Title: Exchange Rates and the Trade Balance
Course: TEST Course

Q: As the result of exchange rate volatility
- contracts for currency exchanges are less risky.
- the banking and financial sectors receive protection from risks.
- economic activity can significantly fluctuate due to changes in trade patterns.
A: economic activity can significantly fluctuate due to changes in trade patterns.

Q: If there is exchange rate volatility it results in
- currency exchange contracts being less risky.
- financial sectors and banks receiving protection from risks.
- great fluctuations in economic activity because of trade pattern changes.
A: great fluctuations in economic activity because of trade pattern changes.

Q: A nation suffering from inflation would have a reason to welcome
- a wave of foreign investment.
- currency depreciation.
- currency appreciation.
A: currency appreciation.

Q: A nation suffering from high unemployment would welcome
- currency appreciation.
- higher inflation.
- a wave of foreign investment.
A: a wave of foreign investment.

Q: When exchange rates fluctuate it can greatly affect export and import activities. Any changes in the export and import activities can have an affect on the whole economy through changes in ________.
- aggregate supply
- domestic investments
- aggregate demand
A: aggregate demand

Q: Movements in exchange rates can have a powerful effect on incentives to export and import, and thus on ________ in the economy as a whole.
- aggregate supply
- portfolio investments
- aggregate demand
A: aggregate demand

Q: If a government decides to use an expansionary monetary policy that lowers interest rates, it will increase consumer borrowing and invest demand. How do these changes shift the aggregate demand curve?
- It would shift AD to the left.
- It would hold AD in its current place.
- It would shift AD to the right.
A: It would shift AD to the right.

Q: Expansionary monetary policy lowers ________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________.
- rates of return; left
- exchange rates; left
- interest rates; right
A: interest rates; right

Q: If the goal is to decrease aggregate demand for an economy, a government can implement a tight monetary policy which ________ imports and ________ exports.
- increases; encourages
- grows; diminishes
- decreases: increases
A: decreases: increases

Q: A tight monetary policy can be used to decrease aggregate demand because it ________ exports and ________ imports .
- stimulates; increases
- reduces; stimulates
- stimulates; reduces
A: stimulates; reduces

Q: What could happen if the U.S. government implements an expansionary monetary policy to reduce interest rates?
- The policy will lead to lower exports and higher imports.
- The policy will lower investment and consumption levels.
- The policy will cause exchange rate depreciation for the U.S. dollar.
A: The policy will cause exchange rate depreciation for the U.S. dollar.

Q: If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it will:
- lead to higher imports and lower exports.
- lower levels of consumption and investment.
- cause the exchange rate for U.S. currency to depreciate.
A: cause the exchange rate for U.S. currency to depreciate.

Q: What is it called if a government allows the exchange rate to be set by the market as its policy?
- hard peg exchange rate policy
- PPP exchange rate policy
- soft peg exchange rate policy
A: soft peg exchange rate policy

Q: When a government uses a ________ exchange rate policy, it usually allows the exchange rate to be set by the market.
- PPP
- hard peg
- soft peg
A: soft peg

Q: After years of destructive hyperinflation, the country of Zimbabwe decided to adopt the South African Rand as its currency. The Zimbabwean dollar is now a
- soft peg currency
- hard peg currency
- merged currency
A: merged currency

Q: The country of Karastan decides to merge its currency with the one of its neighbor Acikstan. This means that
- the country of Karastan will be keeping a fixed exchange rate with the currency of Acikstan.
- the country of Karastan will be implementing monetary policy for both countries
- the country of Karastan will be using Acikstan’s currency.
A: the country of Karastan will be using Acikstan’s currency.

Q: Russia currently uses floating exchange rates; this means that
- the exchange rates between the Russian ruble and other currencies is set by market forces within limits set by the Russian central bank.
- the exchange rates between the Russian ruble and other currencies is set in cooperation with other countries’ central banks.
- the exchange rates between the Russian ruble and other currencies is set by market forces only.
A: the exchange rates between the Russian ruble and other currencies is set by market forces only.

Q: If Sierra Leone decides to use a floating exchange rates; it means that
- Sierra Leone central bank sets limits on exchange rates between the Sierra Leone leone and other currencies is set by market forces.
- other countries’ central banks work with Sierra Leone to determine the exchange rates between the Sierra Leone leone and other currencies.
- The market forces determine the exchange rates between the Sierra Leone leone and other currencies.
A: The market forces determine the exchange rates between the Sierra Leone leone and other currencies.

Q: If a country wants to control the exchange rates of its currency relative to other currencies and conduct countercyclical monetary policy, then is should use
- a hard peg policy.
- a merged currency.
- a soft peg policy.
A: a soft peg policy.

Q: If a country wants to avoid large sudden fluctuations in exchange rates and their adverse effects it would choose
- floating exchange rates policy.
- arbitrage exchange rates policy.
- soft peg exchange rates policy.
A: soft peg exchange rates policy.

Q: ________ usually with an exchange rate tries avoiding intense short-terms fluctuations but allows it to move up and down by relatively small amounts in the short-run.
- A floating exchange rate
- A hard peg policy
- A soft peg policy
A: A soft peg policy

Q: A soft peg policy typically allows the exchange rate to move up and down by relatively small amounts in ________, but seeks to avoid extreme short-term fluctuations.
- the market exchange
- the long run
- the short run
A: the short run

Q: If a country has pegged its exchange rate, but its economy is heading into a recession, why would it be improbable that it could use an expansionary monetary policy to boost its sagging economy?
- Because it would focus on its soft peg and ignore the recession or inflation.
- Because it would break it's hard peg because the country's currency would appreciate.
- Because it would break it's hard peg by the depreciation of the country's exchange rate.
A: Because it would break it's hard peg by the depreciation of the country's exchange rate.

Q: Why would an expansionary monetary policy no longer be available to combat recession for a country that has pegged its exchange rate?
- Inflation or recession must be ignored in order to focus on its soft peg.
- It would appreciate the country's currency and break its hard peg.
- It would depreciate the country's exchange rate and break its hard peg.
A: It would depreciate the country's exchange rate and break its hard peg.

Q: What happens if a government intervenes in exchange rate markets by using hard or soft pegs?
- A government salvages it’s economy that is continually falling short of attaining its economic goals.
- A government garners more influence and uses monetary policy to focus on its economic inflations.
- A government runs the risk of creating larger fluctuations in foreign exchange markets.
A: A government runs the risk of creating larger fluctuations in foreign exchange markets.

Q: Governments that attempt to intervene in exchange rate markets through soft pegs or hard pegs
- will save an economy that consistently fails at achieving the main economic goals.
- gain the power to use monetary policy to focus on domestic inflations.
- risk causing even greater fluctuations in foreign exchange markets.
A: risk causing even greater fluctuations in foreign exchange markets.

Q: If exchange rate markets make future predictions of government intervention because of a soft peg exchange rate, it may generate more ________.
- exchanges
- supply side effects
- volatility
A: volatility

Q: A soft peg exchange rate may create additional ________ as exchange rate markets try to anticipate when and how the government will intervene.
- trade-offs
- demand side effects
- volatility
A: volatility

Q: The neighbouring countries of Estontium and Lithunanium decide to merge their two currencies into one currency. By taking this step the countries forfeit the ability to
- use the foreign exchange markets to purchase currencies.
- use the foreign exchange markets to sell currency.
- have each of the individual countries decide their own monetary policy.
A: have each of the individual countries decide their own monetary policy.

Q: If a nation merges its currency with another nation to create a single currency, what must it give up?
- the ability to purchase currency in foreign exchange markets
- the ability to sell currency in foreign exchange markets
- the ability to determine its own nationally-oriented monetary policy
A: the ability to determine its own nationally-oriented monetary policy