Tackle the Test: Multiple-Choice Questions

1. Question

   When the U.S. dollar buys more Japanese yen, the U.S. dollar has

   
   

   
   

   1. become more valuable in terms of the yen.

      
      
   
   

   2. appreciated.

      
      
   
   

   3. depreciated.

      
      
   
   

   A.

   I only

   B.

   II only

   C.

   III only

   D.

   I and II only

   E.

   I and III only

   When the U.S. dollar buys more Japanese yen, the U.S. dollar has

2. Question

   The nominal exchange rate at which a given basket of goods and services would cost the same in each country describes

   A.

   the international consumer price index.

   B.

   appreciation.

   C.

   depreciation.

   D.

   purchasing power parity.

   E.

   the balance of payments on the current account.

   The nominal exchange rate at which a given basket of goods and services would cost the same in each country describes

3. Question

   What happens to the real exchange rate between the euro and the U.S. dollar (expressed as euros per dollar) if the aggregate price levels in Europe and the United States both fall? It

   A.

   is unaffected.

   B.

   increases.

   C.

   decreases.

   D.

   may increase, decrease, or stay the same.

   E.

   cannot be calculated.

   What happens to the real exchange rate between the euro and the U.S. dollar (expressed as euros per dollar) if the aggregate price levels in Europe and the United States both fall? It

4. Question

   Which of the following would cause the real exchange rate between pesos and U.S. dollars (in terms of pesos per dollar) to decrease?

   A.

   an increase in net capital flows from Mexico to the United States

   B.

   an increase in the real interest rate in Mexico relative to the United States

   C.

   a doubling of prices in both Mexico and the United States

   D.

   a decrease in oil exports from Mexico to the United States

   E.

   an increase in the balance of payments on the current account in the United States

   Which of the following would cause the real exchange rate between pesos and U.S. dollars (in terms of pesos per dollar) to decrease?

5. Question

   Which of the following will decrease the supply of U.S. dollars in the foreign exchange market?

   A.

   U.S. residents increase their travel abroad.

   B.

   U.S. consumers demand fewer imports.

   C.

   Foreigners increase their demand for U.S. goods.

   D.

   Foreigners increase their travel to the United States.

   E.

   Foreign investors see increased investment opportunities in the United States.

   Which of the following will decrease the supply of U.S. dollars in the foreign exchange market?