Deck 13: Savings, Capital Formation and Comparative Economic Growth

Question 1

A fixed exchange rate is an exchange rate whose value

A) is determined by the law of one price.
B) varies according to the supply and demand for the currency in the foreign exchange market.
C) is set by official government policy.
D) reflects the comparative advantage of the home country versus other foreign countries.
E) is established annually by the International Monetary Fund.

Answer 1

is set by official government policy.

Question 2

An increase in the value of a currency relative to other currencies is called a(n)

A) revaluation.
B) devaluation.
C) appreciation.
D) depreciation.
E) overvaluation.

Answer 2

appreciation.

Question 3

The nominal exchange rate is the

A) market in which currencies of various nations are traded for one another.
B) price of the average domestic good or service relative to the price of the average foreign good or service,when prices are expressed in terms of a common currency.
C) quantity of foreign currency assets held by a government for the purpose of purchasing the domestic currency in the foreign exchange market.
D) rate at which two currencies can be traded for each other.
E) rate at which a good in one country can be traded for the same good in another country.

Answer 3

rate at which two currencies can be traded for each other.

Question 4

The following table provides nominal exchange rates for the Canadian dollar:
Based on these data,the nominal exchange rate equals _________ Iraqi dinars per Japanese yen or __________ yen per dinar.

A) 946.986;78.306
B) 12.093;0.0827
C) 0.1112;8.992
D) 0.0827;12.093
E) 0.0121;82.64

Question 5

When it costs more than a dollar U.S.to buy a dollar Canadian,the Canadian dollar is said to be

A) trading above parity.
B) trading below parity.
C) overvalued.
D) undervalued.
E) fixed

Question 6

A decrease in the value of a currency relative to other currencies is called a(n)

A) revaluation.
B) devaluation.
C) appreciation.
D) depreciation.
E) overvaluation.

Question 7

A flexible exchange rate is an exchange rate whose value

A) is determined by the law of one price.
B) varies according to the supply and demand for the currency in the foreign exchange market.
C) is set by official government policy.
D) reflects the comparative advantage of the home country versus other foreign countries.
E) is established annually by the International Monetary Fund.

Question 8

If the nominal exchange rate is 0.5434 British pounds per dollar,and is 0.02482 dollars per Indian rupee,then there are _________ Indian rupees per dollar,and __________ dollars per British pound.

A) 40.29;1.840
B) 1.840;40.29
C) 27.27;1.998
D) 1.998;27.27
E) 22.21;2.292

Question 9

The following table provides the nominal exchange rates for the Canadian dollar:
Based on these data,the nominal exchange rate equals _________ reals per euro or __________ euros per real.

A) 2.897;0.345
B) 1.399;0.537
C) 0.345;2.897
D) 1.863;0.643
E) 1.198;0.834

Question 10

When it costs less than a dollar U.S.to buy a dollar Canadian,the Canadian dollar is said to be

A) trading above parity.
B) trading below parity.
C) overvalued.
D) undervalued.
E) fixed

Question 11

When one unit of one currency trades on the foreign exchange market for one unit of another currency,this is called

A) equalization.
B) equilibrium.
C) parity.
D) a fixed exchange rate.
E) a real exchange ratE.

Question 12

If the nominal exchange rate is 0.976 Swiss francs per dollar,and is 1.939 Brazilian reals per Swiss franc,then there are _________ Brazilian reals per dollar.

A) 0.976
B) 0.609
C) 1.892
D) 1.678
E) 1.939

Question 13

A currency depreciation is a(n)

A) increase in the value of a currency relative to other currencies.
B) decrease in the value of a currency relative to other currencies.
C) reduction in the official value of a currency in a fixed-exchange-rate system.
D) increase in the official value of a currency in a fixed-exchange-rate system.
E) exchange rate officially fixed at a value exceeding its fundamental valuE.

Question 14

The following table provides the nominal exchange rates for the Canadian dollar:
Based on these data,the nominal exchange rate equals _________ pesos per Canadian dollar or __________ Canadian dollars per peso.

A) 6.662;0.145
B) 0.810;1.235
C) 1.235;0.810
D) 0.094;10.663
E) 10.663;0.094

Question 15

An exchange rate that varies according to the supply and demand for the currency in the foreign exchange market is called a(n)__________ exchange rate.

A) overvalued
B) undervalued
C) fixed
D) flexible
E) real

Question 16

The following table provides nominal exchange rates for the Canadian dollar:
Based on these data,the nominal exchange rate equals _________ pounds per euro or __________ euros per pound.

A) 1.184;0.844
B) 1.842;1.555
C) 0.123;8.022
D) 0.844;1.184
E) 0.331;6.712

Question 17

If the nominal exchange rate is 3.045 Polish zloty per U.S.dollar,and is 3.397 South African rand per Polish zloty,then there are _________ South African rand per U.S.dollar.

A) 0.896
B) 3.364
C) 10.344
D) 1.116
E) 6.629

Question 18

If the nominal exchange rate is 1.235 Canadian dollars per U.S.dollar,and is 10.663 Mexican pesos per Canadian dollar,then there are _________ Mexican pesos per U.S.dollar.

A) 1.235
B) 4.945
C) 8.634
D) 10.663
E) 13.169

Question 19

A currency appreciation is a(n)

A) increase in the value of a currency relative to other currencies.
B) decrease in the value of a currency relative to other currencies.
C) reduction in the official value of a currency in a fixed-exchange-rate system.
D) increase in the official value of a currency in a fixed-exchange-rate system.
E) exchange rate officially fixed at a value exceeding its fundamental valuE.

Question 20

The rate at which two currencies can be traded for each other is called the _________ exchange rate.

A) flexible
B) fixed
C) fundamental
D) nominal
E) real

Question 21

The figure below shows the U.S.dollar-Canadian dollar nominal exchange rate from January 1971 to March 2008.

During the first half of the 1970s,the Canadian dollar

A) traded roughly at par with the U.S.dollar.
B) traded above par with the U.S.dollar.
C) traded below par with the U.S.dollar.
D) was at its fundamental value.
E) was undervalued.

Question 22

The figure below shows the U.S.dollar-Canadian dollar nominal exchange rate from January 1971 to March 2008.

From January 1987 to January 1993,the Canadian dollar __________;by the end of the period,it was worth approximately __________ than at the beginning.

A) appreciated;US$0.20 more
B) appreciated;US$0.20 less
C) depreciated;US$0.20 more
D) depreciated;US$0.20 less
E) appreciated;US$0.10 more

Question 23

When the nominal exchange decreases from 0.82 U.S.dollars per Canadian dollar to 0.81 U.S.dollars per Canadian dollar,the Canadian dollar has

A) appreciated.
B) depreciated.
C) become overvalued.
D) become undervalued.
E) been devalued.

Question 24

When the nominal exchange increases from 40.1 rupees per dollar to 40.5 rupees per dollar,the dollar has

A) appreciated.
B) depreciated.
C) become overvalued.
D) become undervalued.
E) been devalued.

Question 25

During summer 2002,the nominal exchange rate was $1 to 5.5 Mexican pesos.The dollar per peso equivalent exchange rate was

A) $9.50 per peso.
B) $0.095 per peso.
C) $10.50 per peso.
D) $0.182 per peso.
E) $105 per peso.

Question 26

When the nominal exchange increases from 78 yen per dollar to 80 yen per dollar,the dollar has

A) appreciated.
B) depreciated.
C) become overvalued.
D) become undervalued.
E) been devalued.

Question 27

Other things being equal,a recession in Canada combined with rapid economic growth in Japan would be expected to cause

A) the dollar to appreciate against the yen.
B) the dollar to depreciate against the yen.
C) the yen to appreciate against the dollar.
D) no predictable change in the dollar-yen exchange rate.
E) Japan's demand curve for dollars to shift to the left.

Question 28

An exchange rate that is set by official government policy is called a(n)__________ exchange rate.

A) overvalued
B) undervalued
C) fixed
D) flexible
E) fundamental

Question 29

When the nominal exchange increases from 10.5 pesos per dollar to 10.8 pesos per dollar,the dollar has

A) appreciated.
B) depreciated.
C) become overvalued.
D) become undervalued.
E) been devalued.

Question 30

When the nominal exchange decreases from 10.67 pesos per dollar to 10.60 pesos per dollar,the dollar has

A) appreciated.
B) depreciated.
C) become overvalued.
D) become undervalued.
E) been devalued.

Question 31

When the nominal exchange increases from 0.643 euros per dollar to 0.653 euros per dollar,the dollar has

A) appreciated.
B) depreciated.
C) become overvalued.
D) become undervalued.
E) been devalued.

Question 32

Under a flexible exchange rate system,a decline in the value of a currency relative to other currencies is a called a(n)____________ and,under a fixed exchange rate system,a decrease in the official value of a currency is called a(n)___________.

A) depreciation;devaluation
B) devaluation;depreciation
C) depreciation;appreciation
D) appreciation;revaluation
E) revaluation;appreciation

Question 33

When the nominal exchange decreases from 80 yen per dollar to 78 yen per dollar,the dollar has

A) appreciated.
B) depreciated.
C) become overvalued.
D) become undervalued.
E) been devalued.

Question 34

The figure below shows the U.S.dollar-Canadian dollar nominal exchange rate from January 1971 to March 2008.

From January 1971 to January 1987,the Canadian dollar _________ by approximately __________.

A) depreciated;10%
B) depreciated;30%
C) appreciated;30%
D) appreciated;10%
E) depreciated;20%

Question 35

The nominal exchange rate,e,is defined as the number of units of

A) domestic goods relative to the number of units of foreign goods.
B) foreign goods relative to the number of units of domestic goods.
C) the foreign currency that the domestic currency will buy.
D) the domestic currency that a foreign currency will buy.
E) exported relative to the number of units imported.

Question 36

Under a flexible exchange rate system,an increase in the value of a currency relative to other currencies is a called a(n)____________ and,under a fixed exchange rate system,an increase in the official value of a currency is called a(n)___________.

A) depreciation;devaluation
B) devaluation;depreciation
C) appreciation;devaluation
D) appreciation;revaluation
E) revaluation;appreciation

Question 37

The foreign exchange market is the market in which ___________ of various nations are traded for one another.

A) goods and services
B) stocks and bonds
C) currencies
D) international financial securities
E) government debt

Question 38

When the nominal exchange decreases from 40.2 rupees per dollar to 40.1 rupees per dollar,the dollar has

A) appreciated.
B) depreciated.
C) become overvalued.
D) become undervalued.
E) been devalued.

Question 39

The figure below shows the U.S.dollar-Canadian dollar nominal exchange rate from January 1971 to March 2008.

From January 1993 to January 2003,the Canadian dollar __________;by the end of the period,it was worth approximately ___________ than at the beginning.

A) appreciated;US$0.30 more
B) appreciated;US$0.30 less
C) appreciated;US$0.10 more
D) depreciated;US$0.30 less
E) depreciated;US$0.10 less

Question 40

The market in which currencies of various nations are traded for one another is called the __________ market.

A) international
B) money
C) capital
D) foreign exchange
E) foreign trade

Question 41

Holding all else constant,a decrease in the preferences of Canadians for Mexican goods will _________ the supply of dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

A) increase;increase
B) increase;decrease
C) not change;not change
D) decrease;increase
E) decrease;decrease

Question 42

As the dollar exchange rate decreases,the quantity of dollars supplied in the foreign exchange market _________ and the quantity of dollars demanded in the foreign exchange market _________.

A) increases;increases
B) increases;decreases
C) does not change;does not change
D) decreases;decreases
E) decreases;increases

Question 43

When real interest rates fall in Canada as compared to other nations,other things being equal,we would expect the dollar to experience

A) appreciation.
B) depreciation.
C) inflation.
D) deflation.
E) stagnation.

Question 44

Holding all else constant,a decrease in U.S.real GDP will _________ the demand for Canadian dollars in the foreign exchange market and _________ the equilibrium U.S.dollar-Canadian dollar exchange rate.

A) increase;increase
B) increase;decrease
C) not change;not change
D) decrease;increase
E) decrease;decrease

Question 45

Holding all else constant,a decrease in preferences by Americans for Canadian goods will _________ the demand for Canadian dollars in the foreign exchange market and _________ the equilibrium U.S.dollar-Canadian dollar exchange rate.

A) increase;increase
B) increase;decrease
C) not change;not change
D) decrease;increase
E) decrease;decrease

Question 46

The figure below shows the U.S.dollar-Canadian dollar nominal exchange rate from January 1971 to March 2008.

From January 2003 to January 2008,the Canadian dollar _____________;by the end of the period,it was worth approximately ______________ than at the beginning.

A) appreciated;US$0.40 less
B) appreciated;US$0.10 more
C) appreciated;US$0.40 more
D) depreciated;US$0.40 less
E) depreciated;US$0.10 more

Question 47

The exchange rate that equates the quantity of the currency supplied and the quantity of the currency demanded in the foreign exchange market is called the __________ exchange rate.

A) real
B) market equilibrium value of the
C) overvalued
D) undervalued
E) fixed

Question 48

Holding all else constant,an increase in the preferences of Canadians for Mexican goods will _________ the supply of dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

A) increase;increase
B) increase;decrease
C) not change;not change
D) decrease;increase
E) decrease;decrease

Question 49

The figure below shows the U.S.dollar-Canadian dollar nominal exchange rate from January 1971 to March 2008.

From January 1971 to January 2001,the Canadian dollar _________ by approximately _________.

A) depreciated;10%
B) appreciated;10%
C) depreciated;20%
D) appreciated;20%
E) depreciated;40%

Question 50

The market equilibrium value of the exchange rate is the

A) price of domestic goods relative to the price of foreign goods.
B) price of foreign goods relative to the price of domestic goods.
C) number of units of the foreign currency that the domestic currency will buy.
D) number of units of the domestic currency that a foreign currency will buy.
E) exchange rate at which the quantity of the currency demanded in the foreign exchange market is equal to the quantity of the currency supplied.

Question 51

Holding all else constant,an increase in U.S.real GDP will _________ the demand for Canadian dollars in the foreign exchange market and _________ the equilibrium U.S.dollar-Canadian dollar exchange rate.

A) increase;increase
B) increase;decrease
C) not change;not change
D) decrease;increase
E) decrease;decrease

Question 52

Holding all else constant,a decrease in the real interest rate on U.S.assets will _________ the supply of Canadian dollars in the foreign exchange market and _________ the equilibrium U.S.dollar-Canadian dollar exchange rate.

A) increase;increase
B) increase;decrease
C) not change;not change
D) decrease;increase
E) decrease;decrease

Question 53

Holding all else constant,an increase in Canada's real GDP will _________ the supply of dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

A) increase;increase
B) increase;decrease
C) not change;not change
D) decrease;increase
E) decrease;decrease

Question 54

As the dollar exchange rate increases,the quantity of dollars supplied in the foreign exchange market _________ and the quantity of dollars demanded in the foreign exchange market _________.

A) increases;increases
B) increases;decreases
C) does not change;does not change
D) decreases;decreases
E) decreases;increases

Question 55

One plausible reason for the relative __________ of the Canadian dollar during the late 1980s and the early 1990s may have been the __________ of the __________ in pursuit of long-term price stability.

A) appreciation;tight monetary policy;U.S.Federal Reserve
B) depreciation;tight monetary policy;U.S.Federal Reserve
C) appreciation;tight monetary policy;Bank of Canada
D) depreciation;tight monetary policy;Bank of Canada
E) weakness;tight monetary policy;Bank of Canada

Question 56

Holding all else constant,a decrease in Canada's real GDP will _________ the supply of dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

A) increase;increase
B) increase;decrease
C) not change;not change
D) decrease;increase
E) decrease;decrease

Question 57

The principal demander(s)of Canadian dollars in the foreign exchange market is/are

A) foreigners wishing to purchase Canadian goods or assets.
B) foreigners wishing to purchase foreign goods or assets.
C) Canadian households or firms wishing to purchase Canadian goods or assets.
D) Canadian households or firms wishing to purchase foreign goods or assets.
E) the Bank of Canada.

Question 58

The principal supplier(s)of Canadian dollars to the foreign exchange market is/are

A) foreigners wishing to purchase Canadian goods or assets.
B) foreigners wishing to purchase foreign goods or assets.
C) Canadian households or firms wishing to purchase Canadian goods or assets.
D) Canadian households or firms wishing to purchase foreign goods or assets.
E) the Bank of Canada.

Question 59

Holding all else constant,an increase in preferences by Americans for Canadian goods will _________ the demand for Canadian dollars in the foreign exchange market and _________ the equilibrium U.S.dollar-Canadian dollar exchange rate.

A) increase;increase
B) increase;decrease
C) not change;not change
D) decrease;increase
E) decrease;decrease

Question 60

Holding all else constant,an increase in the real interest rate on U.S.assets will _________ the supply of Canadian dollars in the foreign exchange market and _________ the equilibrium U.S.dollar-Canadian dollar exchange rate.

A) increase;increase
B) increase;decrease
C) not change;not change
D) decrease;increase
E) decrease;decrease

Question 61

In the early 1980s,high interest rates in the U.S.attracted enormous amounts of capital into the U.S.to buy stocks,bonds,real estate,and other assets.All other things being equal,supply-and-demand analysis of exchange rates would predict that the U.S.dollar would experience ___________ relative to other currencies.

A) a depreciation
B) an appreciation
C) a devaluation
D) a revaluation
E) purchasing price parity

Question 62

Relative to the case of a closed economy,monetary policy is ___________ in an open economy with a flexible exchange rate.

A) less effective
B) more effective
C) equally effective
D) not effective at all
E) sometimes more effective and sometimes less effective

Question 63

The market equilibrium value of a country's exchange rate is

A) constant over a prolonged period of time.
B) determined by the supply of the country's currency in the foreign exchange market.
C) determined by the demand for the country's currency in the foreign exchange market.
D) determined by the supply of and demand for the country's currency in the domestic financial market.
E) determined by the supply of and demand for the country's currency in the foreign exchange market.

Question 64

The yen-dollar exchange rate,e,where e is the nominal exchange rate expressed as Japanese yen per dollar,will increase when

A) real GDP in Canada increases.
B) real GDP in Japan increases.
C) the Bank of Canada eases monetary policy.
D) Canadian consumers increase their preference for Japanese cars.
E) the Bank of Japan tightens monetary policy.

Question 65

Holding all else constant,a decrease in the real interest rate on Canadian assets will _________ the demand for dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

A) increase;increase
B) increase;decrease
C) not change;not change
D) decrease;increase
E) decrease;decrease

Question 66

Holding all else constant,tighter monetary policy in Canada will _________ the demand for dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

A) increase;increase
B) increase;decrease
C) not change;not change
D) decrease;increase
E) decrease;decrease

Question 67

The yen-dollar exchange rate,e,where e is the nominal exchange rate expressed as Japanese yen per Canadian dollar,will increase when

A) real GDP in Canada decreases.
B) real GDP in Japan decreases.
C) the Bank of Canada eases monetary policy.
D) Canadian consumers increase their preference for Japanese cars.
E) the Bank of Japan tightens monetary policy.

Question 68

Holding all else constant,easier monetary policy in Canada will _________ the demand for dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

A) increase;increase
B) increase;decrease
C) not change;not change
D) decrease;increase
E) decrease;decrease

Question 69

Easy monetary policy __________ interest rates,which __________ the demand for a currency and __________ the market equilibrium value of the exchange rate.

A) increases;increases;increases
B) increases;increases;decreases
C) increases;decreases;increases
D) decreases;decreases;decreases
E) decreases;increases;decreases

Question 70

Suppose that the demand for euros in the foreign exchange market equals 11,000 - 1,000e and the supply of euros in the foreign exchange market equals 8,000 + 1,000e,where e is the nominal exchange rate expressed in dollars per euro.The market equilibrium value of the euro is _________ euros per dollar or ___ dollars per euro.

A) 2,000;0.0005
B) 0.67;1.5
C) 0.04;25
D) 0.2;5
E) 5;0.2

Question 71

When the Bank of Canada raises the domestic real interest rate to close an expansionary gap,it __________ the __________ Canadian assets by foreign investors.Under the flexible exchange rate system this,in turn,increases the __________ dollars,resulting in a(n)___________ of the dollar.

A) decreases;supply of;demand for;depreciation
B) increases;demand for;demand for;depreciation
C) decreases;supply of;demand for;appreciation
D) increases;demand for;demand for;appreciation
E) increases;supply of;supply of;appreciation

Question 72

A fall in the real interest rate in Canada may be expected to raise demand for Canadian goods through each of these channels EXCEPT

A) lowering of borrowing cost and stimulating spending on consumer durables.
B) lowering of borrowing costs and stimulating investment on fixed capital.
C) lowering of borrowing costs and stimulating residential investment.
D) lowering of the value of the domestic currency and stimulating net exports.
E) lowering of the value of the domestic currency and stimulating imports.

Question 73

The currency used in the Duchy of Saxony is the ducet.The demand for the Saxonian ducet in the foreign exchange market equals 14,000 - 3,000e and the supply of ducets in the foreign exchange market equals 2,000 + 2,000e,where e is the nominal exchange rate expressed in dollars per ducet.The market equilibrium value of ducet is _________ ducets per dollar or _________ dollars per ducet.

A) 0.417;2.4
B) 2.4;0.417
C) 12;0.083
D) 0.083;12
E) 7;0.143

Question 74

A rise in the real interest rate in Canada may be expected to lower demand for Canadian goods through each of these channels EXCEPT

A) raising the borrowing cost and discouraging spending on consumer durables.
B) raising the borrowing costs and discouraging investment on fixed capital.
C) raising the borrowing costs and discouraging residential investment.
D) raising the value of the domestic currency and discouraging net exports.
E) raising the value of the domestic currency and discouraging imports.

Question 75

Suppose that the demand for euros in the foreign exchange market equals 8,000 - 2,000e and the supply of euros in the foreign exchange market equals 4,500 + 3,000e,where e is the nominal exchange rate expressed in dollars per euro.The market equilibrium value of the euro is _________ euros per dollar or ___ dollars per euro.

A) 2;0.8
B) 0.5;2
C) 1.428;0.7
D) 2.2;45
E) 45;2.2

Question 76

If the Bank of Canada were to respond to a slowdown in the domestic economy by easing monetary policy,all other things being equal,one would predict,in the short run,a(n)

A) increase in the real interest rate,an increase in demand for the dollar,and an appreciation of the dollar.
B) decrease in the real interest rate,an increase in demand for the dollar,and an appreciation of the dollar.
C) decrease in the real interest rate,a decrease in demand for the dollar,and a depreciation of the dollar.
D) increase in the real interest rate,an decrease in demand for the dollar,and a depreciation of the dollar.
E) increase in the real interest rate,an increase in demand for the dollar,and a depreciation of the dollar.

Question 77

Tight monetary policy __________ interest rates which __________ the demand for a currency and __________ the market equilibrium value of the exchange rate.

A) increases;increases;increases
B) increases;increases;decreases
C) increases;decreases;increases
D) decreases;decreases;decreases
E) decreases;increases;decreases

Question 78

During the second half of the 1990s,real GDP in the U.S.grew faster than that in most other industrial countries.All other things being equal,supply-and-demand analysis of exchange rates would predict that,in the short run,the U.S.dollar would _____________ relative to the currencies of the other industrialized countries.

A) appreciate
B) depreciate
C) devaluate
D) revaluate
E) remain constant

Question 79

The currency used in the Duchy of Saxony is the ducet.The demand for the Saxonian ducet in the foreign exchange market equals 12,000 - 3,000e and the supply of ducets in the foreign exchange market equals 2,000 + 2,000e,where e is the nominal exchange rate expressed in dollars per ducet.The market equilibrium value of the ducet is _________ ducets per dollar or _________ dollars per ducet.

A) 0.143;7
B) 0.4;0.417
C) 2;0.5
D) 0.5;2
E) 7;0.143

Question 80

Holding all else constant,an increase in the real interest rate on Canadian assets will _________ the demand for dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

A) increase;increase
B) increase;decrease
C) not change;not change
D) decrease;increase
E) decrease;decrease