ECON 340 0101 Final EXAM Spring 2007: SAMPLE QUESTIONS Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. The time period that it takes for companies to increase output of commodities for which demand has increased due to currency depreciation is known as the: a. Recognition lag b. Decision lag c. Replacement lag d. Production lag ____ 2. The effect of currency depreciation on the purchasing power of money balances and the resulting impact on domestic expenditures is emphasized by the: a. Absorption approach b. Monetary approach c. Fiscal approach d. Elasticity approach ____ 3. Which exchange-rate mechanism calls for frequent redefining of the par value by small amounts to remove a payments disequilibrium? a. Dual exchange rates b. Adjustable pegged exchange rates c. Managed floating exchange rates d. Crawling pegged exchange rates ____ 4. Which exchange-rate system involves a "leaning against the wind" strategy in which short-term fluctuations in exchange rates are reduced without adhering to any particular exchange rate over the long run? a. Pegged or fixed exchange rates b. Adjustable pegged exchange rates c. Managed floating exchange rates d. Freely floating exchange rates ____ 5. The central bank of the United Kingdom could prevent the pound from appreciating by: a. Selling pounds on the foreign exchange market b. Buying pounds on the foreign exchange market c. Reducing its inflation rate relative to its trading partners d. Promoting domestic investment and technological development ____ 6. Under a floating exchange-rate system, which of the following best leads to a depreciation in the value of the Canadian dollar? a. A decrease in the Canadian money supply b. A fall in the Canadian interest rate c. An increase in national income overseas d. Rising inflation overseasUse the data of Table 15.1 to answer the question(s). Table 15.1. The Market for Francs Quantity of Dollar Price Quantity of Francs Demanded of Francs Francs Supplied600 $0.05 0 500 0.10 100 400 0.15 200 300 0.20 300 200 0.25 400 100 0.30 500 0 0.35 600 ____ 7. Refer to Table 15.1. Under a system of floating exchange rates, the equilibrium exchange rate equals: a. $0.15 per franc b. $0.20 per franc c. $0.25 per franc d. $0.30 per franc ____ 8. Under a system of floating exchange rates, which of the following policies promotes internal balance for a nation? a. Fiscal policy b. Monetary policy c. Both fiscal policy and monetary policy d. Neither fiscal policy nor monetary policy ____ 9. Under a floating exchange-rate system, if American exports decrease and American imports rise, the value of the dollar will: a. Appreciate b. Depreciate c. Be officially revalued d. Be officially devalued ____ 10. As a policy instrument, currency devaluation may be controversial since it: a. Imposes hardships on the exporters of foreign countries b. Imposes hardships on exporters of the devaluing country c. Is generally followed by unemployment in the devaluing country d. Is generally followed by price deflation in the devaluing country ____ 11. An appreciation in the value of the U.S. dollar against the British pound would tend to: a. Discourage the British from buying American goods b. Discourage Americans from buying British goods c. Increase the number of dollars that could be bought with a pound d. Discourage U.S. tourists from traveling to Britain ____ 12. Concerning exchange-rate forecasting, ____ relies on econometric models that are based on macroeconomic variables likely to affect currency values. a. Fundamental analysis b. Technical analysis c. Judgmental analysis d. Sunspot analysis____ 13. Under a fixed exchange-rate system, an expansion in the domestic money supply leads to a: a. Trade-account deficit and a capital-account surplus b. Trade-account deficit and a capital-account deficit c. Trade-account surplus and a capital-account surplus d. Trade-account surplus and a capital-account deficit ____ 14. Exchange rate controls: a. Achieved prominence during the economic crises of the late 1930s b. Were popular immediately after World War II c. Are widely used by the developing nations d. All of the above ____ 15. Given an initial equilibrium in the money market and foreign exchange market, suppose the Federal Reserve decreases the money supply of the United States. Under a floating exchange-rate system, the dollar would: a. Appreciate in value relative to other currencies b. Depreciate in value relative to other currencies c. Be officially devalued by the government d. Be officially revalued by the government ____ 16. Concerning exchange-rate forecasting, ____ is a common sense approach based on a wide array of political and economic data. a. Econometric analysis b. Technical analysis c. Judgmental analysis d. Sunspot analysis ____ 17. Most industrial countries generally considered ____ as the most important economic goal. a. External balance b. Internal balance c. Maximum efficiency for business d. Maximum efficiency for labor ____ 18. Under managed floating exchange rates, if the rate of inflation in the United States is less than the rate of inflation of its trading partners, the dollar will likely: a. Appreciate against foreign currencies b. Depreciate against foreign currencies c. Be officially revalued by the government d. Be officially devalued by the government ____ 19. According to the absorption approach, the economic circumstances that best warrant a currency devaluation is where the domestic economy faces: a. Unemployment coupled with a payments deficit b. Unemployment coupled with a payments surplus c. Full employment coupled with a payments deficit d. Full employment coupled with a payments surplus ____ 20. Which method of trading currencies involves the conversion of one currency into another at one point in time with an agreement to reconvert it back to the original currency at some point in the future? a. Forward transaction b. Futures transaction c. Spot transaction d. Swap transaction____ 21. When all of the debit or credit items in the balance of payments are combined: a. Merchandise imports equal merchandise exports b. Capital imports equal capital exports c. Services exports equal services imports d. The total surplus or deficit equals zero ____ 22. Concerning the relative impacts