All Free Economics MCQs with Answers
Every Economics question in the bank, across all chapters, each with the correct answer and a written explanation. Free and unlimited, with no account needed.
4,037 questions · page 55 of 202
- A. the United States to Switzerland causing the dollar to depreciate
- B. the United States to Switzerland causing the dollar to appreciate
- C. Switzerland to the United States causing the franc to depreciate
- D. Switzerland to the United States causing the franc to appreciate
Explanation: The relevant real return is approximately the nominal interest rate minus inflation: 4% in the United States versus 3% in Switzerland.
Correct answer: Switzerland to the United States causing the franc to depreciate- A. the rate of inflation in the United States
- B. the number of dollars printed by the U.S government
- C. the international demand and supply for dollars
- D. the monetary value of gold held at Fort Knox, Kentucky
Explanation: Under modern floating exchange rates, the dollar's exchange value is set by international demand for dollars and the supply of dollars in…
Correct answer: the international demand and supply for dollars- A. the 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
- D. the price of foreign goods will rise for Canadians
Explanation: A balance-of-payments surplus increases demand for the Canadian dollar relative to foreign currencies, causing it to appreciate under…
Correct answer: the price of foreign goods will become cheaper to Canadians- A. the United States being considered a safe haven by foreign investors
- B. relatively high real interest rates in the United States
- C. confidence of foreign investors in the U.S economy
- D. relatively high inflation rates in the United States
Explanation: High U.S. inflation reduces the dollar's purchasing power and normally puts downward pressure on its exchange value.
Correct answer: relatively high inflation rates in the United States- A. large trade surpluses for the United States
- B. high inflation rates in the United States
- C. lack of investor confidence in U.S money policy
- D. high interest rates in the United States
Explanation: High U.S. interest rates raise the return on dollar-denominated assets and attract foreign investment.
Correct answer: high interest rates in the United States- A. 200 pounds
- B. 400 pounds
- C. 600 pounds
- D. 800 pounds
Explanation: Purchasing power parity applies the exchange rate to the U.S. price: $400 × 2 pounds per dollar = 800 pounds.
Correct answer: 800 pounds- A. decrease the foreign demand for dollars causing the dollar to depreciate
- B. decrease the foreign demand for dollars causing the dollar to appreciate
- C. increase the foreign demand for dollars causing the dollar to depreciate
- D. increase the foreign demand for dollars causing the dollar to appreciate
Explanation: Higher real interest rates make dollar-denominated assets more attractive to foreign investors.
Correct answer: increase the foreign demand for dollars causing the dollar to appreciate- A. the inflation rate in each country will necessarily equal zero
- B. the inflation rate in each country will necessarily equal 1 percent
- C. the exchange rates are said to be fixed pegged to each other
- D. purchasing power parity holds
Explanation: When an identical tradable product has the same value after currency conversion, the exchange rate equalizes purchasing power between the…
Correct answer: purchasing power parity holds- A. purchasing power parity theory
- B. asset markets theory
- C. monetary theory
- D. balance of payments theory
Explanation: Purchasing power parity theory links exchange rates with the relative prices of goods, especially tradable goods.
Correct answer: purchasing power parity theory- A. pegged exchange rates
- B. freely floating exchange rates
- C. managed floating exchange rates
- D. crawling exchange rates
Explanation: A small country that trades mainly with one partner benefits from reducing exchange-rate uncertainty with that partner.
Correct answer: pegged exchange rates- A. very high rates of inflation occur domestically
- B. foreigners discriminate against domestic products
- C. technological advance is superior abroad
- D. the domestic currency is undervalued relative to other currencies
Explanation: An undervalued domestic currency makes exports cheaper and imports more expensive, which tends to produce a balance-of-payments surplus…
Correct answer: the domestic currency is undervalued relative to other currencies- A. appreciates against foreign currencies
- B. depreciates against foreign currencies
- C. be officially revalued by the government
- D. be officially devalued by the government
Explanation: Lower U.S. inflation makes U.S. goods relatively cheaper than those of its trading partners, increasing demand for U.S.
Correct answer: appreciates against foreign currencies- A. dual exchange rates
- B. managed floating exchange rates
- C. adjustable pegged exchange rates
- D. crawling pegged exchange rates
Explanation: A dual exchange-rate system separates commercial transactions from financial transactions, allowing the commercial rate to remain stable…
Correct answer: dual exchange rates- A. gold
- B. silver
- C. a single currency
- D. a basket of currencies
Explanation: With several major trading partners, pegging to one currency can create instability against the others.
Correct answer: a basket of currencies- A. floating exchange rates
- B. pegged exchanged rates
- C. managed floating exchange rates
- D. dual exchange rates
Explanation: Under a freely floating exchange-rate system, market forces determine the rate, so the central bank does not need to use foreign-exchange…
Correct answer: floating exchange rates- A. U.S exports tend to rise, and imports tend to fall
- B. U.S imports tend to rise, and exports tend to fall
- C. U.S foreign exchange reserves tend to rise
- D. U.S foreign exchange reserves remain constant
Explanation: Higher U.S. inflation makes U.S. goods relatively more expensive and foreign goods relatively cheaper. Therefore, U.S.
Correct answer: U.S imports tend to rise, and exports tend to fall- A. dual exchange rate
- B. adjustable pegged exchange rates
- C. managed floating exchange rates
- D. crawling pegged exchange rates
Explanation: A crawling peg adjusts the official exchange-rate parity frequently and by small increments.
Correct answer: crawling pegged exchange rates- A. freely fluctuating exchange rates
- B. adjustable pegged exchange rates
- C. managed floating exchange rates
- D. pegged or fixed exchange rates
Explanation: Industrialized countries generally allow market forces to determine exchange rates while permitting central banks to intervene when…
Correct answer: managed floating exchange rates- A. bad money drives out good
- B. monetary policy can only be effective if it is a long-term policy
- C. controlling one part of the money supply will merely result in that item becoming less important
- D. the money supply must only expand at the rate of growth of real national income
Explanation: Goodhart's Law states that once an economic measure becomes a target, people alter their behaviour so that the measure loses its…
Correct answer: controlling one part of the money supply will merely result in that item becoming less important- A. could either increase or decrease
- B. decrease
- C. increase
- D. remain the same, as long as bank hold no excess reserves
Explanation: With no excess reserves, the simple money multiplier is the reciprocal of the required reserve ratio.
Correct answer: increase