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296 Cards in this Set

  • Front
  • Back
The geography hypothesis is that most of the differences in income per capita
across countries can be explained by:
All of the above
In the last 40 years, the most severe recession in US was between
1981-1982
Which of the following is part of the production function?
total factor productivity
The amount of labor input used in the production process is best measured by:
total hours worked
The diminishing marginal product of capital implies
that additions to the capital stock produce more incremental output in poor
countries than in rich countries
Steady-state growth refers to:
a long run situation in which variables such as capital per worker and real
GDP per worker are growing at a constant rate
If a country enjoys a higher saving rate, this causes:
higher long run output
According to the Solow growth model, rich countries
tend to grow slower than poor ones
The relationship described by Phillips Curve is that inflation equals
Expected inflation plus some coefficient times the output gap
The best long run growth strategy for developing economies is probably:
to increase the capital stock
During the 20th century, convergence occurred most clearly
between Japan and US
Globalization affects the Phillips curve and Okun’s law because
If the economy is in boom, there is less pressure on wages to rise
If it is true that the Asian Tigers have exhausted their potential for growth through
capital accumulation
they will need to increase efficiency or technological knowledge to achieve
any further growth
The models developed by Paul Romer are known as the
endogenous growth theory
Which of the following does not hold true for European countries?
Smaller countries in Europe are doing worse in regard to unemployment and
productivity than larger countries
Which of the following is not included in Institutions
Years of schooling
According to the “Too much productivity?” article, which of the following is a
potential cost of faster productivity growth?
More job loss
boom phase in the economy is typically accompanied by:
increases in macroeconomic variables such as consumption and investment
The best long run growth strategy for mature industrial economies is probably to
engage in research and development
According to the “The Macroeconomic Effects of Hurricane Katrina” all of the
following statements are true, except:
Hurricane Katrina placed downward pressure on energy prices
What are the possible gains from economic growth?
All of the above
A small increase in growth rate (GDP) leads to __________ in the long-run.
Large increase in standard of living
What is the difference between Real GDP and Nominal GDP?
Real GDP is adjusted for inflation
Some variables that can cause differences in growth rates of income per capita or
levels of income per capita among countries are:
a) Measures of human capital
b) Market distortions
c) Geography
d) All of the above

All of the above
During an economic boom, we would expect:
a relatively high w/P
World growth data reveals that from 1960 to 2000:
some countries particularly East Asian countries grew rapidly
Since 1954, in the US
Real gross private investment has varied more than real GDP, while real consumer
The Great Moderation in US refers to
low inflation
low unemployment
While debt forgiveness for poor countries remains a heated debate, according to
well functioning political and legal systems
The semi-official arbitor of when US recessions begin and end is:
the National Bureau of Economic Research
Which of the following is not an element of total factor productivity?
hours worked by the labor force
The observation that poorer nations grow more rapidly than richer ones if they
share the same steady state, and more slowly if they don’t, is known as
conditional convergence
The additional output produced by adding one extra unit of capital to the
production:
the marginal product of capital
Which of the following variables typically moves in the opposite direction from
real GDP?
the unemployment rate
Which of the following gained the most from technological advances in the
1950-1990 period?
LOOK UP
Developed economies need to engage in research and development more than do
developing economies because developed economies
have largely exhausted the gains from capital accumulation
In which of the following countries is the average number of years of schooling
Australia
A large negative output gap
implies excessive unemployment
All of the following statements are true, except:
Recessions tend to last longer than expansions
An increase in the level of technology, A, causes:
an increase in the MPL
Convergence refers to
poorer countries growing more rapidly than rich countries
If a U.S. firm sells some of its bonds to a resident of Germany, the transaction
represents from the U.S. perspective a(n)
capital inflow
Dramatic economic growth in South Korea and Singapore in the latter half of the
20th century was primarily due to
a larger stock of capital
A country can operate a fixed exchange rate and practice independent monetary
policy if and only if
it restricts inflows and outflows of financial capital
Which of the following is not a commonality shared by developing countries?
minimum state interference in the private economy
Assets of the Central Bank include:
b. Domestic Credit
c. Foreign Reserves
In the Eurozone, the ___________ policies include free movement of capital, fixed
exchange rates but no independent national monetary policies while the ____________
policies include free movement of capital, independent monetary policy, and flexible
exchange rates:
Internal, External
__________ countries tend to engage in less trade, as a share of their production, than
do __________ ones
Large, smaller
With a fixed exchange rate and free movement of capital, the role of monetary policy
is directed towards:
keeping the domestic interest rate at the world interest rate
Which of the following drive changes in the foreign exchange market?
All of the above
Convergence refers to
poorer countries growing more rapidly than rich countries
If a U.S. firm sells some of its bonds to a resident of Germany, the transaction
represents from the U.S. perspective a(n)
capital inflow
Dramatic economic growth in South Korea and Singapore in the latter half of the
20th century was primarily due to
a larger stock of capital
A country can operate a fixed exchange rate and practice independent monetary
policy if and only if
it restricts inflows and outflows of financial capital
Which of the following is not a commonality shared by developing countries?
minimum state interference in the private economy
Assets of the Central Bank include:
b. Domestic Credit
c. Foreign Reserves
In the Eurozone, the ___________ policies include free movement of capital, fixed
exchange rates but no independent national monetary policies while the ____________
policies include free movement of capital, independent monetary policy, and flexible
exchange rates:
Internal, External
. __________ countries tend to engage in less trade, as a share of their production, than
do __________ ones
Large, smaller
With a fixed exchange rate and free movement of capital, the role of monetary policy
is directed towards:
keeping the domestic interest rate at the world interest rate
Which of the following drive changes in the foreign exchange market?
All of the above
Consumers are harmed during recessions because:
they have lower real incomes
Covered Interest rate Parity says that interest rate differential equal:
forward rate premium
Which one of the following is not on advantage of the fixed exchange rate regime:
Reduces risk premium
According to the gold standard from 1870 – 1914
All countries agreed to fix the price of gold
The Federal Reserve Bank uses open market operations to directly affect
The money supply
IMF aims to:
b. stabilize exchange rates
c. stabilize prices
In the case of a fixed exchange rate, the Uncovered Interest rate Parity reduces
to:
d. All of the above
Within the United States, individual states have the following macroeconomic
policy:
Free movement of capital, a single currency, but no independent monetary
policies
The WTO was established
in 1995, to provide an institutional structure for the GATT
Which of the following variables typically moves in the opposite direction from
national income?
the unemployment rate
The relationship described by Phillips Curve is that inflation equals
Expected inflation plus some coefficient times the output gap
Which of the following is not an element of total factor productivity?
hours worked by the labor force
The main benefit from outsourcing is
Reduced costs to firms
Off-shoring is
relocation of an organizational function to a foreign country
Dell’s research and development center in Bangalore is an example of:
off-shoring
Which statement is true when thinking of European countries:
European Central Bank keeps increasing interest rates
Which of the following is not a central feature in first generation models of currency
crises?
reduction of the money supply
According to the “Federal Reserve System and the interest rates” article, when actual
Remain approximately equal to
If transportation and communication costs are low, then we'd expect _______
migration and a __________ equilibrium wage differential between two countries.
more, smaller
Economic growth differs from business cycles in that
economic growth is a long run phenomenon; business cycles are short term
International capital mobility has ________ in recent years.
risen
The diminishing marginal product of capital implies
that additions to the capital stock produce more incremental output in poor
countries than in rich countries
Technological improvements have larger effects on output
when the capital stock is large than when it is small
Assume that there are only two countries in the world and flexible exchange rates: Japan and US. Suppose that C (Consumption), I Investments), and G (Government purchases) all stay the same in the Japan and the United States.
Assume that that net exports from the Japan decrease. As a result, what will happen to
GDP in each country?
GDP will decrease in the Japan and increase in the United States.
Assume that there are only two countries in the world and flexible exchange rates: Japan and US.Suppose that C (Consumption), I Investments), and G (Government purchases) all stay
the same in the Japan and the United States.
What happens with the exports from the Japan when the exchange rate (measured in
dollars per yen) decreases?
The quantity of exports is higher
Assume that there are only two countries in the world and flexible exchange rates: Japan and US. Suppose that C (Consumption), I Investments), and G (Government purchases) all stay the same in the Japan and the United States.

What happens with the exports from the US when the exchange rate (measured in
dollars per yen) decreases?
The quantity of exports is lower
Developed economies need to engage in research and development more than do developing economies because developed economies
have largely exhausted the gains from capital accumulation
In which of the following countries is the average number of years of schooling
Australia
A large negative output gap
implies excessive unemployment
All of the following statements are true, except:
Recessions tend to last longer than expansions
All of the following influence growth except:
minimum wage rates
The Employment Protection Legislation (EPL):
A and C

Reduces probability of unemployment (p)
Reduces probability of finding a job (s)
In a flexible exchange rate regime, assume that interest rates for UK government bonds decrease while interest rates in the United States increase. How does this affect the U.S. dollar-UK pound exchange rate?
The result is a decrease in the exchange rate, implying a depreciation of the UK pound and an appreciation of the U.S. dollar.
International reserves include which of the following?
all of the above
Over the past century, the pace of world trade has been
steadily increasing
With a flexible exchange rate and free movement of capital, the role of monetary policy is directed towards
a. inflation
b. unemployment
Under a floating exchange-rate system, if American exports increase and American
imports fall, the value of the dollar will:
Appreciate
Given an initial equilibrium in the money market and foreign exchange market, suppose
the Federal Reserve increases the money supply of the United States. Under a floating
exchange-rate system, the dollar would:
Depreciate in value relative to other currencies
As a result of the __________, the dollar became the world’s chief reserve currency.
Bretton-Woods Conference
In a flexible exchange rate regime, suppose that US's economy goes into a recession. As a result, US's residents purchase fewer goods from abroad. How does this affect the dollar-pound exchange rate?
The result is a decrease in the exchange rate, implying a depreciation of the UK pound and an appreciation of the U.S. dollar.
If the Japanese yen depreciates against other currencies in the exchange markets, this will:
Tend to improve the Japanese balance of trade
Suppose Sweden's inflation rate is less than that of its trading partner. Under a floating exchange rate system, Sweden would experience a:
Appreciation in its currency
The internal macroeconomic policy that the Eurozone adopts is:
Fixed exchange rate and free movement of capital but no independent monetary
policy
To temporarily offset an appreciation in the dollar's exchange value, the Federal Reserve could ____ the U.S. money supply which would promote a (an) ____ in U.S. interest rates and a (an) ____ in investment flows to the United States.
Increase, decrease, decrease
Given a system of floating exchange rates, stronger U.S. preferences for imports would trigger:
An increase in the demand for imports and an increase in the demand for foreign currency
With a fixed exchange rate and free movement of capital, the role of monetary policy is directed towards
keeping the domestic interest rate at the world interest rate
All of the following are problems with IMF except:
Technical assistance for developing countries
Grain shortages in countries that buy large amounts of grain from the United States would increase the demand for American grain and:
Increase the demand for dollars
Refer to Figure 1. Suppose the United States decreases investment spending in Switzerland, thus reducing the demand for francs from D0 to D2. Under a floating exchange rate system, the new equilibrium exchange rate would be:
$0.40 per franc
Which exchange-rate system involves a "leaning against the wind" strategy in which short-term fluctuations in exchange rates are reduced without adhering to any particular exchange rate over the long run?
Managed floating exchange rates
An exchange rate system such as Nicaragua’s where the currency value is aintained
against another currency, but the parity value is allowed to change at regular intervals is
called a
crawling peg.
Which of the following is likely to result in long-run appreciation of the U.S. dollar relative to the peso?
Stronger Mexican preferences for goods produced in the United States
The gold standard era occurred
prior to 1914.
Which of the following is not a valid statement regarding Fixed Exchange Rate Regimes?
Fixed exchange rate regime can be designed to last forever
In the interbank market for foreign exchange, the ____ refers to the price for which a
bank is willing to buy a unit of foreign currency.
Bid rate
Which of the following is a central feature in the Asian currency crises?
weak banking system
Which of the following is not a central feature in first feneration models of currency
crises?
reduction of the money supply
Suppose the exchange value of the British pound is $2 per pound while the exchange
value of the Swiss franc is 50 (dollar) cents per franc. The cross exchange rate between the pound and the franc is:
4 francs per pound
When the central bank undertakes an open market purchase
the money supply increases
When the dollar gets stronger the following is most accurate:
Foreign tourists travel in the U.S. at a higher cost
Assume that the Japan faces an 6 percent inflation rate while no (zero) inflation exists in
US. According to the purchasing-power parity theory, the dollar would be expected to:
Appreciate by 6 percent against the yen
A country can operate a fixed exchange rate and practice independent monetary policy
if and only if:
it restricts inflows and outflows of financial capital
According to the “Federal Reserve System and the interest rates” article, The FOMC moved aggressively to change the target federal funds rate in meetings on January 22 and January 30. Which of the following events would most likely cause the FOMC to decrease the target federal funds rate in future meetings?
Rising unemployment and continued weakness in consumption and investment
expenditures
The Bretton Woods greement of 1944 established a Monetary system based on:
Gold and pegged exchange rates
Assume that that net exports from the UK increase As a result, what will happen to GDP in each country?
GDP will increase in the UK and decrease in the United States.
What happens with the exports from the UK when the exchange rate (measured in dollars per pound) decreases?
The quantity of exports is higher.
The original purpose of the World Bank, as discussed at the Bretton Woods conference,
was to
lend funds to war-torn countries to rebuild infrastructure
Second generation models of currency crises can most reliably explain
the 1992 crisis in the European Exchange Rate Mechanism (ERM)
Assume that interest rates on comparable securities are identical in the United States and
foreign countries. Now suppose that investors anticipate that in the future the U.S. dollar will
depreciate against foreign currencies. Investment funds would thus be expected to:
Flow from the United States to foreign countries
Exhibit 2
Assume the following: (1) the interest rate on 6-month treasury bills is 12 percent per
annum in the United Kingdom and 4 percent per annum in the United States; (2) today's
spot price of the pound is $1.50 while the 6-month forward price of the pound is $1.485
37. Refer to Exhibit 2. By investing in U.K. treasury bills rather than U.S. treasury bills, and
not covering exchange rate risk, U.S. investors earn an extra return of:
b. 8 percent per year, 4 percent for the 6 months
Assume the following: (1) the interest rate on 6-month treasury bills is 12 percent per
annum in the United Kingdom and 4 percent per annum in the United States; (2) today's
spot price of the pound is $1.50 while the 6-month forward price of the pound is $1.485. Refer to Exhibit 2. If U.S. investors cover their exchange rate risk, the extra return for the
6 months on the U.K. treasury bills is
3.0 percent
An appreciation in the value of the U.S. dollar against the British pound would tend to:
Discourage the British from buying American goods
The desirable policy choices according to the macroeconomic Policy Trilemma, are:
Fixed exchange rate, free movement of capital, and independent monetary policy.
If the Japanese yen depreciates against other currencies in the exchange markets, this will:
Tend to improve the Japanese balance of trade
Suppose Sweden's inflation rate is less than that of its trading partner. Under a floating exchange rate system, Sweden would experience a:
Appreciation in its currency
Which of the following is likely to result in long-run appreciation of the U.S. dollar
relative to the peso?
Stronger Mexican preferences for goods produced in the United States
The exchange rate between the U.S. dollar and the British pound is $1.55/pound. If you
wish to buy $1,000 worth of pounds, how many pounds could you get?
645
What happens with the exports from the UK when the exchange rate (measured in dollars per pound) decreases?
The quantity of exports is higher
Assume that interest rates on comparable securities are identical in the United States and foreign countries. Now suppose that investors anticipate that in the future the U.S. dollar will depreciate against foreign currencies. Investment funds would thus be expected to:
Flow from the United States to foreign countries
Uncovered Interest rate Parity says that interest rate differential equals:
expected appreciation/depreciation of the currency
When a nation requires fewer resources than another nation to produce a product, the
nation is said to have a
Absolute advantage in the production of the product
International trade allows countries to specialize in the production of goods and
services in which they have an absolute advantage. This usually leads to:
b. an increase in total global output. c. more efficient allocation of a country’s scarce resources

e. both b and c
Referring to Figure 1 (below) the relative cost of steel in terms of aluminum is:
0.5 tons
Which one of the following is not an objection to outsourcing?
access to local markets
According to article” French Riots - Are Labor Policies Part of the Problem?” which of
the following aspects of French labor policy does not necessarily marginalize young, less qualified workers?
Unionization
As suggested by the Aplia article “Winners and Losers from Trade”, who would benefit the most if the WTO was abolished and rich countries did not have to eliminate their barriers to trade in textiles?
Textile workers in the United States
Increasing opportunity costs suggest that:
Resources are not perfectly shiftable between the production of two goods
In a two-country, two-product world, the statement "Japan enjoys a comparative
advantage over France in steel relative to bicycles" is equivalent to:
France having a comparative advantage over Japan in bicycles relative to steel
Which one of the following statement is not accurate?
Manufacturing output is decreasing in the US
Tariffs are not defended on the ground that they:
Improve the terms of trade of foreign nations
A lower tariff on imported aluminum would most likely benefit:
Domestic consumers of aluminum
Table 1. Output Possibilities of the U.S. and the U.K.
Output per Worker per day
Country Tons of Steel Televisions
United States 5 45
United Kingdom 10 20

Referring to Table 1, the United States has the absolute advantage in the production of:
Televisions
Table 1. Output Possibilities of the U.S. and the U.K.
Output per Worker per day
Country Tons of Steel Televisions
United States 5 45
United Kingdom 10 20
Referring to Table 1, the United Kingdom has a comparative advantage in the
production of:
Steel
Televisions
United States 5 45
United Kingdom 10 20

Refer to Table 1. If trade opens up between the United States and the United
Kingdom, American firms should specialize in producing:
Televisions
Table 1. Output Possibilities of the U.S. and the U.K.
Output per Worker per day
Country Tons of Steel Televisions
United States 5 45
United Kingdom 10 20

Referring to Table 1, the opportunity cost of producing one ton of steel in the
United States is:
9 televisions
In a large country setting part of a tariff is forward shifted to __________ and part is
backward shifted to __________.
domestic consumers; foreign producers
The three principal inputs in the production process are
capital, labor, and total factor productivity
In 1798 Malthus predicted
that the limited natural resources will constrain the population size
The most sustainable engine of growth is
Total factor productivity
Which of the following gained the most from technological advances in the 19501990 period?
Developed OECD nations
Holding all other things constant, a firm has the following production schedule:
units labor: 0 1 2 3 4
units output: 0 80 140 180 200
This firm exhibits
diminishing marginal product of labor
The two basic forms of capital used in production are
buildings and machinery
In the last 40 years world poverty:
has been increasing
A small increase in growth rate (GDP) leads to _________
Large increase in standard of living.
The marginal product of capital may be decreasing because
each additional machine has fewer workers to operate it
Dramatic economic growth in Asian countries in the latter half of the 20century was primarily due to
capital accumulation
Long run increases in an economy’s output, achieved without increasing either the
capital stock, total labor hours employed, or other inputs can result from
technological progress
During the 20
century, convergence occurred most clearly
between Japan and US
Which of the following is not included in Institutions?
Years of schooling
Developed economies need to engage in research and development more than do
developing economies because developed economies
have largely exhausted the gains from capital accumulation
Which of the following has been suggested as a benefit of free trade?
lower costs through economies of scales
A country might be willing to impose a tariff on imports for all of the following reasons, except:
to encourage imports
An economic union entails

I. free trade among member countries.
II. common barriers to trade for non-member countries.
III. coordination of economic policies
I, II and III
The World Trade Organization was established by the ____ of multilateral trade negotiations:
Uruguay Round
The principle of normal trade relations (most-favored-nation) treatment was established with the passage of the:
Reciprocal Trade Agreements Act of 1934
The most recent round of multilateral trade negotiations is the:
Doha Round
The presence of scale economies:
a and c

a. Generates more varieties
c. Results in lower prices
If Country 1 is granted most favored nation (MFN) status by Country 2 then
Country 1 will automatically be granted any reductions in trade barriers that are given to all countries with MFN status
In general, when a small country imposes a tariff this represents a wealth transfer from __________ to __________.
domestic consumers; domestic producers
Rank the following regional trade blocks from highest to lowest according to their share of global trade in 2001.

I. ASEAN
II. Mercosur
III. NAFTA
IV. European Union

Highest –> Lowest
IV, III, I, II
Which one of the following nations had the highest real GDP per capita in 2000,
according to recent statistics?
Luxembourg
Which of the following is not one of the gains from economic growth?
Cheap labor force
Between 1973-1992, labor input was the most important factor to explain growth
in:
United States
Countries with higher initial levels of GDP per capita
should have lower subsequent growth rates.
The best long run growth strategy for developing economies is probably:
to increase the capital stock
All of the following statements are true, except:
Recessions tend to last longer than expansions
During the 20 century, convergence occurred most clearly
within OECD countries
What is the main reason for fast growth in Asian countries after 1950?
Huge investment rates and high capital accumulation
Which one of the following statement is most probably inaccurate?
Immigration does not seem to affect the wages of low skilled native workers and
prior immigrants
NAFTA is a:
Free trade area
Unlike Adam Smith, David Ricardo's trading principle emphasizes the:
Role of comparative costs
The General Agreement on Tariffs and Trade and its successor, the World Trade
Organization, have resulted in:
d. Reductions in trade barriers via multilateral negotiations
Which of the following represents the stage where economic integration is least
complete?
Free trade area
If we consider the interests of both consumers and producers, then a policy of tariff reduction in the France (assume small country) auto industry is:
In the interest of the France as a whole, but not in the interest of autoproducing
states
The World Trade Organization provides for all of the following except:
Bilateral tariff reductions
The principle of normal trade relations (most-favored-nation) treatment was established with the passage of the:
Reciprocal Trade Agreements Act of 1934
The shift in demand towards more skilled workers in the US is due to:
a and c
a. Increase in the use of computers and high technology

c. Outsourcing of the less skilled jobs to other countries
Which one of the followings statements is not true?
Offshore outsourcing is usually expected to decrease offshore employment
The different effects of a tariff in a large country and a small country is because
a tariff by a large country changes the global price.
Which of the following has not been suggested as a benefit of free trade?
Domestic labor force gains from outsourcing the production
The presence of scale economies:
a. Generates more varieties
c. Results in lower prices

e. a and c
All of the following are potential advantages of an international joint venture
except:
Operating at diseconomy-of-scale output levels
As the result of the migration to the United States:
Low skilled native U.S. workers lose
Chevrolet contracts with a call center in India. This is an example of:
offshore outsourcing
A country can produce 500,000 machine parts per week and produce 200,000
board feet of lumber. If the country could also produce 600,000 machine parts and
175,000 board feet of lumber per week then the
average opportunity cost of 1 machine part is 0.25 board feet of lumber.
Unlike Adam Smith, David Ricardo's trading principle emphasizes the:
Role of comparative costs
A country can produce 500,000 machine parts per week and produce 200,000
board feet of lumber. If the country could also produce 600,000 machine parts and
175,000 board feet of lumber per week then the
average opportunity cost of 1 machine part is 0.25 board feet of lumber.
If we consider the interests of both consumers and producers, then a policy of
tariff reduction in the France (assume small country) auto industry is:
In the interest of the France as a whole, but not in the interest of autoproducing
states
Which one of the followings statements is not true?
Offshore outsourcing is usually expected to decrease offshore employment
Suppose that real incomes increase more rapidly in the United States than in Mexico. In the United States, this situation would likely result in a (an):
Increase in the demand for pesos
If Canadian speculators believed the Swiss franc was going to appreciate against the U.S. dollar, they would:
Purchase Swiss francs
Grain shortages in countries that buy large amounts of grain from the United States would increase the demand for American grain and:
Increase the demand for dollars
Under a system of floating exchange rates, the Swiss franc would depreciate in value if which of the following occurs?
Falling interest rates in Switzerland
An increase in the dollar price of other currencies tends to cause:
U.S. goods to be cheaper than foreign goods
Refer to Figure 11.2. A shift in the demand for francs from D0 to D1 or a shift in the supply of
francs from S0 to S2, would result in a (an):
Depreciation in the dollar against the franc
Refer to Figure 11.2. A shift in the demand for francs from D0 to D2, or a shift in the supply of francs from S0 to S1, would result in a (an):
Appreciation in the dollar against the franc
If the exchange rate between Swiss francs and British pounds is 5 francs per pound, then the number of pounds that can be obtained for 200 francs equals:
40 pounds
Assume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in
Japan. According to the purchasing-power parity theory, the dollar would be expected to:
Depreciate by 8 percent against the yen
Assume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in
Japan. According to the purchasing-power parity theory, the dollar would be expected to:
Depreciate by 8 percent against the yen
Given a system of floating exchange rates, stronger U.S. preferences for imports would trigger:
An increase in the demand for imports and an increase in the demand for foreign currency
Which of the following is likely to result in long-run appreciation of the U.S. dollar relative to the peso?
Stronger Mexican preferences for goods produced in the United States
Which of the following is likely to result in long-run depreciation of the U.S. dollar relative to the
euro?
Which of the following is likely to result in long-run depreciation of the U.S. dollar relative to the euro?
Which of the following is likely to result in long-run depreciation of the U.S. dollar relative to the
euro?
Stronger American preferences for goods produced in Europe
Suppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar.

According to purchasing-power parity, if the price of traded goods rises by 5 percent in the United States and 15 percent in Japan, the exchange rate will become:
99 yen per dollar
In the presence of purchasing-power parity, if one dollar exchanges for 2 British pounds and if a VCR costs $400 in the United States, then in Great Britain the VCR should cost:
800 pounds
Under a floating exchange-rate system, if American exports decrease and American imports rise, the value of the dollar will:
Depreciate
Given an initial equilibrium in the money market and foreign exchange market, suppose the
Federal Reserve decreases the money supply of the United States. Under a floating exchange rate
system, the dollar would:
Depreciate in value relative to other currencies
Assume that interest rates in London rise relative to those in Switzerland. Under a floating
exchange-rate system, one would expect the pound (relative to the franc) to:
Appreciate due to the increased demand for pounds
A market-determined increase in the dollar price of the pound is associated with:
Depreciation of the dollar
In a managed floating exchange-rate system, temporary stabilization of the dollar's exchange
value requires the Federal Reserve to adopt a (an) ____ monetary policy when the dollar is
appreciating and a (an) ____ policy when the dollar is depreciating.
Expansionary, contractionary
Suppose that Japan maintains a pegged exchange rate that overvalues the yen. This would likely result in:
Unemployment for Japanese workers
Given a two-country world, suppose Japan devalues the yen by 20 percent and South Korea devalues the won by 15 percent. This results in:
A depreciation in the value of the yen against the won
When short-term interest rates become lower in Tokyo than in New York, interest
arbitrage operations will most likely result in a:
Sale of dollars in the forward market
Assume the following: (1) the interest rate on 6-month treasury bills is 8 percent per
annum in the United Kingdom and 4 percent per annum in the United States; (2) today's
spot price of the pound is $1.50 while the 6-month forward price of the pound is $1.485.

Refer to Exhibit 11.1. By investing in U.K. treasury bills rather than U.S. treasury bills,
and not covering exchange rate risk, U.S. investors earn an extra return of:
4 percent per year, 2 percent for the 6 months
Assume the following: (1) the interest rate on 6-month treasury bills is 8 percent per
annum in the United Kingdom and 4 percent per annum in the United States; (2) today's
spot price of the pound is $1.50 while the 6-month forward price of the pound is $1.485.

Refer to Exhibit 11.1. If U.S. investors cover their exchange rate risk, the extra return for
the 6 months on the U.K. treasury bills is:
1.0 percent
Assume the following: (1) the interest rate on 6-month treasury bills is 8 percent per
annum in the United Kingdom and 4 percent per annum in the United States; (2) today's
spot price of the pound is $1.50 while the 6-month forward price of the pound is $1.485.

Refer to Exhibit 11.1. If the price of the 6-month forward pound were to ____, U.S.
investors would no longer earn an extra return by shifting funds to the United Kingdom.
Fall to $1.47
Covered Interest rate Parity says that interest rate differential equal:
forward rate premium/discount
All of the following drive changes in the long run exchange rates except:
Government
surplus
The British pound is worth 2.3198 Swiss francs and the Mexican peso
is worth 0.14512 Swiss francs. How many pesos is the British pound
worth?
15.985
Under a flexible exchange rate system, countries allow their currency
to:
fluctuate so as to clear the
exchange market
An appreciation in the value of the U.S. dollar against the British pound would tend to:
Discourage the British from buying American goods
The most important (in terms of dollar value) type of foreign
exchange transaction by U.S. banks is the:
Spot transaction
A contract that grants the holder the right to buy a given amount of a
foreign currency at a predetermined exchange rate until or on a specified date is a currency
call option.
If wheat costs $4 per bushel in the United States and 2 pounds per
bushel in Great Britain, then in the presence of purchasing-power parity the exchange rate should be:
$2.00 per pound
That identical goods should cost the same in all nations, assuming it is costless to ship goods between nations and there are no barriers to trade, is a reflection of the:
Law of one price
A devaluation is when a country:
lowers the fixed value of its currency.
Suppose that on the gold standard, the U.S. fixes the price of an ounce of gold at $25.
Great Britain fixes the price of gold at £16 per ounce. What is the implied exchange
rate between the dollar and the pound?
$1.5625 / £
The organization that was founded to lend reserves to member countries experiencing a temporary shortage in foreign exchange reserves is the
International Monetary Fund
Rather than constructing their own currency baskets, many nations peg the value
of their currencies to a currency basket defined by the International Monetary Fund.

Which of the following illustrates this basket?
Special Drawing Rights
Proponents of freely floating exchange rates maintain that:
The system allows the central bank independency in pursuing domestic economic
goals.
Small nations (e.g., the Ivory Coast) whose trade and financial relationships are mainly with a single partner tend to utilize:
Pegged exchange rates
The central bank of the United Kingdom could prevent the pound from appreciating by:
Selling pounds on the foreign exchange market.
If Canadian speculators believed the Swiss franc was going to depreciate against the
U.S. dollar, they would:
Purchase U.S. dollars
The third generation financial crises occurred in
Asia
Which exchange-rate mechanism calls for frequent redefining of the par value by small amounts to remove a payments disequilibrium?
Crawling pegged exchange rates
To defend a pegged exchange rate that overvalues its currency, a country could:
Purchase its own currency in international markets
A surplus nation can reduce its payments imbalance by:
Revaluing its national currency
To help insulate their economies from inflation, currency depreciation,
and capital flight, developing countries have implemented:
Currency boards
Use of New Technology and Work Design Needs to be Supported by Specific HRM Practices: (2 of 2)
Equipment and work processes encourage maximum flexibility and interaction between employees
-Employees participate in planning changes in equipment, layout, and work methods
-Employees understand how their jobs contribute to the finished product or service
Forces of change
Workforce Diversity
Technology
Economic, Political and Legal Pressure
Societal Values
Competition and a changing Marketplace
Targets of Change - Individual
Attitudes

Behavior
Targets of Change - Group
Cohesiveness

Decision Making
Targets of Change - Organizational
Structure

Process

Culture
Targets of Change - Society
Values

Laws
Eisenhower - Power and Influence
You do not lead by hitting people over the hear - that's assault, not leadership
Leadership
Capacity / ability to lead
Lead
Act as commander,

direct or guide;

to show the way,

guide, direct
Power
Strength / force exerted or being capable of exerted

Potential energy

Change Agent
Influence
Power affecting a person thing or course of events

Especially one that operate without any direction or apparent effort
Influence Tactics
Rational Persuasion
Inspirational Appeals
Personal Appeals
Exchange Relationships
Legitimacy
Coercion
Norms: How they develop
Precedents set over time

Carryovers from the other situations

Responses to an explicit statement
by a superior

Critical events in the group's history
Norms and Cohesiveness
Obviously members of cohesive groups adhere to closely to the group's norms

Downside: Too much cohesiveness can manifest itself in group-think.
Group think
If groups shut down the flow of information for the outside, then critical thinking and evaluation also shut down
Group think results in lack of questioning of group decision, norms, etc. by group itself
False consensus can lead to poor performance and unethical behavior being not only tolerated buy condoned
Janis' Definition
Mode of thinking that people engage in when they are deeply involved in a cohesive ingoupr, when the embers striving for unanimity override their motivation to realistically appraise alternative courses of action
Symptoms of Group think
Illusions of invulnerability
Belief in the inherent morality of the group
Collective rationalization
Self censorship
Direct pressure on dissenters
Illusion of unanimity
More Symptoms of Group think*

Mind guard
Self-appointed "mind guards" protect the group and especially the leader from troublesome ideas:

Distort truth
Hide the truth
Eliminate dissenters
Kennedy and Bush's
Bobby Kennedy and Dick Cheney
Out group Stereotypes
Developing, sharing and reinforcing stereotypes about any and all out group members
Stereotypes are key mechanisms used by humans to:
Selectively attend to information
Filter information
Interpret information
Make judgments about information
Steps to Effective Decisions Making
Setting the Context
Framing the Problem Correctly
Generating Alternatives
Evaluating Alternative
Making the Decision
Setting context - Environment of interpersonal relationships/behavior within which ideas/information are freely considered:
Get right people involved
Choose an appropriate location
Agree in advance how the decision will ultimately be made
Encourage healthy debate
Framing the Problem - Frame is...
Mental window through which we view our world
Mental Window through which we view our world
A priori assumptions
Goals
Experiences
Stereotypes
Framing the problem:
Different people have....
Groups need to....
different frames
develop a common frame
Generate Alternatives:
Every problem - there ARE choices

Value of Brainstorming

Value of Diversity/creativity/trust
Alternatives should be:
Feasible
Genuine (no "stawmen")
Represent real differences among choices
Evaluate Alternative
Cost v. Benefits
Financial Impact
Time
Risk
Ethical Considerations
Make the Decision
Who?
Discussion of alternatives can't be a "free for all"

there must be a process for beginning, controlling and ending deliberations
Vroom-Yetton-Jago

Model of Decision Makers
Provides leaders with a set of rules that help them determine the extent to which follower should be involved in decision makers

Assumes that participation in decision making can be beneficial but come at a cost that isn't always worth it
Vroom-Yetto-Jago

Autocratic I
Leader gathers necessary information by him/herself and makes decisions
Vroom-Vetton-Jago

Autocratic II
Leader uses followers as

sources of information but...

make decision him/herself
Vroom-Vetton-Jago

Consultative I
Leader meets individually with followers to solicit ideas and opinions.

Leader still makes decision him/her
Vroom-Vetton-Jago

Consultative II
Leader meets collectively with followers to discuss ideas/opinions in group setting.

Leader still makes decision him/herself
Vroom-Betton-Jago

Group II
Leader meets with group;

May provide direction/guidance

Allows follower to make decision without the imposition of the leader's authority
Which style to use?

Determined by a number of aspects:
Decisions to be made

Assumptions made about the followers

Context in which the decision is being made