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CHAPTER 13 EXCHANGE-RATE DETERMINATION MULTIPLE-CHOICE QUESTIONS 1. The relationship between the exchange rate and the prices of tradable goods is known as the: a. Purchasing-power-parity theory b. Asset-markets theory c. Monetary theory d. Balance-of-payments theory 2. If the exchange rate between Swiss francs and British pounds is 5 francs per pound, then the number of pounds that can be obtained for 200 francs equals: a. 20 pounds b. 40 pounds c. 60 pounds d. 80 pounds 3. Low real interest rates in the United States tend to: a. Decrease the demand for dollars, causing the dollar to depreciate b. Decrease the demand for dollars, causing the dollar to appreciate c. Increase the demand for dollars, causing the dollar to depreciate d. Increase the demand for dollars, causing the dollar to appreciate 4. High real interest rates in the United States tend to: a. Decrease the demand for dollars, causing the dollar to depreciate b. Decrease the demand for dollars, causing the dollar to appreciate c. Increase the demand for dollars, causing the dollar to depreciate d. Increase the demand for dollars, causing the dollar to appreciate 211 212 Test Bank for International Economics, 9e 5. Assume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing-power-parity theory, the dollar would be expected to: a. Appreciate by 8 percent against the yen b. Depreciate by 8 percent against the yen c. Remain at its existing exchange rate d. None of the above 6. In the presence of purchasing-power parity, if one dollar exchanges for 2 British pounds and if a VCR costs $400 in the United States, then in Great Britain the VCR should cost: a. 200 pounds b. 400 pounds c. 600 pounds d. 800 pounds 7. If wheat costs $4 per bushel in the United States and 2 pounds per bushel in Great Britain, then in the presence of purchasing-power parity the exchange rate should be: a. $.50 per pound b. $1.00 per pound c. $2.00 per pound d. $8.00 per pound 8. A primary reason that explains the appreciation in the value of the U.S. dollar in the 1980s is: a. Large trade surpluses for the United States b. High inflation rates in the United States c. Lack of investor confidence in the U.S. monetary policy d. High interest rates in the United States 9. The high foreign exchange value of the U.S. dollar in the early 1980s can best be explained by: a. Additional investment funds made available from overseas b. Lack of investor confidence in U.S. fiscal policy c. Market expectations of rising inflation in the United States d. American tourists overseas finding costs increasing 10. When the price of foreign currency (i.e., the exchange rate) is below the equilibrium level: a. An excess demand for that currency exists in the foreign exchange market b. An excess supply of that currency exists in the foreign exchange market c. The demand for foreign exchange shifts outward to the right d. The demand for foreign exchange shifts backward to the left... View Full Document

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