Chapter 17 Money and Banking

Higher tariffs and quotas cause a​ country's currency to​ ________ in the​ ________ run, everything else held constant. A. appreciate; long B. depreciate; long C. depreciate; short D. appreciate; short

A. appreciate; long

When the value of the British pound changes from​ $1.25 to​ $1.50, the pound has​ ________ and the U.S. dollar has​ ________. A. appreciated; depreciated B. depreciated; appreciated C. depreciated; depreciated D. appreciated; appreciated

A. appreciated; depreciated

The theory of PPP suggests that if one​ country's price level rises relative to​ another's, its currency should A. depreciate. B. appreciate. C. float. D. do none of the above.

A. depreciate.

When the exchange rate for the Mexican peso changes from 10 pesos to the U.S dollar to 9 pesos to the U.S.​ dollar, then the Mexican peso has​ ________ and the U.S. dollar has​ ________. A. depreciated; depreciated B. appreciated; depreciated C. appreciated; appreciated D. depreciated; appreciated

B. appreciated; depreciated

On January​ 25, 2009, one U.S. dollar traded on the foreign exchange market for about 0.75 euros.​ Therefore, one euro would have purchased about​ ________ U.S. dollars. A. 0.75 B. 1.00 C. 1.33 D. 1.75

C. 1.33

The exchange rate is A. the change in the value of money over time. B. the value of a currency relative to inflation. C. the price of one currency relative to another. D. the price of one currency relative to gold.

C. the price of one currency relative to another.

An increase in the foreign interest rate causes the demand for domestic assets to​ ________ and the domestic currency to​ ________, everything else held constant. A. decrease; depreciate B. decrease; appreciate C. increase; appreciate D. increase; depreciate

A. decrease; depreciate

An increase in productivity in a country will cause its currency to​ ________ because it can produce goods at a​ ________ price, everything else held constant. A. depreciate; lower B. appreciate; lower C. appreciate; higher D. depreciate; higher

B. appreciate; lower

Anything that increases the demand for foreign goods relative to domestic goods tends to​ ________ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is​ ________, everything else held constant. A. appreciate; lower B. depreciate; lower C. appreciate; higher D. depreciate; higher

B. depreciate; lower

Everything else held​ constant, if a factor decreases the demand for​ ________ goods relative to​ ________ goods, the domestic currency will depreciate. A. foreign; foreign B. domestic; foreign C. foreign; domestic D. domestic; domestic

B. domestic; foreign

If the dollar depreciates relative to the Swiss franc A. Swiss computers will become cheaper in the United States. B. American computers will become more expensive in Switzerland. C. Swiss chocolate will become more expensive in the United States. D. Swiss chocolate will become cheaper in the United States.

C. Swiss chocolate will become more expensive in the United States.

Suppose that the Federal Reserve enacts expansionary policy. Everything else held​ constant, this will cause the demand for U.S. assets to​ ________ and the U.S. dollar to​ ________. A. decrease; appreciate B. increase; appreciate C. decrease; depreciate D. increase; depreciate

C. decrease; depreciate

Suppose that the latest Consumer Price Index​ (CPI) release shows a higher inflation rate in the U.S. than was expected. Everything else held​ constant, the release of the CPI report would immediately cause the demand for U.S. assets to​ ________ and the U.S. dollar would​ ________. A. increase; appreciate B. decrease; appreciate C. decrease; depreciate D. increase; depreciate

C. decrease; depreciate

When the value of the dollar changes from pound£0.5 to pound£​0.75, then the British pound has​ ________ and the U.S. dollar has​ ________. A. appreciated; depreciated B. appreciated; appreciated C. depreciated; appreciated D. depreciated; depreciated

C. depreciated; appreciated

An increase in the expected future domestic exchange rate causes the demand for domestic assets to​ ________ and the domestic currency to​ ________, everything else held constant. A. increase; depreciate B. decrease; appreciate C. increase; appreciate D. decrease; depreciate

C. increase; appreciate

According to the law of one​ price, if the price of Colombian coffee is 100 Colombian pesos per pound and the price of Brazilian coffee is 4 Brazilian reals per​ pound, then the exchange rate between the Colombian peso and the Brazilian real​ is: A. 40 pesos per real. B. 100 pesos per real. C. 0.4 pesos per real. D. 25 pesos per real.

D. 25 pesos per real.

When Americans or foreigners expect the return on​ ________ assets to be high relative to the return on​ ________ assets, there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets. A. dollar; dollar B. foreign; dollar C. foreign; foreign D. dollar; foreign

D. ​dollar; foreign

If the interest rate is 7 percent on eurominus−denominated assets and 5 percent on dollarminus−denominated ​assets, and if the dollar is expected to appreciate at a 4 percent​ rate, the expected return on ​________minus−denominated assets in terms of​ ________ percent. A. dollar; euros is 3 B. euro; dollars is 11 C. euro; dollars is 1 D. dollar; euros is 9

D. dollar; euros is 9

Everything else held​ constant, when a​ country's currency​ appreciates, the​ country's goods abroad become​ ________ expensive and foreign goods in that country become​ ________ expensive. A. more; more B. less; less C. less; more D. more; less

D. more; less

The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in A. the trade balances of the two countries. B. fiscal policies of the two countries. C. the current account balances of the two countries. D. the price levels of the two countries

D. the price levels of the two countries

In the long​ run, a rise in a​ country's price level​ (relative to the foreign price​ level) causes its currency to​ ________, while a fall in the​ country's relative price level causes its currency to​ ________. A. depreciate; appreciate B. appreciate; depreciate C. depreciate; depreciate D. appreciate; appreciate

A. depreciate; appreciate

When Americans or foreigners expect the return on​ ________ assets to be high relative to the return on​ ________ assets, there is a​ ________ demand for dollar​ assets, everything else held constant. A. dollar; foreign; higher B. foreign; dollar; constant C. dollar; foreign; constant D. foreign; dollar; higher

A. dollar; foreign; higher

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is A. the expected return on these assets relative to one another. B. the riskiness of these assets relative to one another. C the liquidity of these assets relative to one another. D the level of trade and capital flows.

A. the expected return on these assets relative to one another.

If the interest rate is 7 percent on eurominus−denominated assets and 5 percent on dollarminus−denominated ​assets, and if the dollar is expected to appreciate at a 4 percent​ rate, for Francois the Frenchman the expected rate of return on dollarminus−denominated assets is A. 11 percent. B 9 percent. C. 5 percent. D. 3 percent. E. 1 percent.

B 9 percent.

​________ in the expected future domestic exchange rate causes the demand for domestic assets to decrease and the domestic currency to​ ________, everything else held constant. A. A​ decrease; appreciate B. A​ decrease; depreciate C An​ increase; depreciate D An​ increase; appreciate

B. A​ decrease; depreciate