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43) The currencies of Poland and Iceland (the zloty and

Question : 43) The currencies of Poland and Iceland (the zloty and : 1854107

43) The currencies of Poland and Iceland (the zloty and the krona, respectively) declined in value relative to the euro following the financial crisis of 2008. This means that the

A) zloty and krona appreciated in value against the euro.

B) euro depreciated in value against the zloty and the krona.

C) zloty and krona depreciated in value against the euro.

D) zloty depreciated in value against the krona.

E) Both A and B are correct.

44) Should European nations which are not currently using the euro choose to adopt the euro as their currency, these countries would risk giving up the ability to use ________ to stabilize their economies in the event of a recession.

A) expansionary fiscal policy

B) contractionary fiscal policy

C) expansionary monetary policy

D) contractionary monetary policy

45) Pegging a country's exchange rate to the dollar can be advantageous if

A) the country does not trade much with the United States.

B) investors believe the dollar to be more stable than the domestic country's currency.

C) a country wishes to conduct independent monetary policy.

D) imports are not a significant fraction of the goods the country's consumers buy.

46) Which of the following is not an advantage to a country of choosing to fix its exchange rate against a major currency, rather than choosing a floating exchange rate?

A) Pegging allows the country more flexibility in conducting monetary policy.

B) Pegging helps avoid inflation in imported goods caused by currency depreciation for countries with significant levels of imports.

C) Pegging insures that interest payments stemming from foreign loans do not fluctuate with the value of the currency.

D) Pegging reduces the uncertainty caused by currency fluctuations and thereby simplifies business planning.

47) You are made better off in which of the following situations?

A) you borrow 10,000 pesos, you earn income in dollars, the dollar depreciates against the peso, you must pay back the loan in pesos

B) you borrow $10,000, you earn income in pesos, the dollar depreciates against the peso, you must pay back the loan in dollars

C) you borrow $10,000, you earn income in pesos, the dollar appreciates against the peso, you must pay back the loan in dollars

D) you borrow 10,000 pesos, you earn income in pesos, the dollar depreciates against the peso, you must pay back the loan in pesos

48) If a country's currency is "pegged" to the dollar, its exchange rate is

A) floating.

B) flexible.

C) fixed.

D) undervalued.

49) A currency pegged at a value below the market equilibrium exchange rate is

A) overvalued.

B) undervalued.

C) achieving purchasing power parity.

D) None of the above are correct.

Figure 30-3

50) Refer to Figure 30-3. At what level should the Thai government peg its currency to the dollar to make Thai exports cheaper to the United States?

A) greater than $.03/baht

B) less than $.03/baht

C) equal to $.03/baht

D) $1/baht

51) Refer to Figure 30-3.  Which of the following is not true?

A) U.S imports are cheaper at exchange rates greater than $.03/baht than at the equilibrium exchange rate.

B) The baht is overvalued at exchange rates greater than $.03/baht.

C) To achieve an exchange rate greater than $.03/baht, the Bank of Thailand must buy surplus dollars with bahts.

D) Thai exports to the United States are more expensive at exchange rates greater than $.03/baht than at the equilibrium exchange rate.

52) Refer to Figure 30-3.  If the Thai government pegs its currency to the dollar at a value above $.03/baht, we would say the currency is

A) undervalued.

B) overvalued.

C) parity valued.

D) equilibrium valued.

Figure 30-4

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