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Exchange-Rate Adjustments And The Balance of
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Exchange-Rate Adjustments And The Balance of – MCQs
18 questions. Click to practice.
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Correct options are highlighted when revealed.
1.
What does empirical research suggest about the impact of currency depreciation on a country's trade balance?
Currency depreciation typically enhances the trade balance.
Currency depreciation usually worsens the trade balance.
There is no definitive conclusion that applies universally.
Currency depreciation does not influence the trade balance.
2.
What term describes how quickly domestic and foreign prices respond to a devaluation in the short term?
pass through
absorption
adjustment process
currency contract duration
exchange rate effect
3.
The shorter the ______ period for pass-through, the ______ the beneficial balance of trade effects on the volume of goods exchanged will be observed.
sooner
extended
greater
reduced
none of the above
4.
If the United Kingdom devalues the pound and both exports and imports are measured in pounds, what happens to the UK's trade balance during the currency adjustment period?
Gets better
Deteriorates
Remains unchanged
Declines initially then rises
5.
When export agreements are denominated in foreign currency and import agreements are in domestic currency, what is the impact of a dollar depreciation during the contract period?
The dollar amount received from exports is likely to rise
The dollar cost of U.S. imports will probably remain unchanged
The trade balance is expected to improve
All of the above
None of the above
6.
What happens to U.S. import prices when there is complete currency pass-through following a 10% depreciation of the dollar?
U.S. import prices decrease by 10%
U.S. import prices increase by 10%
U.S. export prices increase by 10%
U.S. export prices decrease by 10%
7.
In a world with only two countries, if Japan reduces the value of the yen by 20% and West Germany lowers the mark's value by 15%, what is the outcome for the yen relative to the mark?
Both currencies experience an increase in value
Both currencies undergo a decrease in value
The yen strengthens compared to the mark
The yen weakens compared to the mark
No change occurs in the exchange rate between the yen and the mark
8.
How do adjustments in foreign production costs and profit margins affect the timeline of a U.S. dollar depreciation's impact on the trade deficit?
Reduce the duration until the depreciation causes a decrease in the trade deficit
Reduce the duration until the depreciation causes a decrease in the trade surplus
Extend the duration before the depreciation results in a reduction of the trade deficit
Extend the duration before the depreciation results in a reduction of the trade surplus
No significant impact on the timing of trade balance changes
9.
Due to the J-curve phenomenon and incomplete currency pass-through, a depreciation of the local currency is likely to result in an increase in which of the following over the long term?
A short-term rise in trade surplus
A long-term increase in trade surplus
A short-term growth in trade deficit
A long-term expansion of the trade deficit
No significant change in trade balance
10.
According to the Marshall-Lerner condition, when will a depreciation of a country's currency lead to a deterioration in its trade balance?
Export demand elasticity is 0.9 and import demand elasticity is 0.4
Export demand elasticity is 0.7 and import demand elasticity is 0.3
Export demand elasticity is 0.5 and import demand elasticity is 0.7
Export demand elasticity is 0.3 and import demand elasticity is 0.6
Export demand elasticity is 1.2 and import demand elasticity is 0.8
11.
Under what condition does the trade balance deteriorate in relation to income compared to absorption?
When income rises
When income falls
When income remains constant
None of these
12.
What term describes how quickly domestic and foreign prices respond to a currency devaluation in the short term?
pass-through
absorption
adjustment process
currency contract duration
13.
What is the term for the phenomenon where the trade balance initially worsens after a currency depreciation but improves over time?
Relative price effect
Elasticity effect
J Curve effect
Pass-through effect
None of the above
14.
Which theory suggests that when an economy is at full employment and experiencing a trade deficit, devaluing the currency will enhance the trade balance only if domestic consumption decreases, thereby allowing more resources to be allocated to export production?
The absorption approach
The Marshall-Lerner condition
The monetary approach
The elasticities approach
The balance of payments approach
15.
What term describes the degree to which fluctuations in the exchange rate affect the prices of imports and exports?
J Curve phenomenon
Marshall-Lerner condition
Absorption theory
Pass-through effect
Exchange rate parity
16.
What concept is associated with the transition to imperfectly competitive markets in both domestic and international trade?
government-set exchange rates
full currency pass-through
currency arbitrage opportunities
trade support programs
none of the above
17.
According to economic theory, under which condition does a depreciation of the domestic currency result in the smallest improvement in the country’s trade balance?
Both domestic demand for imports and foreign demand for exports are inelastic
Domestic demand for imports is elastic while foreign demand for exports remains inelastic
Domestic demand for imports is inelastic whereas foreign demand for exports is elastic
Both domestic demand for imports and foreign demand for exports are elastic
None of the above
18.
If the U.S. dollar loses 70% of its value relative to the Japanese yen, but the prices of Japanese exports sold to the U.S. do not fall by the same proportion, what is the most likely reason?
Partial currency pass-through
Full currency pass-through
Partial J-curve phenomenon
Complete J-curve phenomenon
None of the above