ECON 2301 Chapter 16 Quiz

If a government uses monetary policy to alter the exchange rate, then it cannot at the same time use monetary policy to address issues of ______________________. a) inflation or recession b) purchases or sales of foreign currencies c) how currency speculators react to rumors d) extreme short-term fluctuations

a) inflation or recession

Expansionary monetary policy lowers ______________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________________. a) interest rates; right b) rates of return; left c) rates of return; right d) exchange rates; left

a) interest rates; right

For firms engaged in international lending and borrowing, ____________________ can have an enormous effect on profits. a) swings in exchange rates b) trade-offs and risks c) foreign portfolio investment d) foreign direct investment

a) swings in exchange rates

A soft peg exchange rate may create additional _______________ as exchange rate markets try to anticipate when and how the government will intervene. a) volatility b) trade-offs c) demand side effects d) exchange rate zones

a) volatility

A stronger euro is less favorable for: a) German tourists traveling abroad. b) American tourists traveling in France. c) Canadian firms selling in Germany. d) Canadian investors with money investments in Germany.

b) American tourists traveling in France.

Movements in exchange rates can have a powerful effect on incentives to export and import, and thus on ________________ in the economy as a whole. a) aggregate supply b) aggregate demand c) direct investments d) portfolio investments

b) aggregate demand

If a central bank focuses on preventing either high inflation or deep recession by using low and reasonably steady interest rate policy, then: a) foreign investment will increase significantly. b) exchange rates will have less reason to vary. c) domestic investments in foreign businesses will decrease. d) government will intervene to peg the nation's currency.

b) exchange rates will have less reason to vary.

People or firms use one currency to purchase another currency at the _______________________. a) international currency exchange b) foreign exchange market c) foreign currency exchange d) international parity market

b) foreign exchange market

A depreciating U.S. dollar is ________________ because it is worth ___________ in terms of other currencies. a) strengthening; more b) weakening; less c) a problem for exporters; less d) beneficial to importers; more

b) weakening; less

________________________ equalizes the prices of internationally traded goods across countries. a) The foreign exchange rate b) A floating exchange rate c) Purchasing power parity d) An international parity rate

c) Purchasing power parity

Short run speculation in currencies can create ________________________, at least for a time, where an expected appreciation leads to a stronger currency and vice versa. a) low inflation rates b) high inflation rates c) a self-fulfilling prophecy d) a decrease in the supply side

c) a self-fulfilling prophecy

A central bank must be concerned about whether a large and unexpected ___________________________ will drive most of the country's existing banks into bankruptcy. a) exchange rate appreciation b) interest rate increase c) exchange rate depreciation d) increase in foreign investments

c) exchange rate depreciation

From a macroeconomic point of view, increases in ____________ are an addition to aggregate demand, while increases in ___________ are a subtraction from aggregate demand. a) rates of return; exchange rates b) exchange rates; rates of return c) exports; imports d) imports; exports

c) exports; imports

If 1000 Mexican pesos could buy $1.00 U.S. dollar in 2006 and 87 U.S. dollars in 2010, then: a) the dollar depreciated against the peso. b) the peso appreciated against the dollar. c) the dollar strengthened against the peso. d) the peso strengthened against the peso.

c) the dollar strengthened against the peso.

Which of the following is an example of a pegged currency? a) U.S. dollar b) British pound c) Euro d) Chinese yuan

d) Chinese yuan

Exchange rates are an effective way to analyze the price of one currency in terms of another currency with _________________________. a) distinctive trade-offs and risks b) exchange rate policy c) monetary policy d) the tools of demand and supply

d) the tools of demand and supply