Managerial Economics 3rd Edition by Luke M. Froeb – Test Bank

CHAPTER 11

1) When interest rates go up, people are
a) more likely to borrow
b) less likely to borrow
c) does not affect a person’s consumption
d) None of the above
ANS: B

2) If the Chinese currency devalues compared to the US dollar, then
a) US producers will benefit; Chinese consumers will benefit
b) US producers will benefit; Chinese consumers will hurt
c) US producers will hurt; Chinese consumers will benefit
d) US producers will hurt; Chinese consumers will hurt
ANS: D

3) Holding other things constant, increases in the price level in the US will
a) Cause the dollar to gain value
b) Cause the dollar to lose value
c) Does not affect the dollar value
d) None of the above
ANS: B

4) The purchasing power parity predicts that if US price level rises relative to the Mexico price level, then
a) Dollar value will rise relative to the peso
b) Dollar value will fall relative to the peso
c) There is no effect on either currency
d) PPP predicts price level will normalize in the long-run
ANS: B

5) A term to describe one currency in terms of another is
a) Interest rates
b) Market price
c) Inflation rate
d) Exchange rate
ANS: D

6) An individual in the US wants to buy a car from England which costs 12,000 pounds. If the exchange rate is $1.75/pound, how much will it cost him in dollar terms?
a) $21,000
b) $6,800
c) $12,000
d) Need more information
ANS: A

7) The demand for dollars is downward sloping because when dollar value rises,
a) Foreigners demand more of US goods and services
b) Foreigners demand less of US goods and services
c) Foreigners demand more dollars
d) It does not depend on the dollar value
ANS: B

8) All these factors affect a country’s exchange rates, except
a) Inflation
b) Interest rates
c) Employment
d) Price levels
ANS: C

9) Holding other things constant, an appreciation of the US Dollar to the Chinese Yuan might cause the demand for Yuan to _____________ and the supply for Yuan to __________.
a) Increase; decrease
b) Increase, increase
c) Decrease; Increase
d) Decrease; Decrease
ANS: A

10) Holding other things constant, an increase in the inflation rate in US compared to the Chinese economy may cause the demand for dollar to _____________ and the supply for dollar to __________.
a) Increase; decrease
b) Increase, increase
c) Decrease; Increase
d) Decrease; Decrease
ANS: C