Deck 12: The Global Macroeconomy

Question 1

What is an exchange rate?

A) It is percentage rate of interest charged by international banks to exchange currency.
B) It is fees banks charge their best customers to exchange currency.
C) It is price of one nation's currency measured in units of another nation's currency.
D) It is lending rate for international credit.

Answer 1

C

Question 2

Compared with the dollar-yuan exchange rate, the dollar-euro exchange rate is best described as:

A) volatile.
B) steady.
C) gradually falling.
D) gradually rising.

Answer 2

A

Question 3

International macroeconomics focuses on:

A) isolated nations.
B) economy-wide variables such as interest rates, income, prices, and wealth.
C) city-level economic problems.
D) market-specific variables such as the price of orange juice.

Answer 3

B

Question 4

It is _________ to assume that all goods are priced in a common currency in international markets.

A) correct in every case
B) dangerous
C) incorrect in every case
D) unrealistic

Question 5

Compared with 100 years ago, the number of currencies exchanged today is:

A) dozens fewer.
B) insignificant.
C) many times more.
D) the same.

Question 6

Which one of the following reasons does NOT explain why exchange rates are important?

A) They affect the affordability of imports.
B) They make exports either more or less expensive for foreign buyers.
C) They affect the value of foreign assets and their returns.
D) They affect the profits of all domestic producers.

Question 7

Exchange rate behavior is:

A) unimportant in determining income, prices, and flows of goods and services.
B) very important in determining income, prices, and flows of goods and services.
C) very predictable, steady, and not of interest to policy makers.
D) not subject to market forces, but is determined by international agreements.

Question 8

Which best describes the dollar-yuan exchange rate over time?

A) volatile
B) steady
C) gradually rising
D) gradually declining

Question 9

Compared with the U.S. dollar-yuan, the average fluctuation in the U.S. dollar-euro exchange rate is:

A) 6 or 7 times as large.
B) about the same.
C) somewhat smaller.
D) 6 or 7 times less.

Question 10

The exchange rate between the U.S. dollar and the Chinese yuan:

A) resulted in a rise in Chinese buying power.
B) declined 15% between 2005 and the financial crisis in 2008.
C) has created a situation in which China is able to get cheap products from the United States.
D) has been unchanged since July 2005.

Question 11

International macroeconomics studies:

A) decisions of individual households in other countries.
B) decisions by governments in other countries.
C) the interrelationship of large-scale economic issues across countries.
D) the interrelationship of politics and economics within a country.

Question 12

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

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

Question 13

Exchange rates exhibit:

A) steady behavior across the board.
B) erratic behavior across the board.
C) very different behavior, depending on whether the rates are fixed or floating.
D) variable behavior (sometimes steady and other times erratic), depending on the business cycle.

Question 14

Key elements of the international macroeconomy are:

A) political alliances, capital accumulation, and monopoly power.
B) many currencies, financial integration, and economic policy choices made in context.
C) competition, efficiency, and openness.
D) waste and overuse of natural resources, disregard for the environment, and unfair competition.

Question 15

In June of 2010, the Chinese government:

A) cracked down on illegal currency trading.
B) reduced the value of the yuan in terms of the U.S. dollar.
C) allowed a gradual appreciation in the value of the yuan in terms of the U.S. dollar.
D) allowed the yuan to fluctuate freely according to the market.

Question 16

In general, economists divide the world into two types of exchange rate systems:

A) long run and short run.
B) fixed and floating.
C) liberal and conservative.
D) speculative and risk averse.

Question 17

Changes in a nation's exchange rates have an impact on:

A) prices of equities but not domestic bonds
B) relative prices of home and foreign goods.
C) prices of nontradable services.
D) prices of international bonds but not equities.

Question 18

Which of the following would be an exchange rate?

A) One car trades for 1,000 books.
B) One dollar trades for two candy bars.
C) One dollar trades for four quarters.
D) One dollar trades for three pesos.

Question 19

When an exchange rate is said to be fixed, it:

A) does not vary at all.
B) can vary a lot.
C) changes every day.
D) is volatile.

Question 20

Compared with the U.S. dollar-euro, the U.S. dollar-yuan exchange rate has exhibited:

A) extreme fluctuation.
B) much less fluctuation.
C) a constant value.
D) complete control by the World Bank.

Question 21

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

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

Question 22

Compared with earlier decades, the prevalence of exchange rate crises during the turn of the century (1997-2002) was:

A) much less severe than in the 1970s with its high inflation and high unemployment.
B) much more severe in rapidly developing economies such as in South America and East Asia.
C) very typical of modern economic history, indicating a need for international cooperation.
D) much reduced as a result of the swift and effective response by the International Monetary Fund.

Question 23

Which of the following are financial instruments?

A) real estate properties
B) grocery store loyalty cards
C) retail store inventories
D) savings accounts, credit cards, and mortgages

Question 24

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

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

Question 25

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

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

Question 26

A nation (featured in the text) that recently experienced a severe drop in the value of its currency is:

A) New Zealand.
B) Zimbabwe.
C) Argentina.
D) Canada.

Question 27

Exchange rate crises:

A) are extremely rare.
B) are related to political crises.
C) typically occur in every nation several times each year.
D) are fairly common.

Question 28

In the mid-2000s, a Swiss cheese maker blamed its decline in U.S. sales on:

A) the fall of the euro in terms of the Swiss franc.
B) the rise of the euro in terms of the Swiss franc.
C) German tariffs that made the cheese more expensive.
D) the Euro area recession.

Question 29

European residents who hold U.S. dollar assets experience a _______ in their value when the dollar exchanges for fewer units of foreign currency.

A) rise
B) decline
C) stagnation
D) rise in instability

Question 30

Nations undergoing currency and financial crises often experience:

A) rising currency values.
B) falling population.
C) government financial problems.
D) increasing GDP.

Question 31

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

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

Question 32

When the exchange value of the euro rises in terms of the U.S. dollar, U.S. residents find that European imports are:

A) cheaper.
B) more expensive.
C) oversupplied to the United States.
D) more heavily taxed by the U.S. government.

Question 33

Following its 2001 currency crisis, Argentina's unemployment:

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

Question 34

The fallout from an international currency crisis episode:

A) has major and lasting effects on trading partners, financial relationships, and financial and political institutions.
B) usually has a pattern of brief turmoil followed by periods of relative stability.
C) is instrumental in getting needed debt relief for poor nations.
D) is seen in permanent changes in the ways nations handle their international transactions.

Question 35

The International Monetary Fund is an example of a(n):

A) credit union.
B) multinational bank.
C) international development organization.
D) bond-rating firm.

Question 36

A severe drop in the value of a nation's currency usually results in:

A) high inflation.
B) low unemployment.
C) enhanced ability to pay foreign debts.
D) rising imports.

Question 37

In the 12-year period from 1997 to 2009, there were ____ instances of exchange rate crises worldwide.

A) 3
B) 10
C) 16
D) 24

Question 38

A good's relative price indicates its:

A) value only in its own nation.
B) value compared with the same good sold in another nation, expressed in a common currency.
C) exchange value only.
D) net value after taxes and depreciation.

Question 39

Argentina's currency crisis, which began in 2002, is blamed for:

A) the lack of literacy and moral corruption.
B) extreme poverty, high unemployment, and social unrest.
C) disturbing the international trade balance.
D) its subsequent high debts.

Question 40

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

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

Question 41

To analyze whether an international private or sovereign borrower will repay a loan, creditors resort to:

A) collateral requirements for loans.
B) International Monetary Fund expertise.
C) international credit rating agencies that operate much like they do in sophisticated financial markets.
D) incentives to repay, such as threats of foreclosure, force, or economic sanctions for delinquent borrowers.

Question 42

If a nation is a net creditor internationally, it means that:

A) residents of the nation have more foreign assets than foreign liabilities.
B) the nation is running low on international assets.
C) residents of the nation have more foreign liabilities than foreign assets.
D) the nation's government has extended credit to other nations' governments.

Question 43

Suppose that a loan made in euros has experienced a capital gain. This indicates that the:

A) dollar appreciated.
B) dollar depreciated.
C) euro depreciated.
D) dollar experienced a capital loss.

Question 44

External wealth can increase by all of the following, EXCEPT:

A) rises in the value of international assets (capital gains).
B) decreases in the value of liabilities to international entities.
C) borrowing from international entities.
D) lending to international entities.

Question 45

A credit rating of A means:

A) easy access to low-interest loans.
B) more limited credit and possibly punitive interest rates.
C) higher interest rates.
D) you can set your own interest rates.

Question 46

A nation's external wealth can be affected by which of the following? I. the difference between international spending and income from the rest of the world
II) changes in currency values
III) capital gains and losses on equities and real estate

A) I
B) II and III
C) I and III
D) I, II, and III

Question 47

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

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

Question 48

Which of the following credit ratings is MOST favorable?

A) BBB+
B) BBB-
C) CC
D) D

Question 49

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

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

Question 50

Which of the following situations would NOT be compatible with the others?

A) a deficit in the current account
B) expenditure being greater than income (production) in a nation
C) a rise in national wealth
D) new borrowing from the rest of the world

Question 51

A country's external wealth is equal to:

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

Question 52

Emerging market countries are:

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

Question 53

When a country makes a loan in its own currency and its currency depreciates, it experiences:

A) a capital gain.
B) a capital loss.
C) a capital depreciation.
D) neither a capital gain nor a capital loss.

Question 54

The definition of total external net wealth is:

A) the value of buildings, bank deposits, and monetary gold.
B) the value of a nation's foreign assets minus the value of a nation's foreign liabilities.
C) the value of stocks sold daily on international exchanges.
D) minerals and oil reserves owned by a nation but located in another nation.

Question 55

When an individual's income is smaller than his or her expenditure, the individual CANNOT:

A) borrow money.
B) draw down his or her savings.
C) print his or her own money.
D) take another job to increase his or her income.

Question 56

A nation with a relatively high country risk factor would MOST likely have:

A) stable exports and unstable imports.
B) low levels of external debt.
C) excessive levels of spending compared with its income and current account surpluses.
D) unstable exports, a high level of external debt, and excessive levels of spending.

Question 57

A nation's current account is:

A) its current budget deficit.
B) the previous year's budget deficit.
C) a record of a nation's income, expenditure, deficit, and surplus during a particular period.
D) the difference between its total wealth and its total debt.

Question 58

A nation's net creditor position indicates that it:

A) has collected more in taxes than its government has spent.
B) owes money to other foreign and international government agencies.
C) has positive net external wealth.
D) has negative net external wealth.

Question 59

International lenders want to know the likelihood that a nation will repay its debt. Therefore, they rely on:

A) collateral.
B) international ratings of country risk.
C) the faith and credit of the sovereign nation.
D) advice from the International Monetary Fund (IMF).

Question 60

What is country risk?

A) the risk that the nation will suffer unemployment and inflation as a result of its economic policies
B) a number of economic indicators reflecting the economic health of the nation that affect the ability of its residents to repay loans
C) the relative risk of political instability, terrorist attacks, and military capability
D) the total of the government's national debt plus private debt owed to international creditors

Question 61

Poor governance often results in:

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

Question 62

The list of developed countries includes:

A) South Korea
B) Panama.
C) Estonia.
D) Poland.

Question 63

What is the difference between an open economy and a closed economy?

A) A closed economy has sealed borders and allows no tourism or migration.
B) An open economy has very few restrictions on trade or financial flows.
C) A closed economy has very tough wage and hour laws and will not tolerate labor unions.
D) An open economy has lax restrictions on drugs or other illegal activities.

Question 64

Economic institutions are important in helping to govern and determine economic outcomes. Which of the following would NOT be an example of an economic institution?

A) the existence of various regulatory agencies, such as the Securities and Exchange Commission, that affect the integrity of the investment community
B) First National Bank of Chicago
C) the tendency of the public to deposit funds in banks and financial institutions, which are considered safe, rather than purchasing gold or jewelry
D) disclosure provisions in investment contracts

Question 65

The income gap between rich and poor nations has _____ over the last two decades and is the largest in history.

A) doubled
B) tripled
C) grown by 10 times
D) grown by 50 times

Question 66

Governments affect international financial relationships through their institutions. These might include:

A) border controls regulating goods coming into or leaving from the nation.
B) laws or regulations affecting investment, reserves, or credit.
C) larger sets of rules that define a general context to which specific laws or regulations conform.
D) very broad legal, social, political, and commercial structures that influence economic behavior.

Question 67

The advanced nations:

A) were least open to globalization and free movement of capital.
B) led the movement toward globalization and openness during the 1980s.
C) had to compete with the developing nations and finally learned that financial openness was beneficial to their economies.
D) were not as open to globalization as were the emerging markets.

Question 68

Which of the following would count as an emerging market?

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

Question 69

Which of the following would count as a developing country?

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

Question 70

Since 1970, governments worldwide have:

A) discouraged trade and raised levels of protection for workers.
B) discouraged international investment to favor domestic financial markets.
C) rejected globalization because it makes a nation more vulnerable.
D) lifted barriers to international capital movements and trade.

Question 71

A consequence of the world movement toward financial integration and openness is:

A) depreciating exchange rates.
B) financial interdependence coupled with a tenfold increase in the volume of foreign assets.
C) a retreat toward safety and heavier regulation of financial flows.
D) dominance by the United States as being the only destination for investment funds.

Question 72

What remedy does an international lender have against a foreign borrower who defaults?

A) It can foreclose on the collateral and sell it.
B) It can sue the borrower in the international credit court.
C) The national government will always pay up and make the loan good.
D) Usually, there is no remedy.

Question 73

Nations are free to choose and use their own currency and control its value. Normally, they must choose between a ______ regime.

A) fixed or floating exchange rate
B) variable or stable exchange rate
C) controlled or laissez-faire
D) centrally planned or market-based

Question 74

What is the eurozone?

A) a common European defense system supplemented by radar and strategic monitoring systems
B) a trade agreement among the nations of Europe not to impose tariffs on one another
C) a group of European nations that have adopted a common currency
D) regions of the world that allow traders to make bank deposits in euros

Question 75

In general, we currently classify nations into three categories, depending on the level of economic advancement. These are:

A) advanced, emerging, and developing.
B) high-achievers, low-achievers, and infant industry nations.
C) First World, Second World, Third World.
D) fully integrated, moderately integrated, and closed.

Question 76

Governments affect international financial relationships through their policy regimes. These might include:

A) economic philosophies like liberalism and Marxism.
B) laws or regulations affecting investment, reserves, or credit.
C) larger sets of rules that define a general context to which specific laws or regulations conform.
D) very broad legal, social, political, and commercial structures that influence economic behavior.

Question 77

The great divergence refers to:

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

Question 78

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

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

Question 79

The idea of dollarization is:

A) the use of domestic currency in a variable proportion with neighboring countries' currency.
B) the use of the U.S. dollar for paying the native country's debt.
C) a nation's use of a foreign currency over which it has no policy control.
D) the use of domestic currency in countries in Europe that are not part of the European Union.

Question 80

Policies that work well in stable, well-governed nations:

A) may not work well in poor nations if these nations lack stability and good governance.
B) should be looked at as an alternate policy regime for poor nations.
C) often do not represent the best policies for other rich nations.
D) tend to be less desirable during election years or in times of political upheaval.