ECO 302 Week 11 Quiz - Strayer
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Chapter 17 and 18
TRUE/FALSE
1.With an international sector real GNP is consumption plus
gross investment plus government purchases plus net real asset
income from abroad.
2.The balance of trade is net exports or imports less
exports.
3.A higher current account deficit is caused by a declining
domestic economy.
4.The real current account balance is real national saving less
net domestic investment.
5.Tariffs and quotas lead to a higher real GDP growth rate in
the country imposing them.
6.The law of one price says that there must be a unique price
for a good in each location where it is sold.
7.If the home country has a real GNP which is greater than real
domestic expenditure, then the home country has a current-account
deficit.
8.Foreign direct investment occurs when the home country
acquires additional ownership of capital located in the rest of the
world.
9.If the home country has negative trade balance, then its real
GDP is less than real domestic expenditure.
10.The equilibrium business-cycle model predicts that the real
current-account balance will be countercyclical.
MULTIPLE CHOICE
1.The law of one price:a.prohibits price discrimination.c.is a
tax on imports.b.is that markets work to ensure that the same good
has the same price in all locations.d.prohibits price increases
unless firms can show their are unusual circumstances.
2.The difference between real GDP in a closed economy and real
GNP in a open economy is:a.net real asset income from abroad. c.net
international investment position.b.net imports. d.the trade
balance.
3.Real GNP in an open economy is:a.the closed economy real
output less net real asset income from abroad. c.the closed economy
real output less gross real asset income from abroad. b.the closed
economy real output plus gross real asset income from abroad. d.the
closed economy real output plus net real asset income from
abroad.
4.Net real asset income from abroad is:a.rt-1Bft-1/P.c.(Bft -
Bft-1)/P.b.Yt - (Ct +It +Gt ).d.((Bft - Bft-1)/P) -
(rt-1Bft-1/P).
5.Net real foreign investment is:a.rt-1Bft-1/P.c.(Bft -
Bft-1)/P.b.Yt - (Ct +It +Gt ).d.((Bft - Bft-1)/P) -
(rt-1Bft-1/P).
6.The trade balance is:a.rt-1Bft-1/P.c.(Bft - Bft-1)/P.b.Yt -
(Ct +It +Gt ).d.((Bft - Bft-1)/P) - (rt-1Bft-1/P).
7.The balance on the current
account:a.rt-1Bft-1/P.c.(rt-1Bft-1/P) + ((Bft - Bft-1)/P).b.Yt +
(rt-1Bft-1/P) - (Ct +It +Gt ).d.((Bft - Bft-1)/P) -
(rt-1Bft-1/P).
8.The balance on the current account is:a.real GNP less net
foreign investment income.c.real GNP less the net international
investment position.b.real GNP less net foreign investment.d.real
GNP less real domestic expenditure.
9.The real current-account balance is:a.net real asset income
from abroad less trade balance c.trade balance times the net real
asset income from abroad.b.trade balance plus the net real asset
income from abroad.d.trade balance less the net real income from
abroad.
10.The real current account balance equals:a.net foreign
investments. c.the trade balance plus net real asset income from
abroad.b.real GNP less real domestic expenditure.d.all of the
above.
11.The real current account balance equals:a.net foreign
investments. c.the trade balance.b.the net international investment
position. d.all of the above.
12.The real current account balance equals:a.the trade
balance.c.the net international investment position. b.real GNP
less real domestic expenditure.d.all of the above.
13.The real current account balance equalsa.the net
international investment position. c.the trade balance plus net
real asset income from abroad.b.the trade balance. d.all of the
above.
14.The trade balance is:a.the difference between exports and
imports. c.the real current-account balance less net real asset
income from abroad.b.real GDP less real domestic expenditure. d.all
of the above.
15.The trade balance is:a.the difference between exports and
imports. c.net foreign investment.b.real asset income from
abroad.d.all of the above.
16.The trade balance is:a.the balance on the current
account.c.net foreign investment.b.real GDP less real domestic
expenditure. d.all of the above.
17.The trade balance is:a.net foreign investment.c.the real
current-account balance less net real asset income from
abroad.b.the net international investment position.d.all of the
above.
18.In the market clearing model with world markets for goods and
credit, an increase in technology, A, in the home country
causes:a.an increase in the MPK.c.an increase in borrowing from
foreigners.b.an increase in home country gross domestic
investment.d.all of the above.
19.In the market clearing model with world markets for goods and
credit, an increase in technology, A, in the home country
causes:a.an increase in the MPK.c.an increase in lending to
foreigners.b.an decrease in home country gross domestic
investment.d.all of the above.
20.In the market clearing model with world markets for goods and
credit, an increase in technology, A, in the home country
causes:a.an decrease in the MPK.c.an increase in lending to
foreigners.b.an increase in home country gross domestic
investment.d.all of the above.
21.In the market clearing model with world markets for goods and
credit, an increase in technology, A, in the home country
causes:a.a decrease in the MPK.c.an increase in borrowing from
foreigners.b.a decrease in gross domestic investment.d.all of the
above.
22.In the market clearing model with world markets for goods and
credit, an increase in technology, A, in the home country
causes:a.a larger current account deficit.c.a lower MPK.b.a smaller
current account deficit.d.lower domestic gross investment.
23.In the market clearing model with world markets for goods and
credit, a decrease in technology, A, in the home country causes:a.a
larger current account deficit.c.a higher MPK.b.a smaller current
account deficit.d.higher domestic gross investment.
24.The open economy equilibrium business-cycle model predicts
that the real current account balance will
be:a.acyclical.c.countercyclical.b.procyclical.d.exogenous.
25.The open economy equilibrium business-cycle model predicts
that the real current account balance will be:a.the same in
expansions and recession.c.high in expansions and low in
recessions.b.low in expansions and high in recessions.d.invariant
with the business cycle.
26.In US data the real current account balance is:a.procyclical
when the model predicts it will be
countercyclical.c.countercyclical when the model predicts it will
be procyclical.b.procyclical as the model
predicts.d.countercyclical as the model predicts.
27.In US data the real current account balance
is:a.procyclical.c.countercyclical.b.weakly procyclical.d.weakly
countercyclical.
28.While according to the model the current account balance will
be countercyclical, the balance can also decline due to:a.a
temporary negative shock like a harvest failure.c.a temporary
increase in government purchases as in war time.b.a less developed
country having a low capital stock. d.all of the above.
29.While according to the model the current account balance will
be countercyclical, the balance can also decline due to:a.a
temporary negative shock like a harvest failure.c.a permanent
decrease in government purchases.b.a less developed country having
poor institutions for growth.d.all of the above.
30.While according to the model the current account balance will
be countercyclical, the balance can also decline due to:a.a
temporary positive shock like a good harvest.c.a permanent decrease
in government purchases.b.a less developed country having a low
capital stock. d.all of the above.
31.While according to the model the current account balance will
be countercyclical, the balance can also decline due to:a.a
temporary positive shock like a positive harvestc.a temporary
increase in government purchases as in war time.b.a less developed
country having a high capital stock. d.all of the above.
32.In the Ricardian case, if the government budget deficit is
increased, then the trade balance:a.moves toward a deficit too.
c.is unaffected.b.moves toward a surplus.d.is exogenous.
33.The terms of trade are:a.($ per home good)/($ per foreign
good). c.foreign good per home good.b.the number of units of
foreign goods that can be imported for each unit of home goods
exported. d.all of the above.
34.The terms of trade are:a.($ per home good)/($ per foreign
good). c.home good per foreign good.b.the number of units of home
goods that can be exported for each unit of foreign goods
imported.d.all of the above.
35.The terms of trade are:a.($ per foreign good)/($ per home
good). c.home good per foreign good.b.the number of units of
foreign goods that can be imported for each unit of home goods
exported. d.all of the above.
36.The terms of trade are:a.($ per home foreign/($ per home
good). c.foreign good per home good.b.the number of units of home
goods that can be exported for each unit of foreign goods
imported.d.all of the above.
37.An increase in the terms of trade:a.raises real GDP.
c.increases real national saving if the change in terms of trade is
less than fully permanent.b.increases consumption.d.all of the
above.
38.An increase in the terms of trade:a.raises real GDP. c.lowers
real national saving. b.decreases consumption.d.all of the
above.
39.An increase in the terms of trade:a.reduces real GDP.
c.lowers real national saving.b.increases consumption.d.all of the
above.
40.An increase in the terms of trade:a.reduces real GDP.
c.increases real national saving if the change in terms of trade is
less than fully permanent.b.decreases consumption.d.all of the
above.
41.A decrease in the terms of trade:a.reduces real GDP.
c.decreases real national saving if the change in terms of trade is
less than fully permanent.b.decreases consumption.d.all of the
above.
42.A decrease in the terms of trade:a.reduces real GDP.
c.increases real national saving if the change in terms of trade is
less than fully permanent.b.increases consumption.d.all of the
above.
43.If the government reduces tariffs or quotas on imports,
then:a.real GDP will increase.c.net domestic investment will
rise.b.the real current account balance falls.d.all of the
above.
44.If the government reduces tariffs or quotas on imports,
then:a.real GDP will increase.c.net domestic investment will
fall.b.the real current account balance rises.d.all of the
above.
45.If the government reduces tariffs or quotas on imports,
then:a.real GDP will decrease.c.net domestic investment will
fall.b.the real current account balance falls.d.all of the
above.
46.If the government reduces tariffs or quotas on imports,
then:a.real GDP will decrease.c.net domestic investment will
rise.b.the real current account balance rises.d.all of the
above.
47.If the government imposes or increases tariffs or quotas on
imports, then:a.real GDP will decrease.c.net domestic investment
will fall.b.the real current account balance rises.d.all of the
above.
48.If the government imposes or increases tariffs or quotas on
imports, then:a.real GDP will decrease.c.net domestic investment
will rise.b.the real current account balance falls.d.all of the
above.
49.If the government imposes or increases tariffs or quotas on
imports, then:a.real GDP will increase.c.net domestic investment
will rise.b.the real current account balance rises.d.all of the
above.
50.If the government reduces tariffs or quotas on imports,
then:a.real GDP will increase.c.net domestic investment will
fall.b.the real current account balance falls.d.all of the
above.
51.If we observe that the price of a good is higher in one
location than in another location, this observationa.violates the
law of one price.c.violates the law of one GDP.b.validates the law
of one price.d.validates the law of one GDP.
52.Foreign direct investment isa.the home countrys additional
supply of labor to the rest of the world.c.the home countrys
additional demand for labor from the rest of the world.b.the home
countrys additional ownership of capital in the rest of the
world.d.the foreign countrys additional demand for labor in the
home country.
53.When the home country acquires additional ownership of
capital located in the rest of the world, it has isa.reduced
foreign indirect investment.c.acquired foreign direct
investment.b.acquired foreign divested investment.d.reduced foreign
direct intervention.
54.Real gross national product in an open economy includesa.real
GDP.c.net real labor costs from abroad.b.net real asset income from
abroad.d.(a) and (b).
55.If the home country has a real GNP which is greater than real
domestic expenditure, then the home country hasa.a current-account
suplus.c.balance on the current account.b.a current-account
deficit.d.none of the above.
56.If the home country has a real GNP which is less than real
domestic expenditure, then the home country hasa.a current-account
suplus.c.balance on the current account.b.a current-account
deficit.d.none of the above.
57.If the home country has a real GNP which is equal to real
domestic expenditure, then the home country hasa.a current-account
suplus.c.balance on the current account.b.a current-account
deficit.d.none of the above.
58.If the home country has a real GNP which is greater than net
foreign investment, then the home country hasa.a current-account
suplus.c.balance on the current account.b.a current-account
deficit.d.none of the above.
59.If the home country has a real GDP which is greater than real
domestic expenditure, then the home country hasa.a trade balance
that is positive.c.a trade balance that is zero.b.a trade balance
that is negative.d.none of the above.
60.If the home country has a real GDP which is less than real
domestic expenditure, then the home country hasa.a trade balance
that is positive.c.a trade balance that is zero.b.a trade balance
that is negative.d.none of the above.
61.Historical data on the U.S. current account balance showa.a
deficit from the turn of the twentieth century through the
mid-1970s.c.a surplus for the twentieth century through the
mid-1970s.b.a surplus in most of the past two decades.d.a zero
current account balance for most of the twentieth century.
62.Historical data on the U.S. current account balance show that
one of the largest ratios for the current-account balance relative
to GDP occurreda.as a surplus, in the early 1970s.c.as a surplus,
in the early 2000s.b.as a deficit, in the early 1990s.d.as a
deficit, in the early 2000s.
63.Historical data on the ratio of U.S. nominal exports and
imports to GDP showa.a generally rising ratio since 1950.c.a
generally positive but steady ratio since 1950.b.a generally
falling ratio since 1950.d.a ratio hovering around zero since
1950.
64.Historical data on the ratio of U.S. net international
investment to GDP showa.a steady increase in the ratio since
1980.c.a steady ratio since 1980.b.a steady decline in the ratio
since 1980.d.no discernable pattern in the ratio since 1980.
65.Historical data on the ratio of U.S. net factor income from
abroad to GDP showa.a steady increase in the ratio since 1980.c.a
peak in the ratio around 1980, followed by a decline through
1987.b.a steady decline in the ratio since 1960.d.no discernable
pattern in the ratio since 1980.
66.A developing country with good prospects means that the
countrys current-account balance would likely
bea.negative.c.zero.b.positive.d.impossible to determine.
SHORT ANSWER
1.What is the real current account balance?
2.What are the effects of a permanent increase in technology in
the open market clearing model?
3.What does the open market clearing model predict about the
association of the real current account balance and real GDP growth
and what do the data on the US show?
4.Does a government budget deficit lead to a real
current-account deficit?
5.What are the effects of reducing tariffs and quotas in the
open market clearing model?
Chapter 18
TRUE/FALSE
1.If the dollar per yen exchange rate rises, then so does the
value of the dollar.
2.When absolute purchasing power parity holds, the real exchange
rate is 1.
3.Relative purchasing power parity says that the country with
the higher inflation rate will see its currency depreciate.
4. The interest rate differential between two countries is the
real interest rate.
5.If a country fixes its exchange rate, it gives up control of
its money supply.
6.The nominal exchange rate is measured by quantities of
currencies exchanged, while the real exchange rate is measured by
quantities of goods exchanged.
7.Fixed exchange rates are determined by market forces.
8.Flexible exchange rates are determined by market forces.
9.Poorer countries tend to have high real exchange rates because
the prices for nontradable goods is low in these countries.
10.The combination of interest rate parity and relative
purchasing power parity implies that expected real incomes are the
same in the home country and the foreign country.
MULTIPLE CHOICE
1.The nominal exchange rate is:a.foreign good per home
good.c.the number of units of foreign currency per one unit of the
home currency.b.the number of units of foreign currency per one
unit of home currency divided by the ratio of the foreign price
level to the home price level.d.all of the above.
2.The real exchange rate is:a.foreign good per home good.c.the
number of units of foreign currency per one unit of the home
currency.b.nominal exchange rate divided by the ratio of the
foreign price level to the home price level.d.all of the above.
3.Flexible exchange rates are determined by:a.the market.c.the
UN.b.the home country government.d.the International Monetary
Fund.
4.Fixed exchange rates are determined by:a.the market.c.the
UN.b.the governments of the two countries.d.the International
Monetary Fund.
5.Purchasing power parity is the idea that:a.the nominal
exchange equals the ratio of the foreign price to the home
price.c.the nominal exchange equals the home price less the foreign
price.b.the nominal exchange rate equals the foreign price time the
home price.d.the nominal exchange equals the home price less the
foreign price.
6.Purchasing power parity may not hold due to:a.inflation.
c.market clearing.b.nontraded goods such as services.d.all of the
above.
7.Purchasing power parity may not hold due to:a.inflation.
c.shifts in the terms of trade. b.market clearing. d.all of the
above.
8.Absolutely purchasing power parity means:a.the quantity of
goods that can be bought in the home country equals the quantity of
good that can be bought in the foreign country. c.the nominal
exchange rate is the ratio of the foreign price to the home price.
b.buying and selling goods looks equally attractive in both
countries. d.all of the above.
9.Absolute purchasing power parity means:a.the quantity of goods
that can be bought in the home country equals the quantity of good
that can be bought in the foreign country. c.the nominal exchange
rate is the ratio of the home price to the world price. b.buying
and selling goods looks more attractive in the home country. d.all
of the above.
10.Absolute purchasing power parity means:a.the quantity of
goods that can be bought in the home country is greater than the
quantity of goods that can be bought in the foreign country. c.the
nominal exchange rate is the ratio of the foreign price to the
world price. b.buying and selling goods looks equally attractive in
both countries. d.all of the above.
11.Absolutely purchasing power parity means:a.the quantity of
goods that can be bought in the home country is greater than the
quantity of goods that can be bought in the foreign country. c.the
nominal exchange rate is the ratio of the foreign price to the home
price. b.buying and selling goods looks more attractive in the home
country. d.all of the above.
12.Non-traded goods include:a.personal services like
haircuts.c.consumer goods like shirts.b.durable goods like tv
sets.d.all of the above.
13.Non-traded goods include:a.commodities like wheat.c.consumer
goods like shirts.b.real estate.d.all of the above.
14.Relative purchasing power parity says that:a.the growth rate
of the nominal exchange rate is the foreign inflation rate less the
home inflation rate.c.the growth rate of the nominal exchange rate
is the home inflation rate plus the foreign inflation rate.b.the
growth rate of the nominal exchange rate is the foreign inflation
rate times the home inflation rate.d.the growth rate of the nominal
exchange rate is the foreign inflation rate divided by the home
inflation rate.
15.Relative purchasing power parity implies a country will see
its currency fall in value, if a.its inflation rate is lower than
the foreign inflation rate. c.its inflation rate is higher than the
foreign inflation rate. b.its price level is higher than the
foreign price level.d.its price level is lower than the foreign
price level.
16.Relative purchasing power parity implies a country will see
its currency rise in value, if a.its inflation rate is lower than
the foreign inflation rate. c.its inflation rate is higher than the
foreign inflation rate. b.its price level is higher than the
foreign price level.d.its price level is lower than the foreign
price level.
17.Relative purchasing power parity implies a country will see
its currency keep the same value, if a.its inflation rate is lower
than the foreign inflation rate. c.its inflation rate is equal to
the foreign inflation rate. b.its price level is higher than the
foreign price level.d.its price level is equal to the foreign price
level.
18.If the home inflation rate is 5% and the foreign inflation
rate is 9%, then by relative purchasing power parity the home
country would expect is exchange rate to:a.rise in value by
5%.c.rise value by 4%.b.fall in value by 5%.d.fall in value by
4%.
19.If the home inflation rate is 9% and the foreign inflation
rate is 5%, then by relative purchasing power parity the home
country would expect is exchange rate to:a.rise in value by
5%.c.rise value by 4%.b.fall in value by 5%.d.fall in value by
4%.
20.If the home inflation rate is 5% and the foreign inflation
rate is 5%, then by relative purchasing power parity the home
country would expect is exchange rate to:a.rise in value by
5%.c.have no change in its value.b.fall in value by 5%.d.fall in
value by 10%.
21.Interest rate parity says that:a.the interest rate
differential is the growth rate of the nominal exchange rate. c.the
interest rate differential is the growth rate of the real exchange
rate. b.the interest rate differential is ratio of the foreign
price level to the home price level. d.the interest rate
differential is ratio of the home price level to the foreign price
level.
22.If the home interest rate is 5% and the foreign interest rate
is 7%, then the expected growth of the nominal exchange rate
is:a.2%.c.-2%.b.5%.d.-12%.
23.If the home interest rate is 5% and the foreign interest rate
is 7%, then the difference in the expected inflation rates
is:a.2%.c.-2%.b.5%.d.-12%.
24.If the home interest rate is 7% and the foreign interest rate
is 5%, then the expected growth of the nominal exchange rate
is:a.2%.c.-2%.b.7%.d.-12%.
25.If the home interest rate is 7% and the foreign interest rate
is 5%, then the difference in the expected inflation rates
is:a.2%.c.-2%.b.7%.d.-12%.
26.If absolute purchasing power parity holds, under fixed
exchange rates:a.the home interest rate equals the foreign interest
rate.c.the growth rate of the nominal exchange rate is zero.b.the
home inflation rate equals the foreign inflation rate.d.all of the
above.
27.If absolute purchasing power parity holds, under fixed
exchange rates:a.the home interest rate equals the foreign interest
rate.c.the growth rate of the nominal exchange rate is
positive.b.the home inflation is lower than the foreign inflation
rate.d.all of the above.
28.If absolute purchasing power parity holds, under fixed
exchange rates:a.the home interest rate is higher than the foreign
interest rate.c.the growth rate of the nominal exchange rate is
negative.b.the home inflation rate equals the foreign inflation
rate.d.all of the above.
29.If absolute purchasing power parity holds, under fixed
exchange rates:a.the home interest rate is higher than the foreign
interest rate.c.the growth rate of the nominal exchange rate is
zero.b.the home inflation rate is lower than the foreign inflation
rate.d.all of the above.
30.If a country with a fixed exchange rate tries to raise its
money stock it will:a.see its central bank gain domestic government
bonds. c.see its money stock fall back to its initial level.b.see
its central bank lose international reserves. d.all of the
above.
31.If a country with a fixed exchange rate tries to raise its
money stock it will:a.see its central bank gain domestic government
bonds. c.see its money stock continue to rise.b.see its central
bank gain international reserves. d.all of the above.
32.If a country with a fixed exchange rate tries to raise its
money stock:a.see its central bank lose domestic government bonds.
c.see its money stock continue to rise.b.see its central bank lose
international reserves. d.all of the above.
33.If a country with a fixed exchange rate tries to raise its
money stock:a.see its central bank lose domestic government bonds.
c.see its money stock fall back to its initial level.b.see its
central bank gain international reserves. d.all of the above.
34.A revaluation is when a country:a.allows its currencys value
to float.c.lowers the fixed value of its currency.b.raises the
fixed value of its currency.d.allows its currency value to be set
by the market.
35.A devaluation is when a country:a.allows its currencys value
to float.c.lowers the fixed value of its currency.b.raises the
fixed value of its currency.d.allows its currency value to be set
by the market.
36.A depreciation is when the value of a countrys currency:a.is
fixed by the government. c.falls in value in the exchange
market.b.rises in value in the exchange market. d.is fixed in
relationship to gold.
37.An appreciation is when the value of a countrys currency:a.is
fixed by the government. c.falls in value in the exchange
market.b.rises in value in the exchange market. d.is fixed in
relationship to gold.
38.Under a fixed exchange rate regime, losses of international
reserves imply that:a.the pressure on a country that needs to
devalue it currency is greater.c.countries are not under much
pressure to change the value of their currency.b.the pressure on a
country that needs to revalue its currency is greater.d.countries
can not change the value of their currencies.
39.Fixed exchange rates:a.facilitate transactions between
countries compared to floating exchange rates.c.constrain monetary
policy officials. b.make monetary policy interdependent between the
countries fixing their exchange rate.d.all of the above.
40.Fixed exchange rates:a.facilitate transactions between
countries compared to floating exchange rates.c.give domestic
monetary policy officials more autonomy. b.make monetary policy
independent between the countries fixing their exchange rate.d.all
of the above.
41.Fixed exchange rates:a.make transactions between countries
riskier compared to floating exchange rates.c.give domestic
monetary policy officials more autonomy. b.make monetary policy
interdependent between the countries fixing their exchange
rate.d.all of the above.
42.Fixed exchange rates:a.make transactions between countries
riskier compared to floating exchange rates.c.constrain monetary
policy officials. b.make monetary policy independent between the
countries fixing their exchange rate.d.all of the above.
43.Floating exchange rates:a.make transactions between countries
more difficult.c.provide autonomy for monetary policy authorities.
b.make monetary policy independent.d.all of the above.
44.Floating exchange rates:a.make transactions between countries
more difficult. c.constrain monetary policy officials. b.make
monetary policy interdependent between the countries.d.all of the
above.
45.Floating exchange rates:a.make transactions between countries
easier.c.constrain monetary policy officials. b.make monetary
policy independent.d.all of the above.
46.Floating exchange rates:a.make transactions between countries
easier.c.provide autonomy for monetary policy authorities. b.make
monetary policy interdependent between the countries.d.all of the
above.
47.Under fixed exchange rates a countrys:a.money supply is
fixed.c.monetary policy makers are not independent.b.inflation rate
is fixed. d.all of the above.
48.Under fixed exchange rates a countrys:a.money supply is
fixed.c.monetary policy makers are independent.b.inflation rate
will rise. d.all of the above.
49.Under fixed exchange rates a countrys:a.money supply is
domestically controlled. c.monetary policy makers are
independent.b.inflation rate is fixed. d.all of the above.
50.Under fixed exchange rates a countrys:a.money supply is
domestically controlled.c.monetary policy makers are not
independent.b.inflation rate will rise. d.all of the above.
51.Suppose the exchange rate between the U.S. dollar and the
Argentinian peso is 3 pesos per dollar today. It rises to 3.1 pesos
per dollar the next day. This means the dollar hasa.appreciated and
the peso has depreciated.c.appreciated, and the peso has
appreciated.b.depreciated and the peso has
appreciated.d.depreciated, and the peso has depreciated.
52.In 1950, one U.S. dollar bought 361 Japanese yen, and in
2006, one U.S. dollar bought 117 yen. The U.S. dollara.gained over
half of its value in terms of yen.c.appreciated relative to the
yen.b.lost over half of its value in terms of yen.d.appreciated
relative to most of the worlds currencies.
53.If a countrys government intervenes often in the exchange
rate market, then the countrya.is operating closer to a flexible
exchange-rate model than a fixed exchange-rate model.c.is operating
closer to a fixed exchange-rate model than a flexible exchange-rate
model.b.will experience repeated appreciations of its currency.d.is
not a member of the International Monetary Fund (IMF).
54.At a simplified level, purchasing power parity makes sense
because, if it did not, housefholds woulda.want to purchase all of
their goods in one place, the more expensive country.c.not want to
purchase any goods from either country.b.want to purchase equal
portions of their goods in each country.d.want to purchase all of
their goods in one place, the cheaper country.
55.The real exchange rate is measured in units ofa.goods bought
in the foreign country relative to goods bought in the home
country.c.labor supply in the foreign country relative to labor
supply in the home country.b.prices in the foreign country relative
to prices in the home country.d.none of the above.
56.If you can buy one pound of flour for $1.25 in the U.S. and
one pound of flour for 0.75 (pounds) in the U.K., then purchasing
power parity implies thea.real exchange rate is 1.25 per
$.c.nominal exchange rate is 1.67 per $.b.nominal exchange rate is
0.6 per $.d.real exchange rate is 0.6 per $.
57.Purchasing power parity implies thea.nominal exchange rate
equals one.c.real exchange rate equals one.b.nominal exchange is
greater than one.d.real exchange rate is less than one.
58.The Balassa-Samuelson hypothesis identifies a pattern of poor
countries havinga.low nominal exchange rates.c.low real exchange
rates.b.high nominal exchange rates.d.high real exchange rates.
59.The pattern of real exchange rates across countries that is
identified by the Balassa-Samuelson hypothesis occurs
becausea.low-income countries tend to have low prices for
nontradable goods.c.low-income countries tend to have low prices
for tradable goods.b.low-income countries tend to have high prices
for nontradable goods.d.low-income countries tend to have low real
exchange rates.
60.The combination of interest-rate parity and relative
purchasing power parity leads to the conclusion that thea.foreign
expected real interest rate is greater than the home expected real
interest rate.c.foreign expected nominal interest rate equals the
home expected real interest rate.b.foreign expected real interest
rate equals the home expected real interest rate.d.foreign expected
nominal interest rate equals the home expected nominal interest
rate.
61.The Bretton Woods System refers toa.the flexible
exchange-rate system that the International Monetary Fund (IMF)
prefers.c.the fixed exchange-rate regime which linked other
currencies to the dollar and the dollar to gold.b.the flexible
exchange-rate regime introduced just after World War II that gave
France the major role in stabilizing currencies.d.the fixed
exchange-rate regime which linked the U.S. and other currencies to
silver.
62.Under the Bretton Woods System, the U.S. dollara.was allowed
to vary around a wide band compared to other participating
countries.c.was not fixed, but the U.S. nominal interest rate was
fixed relative to other participating countries.b.varied according
to market conditions, but the other participating countries did not
allow their currencies to vary.d.was the only participating
currency linked directly to gold.
63.If the country of Colombia decides to fix its nominal
exchange rate with the U.S. dollar, then in the long run, it will
havea.roughly the same inflation rate as the U.S.c.roughly the same
real GDP as the U.S.b.a higher inflation rate than the inflation
rate for the U.S.d.a higher real GDP than the real GDP in the
U.S.
64.One reason that a country with a record of high inflation
might want to fix its nominal exchange rate with the U.S. dollar is
thata.the country will, in the long run, have about the same
inflation rate as the U.S.c.the fixed exchange-rate will act as a
monetary-policy rule which prevents the country from reneging on a
pledge of low inflation.b.the fixed exchange-rate will help the
country gain credibility in fighting high inflation.d.all of the
above.
65.In exchange rate policy, sterilization refers toa.the markets
ability to clear excess quantities of currency supplied
rapidly.c.anti-crime laws the U.S. passed to prevent money
laundering.b.the central banks attempt to offset an initial
intervention in the exchange market.d.the process the International
Monetary Fund (IMF) uses to lend to a country in need.
66.In a fixed exchange-rate regime, the money supply
isa.exogenous.c.endogenous.b.interdependent.d.highly skewed.
SHORT ANSWER
1.What is a nominal exchange rate?
2.What is absolute purchasing power parity, what does it imply
and why might it not hold?
3.What is relative purchasing power parity and when does it say
the home country will see its currency lose value?
4.What is interest-rate parity and what does this imply about
when the exchange rate will be stable?
5.What are the advantages of fixed and floating exchange
rates?