ECON CH 16

If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it will: a/cause the exchange rate for U.S. currency to depreciate. b/lower levels of consumption and investment. c/lead to higher imports and lower exports. d/cause the exchange rate for U.S. currency to appreciate.

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

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/how currency speculators react to rumors c/extreme short-term fluctuations d/purchases or sales of foreign currencies

a/inflation or recession

If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to: a/depreciation. b/a floating exchange rate. c/purchasing power parity. d/a hard peg policy.

b/a floating exchange rate.

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

b/interest rates; right

If Australia's exchange rate is stronger than the PPP rate for several years, which of the following will likely result? a/its exports will increase b/its imports will increase c/aggregate demand will increase d/trade deficit will decrease

b/its imports will increase

The Canadian dollar will most likely strengthen against the U.S. dollar if: a/interest rates in Canada fall due to exchange rate policies. b/the Canadian inflation rate becomes extremely low. c/U.S. interest rates rise due to exchange rate policies. d/the Canadian dollar is below the PPP exchange rate.

b/the Canadian inflation rate becomes extremely low.

If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then: a/the yen depreciated against the dollar. b/the dollar depreciated against the yen. c/the yen weakened against the dollar. d/the dollar appreciated against the yen.

b/the dollar depreciated against the yen.

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/domestic investments in foreign businesses will decrease. c/government will intervene to peg the nation's currency. d/exchange rates will have less reason to vary.

d/exchange rates will have less reason to vary.

If the Canadian dollar is strengthening, then: a/Canada has adopted a hard peg policy. b/it has been unpegged from other currencies. c/Canada has purchasing power parity. d/it has appreciated in terms of other currencies.

d/it has appreciated in terms of other currencies.

Foreign direct investment is the term used to describe purchases of firms in another country that involve ______________________. a/using another currency b/the exchange rate market c/internationally traded goods across countries d/taking a management responsibility

d/taking a management responsibility

If $1.00 U.S. bought $1.40 Canadian dollars in 2006 and in 2010 it bought $1.00 Canadian dollar, then; a/the Canadian dollar appreciated against the U.S. dollar. b/the U.S. dollar strengthened against the Canadian dollar. c/the Canadian dollar weakened against the Canadian dollar. d/the U.S. dollar appreciated against the Canadian dollar.

a/the Canadian dollar appreciated against the U.S. dollar.

A __________________________ policy in which the government almost never acts to intervene in the exchange rate market will look a great deal like a floating exchange rate. a/hard peg exchange rate b/soft peg exchange rate c/pegged exchange rate d/loose exchange rate

b/soft peg exchange rate

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. a/the market exchange b/the short run c/the long run d/the medium run

b/the short run

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

b/the tools of demand and supply

What do the economies of Greece, Ireland and Germany all share? a/a common currency b/they unpegged their various currencies c/floating rate currencies d/they pegged their various currencies

a/a common currency

Governments that attempt to intervene in exchange rate markets through soft pegs or hard pegs: a/gain the power to use monetary policy to focus on domestic inflations. b/risk causing even greater fluctuations in foreign exchange markets. c/will save an economy that consistently fails at achieving the main economic goals. d/gain the power to use monetary policy to focus on domestic recessions.

b/risk causing even greater fluctuations in foreign exchange markets.

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

b/weakening; less

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

c/Purchasing power parity

Which of the following denotes a common misunderstanding about exchange rates? a/a weaker currency must be better than a stronger currency b/a depreciating currency must be better than an appreciating currency c/an appreciating currency must be better than a depreciating currency d/an appreciating currency must be better than a stronger currency

c/an appreciating currency must be better than a depreciating currency

One of the following groups is not participating in the foreign exchange markets. Which one? a/international investors buying part-ownership of a mining operation in Afghanistan b/Boston business firms trading goods and services with firms in France c/international investors buying bonds issued by a German car manufacturing firm d/an Iowa travel firm that arranges vacation tours for local seniors to Hawaii

d/an Iowa travel firm that arranges vacation tours for local seniors to Hawaii