Question 1

The mint parity refers to the:

Accepted Answer

The mint parity is the ratio of the price of a unit of gold in terms of the currency of two nations, establishing a fixed exchange rate between those currencies based on their gold content.

Question 2

When a nation's demand curve for imports in terms of the foreign currency is vertical:

Accepted Answer

When a nation's demand curve for imports in terms of the foreign currency is vertical, it means that no matter what the exchange rate is, the nation will import the same amount of goods from the other country. Therefore, the nation's demand for the foreign currency has zero elasticity, and choice A is the best answer.

Question 3

When a nation's demand curve for exports in terms of the foreign currency is inelastic:

Accepted Answer

A

Question 4

When increase in the domestic price of an imported commodity is less than the depreciation of the domestic currency it is commonly referred to as

Accepted Answer

This scenario is known as currency pass-through, where the depreciation of the domestic currency does not fully translate into higher prices of imported goods. This can happen due to several factors such as long-term contracts, hedging, and competition in the domestic market. The Marshall-Lerner adjustment, purchasing power parity adjustment, and J-curve effect all refer to different situations related to exchange rates and trade but are not applicable in this scenario.

Question 5

A depreciation of a nation's currency shifts:

Accepted Answer

When a nation's currency depreciates, its exports become relatively cheaper in terms of foreign currency. This means that foreign buyers will demand more of the nation's goods and services, leading to a shift down in the supply curve of exports in terms of the foreign currency.

Question 6

The United States has a trade problem with Japan because the U.S.trade deficit with Japan:

Accepted Answer

The U.S. trade deficit with Japan is very large, has persisted for a long time, and did not seem to decline when the dollar depreciated sharply with respect to the yen. Therefore, option D, all of the above, is the correct answer.

Question 7

According to the quantity theory of money,if the velocity of money and physical output are held constant,and increase in the money supply will lead to

Accepted Answer

According to the quantity theory of money, if the velocity of money and physical output are held constant, an increase in the money supply will lead to a proportional increase in the price level. This is because there is more money available to purchase the same amount of goods and services, leading to an increase in demand and therefore an increase in prices. Therefore, the correct answer is B.

Question 8

Which of the following statements is not true with regard to the price-specie-flow mechanism:

Accepted Answer

The price-specie-flow mechanism does not require that the price elasticity of demand for imports and exports be equal to zero. In fact, it assumes that the price elasticity of demand for imports and exports is greater than zero, which means that changes in the relative prices of goods in different countries will affect the pattern of trade.

Question 9

The Marshall-Lerner condition indicates that

Accepted Answer

The answer of The Marshall-Lerner condition indicates that
...

Question 10

Under the gold standard:

Accepted Answer

The gold standard system involves all of the above - each nation defining the price of gold in terms of its currency and standing ready to buy and sell any amount of gold at that price, a fixed relationship between any two currencies called the mint parity, and the exchange rate being determined by demand and supply between the gold points and prevented from moving outside the gold points by gold shipments.

Question 11

For a small nation:

Accepted Answer

For a small nation, the foreign demand for its exports is likely to be more elastic (horizontal) because it is a small player in the global market and its exports constitute only a small portion of the total demand in the world. As a result, the foreign buyers have more alternatives and can switch easily to substitute products from other countries. On the other hand, the domestic demand for imports is likely to be more inelastic (not horizontal) because there may not be many close substitutes available domestically, and consumers may be less responsive to price changes. The foreign supply of exports and domestic demand for imports may be either horizontal or vertical depending on the elasticity of supply and demand in the global market.

Question 12

A currency board refers to the case where:

Accepted Answer

A currency board is a monetary system where the local currency is fully backed by foreign currency reserves. Specifically, the money supply of the country is backed by a 100 percent reserve ratio in the form of international reserve assets such as gold, foreign currencies or other internationally accepted assets. This is designed to provide confidence to investors and to limit the ability of the government or central bank to create inflation by printing new money.

Question 13

A nation's demand curve for foreign exchange is derived from the:

Accepted Answer

A nation's demand curve for foreign exchange is derived from its need to pay for imports. Therefore, it is derived from the domestic demand curve for imports and the foreign supply curve for the nation's imports.

Question 14

The more elastic is a nation's demand and supply of foreign exchange the:

Accepted Answer

If a nation has a more elastic demand and supply of foreign exchange, then a smaller devaluation or depreciation would be required to correct a deficit of a given size in the nation's balance of payments. This is because a smaller change in the exchange rate would lead to a larger change in the quantity of foreign exchange demanded and supplied, which would help to correct the imbalance. Therefore, option B is correct.

Question 15

The gold standard operated from

Accepted Answer

The gold standard operated from about 1880 until the outbreak of World War I.

Question 16

David Hume was responsible for introducing

Accepted Answer

David Hume introduced the price-specie-flow mechanism, which explains how imbalances in trade between countries can self-correct through the flow of gold and changes in price levels.

Question 17

A depreciation of the nation's currency causes its terms of trade to:

Accepted Answer

The answer of A depreciation of the nation's currency causes...

Question 18

A depreciation of a nation's currency shifts:

Accepted Answer

A depreciation of a nation's currency makes its imports more expensive in terms of the domestic currency. As a result, consumers in the country tend to reduce their demand for foreign goods, shifting the demand curve for imports down in terms of the foreign currency.

Question 19

A depreciation of a nation's currency is:

Accepted Answer

A depreciation of a nation's currency makes imports more expensive and exports cheaper, which can lead to higher prices domestically, thus being inflationary for the nation.

Question 20

The foreign exchange market is stable when:

Accepted Answer

The foreign exchange market is considered stable when the conditions in all the given options are met: A) typical demand and supply curve orientations ensure that as price changes, the market moves towards equilibrium; B) specific curve inclinations and elasticity conditions affect market responses to price changes; and C) the Marshall-Lerner condition (sum of elasticities > 1) ensures that a devaluation improves the trade balance, contributing to market stability.

Quiz 16: The Price Adjustment Mechanism With Flexible and Fixed Exchange

The mint parity refers to the:

When a nation's demand curve for imports in terms of the foreign currency is vertical:

When a nation's demand curve for exports in terms of the foreign currency is inelastic:

When increase in the domestic price of an imported commodity is less than the depreciation of the domestic currency it is commonly referred to as

A depreciation of a nation's currency shifts:

The United States has a trade problem with Japan because the U.S.trade deficit with Japan:

According to the quantity theory of money,if the velocity of money and physical output are held constant,and increase in the money supply will lead to

Which of the following statements is not true with regard to the price-specie-flow mechanism:

The Marshall-Lerner condition indicates that

Under the gold standard:

For a small nation:

A currency board refers to the case where:

A nation's demand curve for foreign exchange is derived from the:

The more elastic is a nation's demand and supply of foreign exchange the:

The gold standard operated from

David Hume was responsible for introducing

A depreciation of the nation's currency causes its terms of trade to:

A depreciation of a nation's currency shifts:

A depreciation of a nation's currency is:

The foreign exchange market is stable when: