Econ Ch 16 quiz

In 2010, 1 Swiss franc cost .56 British pounds and in 2012 it cost .51 British pounds. How much would 1 British pound purchase in Swiss francs in 2010 and 2012?

2010: 1.79 francs, 2012: 1.96 francs

What do the economies of Greece, Ireland and Germany all share?

a common currency

If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to:

a floating exchange rate.

If American Airlines were to purchase Malaysian Airlines, it would likely have ______________________________ in mind.

a longer-term horizon

Movements in exchange rates can have a powerful effect on incentives to export and import, and thus on ________________ in the economy as a whole.

aggregate demand

If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it will:

cause the exchange rate for U.S. currency to depreciate.

A central bank must be concerned about whether a large and unexpected ___________________________ will drive most of the country's existing banks into bankruptcy.

exchange rate depreciation

People or firms use one currency to purchase another currency at the _______________________.

foreign exchange market

Suppose the diagram above refers to a situation where investors in the US are looking to Japan as a place where they should invest for a future high rate of return, while Japanese investors are looking to lower their investments in the US. The combined effect will

shift the supply curve out, the demand curve shifts in and the value of the dollar decreases.

A soft peg policy typically allows the exchange rate to move up and down by relatively small amounts in _________________, but seeks to avoid extreme short-term fluctuations.

the short run