macro95ex13 - Chapter 13 Exchange Rates, Business Cycles,...

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Chapter 13 Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy T Multiple Choice Questions 1. The price of one currency in terms of another is called (a) the exchange rate. (b) purchasing power parity. (c) the terms of trade. (d) a currency band. Answer: A Level of difficulty: 1 Section: 13.1 2. An exchange-rate system in which the nominal exchange rate is set by the government is known as (a) a flexible-exchange-rate system. (b) a floating-exchange-rate system. (c) a fixed-exchange-rate system. (d) an exchange-rate union. Answer: C Level of difficulty: 1 Section: 13.1 3. The Bretton Woods system relied on (a) a flexible-exchange-rate system. (b) a floating-exchange-rate system. (c) a fixed-exchange-rate system. (d) an exchange-rate union. Answer: C Level of difficulty: 1 Section: 13.1
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Chapter 13 Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy 201 4. The real exchange rate is (a) the price of one currency in terms of another. (b) the price of domestic goods relative to foreign goods. (c) the quantity of gold that can be purchased by one unit of currency. (d) the difference in interest rates between two countries. Answer: B Level of difficulty: 1 Section: 13.1 5. When the domestic currency strengthens under a fixed-exchange-rate system, this is called (a) a depreciation. (b) an appreciation. (c) a devaluation. (d) a revaluation. Answer: D Level of difficulty: 1 Section: 13.1 6. Three-wheel cars made in North Edsel are sold for 5000 pound. Four-wheel cars made in South Edsel are sold for 10,000 mark. The real exchange rate between North and South Edsel is four three- wheel cars for three four-wheel cars. The nominal exchange rate between the two countries is (a) 0.50 mark/pound. (b) 0.66 mark/pound. (c) 1.50 mark/pound. (d) 2.00 mark/pound. Answer: C Level of difficulty: 3 Section: 13.1 7. When the domestic currency buys fewer units of foreign currency, the (a) nominal exchange rate rises. (b) nominal exchange rate falls. (c) real exchange rate rises. (d) real exchange rate falls. Answer: B Level of difficulty: 2 Section: 13.1 8. From 1980 to 2000, the yen/dollar exchange rate fell from 240 yen/dollar to 102 yen/dollar, while the dollar/pound exchange rate fell from 2.22 dollar/pound to 1.62 dollar/pound. As a result, (a) the dollar appreciated relative to the yen, but depreciated relative to the pound. (b) the dollar depreciated relative to the yen, but appreciated relative to the pound. (c) the dollar appreciated relative to both the yen and the pound. (d) the dollar depreciated relative to both the yen and the pound. Answer: B Level of difficulty: 2 Section: 13.1
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202 Abel/Bernanke • Macroeconomics, Fifth Edition 9. A rise in the real exchange rate is called (a) a real depreciation. (b) a real appreciation. (c) a real bargain. (d) a real devaluation. Answer: B Level of difficulty: 1 Section: 13.1 10. If the real exchange rate rises by 2%, domestic inflation is 3%, and foreign inflation is 1%, what is the percent change in the nominal exchange rate?
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macro95ex13 - Chapter 13 Exchange Rates, Business Cycles,...

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