Question : 71) When people expect that the future exchange rate will : 1238296

71) When people expect that the future exchange rate will be lower, they ________ the supply of dollars and the current exchange rate ________.

A) increase; rises

B) increase; falls

C) decrease; rises

D) decrease; falls

E) do not change; rises

72) Purchasing power parity is defined as

A) a constant value for a currency.

B) an equal value of money across currencies.

C) a currency whose value falls.

D) a currency whose value rises.

E) an equal value of interest rates across currencies.

73) Purchasing power parity determines the exchange rate in

A) the long run.

B) the short run.

C) the long run and the short run.

D) theory only, but not in reality.

E) nations that do not allow their exchange rate to fluctuate.

74) In the long run, the exchange rate between two currencies is

A) constant.

B) fixed.

C) influenced by purchasing power parity.

D) undefined.

E) determined so that the current account balance equals zero.

75) Suppose that a currency’s value is found to be overvalued by using purchasing power parity. Then

A) we know when and how much the currency will appreciate.

B) the currency will depreciate in the future but we don’t know when.

C) the currency will appreciate in the future but we don’t know when.

D) we know when and how much the currency will depreciate.

E) the interest rate in the country will change in order to restore purchasing power parity.

76) Purchasing power parity can be used as

A) a short-term gauge, but in the long run large deviations in currency values can exist.

B) a short-term and long-term gauge of relative currency values.

C) a long-run gauge, but in the short run large deviations in currency values can exist.

D) an indicator of how interest rates will change in the short run.

E) an indicator of how interest rates will change in the long run.

77) If purchasing power parity exists and the exchange rate is 1.50 U.S. dollars per British pound, than a latte that has a price of $4.00 in San Jose, California, has a price of ________ in London, England.

A) 8.00 pounds

B) 4.00 pounds

C) 6.00 pounds

D) 2.67 pounds

E) 0.37 pounds

78) Assume the exchange rate is 1 U.S. dollar equals 1.10 Canadian dollars. If purchasing power parity is correct, a DVD that has a price of $10 in Rochester, New York, in Canada has a price of ________ Canadian dollars.

A) 11.00

B) 9.09

C) 10.00

D) 11.11

E) 10.10

79) If the interest rate on a bank deposit in the United States is 3 percent while a similar deposit earns 6 percent in Britain, then we could expect that deposits would flow to

A) Britain regardless of exchange rate expectations.

B) the United States regardless of exchange rate expectations.

C) Britain if the pound is expected to depreciate less than 3 percent.

D) Britain if the pound is expected to depreciate more than 3 percent.

E) the United States if the dollar is expected to appreciate less than 3 percent.

80) If the Fed wants to maintain a dollar exchange rate of 1.20 euros per dollar but the exchange rate rises, then in the short run the Fed can

A) sell dollars and buy euros.

B) buy dollars and sell euros.

C) buy dollars and buy euros.

D) sell dollars and sell euros.

E) do nothing.