MCQOPTIONS
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MCQOPTIONS
This section includes 33 Mcqs, each offering curated multiple-choice questions to sharpen your Economics knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
Which example of market expectations causes the dollar to depreciate against the yen – expectation that the U.S economy will have ? |
| A. | faster growth than Japan |
| B. | higher future interest rates than Japan |
| C. | more rapid money supply growth than Japan |
| D. | lower inflation rates than Japan |
| Answer» B. higher future interest rates than Japan | |
| 2. |
Which example of market expectations causes the dollar to appreciate against the yen– expectations that the U.S economy will have ? |
| A. | faster economic growth than Japan |
| B. | higher future interest rates than Japan |
| C. | more rapid money supply growth than japan |
| D. | higher inflation rates than japan |
| Answer» C. more rapid money supply growth than japan | |
| 3. |
When the price of foreign currency (the exchange rate) is above the equilibrium level ? |
| A. | an excess supply of that currency exists in the foreign exchange market |
| B. | an excess demand for that currency exists in the foreign exchange market |
| C. | the supply of foreign exchange shifts outward to the right |
| D. | the supply of foreign exchange shifts backward to the left |
| Answer» B. an excess demand for that currency exists in the foreign exchange market | |
| 4. |
When the price of foreign currency (i.e the exchange rate) is below the equilibrium level ? |
| A. | an excess demand for that currency exists in the foreign exchange market |
| B. | an excess supply of the currency exists in the foreign exchange market |
| C. | the demand for foreign exchange shifts outward to the right |
| D. | the demand for foreign exchange shifts backward to the left |
| Answer» B. an excess supply of the currency exists in the foreign exchange market | |
| 5. |
Under a system of floating exchange rates relatively low productivity and high inflation rates in the United States results in a (an) ? |
| A. | increase in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar |
| B. | increase in the demand for foreign currency an increase in the supply of foreign currency and a appreciation in the dollar |
| C. | decrease in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar |
| D. | decrease in the demand for foreign currency and increase in the supply of foreign currency and a appreciation in the dollar |
| Answer» B. increase in the demand for foreign currency an increase in the supply of foreign currency and a appreciation in the dollar | |
| 6. |
Under a system of floating exchange rates relatively high productivity and low inflation rates in the United States results in a (an) ? |
| A. | increase in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar |
| B. | increase in the demand for foreign currency an increase in the supply of foreign currency and a appreciation in the dollar |
| C. | decrease in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar |
| D. | decrease in the demand for foreign currency an increase in the supply of foreign currency and a appreciation in the dollar |
| Answer» C. decrease in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar | |
| 7. |
The relationship between the exchange rate and the prices of tradable goods is known as the ? |
| A. | purchasing power parity theory |
| B. | asset markets theory |
| C. | monetary theory |
| D. | balance of payments theory |
| Answer» B. asset markets theory | |
| 8. |
The purchasing power parity theory has limitations in forecasting exchange rate fluctuations for all of the following reasons except ? |
| A. | inflation effects exchange rates |
| B. | international capital flows affect exchange rates |
| C. | governments sometimes impose trade restrictions such as tariffs and quotas |
| D. | not all products are internationally tradeable |
| Answer» B. international capital flows affect exchange rates | |
| 9. |
The high foreign exchange value of the U.S dollar in the early 1980s can best be explained by ? |
| A. | additional investment funds made available from overseas |
| B. | lack of investor confidence in U.S fiscal policy |
| C. | market expectations of rising inflation in the United States |
| D. | American tourists overseas finding costs increasing |
| Answer» B. lack of investor confidence in U.S fiscal policy | |
| 10. |
The exchange value of the U.S dollar is primarily determined by ? |
| A. | the rate of inflation in the United States |
| B. | the number of dollars printed by the U.S government |
| C. | the international demand and supply for dollars |
| D. | the monetary value of gold held at Fort Knox, Kentucky |
| Answer» D. the monetary value of gold held at Fort Knox, Kentucky | |
| 11. |
The asset market approach views exchange rates as being determined mainly by ? |
| A. | the use of import tariffs and quotas by governments |
| B. | the current account balance of each country |
| C. | the relative growth rate of national output between countries |
| D. | efforts of investors to balance their portfolios among financial assets denominated in different currencies |
| Answer» E. | |
| 12. |
The assets market approach is most helpful in explaining ? |
| A. | why exchange rates remain quite stable |
| B. | why governments change their money supplies |
| C. | long term exchange rate movements |
| D. | short term exchange rate movements |
| Answer» E. | |
| 13. |
The appreciation in the value of the dollar in the early 1980s is explained by all of the following except ? |
| A. | the United States being considered a safe haven by foreign investors |
| B. | relatively high real interest rates in the United States |
| C. | confidence of foreign investors in the U.S economy |
| D. | relatively high inflation rates in the United States |
| Answer» E. | |
| 14. |
Relatively low real interest rates in the United States tend to ? |
| A. | decrease the foreign demand for dollars causing the dollar to depreciate |
| B. | decrease the foreign demand for dollars causing the dollar to appreciate |
| C. | increase the foreign demand for dollars causing the dollar to depreciate |
| D. | decrease the foreign demand for dollars causing the dollar to appreciate |
| Answer» B. decrease the foreign demand for dollars causing the dollar to appreciate | |
| 15. |
Relatively high real interest rates in the United States tend to ? |
| A. | decrease the foreign demand for dollars causing the dollar to depreciate |
| B. | decrease the foreign demand for dollars causing the dollar to appreciate |
| C. | increase the foreign demand for dollars causing the dollar to depreciate |
| D. | increase the foreign demand for dollars causing the dollar to appreciate |
| Answer» E. | |
| 16. |
In the presences of purchasing power parity, if one-dollar exchanges for 2 British pounds and if a DVD player costs $400 in the United States then in Britain the DVD player should cost ? |
| A. | 200 pounds |
| B. | 400 pounds |
| C. | 600 pounds |
| D. | 800 pounds |
| Answer» E. | |
| 17. |
IF when cost $4 per bushel in the United States and 2 pounds per bushel in Great Britain then in the presence of purchasing power parity the exchange rate should be ? |
| A. | $50 per pound |
| B. | $1.00 per pound |
| C. | $2.00 per pound |
| D. | $8.00 per pound |
| Answer» D. $8.00 per pound | |
| 18. |
If the exchange rate between Swiss francs and British pounds is 5 francs per pound, then the number of pounds that can be obtained for 200 francs equals ? |
| A. | 20 pounds |
| B. | 40 pounds |
| C. | 60 pounds |
| D. | 80 pounds |
| Answer» C. 60 pounds | |
| 19. |
If Japan runs current account deficit and exchange rates are floating? |
| A. | Japanese exports become more expensive to foreign buyers |
| B. | Japanese exports become less expensive for foreign buyers |
| C. | Japanese imports become less expensive for German buyers |
| D. | Japanese imports become more prestigious to German buyers |
| Answer» C. Japanese imports become less expensive for German buyers | |
| 20. |
If Canada runs a balance of payments surplus and exchange rates are floating ? |
| A. | the value of other currencies will rise relative to the dollar |
| B. | the dollar will depreciate relative to other currencies |
| C. | the price of foreign goods will become cheaper to Canadians |
| D. | the price of foreign goods will rise for Canadians |
| Answer» D. the price of foreign goods will rise for Canadians | |
| 21. |
If a Big Mac hamburger sells for the same dollar value in New York as in London then ? |
| A. | the inflation rate in each country will necessarily equal zero |
| B. | the inflation rate in each country will necessarily equal 1 percent |
| C. | the exchange rates are said to be fixed pegged to each other |
| D. | purchasing power parity holds |
| Answer» E. | |
| 22. |
Given a system of floating exchange rates rising income in the United States would trigger a (an) ? |
| A. | increasing in the demand for imports and an increasing in the demand for foreign currency |
| B. | increase in the demand for imports and decrease in the demand for foreign currency |
| C. | decrease in the demand for imports and an increase in the demand for foreign currency |
| D. | decrease in the demand for imports and a decrease in the demand for foreign currency |
| Answer» B. increase in the demand for imports and decrease in the demand for foreign currency | |
| 23. |
Given a system of floating exchange rates falling income in the United States would trigger a (an) ? |
| A. | increase in the demand for imports and an increase in the demand for foreign currency |
| B. | increase in the demand for imports and a decrease in the demand for foreign currency |
| C. | decrease in the demand for imports and an increase in the demand for foreign currency |
| D. | decrease in the demand for imports and a decrease in the demand for foreign currency |
| Answer» E. | |
| 24. |
For the United States suppose the annual interest rate on government securities equals 8 percent while the annual inflation rate equals 4 percent, For Switzerland the annual interest rate on government securities equal 10 percent while the annual inflation rate equals 7 percent the above variables would cause investment funds to flow from ? |
| A. | the United States to Switzerland causing the dollar to depreciate |
| B. | the United States to Switzerland causing the dollar to appreciate |
| C. | Switzerland to the United States causing the franc to depreciate |
| D. | Switzerland to the United States causing the franc to appreciate |
| Answer» D. Switzerland to the United States causing the franc to appreciate | |
| 25. |
For the United States suppose the annual interest rate on government securities equals 12 percent while the annual inflation rate equals 8 percent For Japan the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 5 percent the above variables would cause investment funds to flow from ? |
| A. | The United States to Japan causing the dollar to depreciate |
| B. | The United States to Japan causing the dollar to appreciate |
| C. | The Japan to United States, causing the dollar to depreciate |
| D. | The Japan to United States, causing the dollar to appreciate |
| Answer» B. The United States to Japan causing the dollar to appreciate | |
| 26. |
Exchange rate overshooting often occurs because ? |
| A. | domestic prices adjust slowly to shifts in demand |
| B. | military spending during military conflicts |
| C. | elasticities are smaller in the long run than the short run |
| D. | elasticities are smaller in the short run than the long run |
| Answer» E. | |
| 27. |
Due to Japan’s high saving rate, suppose that the Japanese invest abroad. This investment may result in a/an _______ of the Japanese yen and therefore a for Japan? |
| A. | appreciation; trade surplus |
| B. | appreciation; trade deficit |
| C. | depreciation; trade surplus |
| D. | depreciation; trade deficit |
| Answer» D. depreciation; trade deficit | |
| 28. |
Consulting firms that use large-scale econometric models to forecast exchange rate movements are engaging in ? |
| A. | judgmental analysis |
| B. | fundamental analysis |
| C. | technical analysis |
| D. | nontechnical analysis |
| Answer» C. technical analysis | |
| 29. |
Assume that the United States faces a percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing power parity theory over the long run the dollar would be expected to ? |
| A. | appreciate by 8 percent against the yen |
| B. | depreciate by 8 percent against the yen |
| C. | remain at its existing exchange rate |
| D. | None of the above |
| Answer» C. remain at its existing exchange rate | |
| 30. |
Assume that a Big Mac hamburger cost $3 in the United States 2 pesos in Mexico The implied purchasing power parity exchange rate between the peso and the dollar is ? |
| A. | 0.67 pesos = $1 |
| B. | 0.8 pesos = $1 |
| C. | 1.25 pesos = $1 |
| D. | 1.67 pesos = $1 |
| Answer» B. 0.8 pesos = $1 | |
| 31. |
Assume identical interest rates on comparable securities in the United States and foreign countries. Suppose investors anticipate that in the future the U.S dollar will depreciate against foreign currencies. investment funds would tend to ? |
| A. | flow from the United States to foreign countries |
| B. | flow from foreign countries to the United States |
| C. | remain totally in foreign countries |
| D. | remain totally in the United States |
| Answer» B. flow from foreign countries to the United States | |
| 32. |
According to the asset market approach increased investor confidence in the Mexican economy would cause the peso to ? |
| A. | appreciate because of an increase supply of peso denominated assets |
| B. | depreciate because of an increased supply of peso denominated assets |
| C. | appreciated because of an increased demand for peso denominated assets |
| D. | depreciated because of an increased demand for peso denominated assets |
| Answer» D. depreciated because of an increased demand for peso denominated assets | |
| 33. |
A primary reason that explains the appreciation in the value of U.S dollar would be ? |
| A. | large trade surpluses for the United States |
| B. | high inflation rates in the United States |
| C. | lack of investor confidence in U.S money policy |
| D. | high interest rates in the United States |
| Answer» E. | |