Deck 20: International Finance

Question 1

Currency ___________ occurs when a currency decreases in value relative to other currencies.

A) apportionment
B) revaluation
C) depreciation
D) appreciation
E) representation

Answer 1

depreciation

Question 2

The following table shows the number of various foreign currencies required to buy a U.S. dollar on April 12, 2008, and April 12, 2013. Use this table to answer the next three questions:

On April 12,2008,a haircut in Japan cost 2,000 yen.Using the exchange rates in the above table,that haircut cost approximately ____________ U.S.dollars or ____________ Australian dollars.

A) 19.70; 21.15
B) 20.08; 19.03
C) 203,080.00; 189,140.36
D) 21.15; 2,147.40
E) 9.82; 10.54

Answer 2

19.70; 21.15

Question 3

The following table shows the number of euros required to buy one U.S. Dollar between September 3, 2012, and April 1, 2013. Use this table to answer the next two questions:

Between February 1,2013,and April 1,2013,the U.S.dollar ___________ against the euro,and the euro _________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; neither appreciated nor depreciated
E) appreciated; neither appreciated nor depreciated

Answer 3

appreciated; depreciated

Question 4

The following table shows the number of U.S. dollars required to buy one euro between September 3, 2012, and April 1, 2013. Use this table to answer the next three questions:

Between September 3,2012,and February 1,2013,the U.S.dollar __________ against the euro,and the euro ____________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; neither appreciated nor depreciated
E) appreciated; neither appreciated nor depreciated

Question 5

If the U.S.dollar ____________,it becomes _____________ valuable in world markets.

A) appreciates; less
B) depreciates; less
C) depreciates; more
D) is indexed; less
E) is indexed; more

Question 6

The following table shows the number of U.S. dollars required to buy one euro between September 3, 2012, and April 1, 2013. Use this table to answer the next three questions:

Between February 1,2013,and April 1,2013,the U.S.dollar ___________ against the euro,and the euro ____________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; neither appreciated nor depreciated
E) appreciated; neither appreciated nor depreciated

Question 7

The euro is an unusual currency because:

A) euro coins are made of 100% gold.
B) it is the only other currency besides dollars that is issued solely by the United States Federal Reserve Bank.
C) euros cannot be exchanged for Mexican pesos.
D) euros are used by more than 20 countries in Europe.
E) a euro coin turns bright pink if it is used in an illegal transaction.

Question 8

The following table shows the number of various foreign currencies required to buy a U.S. dollar on April 12, 2008, and April 12, 2013. Use this table to answer the next three questions:

Between April 12,2008,and April 12,2013,the price of a U.S.postage stamp increased from $0.41 to $0.46.The price of a U.S.postage stamp has increased approximately ____________ in terms of Japanese yen and _____________ in terms of British pounds.

A) 10%; 10%
B) 10%; 44%
C) 0%; 44%
D) 0%; 28%
E) 9%; 31%

Question 9

The following table shows the number of various foreign currencies required to buy a U.S. dollar on April 12, 2008, and April 12, 2013. Use this table to answer the next three questions:

Between April 12,2008,and April 12,2013,the U.S.dollar appreciated against the:

A) Australian dollar.
B) Canadian dollar.
C) Swiss franc.
D) Japanese yen.
E) British pound.

Question 10

The following table shows the number of U.S. dollars required to buy one British pound between September 3, 2012, and April 1, 2013. Use this table to answer the next five questions:

Between October 1,2012,and November 1,2012,the U.S.dollar __________ against the British pound,and the British pound ___________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; neither appreciated nor depreciated
E) neither appreciated nor depreciated; neither appreciated nor depreciated

Question 11

If the U.S.dollar ____________,it becomes ___________ valuable in world markets.

A) depreciates; more
B) is indexed; less
C) appreciates; less
D) is indexed; more
E) appreciates; more

Question 12

Currency ___________ occurs when a currency increases in value relative to other currencies.

A) devaluation
B) dismissal
C) depreciation
D) appreciation
E) representation

Question 13

The following table shows the number of U.S. dollars required to buy one British pound between September 3, 2012, and April 1, 2013. Use this table to answer the next five questions:

On March 1,2013,the price of a surfboard was 1,200 U.S.dollars in La Jolla,California.Based on the exchange rates quoted in the table,a surfboard was approximately __________ British pounds.

A) 1,931
B) 1,950
C) 1,883
D) 1,805
E) 798

Question 14

If a currency becomes ____________ valuable in world markets,then its price rises,and this increase is called ____________.

A) less; an appreciation
B) less; a disaggregation
C) more; an appreciation
D) more; an aggregation
E) more; a speculation

Question 15

The following table shows the number of U.S. dollars required to buy one British pound between September 3, 2012, and April 1, 2013. Use this table to answer the next five questions:

Between January 1,2013,and March 1,2013,the U.S.dollar ___________ against the British pound,and the British pound ___________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) appreciated; appreciated
D) depreciated; neither appreciated nor depreciated
E) neither appreciated nor depreciated; neither appreciated nor depreciated

Question 16

The following table shows the number of euros required to buy one U.S. Dollar between September 3, 2012, and April 1, 2013. Use this table to answer the next two questions:

Between November 1,2012,and January 1,2013,the U.S.dollar ___________ against the euro,and the euro ___________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; neither appreciated nor depreciated
E) appreciated; neither appreciated nor depreciated

Question 17

The following table shows the number of U.S. dollars required to buy one British pound between September 3, 2012, and April 1, 2013. Use this table to answer the next five questions:

On November 1,2012,the price of a skateboard at JJ's Beach Shop was 120 U.S.dollars in La Jolla,California.On April 1,2013,the price of a skateboard was 130 U.S.dollars.Using the exchange rates in the table,between November 1,2012,and April 1,2013,the price of a skateboard at JJ's Beach Shop increased by approximately ___________ in terms of U.S.dollars and ____________ in terms of British pounds.(Round the British pound price two decimal points and the percentage changes to the first decimal point.)

A) 7.7%; 2.3%
B) 7.7%; 12.8%
C) 8.3%; 2.3%
D) 8.3%; 14.7%
E) 8.3%; 7.7%

Question 18

The following table shows the number of U.S. dollars required to buy one British pound between September 3, 2012, and April 1, 2013. Use this table to answer the next five questions:

Between February 1,2013,and March 1,2013,the U.S.dollar ____________ against the British pound,and the British pound ____________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; neither appreciated nor depreciated
E) appreciated; neither appreciated nor depreciated

Question 19

If a currency becomes ___________ valuable in world markets,then its price falls,and this decrease is called ____________.

A) more; an approximation
B) less; a depreciation
C) less; an appreciation
D) more; a depreciation
E) more; an appreciation

Question 20

The following table shows the number of U.S. dollars required to buy one euro between September 3, 2012, and April 1, 2013. Use this table to answer the next three questions:

Between November 1,2012,and January 1,2013,the U.S.dollar ____________ against the euro and the euro ___________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; neither appreciated nor depreciated
E) appreciated; neither appreciated nor depreciated

Question 21

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between January 1, 2013, and April 1, 2013. Use this table to answer the next seven questions:

Between January 1,2013,and February 1,2013:

A) the number of Japanese goods exported to the United States likely decreased because Japanese goods became more expensive to consumers in the United States.
B) the number of U.S.goods exported to Japan likely decreased because U.S.goods became less expensive to consumers in Japan.
C) the number of Mexican goods exported to the United States likely increased because the Mexican peso depreciated against the U.S.dollar.
D) the number of U.S.goods exported to Mexico likely did not change because the Mexican peso is pegged to the Japanese yen, but not to the U.S.dollar.
E) the number of Japanese goods exported to the United States likely increased because Japanese goods became less expensive to consumers in the United States.

Question 22

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between January 1, 2013, and April 1, 2013. Use this table to answer the next seven questions:

On February 1,2013,Samantha bought a yoga mat for 250 Mexican pesos in Playa del Carmen,Mexico.Because she only had Japanese yen,she needed to exchange her Japanese yen at a nearby money-exchange kiosk in order to get the 250 Mexican pesos she used for the purchase.The kiosk is able to buy and sell U.S.dollars,Mexican pesos,and Japanese yen at the exchange rates shown in the table.Approximately how much did the yoga mat cost Samantha in terms of Japanese yen?

A) 0.2136
B) 1,121
C) 3,151
D) 1,841
E) 292,609

Question 23

If interest rates fall in the United States relative to the rest of the world,the demand for U.S.dollars will ____________ because there is lesser demand for assets with ___________ returns.

A) decrease; higher
B) decrease; lower
C) increase; higher
D) increase; lower
E) increase; diminishing marginal

Question 24

The following table shows the number of U.S.dollars required to buy one British pound and the number of U.S.dollars required to buy one euro between September 3,2012,and April 1,2013:

Between January 1,2013,and February 1,2013,the U.S.dollar _____________ against the British pound,and the U.S.dollar ___________ against the euro.

A) neither appreciated nor depreciated; neither appreciated nor depreciated
B) depreciated; appreciated
C) appreciated; appreciated
D) depreciated; depreciated
E) appreciated; depreciated

Question 25

When demand for Canada's exports falls:

A) Canadian producers will sell more goods to foreigners.
B) the U.S.federal government will always respond by increasing U.S.tax rates.
C) the U.S.federal government will always respond by increasing U.S.exports.
D) demand of the Canadian dollar in the foreign exchange market falls.
E) supply of the Canadian dollar in the foreign exchange market rises.

Question 26

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between January 1, 2013, and April 1, 2013. Use this table to answer the next seven questions:

On March 1,2013,the price of a jar of pickles was 135 Mexican pesos at a supermarket in Juarez,Mexico.Based on the exchange rates quoted in the table,the price of the jar of pickles was approximately _____________ U.S.dollars.

A) 0.18
B) 10.58
C) 10.92
D) 1,669.14
E) 1,722.38

Question 27

The following table shows the number of British pounds required to buy one U.S. dollar between September 3, 2012, and April 1, 2013. Use this table to answer the next two questions:

Between February 1,2013,and March 1,2013,the U.S.dollar __________ against the British pound,and the British pound __________ against the U.S.dollar.

A) depreciated; appreciated
B) neither appreciated nor depreciated; neither appreciated nor depreciated
C) appreciated; depreciated
D) appreciated; appreciated
E) depreciated; depreciated

Question 28

If interest rates in Canada increase relative to the rest of the world,it means that (1) Canadian bonds will provide a ____________ return than previously and (2) ___________ for these bonds will _____________.

A) higher; supply; decrease
B) higher; supply; increase
C) higher; demand; increase
D) lower; demand; decrease
E) lower; demand; increase

Question 29

The following table shows the number of U.S.dollars required to buy one Mexican peso and the number of U.S.dollars required to buy one Australian dollar between January 1,2013,and April 1,2013:

Between March 1,2013,and April 1,2013,the U.S.dollar ____________ against the Mexican peso,and the U.S.dollar ____________ against the Australian dollar.

A) neither appreciated nor depreciated; neither appreciated nor depreciated
B) depreciated; appreciated
C) appreciated; appreciated
D) depreciated; depreciated
E) appreciated; depreciated

Question 30

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between January 1, 2013, and April 1, 2013. Use this table to answer the next seven questions:

On April 1,2013,the price of a 16-ounce can of mixed nuts was 135 Mexican pesos at a supermarket in Juarez,Mexico.Based on the exchange rates quoted in the table,the price of the 16-ounce can of mixed nuts was approximately ____________ U.S.dollars.

A) 0.18
B) 10.59
C) 10.92
D) 1,669.14
E) 1,722.38

Question 31

Which statement best describes the law of demand as it relates to currency markets?

A) The law of demand only applies to goods and services, not currency.
B) When the price of a Mexican peso in terms of a U.S.dollar decreases, U.S.consumers demand fewer Mexican pesos because Mexican goods become more expensive to American consumers.
C) When the price of Japanese yen in terms of a U.S.dollar decreases, U.S.consumers demand more Japanese dollars because Japanese goods become more expensive to American consumers.
D) When the price of a Canadian dollar in terms of a U.S.dollar increases, U.S.consumers demand fewer Canadian dollars because Canadian goods become more expensive to American consumers.
E) When the price of an Australian dollar in terms of a U.S.dollar increases, U.S.consumers demand more Australian dollars because Australian goods become less expensive to American consumers.

Question 32

The claim that the quantity of euros demanded by U.S.consumers will fall when the price of euros in terms of U.S.dollars rises is best referred to as:

A) the law of increasing marginal costs.
B) the hot-hand fallacy.
C) the law of supply.
D) the exchange rate-inflation fallacy.
E) the law of demand.

Question 33

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between January 1, 2013, and April 1, 2013. Use this table to answer the next seven questions:

On March 1,2013,Brandy paid 400 Mexican pesos for a manicure in Playa del Carmen,Mexico.Because she only had Japanese yen,she needed to exchange her Japanese yen at a nearby money-exchange kiosk in order to get the 400 Mexican pesos she used to pay the manicurist.The kiosk is able to buy and sell U.S.dollars,Mexican pesos,and Japanese yen at the exchange rates shown in the table.Approximately how much did the manicure cost Brandy in terms of Japanese yen?

A) 0.3386
B) 2,903
C) 2,921
D) 0.3243
E) 472,532

Question 34

When demand for Canada's exports rises:

A) demand for the Canadian dollar in the foreign exchange market falls.
B) demand for the Canadian dollar in the foreign exchange market rises.
C) the Canadian dollar depreciates against all other currencies.
D) supply of the Canadian dollar in the foreign exchange market falls.
E) supply of the Canadian dollar in the foreign exchange market rises.

Question 35

The following table shows the number of British pounds required to buy one U.S.dollar and the number of euros required to buy one U.S.dollar between September 3,2012,and April 1,2013:

Between December 3,2012,and January 1,2013,the U.S.dollar ____________ against the British pound,and the U.S.dollar __________ against the euro.

A) neither appreciated nor depreciated; neither appreciated nor depreciated
B) depreciated; appreciated
C) appreciated; appreciated
D) depreciated; depreciated
E) appreciated; depreciated

Question 36

The following table shows the number of British pounds required to buy one U.S. dollar between September 3, 2012, and April 1, 2013. Use this table to answer the next two questions:

Between January 1,2013,and March 1,2013,the U.S.dollar __________ against the British pound,and the British pound _____________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; depreciated
E) appreciated; neither appreciated nor depreciated

Question 37

If interest rates rise in the United States relative to the rest of the world,the demand for U.S.dollars will ___________ because there is greater demand for assets with _____________ returns.

A) decrease; higher
B) decrease; lower
C) increase; higher
D) increase; lower
E) increase; diminishing marginal

Question 38

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between January 1, 2013, and April 1, 2013. Use this table to answer the next seven questions:

On April 1,2013,Carlos paid 800,000 Japanese yen for a solid gold iPhone case in Fukushima,Japan.Because he only had Mexican pesos,he needed to exchange his pesos at a nearby bank in order to get the 800,000 yen he used to pay for the iPhone case.The bank is able to buy and sell U.S.dollars,Mexican pesos,and Japanese yen at the exchange rates shown in the table.Approximately how much did the iPhone case cost Carlos in terms of Mexican pesos?

A) 8,584
B) 11,333
C) 106,133
D) 171,118
E) 921,826,360

Question 39

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between January 1, 2013, and April 1, 2013. Use this table to answer the next seven questions:

Between January 1,2013,and February 1,2013:

A) the number of U.S.goods exported to Mexico likely increased because U.S.goods became more expensive to consumers in Mexico.
B) the number of U.S.goods exported to Mexico likely decreased because U.S.goods became more expensive to consumers in Mexico.
C) the number of U.S.goods exported to Mexico likely increased because U.S.goods became less expensive to consumers in Mexico.
D) the number of U.S.goods exported to Mexico likely decreased because U.S.goods became less expensive to consumers in Mexico.
E) the number of U.S.goods exported to Mexico likely did not change because exchange rates do not affect trade.

Question 40

According to the law of ____________,the quantity of yen demanded by U.S.consumers will ___________ when the price of yen in terms of U.S.dollars falls.

A) demand; fall
B) demand; rise
C) international banking secrecy; neither rise nor fall
D) supply; neither rise nor fall
E) supply; fall

Question 41

The following figure depicts the supply of U.S. dollars in the foreign currency exchange market. Use this figure to answer the next two questions:

The U.S.central bank has the power to increase or decrease the supply of U.S.dollars.If the U.S.central bank increases the supply of U.S.dollars,the supply curve in the above figure will ____________; if the U.S.central bank decreases the supply of U.S.dollars,the supply curve in the above figure will ____________.

A) shift rightward; shift leftward
B) shift leftward; shift rightward
C) shift rightward; also shift rightward
D) shift leftward; also shift leftward
E) not shift; not shift

Question 42

The following figure depicts the supply of U.S. dollars in the foreign currency exchange market. Use this figure to answer the next two questions:

If the U.S.central bank decreases the supply of U.S.dollars,the supply curve in the above figure will ____________; if the Indian central bank increases the supply of rupees,the supply curve in the above figure will __________.

A) shift leftward; also shift leftward
B) shift rightward; not shift
C) not shift; shift rightward
D) shift rightward; shift leftward
E) shift leftward; not change

Question 43

The following two figures depict the demand and supply of U.S. dollars and the demand and supply of British pounds in the foreign currency exchange market. Use these figures to answer the next two questions:


______________ occurs when a national government or central bank intentionally adjusts its money supply to affect the exchange rate of its currency.

A) Dollarization
B) A complete breakdown of the fractional reserve banking system
C) Demonetization
D) Exchange rate manipulation
E) A currency war

Question 44

The following figure depicts the demand for U.S. dollars in the foreign currency exchange market. Use this figure to answer the next two questions:

If interest rates in the United States rise relative to interest rates in Mexico and,at the same time,Mexican consumer demand for U.S.goods decreases,the demand curve in the figure above:

A) will not shift because interests rates are not related to exchange rates.
B) will not shift because interests rates only affect the supply curve.
C) can either increase from D₁ to D₂ or decrease from D₁ to D₃, depending on the relative magnitude of the two effects.
D) will increase from D₁ to D₂.
E) will decrease from D₁ to D₃.

Question 45

The following two figures depict the demand and supply of U.S. dollars and the demand and supply of British pounds in the foreign currency exchange market. Use these figures to answer the next two questions:


Assume that the same event caused demand for U.S.dollars to decrease and demand for British pounds to increase and that both of these graphs describe that event.Approximately what is Y₁?

A) $0.50
B) $0.71
C) $0.83
D) $1.20
E) $1.40

Question 46

In the foreign currency market,the supply of a foreign currency is assumed to be _____________ because the central bank determines the supply of money.

A) horizontal
B) vertical
C) upward sloping
D) downward sloping
E) uncontrollable

Question 47

The following figure depicts the demand for Chinese yuan in the foreign currency exchange market. Use this figure to answer the next two questions:

If the interest rates in China rise relative to interest rates in the United States,the demand curve in the figure above:

A) will not shift because interests rates are not related to exchange rates.
B) will not shift because interests rates only affect the supply curve.
C) can either increase from D₁ to D₂ or decrease from D₁ to D₃.
D) will increase from D₁ to D₂.
E) will decrease from D₁ to D₃.

Question 48

If interest rates in Australia decrease relative to the rest of the world,it means that (1) Australian bonds will provide a ___________ return than previously and (2) ___________ for these bonds will _____________.

A) higher; supply; decrease
B) higher; supply; increase
C) higher; demand; increase
D) lower; demand; decrease
E) lower; demand; increase

Question 49

The following two figures depict the demand and supply of U.S. dollars and the demand and supply of British pounds in the foreign currency exchange market. Use these figures to answer the next two questions:


An increase in U.S.consumer demand for British goods is consistent with:

A) both Figures A and B.
B) neither Figure A nor Figure B.
C) Figure A but not Figure B.
D) Figure B but not Figure A.
E) the supply curve being upward sloping in both Figures A and B.

Question 50

The arrows in Figures A-D represent possible movements of the exchange rate (euros per U.S. dollar) and the quantity of U.S. dollars buyers are willing and able to buy. Use these figures to answer the next two questions:


The figure below depicts the supply of U.S.dollars in the foreign currency exchange market.

A shift from D₁ to D₃ in the above figure could have been caused by:

A) a decrease in the exchange rate from £1.2/$1 to £1.1/$1.
B) an increase in the exchange rate from £1.1/$1 to £1.2/$1.
C) an increase in demand for U.S.assets relative to British assets.
D) an increase in U.S.interest rates relative to British interest rates.
E) a decrease in British consumers' demand for U.S.goods.

Question 51

The following two figures depict the demand and supply of U.S. dollars and the demand and supply of British pounds in the foreign currency exchange market. Use these figures to answer the next two questions:


An appreciation of the ___________ is shown in _____________.

A) U.S.dollar; Figure A, but not Figure B
B) U.S.dollar; Figure B, but not Figure A
C) U.S.dollar; both Figures A and B
D) British pound; neither Figure A nor Figure B
E) British pound; both Figures A and B.

Question 52

Figure A below depicts the demand and supply of Japanese yen in the foreign currency exchange market. Figure B below depicts the aggregate supply-aggregate demand model for the Japanese economy. Use these figures to answer the next two questions:


The figure below depicts the three possible aggregate demand curves.

If the Bank of Canada (the Canadian central bank) ____________,the Canadian dollar will depreciate and the aggregate demand curve will shift from AD₂ to ____________.

A) devalues the Canadian dollar; AD₁
B) prints more Canadian dollars; AD₁
C) decreases the supply of Canadian dollars; AD₃
D) increases the supply of Canadian dollars; AD₃
E) prints less Canadian dollars; AD₃

Question 53

The following two figures depict the demand and supply of U.S. dollars and the demand and supply of British pounds in the foreign currency exchange market. Use these figures to answer the next two questions:


A national government or central bank can ______________ its currency in foreign currency exchange markets by printing more of it.

A) reflate
B) recombine
C) demonetize
D) monetize
E) devalue

Question 54

The following figure depicts the demand for Chinese yuan in the foreign currency exchange market. Use this figure to answer the next two questions:

If the interest rates in China fall relative to interest rates in the United States and,at the same time,U.S.consumer demand for Chinese goods decreases,the demand curve in the figure above:

A) will not shift because interests rates are not related to exchange rates.
B) will not shift because interests rates only affect the supply curve.
C) can either increase from D₁ to D₂ or decrease from D₁ to D₃.
D) will increase from D₁ to D₂.
E) will decrease from D₁ to D₃.

Question 55

Figure A below depicts the demand and supply of Japanese yen in the foreign currency exchange market. Figure B below depicts the aggregate supply-aggregate demand model for the Japanese economy. Use these figures to answer the next two questions:


Assume the Japanese economy is illustrated at the intersection of AD₁ and SRAS₁.If the Bank of Japan (the Japanese central bank) increased the supply of yen from five trillion to six trillion,the Japanese price level would ____________ in the short run and increase from 115 to 120 in the long run.

A) decrease from 120 to 110
B) not change
C) increase from 110 to 120
D) decrease from 120 to 115
E) increase from 110 to 115

Question 56

The following figure depicts the demand for U.S. dollars in the foreign currency exchange market. Use this figure to answer the next two questions:

If interest rates in Mexico rise relative to interest rates in the United States,the demand curve in the figure above:

A) will not shift because interests rates are not related to exchange rates.
B) will not shift because interests rates only affect the supply curve.
C) can either increase from D₁ to D₂ or decrease from D₁ to D₃, depending on the relative magnitude of the two effects.
D) will increase from D₁ to D₂.
E) will decrease from D₁ to D₃.

Question 57

Figure A below depicts the demand and supply of Japanese yen in the foreign currency exchange market. Figure B below depicts the aggregate supply-aggregate demand model for the Japanese economy. Use these figures to answer the next two questions:


Which of the following is the most accurate description of the phenomenon shown in Figure B?

A) The Japanese central bank increased the money supply S₁ to S₂, which caused the price level to fall from 115 to 110, which then caused the short-run aggregate supply to decrease from SRAS₁ to SRAS₂.
B) The Japanese central bank increased the money supply S₁ to S₂, which caused aggregate demand to increase from AD₁ to AD₂, which then caused the short-run aggregate supply to decrease from SRAS₁ to SRAS₂.
C) The Japanese central bank decreased the money supply S₁ to S₃, which caused aggregate demand to decrease from AD₂ to AD₁, which then caused the short-run aggregate supply to decrease from SRAS₁ to SRAS₂.
D) The Japanese central bank increased the money supply S₁ to S₂, which caused real gross domestic product (GDP) to fall from Y₂ to Y₁, which caused the short-run aggregate supply to decrease from SRAS₁ to SRAS₂, which then caused aggregate demand to increase from AD₁ to AD₂.
E) Aggregate demand increased from AD₁ to AD₂, which forced the Japanese central bank to increase the money supply S₁ to S₂, which then caused the short-run aggregate supply to decrease from SRAS₁ to SRAS₂.

Question 58

The following two figures depict the demand and supply of U.S. dollars and the demand and supply of British pounds in the foreign currency exchange market. Use these figures to answer the next two questions:


Assume that the same event caused demand for U.S.dollars to decrease and demand for British pounds to increase and that both of these graphs describe that event.Approximately what is Y₂?

A) $0.50
B) $0.71
C) $0.83
D) $1.20
E) $1.40

Question 59

The arrows in Figures A-D represent possible movements of the exchange rate (euros per U.S. dollar) and the quantity of U.S. dollars buyers are willing and able to buy. Use these figures to answer the next two questions:


An appreciation of the euro against the U.S.dollar is represented by Figure ______________,and a depreciation of the U.S.dollar against the euro is represented by Figure ______________.

A) A; C
B) A; A
C) B; D
D) D; B
E) A; D

Question 60

The arrows in Figures A-D represent possible movements of the exchange rate (euros per U.S. dollar) and the quantity of U.S. dollars buyers are willing and able to buy. Use these figures to answer the next two questions:


A deprecation of the euro against the U.S.dollar is represented by Figure ___________,and a depreciation of the U.S.dollar against the euro is represented by Figure _____________.

A) A; C
B) C; A
C) B; D
D) D; B
E) A; D

Question 61

_____________ exchange rates are exchange rates that are fixed at a certain level through the actions of a government.

A) Variable
B) Flexible
C) Pegged
D) Speculated
E) Real

Question 62

The following two graphs depict the equilibrium price of a pound of grapes in California and West Virginia, respectively. Assume the type and quality of the grapes being sold in the two states are identical. Further, assume grape sellers incur zero costs to transport grapes between the two states and there are no other barriers to trade. Use these graphs to answer the next three questions:


Which of the following pairs of prices is consistent with the law of one price?

A) California price: $0.50; West Virginia price: $0.80
B) California price: $0.80; West Virginia price: $0.80
C) California price: $1.20; West Virginia price: $1.20
D) California price: $1.35; West Virginia price: $1.35
E) California price: $1.50; West Virginia price: $1.50

Question 63

Pegged exchange rates can also be referred to as ____________ exchange rates.

A) variable
B) fixed
C) flexible
D) specialized
E) nominal

Question 64

In order to maintain a pegged exchange rate in China:

A) the Chinese government must prevent Chinese citizens from trading goods or services with other countries.
B) the Chinese government must prevent Chinese citizens from purchasing assets denominated in foreign currencies.
C) the Chinese government must adjust the supply of the yuan in world markets.
D) at least one foreign country must also maintain a pegged exchange rate.
E) no other country that China shares a geographical border with can maintain a pegged exchange rate.

Question 65

If the Bank of Japan (the Japanese central bank) were to take steps to devalue the yen in foreign currency markets,the Japanese ____________ curve would shift rightward in the short run and the Japanese __________ curve would shift leftward in the long run.

A) aggregate demand; aggregate demand
B) short-run aggregate supply; aggregate demand
C) long-run aggregate supply; short-run aggregate supply
D) aggregate yen maintenance; aggregate U.S.dollar diminution
E) aggregate demand; short-run aggregate supply

Question 66

Suppose market forces outside of the control of the Chinese government are causing the price of Chinese yuan in terms of Japanese yen to rise.In order to maintain the current value of the yuan,the Chinese government must:

A) file a pegging application with one of the three international currency-management agencies.
B) ban Chinese firms from hiring Japanese workers.
C) using tax incentives, encourage Chinese firms to hire more Japanese workers.
D) get official approval from the World Trade Organization.
E) buy yen with newly created yuan.

Question 67

If the Bank of Japan (the Japanese central bank) were to take steps to devalue the yen in foreign currency markets,____________,which would cause Japanese real gross domestic product (GDP) to increase in the short run.

A) aggregate demand for Japanese goods and services would increase
B) aggregate demand for Japanese goods and services would decrease
C) Japanese interest rates would rise
D) aggregate supply of Japanese goods and services would decrease
E) one U.S.dollar would subsequently buy many fewer yen

Question 68

Floating exchange rates can also be referred to as ___________ exchange rates.

A) flexible
B) real
C) fixed
D) pegged
E) specialized

Question 69

The national government or central bank of country X might take steps to purposefully depreciate their currency because:

A) country X wants its currency to command more respect from international news reporters.
B) consumers in country X would be able to purchase more goods from producers in country Y.
C) producers in country X would be able to sell more goods to consumers in country Y.
D) a depreciated currency would benefit both consumers and producers in country X.
E) an appreciated currency would harm both consumers and producers in country Y.

Question 70

If the Central Reserve Bank of Peru (the Pervian central bank) were to take steps to devalue the sol (the Peruvian currency) in foreign currency markets,the Peruvian aggregate demand curve would ____________ in the short run and the Peruvian short-run aggregate supply curve would ____________ in the long run.

A) not change; not change
B) not change; shift leftward
C) shift rightward; not change
D) shift rightward; shift leftward
E) shift leftward; shift rightward

Question 71

According to the theory of purchasing power parity,why should identical goods have the same price in different locations?

A) To prevent price gouging, international law mandates that identical goods must be sold for the same currency-adjusted price across all locations.
B) If the goods were two different prices, it would cause an increase in supply of the good at the low-price location and a decrease in supply of the good at the high-price location, which would cause the prices in each location to converge to the same price.
C) If the goods were two different prices, it would cause an increase in supply of the good at the high-price location and a decrease in supply of the good at the low-price location, which would cause the prices in each location to converge to the same price.
D) If the goods were two different prices, it would cause a decrease in demand of the good at the low-price location and an increase in demand of the good at the high-price location, which would cause the prices in each location to converge to the same price.
E) If the good were two different prices, it would cause an increase in demand of the good solely at the low-price location until that good reached the same price as the good in the high-price location.

Question 72

_____________ exchange rates are exchange rates that are determined by the market forces of supply and demand for currency.

A) Market
B) Stock
C) Government-determined
D) Pegged
E) Floating

Question 73

The following two graphs depict the equilibrium price of a pound of flax seed in Kentucky and West Virginia, respectively. Assume the type and quality of the flax seed being sold in the two states are identical. Further, assume flax seed sellers incur zero costs to transport flax seed between the two states and that there are no other barriers to trade. Use these graphs to answer the next two questions:


Suppose the price of a pound of flax seed is currently $1.20 in both Kentucky and West Virginia.Further,suppose there is a decrease in demand for flax seed in Kentucky,but not in West Virginia.Before flax seed sellers are able to adjust the relative quantity of flax seed supplied in the two states,the decrease in demand causes the equilibrium price of a pound of flax seed in Kentucky to change by $0.20.The law of one price suggests that the price of a pound of flax seed will be _____________ in West Virginia after sellers adjust the relative quantity of flax seed supplied in the two states.

A) $1.00
B) between $1.20 and $1.00
C) between $1.00 and $0.80
D) less than $0.80
E) higher than $1.20

Question 74

If the theory of purchasing power parity holds,then how much does an Egyptian tapestry cost in the United States if the same tapestry sells for 15,000 Egyptian pounds in Egypt and the exchange rate is $0.14 per Egyptian pound?

A) $12,000
B) $2,100
C) $107,143
D) $15,000
E) $3,148

Question 75

In the short run,____________ would increase domestic aggregate demand in the context of the aggregate supply-aggregate demand model.

A) an increase in the value of the domestic currency against all foreign currencies
B) a depreciation of the domestic currency against all foreign currencies
C) an appreciation of the domestic currency against all foreign currencies
D) a depreciation of all foreign currencies against the domestic currency
E) either an increase or decrease in domestic government spending

Question 76

The following two graphs depict the equilibrium price of a pound of grapes in California and West Virginia, respectively. Assume the type and quality of the grapes being sold in the two states are identical. Further, assume grape sellers incur zero costs to transport grapes between the two states and there are no other barriers to trade. Use these graphs to answer the next three questions:


According to the law of one price,the price of grapes will:

A) increase in California and decrease in West Virginia.
B) increase in California and increase in West Virginia.
C) not change in either California or West Virginia.
D) decrease in California and increase in West Virginia.
E) decrease in California and decrease in West Virginia.

Question 77

The following graph depicts the market for potatoes in West Virginia. Assume there are similar markets for potatoes in all other U.S. states and that the potatoes sold in all states are identical. Further, assume potato sellers incur zero costs to transport potatoes between any U.S. state and that there are no other barriers to trade. Use this graph to answer the next two questions:

Suppose the equilibrium price of a pound of potatoes in all U.S.states is initially $1.20.Further,suppose there is an increase in potato demand in all U.S.states except West Virginia.This increase in demand causes potato prices in all U.S.states,except West Virginia,to increase.If the law of one price holds,potato sellers will eventually adjust the relative quantity of potatoes they sell in all U.S.states,including West Virginia.After this adjustment:

A) the West Virginia potato supply curve will shift rightward.
B) the West Virginia potato demand curve will shift rightward.
C) potato prices in West Virginia will fall and potato demand will increase in all other U.S.states.
D) the price of a pound of potatoes in all states that share a border with West Virginia will not change.
E) the price of a pound of potatoes in all states that share a border with West Virginia will fall.

Question 78

The following two graphs depict the equilibrium price of a pound of grapes in California and West Virginia, respectively. Assume the type and quality of the grapes being sold in the two states are identical. Further, assume grape sellers incur zero costs to transport grapes between the two states and there are no other barriers to trade. Use these graphs to answer the next three questions:


According to the law of one price,the supply curve in the California grape market will ______________,and the supply curve in the West Virginia grape market will _____________.

A) shift to the right; also shift to the right
B) shift to the left; shift to the right
C) shift to the right; shift to the left
D) shift to the left; also shift to the left
E) shift to the left; not shift

Question 79

The following graph depicts the market for potatoes in West Virginia. Assume there are similar markets for potatoes in all other U.S. states and that the potatoes sold in all states are identical. Further, assume potato sellers incur zero costs to transport potatoes between any U.S. state and that there are no other barriers to trade. Use this graph to answer the next two questions:

According to the law of ___________,after accounting for transportation costs and trade barriers,identical goods in different locations must sell for the same price.

A) supply
B) demand
C) one price
D) currency equivocation
E) diminishing marginal product

Question 80

The following two graphs depict the equilibrium price of a pound of flax seed in Kentucky and West Virginia, respectively. Assume the type and quality of the flax seed being sold in the two states are identical. Further, assume flax seed sellers incur zero costs to transport flax seed between the two states and that there are no other barriers to trade. Use these graphs to answer the next two questions:


Suppose the price of a pound of flax seed in West Virginia is currently $1.00.The law of one price suggests that because the price of a pound of flax seed is $1.20 in Kentucky,the price of a pound of flax seed will be ___________ in West Virginia after sellers adjust their supply in both markets.

A) $1.20
B) $1.00
C) $0.80
D) between $1.20 and $1.00
E) between $1.00 and $0.80