciated and the nominal exchange rate has fallen
D) the domestic currency has depreciated and the nominal exchange rate has risen

Question 16

A decrease in the value of the domestic currency in terms of the foreign currency means that ________.

A) the domestic currency has appreciated and the nominal exchange rate has risen
B) the domestic currency has depreciated and the nominal exchange rate has fallen
C) the domestic currency has appreciated and the nominal exchange rate has fallen
D) the domestic currency has depreciated and the nominal exchange rate has risen

Question 17

The ________ rate is the price of one country's currency in units of another country's currency.

A) nominal exchange
B) real exchange
C) reverse repo
D) discount rate

Question 18

Which of the following equations correctly represents the nominal exchange rate?

A) Nominal exchange rate = Units of foreign currency/1 unit of domestic currency
B) Nominal exchange rate = Units of foreign currency/100 units of domestic currency
C) Nominal exchange rate = 1 unit of domestic currency/100 units of foreign currency
D) Nominal exchange rate = 100 units of domestic currency/1 unit of foreign currency

Question 19

If a firm in the United States wants to purchase 50,000 yuan worth of raw materials from a Chinese firm,how many dollars would it have to transfer to the firm? Assume that 1 dollar exchanges for 6 yuan in the foreign exchange market.

A) $6,773.21
B) $7,500
C) $8,333.33
D) $9,663.22

Question 20

An increase in the value of the foreign currency in terms of the domestic currency means that ________.

A) the domestic currency has appreciated and the nominal exchange rate has fallen
B) the domestic currency has depreciated and the nominal exchange rate has risen
C) the foreign currency has appreciated and the nominal exchange rate has risen
D) the foreign currency has appreciated and the nominal exchange rate has fallen

Question 21

Which of the following is true of a country with a managed exchange rate system?

A) The central bank of the country actively intervenes to influence the exchange rate.
B) The central bank of the country always pursues a contractionary monetary policy.
C) The current account balance of the country is always positive.
D) The current account balance of the country is always negative.

Question 22

The yuan-per-dollar exchange rate was constant at 8.28 yuan per dollar from ________.

A) 1990 to 2000
B) 1950 to 2005
C) 1998 to 2005
D) 1998 to 2007

Question 23

The Chinese government allowed the U.S.dollar to depreciate against the yuan during ________ and to appreciate against the yuan since ________.

A) 1998-2005; 2005
B) 1998-2005; 2009
C) 2005-2008; 2009
D) 2005-2008; 2014

Question 24

The following table shows the exchange rate between several foreign currencies and the U.S. dollar.

Refer to the table above.Between May 2016 and May 2017,the U.S.dollar has ________ against the euro,the yuan has ________ against the U.S.dollar,and the British pound has ________ against the U.S.dollar.

A) appreciated; appreciated; depreciated
B) depreciated; appreciated; depreciated
C) appreciated; depreciated; appreciated
D) appreciated; depreciated; depreciated

Question 25

The yuan-dollar exchange rate is currently ________.

A) flexible
B) fixed
C) managed
D) floating

Question 26

The following table shows the exchange rate between several foreign currencies and the U.S. dollar.

Refer to the table above.Between May 2016 and May 2017,the U.S.dollar has ________ against the euro and ________ against the yen.

A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated

Question 27

Assume that the yuan-dollar nominal exchange rate at the beginning of 2012 was 4 yuan per dollar and at the beginning of 2013 was 6 yuan per dollar.Given this information,identify the currency that appreciated and the currency that depreciated over 2012.

Question 28

The government of country A has decided to maintain an exchange rate of 1 unit of its currency for 6 U.S.dollars in the long run.Country A can be said to have a ________.

A) nominal exchange rate system
B) fully flexible exchange rate system
C) fixed exchange rate system
D) managed exchange rate system

Question 29

In a flexible exchange rate system,the government ________.

A) does not actively intervene to influence the exchange rate
B) has to intervene occasionally, but less than it would in a managed exchange rate system
C) intervenes often to influence the exchange rate, but less than it would in a managed exchange rate system
D) intervenes often to influence the exchange rate

Question 30

The following table shows the exchange rate between several foreign currencies and the U.S. dollar.

Refer to the table above.Between May 2016 and May 2017,the U.S.dollar has ________ against the British pound,and the yen has ________ against the U.S.dollar.

A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated

Question 31

A flexible exchange rate is also referred to as a(n)________.

A) open market exchange rate
B) nominal exchange rate
C) liquid exchange rate
D) floating exchange rate

Question 32

The main difference between a flexible and a fixed exchange rate system is that the flexible exchange rate ________.

A) varies constantly, while the fixed exchange rate is never constant
B) can sometimes be constant, but the fixed exchange rate is always constant
C) can sometimes be constant, but the fixed exchange rate is never constant
D) varies constantly, while the fixed exchange rate is always constant

Question 33

The government of a country sets its long-run exchange rate and intervenes regularly in the foreign exchange market to keep the exchange rate at its fixed level.The country is most likely to have a ________.

A) floating exchange rate system
B) real exchange rate system
C) fixed exchange rate system
D) dirty-float exchange rate system

Question 34

Which of the following statements is true?
i.The flexible and the floating exchange rate systems are equivalent.
ii.The fixed and managed exchange rate systems are equivalent.

A) i) and ii) are both true
B) i) is false and ii) is true
C) i) is true and ii) is false
D) i) and ii) are both false

Question 35

If a toy costs 30 yuan in China,how much will it cost in dollars,if the exchange rate is 6 yuan per dollar?

Question 36

The Chinese government kept the yuan-per-dollar exchange rate fixed from 1998 until 2015.

Question 37

Rank each exchange system according to the amount of government intervention needed (from highest to lowest).

A) Flexible exchange rate followed by managed exchange rate followed by fixed exchange rate
B) Managed exchange rate followed by flexible exchange rate followed by fixed exchange rate
C) Fixed exchange rate followed by managed exchange rate followed by flexible exchanged rate
D) Managed exchange rate followed by fixed exchange rate followed by flexible exchange rate

Question 38

If the government of a country does not intervene in the foreign exchange market,then the country is said to have a ________.

A) nominal exchange rate system
B) managed exchange rate system
C) flexible exchange rate system
D) fixed exchange rate system

Question 39

The following table shows the exchange rate between several foreign currencies and the U.S. dollar.

Refer to the table above.Between May 2016 and May 2017,the U.S.dollar has ________ against the yuan and has ________ against the British pound,and the yen has ________ against the U.S.dollar.

A) appreciated; appreciated; depreciated
B) depreciated; appreciated; depreciated
C) appreciated; depreciated; appreciated
D) appreciated; depreciated; depreciated

Question 40

If the euro was exchanging for 1.09 U.S.dollars and now it is exchanging for 1.11 U.S.dollars,we can say that ________.

A) the U.S. dollar has depreciated against the euro
B) the U.S. dollar has appreciated against the euro
C) the euro has depreciated against the U.S. dollar
D) both answers B and C are correct

Question 41

Which of the following is most likely to cause a rightward shift of the demand curve for dollars in exchange for the Chinese yuan?

A) An increase in the demand for U.S. products in China
B) A decrease in the demand for U.S. products in China
C) An increase in the demand for Chinese products in the United States
D) A decrease in the demand for Chinese products in the United States

Question 42

In the foreign exchange market,the lower the exchange rate is,________ will be.

A) the higher the demand for dollars
B) the higher the supply of dollars
C) the higher the quantity of dollars demanded
D) the higher the quantity of dollars supplied

Question 43

The dollar demand curve in the foreign exchange market is ________.

A) vertical
B) horizontal
C) upward-sloping
D) downward-sloping

Question 44

Everything else being equal,an appreciation of the dollar against the yuan ________.

A) will not affect the quantity of dollars demanded
B) will lead to an increase in the quantity of dollars demanded
C) will lead to a decrease in the quantity of dollars demanded
D) can either lead to an increase or a decrease in the quantity of dollars demanded, depending on the magnitude of the appreciation

Question 45

Briefly state one of the reasons that would make a country want to adopt a fixed exchange rate system.

Question 46

Which of the following is most likely to cause a leftward shift of the demand curve for the Chinese yuan in exchange for the U.S.dollar?

A) An increase in the demand for U.S. products in China
B) A decrease in the demand for U.S. products in China
C) An increase in the demand for Chinese products in the United States
D) A decrease in the demand for Chinese products in the United States

Question 47

Everything else being equal,a decrease in the supply of dollars in exchange for pesos will cause the dollar ________ the quantity of dollars being traded in the foreign exchange market.

A) to appreciate against the peso and will decrease
B) to depreciate against the peso and will decrease
C) to appreciate against the peso and will increase
D) to depreciate against the peso and will increase

Question 48

Everything else being equal,an appreciation of the dollar against the yuan ________.

A) will not affect the quantity of dollars supplied in the foreign exchange market
B) will lead to an increase in the quantity of dollars supplied in the foreign exchange market
C) will lead to a decrease in the quantity of dollars supplied in the foreign exchange market
D) can either lead to an increase or a decrease in the quantity of dollars demanded depending on the magnitude of the appreciation

Question 49

In the foreign exchange market,the higher the exchange rate is,________ will be.

A) the lower the demand for dollars
B) the higher the supply of dollars
C) the lower the quantity of dollars demanded
D) the lower the quantity of dollars supplied

Question 50

Everything else being equal,an increase in the demand for dollars in exchange for pesos will cause the dollar ________ the quantity of dollars being traded in the foreign exchange market.

A) to appreciate against the peso and will decrease
B) to depreciate against the peso and will decrease
C) to appreciate against the peso and will increase
D) to depreciate against the peso and will increase

Question 51

Differentiate between a managed exchange rate and a fixed exchange rate.

Question 52

What is the foreign exchange market?

Question 53

The supply curve of dollars in the foreign exchange market is ________.

A) vertical
B) horizontal
C) downward-sloping
D) upward-sloping

Question 54

The following figure shows the demand and supply curve for dollars against the rupee.

Refer to the figure above.The equilibrium quantity of dollars traded is ________.

A) $50
B) $100
C) $300
D) $650

Question 55

Everything else being equal,a depreciation of the dollar against the yuan ________.

A) will not affect the quantity of dollars supplied in the foreign exchange market
B) will lead to an increase in the quantity of dollars supplied in the foreign exchange market
C) will lead to a decrease in the quantity of dollars supplied in the foreign exchange market
D) can either lead to an increase or a decrease in the quantity of dollars supplied, depending on the magnitude of the depreciation

Question 56

What will be the likely impact of an increase in the demand for U.S.goods in Mexico on the demand for dollars and the exchange rate between dollars and pesos?

Question 57

The demand for dollars slopes downward because as the dollar appreciates,________,which leads to fewer dollars being demanded.

A) the exchange rate rises and exported goods become more expensive
B) the exchange rate falls and exported goods become less expensive
C) the exchange rate rises and exported goods become less expensive
D) the exchange rate falls and exported goods become more expensive

Question 58

The following figure shows the demand and supply curve for dollars against the rupee.

Refer to the figure above.The equilibrium exchange rate in this case is ________.

A) 20 rupees per dollar
B) 40 rupees per dollar
C) 80 rupees per dollar
D) 130 rupees per dollar

Question 59

Everything else being equal,a depreciation of the dollar against the yuan ________.

A) will not affect the quantity of dollars demanded
B) will lead to an increase in the quantity of dollars demanded
C) will lead to a decrease in the quantity of dollars demanded
D) can either lead to an increase or a decrease in the quantity of dollars demanded, depending on the magnitude of the depreciation

Question 60

In the foreign exchange market,the higher the exchange rate is,________ will be.

A) the higher the demand for dollars
B) the higher the supply of dollars
C) the higher the quantity of dollars demanded
D) the higher the quantity of dollars supplied

Question 61

If an overvalued currency is allowed to float,________.

A) its value will appreciate relative to other currencies
B) its value will depreciate relative to other currencies
C) its quantity supplied in exchange for other currencies will increase
D) its quantity demanded in exchange for other currencies will decrease

Question 62

If a country wants to keep a foreign currency undervalued against its domestic currency,________.

A) it will buy both the foreign and the domestic currency
B) it will sell both the foreign and the domestic currency
C) it will buy the domestic currency and sell the foreign currency
D) it will buy the foreign currency and sell the domestic currency

Question 63

If a country wants to keep its domestic currency overvalued against a foreign currency,________.

A) it will buy both the foreign and the domestic currency
B) it will sell both the foreign and the domestic currency
C) it will buy the domestic currency and sell the foreign currency
D) it will buy the foreign currency and sell the domestic currency

Question 64

When a country announces a target exchange rate,________.

A) currencies will be traded at the target exchange rate in the foreign exchange market
B) there will be a permanent surplus of dollars in the foreign exchange market
C) there will be a permanent shortage of dollars in the foreign exchange market
D) there will be no effect on the equilibrium exchange rate in the foreign exchange market

Question 65

The following figure shows the equilibrium in the foreign exchange market where dollars are exchanged for yuan.

Refer to the figure above.If the yuan is allowed to float,at exchange rates above E yuan per dollar,________ the value of the dollar in the foreign exchange market.

A) the excess demand for dollars in exchange for yuan increases
B) the excess demand for dollars in exchange for yuan lowers
C) the excess supply of dollars in exchange for yuan increases
D) the excess supply of dollars in exchange for yuan lowers

Question 66

The following figure shows the equilibrium in the foreign exchange market where dollars are exchanged for yuan.

Refer to the figure above.If the yuan is allowed to float,at exchange rates below E yuan per dollar,________ the value of the dollar in the foreign exchange market.

A) the excess demand for dollars in exchange for yuan increases
B) the excess demand for dollars in exchange for yuan lowers
C) the excess supply of dollars in exchange for yuan increases
D) the excess supply of dollars in exchange for yuan lowers

Question 67

If an undervalued currency is allowed to float,________.

A) its value will appreciate relative to other currencies
B) its value will depreciate relative to other currencies
C) its quantity supplied in exchange for other currencies will decrease
D) its quantity demanded in exchange for other currencies will increase

Question 68

The following figure shows the equilibrium in the foreign exchange market where dollars are exchanged for yuan.

Refer to the figure above.If the exchange rate is fixed below E yuan per dollar,________.

A) both the yuan and the dollar are overvalued
B) both the yuan and the dollar are undervalued
C) the dollar is overvalued and the yuan is undervalued
D) the dollar is undervalued and the yuan is overvalued

Question 69

If a country wants to keep a foreign currency overvalued against its domestic currency,________.

A) it will buy both the foreign and the domestic currency
B) it will sell both the foreign and the domestic currency
C) it will buy the domestic currency and sell the foreign currency
D) it will buy the foreign currency and sell the domestic currency

Question 70

The following figure shows the equilibrium in the foreign exchange market where dollars are exchanged for yuan.

Refer to the figure above.If the government of China wants to peg the exchange rate above E yuan per dollar,________.

A) it will have to sell both dollars and yuan
B) it will have to buy both dollars and yuan
C) it will have to buy dollars and sell yuan
D) it will have to buy yuan and sell dollars

Question 71

When a currency is undervalued relative to the dollar,then its exchange rate with respect to the dollar is ________.

A) at the equilibrium
B) above the equilibrium
C) below the equilibrium
D) said to be flexible

Question 72

When a currency is overvalued relative to the dollar,then its exchange rate with respect to the dollar is ________.

A) at the equilibrium
B) above the equilibrium
C) below the equilibrium
D) said to be flexible

Question 73

Which of the following is likely to occur when the U.S.dollar is undervalued relative to the peso?

A) There will be an excess supply of dollars at the pegged exchange rate in the foreign exchange market.
B) The net exports of Mexico will increase.
C) The demand for dollars in exchange for pesos will exceed the supply of dollars in exchange for pesos.
D) The dollar will depreciate against the peso.

Question 74

Under a flexible exchange rate system,the equilibrium exchange rate is established by ________.

A) the government
B) the foreign exchange market
C) the monetary authority
D) the foreign goods market

Question 75

The following figure shows the equilibrium in the foreign exchange market where dollars are exchanged for yuan.

Refer to the figure above.If the exchange rate is fixed above E yuan per dollar,________.

A) both the yuan and the dollar are overvalued
B) both the yuan and the dollar are undervalued
C) the dollar is overvalued and the yuan is undervalued
D) the dollar is undervalued and the yuan is overvalued

Question 76

If a currency is said to be undervalued relative to the dollar,then the dollar is understood to be worth ________.

A) more of that currency than it would have been under a fixed exchange rate regime
B) less of that currency than it would have been under a fixed exchange rate regime
C) more of that currency than it would have been under a managed exchange rate regime
D) more of that currency than it would have been under a flexible exchange rate regime

Question 77

The supply of dollars slopes upward because as the dollar appreciates,________.

A) the exchange rate rises and imported goods become more expensive, which leads to more dollars being supplied
B) the exchange rate falls and imported goods become less expensive, which leads to more dollars being supplied
C) the exchange rate rises and imported goods become less expensive, which leads to more dollars being supplied
D) the exchange rate falls and imported goods become more expensive, which leads to fewer dollars being demanded

Question 78

The following figure shows the equilibrium in the foreign exchange market where dollars are exchanged for yuan.

Refer to the figure above.If the government of China wants to keep the exchange rate below E yuan per dollar,________.

A) it will have to sell both dollars and yuan
B) it will have to buy both dollars and yuan
C) it will have to buy dollars and sell yuan
D) it will have to buy yuan and sell dollars

Question 79

If a currency is said to be overvalued relative to the dollar,then the dollar is understood to be worth ________.

A) more of that currency than it would have been under a fixed exchange rate regime
B) less of that currency than it would have been under a fixed exchange rate regime
C) less of that currency than it would have been under a managed exchange rate regime
D) less of that currency than it would have been under a flexible exchange rate regime

Question 80

Which of the following is likely to occur when the U.S.dollar is overvalued relative to the peso?

A) There will be an excess supply of dollars at the pegged exchange rate in the foreign exchange market.
B) The net exports of Mexico will increase.
C) The demand for dollars in exchange for pesos will exceed the supply of dollars in exchange for pesos.
D) The dollar will depreciate against the peso.