Question : 20) Under a system of floating exchange rates, an excess : 1381579

 

20) Under a system of floating exchange rates, an excess supply for a particular currency will lead to a(n)

A) depreciation of that currency.

B) long-term shortage of that currency.

C) appreciation of that currency.

D) long-term surplus of that currency.

 

21) Under a system of floating exchange rates, a surplus in a currency will lead to a(n)

A) depreciation of that currency.

B) appreciation of that currency.

C) long-term surplus of that currency.

D) long-term shortage of that currency.

 

22) The law of one price states that if the costs of transportation are ________, the price of the same good in different countries should be ________.

A) large; roughly the same

B) large; exactly the same

C) small; very different

D) small; roughly the same

23) The theory of international exchange that holds that exchange rates are set so that the prices of ________ goods in different countries is ________ is the purchasing power parity theory.

A) similar; the same

B) nondurable; negotiable

C) different; the same

D) durable; fixed

 

24) Suppose that the price of a Blu-ray disc player is $240 in the United States and 11,000 rupees in India. If the current exchange rate is 40 rupees to the dollar, then purchasing power parity theory would predict that in the long run

A) India will begin to export Blu-ray disc players to the United States.

B) the exchange value of the rupee will depreciate.

C) the exchange value of the rupee will appreciate.

D) the exchange value of the dollar will depreciate.

 

25) A Big Mac costs $3 in the United States and 50 pesos in Mexico. The purchasing power parity theory would predict that the exchange rate in the long run is

A) $1 = 6 pesos.

B) $1 = 16.67 pesos.

C) $1 = 0.06 pesos.

D) 1 peso = $1.50.

 

26) If a nation’s interest rates are relatively low compared to those of other countries, then the exchange value of its currency will tend to

A) depreciate under a system of floating exchange rates.

B) depreciate under a system of fixed exchange rates.

C) appreciate under a system of fixed exchange rates.

D) appreciate under a system of floating exchange rates.

Refer to the information provided in Figure 20.4 below to answer the questions that follow.

 

 

Figure 20.4

 

27) Refer to Figure 20.4. If the demand and supply of pounds are D1 and S2, the equilibrium is

A) $2.50 per pound and the quantity is 400 pounds.

B) $2.00 per pound and the quantity is 300 pounds.

C) 2 pound per $ and the quantity is 400 pounds.

D) $1.50 per pound and the quantity is 200 pounds.

 

28) Refer to Figure 20.4. The demand and supply of pounds are D2 and S1. A decrease in British demand for U.S. exports, ceteris paribus, could

A) decrease the exchange rate ($/pound) to $1.50.

B) increase the exchange rate ($/pound) to $2.00.

C) increase the equilibrium quantity from 300 to 400 pounds.

D) increase the demand for pounds from D2 to D1.

29) Refer to Figure 20.4. The demand and supply of pounds are D2 and S2. If the supply shifts to S1 and demand remains unchanged at D2

A) the dollar depreciates and the equilibrium quantity of pounds increases.

B) the dollar depreciates and the equilibrium quantity of pounds decreases.

C) the dollar appreciates and the equilibrium quantity of pounds decreases.

D) the dollar appreciates and the equilibrium quantity of pounds increases.

 

30) Refer to Figure 20.4. The demand and supply of pounds are D2 and S2. If the demand shifts to D1 and supply remains unchanged at S2

A) the dollar depreciates and the equilibrium quantity of pounds increases.

B) the dollar depreciates and the equilibrium quantity of pounds decreases.

C) the dollar appreciates and the equilibrium quantity of pounds decreases.

D) the dollar appreciates and the equilibrium quantity of pounds increases.

 

31) Refer to Figure 20.4. The demand and supply of pounds are S1 and D1. Which of the following can change the equilibrium exchange rate ($/pound) to $2.50 and the equilibrium quantity to 400 pounds?

A) an increase in income in Great Britain

B) a sudden dislike of U.S. products in Great Britain

C) an increase in the price level in Great Britain

D) a sudden dislike of British products in the United States

32) Refer to Figure 20.4. The demand and supply of pounds are S1 and D1. Which of the following can change the equilibrium exchange rate ($/pound) to $1.50 and the equilibrium quantity to 400 pounds?

A) British purchases of U.S.-made cars increase

B) United States purchases of British-made cars increase

C) the price level in Great Britain decreases

D) income in the United States decreases