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Chap023

# Chap023 - Chapter 23 Price Adjustments and...

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Chapter 23 - Price Adjustments and Balance-of-Payments Chapter 23 Price Adjustments and Balance-of-Payments Multiple Choice Questions 1. Based on the information in Table 1, the demand for pounds between \$2.00/ 1 and \$1.50/ 1 is a. Elastic b. Unit-elastic C . Inelastic d. Elastic, unit-elastic, or inelastic - cannot be determined without more information 2. Using the information in Table 1, the arc elasticity of demand for pounds between the \$2.50/ 1 exchange rate and the \$2.00/ 1 exchange rate is (ignoring the negative sign) __________. a. 0.56 b. 1.33 C . 1.80 d. 2.50 23-1

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Chapter 23 - Price Adjustments and Balance-of-Payments 3. The simple Marshall-Lerner condition would suggest that one of the following cases would produce a worsening of the trade balance if the country's currency depreciated. Which one? (The negative sign on elasticities is being ignored; also, assume that trade is initially balanced.) a. Elasticity of demand for exports = 0.8; elasticity of demand for imports = 0.5 b. Elasticity of demand for exports = 0.4; elasticity of demand for imports = 0.6 c. Demand curve for exports is vertical; demand curve for imports is horizontal D . Elasticity of demand for exports = 0.8; elasticity of demand for imports = 0.1 4. Which one of the following was NOT supposed to occur in the "gold standard" international monetary system? a. Countries were to specify their currency values in terms of gold B . Countries were to prevent gold movements from influencing their money supplies c. Free movement of gold was to occur among countries d. Countries were to have wage and price flexibility 5. If depreciation of a home currency occurs, foreign exporters to the home country could
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Chap023 - Chapter 23 Price Adjustments and...

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