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Student Self-test Questions
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1
If British residents want more euros to purchase more French wine, other things equal, then the equilibrium value of the pound against the euro will ___________
A)rise
B)fall
C)not change
D)fluctuate
2
An ________ economy has trade and financial links with other countries
A)closed
B)open
C)inflationary
D)deficit
3
Suppose $2 converts to £1. We can either say the exchange rate is ____ or ______.
A)£2/$, £0.50/$
B)$2/£, $0.50/£
C)$2/£, £0.50/$
D)£2/$, $0.50/£
4
Suppose UK whisky costs £8 a bottle. At $2/£, it sells in the US for ___, but at $1.50/£ it sells for ___.
A)$16, $12
B)$4, $12
C)$4, $5.50
D)$16, $5.50
5
If the sterling price of UK goods is constant, a _____ exchange rate, by raising the quantity of UK exports, must _____ export revenue in pounds.
A)lower, lower
B)higher, raise
C)lower, raise
D)real, increase
6
If the UK demand for US goods, services, and assets is ______________, a lower exchange rate and higher sterling price will _____ sterling spending.
A)price-inelastic, lower
B)price-inelastic, raise
C)price-inelastic,lower
D)price-inelastic, raise
7
The foreign exchange reserves are foreign currency held by the public.
A)True
B)False
8
The balancing item, in the balance of payments is a statistical adjustment and would be _________ if all previous items were correctly measured.
A)zero
B)positive
C)negative
9
The ______ are net foreign assets, the higher is the inflow of interest income, and the ______ is the real exchange rate needed to maintain external balance.
A)higher, lower
B)lower, higher
C)higher, higher
D)worse, better
10
When the $/£ exchange rate rises the pound ___________, and when the $/£ rate falls the pound __________.
A)depreciates, appreciates
B)revalues, devalues
C)appreciates, depreciates
D)becomes more expensive, becomes cheaper
11
When a government follows a fixed exchange rate regime it allows the exchange rate to be determined by market forces.
A)True
B)False
12
If in a fixed exchange rate regime there is excess demand for the domestic currency, the central bank will intervene by ______ pounds and if there is excess supply of domestic currency, the central bank will intervene by ______ pounds.
A)buying, buying
B)buying, selling
C)selling, buying
D)selling, selling
13
A current account deficit means that a country is ___________.
A)reducing its stock of foreign assets
B)increasing its stock of foreign assets
C)increasing its savings
D)increasing its foreign currency reserves
14
Under floating exchange rates, a current account deficit must be exactly matched by a capital account surplus
A)True
B)False
15
Starting from a position of internal and external balance, a reduction in aggregate demand will cause a current account _____________.
A)deficit
B)surplus
C)revaluation
D)devaluation
16
A rise in the real exchange rate will ____________ the competitiveness of the domestic economy.
A)increase
B)reduce
C)do nothing to
17
Within the circular flow of income, an increase in domestic income will tend to increase.
A)exports
B)benefits
C)unemployment
D)imports
18
International capital mobility suggests that international funds will be responsive to _____________ differentials.
A)current account
B)interest rate
C)tax
D)price
19
When capital mobility is perfect, interest rate differentials will tend to be offset by ________.
A)price differences
B)balance of payments differences
C)current account differences
D)expected exchange rate changes
20
The current account will differ from trade balance because of interest flows from foreign assets and debts
A)True
B)False





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