Exchange Rates
165 questions· page 1 of 17
The diagram shows aggregate demand (AD) and long-run aggregate supply (LRAS) with X as the initial equilibrium.
Which combination of policy and new final equilibrium point is correct?
Options
| policy | new final equilibrium point | |
|---|---|---|
| A | increased direct taxation | F |
| B | increased government spending on infrastructure | G |
| C | appreciation of the exchange rates | H |
| ** | D** | decreased interest rates |
When is a country's exchange rate most likely to fall?
Options
A When its current account surplus exceeds that of its trading partners.
B When its inflation rate exceeds that of its trading partners.
C When its interest rate exceeds that of its trading partners.
D When its unemployment rate exceeds that of its trading partners.
The table shows the change in the value of UK sterling over a three-month period.
| June | Sept |
|---|---|
| £1 = $1.38 | £1 = $1.32 |
What is likely to be the short-term impact of the change in the value of UK sterling on the UK economy?
Options
A increased disinflation
B increase in cost-push inflation
C more purchasing power of money
D reduced demand-pull inflation
The Euro (€) is the main currency of the European Union. The diagram shows the exchange rate between the Euro and the US dollar.
What is likely to have caused this change in the value of the Euro?
Options
A a decrease in European Union inflation
B a decrease in US interest rates
C an increase in European Union imports
D an increase in European Union unemployment
A country has a freely floating exchange rate.
In which circumstance is it most likely to appreciate?
Options
A A competitor trading country experiences a fall in the value of its currency.
B Increased administrative burdens are placed on companies within this country wishing to buy imports.
C There is a fall in demand for its exports.
D There is a fall in the level of its rate of interest.
A central bank increases interest rates to reduce inflation.
When will this policy be most likely to succeed?
Options
A When household spending is inelastic in response to interest rate changes.
B When the country has a floating exchange rate that appreciates.
C When the government has an increasing budget deficit.
D When trade unions demand higher wages to protect the living standards of their members.
A country’s currency depreciates in terms of other currencies.
What would be a consequence of this depreciation?
Options
A There would be a decrease in structural unemployment.
B There would be a decrease in the volume of exports.
C There would be an increase in cost-push inflationary pressure.
D There would be an increase in the budget deficit.
A country with a floating exchange rate has a large deficit on the current account of the balance of payments.
What is most likely to decrease as a consequence of this deficit?
Options
A competitiveness of the country’s products
B level of employment in the country
C prices of exports from the country
D rate of inflation in the country
Between June and the end of July 2016, the UK pound sterling depreciated by 11% against a basket of currencies of the UK’s major trading partners.
The diagram shows the original aggregate demand curve AD1 and the original aggregate supply curve AS1 for the UK economy before June 2016. The equilibrium is at X.
What would have been the new equilibrium for the UK economy as a result of the depreciation of the pound sterling?
Options
A point A on Fig. 28.1
B point B on Fig. 28.1
C point C on Fig. 28.1
D point D on Fig. 28.1
Which policy is most likely to have a contractionary effect on national income?
Options
A a reduction in income tax rates
B a reduction in interest rates
C an appreciation in the exchange rate
D an increase in government spending on transport infrastructure