When the price of a bond is above the equilibrium price,there is 1当债券的价格高于均衡价格

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IOWASTATEUNIVERSITY

DepartmentofEconomics

Spring2003

Economics353:Section2

Money,BankingandFinancialInstitutions

SAMPLETESTTWO

Chapter5:TheBehaviorofInterestRates

1)Whenstockpricesbecomelessvolatile,the______curveforbondsshiftstothe_____.

A)demand;rightB)demand;leftC)supply;leftD)supply;right

Answer:B

2) Whenthefederalgovernment'sbudgetdeficitdecreases,the_____curveforbondsshiftstothe_____.

A)demand;rightB)demand;leftC)supply;leftD)supply;right

Answer:C

3) Whenbondsbecomelesswidelytraded,andasaconsequencethemarketbecomeslessliquid,thedemandcurveforbondsshiftstothe_____andtheinterestrate_____.

A)right;risesB)right;fallsC)left;fallsD)left;rises

Answer:D

4) Whenpricesintheartmarketbecomelessuncertain,

A)thedemandcurveforbondsshiftstotheleftandtheinterestratefalls.

B)thedemandcurveforbondsshiftstotherightandtheinterestraterises.

C)thesupplycurveforbondsshiftstotherightandtheinterestratefalls.

D)noneoftheaboveoccurs.

Answer:D

5) Whenpricesinthestockmarketbecomemoreuncertain,thedemandcurveforbondsshiftstothe_____andtheinterestrate_____.

A)right;risesB)right;fallsC)left;fallsD)left;rises

Answer:B

6) Whentheinterestrateisabovetheequilibriuminterestrate,thereisanexcess_____for(of)moneyandtheinterestratewill_____.

A)demand;riseB)demand;fallC)supply;fallD)supply;rise

Answer:C

7) Whenthepricelevelrises,thedemandcurveformoneyshiftstothe_____andtheinterestrate_____.

A)right;risesB)right;fallsC)left;fallsD)left;rises

Answer:A

8) Whenthepricelevelfalls,thedemandcurveformoneyshiftstothe_____andtheinterestrate_____.

A)right;risesB)right;fallsC)left;fallsD)left;rises

Answer:C

9) Whenrealincome_____,thedemandcurveformoneyshiftstothe_____andtheinterestrate_____.

A)falls;left;falls

B)falls;right;falls

C)falls;left;rises

D)rises;left;rises

E)rises;right;falls

Answer:A

10) Whenthepricelevel_____,thedemandcurveformoneyshiftstothe_____andtheinterestrate_____.

A)falls;left;rises

B)falls;right;falls

C)rises;right;rises

D)rises;right;falls

Answer:C

11) WhentheFed_____themoneystock,themoneysupplycurveshiftstothe_____andtheinterestrate_____.

A)decreases;right;rises

B)increases;right;falls

C)decreases;left;falls

D)increases;left;rises

E)decreases;right;falls

Answer:B

12) Whenstockpricesbecome_____volatile,thedemandcurveforbondsshiftstothe_____andtheinterestrate_____.

A)more;right;rises

B)more;left;falls

C)less;left;falls

D)less;left;rises

E)less;right;falls

Answer:D

13) Whenthegrowthrateofthemoneysupplyincreases,interestratesendupbeingpermanentlyhigherif

A)theliquidityeffectislargerthantheothereffects.

B)thereisfastadjustmentofexpectedinflation.

C)thereisslowadjustmentofexpectedinflation.

D)theexpectedinflationeffectislargerthantheliquidityeffect.

Answer:D

14) Whenthegrowthrateofthemoneysupplydecreases,interestratesendupbeingpermanentlyhigherif

A)theliquidityeffectislargerthantheothereffects.

B)thereisfastadjustmentofexpectedinflation.

C)thereisslowadjustmentofexpectedinflation.

D)theexpectedinflationeffectislargerthantheliquidityeffect.

Answer:A

15)Whenthegrowthrateofthemoneysupplyisdecreased,interestrateswillriseimmediatelyifthe

liquidityeffectis_____thantheothermoneysupplyeffectsandthereis_____adjustmentof

expectedinflation.

A)larger;fastB)larger;slowC)smaller;slowD)smaller;fast

Answer:B

16) Holdingtheexpectedreturnonbondsconstant,adecreaseintheexpectedreturnonstockswould_____thedemandforbonds,shiftingthedemandcurvetothe_____.

A)decrease;leftB)decrease;rightC)increase;leftD)increase;right

Answer:D

17) Factorsthatcausethedemandcurveforbondstoshifttotherightinclude

A)adecreaseintheinflationrate.

B)anincreaseinthevolatilityofstockprices.

C)anincreaseintheliquidityofstocks.

D)alloftheabove.

E)only(a)and(b)oftheabove.

Answer:E

18) Factorsthatcancausethesupplycurveforbondstoshifttotherightinclude

A)anexpansioninoveralleconomicactivity.

B)anincreaseinexpectedinflation.

C)anincreaseingovernmentdeficits.

D)alloftheabove.

E)only(a)and(b)oftheabove.

Answer:D

19) InKeynes'sliquiditypreferenceframework,individualsareassumedtoholdtheirwealthintwoforms:

A)realassetsandfinancialassets. B)stocksandbonds.

C)moneyandbonds. D)moneyandgold.

Answer:C

20) Ahigherlevelofincomecausesthedemandformoneyto_____andthedemandcurveformoneytoshifttothe_____.

A)decrease;rightB)decrease;leftC)increase;rightD)increase;left

Answer:C

21) Adeclineinthepricelevelcausesthedemandformoneyto_____andthedemandcurvetoshifttothe_____.

A)decrease;rightB)decrease;leftC)increase;rightD)increase;left

Answer:B

22) Adeclineintheexpectedinflationratecausesthedemandformoneyto_____andthedemandcurvetoshifttothe_____.

A)decrease;rightB)decrease;leftC)increase;rightD)increase;left

Answer:B

23) Holdingeverythingelseequal,anincreaseinthemoneysupplycauses

A)interestratestodeclineinitially.

B)interestratestoincreaseinitially.

C)bondpricestodeclineinitially.

D)both(a)and(c)oftheabove.

E)both(b)and(c)oftheabove.

Answer:A

24) Itisentirelypossiblethatwhenthemoneysupplyrises,interestratesmay_____ifthe_____effectismorethanoffsetbychangesinincome,thepricelevel,andexpectedinflation.

A)fall;liquidityB)fall;riskC)rise;liquidityD)rise;risk

Answer:C

25) Ofthefoureffectsoninterestratesfromanincreaseinthemoneysupply,theonethatworksintheoppositedirectionoftheotherthreeisthe

A)liquidityeffect. B)incomeeffect.

C)priceleveleffect. D)expectedinflationeffect.

Answer:A

26) Anincreaseintheriskinessofbondsrelativetoalternativeassetscausesthedemandforbondsto_____andthedemandcurvetoshifttothe_____.

A)rise,rightB)rise,leftC)fall,rightD)fall,left

Answer:D

27) Highergovernmentdeficits_____thesupplyofbondsandshiftthesupplycurvetothe_____.

A)increase,leftB)increase,rightC)decrease,leftD)decrease,right

Answer:B

28) Whentheinflationrateisexpectedtoincrease,therealcostofborrowingdeclinesatanygiveninterestrate;the_____ofbondsincreasesandthe_____curveshiftstotheright.

A)demand,demand B)demand,supply

C)supply,demand D)supply,supply

Answer:D

29) Whentheinflationrateisexpectedtorise,interestrateswill_____;thisresulthasbeentermedthe_____.

A)fall,Keyneseffect

B)fall,Fishereffect

C)rise,Pigoueffect

D)rise,Fishereffect

E)rise,Keyneseffect

Answer:D

30) InhisLiquidityPreferenceFramework,Keynesassumedthatmoneyhasazerorateofreturn;thus,

A)wheninterestratesrise,theexpectedreturnonmoneyfallsrelativetotheexpectedreturnonbonds,causingthedemandformoneytofall.

B)wheninterestratesrise,theexpectedreturnonmoneyfallsrelativetotheexpectedreturnonbonds,causingthedemandformoneytorise.

C)wheninterestratesfall,theexpectedreturnonmoneyfallsrelativetotheexpectedreturnonbonds,causingthedemandformoneytofall.

D)wheninterestratesfall,theexpectedreturnonmoneyfallsrelativetotheexpectedreturnonbonds,causingthedemandformoneytorise.

Answer:A

31) Shiftingthedemandformoneycurve,adeclineintheinterestratecanbeexplainedby

A)adecreaseinincome.

B)adecreaseintheexpectedpricelevel.

C)anincreaseinmoneygrowth.

D)both(a)and(b)oftheabove.

E)both(a)and(c)oftheabove.

Answer:D

Figure5-4

32) InFigure5-4,theincreaseintheinterestratefromi2toi1canbeexplainedby

A)adecreaseinmoneygrowth.

B)anincreaseintheexpectedpricelevel.

C)anincreaseinincome.

D)both(a)and(c)oftheabove.

E)both(b)and(c)oftheabove.

Answer:A

Figure5-5

33) Figure5-5illustratestheeffectofanincreasedrateofmoneysupplygrowth.Fromthefigure,onecanconcludethatthe

A)theliquidityeffectissmallerthantheexpectedinflationeffectandinterestratesadjustquicklytochangesinexpectedinflation.

B)theliquidityeffectislargerthantheexpectedinflationeffectandinterestratesadjustquicklytochangesinexpectedinflation.

C)theliquidityeffectislargerthantheexpectedinflationeffectandinterestratesadjustslowlytochangesinexpectedinflation.

D)theliquidityeffectissmallerthantheexpectedinflationeffectandinterestratesadjustslowlytochangesinexpectedinflation.

Answer:A

Figure5-6

34) Figure5-6illustratestheeffectofanincreasedrateofmoneysupplygrowth.Fromthefigure,onecanconcludethatthe

A)theliquidityeffectissmallerthantheexpectedinflationeffectandinterestratesadjustquicklytochangesinexpectedinflation.

B)theliquidityeffectislargerthantheexpectedinflationeffectandinterestratesadjustquicklytochangesinexpectedinflation.

C)theliquidityeffectislargerthantheexpectedinflationeffectandinterestratesadjustslowlytochangesinexpectedinflation.

D)theliquidityeffectissmallerthantheexpectedinflationeffectandinterestratesadjustslowlytochangesinexpectedinflation.

Answer:C

Figure5-7

35) Figure5-7illustratestheeffectofanincreasedrateofmoneysupplygrowth.Fromthefigure,onecanconcludethatthe

A)theliquidityeffectissmallerthantheexpectedinflationeffectandinterestratesadjustquicklytochangesinexpectedinflation.

B)theliquidityeffectislargerthantheexpectedinflationeffectandinterestratesadjustquicklytochangesinexpectedinflation.

C)theliquidityeffectislargerthantheexpectedinflationeffectandinterestratesadjustslowlytochangesinexpectedinflation.

D)theliquidityeffectissmallerthantheexpectedinflationeffectandinterestratesadjustslowlytochangesinexpectedinflation.

Answer:D

Chapter6:TheRiskandTermStructureofInterestRates

1) Thetermstructureofinterestratesis

A)therelationshipamonginterestratesofdifferentbondswiththesamematurity.

B)thestructureofhowinterestratesmoveovertime.

C)therelationshipamongthetermtomaturityofdifferentbonds.

D)therelationshipamonginterestratesonbondswithdifferentmaturities.

Answer:D

2) Whenthedefaultriskincorporatebondsdecreases,otherthingsequal,thedemandcurveforcorporatebondsshiftstothe_____andthedemandcurveforTreasurybondsshiftstothe_____.

A)right;rightB)right;leftC)left;leftD)left;right

Answer:B

3) WhentheTreasurybondmarketbecomesmoreliquid,otherthingsequal,thedemandcurveforcorporatebondsshiftstothe_____andthedemandcurveforTreasurybondsshiftstothe_____.

A)right;rightB)right;leftC)left;rightD)left;left

Answer:C

4) Theriskpremiumoncorporatebondsbecomessmallerif

A)theriskinessofcorporatebondsincreases.

B)theliquidityofcorporatebondsincreases.

C)theliquidityofcorporatebondsdecreases.

D)theriskinessofcorporatebondsdecreases.

E)both(b)and(d)occur.

Answer:E

5) Theriskpremiumoncorporatebondsriseswhen

A)brokeragecommissionsfallinthecorporatebondmarket.

B)aflurryofmajorcorporatebankruptciesoccurs.

C)theTreasurybondmarketbecomeslessliquid.

D)anyoftheaboveoccurs.

Answer:B

6) TheinterestrateonmunicipalbondsfallsrelativetotheinterestrateonTreasurysecuritieswhen

A)thereisamajordefaultinthemunicipalbondmarket.

B)incometaxratesareraised.

C)municipalbondsbecomelesswidelytraded.

D)corporatebondsbecomeriskier.

E)noneoftheaboveoccur.

Answer:B

7) Ifincometaxrateswerelowered,then

A)thepricesofmunicipalbondswouldfall.

B)theinterestrateonmunicipalbondswouldfall.

C)theinterestrateonTreasurybondswouldrise.

D)both(a)and(b)wouldoccur.

Answer:A

8) Ifincometaxrateswerelowered,then

A)theinterestrateonmunicipalbondswouldrise.

B)theinterestrateonTreasurybondswouldfall.

C)theinterestrateonmunicipalbondswouldfall.

D)both(a)and(b)wouldoccur.

E)both(b)and(c)wouldoccur.

Answer:D

9) Aplotoftheinterestratesondefault-freegovernmentbondswithdifferenttermstomaturityiscalled

A)arisk-structurecurve. B)aterm-structurecurve.

C)ayieldcurve. D)aninterest-ratecurve.

Answer:C

10) Theliquiditypremiumtheoryofthetermstructure

A)indicatesthattoday'slong-terminterestrateequalstheaverageofshort-terminterestratesthatpeopleexpecttooccuroverthelifeofthelong-termbond.

B)assumesthatbondsofdifferentmaturitiesareperfectsubstitutes.

C)suggeststhatmarketsforbondsofdifferentmaturitiesarecompletelyseparatebecausepeoplehavepreferredhabitats.

D)doesnoneoftheabove.

Answer:D

11) Whichofthefollowingtheoriesofthetermstructureis(are)abletoexplainthefactthatinterestratesonbondsofdifferentmaturitiestendtomovetogetherovertime?

A)Theexpectationstheory

B)Thesegmentedmarketstheory

C)Theliquiditypremiumtheory

D)Both(a)and(b)oftheabove

E)Both(a)and(c)oftheabove

Answer:E

12) Iftheexpectedpathofone-yearinterestratesoverthenextfiveyearsis4percent,5percent,7percent,8percent,and6percent,thentheexpectationstheorypredictsthattoday'sinterestrateonthefive-yearbondis

A)4percent.B)5percent.C)6percent.D)7percent.E)8percent.

Answer:C

13) Iftheyieldcurveisflatforshortmaturitiesandthenslopesdownwardforlongermaturities,theliquiditypremiumtheory(assumingamildpreferenceforshorter-termbonds)indicatesthatthemarketispredicting.

A)ariseinshort-terminterestratesinthenearfutureandadeclinefurtheroutinthefuture.

B)constantshort-terminterestratesinthenearfutureandadeclinefurtheroutinthefuture.

C)adeclineinshort-terminterestratesinthenearfutureandarisefurtheroutinthefuture.

D)adeclineinshort-terminterestratesinthenearfutureandanevensteeperdeclinefurtheroutinthefuture.

Answer:D

14) Interestratesonbondsofthesamematuritywilldifferbecauseofdifferencesin

A)liquidity.

B)risk.

C)incometaxtreatment.

D)alloftheabove.

E)only(a)and(b)oftheabove.

Answer:D

15) Ifacorporationbeginstosufferlargelosses,then

A)thedefaultriskonthecorporatebondwillincreaseandthebond'sreturnwillbecomemoreuncertain,meaningtheexpectedreturnonthecorporatebondwillfall.

B)thedefaultriskonthecorporatebondwillincreaseandthebond'sreturnwillbecomelessuncertain,meaningtheexpectedreturnonthecorporatebondwillfall.

C)thedefaultriskonthecorporatebondwilldecreaseandthebond'sreturnwillbecomelessuncertain,meaningtheexpectedreturnonthecorporatebondwillfall.

D)thedefaultriskonthecorporatebondwilldecreaseandthebond'sreturnwillbecomelessuncertain,meaningtheexpectedreturnonthecorporatebondwillrise.

Answer:A

16) Thetheoryofassetdemandpredictsthatasthepossibilityofadefaultonacorporatebonddecreases,theexpectedreturnonthebond_____whileitsrelativeriskiness_____.

A)rises;risesB)rises;fallsC)falls;risesD)falls;falls

Answer:B

17) Thetheoryofassetdemandpredictsthatadeclineintheexpectedreturnoncorporatebondsduetoariseinrelativeriskinesscauses

A)adeclineinthedemandfordefault-freebonds.

B)anincreaseinthedemandofcorporatebonds.

C)adeclineinthedemandforcorporatebonds.

D)adeclineinthesupplyofcorporatebonds.

Answer:C

18) Corporatebondsarenotasliquidasgovernmentbondsbecause

A)fewercorporatebondsforanyonecorporationaretraded,makingthemmorecostlytosell.

B)thecorporatebondratingmustbecalculatedeachtimetheyaretraded.

C)corporatebondsarenotcallable.

D)ofalloftheabove.

E)ofonly(a)and(b)oftheabove.

Answer:A

19) Theriskstructureofinterestratesisexplainedbydifferencesin

A)thebonds'relativedefaultrisks.

B)thebonds'relativeliquidity.

C)thebond'srelativetaxtreatment.

D)alloftheabove.

E)only(a)and(b)oftheabove.

Answer:D

20) Factorsthatinfluenceinterestratesonbondsinclude

A)risk.

B)liquidity.

C)taxconsiderations.

D)termtomaturity.

E)alloftheabove.

Answer:E

21) Typically,yieldcurvesare

A)gentlyupwardsloping.

B)gentlydownwardsloping.

C)flat.

D)bowlshaped.

E)moundshaped.

Answer:A

22) Whenyieldcurvesaresteeplyupwardsloping,

A)long-terminterestratesareaboveshort-terminterestrates.

B)short-terminterestratesareabovelong-terminterestrates.

C)short-terminterestratesareaboutthesameaslong-terminterestrates.

D)medium-terminterestratesareabovebothshort-termandlong-terminterestrates.

E)medium-terminterestratesarebelowbothshort-termandlong-terminterestrates.

Answer:A

23) Whenyieldcurvesaredownwardsloping,

A)long-terminterestratesareaboveshort-terminterestrates.

B)short-terminterestratesareabovelong-terminterestrates.

C)short-terminterestratesareaboutthesameaslong-terminterestrates.

D)medium-terminterestratesareabovebothshort-termandlong-terminterestrates.

E)medium-terminterestratesarebelowbothshort-termandlong-terminterestrates.

Answer:B

24) Whenyieldcurvesareflat,

A)long-terminterestratesareaboveshort-terminterestrates.

B)short-terminterestratesareabovelong-terminterestrates.

C)short-terminterestratesareaboutthesameaslong-terminterestrates.

D)medium-terminterestratesareabovebothshort-termandlong-terminterestrates.

E)medium-terminterestratesarebelowbothshort-termandlong-terminterestrates.

Answer:C

25) Accordingtotheexpectationstheoryofthetermstructure

A)theinterestrateonlong-termbondswillequalanaverageofshort-terminterestratesthatpeopleexpecttooccuroverthelifeofthelong-termbonds.

B)buyersofbondsdoprefershort-termtolong-termbonds.

C)interestratesonbondsofdifferentmaturitiesdonotmovetogetherovertime.

D)alloftheabove.

Answer:A

26) Accordingtotheexpectationstheoryofthetermstructure

A)theinterestrateonlong-termbondswillequalanaverageofshort-terminterestratesthatpeopleexpecttooccuroverthelifeofthelong-termbonds.

B)interestratesonbondsofdifferentmaturitiesarenotexpectedtomovetogetherovertimesincebuyersofbondsprefershort-termtolong-termbonds.

C)investors'strongpreferencesforshort-termrelativetolong-termbondsexplainswhyyieldcurvestypicallyslopeupward.

D)alloftheabove.

E)only(a)and(b)oftheabove.

Answer:A

27) Accordingtothesegmentedmarketstheoryofthetermstructure

A)theinterestrateforeachmaturitybondisdeterminedbysupplyanddemandforthatmaturitybond.

B)bondsofonematurityarenotsubstitutesforbondsofothermaturities,therefore,interestratesonbondsofdifferentmaturitiesdonotmovetogetherovertime.

C)investors'strongpreferencesforshort-termrelativetolong-termbondsexplainswhyyieldcurvestypicallyslopeupward.

D)alloftheabove.

E)noneoftheabove.

Answer:D

28) Bondswithnodefaultriskarecalled

A)flowerbonds. B)no-riskbonds.

C)default-freebonds. D)zero-riskbonds.

Answer:C

29) Thespreadbetweentheinterestratesonbondswithdefaultriskanddefault-freebondsiscalledthe

A)riskpremium. B)junkmargin.

C)bondmargin. D)defaultpremium.

Answer:A

30) Asdefaultriskincreases,theexpectedreturnoncorporatebonds_____,andthereturnbecomes_____uncertain.

A)increases,lessB)increases,moreC)decreases,lessD)decreases,more

Answer:D

31) Astheirrelativeriskiness_____,theexpectedreturnoncorporatebonds_____relativetotheexpectedreturnondefault-freebonds.

A)increases,increases

B)increases,decreases

C)decreases,decreases

D)decreases,doesnotchange

E)increases,doesnotchange

Answer:B

32) Whichofthefollowingstatementsaretrue?

A)Abondwithdefaultriskwillalwayshaveapositiveriskpremium,andanincreaseinitsdefaultriskwillraisetheriskpremium.

B)Theexpectedreturnoncorporatebondsdecreasesasdefaultriskdecreases.

C)Acorporatebond'sreturnbecomesmoreuncertainasdefaultriskincreases.

D)Only(a)and(b)oftheabovearetruestatements.

Answer:A

33) ThespreadbetweeninterestratesonlowqualitycorporatebondsandU.S.governmentbonds

A)widenedsignificantlyduringtheGreatDepression.

B)narrowedsignificantlyduringtheGreatDepression.

C)narrowedmoderatelyduringtheGreatDepression.

D)didnotchangeduringtheGreatDepression.

Answer:A

34) The_____ofthetermstructureofinterestratesstatesthattheinterestrateonalong-termbondwillequaltheaverageofshort-terminterestratesthatindividualsexpecttooccuroverthelifeofthelong-termbond.

A)segmentedmarketstheory B)expectationstheory

C)liquiditypremiumtheory D)separablemarketstheory

Answer:B

35) Whentheyieldcurveisupwardsloping,

A)theexpectationstheorysuggeststhatshort-terminterestratesareexpectedtorise.

B)theexpectationstheorysuggeststhatshort-terminterestratesareexpectedtofall.

C)thesegmentedmarketstheorysuggeststhatshort-terminterestratesareexpectedtofall.

D)theliquiditypremiumtheorysuggeststhatshort-terminterestratesareexpectedtofall.

Answer:A

36) Accordingtothistheoryofthetermstructure,bondsofdifferentmaturitiesarenotsubstitutesforoneanother.

A)segmentedmarketstheory B)expectationstheory

C)liquiditypremiumtheory D)separablemarketstheory

Answer:A

37) Sinceyieldcurvesareusuallyupwardsloping,the_____indicatesthat,onaverage,peopletendtopreferholdingshort-termbondstolong-termbonds.

A)segmentedmarketstheory

B)expectationstheory

C)liquiditypremiumtheory

D)both(a)and(b)oftheabove

E)both(a)and(c)oftheabove

Answer:E

38) Accordingtotheliquiditypremiumtheory

A)asteeplyrisingyieldcurveindicatesthatshort-terminterestratesareexpectedtoremainunchangedinthefuture.

B)amoderatelyrisingyieldcurveindicatesthatshort-terminterestratesarenotexpectedtochangemuchinthefuture.

C)aflatyieldcurveindicatesthatshort-terminterestratesareexpectedtorisemoderatelyinthefuture.

D)only(a)and(b)ofthetrue.

Answer:B

Figure6-1

39) ThesteeplyupwardslopingyieldcurveinFigure6-1indicatesthat

A)short-terminterestratesareexpectedtoriseinthefuture.

B)short-terminterestratesareexpectedtofallmoderatelyinthefuture.

C)short-terminterestratesareexpectedtofallsharplyinthefuture.

D)short-terminterestratesareexpectedtoremainunchangedinthefuture.

Answer:A

Figure6-2

40) TheU-shapedyieldcurveinFigure6-2indicatesthat_____interestratesareexpectedto_____

A)short-term;riseinthenear-termandfalllateron.

B)short-term;fallsharplyinthenear-termandriselateron.

C)short-term;fallmoderatelyinthenear-termandriselateron.

D)short-term;remainunchangedinthenear-termandriselateron.

Answer:B

Chapter7:TheForeignExchangeMarket

1) WhenthevalueoftheBritishpoundchangesfrom$1.50to$1.25,then

A)thepoundhasappreciatedandthedollarhasappreciated.

B)thepoundhasdepreciatedandthedollarhasappreciated.

C)thepoundhasappreciatedandthedollarhasdepreciated.

D)thepoundhasdepreciatedandthedollarhasdepreciated.

Answer:B

2) Accordingtothelawofoneprice,ifthepriceofColombiancoffeeis100ColombianpesosperpoundandthepriceofBraziliancoffeeis4Brazilianrealsperpound,thentheexchangeratebetweentheColombianpesoandtheBrazilianrealsis:

A)40pesosperreal.

B)100pesosperreal.

C)25pesosperreal.

D)0.4pesosperreal.

E)noneoftheabove.

Answer:C

3) Ifthe2001inflationrateinCanadais4percent,andtheinflationrateinMexicois2percent,thenthetheoryofpurchasingpowerparitypredictsthat,during2001,thevalueoftheCanadiandollarintermsofMexicanpesoswill

A)riseby5percent.

B)riseby2percent.

C)fallby5percent.

D)fallby2percent.

E)dononeoftheabove.

Answer:D

4) Thetheoryofpurchasingpowerparitycannotfullyexplainexchangeratemovementsbecause

A)notallgoodsareidenticalindifferentcountries.

B)monetarypolicydiffersacrosscountries.

C)somegoodsarenottradedbetweencountries.

D)ofboth(a)and(c)oftheabove.

E)ofboth(b)and(c)oftheabove.

Answer:D

5) If,inretaliationfor"unfair"tradepractices,Congressimposesa30percenttariffonJapanesevideocassetterecorders,butatthesametime,U.S.demandforJapanesegoodsincreases,then,inthelongrun,

A)theJapaneseyenshouldappreciaterelativetothedollar.

B)theJapaneseyenshoulddepreciaterelativetothedollar.

C)thedollarshoulddepreciaterelativetotheyen.

D)itisnotclearwhetherthedollarshouldappreciateordepreciaterelativetotheyen.

Answer:D

6) IftheinflationrateintheUnitedStatesishigherthanthatinMexicoandproductivityisgrowingataslowerrateintheUnitedStatesthaninMexico,then,inthelongrun,

A)thePesoshouldappreciaterelativetothedollar.

B)thePesoshoulddepreciaterelativetothedollar.

C)thedollarshouldneitherappreciatenorappreciaterelativetothePeso.

D)wecannotknowwhetherthedollarwillappreciateordepreciatesincethesefactorsoffseteachother.

Answer:A

7)IftheBraziliandemandforAmericanexportsrisesatthesametimethatU.S