ECON 202 TEST Answers
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 27-02 Analyze the balance sheet the United States uses to account for the international payments it makes and receives.
Test Bank: I Topic: The Balance of Payments
Suppose the balance on the financialaccount is +$200 billionand the balance on the capital account is +$2 billion. The size ofthe current account is
A. +$200 billion.
B. −$202 billion.
C. −$198 billion.
D. +$2 billion.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 27-02 Analyze the balance sheet the United States uses to account for the international payments it makes and receives.
Test Bank: I Topic: The Balance of Payments
Suppose the balance on the financialaccount is −$300 billionand the balance on the capital account is +$5 billion. The size ofthe current account is
A. +$295 billion.
B. −$295 billion.
C. +$305 billion.
D. +$5 billion.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 27-02 Analyze the balance sheet the United States uses to account for the international payments it makes and receives.
Test Bank: I Topic: The Balance of Payments
Suppose the balance on the currentaccount is +$100 billion and the balance on the capital account is −$1 billion. The balanceon the financial account is
A. +$101 billion.
B. −$100 billion.
C. −$99 billion.
D. −$101 billion.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 27-02 Analyze the balance sheet the United States uses to account for the international payments it makes and receives.
Test Bank: I Topic: The Balance of Payments
Suppose the balance on the currentaccount is +$50 billion and the balance on the capital account is +$1 billion.The balance on the financial account is
−$51 billion.
−$50 billion.
−$49 billion.
D. +$51 billion.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 27-02 Analyze the balance sheet the United States uses to account for the international payments it makes and receives.
Test Bank: I Topic: The Balance of Payments
In the U.S. balance of payments accountfor a certain year, a positive number in the financial account means a
net buildup of assets held by the U.S.
B. net reduction in the ownership of assetsby U.S. interests.
buildup of total foreign debt.
reduction of total foreign debt.
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 27-02 Analyze the balance sheet the United States uses to account for the international payments it makes and receives.
Test Bank: I Topic: The Balance of Payments
With which of the followingcountries does the United States have its largestgoods and services deficit?
Canada
Germany
Japan
D. China
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 27-02 Analyze the balance sheet the United States uses to account for the international payments it makes and receives.
Test Bank: I Topic: The Balance of Payments
A market in which the money of one nation is exchangedfor the money of another nation is a
resource market.
bond market.
stock market.
D. foreign exchange market.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
If the dollarprice of yen rises, then
the yen price of dollars also rises.
B. the dollar depreciates relativeto the yen.
the yen depreciates relativeto the dollar.
the dollarwill buy fewer U.S. goods.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
If the exchange rate between the U.S. dollarand the Japanese yen is $1 = 200 yen, then the dollar price of yen is
A. $0.005.
B. $0.05.
C. $0.50. D. $5.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
The following are hypothetical exchange rates:$1 = 140 yen; 1 Swiss franc = $0.10. We can conclude that
1 yen = 280 Swiss francs.
1 yen = 14 Swiss francs.
1 Swiss franc = 28 yen.
D. 1 Swiss franc = 14 yen.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can concludethat
$1 = 4 euros. B. $1 = 0.5 euro. C. 1 euro = $0.50.
D. 1 euro = $2.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
If the rate ofexchange for a pound is $4, the rate of exchangefor the dollaris
¼ pound.
B. 4 pounds. C. $0.25.
D. $1.00.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
In considering yen and dollars, when the dollar rate of exchange for the yen rises
the yen rate of exchange for the dollarwill fall.
the yen rate of exchangefor the dollarwill also rise.
the yen rate of exchangefor the dollar may either fall or rise.
U.S. net exportsto Japan will fall.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
In considering euros and dollars, the rates of exchangefor the euro and the dollar
are directly related.
B. are inverselyrelated.
are unrelated.
move in the same direction.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
If the equilibrium exchange rate changes so that fewer dollars are neededto buy a SouthKorean won, then
Americans will buy fewer Koreangoods and services.
the won has appreciated in value.
C. fewer U.S. goods and serviceswill be demanded by the South Koreans.
D. the dollar has depreciated in value.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
If the exchange rate changesso that more Mexicanpesos are requiredto buy a dollar,then
the peso has appreciated in value.
B. Americans will buy more Mexicangoods and services.
more U.S. goods and services will be demanded by the Mexicans.
the dollar has depreciated in value.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Depreciation of the dollar will
decrease the prices of both U.S. imports and exports.
increase the prices of both U.S. imports and exports.
decrease the pricesof U.S. imports but increase the pricesto foreigners of U.S. exports.
D. increase the pricesof U.S. imports but decrease the pricesto foreigners of U.S. exports.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Appreciation of the Canadiandollar will
intensify an existingdisequilibrium in Canada's balance of payments.
make Canada'sexports less expensive and its imports more expensive.
C. make Canada's exports more expensive and its imports less expensive.
D. make Canada's exports and imports both more expensive.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
If the U.S. dollar depreciates relative to the Russian ruble, the ruble
will be less expensive to Americans.
may either appreciate or depreciate relative to the dollar.
C. will appreciate relativeto the dollar.
D. will depreciate relativeto the dollar.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
The U.S. demand for Britishpounds is
downsloping because a higher dollar priceof pounds means British goods are cheaperto Americans.
downsloping because a lower dollarprice of pounds means British goods are more expensive to Americans.
upsloping because a lower dollarprice of pounds means British goods are cheaperto Americans.
D. downsloping because a lower dollarprice of pounds means British goods are cheaperto Americans.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
The U.S. supply of Japaneseyen is
downsloping because a lower dollarprice of yen means U.S. goods are cheaper to the Japanese.
B. upsloping because a higher dollar price of yen means U.S. goods are cheaperto the Japanese.
upsloping because a lower dollarprice of yen means U.S. goods are cheaper to the Japanese.
downsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
The U.S. demand for euros is
downsloping because, at lower dollarprices for euros, Americans will want to buy more Europeangoods and services.
downsloping because, at higher dollar prices for euros, Americans will want to buy more Europeangoods and services.
downsloping because the dollar price of euros and the euro price of dollarsare directly related.
upsloping because a higher dollar priceof euros makes European goods and services more attractive to Americans.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Which of the following will generate a demandfor country X's currency in the foreign exchange market?
travel by citizens of country X in othercountries
B. the desireof foreigners to buy stocks and bonds offirms in country X
the imports of countryX
charitable contributions by countryX's citizens to citizens of developing nations
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
66.
The accompanying diagram represents a flexibleexchange marketfor foreign currency. At the equilibrium exchange rate,
$8 will buy 1 euro.
0.8 euros will buy $1.
C. 1.25 euros will buy $1.
D. $1 will buy 8 euros.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Type: Graph
67.
The accompanying diagram represents a flexibleexchange marketfor foreign currency. At the price $0.80 for 1 euro,
A. the quantity of euros demanded equalsthe quantity supplied.
the dollar-euro exchange rate is unstable.
the dollarprice of 1 euro equals the euro price of 1 dollar.
there will bea surplus of euros in the foreignexchange market.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Type: Graph
68.
The accompanying diagram represents a flexible exchange market for foreigncurrency. Other things equal, a rightward shift of the demand curve would
A. depreciate the dollar.
appreciate the dollar.
reduce the equilibrium quantity of euros.
depreciate the euro.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Type: Graph
69.
The accompanying diagram represents a flexible exchangemarket for foreign currency. Other things equal, a leftward shift of the demand curve would
depreciate the dollar.
appreciate the euro.
C. reduce the equilibrium quantity of euros.
D. cause a surplusof euros.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Type: Graph
70.
The accompanying diagram represents a flexibleexchange marketfor foreign currency. Other things equal,a leftward shift of the supplycurve would
A. appreciate the euro.
cause a shortageof euros.
increase the equilibrium quantity of euros.
appreciate the dollar.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Type: Graph
71.
The accompanying diagram represents a flexibleexchange market for foreign currency. Other things equal,a rightward shift of the supplycurve would
appreciate the euro.
cause a surplusof euros.
decrease the equilibrium quantity of euros.
D. appreciate the dollar.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Type: Graph
72.
Refer to the diagram. The initial demand for and supply of pesos are shown by D1 and S1. The exchange rate will be
A. M dollars for one peso.
B. B dollars for one peso.
A dollars for one peso.
C dollars for one peso.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Type: Graph
73.
Refer to the diagram. The initial demand for and supply of pesos are shown by D1 and S1. Suppose the United States reduces its imports of Mexicangoods, shifting its demand for pesos from D1 to D2. If the United States was operating under a system of exchange controls, the U.S. government would
A. find that, at the controlled exchange rate, pesos would be in surplus.
be faced with deteriorating terms of trade.
be faced with the problemof rationing BG pesos to U.S. importers, who want BF pesos.
be faced with the problem of rationing BF pesos to U.S. importers, who want BG pesos.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
Type: Graph
74.
Refer to the diagram. The initial demand for and supply of pesos are shownby D1 and S1. Suppose the United States reduces its imports of Mexicangoods, shifting its demand for pesos from D1 to D2. Under a system of freelyfloating exchange rates,
A. gold would flow from Mexico to the United States.
B. the dollarprice of pesoswould fall from B dollars equals 1 peso to A dollars equals 1 peso.
a problem of rationinga shortage of pesos would arise in the United States.
the dollar price of pesos would increaseto C dollars equals 1 peso.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Type: Graph
Under a systemof freely flexible(floating) exchange rates, a U.S. trade deficitwith Mexico will tend to cause
the U.S. government to ration pesos to U.S. importers.
a flow ofgold from the United States to Mexico.
an increasein the peso price of dollars.
D. an increasein the dollar price of pesos.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Which of the following have substantially equivalent effects on a nation's volume of exportsand imports?
exchange rate appreciation and a decreasein the domesticsupply of money
exchange rate appreciation and domestic deflation
C. exchange rate depreciation and domestic deflation
D. exchange rate depreciation and domestic inflation
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
In a systemof fixed exchange rates,if the dollar price of euros is above the market equilibrium level,
gold will flowfrom the United Statesto Europe.
B. there will be a surplusof euros.
the U.S. government will have to rationeuros to U.S. importers.
there will be a shortageof euros.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
(1)(2)(3)Quantity of Libras Demanded (Billions)Dollar Price of LibrasQuantity of Libras Supplied (Billions)100$532520042003003100400275 78.
The table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra.Assume that a systemof freely floatingexchange rates is in place.The equilibrium dollar price of libras is A. $5.
B. $4.
C. $3.
D. $2.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Type: Table
(1)(2)(3)Quantity of Libras Demanded (Billions)Dollar Price of LibrasQuantity of Libras Supplied (Billions)100$532520042003003100400275 79.
The table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a systemof freely floatingexchange rates is in place. The exchange rate is
A. 4 libras for one dollar.
B. 0.25 libra for one dollar.
0.40 libra for onedollar.
3 libras for one dollar.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Type: Table
(1)(2)(3)Quantity of Libras Demanded (Billions)Dollar Price of LibrasQuantity of Libras Supplied (Billions)100$532520042003003100400275 80.
The table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra.Assume that a system of freely floating exchange rates is in place.Suppose that Libra decided to importmore U.S. products.We would expect the quantity of libras
demanded at each dollar priceto rise and the dollarto depreciate relativeto the libra.
demanded at each dollar price to fall and the dollar to appreciate relativeto the libra.
C. supplied at each dollarprice to rise and the dollar to appreciate relative to the libra.
D. supplied at each dollarprice to fall and the dollarto depreciate relativeto the libra.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Type: Table
In 1985, the exchangerate between the U.S. dollar and the Japanese yen was $1 = 262 yen; in 2003,the rate was $1 = 110 yen. Between 1985 and 2003, the
dollar appreciated in value relative to the yen.
B. yen appreciated in value relative to the dollar.
dollar price of yen fell.
yen price of dollarsrose.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
In 1985, the exchangerate between the U.S. dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen. Which one of the followingmight be a plausibleexplanation for the change in the dollar-yen exchange rate from 1985 to 2003?
Japan exported much more to the United States during this periodthan it importedfrom the United States.
Japan greatlyincreased its purchases of militaryequipment from the United States during this period.
Japan's economy grewfar faster than the U.S. economy during this period.
Japan's government devalued the yen during this period.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Under a systemof flexible exchangerates, an increasein the international value of a nation's currency will
cause an international surplus of its currency.
contribute to disequilibrium in its balanceof payments.
cause gold to flow into that country.
D. cause its imports to rise.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
According to the purchasing power paritytheory of exchangerates,
a dollar, when converted to other currencies at the prevailing floating exchange rate, has the same purchasing powerin various countries.
in equilibrium, national currencies have equal value in terms of gold.
the higher a nation'sprice level in terms of its own currency, the greater is the amount of foreign exchangeit can obtain for a unit of its currency.
nominal currency values will tend to equalize (become 1 = 1) in the long run.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
The idea that freelyfloating exchange rates equate the buying power of national currencies is called
the equation of exchange.
the balance of payments.
Say's Law.
D. the purchasing power parity theory.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Assume that Japanand South Korea have flexible exchange rates. Otherthings equal, if economic growthis more rapid in Japan than in South Korea,
gold bullion will flow out of Japan.
B. the Japanese yen will depreciate.
the South Koreanwon will depreciate.
the yen and won exchange rate will stay constant.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Assume that Brazil and Mexico have floating exchange rates.Other things unchanged,if the price level is stable in Mexico,but Brazil experiences rapid inflation,
gold bullion will flow into Brazil.
B. the Brazilianreal will depreciate.
the Mexicanpeso will depreciate.
the Brazilian real will appreciate.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Assume that Switzerland and Britain have floatingexchange rates. Other things unchanged, if a tight money policyraises interest rates in Britain as comparedto Switzerland,
gold bullion will flow into Switzerland.
B. the Swiss franc will depreciate.
the pound will depreciate.
the Swiss franc will appreciate.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
89.
Refer to the diagram, where D and S are the United States'demand for and supplyof Swiss francs. At the equilibrium exchange rate, E, the United States' balance of payments is in equilibrium. A shift of the demand curve to D'might be the result of
a relative decline in interestrates in Switzerland.
a reductionin the United States' relative pricelevel.
a recession in the United Statesthat slows its rate of growth.
D. a relative decline in interestrates in the United States.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Type: Graph
90.
Refer to the diagram, where D and S are the United States' demand for and supply of Swiss francs.At the equilibrium exchange rate,E, the United States' balance of payments is in equilibrium. Given a change in demand from D to D', the United States could maintain the dollar price of Swiss francs by
shifting the S curve to the right throughthe use of domesticexpansionary policies.
instituting exchange controls to ration Ed Swiss francsto U.S. importers, who want Ec francs.
using foreign exchange reservesto cover the Ec shortage of Swiss francs.
D. using foreign exchange reservesto cover the cd shortage of Swiss francs.
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