Macro chap 19

On May 12, 2011, the U.S. dollar was worth 28 Russian rubles. How many U.S. dollars did it take to buy one Russian ruble? a. 0.01 b. 0.04 c. 0.28 d. 0.40

B

According to the purchasing power parity theory, which of the following is most likely to affect exchange rates? a. differences in inflation rates b. differences in interest rates c. differences in income levels d. differences in real GDP growth rates

a

Exchange rates in what is termed the "medium run" a. will be altered by an economic upswing because consumers buy more goods including imports when disposable income goes up. b. will be unaffected by economic changes in personal income or consumption spending. c. will appreciate for a country having an economic boom when others are not. d. All of the above are correct.

a

From the beginning of 2007, the value of the U.S. dollar a. dropped sharply against major currencies. b. increased mildly against major currencies. c. remained stable relative to major currencies. d. fluctuated with no major trend against major currencies.

a

If Japanese tourists visit Yellowstone Park, what is the effect in the foreign exchange market? a. It will increase demand for U.S. dollars. b. It will decrease demand for U.S. dollars. c. It will increase supply of U.S. dollars. d. It will decrease supply of U.S. dollars.

a

If U.S. securities pay 7 percent interest, and if Great Britain's securities pay 5 percent interest, then a. pounds depreciate relative to dollars. b. pounds appreciate relative to dollars. c. Great Britain's imports will rise. d. Great Britain's exports will fall.

a

If a Mexican pension fund decides to purchase U.S. government bonds, what is the effect in the foreign exchange market? a. It will increase demand for U.S. dollars. b. It will decrease demand for U.S. dollars. c. It will increase supply of U.S. dollars. d. It will decrease supply of U.S. dollars.

a

If a currency decreases in value as a result of government decree rather than market forces, the process is known as a. devaluation. b. depreciation. c. deflation. d. degeneration.

a

If gold and the dollar are substitutes, a cut in the Japanese discount rate can be expected to a. appreciate the dollar and decrease the price of gold. b. depreciate the dollar and increase the price of gold. c. depreciate the dollar and decrease the price of gold. d. appreciate the dollar and increase the price of gold.

a

If market forces change the exchange rate value of one dollar from 80 yen to 83.25 yen, then the dollar has a. appreciated. b. depreciated. c. been revalued. d. been devalued.

a

If the U.S. exports passenger jet aircraft, what is the effect in the foreign exchange market? a. It will increase demand for U.S. dollars. b. It will decrease demand for U.S. dollars. c. It will increase supply of U.S. dollars. d. It will decrease supply of U.S. dollars.

a

If the dollar appreciates relative to other currencies, which of the following is true? a. It takes more foreign currency to buy a dollar. b. It takes more dollars to buy a foreign currency. c. U.S. exports will increase. d. Foreign purchases of U.S. goods will increase.

a

If the quantity of euro demanded were greater than the quantity supplied, then the price of the a. euro would rise. b. euro would fall. c. dollar would rise. d. euro would be in equilibrium.

a

On June 3, 2005, it cost 1.22 U.S. dollars to buy one euro. How many euros did it take to buy one U.S. dollar? a. 0.82 euros b. 0.88 euros c. 1.22 euros d. 88 euros

a

On May 12, 2011, it cost U.S. $1.44 to buy one euro. How many euros would U.S. $1 buy? a. 0.69 b. 1.44 c. 1.69 d. 2.44

a

The purchasing power parity theory is useful in making ____ predictions about exchange rates and their fluctuations. a. long-run b. intermediate-run c. medium-run d. short-run

a

There is an exchange rate between a. every pair of currencies. b. the world's major currencies but not between the currencies of less-developed countries. c. currencies on a fixed-exchange rate system but not for those on a floating-rate system. d. the currencies of the European Union but not for the nations outside the European Union.

a

Under a gold standard, a balance of payments deficit automatically a. raised interest rates. b. decreased exports. c. increased domestic prices. d. increased imports.

a

Which of the following companies would gain from foreign currency depreciation? a. companies which borrow in foreign currency. b. companies which export goods and services. c. companies which invest in the foreign equity markets. d. companies which buy bonds issued by the foreign government.

a

Which of the following do most economists consider to be the most basic measure of a nation's international transactions? a. balance on current account b. balance on capital account c. balance of merchandise trade d. balance on long-term capital

a

A fixed exchange rate can be maintained by a government as long as it has sufficient a. supplies of its own currency. b. foreign reserves. c. gold and other precious metals. d. tax revenues

b

A prolonged recession in Europe should decrease the a. supply of U.S. dollars. b. demand for U.S. dollars. c. supply of U.S. goods and services. d. demand by Americans for euros.

b

Americans needing foreign currencies get those currencies from a bank. The ultimate source of these currencies is a. U.S. investments abroad. b. U.S. exports to foreign countries. c. U.S. imports of foreign goods and services. d. the International Monetary Fund.

b

At any given moment there is one exchange rate a. for currencies in the free world. b. between every pair of currencies. c. for all the world's currencies. d. established by the Federal Reserve Board.

b

Because the United States has had substantial deficits in goods and services, it has also necessarily had surpluses in a. the federal budget. b. the sales of assets. c. the sales of military goods. d. its gold supplies.

b

Exchange rates determined by the forces of demand and supply are called a. fixed exchange rates. b. floating exchange rates. c. equilibrium exchange rates. d. dirty exchange rates.

b

If U.S. securities pay 6 percent interest, and if Great Britain's securities pay 8 percent interest, then a. pounds depreciate relative to dollars. b. pounds appreciate relative to dollars. c. Great Britain's imports will fall. d. Great Britain's exports will rise.

b

If a country has a balance of payments deficit and wishes to maintain the fixed value of its currency, it will generally a. sell its own currency for foreign currencies. b. buy its own currency with foreign reserves. c. decrease taxes to increase domestic disposable income. d. increase the money supply to keep interest rates down.

b

If a currency decreases in value in response to market forces, this process is known as a. devaluation. b. depreciation. c. deflation. d. degeneration.

b

If a currency increases in value as a result of government decree rather than market forces, the process is known as a. reflation. b. revaluation. c. appreciation. d. value-added.

b

If the United States experiences an economic boom, compared to other countries, how will this affect the value of the U.S. dollar? a. It will fall because other nations would be forced to raise their interest rates. b. It will fall because the United States will import more goods and services, leading to an increased supply of dollars. c. It will rise because U.S. GDP would be rising faster than other countries. d. It will rise because the Fed will have to lower U.S. interest rates.

b

If the dollar depreciates relative to other currencies, which of the following is true? a. It takes more foreign currency to buy a dollar. b. It takes more dollars to buy a foreign currency. c. U.S. exports will decrease. d. Foreign purchases of U.S. goods will decrease.

b

If the quantity supplied of euro were greater than the quantity demanded, then the price of the a. euro would rise. b. euro would fall. c. dollar would fall. d. euro would be in equilibrium.

b

In the winter of 2001-2002, Argentina's overvalued currency reflected a(n) a. balance of payments surplus. b. balance of payments deficit. c. surplus of exports over imports. d. excess demand for Thai currency.

b

It presently costs 50 Canadian dollars for a lift ticket at Whistler Ski Resort in British Columbia. If the current value of the Canadian dollar is 0.68 U.S. dollars, how many U.S. dollars does it cost to ski at Whistler? a. $16.00 b. $34.00 c. $73.50 d. $156.25

b

On May 12, 2011 the U.S. dollar was worth 0.70 euros. How many dollars did it take to buy one euro? a. 0.70 b. 1.43 c. 1.70 d. 2.70

b

One major reason why the purchasing power parity theory does not always predict exchange rates accurately is that the theory focuses on trade in a. monies. b. goods and services. c. stocks and bonds. d. physical assets.

b

The U.S. Secretary of the Treasury met with the Japanese Finance Minister to discuss possible cuts in the Japanese discount rate. The likely outcome of currency speculation in response to this news is that a. the dollar will depreciate. b. the dollar will appreciate. c. the yen will appreciate. d. both the dollar and yen will appreciate.

b

The chief cause of short-run changes in exchange rates is a. the world's political situation. b. "hot money" chasing high interest rates. c. changes in consumer tastes. d. central bank interventions.

b

The exchange rate between yen and dollars at one point in 2010 was 83 yen per dollar. If a Big Mac, fries, and a Coke cost $3.91 in San Francisco, how much should the same order cost in yen in Osaka? a. 0.03 b. 325 c. 392 d. 422

b

The most important single factor in determining the exchange rate in the short run is a. inflation differentials. b. interest rate differentials. c. monetary growth differentials. d. price differentials.

b

The purchasing power parity theory of exchange rate determination maintains that a. the exchange rate between two nations' currencies is determined by the percent of gold that backs each nation's currency. b. the exchange rate between two nations' currencies adjusts to reflect differences in the price levels in the two nations. c. in the short run, exchange rates are determined by central bank intervention in the currency markets. d. the exchange rate between two currencies is determined by the debt that each nation owes to the World Bank.

b

The purchasing power parity theory of exchange rate determination states that a. in the short run, rates will adjust to parity. b. in the long run, the rate reflects differences in price levels between the two countries. c. in the long run, a government agency sets the rate at parity. d. in the short run, the cost of labor really sets the exchange rate.

b

The supply of euros would come from a. American demand for European real estate. b. European demand for U.S. government bonds. c. Americans vacationing in Barcelona, Spain. d. French supplies of wine to U.S. importers.

b

Under a gold standard, a discovery of gold will a. decrease the general price level. b. increase the general price level. c. cause increased unemployment. d. cause decreased rates of economic growth.

b

When exchange rates are set by government decree, a. appreciation is called devaluation. b. depreciation is called devaluation. c. depreciation is called deflation. d. appreciation is called inflation.

b

When goods or services cross international borders a. countries must ship gold to make payment. b. money must generally move in the opposite direction. c. a future shipment must be made to offset the current purchase. d. payment must be made in another good, using barter.

b

Which of the following would cause an increase in the demand for U.S. dollars? a. an interest rate cut in the United States b. an interest rate cut in Europe c. an interest rate increase in Europe d. a recession in Europe

b

n 2007, the value of the U.S. dollar a. increased relative to the euro. b. decreased relative to the euro. c. remained stable relative to the euro. d. was equal to the value of the euro.

b

A balance of payments deficit is defined as the amount by which a. a country's exports exceed its imports. b. a currency must appreciate in order to reach equilibrium. c. quantity supplied of a country's currency exceeds quantity demanded. d. quantity demanded of a country's currency exceeds quantity supplied.

c

A country running a balance of payments surplus in a fixed exchange rate system may have to ____ its currency. a. depreciate b. devalue c. revalue d. appreciate

c

A federal deficit that raises interest rates will, everything else being equal, a. lead to a dollar depreciation. b. decrease imports. c. reduce exports. d. reduce the balance of trade deficit.

c

A recession in the United States will tend to cause recessions in other countries because as U.S. GDP falls, U.S. a. tariffs will automatically rise. b. exports will rise. c. imports will fall. d. exports will fall.

c

An area in which the United States has had a sizable surplus in its balance of payments is sales of ____ to foreigners. a. goods b. energy c. assets d. automobiles

c

An economic boom in America should increase the a. demand for U.S. dollars. b. demand for U.S. goods and services. c. demand for foreign currencies. d. supply of foreign currencies.

c

An economic boom in the United States will tend to cause booms in other countries because as U.S. GDP rises, U.S. a. tariffs will automatically fall. b. exports will rise. c. imports will rise. d. exports will fall.

c

Appreciation is the term used to describe a. the conversion of one currency into another currency in the free market b. a reduction in the official value of a currency. c. the upward movement of currencies in a free market. d. an increase in the official value of a currency.

c

Everything else being equal, one can expect the euro to appreciate relative to the dollar if a. Americans decrease their travel to Germany. b. the Germans add to their holdings of U.S. Treasury bills. c. Americans purchase land in Germany and build factories. d. American exports to Germany increase.

c

Fixed exchange rates are fixed by a. international speculators who manipulate the world's currencies. b. international demand and supply. c. national governments. d. All of the above are correct.

c

If Japanese tourists visit Yellowstone Park, what is the effect in the foreign exchange market? a. It will increase demand for Japanese yen. b. It will decrease demand for Japanese yen. c. It will increase supply of Japanese yen. d. It will decrease supply of Japanese yen.

c

If Wisconsin cheddar cheese sells for $3.00 per pound in the United States and for 27.90 pesos in Mexico, what is the exchange rate between the dollar and the peso (assuming PPP holds)? a. $1 = 2.79 pesos b. $1 = 7.90 pesos c. $1 = 9.30 pesos d. $1 = 27.90 pesos

c

If a currency increases in value in response to market forces, this process is known as a. reflation. b. revaluation. c. appreciation. d. value-added.

c

If exchange rates are determined in a floating rate system, what determines the value of a U.S. dollar in terms of euros? a. government exchange rate policies b. IMF rules and policies c. demand and supply d. central bank interventions

c

If inflation in the United States is higher than in Japan, what will happen to the exchange rate between the U.S. dollar and the Japanese yen? a. The dollar and yen will both depreciate. b. The dollar and yen will both appreciate. c. The dollar will depreciate and the yen will appreciate. d. The dollar will appreciate and the yen will depreciate.

c

If interest rates in the United States are higher than interest rates in Europe, what is most likely to happen? a. Supply of dollars will increase, causing appreciation of the dollar. b. Supply of euros will increase, causing appreciation of the euro. c. Demand for dollars will increase causing appreciation of the dollar. d. Demand for dollars will decrease, causing depreciation of the dollar.

c

If the exchange rate of the Swiss franc is 1.61 francs per dollar, then the Swiss franc is worth about a. 15 cents. b. 57 cents c. 62 cents. d. $15.70.

c

In 2008-2009, Iceland and several Baltic states increased their interest rates. One would expect which of the following? a. U.S. bond prices will fall and the dollar will appreciate. b. U.S. bond prices will rise and the dollar will appreciate. c. U.S. bond prices will fall and the dollar will depreciate. d. U.S. bond prices will rise and the dollar will depreciate.

c

On May 12, 2011, it cost U.S. $.04 to buy one Russian ruble. How many Russian rubles would U.S. $1 buy? a. 40 b. 33 c. 25 d. 14

c

On May 12, 2011, the U.S. dollar was worth 0.61 British pounds. How many dollars did it take to buy one British pound? a. 1.19 b. 1.61 c. 1.64 d. 2.19

c

The demand for euros would come from a. American exports to Europe. b. European demand for U.S. government bonds. c. American demand for European real estate. d. All of the above are correct.

c

The idea behind the "Big Mac index" is a test of a. interest rate parity theory. b. long-run equilibrium theory. c. purchasing power parity theory. d. exchange rate equalization theory.

c

The prospect of a recession in the United States would probably cause the dollar to a. depreciate because interest rates would be expected to rise. b. depreciate because imports would be expected to rise. c. appreciate because imports would be expected to fall. d. appreciate because interest rates would be expected to decrease.

c

The rate at which one currency is traded for another is called a(n) a. prime rate. b. trade rate. c. exchange rate. d. money rate.

c

Under a gold standard, a. with a balance of payments deficit, interest rates would fall and attract foreign capital. b. a deficit in the balance of payments increased a nation's money supply automatically. c. all currencies were defined in terms of gold. d. when a nation had a deficit in its balance of payments, more gold was flowing in than was flowing out. e. All of the above are correct.

c

Under a gold standard, a balance of payments surplus automatically a. raised interest rates. b. increased exports. c. increased domestic prices. d. decreased imports.

c

What happened to the peso when the argentine gov such,bed to the market forces in 2002? a. Revalued b. Devalued c. Depreciated d. Appreciated

c

When a country decreases the official value of its currency, for example, Russia changes the value of the ruble from $.16 to $.04, it is said to have ____ its currency. a. floated b. revalued c. devalued d. depreciated

c

Who among the following is most likely to favor an appreciation of the U.S. dollar? a. a German professor visiting Chicago b. an American farmer who depends on exports c. an American professor on a tour of Austrian universities d. Disney World in Orlando, Florida, a popular destination for foreign tourists

c

f Americans decide to buy more South African diamonds, what is the effect in the foreign market? a. It will increase demand for U.S. dollars. b. It will decrease demand for U.S. dollars. c. It will increase supply of U.S. dollars. d. It will decrease supply of U.S. dollars.

c

f the U.S. purchases oil from Venezuela, what is the effect in the foreign exchange market? a. It will increase demand for U.S. dollars. b. It will decrease demand for U.S. dollars. c. It will increase supply of U.S. dollars. d. It will decrease supply of U.S. dollars.

c

f the dollar appreciates, it can be said that a. foreigners respect the United States more. b. it increases in value within the United States. c. other currencies depreciate. d. it takes more dollars to buy foreign currencies

c

he exchange rate a. is the ratio of two countries' GDPs. b. is the rate at which one country's money is flowing into another country. c. states the price of one currency in terms of another currency. d. is closely related to the concept of absolute advantage.

c

if a country is in a major recessionary phase of the business cycle, one can expect that its currency will a. revalue. b. devalue. c. appreciate. d. depreciate.

c

Assuming free trade between countries, exchange rates will change so that goods cost the same in all countries. This concept is known as the a. long-run equilibrium theory. b. exchange rate equalization theory. c. interest rate parity theory. d. purchasing power parity theory.

d

Can the U.S. dollar and the European euro both appreciate relative to each other? a. Yes, both countries can gain in this manner. b. Yes, provided the central banks permit it. c. No, unless there is a system of fixed exchange rates. d. No, if one currency appreciates, the other must depreciate.

d

If a country is in a strong upward phase of the business cycle, one can expect that its currency will a. revalue. b. devalue. c. appreciate. d. depreciate.

d

If nations erect tariffs and quotas to restrict trade, what is likely to happen to predicted values of currencies drawn from the purchasing power parity theory? a. They will be understated for tariffs and overstated for quotas. b. They will be overstated for tariffs and understated for quotas. c. They will be the correct values. d. They will be incorrect.

d

If the dollar depreciates, it can be said that a. foreign countries no longer respect the United States. b. it falls in value within the United States. c. it takes fewer dollars to buy foreign currencies. d. other currencies appreciate.

d

Is it possible for a currency to appreciate relative to one currency, and depreciate relative to another? a. No, a currency rises or falls against all currencies. b. No, this could happen only under the gold standard. c. Yes, but only if all governments agree on the new rates. d. Yes, this is possible in a world of floating rates.

d

Many experts believe that the major determinant of exchange rates in the short run is relative a. price levels. b. income levels. c. money supplies. d. interest rates.

d

On May 11, 2011, it cost 11.601 Mexican pesos to buy one U.S. dollar. How many U.S. dollars did it take to buy a Mexican peso? a. $11.11 b. $10.82 c. $8.92 d. $0.09

d

Prices of European goods are rising faster than prices of similar goods in the United States. Consequently Europeans substitute American goods for European goods and the euro depreciates. This phenomenon is the basis of a. Ricardo's Law. b. comparative advantage. c. absolute advantage. d. purchasing power parity.

d

The currency value of Agraria is set by government decree. Which of the following happens when the government alters the exchange rate so that its currency can buy more units of foreign currency? a. Reflation b. Devaluation c. Appreciation d. Revaluation

d

The exchange rate is a. another term for "interest rate." b. another term for "growth rate." c. the rate at which goods trade for one another across international borders. d. the price of one currency in terms of another currency.

d

The exchange rate of Country X is set by government decisions and maintained by government actions. Country X follows a a. floating exchange rate policy. b. free market exchange rate policy. c. pegged exchange rate policy. d. fixed exchange rate policy.

d

Under the gold standard, a. no nation had control of its domestic monetary policy, and therefore no nation could control its aggregate demand. b. the world's commerce was at the mercy of gold discoveries. c. discoveries of gold meant higher prices in the long run and higher real economic activity in the short run. d. All of the above are correct.

d

Which of the following statements is correct? a. In the short run, interest rate differentials have the greatest impact on exchange rates. b. In the medium run, differences in growth rates of aggregate demand have the greatest impact on exchange rates. c. In the long run, price and inflation differentials have the greatest impact on exchange rates. d. All of the above are correct.

d

Which of the following would cause a decrease in the demand for U.S. dollars? a. an economic boom in the United States b. an economic boom in Europe c. increased vacations in the United States by Europeans d. a recession in Europe

d

Why does anyone demand foreign currency? a. international trade in goods and services b. international trade in financial assets c. purchases of physical assets overseas d. All of the above are correct.

d

in the long run, the chief determinant of exchange rate changes is a change in a. interest rates. b. real GDP. c. the price of gold. d. price levels.

d