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exchange rate adjustments and the balance of MCQs

Practise focused exchange rate adjustments and the balance of questions with marked answers for exam preparation and subject revision.

exchange rate adjustments and the balance of Mcqs
1. Complete currency pass through arises when a 10 percent depreciation in the value of the dollar causes U.S?
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A. export prices to rise by 10 percent

B. import prices to fall by 10 percent

C. import prices to rise by 10 percent

D. export prices to fall by 10 percent

2. The balance of trade can only worsen if income ____ relative to absorption ?
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A. does not change

B. decreases

C. increases

D. None of the above

3. The extent to which a change in the exchange rate leads to changes in import and export prices is known as the ?
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A. absorption effect

B. J Curve effect

C. pass through effect

D. Marshall Lerner effect

4. Which approach predicts that is an economy operates a full employment and faces trade deficit currency devaluation will improve the trade balance only if domestic spending is cut thus freeing resources to produce exports ?
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A. the elasticities approach

B. the absorption approaches

C. the Marshall Lerner approach

D. the monetary approach

5. According to the Marshall-Lerner condition if a countrys currency depreciates its trade balance will worsen if ?
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A. elasticity of demand for exports = 0.7; elasticity of demand for imports = 0.3

B. elasticity of demand for exports = 0.5; elasticity of demand for imports = 0.7

C. elasticity of demand for exports = 0.9; elasticity of demand for imports = 0.4

D. elasticity of demand for exports = 0.3; elasticity of demand for imports = 0.6
6. If export contracts are written in terms of foreign currency and import contracts are denominated in domestic currency a depreciation of the dollar during the currency contract period ?
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A. should increase the dollar value of exports

B. must increase the balance of trade

C. All of the above

D. should not have any effect on the dollar value of U.S imports

7. The notion that, following a currency depreciation the balance of trade falls for a while before increasing is called an effect ?
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A. J Curve

B. relative price

C. elasticity

D. Pass through

8. Suppose that U.S dollar depreciates 70 percent against the yen yet Japanese export prices to Americans did not decrease by the full extent of the dollar depreciation. This is best explained by ?
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A. complete currency pass through

B. partial J curve effect

C. partial currency pass through

D. complete J curve effect

9. Empirical evidence regarding in the effects of currency depreciation on the balance of trade indicates that?
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A. no strong generalization is possible

B. depreciation generally improves the trade balance

C. depreciation generally hurts the trade balance

D. depreciation has no effect on the trade balance

10. Economic theory predicts that a currency depreciation will least lead to an improvement in the home countrys trade balance when ?
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A. home demand for imports is elastic and foreign export demand is inelastic

B. home demand for imports is inelastic and foreign export demand is elastic

C. home demand for imports is elastic and foreign export demand is elastic

D. home demand for imports is inelastic and foreign export demand is inelastic
11. Because of the J curve effect and partial currency pass through, a depreciation of the domestic currency tends to increase the size of a ?
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A. trade deficit in the long run

B. trade deficit in the short run

C. trade surplus in the long run

D. trade surplus in the short run

12. Given a two-country world, suppose Japan devalues the yen by 20 percent and west German devalues the mark by 15 percent This result is a (an)?
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A. appreciation in the value of both currencies

B. depreciation in the value of both currencies

C. appreciation in the value of the yen against the mark

D. depreciation in the value of the yen against the mark
13. The shorter the ______ pass through period the ______ the desirable BOT effects of evaluation on quantities traded will appear ?
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A. bigger

B. smaller

C. longer

D. sooner
14. If foreign manufacturing costs and profit margins in response to a depreciation in the U.S dollar the effect of these actions is to ?
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A. shorten the amount of time in which the depreciation leads to smaller trade surplus

B. shorten the amount of time in which the depreciation leads to smaller trade deficit

C. lengthen the amount of time in which the depreciation leads to smaller trade deficit

D. lengthen the amount of time in which the depreciation leads to smaller trade surplus

15. The analysis considers the ability of domestic and foreign price of adjust to devaluation in the short run ?
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A. pass through

B. currency contract period

C. absorption

D. adjustment mechanism

16. Suppose that the United Kingdom devalues the pound if both exports and imports are written in terms of pounds then the United Kingdom balance of trade during a currency contract period ?
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A. is unaffected

B. worsens

C. improves

D. falls for a while before increasing

17. The analysis considers the ability of domestic and foreign price of adjust to devaluation in the short run ?
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A. currency contract period

B. absorption

C. adjustment mechanism

D. pass through
18. The shift toward imperfectly competitive markets in domestic and international trade the concept of ?
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A. official exchange rates

B. complete currency pass through

C. trade adjustment assistance

D. exchange arbitrage