Question 1

The _______________ states that the foreign exchange market is stable when in absolute sense the sum of the price elasticities of demands for imports and exports is greater than one.

Accepted Answer

A) J-curve effect 
B) pass-through condition 
C) Marshall-Lerner condition 
D) stable market theory

Question 2

The US supply curve may be vertical or negatively sloped if the foreign demand for US exports in terms of euros is __________.

Accepted Answer

A) sufficiently elastic 
B) sufficiently inelastic 
C) unit elastic 
D) zero

Question 3

The proportion of an exchange rate change that is reflected in export and import price changes is called:

Accepted Answer

A) J-curve effect 
B) Pass-through 
C) Marshall-Lerner condition 
D) Unstable foreign exchange market

Question 4

The ________________ served as the automatic adjustment mechanism under the gold standard exchange system.

Accepted Answer

A) mint parity 
B) gold import point 
C) price-specie-flow mechanism 
D) purchasing power parity model

Question 5

What signs do the price elasticity of the US demand for imports and the price elasticity of the foreign demand for US exports in euros have?

Accepted Answer

A) positive 
B) negative 
C) constant 
D) these could be either positive or negative

Question 6

In a stable foreign exchange market,a nation can correct a deficit in its balance of payments by allowing its currency to __________.

Accepted Answer

A) appreciate 
B) depreciate 
C) remain constant 
D) none of the above

Question 7

The foreign exchange market is stable if:

Accepted Answer

A) ηM  + ηX M  + ηX = 1 
C) ηM  + ηX > 1 
D) ηM  + ηX > 2

Question 8

The mint parity plus the cost of shipping an amount of gold equal to one unit of the foreign currency between the two nations is:

Accepted Answer

A) gold export point 
B) gold import point 
C) price-specie-flow mechanism 
D) equilibrium level of income

Question 9

In the following diagram D€ is the US demand curve for Euro and S€ is the US supply curve for Euro.If the exchange rate of Euro is US$1.5/€ then which of the following is true.

Accepted Answer

A) US has a balance of trade deficit of 6 billion Euro 
B) US has a balance of trade surplus of 6 billion Euro 
C) US has a balance of trade deficit of 2 billion Euro 
D) US has a balance of trade surplus of 4 billion Euro

Question 10

The price elasticity of the US demand for imports in euros is represented by the symbol ηM.

Accepted Answer

A) True 
 B)False

Question 11

According to the J-curve effect,when a nation's currency appreciates,the nation's trade balance:

Accepted Answer

A) Will first move toward deficit,then toward surplus 
B) Will first move toward surplus,then toward deficit 
C) Will move toward deficit and remain there 
D) Will move toward surplus and remain there

Question 12

A country with budget deficit which is also at full employment can improve its deficit situation by allowing its currency to depreciate,only if,

Accepted Answer

A) the real domestic absorption is reduced 
B) the real domestic absorption is increased 
C) level of imports can be increased 
D) income can be increased

Question 13

The price elasticity of the US demand for imports in euros is given by:

Accepted Answer

A) the percentage change in the quantity demanded of imports by US consumers divided by the percentage change in the quantity demanded of US exports by European consumers 
B) the percentage change in the quantity demanded of imports by US consumers divided by the percentage change in the price of the US imports in euros 
C) the percentage change in the quantity demanded of US exports by European consumers divided by the percentage change in the quantity demanded of imports by US consumers 
D) the percentage change in the price of European exports divided by the percentage change in the price of the US imports in euros.

Question 14

The price-specie-flow adjustment mechanism operates by the deficit nation losing gold and experiencing a reduction in its money supply.

Accepted Answer

A) True 
 B)False

Question 15

The marginal propensity to save is the amount of additional savings associated with each one-dollar increase in income multiplied by the increase in income.

Accepted Answer

A) True 
 B)False

Question 16

If ηM = -.85 and ηX = -.62 ,then

Accepted Answer

A) Foreign exchange market is unstable 
B) Marshall-Learner condition is not met 
C) Foreign exchange market is stable 
D) If the exchange rate deviates from the equilibrium value,market forces will not be able to bring it back to the equilibrium on its own

Question 17

The equilibrium level of income in an open economy is where:

Accepted Answer

A) Savings + Investment = Imports + Exports 
B) Consumption + Savings = Imports + Exports 
C) Savings + Exports = Investment + Imports 
D) Savings + imports = Investment + Exports

Question 18

For the US,the currency pass-through is about _______ percent

Accepted Answer

A) 10 
B) 100 
C) 30 
D) 40

Question 19

The US supply curve of euros may be vertical or negatively sloped if the foreign demand for US exports in terms of euros is sufficiently inelastic.

Accepted Answer

A) True 
 B)False

Question 20

How does the adjustment mechanism operate under a gold standard?

Accepted Answer

The answer of How does the adjustment mechanism operate under...

Exam 13: Automatic Adjustments With Flexible and Fixed Exchange Rates

The _______________ states that the foreign exchange market is stable when in absolute sense the sum of the price elasticities of demands for imports and exports is greater than one.

The US supply curve may be vertical or negatively sloped if the foreign demand for US exports in terms of euros is __________.

The proportion of an exchange rate change that is reflected in export and import price changes is called:

The ________________ served as the automatic adjustment mechanism under the gold standard exchange system.

What signs do the price elasticity of the US demand for imports and the price elasticity of the foreign demand for US exports in euros have?

In a stable foreign exchange market,a nation can correct a deficit in its balance of payments by allowing its currency to __________.

The foreign exchange market is stable if:

The mint parity plus the cost of shipping an amount of gold equal to one unit of the foreign currency between the two nations is:

In the following diagram D_€ is the US demand curve for Euro and S_€ is the US supply curve for Euro.If the exchange rate of Euro is US$1.5/€ then which of the following is true.

The price elasticity of the US demand for imports in euros is represented by the symbol η_M.

According to the J-curve effect,when a nation's currency appreciates,the nation's trade balance:

A country with budget deficit which is also at full employment can improve its deficit situation by allowing its currency to depreciate,only if,

The price elasticity of the US demand for imports in euros is given by:

The price-specie-flow adjustment mechanism operates by the deficit nation losing gold and experiencing a reduction in its money supply.

The marginal propensity to save is the amount of additional savings associated with each one-dollar increase in income multiplied by the increase in income.

If η_M= -.85 and η_X = -.62 ,then

The equilibrium level of income in an open economy is where:

For the US,the currency pass-through is about _______ percent

The US supply curve of euros may be vertical or negatively sloped if the foreign demand for US exports in terms of euros is sufficiently inelastic.

How does the adjustment mechanism operate under a gold standard?