Macro Ch 17 – Flashcards

1. When the people involved in an exchange are from countries that use different currencies, an intermediate asset transaction has to take place: A. the seller must convert her currency into the currency that the buyer uses and accepts. B. the buyer must convert her currency into the currency that the seller uses and accepts. C. the buyer and seller should engage in barter trade. D. both buyer and seller should exchange their currencies to gold.

2. If a Canadian importer can purchase 10,000 pounds for $20,000, the rate of exchange: A. is $1 = 2 pounds in Canada. B. is $2 = 1 pound in Canada. C. is $1 = 2 pounds in Great Britain. D. is $.5 = 1 pound in Great Britain.

3. There must always be a balance of a nation's: A. merchandise exports and gold imports. B. total international payments. C. imports and exports of goods and services. D. merchandise imports and exports.

4. Which of the following would contribute to a Canadian balance of payments surplus? A. Canada makes a unilateral tariff reduction on imported goods B. Canadian Pacific pays a dividend to a Swiss stockholder C. Canada cuts back on Canadian military personnel stationed in Germany D. Russian vodka becomes increasingly popular in Canada

5. In the balance of payments of Canada, Canadian merchandise imports are recorded as a: A. positive entry. B. capital account entry. C. current account entry. D. official reserves entry.

6. In a nation's balance of payments, which one of the following items is always recorded as a positive entry? A. merchandise imports B. changes in foreign currency reserves C. capital outflows D. exports of services

7. In equilibrium, if $1 = .5 pounds sterling and 1 pound sterling = 40 Swiss francs, the exchange rate between dollars and Swiss francs will be: A. 1 Swiss franc = $.10. B. 1 Swiss franc = $.20. C. $1 = 80 Swiss francs. D. $1 = 20 Swiss francs.

8. If the dollar price of yen rises, then: A. the yen price of dollars also rises. B. the dollar depreciates relative to the yen. C. the yen depreciates relative to the dollar. D. all of the above will occur.

9. An increase in the dollar price of British pounds will: A. increase the pound price of dollars. B. lower the pound price of dollars. C. leave the pound price of dollars unchanged. D. cause Britain's terms of trade with the United States to deteriorate.

10. Appreciation of the Swiss franc will: A. intensify an existing disequilibrium in France's balance of payments. B. make France's exports less expensive and its imports more expensive. C. make France's exports more expensive and its imports less expensive. D. make France's exports and imports both more expensive.

11. According to the purchasing power parity theory of exchange rates: A. a dollar, when converted to other currencies at the prevailing flexible exchange rate, has the same purchasing power in various countries. B. in equilibrium, national currencies have equal value in terms of gold. C. the higher a nation's price level in terms of its own currency, the greater is the amount of foreign exchange it can obtain for a unit of its currency. D. all of the above are true.

12. Assume that Switzerland and Britain have flexible exchange rates. Other things unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland: A. gold bullion will flow into Switzerland. B. the Swiss franc will depreciate. C. the British pound will depreciate. D. the Swiss franc will appreciate.

13. If Canada has full employment and the dollar dramatically depreciates in value, we can expect: A. both our imports and our exports to rise. B. both our imports and our exports to fall. C. our exports to fall and our imports to increase. D. inflation to occur.

14. The foreign demand curve for a nation's currency is considered to be a derived demand because: A. it stems from the willingness of consumers in one country to buy goods and services from another country. B. it stems from the willingness of consumers within their country to buy goods and services that are produced within their country. C. it is derived from the demand of governments. D. it is derived by a nation's central bank.

15. If in a system of fixed exchange rates the dollar price of pounds is above the market equilibrium A. gold will flow from Canada to Great Britain. B. there will be a surplus of pounds. C. the Canadian government will have to ration pounds to Canadian importers. D. there will be a shortage of pounds.

16. The Bretton Woods system of exchange rates relied on: A. flexible exchange rates. B. fixed exchange rates with no mechanism for changing them. C. fixed or "pegged" exchange rates, with occasional orderly adjustments to the rates. D. Canada to set and periodically review worldwide exchange rates.

17. The current system of exchange rates can best be described as: A. freely fluctuating exchange rates. B. managed floating exchange rates. C. rigidly fixed exchange rates. D. a crawling peg system.

18. In saying that the present system of flexible exchange rates is managed we mean that: A. countries which allow their exchange rate to move freely will lose their borrowing privileges with the IMF. B. the value of any IMF member's currency can only vary 2 percent from its par value. C. IMF officials determine exchange rates on a day-to-day basis. D. the central banks of various countries buy and sell foreign exchange to smooth out short-term fluctuations or undesirable trends in exchange rates.

19. The idea that flexible exchange rates equate the purchasing power of national currencies is called the: A. equation of exchange. B. balance of payments. C. gold standard. D. purchasing power parity theory.