Macro chap 36 test

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. 0.69

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. 0.82 euros

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. It will increase demand for U.S. dollars.

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. It will increase demand for U.S. dollars.

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. appreciate the dollar and decrease the price of gold.

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. appreciated.

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. euro would rise.

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. raised interest rates.

Speculators play an important role in a system of floating exchange rates because a. to make a profit, they must buy a currency when its value is low and sell it when its value is high. b. their purchases and sales lead to wild gyrations in exchange rates and thus increase instability. c. they place additional risks on businesses that need to purchase and sell foreign currency. d. All of the above are correct.

a. to make a profit, they must buy a currency when its value is low and sell it when its value is high.

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. $34.00

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. 0.04

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. 1.43

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. 325

Which of the following had prompted the Chinese authorities to stand ready to buy or sell dollars steadily and in large volume? a. Huge current account deficit b. Currency pegged to the dollar c. Floating rate policy d. Adherence to the old gold standard

b. Currency pegged to the dollar

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. European demand for U.S. government bonds.

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. It will fall because the United States will import more goods and services, leading to an increased supply of dollars.

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. U.S. exports to foreign countries.

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. an interest rate cut in Europe

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. balance of payments deficit.

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. between every pair of currencies.

Under the Bretton Woods system, a country with a balance of payments deficit a. could get loans from the U.S. government. b. could devalue if deflationary policies failed to eliminate the deficit. c. was not allowed to devalue under any circumstance. d. was required to devalue its currency immediately.

b. could devalue if deflationary policies failed to eliminate the deficit.

In 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. decreased relative to the euro.

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. demand for U.S. dollars.

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. euro would fall.

The term "dirty float" is used to describe a a. black market in foreign currencies. b. floating currency that is "managed" by central bank authorities. c. nation that switches from free to fixed exchange rates. d. currency system used only in inflationary periods.

b. floating currency that is "managed" by central bank authorities.

The advantage of a system of fixed exchange rates over one where exchange rates are flexible is that a. the government gains more control over the economy. b. floating exchange rates impose risks on importers and exporters from unpredictable exchange rates. c. exchange controls become unnecessary. d. fiscal and monetary policy can focus more on domestic conditions.

b. floating exchange rates impose risks on importers and exporters from unpredictable exchange rates.

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. foreign reserves.

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. increase the general price level.

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. interest rate differentials.

The Bretton Woods system worked fairly well for a number of years, but it finally broke down over a. lack of agreement on how to settle the problems of the surplus nations. b. its inability to devalue the U.S. dollar. c. the huge debts of the IMF to less-developed countries. d. the controversies generated by surplus nations wanting to devalue their currencies.

b. its inability to devalue the U.S. dollar.

For developing countries, one of the dangers inherent in the inflows of capital that finance investment is a. increasing unemployment that accompanies foreign investment. b. rapid outflows of funds that put pressure on exchange rates. c. the deflation that accompanies inflows of foreign capital. d. the inflation that accompanies outflows of foreign capital.

b. rapid outflows of funds that put pressure on exchange rates.

To "cure" their balance of payments deficits without altering exchange rates, Southeast Asian countries in 1997 were forced to create a. more inflation. b. recessions. c. faster economic growth. d. money at an accelerated rate.

b. recessions.

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 dollar will appreciate.

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 exchange rate between two nations' currencies adjusts to reflect differences in the price levels in the two nations.

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. the sales of assets.

Under the gold standard of a century ago, the world's commerce a. nearly collapsed before the beginning of World War I. b. was at the mercy of gold discoveries. c. grew steadily without interruption from monetary disturbances. d. grew when the gold stock grew slowly, and shrank when gold discoveries increased.

b. was at the mercy of gold discoveries.

A country with an undervalued currency a. will have a balance of payments deficit. b. will accumulate reserves of foreign currencies. c. will suffer losses of foreign reserves. d. must intervene in the foreign exchange market to buy its own currency.

b. will accumulate reserves of foreign currencies.

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. $1 = 9.30 pesos

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. 1.64

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. 25

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. 62 cents.

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. American demand for European real estate.

The decline in the value of the dollar from 1985 to 1988 was beneficial to a. American tourists travelling to Europe. b. firms importing goods into America. c. American exporting businesses. d. foreigners holding U.S. government bonds.

c. American exporting businesses.

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. Americans purchase land in Germany and build factories.

Why did the Bretton Woods system ultimately break down? a. The refusal of OPEC countries to accept payment for oil in gold. b. The refusal of surplus countries to devalue as required by law. c. An inability to devalue the U.S. dollar despite chronic payments deficits. d. An inability to adequately measure balance of payments surpluses and deficits.

c. An inability to devalue the U.S. dollar despite chronic payments deficits.

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. Demand for dollars will increase causing appreciation of the dollar.

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. Depreciated

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. It will increase supply of Japanese yen.

If 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. It will increase supply of U.S. dollars.

If 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. It will increase supply of U.S. dollars.

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. U.S. bond prices will fall and the dollar will depreciate.

The Bretton Woods agreements were ended when the a. European Common Market was formed. b. OPEC countries raised the price of oil. c. United States was forced to devalue its currency. d. United States recognizedRed China.

c. United States was forced to devalue its currency.

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. an American professor on a tour of Austrian universities

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. appreciate because imports would be expected to fall.

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. assets

One method for a deficit country to correct the situation under a fixed exchange rate system is to a. increase aggregate demand with stimulative monetary policy. b. increase aggregate supply with tax cuts. c. decrease aggregate demand with restrictive fiscal and monetary policy. d. decrease aggregate supply with restrictive fiscal policy.

c. decrease aggregate demand with restrictive fiscal and monetary policy.

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. demand for foreign currencies.

Under the Bretton Woods agreements, a. the IMF was created to punish countries that did not maintain fixed exchange rates. b. a system of fixed exchange rates based on gold was established. c. each country agreed to buy and sell its currency to maintain a fixed exchange rate. d. All of the above are correct.

c. each country agreed to buy and sell its currency to maintain a fixed exchange rate.

A country, such as Argentina in 2002, that is buying its own currency to maintain a given exchange rate a. has a balance of payments surplus. b. has an undervalued currency. c. has an overvalued currency. d. need not fear a "run" on its currency.

c. has an overvalued currency.

In order to "defend" its overvalued currency, Argentina in 2002 had to reduce its a. interest rates. b. tax levels. c. holdings of foreign reserves. d. balance of payments surpluses.

c. holdings of foreign reserves.

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. imports will fall.

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. imports will rise.

Speculation in exchange markets is often thought of as conducive to wild fluctuations in exchange rates. In practice it appears that speculators a. have destabilized several currencies that were at sustainable equilibrium levels. b. have no effect in fixed rate systems. c. in fact tend to stabilize exchange rates rather than destabilize them. d. All of the above are correct.

c. in fact tend to stabilize exchange rates rather than destabilize them.

As the U.S. dollar's foreign exchange value falls, we should expect to see a. more Americans travelling abroad. b. American import levels rising. c. more foreigners visiting the United States. d. increased foreign investment by American firms.

c. more foreigners visiting the United States.

If 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. other currencies depreciate.

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. purchasing power parity theory.

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. quantity supplied of a country's currency exceeds quantity demanded.

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. reduce exports.

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. revalue

The recent experience in Greece, Portugal, and Ireland make the euro a. seem very unlikely to fail because of decreasing debt levels. b. seem very unlikely to fail because of increasing interest rates. c. seem somewhat likely to fail because of increasing debt levels. d. seem somewhat likely to fail because of increasing interest rates.

c. seem somewhat likely to fail because of increasing debt levels.

In a floating exchange market, the exchange rate for pesos and yen will not change when: a. the yen trades at a rate below the equilibrium level b. the peso trades at a rate above the equilibrium level c. the currencies trade at the equilibrium exchange rate d. it will change in all of these situations

c. the currencies trade at the equilibrium exchange rate

An important effect of foreign currency speculators is that a. they have consistently lost money and have left the market. b. they have pushed exchange rates to wider extremes than most economists predicted. c. they actually limit the volatility of exchange rate movements. d. they have had no effect at all on exchange rate volatility.

c. they actually limit the volatility of exchange rate movements.

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. $0.09

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. All of the above are correct.

In the current international monetary system, what is the role for gold? a. The system is a gold-exchange standard, based on a fixed value for a key currency. b. Gold backs each currency, and therefore, the system as a whole. c. It serves as the principal reserve asset. d. It has no role.

d. It has no role.

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. Revaluation

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. They will be incorrect.

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. Yes, this is possible in a world of floating rates.

Suppose that a nation has adopted a fixed exchange rate with another country, and has a persistent trade deficit. What is most likely to happen? a. a gradual increase in the value of its currency b. a gradual decrease in the value of its currency c. a "run" on its currency and a sudden appreciation d. a "run" on its currency and a sudden devaluation

d. a "run" on its currency and a sudden devaluation

Under the Bretton Woods system, devaluation was: a. normal b. routine c. rare d. a last resort

d. a last resort

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. a recession in Europe

Which of the following countries has gone so far as to adopt the U.S. dollar as its domestic currency? a. Panama b. Ecuador c. Zimbabwe d. all of the above

d. all of the above

Countries like Malaysia and Thailand that tried to maintain overvalued currencies in the late 1990s inevitably faced increased a. balance of payments surpluses. b. runs on their currencies. c. balance of payments deficits. d. both b and c

d. both b and c

Lately, the Chinese authorities seem to be backing away from ____ and the Yuan has ____ relative to the dollar. a. managed-float; devalued b. currency peg; depreciated c. floating rate; revalued d. currency peg; appreciated

d. currency peg; appreciated

After being introduced in 1999, the euro a. increased in value through 2008. b. decreased in value through 2008. c. increased in value through 2000 but then decreased in value through 2008. d. decreased in value through 2000 but then increased in value through 2008.

d. decreased in value through 2000 but then increased in value through 2008.

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. depreciate.

Because central banks intervene in currency markets, the term ____ has been used to describe the system. a. planned float b. controlled float c. flexible d. dirty float

d. dirty float

To try and stave off a devaluation of its fixed currency, Argentina was required to a. lower interest rates. b. reduce tax levels. c. increase their money supplies. d. increase interest rates

d. increase interest rates

Under the gold standard, a. each nation had discretion over its monetary policy. b. trade-deficit nations had less control over their money supply than trade-surplus nations. c. trade-surplus nations had less control over their money supply than trade-deficit nations. d. no nation had control over its domestic monetary policy.

d. no nation had control over its domestic monetary policy.

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. other currencies appreciate.

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. purchasing power parity theory.

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. purchasing power parity.