Economics MCQs

Page No. 198

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 ?


athe United States to Switzerland causing the dollar to depreciate


bthe United States to Switzerland causing the dollar to appreciate


cSwitzerland to the United States causing the franc to depreciate


dSwitzerland to the United States causing the franc to appreciate



The exchange value of the U.S dollar is primarily determined by ?


a the rate of inflation in the United States


bthe number of dollars printed by the U.S government


cthe international demand and supply for dollars


dthe monetary value of gold held at Fort Knox, Kentucky



If Canada runs a balance of payments surplus and exchange rates are floating ?


athe 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


dthe price of foreign goods will rise for Canadians



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


brelatively high real interest rates in the United States


cconfidence of foreign investors in the U.S economy


drelatively high inflation rates in the United States



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


ban excess supply of the currency exists in the foreign exchange marketan excess supply of the currency exists in the foreign exchange market


cthe demand for foreign exchange shifts outward to the right


dthe demand for foreign exchange shifts backward to the left



A primary reason that explains the appreciation in the value of U.S dollar would be ?


alarge trade surpluses for the United States


bhigh inflation rates in the United States


clack of investor confidence in U.S money policy


dhigch interest rates in the United States



In the presences of purchasing power parity, if one-dollar exchanges for 2 British pounds and


a200 pounds


b 400 pounds


c600 pounds


d 800 pounds


View Answer 800 pounds

Relatively high real interest rates in the United States tend to ?


adecrease the foreign demand for dollars causing the dollar to depreciate


bdecrease the foreign demand for dollars causing the dollar to appreciate


c increase the foreign demand for dollars causing the dollar to depreciate


dincrease the foreign demand for dollars causing the dollar to appreciate



If a Big Mac hamburger sells for the same dollar value in New York as in London then ?


athe inflation rate in each country will necessarily equal zero


bthe inflation rate in each country will necessarily equal 1 percent


cthe exchange rates are said to be fixed pegged to each other


dpurchasing power parity holds



The relationship between the exchange rate and the prices of tradable goods is known as the ?


apurchasing power parity theory


basset markets theory


cmonetary theory


d balance of payments theor



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