Question

1) The price of one currency in terms of another is called 

A) the exchange rate. B) purchasing power parity. C) the terms of trade. D) a currency band. 

2) The three policies which cannot be maintained simultaneously by a nation (sometimes referred to as the "trilemma") do NOT include 

A) independent control of the money supply. B) independent control of fiscal policy. C) free flow of capital. D) fixed exchange rates 

3) The foreign exchange rate refers to 

A) the rate of change in a nation's international investment position. B) the rate at which foreign exports are flowing into a nation's output market. C) the amount of one nation's money that can be obtained in exchange for a unit of another nation's currency. D) the rate of change in a nation's exports and imports. 

4) An exchange-rate system in which the nominal exchange rate is set by the government is known as 

A) a flexible exchange-rate system. B) a floating exchange-rate system. C) a fixed exchange-rate system. D) an exchange-rate union. 01 

5) The real exchange rate is 

A) the price of one currency in terms of another. B) the price of domestic goods relative to foreign goods. C) the quantity of gold that can be purchased by one unit of currency. D) the difference in interest rates between two countries.

6) When the nominal exchange rate falls, 

A) the domestic currency buys more units of foreign currency and the domestic currency has depreciated. B) the domestic currency buys fewer units of foreign currency and the domestic currency has depreciated. C) the domestic currency buys more units of foreign currency and the domestic currency has appreciated. D) the domestic currency buy fewer units of foreign currency and the domestic currency has appreciated. 

7) A rise in the real exchange rate is called 

A) a real depreciation. B) a real appreciation. C) a real bargain. D) a real devaluation. 

8) A look at Big Mac prices around the world shows that purchasing power parity 

A) holds. B) does not hold. C) holds for developed countries. D) holds for less developed countries. 

9) A price bubble occurs when 

A) the economy enters a recessionary period. B) people can no longer afford to purchase an asset. C) the price of an asset soars far above "fundamentals" D) the economy experiences prolonged and slow recovery. 

10) The Fed can reduce the money supply by reducing 

A) the currency-deposit ratio. B) the monetary base (MI). C) reserve requirements. D) the discount rate. 

11) If the money multiplier is 10, the purchase of S1 billion of securities by the Fed on the open market causes a 

A) $10 billion decrease in the money supply. -PP. B) $1 billion decrease in the money supply. C) $1 billion increase in the money supply. D) S10 billion increase in the money supply.

Answer 1

1) (A) the exchange rate

International exchange rate is the price of one currency’s currency in terms of another country’s currency. It is also known as Foreign Exchange.

Answer 2

3)

The right answer is B) the amount of one nation's money that can be obtained in exchange for a unit of another nation's currency. For instance, the CAD/USD exchange rate is the amount of Canadian Dollar that one US Dollar can buy.