Macroeconomics Practice Questions
Course Introduction
Macroeconomics is the branch of economics that examines the overall performance, structure, and behavior of an economy at a large scale, focusing on aggregate indicators such as gross domestic product (GDP), unemployment rates, national income, and inflation. This course explores major theoretical frameworks and policy tools used to analyze economic growth, fluctuations in economic activity, fiscal and monetary policies, and the effects of government intervention. Students will develop an understanding of how economic policies impact both domestic and global economies, and how to interpret macroeconomic data for informed decision-making.
Recommended Textbook
International Money and Finance 8th Edition by Michael Melvin
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13 Chapters
694 Verified Questions
694 Flashcards
Source URL: https://quizplus.com/study-set/3608
Page 2
Chapter 1: The Foreign Exchange Market
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71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/71637
Sample Questions
Q1) Which of the following is not a possible bid/ask quotation for the Thai baht?
A) $.50/$.51
B) $.49/$.50
C) $.52/$.51
D) All of the above are possible bid/ask quotations
Answer: C
Q2) If First American Bank quotes bid and offer rates for the Russian ruble at $.0350-.0360,the bank would realize profits of $1,000 on the purchase and sale of 1 million rubles.
A)True
B)False
Answer: True
Q3) Suppose that you have £1 million,how much arbitrage profit can you make?
A) £-30,674.85
B) £12,658.23
C) £31,627.64
D) £51,612.90
Answer: B
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3
Chapter 2: International Monetary Arrangements
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52 Verified Questions
52 Flashcards
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Sample Questions
Q1) An example of an optimal currency area would be
A) United States
B) Southeast Asia
C) Latin America
D) Both A and C
Answer: A
Q2) When the United States suspended the convertibility of dollars into gold in 1971,this lead to:
A) The collapse of the Bretton Woods system
B) Creation of the regional currency boards
C) Creation of the International Monetary Fund
D) All of the above
Answer: A
Q3) What exchange rate system allows for periodic intervention without fixing to any other foreign currency?
A) Free floating
B) Horizontal band
C) Crawling peg
D) Dollarization
Answer: B
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Chapter 3: The Balance of Payments
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51 Verified Questions
51 Flashcards
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Sample Questions
Q1) Which of the following is an argument made to explain the large U.S.trade deficit in the 1980's?
A) Deflation in the U.S. dollar
B) Inflation in the U.S.
C) Government budget deficit
D) Government budget surplus
Q2) If imports exceed exports,then:
A) private saving exceeds public saving.
B) private saving plus public saving exceed domestic investment.
C) private saving plus public saving minus domestic investment is negative.
D) domestic investment is negative.
Q3) Michael Phelps,the U.S.Olympic swimmer,spends $2,000 on traveling costs around England after the London Olympic game.This is counted as:
A) Debit to services.
B) Credit to services.
C) Debit to unilateral transfer.
D) Credit to unilateral transfer.
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5
Chapter 4: Forward-Looking Market Instruments
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44 Flashcards
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Sample Questions
Q1) When the forward price of a currency is equal to the spot price,it is sold at a forward
A) Premium
B) Discount
C) Flat
D) Trade
Q2) Assume that the annualized forward premium is 1 percent and that the spot rate is 2.00 $/pound.What would the one-year forward rate have to be?
A) 1.76
B) 1.98
C) 2.02
D) 2.24
Q3) Assume that the one-month forward rate is 2.02 dollars per pound and the spot rate is 2.00 dollars per pound.Calculate the annualized percentage forward premium or discount for the pound.
A) 12 percent discount
B) 12 percent premium
C) 144 percent discount
D) 144 percent premium
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Page 6
Chapter 6: Exchange Rates, interest Rates, and Interest
Parity
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64 Verified Questions
64 Flashcards
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Sample Questions
Q1) Suppose that the one-year U.S.interest rate is 9% and the one-year U.K.interest rate is 6%.If the current spot rate is $1.80 per pound,what must the one-year forward rate $/pound be according to the approximate covered interest parity?
A) 1.746
B) 1.854
C) 1.908
D) 1.962
Q2) Suppose that the one-year U.S.interest rate is 4% and the equivalent one-year U.K.interest rate is 6%.According to the covered interest rate parity,there is a ________ on the British pound.
A) 2% forward discount
B) 2% forward premium
C) 10% forward discount
D) 10% forward premium
Q3) If expected inflation in Canada is higher than expected inflation in the U.K.,and the real interest rates are equal,we would expect the Canadian dollar to appreciate.
A)True
B)False
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Chapter 7: Prices and Exchange Rates: Purchasing Power
Parity
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49 Verified Questions
49 Flashcards
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Sample Questions
Q1) In the presence of purchasing-power parity,if one dollar exchanges for 2 British pounds and if a flat-screen TV costs $400 in the United States,then in Great Britain the flat-screen TV should cost:
A) 200 pounds
B) 400 pounds
C) 600 pounds
D) 800 pounds
Q2) If the absolute PPP suggest that the yen to U.S.dollar is 84.50 and the actual exchange rate in New York is 85.50 Yen/$,then:
A) The Japanese yen is overvalued.
B) The U.S. dollar is overvalued
C) The U.S. dollar is undervalued
D) Exchange rates and absolute PPP are unrelated.
Q3) If the price of a pair of shoes in the U.S.is $80,the price of the same pair of shoes in Germany is 120 euro,and the exchange rate is 1.5 euro/$,the euro:
A) is correctly valued according to PPP.
B) is overvalued relative to PPP.
C) is undervalued relative to PPP.
D) None of the above is correct.
Page 8
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Chapter 8: Foreign Exchange Risk and Forecasting
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52 Verified Questions
52 Flashcards
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Sample Questions
Q1) Which of the following describe ways that a business manages foreign exposure?
I.Hedge in the futures market
II.Hedge in the options market
III.Slow payments of currencies expected to appreciate
IV.Slow collections of currencies expected to depreciate
A) I only
B) I and II
C) III and IV
D) II, III, and IV
Q2) In the "uncovered interest rate parity," the forward rate is assumed to include a
A) Return differential
B) Exposure risk
C) Risk premium
D) Future spot exchange rate
Q3) Risk premium equals to:
A) expected premium minus forward premium.
B) expected premium plus forward premium.
C) forward premium minus expected premium.
D) exchange rate premium plus forward premium.
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Chapter 9: Financial Management of the Multinational Firm
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50 Verified Questions
50 Flashcards
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Sample Questions
Q1) The goal of a multinational corporation MNC is
A) The minimization of taxes remitted from foreign subsidiaries.
B) The establishment of subsidiaries in any country where operations would provide a return above the cost of capital, even if better projects are available domestically.
C) The maximization of shareholder wealth.
D) The maximization of social benefits to the host country through knowledge spillover effects.
Q2) Which of the following is correct about a decentralized management style of the financial management over foreign operations?
A) There is no monitoring of subsidiary managers, since an MNC's foreign subsidiaries are separate legal entities.
B) MNCs allow subsidiary managers to make the key decisions about their respective operations, but the decisions may be monitored by the parent's management.
C) Subsidiary foreign managers respond to directive from the top of the parent's management.
D) Financial managers at the parent company make most of the key decisions.
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Chapter 10: International Portfolio Investment
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56 Verified Questions
56 Flashcards
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Sample Questions
Q1) A stock market in which foreign investors are not allowed to buy domestic stocks and domestic investors are not allowed to buy foreign stocks is called an:
A) International market
B) Segmented market
C) Domestic market
D) Globalized market
Q2) When the ________ of two assets is _______,then the two variables move in opposite directions: when one rises the other falls.
A) Covariance, negative
B) Covariance, positive
C) Variability, negative
D) Variability, positive
Q3) Consider two securities known as Security A and B.If returns on Security A decrease 10% while returns on Security B increase 10%,then the correlation coefficient is:
A) Positive
B) Negative
C) Zero
D) Impossible to determine
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11
Chapter 12: Determinants of the Balance of Trade
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50 Verified Questions
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Sample Questions
Q1) How must currency contracts be structured for a currency devaluation to have an improvement on the balance of trade?
A) Export contracts in domestic currency and import contracts in foreign currency
B) Export contracts in foreign currency and import contracts in domestic currency
C) Both contracts in domestic currency
D) Both contracts in foreign currency
Q2) Elasticity refers to
A) The ability of the demand curve to shift in and out
B) The degree by which the demand curve includes other markets
C) The responsiveness of quantity to changes in price
D) The rate that quality increases as prices increase
Q3) If the sum of elasticities of demands for both imports and exports is less than 1,then:
A) the Marshall-Lerner condition is met and trade balance improves.
B) the Marshall-Lerner condition is met and trade balance decreases.
C) the Marshall-Lerner condition is not met and trade balance improves.
D) the Marshall-Lerner condition is not met and trade balance decreases.
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Chapter 13: The Is-Lm-Bp Approach
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54 Verified Questions
54 Flashcards
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Sample Questions
Q1) Refer to Figure 13.2.In a fixed exchange rate regime,if an economy is experiencing external disequilibrium at point B,then to peg the exchange rate the central bank has to:
A) buy domestic currency, sell foreign currency, and shift the IS to the left.
B) buy foreign currency, sell domestic currency, and shift the LM to the right.
C) buy domestic currency, sell foreign currency, and shift the LM to the left.
D) buy foreign currency, sell domestic currency, and shift the IS to the right.
Q2) The internal and external equilibrium occurs when the IS curve crosses the LM curve above the BP curve.
A)True
B)False
Q3) An economy starts in an equilibrium condition in three markets under flexible exchange rate regime and perfect capital mobility.If the central bank in a foreign country increases its interest rate,what would happen in the domestic country?
A) domestic currency depreciates and the IS curve shifts to the right.
B) domestic currency appreciates and the IS curve shifts to the left.
C) domestic currency depreciates and the LM curve shifts to the right.
D) domestic currency appreciates and the LM curve shifts to the left.
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Chapter 14: The Monetary Approach
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Sample Questions
Q1) The MABP emphasizes money demand and money supply as determinants of:
A) The balance of payments under the fixed exchange rate.
B) The balance of payments under the floating exchange rate.
C) Exchange rate movements
D) Capital flows
Q2) According to the monetary approach,when a monetary disequilibrium exists,either ____________ or _____________ has to adjust depending on the type of exchange rate system.
A) the balance of payments; domestic production
B) the balance of payments; exchange rate value
C) domestic production; exchange rate value
D) domestic production; foreign inflation rate
Q3) According to Hume's Specie Flow Mechanism,during the Gold Standard,if the domestic inflation rises sharply,the domestic country will experience ___________ and the foreign trading partner will experience __________.
A) trade deficit; higher prices.
B) trade deficit; lower prices.
C) trade surplus; higher prices.
D) trade surplus; lower prices.
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Page 14
Chapter 15: Extensions to the Monetary Approach of Exchange Rate Determination
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48 Verified Questions
48 Flashcards
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Sample Questions
Q1) The exchange rate can "overshoot" its long-run value because the ________ are sluggish in the short run,whereas the __________ adjust instantaneously to a shock.
A) prices in goods and services markets; prices in assets markets
B) foreign exchange markets; prices in assets markets
C) prices in assets markets; prices in goods and services markets
D) prices in bond markets; money balance markets
Q2) Assume that in a free country,people in the country can choose to hold assets in any currency.As the domestic inflation rise,the opportunity cost of holding the domestic currency _________ and people will switch to hold assets in _________ currency.
A) increases; foreign B) increases; domestic C) decreases; foreign D) decreases; domestic
Q3) The Theory of Exchange Rate Overshooting explains high exchange rate volatility by assuming that CIRP does not hold in the short run,but PPP does.
A)True
B)False
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Page 15