Chapter 1—Multinational Financial Management: An Overview
MULTIPLE CHOICE
1. The commonly accepted goal of the MNC is to:
a. maximize short-term earnings.
b. maximize shareholder wealth.
c. minimize risk.
d. A and C.
e. maximize international sales.
ANS: B
PTS: 1
2. With regard to corporate goals, an MNC is mostly concerned with maximizing ____, and a purely domestic firm is mostly concerned with
maximizing ____.
a. shareholder wealth; short-term earnings
c. short-term earnings; sales volume
b. shareholder wealth; shareholder wealth
d. short-term earnings; shareholder wealth
ANS: B
PTS: 1
3. For the MNC, agency costs are typically:
a. non-existent.
b. larger than agency costs of a small purely domestic firm.
c. smaller than agency costs of a small purely domestic firm.
d. the same as agency costs of a small purely domestic firm.
ANS: B
PTS: 1
4. Which of the following is not a form of corporate control that could reduce agency problems for an MNC?
a. stock options
b. hostile takeover threat
c. investor monitoring
d. all of the above are forms of corporate control that could reduce agency problems for an
MNC
ANS: D
PTS: 1
5. A recent study by McKinsey & Co. found that investors assign a higher value to firms that exhibit ____ corporate governa nce standards and are
likely to ____ ethical constraints.
a. high; not obey
c. low; not obey
b. high; obey
d. low; obey
ANS: B
PTS: 1
6. Which of the following theories identifies specialization as a reason for international business?
a. theory of comparative advantage
c. product cycle theory
b. imperfect markets theory
d. none of the above
ANS: A
PTS: 1
7. Which of the following theories identifies the non-transferability of resources as a reason for international business?
a. theory of comparative advantage
c. product cycle theory
b. imperfect markets theory
d. none of the above
ANS: B
PTS: 1
8. Which of the following theories suggests that firms seek to penetrate new markets over time?
a. theory of comparative advantage
c. product cycle theory
b. imperfect markets theory
d. none of the above
ANS: C
PTS: 1
9. Which of the following industries would most likely take advantage of lower costs in some less developed foreign countri es?
a. assembly line production
b. specialized professional services
c. nuclear missile planning
d. planning for more sophisticated computer technology
ANS: A
PTS: 1
10. Due to the risks involved in international business, firms should:
a. only consider international business in major countries.
b. maintain international business to no more than 20% of total business.
c. maintain international business to no more than 35% of total business.
d. none of the above
ANS: D
PTS: 1
11. A product cycle is the process by which a firm provides a specialized sales or service strategy, support assistance, and possibly an initial
investment in the franchise in exchange for periodic fees.
a. true.
b. false.
ANS: B
PTS: 1
12. Licensing is the process by which a firm provides its technology (copyrights, patents, trademarks, or trade names) in exchange for fees or some
other specified benefits.
a. true.
b. false.
ANS: A
PTS: 1
1
13. The agency costs of an MNC are likely to be lower if it:
a. scatters its subsidiaries across many foreign countries.
b. increases its volume of international business.
c. uses a centralized management style.
d. A and B.
ANS: C
PTS: 1
14. An indirect benefit to the MNC of following a worldwide code of ethics is:
a. it allows them to receive special tax breaks in less developed countries.
b. it puts them at a competitive advantage in foreign markets.
c. the worldwide credibility associated with maintaining such standards can increase global
demand for the MNC's products.
d. A and B.
ANS: C
PTS: 1
15. The term privatization is typically used to describe:
a. firms that are purchased by their managers.
b. firms that are purchased by the government.
c. firms that are bought out by other firms.
d. government operations that are purchased by corporations and other investors.
ANS: D
PTS: 1
16. According to the text, products and services are generally becoming ____ standardized across countries, which tends to _ ___ the globalization
of business.
a. more; encourage
c. less; discourage
b. more; discourage
d. less; encourage
ANS: A
PTS: 1
17. Franchising is the process by which national governments sell state owned operations to corporations and other investors .
a. true.
b. false.
ANS: B
PTS: 1
18. Which of the following is not a major event that increased international business opportunities in Europe?
a. the Single European Act.
b. the removal of the Berlin Wall.
c. the inception of the euro.
d. the reduction in the number of countries participating in the European Union.
ANS: D
PTS: 1
19. The Single European Act of 1987 was primarily intended to:
a. create more trade barriers between European countries.
b. unify East Germany and West Germany.
c. provide financial support for Eastern Europe.
d. make regulations more uniform across industrialized countries in Europe.
ANS: D
PTS: 1
20. The Single European Act of 1987:
a. reduced competition in most industries.
b. eliminated competition in many industries.
c. reduced efficiency in most industries.
d. increased competition in most industries.
ANS: D
PTS: 1
21. In comparing exporting to direct foreign investment (FDI), an exporting operation will likely incur ____ fixed productio n costs and ____
transportation costs than DFI.
a. higher; higher
c. lower; lower
b. higher; lower
d. lower; higher
ANS: D
PTS: 1
22. Which of the following is an example of direct foreign investment?
a. exporting to a country.
b. establishing licensing arrangements in a country.
c. purchasing existing companies in a country.
d. investing directly (without brokers) in foreign stocks.
ANS: C
PTS: 1
23. According to the text, a disadvantage of licensing is that:
a. it prevents a firm from importing.
b. it is difficult to ensure quality control of the production process.
c. it prevents a firm from exporting.
d. none of the above
ANS: B
PTS: 1
24. ____ are most commonly classified as a direct foreign investment.
a. Foreign acquisitions
c. Licensing agreements
b. Purchases of international stocks
d. Exporting transactions
ANS: A
PTS: 1
2
25. Imperfect markets represent conditions under which factors of production are immobile.
a. true.
b. false.
ANS: B
PTS: 1
26. Privatization is a venture that is jointly owned and operated by two or more firms.
a. true.
b. false.
ANS: B
PTS: 1
27. The main provision of the North American Free Trade Agreement (NAFTA) was that:
a. the Mexican peso's value be tied to the Canadian dollar.
b. Mexico be allowed to privatize its business.
c. Mexico must impose a minimum wage that is similar to the minimum wage in the U.S.
d. none of the above
ANS: D
PTS: 1
28. Which of the following is not mentioned in the text as a constraint interfering with the MNC goal?
a. economic constraints.
c. regulatory constraints.
b. environmental constraints.
d. ethical constraints.
ANS: A
PTS: 1
29. Which of the following is not a provision or result of the Single European Act of 1987?
a. increased regulatory uniformity among European countries.
b. the phasing in of a common currency for all European countries by 1992.
c. the removal of many taxes on goods traded between European countries.
d. firms' ability to achieve economies of scale.
e. all of the above
ANS: B
PTS: 1
30. Which of the following is not mentioned in the text as an additional risk resulting from international business?
a. exchange rate fluctuations.
c. interest rate risk.
b. political risk.
d. exposure to foreign economies.
ANS: C
PTS: 1
31. Licensing obliges a firm to provide ____, while franchising obligates a firm to provide ____.
a. a specialized sales or service strategy; its technology
b. its technology; a specialized sales or service strategy
c. its technology; its technology
d. a specialized sales or service strategy; a specialized sales or service strategy
e. its technology; an initial investment
ANS: B
PTS: 1
32. Which of the following is not a way in which agency problems can be reduced through corporate control?
a. executive compensation.
c. acquisition of a foreign subsidiary.
b. threat of hostile takeover.
d. monitoring by large shareholders.
ANS: C
PTS: 1
33. The goal of a multinational corporation (MNC) is the maximization of shareholder wealth.
a. true.
b. false.
ANS: A
PTS: 1
34. A centralized management style, where major decisions about a foreign subsidiary are made by the parent company, results in an increase in
agency costs.
a. true.
b. false.
ANS: B
PTS: 1
35. In some countries, bribes are commonplace. If a MNC decides to adhere to a strict code of ethics and not pay bribes, its subsidiary may be at a
competitive disadvantage in the foreign country.
a. true.
b. false.
ANS: A
PTS: 1
36. Due to the larger opportunity set of funding sources around the world from which an MNC can choose, an MNC may be able t o obtain capital
at a lower cost than a purely domestic firm.
a. true.
b. false.
ANS: A
PTS: 1
37. The Single European Act of 1987 made regulations more uniform among European countries. However, the cost of achieving this goal resulted
in the imposition of additional taxes on goods traded between these countries.
a. true.
b. false.
ANS: B
PTS: 1
38. The North American Free Trade Agreement (NAFTA) of 1993 eliminated trade barriers between the United States and Mexico.
a. true.
b. false.
ANS: A
PTS: 1
3
39. Although MNCs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange rates ar e stable over time.
a. true.
b. false.
ANS: B
PTS: 1
40. One of the most prevalent factors conflicting with the realization of the goal of an MNC is the existence of agency problems.
a. true.
b. false.
ANS: A
PTS: 1
41. A centralized management style for an MNC results in relatively high agency costs.
a. true.
b. false.
ANS: B
PTS: 1
42. The imperfect markets theory states that factors of production are somewhat immobile, allowing firms to capitalize on a foreign country's
resources.
a. true.
b. false.
ANS: A
PTS: 1
4
5. The valuation of an MNC should rise when an event causes the expected cash flows from foreign
subsidiaries to ____ and when the foreign currencies denominating these cash flows are expected to ____.
a. decrease; appreciate
b. increase; appreciate
c. decrease; depreciate
d. increase; depreciate
ANSWER:
b
14. The Sarbanes-Oxley Act improved corporate governance of MNCs because it:
a. made executives more accountable for verifying financial statements.
b. eliminated stock options as a form of compensation.
c. tied executive compensation to firm performance.
d. placed a limit on the amount of funds that managers can spend.
ANSWER:
a
15. MNCs can improve their internal control process by all of the following, EXCEPT:
a. establishing a centralized database of information.
b. ensuring that all data are reported consistently among subsidiaries.
c. ensuring that the MNC always borrows from countries where interest rates are lowest.
d. using a system that checks internal data for unusual discrepancies.
ANSWER:
c
7. The parent of an MNC can implement compensation plans that directly reward the subsidiary managers
for enhancing the value of the MNC.
a. True
b. False
ANSWER:
a
18. If a publicly traded MNC's managers make poor decisions that reduce its value, that may encourage
other firms to acquire the MNC.
a. True
b. False
ANSWER:
a
19. Institutional investors such as mutual funds or pension funds that have large holdings of an MNC's stock
do not normally want to take control of it and therefore have no influence over management of the MNC.
a. True
b. False
ANSWER:
b
20. Four MNCs generate the same level of sales. The MNC that ______________would likely have the most
direct foreign investment.
a. exports all of its products
b. produces and sells its products locally
c. imports products from unrelated firms in other countries and sells them locally
d. acquires a foreign firm that produces most of its products to be sold in that foreign country
ANSWER:
d
22. According to the text, licensing allows a firm to:
a. import without being subject to government restrictions.
b. provide its technology for a fee.
c. export without government restrictions.
d. None of these are correct.
ANSWER:
b
23. Assume that an MNC purchases a foreign building, and then leases the building to another party and
allows that party to operate the business in the building for 30 years if the party follows standards set by
the MNC. This process is referred to as:
a. a foreign acquisition
b. franchising
c. a licensing agreement
d. exporting
ANSWER:
a
25. The Sarbanes-Oxley Act (SOX), which was enacted in 2002, required MNCs and other firms to implement
an internal reporting process that could be easily monitored by executives and the board of directors.
a. True
b. False
ANSWER:
a
26. If markets were perfect, then labor and other costs of production would be perfectly stable (no
movement across borders).
a. True
b. False
ANSWER:
b
27. The valuation of an MNC is reduced if the required rate of return on its investments in foreign countries
is reduced.
a. True
b. False
ANSWER:
b
33. If a U.S. firm sets up a plant in Mexico to benefit from low-cost labor, it will likely have a comparative
advantage over other firms in Mexico that sell the same product.
a. True
b. False
ANSWER:
b
38. If a U.S.-based MNC focused entirely on importing, then its valuation would likely be adversely affected
if most currencies were expected to appreciate against the dollar over time.
a. True
b. False
ANSWER:
b
39. MNCs commonly consider acquiring an existing foreign operation because the cost is less expensive than
establishing a new subsidiary of the same size.
a. True
b. False
ANSWER:
b
40. If a U.S.-based MNC focused entirely on exporting, then its valuation would likely be adversely affected
if most currencies were expected to appreciate against the dollar over time.
a. True
b. False
ANSWER:
b
41. If markets were perfect, then labor and other costs of production would be easily transferable.
a. True
b. False
ANSWER:
a
42. International trade:
a. is a relatively conservative approach to foreign market penetration.
b. entails minimal risk.
c. does not require a large amount of investment.
d. All of these are correct.
ANSWER:
d
43. Assume that an American firm wants to engage in international business without making a major
investment in the foreign country. Which method is least appropriate in this situation?
a. international trade
b. licensing
c. franchising
d. direct foreign investment
ANSWER:
d
44. The valuation of an MNC accounts for all the cash flows received by the foreign subsidiaries plus all the
cash flows remitted by the subsidiaries.
a. True
b. False
ANSWER:
b
45. An MNC's value depends on all of the following, EXCEPT:
a. the MNC's required rate of return.
b. the amount of the MNC's cash flows in a particular currency.
c. the exchange rate at which cash flows are converted to dollars.
d. All of these are factors.
ANSWER:
d
46. Which of the following is NOT an example of political risk?
a. Government may impose taxes on a subsidiary.
b. Government may impose barriers on a subsidiary.
c. Consumers may boycott the MNC.
d. Consumers' income levels may decrease, thus decreasing consumption.
ANSWER:
d
47. A microeconomic perspective focuses on external forces such as economic conditions that can affect the
value of an MNC.
a. True
b. False
ANSWER:
b
48. Assume that an MNC has a subsidiary in Italy, which exports its products to various countries in Europe.
Since all of the countries where it exports use the euro as their currency, this MNC is not subject to
exchange rate risk.
a. True
b. False
ANSWER:
b
49. Compared to other methods of international business, international trade generally results in ____
exposure to international political risk and ____ exposure to international economic conditions.
a. higher; lower
b. higher; higher
c. lower; higher
d. lower; lower
ANSWER:
d
50. Assume that Boca Co. wants to expand its business to Japan and wants complete control over the
operations in Japan. Which method of international business is most appropriate for Boca Co?
a. joint venture
b. licensing
c. partial acquisition of an existing Japanese firm
d. establishment of a Japanese subsidiary
ANSWER:
b
51. A decentralized management style results in relatively high agency costs for an MNC.
a. True
b. False
ANSWER:
a
52. MNCs commonly consider establishing a new foreign subsidiary to replace their exporting business
because it allows them to avoid exchange rate risk.
a. True
b. False
ANSWER:
b
53. Assume that Live Co. has expected cash flows of $200,000 from domestic operations, 200,000 Swiss
francs from Swiss operations, and 150,000 euros from Italian operations at the end of the year. The Swiss
franc's value and the euro's value are expected to be $.83 and $1.29, respectively, at the end of this year.
What are the expected dollar cash flows of Live Co?
a. $200,000
b. $559,500
c. $582,500
d. $393,500
ANSWER:
b
54. Saller Co. has a subsidiary in Mexico. The expected cash flows in pesos to be received in the future from
this subsidiary have not changed since last month, but the valuation of Saller Co. has declined since last
month. What could have caused this decline in value?
a. a weaker Mexican economy
b. lower Mexican interest rates
c. depreciation of the Mexican peso
d. appreciation of the Mexican peso
ANSWER:
c
55. Jensen Co. wants to establish a new subsidiary in Mexico that will sell computers to Mexican customers
and remit earnings back to the U.S. parent. The value of this project will be favorably affected if the value of
the peso ____ while Jensen establishes the new subsidiary and ____ when the subsidiary starts operations.
a. depreciates; appreciates
b. appreciates; appreciates
c. appreciates; depreciates
d. depreciates; depreciates
ANSWER:
a
56. A macroeconomic perspective focuses on the financial management decisions that affect the value of an
MNC.
a. True
b. False
ANSWER:
b
57. In determining the valuation of foreign projects, an MNC will always use the same required rate of
return as it would for its domestic projects.
a. True
b. False
ANSWER:
b
58. Livingston Co. has a subsidiary in Korea. The subsidiary reinvests half of its net cash flows into
operations and remits half to the parent. Livingston's expected cash flows from domestic business are
$100,000, and the Korean subsidiary is expected to generate 100 million Korean won at the end of the year.
The expected value of the won is $.0012. What are the expected dollar cash flows of Livingston Co.?
a. $100,000
b. $200,000
c. $160,000
d. $60,000
ANSWER:
c
59. A U.S.-based MNC has many foreign subsidiaries in Europe and does not expect to increase its
investment there. Its value should increase if the value of the euro weakens over time.
a. True
b. False
ANSWER:
b
60. If managers of foreign subsidiaries make decisions that maximize the values of their respective
subsidiaries, they automatically maximize the value of the entire corporation.
a. True
b. False
ANSWER:
b
61. A decentralized management style, where subsidiary managers make the relevant decisions regarding
their subsidiary, may result in better decision making, as subsidiary managers are generally better informed
about their subsidiary's operations.
a. True
b. False
ANSWER:
a
62. U.S.-based MNCs are typically not monitored by mutual funds and pension funds, as these institutions
rarely hold stock in MNCs.
a. True
b. False
ANSWER:
b
63. The Sarbanes-Oxley Act ensures a more transparent process for managers to report on the productivity
and financial condition of their firm.
a. True
b. False
ANSWER:
a
64. The theory of comparative advantage begins by assuming that a given firm first becomes established in
its home country and may subsequently penetrate foreign markets via geographic or product
differentiation.
a. True
b. False
ANSWER:
b
65. Under the imperfect markets theory, it is assumed that factors of production are entirely mobile, so that
firms can capitalize on a foreign country's resources.
a. True
b. False
ANSWER:
b
66. Under the product cycle theory, foreign demand can be initially satisfied by exporting.
a. True
b. False
ANSWER:
a
67. Licensing allows firms to use their technology in foreign markets without a major investment in foreign
countries.
a. True
b. False
ANSWER:
a
68. International trade is the most common form of direct foreign investment (DFI).
a. True
b. False
ANSWER:
b
69. When the parent's home currency is weak, remitted funds from foreign subsidiaries will convert to a
smaller amount of the home currency.
a. True
b. False
ANSWER:
b
70. A purely domestic firm may be affected by exchange rate fluctuations if it faces at least some foreign
competition.
a. True
b. False
ANSWER:
a
71. One form of exposure to political risk is terrorism.
a. True
b. False
ANSWER:
a
72. The goal of an MNC is to:
a. minimize taxes on funds remitted from foreign subsidiaries.
b. establish subsidiaries in any country where operations would provide a return over and above the cost
of capital, even if better projects are available domestically.
c. maximize shareholder wealth.
d.maximize the social benefits resulting from actions such as the employment of foreign managers.
ANSWER:
c
73. Agency costs faced by MNCs may be larger than those faced by purely domestic firms because:
a. monitoring of managers located in foreign countries is more difficult.
b. foreign subsidiary managers raised in different cultures may not follow uniform goals.
c. MNCs are relatively large.
d. All of these are correct.
e. monitoring of managers located in foreign countries is more difficult AND foreign subsidiary managers
raised in different cultures may not follow uniform goals.
ANSWER:
d
74. Which of the following is NOT one of the more common methods used by MNCs to improve their
internal control process?
a. establishing a centralized database of information
b. ensuring that all data are reported consistently among subsidiaries
c. speeding the process by which all departments and all subsidiaries have access to the data that they
need
d. making executives more accountable for financial statements by personally verifying their accuracy
e. All of these are common methods used by MNCs to improve their internal control process.
ANSWER:
a
75. Which of the following is NOT mentioned in the text as a theory of international business?
a. theory of comparative advantage
b. imperfect markets theory
c. product cycle theory
d. globalization of business theory
e. All of these are mentioned in the text as theories of international business.
ANSWER:
d
76. When conducting international business, firms generally face the most risk when they:
a. engage in franchising.
b. make acquisitions of existing operations.
c. establish new subsidiaries.
d. engage of international trade.
e. make acquisitions of existing operations AND establish new subsidiaries.
ANSWER:
a
77. The least risky method by which firms conduct international business is:
a. franchising
b. acquisitions of existing operations
c. international trade
d. the establishment of new subsidiaries
e. licensing
ANSWER:
c
78. Which of the following does NOT constitute a form of direct foreign investment?
a. franchising
b. international trade
c. joint ventures
d. acquisitions of existing operations
e. establishment of new foreign subsidiaries
ANSWER:
b
8. Which of the following theories suggests that Companies seek to penetrate new markets over time?
a. theory of comparative advantage.
b. imperfect markets theory.
c. product cycle theory.
d. none of the above
ANS: C
34. If an Australia Company sets up a plant in Indonesia to benefit from low cost labor, it will likely have a
comparative advantage over other Companies in Indonesia that sell the same product.
a. True
b. False
ANS: F
39. If an Australia-based MNC focused completely on importing, then its valuation would likely be adversely
affected if most currencies were expected to appreciate against the dollar over time.
a. True
b. False
ANS: T
40. The acquisition of a foreign subsidiary is commonly considered by MNCs because the cost is less
expensive than establishing a new subsidiary of the same size.
a. True
b. False
ANS: F
41. If an Australia-based MNC focused completely on exporting, then its valuation would likely be adversely
affected if most currencies were expected to appreciate against the dollar over time.
a. True
b. False
ANS: F
53. The establishment of a new subsidiary is commonly considered by MNCs because the cost is less
expensive than acquiring a foreign subsidiary of the same size.
a. True
b. False
ANS: T
56. Arrow Computers wants to establish a new subsidiary in Indonesia that will sell computers to Indonesian
customers and remit earnings back to the Australian parent. The value of this project will be favorably
affected if the value of the rupiah ____ while it establishes the new subsidiary and ____ when the subsidiary
starts operations.
a. depreciates; appreciates
b. appreciates; appreciates
c. appreciates; depreciates
d. depreciates; depreciates
ANS: A
77. The most risky method(s) by which Companies conduct international business is (are):
a. Franchising.
b. The acquisitions of existing operations.
c. The establishment of new subsidiaries.
d. All of the above
e. B and C only
ANS: E
84. Franchising is a business relationship in which one business is allowed to use the established brand of
another business and to sell its products and/ or services for a fixed period of time.
a. True
b. False
ANS: T
85. Joint venture is a business relationship in which one business is allowed to use the established brand of
another business and to sell its products and/ or services for a fixed period of time.
a. True
b. False
ANS: F
86. Joint venture is a business entity which is jointly owned and operated by two or more companies.
a. True
b. False
ANS: T
87. The term country risk is commonly used to reflect an MNC’s exposure to a variety of country conditions,
including political actions such as friction within the government, government policies, and financial
conditions within that country.
a. True
b. False
ANS: T
88. If the foreign currencies to be received by an Australia-based MNC suddenly weaken against the dollar,
then the MNC will receive a higher amount of dollar cash flows than expected.
a. True
b. False
ANS: F
89. If there is suddenly more uncertainty about an MNC’s future cash flows, then investors will expect to
receive a higher rate of return.
a. True
b. False
ANS: T
90. Subprime mortgage is a type of loan that is normally granted to individuals with poor credit histories.
a. True
b. False
ANS: T
lOMoARcPSD|6749524
International Economics, 10e Global Edition (Krugman/Obstfeld/Melitz)
Chapter 13 National Income Accounting and the Balance of Payments
13.1 The National Income Accounts
1.
A country's gross national product (GNP) is
A)
the value of all final goods produced by its factors of production and sold on the market in a given time
period.
B)
the value of all final goods and services produced by its factors of production, excluding land, and sold on
the market in a given time period.
C)
the value of all final goods and services produced by its factors of production and sold on the market.
D)
the value of all final goods and services produced by its factors of production and sold on the market in a
given time period.
E)
the value of all intermediate goods and services produced by its factors of production and sold on the
market in a given time period.
Answer:
D
Page Ref: 345-350
Difficulty: Easy
2.
For most macroeconomists
A)
national income accounts and national output accounts are equal to each other.
B)
national income accounts exceed national output accounts.
C)
it is impossible to tell whether national income accounts equal to national output accounts.
D)
national income accounts is much more important than national output accounts.
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
E)
national output accounts exceed national income accounts.
Answer:
A
Page Ref: 345-350
Difficulty: Easy
3.
For most macroeconomists
A)
gross national product is much more important than gross national income.
B)
it is hard to tell whether gross national income equal gross national product.
C)
gross national income and gross national product are the same.
D)
gross national product exceeds gross national product.
E)
gross national income exceeds gross national product.
Answer:
C
Page Ref: 345-350
Difficulty: Easy
4.
The highest component of GNP is
A)
investment.
B)
government purchases.
C)
consumption.
D)
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lOMoARcPSD|6749524
trade.
E)
the current account.
Answer:
C
Page Ref: 345-350
Difficulty: Easy
5.
An example of how GNP accounts for services provided by foreign-owned capital (and GDP does not) is
A)
earnings of a Spanish factory with British owners counts only in Britain's GNP.
B)
earnings of a Spanish factory counts in Spain's GDP but are part of Britain's GNP.
C)
earnings of a Spanish factory counts in Spain's GNP but are part of Britain's GDP.
D)
earnings of a Spanish factory with British owners counts only in Spain's GDP.
E)
earnings of a Spanish factory counts in Spain's GNP but not in Britain's GDP or GNP.
Answer:
B
Page Ref: 345-350
Difficulty: Easy
6.
The sale of
A)
the GNP does not include sale of used items priced below $1000.
B)
a used textbook does enter GNP.
C)
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both a used textbook and a used house do not enter GNP.
D)
a used house does not enter GNP, but the sale of a used book does.
E)
a used textbook does not enter GNP, but the sale of a used house does.
Answer:
C
Page Ref: 345-350
Difficulty: Easy
7.
Which one of the following statements is the MOST accurate?
A)
The sale of a used textbook is a part of the GNP.
B)
It is hard to tell whether a sale of a used textbook does or does not generate income for factors of
production.
C)
The sale of a used textbook does not generate income for any factor of production.
D)
The sale of a used textbook sometimes does and sometimes does not generate income for factors of
production.
E)
The sale of a used textbook does generate income for factors of production.
Answer:
C
Page Ref: 345-350
Difficulty: Easy
8.
Which one of the following statements is the MOST accurate?
A)
GNP plus depreciation is called net national product (NNP).
B)
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GNP less depreciation is called net national product (NNP).
C)
GDP plus depreciation is called net national product (NNP).
D)
GDP less depreciation is called net national product (NNP).
E)
GNP less depreciation is called net factor product (NFP).
Answer:
B
Page Ref: 345-350
Difficulty: Easy
9.
National income equals GNP
A)
plus depreciation, plus net unilateral transfers, less indirect business taxes.
B)
less depreciation, plus net unilateral transfers, plus indirect business taxes.
C)
less depreciation, less net unilateral transfers, plus indirect business taxes.
D)
less depreciation, plus net unilateral transfers, less indirect business taxes.
E)
less depreciation, less net unilateral transfers, less indirect business taxes.
Answer:
D
Page Ref: 345-350
Difficulty: Easy
10.
The United States began to report its gross domestic product (GDP) only since
A)
1931.
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B)
1900.
C)
1941.
D)
1991.
E)
1921.
Answer:
D
Page Ref: 345-350
Difficulty: Easy
11.
GDP is supposed to measure
A)
the volume of production of a country's output.
B)
net unilateral transfers from foreigners.
C)
the volume of services generated within a country's borders.
D)
the volume of production within a country's borders.
E)
GNP plus depreciation.
Answer:
D
Page Ref: 345-350
Difficulty: Easy
12.
GNP equals GDP
A)
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minus receipts of factor income from the rest of the world.
B)
plus receipts of factor income from the rest of the world.
C)
plus net receipts of factor income from the rest of the world.
D)
minus depreciation.
E)
minus net receipts of factor income from the rest of the world.
Answer:
C
Page Ref: 345-350
Difficulty: Easy
13.
Movements in GDP
A)
and GNP usually do not differ greatly.
B)
are inversely proportional to movements in GNP.
C)
and GNP usually do not differ greatly, as a practical matter.
D)
are usually smaller than those of GNP movements, in practice.
E)
and GNP usually do differ greatly.
Answer:
C
Page Ref: 345-350
Difficulty: Easy
14.
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In 2006, the United States had
A)
a balance in the current account.
B)
a surplus in the current account.
C)
From 2006 data, it is too difficult to determine whether a surplus or a deficit existed in the current account.
D)
a deficit in the current account.
E)
a positive balance of net financial flows.
Answer:
D
Page Ref: 345-350
Difficulty: Easy
15.
Net unilateral transfers
A)
are part of a national income.
B)
are part of a country's product.
C)
must be added to NNP in calculations of national income.
D)
are part of a country's GNP.
E)
Only A and C.
Answer:
E
Page Ref: 345-350
Difficulty: Easy
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16.
GDP is different than GNP in that
A)
it does not account for a country's production using services with foreign-owned capital.
B)
it does not account for indirect business taxes.
C)
it is unhelpful when tracking national income.
D)
it accounts for net unilateral transfers.
E)
it accounts for depreciation.
Answer:
A
Page Ref: 345-350
Difficulty: Easy
17.
What are the main aspects of economic life that macroeconomics analysis is most concerned with?
Answer:
There are four main aspects: unemployment, saving, trade imbalances, and money and the price level.
Page Ref: 345-350
Difficulty: Easy
18.
What can you learn from the figure below (Figure 13-1 from the text) which depicts the U.S. GNP and its
components for the year 2009?
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Answer:
The highest component of GNP is consumption and the U.S. has a negative current balance.
Page Ref: 345-350
Difficulty: Easy
13.2 National Income Accounting for an Open Economy
1.
Movements in GDP
A)
are not allowed to differ at all from movements in GNP by definition.
B)
differ greatly from movements in GNP.
C)
do not differ greatly from movements in GNP.
D)
need to be inflation adjusted in order to match movements in GNP.
E)
are not relevant to an examination of national income.
Answer:
C
Page Ref: 350-358
Difficulty: Easy
2.
Purchases of inventories by
A)
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firms are also counted in investment spending.
B)
households and Firms are also counted in investment spending.
C)
firms are not counted in investment spending.
D)
foreign consumers are counter in investment spending.
E)
households are also counted in investment spending.
Answer:
A
Page Ref: 350-358
Difficulty: Easy
3.
In open economies
A)
as in a closed economy, saving and investment are not necessarily equal.
B)
saving and investment are not necessarily equal as they are in a closed economy.
C)
investment always refers to the domestic stock market.
D)
saving and investment are necessarily equal.
E)
saving and investment are necessarily equal contrary to the case of a closed economy.
Answer:
B
Page Ref: 350-358
Difficulty: Easy
4.
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Investment is usually
A)
It is hard to tell from the data whether investment is more or less variable than consumption.
B)
more variable than consumption.
C)
a larger component of the GNP than consumption.
D)
as variable as consumption.
E)
less variable than consumption.
Answer:
B
Page Ref: 350-358
Difficulty: Easy
5.
Government purchases are defined as
A)
all goods and services purchased by the federal, state, or local government.
B)
all goods and services purchased by the federal or state government.
C)
all goods and services purchased by the federal government.
D)
goods and services purchased from the government.
E)
only goods purchased by federal, state, or local governments.
Answer:
A
Page Ref: 350-358
Difficulty: Easy
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Difficulty: Easy
8.
Which one of the following expressions is the MOST accurate?
A)
CA = EX - IM
B)
CA = EX + IM
C)
CA = IM - EX
D)
CA = EX = IM
E)
CA - IM = EX
Answer:
A
Page Ref: 350-358
Difficulty: Easy
9.
A country's current account
A)
balance equals the change in its foreign wealth.
B)
balance equals its GNP.
C)
deficit equals the change in its foreign wealth.
D)
balance equals the change in its net foreign wealth.
E)
surplus equals the change in its foreign wealth.
Answer:
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D
Page Ref: 350-358
Difficulty: Easy
10.
The CA is equal to
A)
Y + (C - I - G).
B)
Y - (C + I - G).
C)
Y + (C + I + G).
D)
Y - (C + I + G).
E)
Y - (C - I + G).
Answer:
E
Page Ref: 350-358
Difficulty: Easy
11.
Which of the following is TRUE?
A)
A country could finance a current account deficit by using previously accumulated foreign wealth to pay
for its imports.
B)
We can describe the current account surplus as the difference between income and absorption.
C)
A country with a current account deficit must be increasing its net foreign debts by the amount of the
deficit.
D)
A country with a current account surplus is earning more from its exports than it spends on imports.
E)
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All of the above are true of current account balances.
Answer:
E
Page Ref: 350-358
Difficulty: Easy
12.
Over the 1980s
A)
there is no question that rising exports exceeded U.S. foreign debt.
B)
there is no question that a large decrease in U.S. foreign assets did occur.
C)
there is no question that a large increase in U.S. foreign assets did occur.
D)
there is no question that there was almost no change in U.S. foreign assets.
E)
there is a question whether a large decrease in U.S. foreign assets did occur.
Answer:
B
Page Ref: 350-358
Difficulty: Easy
13.
In a closed economy, national saving
A)
always equals investment.
B)
is always more than investment.
C)
is always less than investment.
D)
sometimes equals investment.
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E)
is never equal to investment.
Answer:
A
Page Ref: 350-358
Difficulty: Easy
14.
For open economies,
A)
S = I + CA.
B)
S = I - CA.
C)
S = I.
D)
S < I + CA.
E)
S > I + CA.
Answer:
A
Page Ref: 350-358
Difficulty: Easy
15.
An open economy
A)
cannot save either by building up its capital stock or by acquiring foreign wealth.
B)
can save by avoiding excessive imports.
C)
can save only by acquiring foreign wealth.
D)
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can save either by building up its capital stock or by acquiring foreign wealth.
E)
can save only by building up its capital stock.
Answer:
D
Page Ref: 350-358
Difficulty: Easy
16.
A closed economy
A)
can save by avoiding excessive imports.
B)
can save either by building up its capital stock or by acquiring foreign wealth.
C)
can save only by acquiring foreign wealth.
D)
can save only by building up its capital stock.
E)
cannot save either by building up its capital stock or by acquiring foreign wealth.
Answer:
D
Page Ref: 350-358
Difficulty: Easy
17.
Disposable income is National income
A)
less net taxes collected from households and firms by the government.
B)
less net taxes collected from households by the government.
C)
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less net taxes collected from firms by the government.
D)
less taxes collected from households and firms by the government.
E)
plus net taxes collected from households and firms by the government.
Answer:
A
Page Ref: 350-358
Difficulty: Easy
18.
Government savings,
A)
, is equal to
T + G - I.
B)
T + G.
C)
T = G.
D)
T - G.
E)
T - G = I.
Answer:
D
Page Ref: 350-358
Difficulty: Easy
19.
Which of the following is FALSE about private savings and government savings?
A)
Unlike private saving decisions, government saving decisions are often made with an eye toward their
effect on output and employment.
B)
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SP = Y - T - C
C)
The national income identity can help us to analyze the channels through which government saving
decisions influence macroeconomic conditions.
D)
Total savings (S) = SP +
E)
.
None of the above; all statements are true.
Answer:
E
Page Ref: 350-358
Difficulty: Easy
20.
In a closed economy, private saving,
A)
, is equal to
I - (G - T).
B)
I + (G - T) + C.
C)
I + (G + T).
D)
I + (G - T).
E)
I - (G + T).
Answer:
D
Page Ref: 350-358
Difficulty: Easy
21.
In an open economy, private saving,
A)
, is equal to
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I + CA - (G - T).
B)
I - CA + (G - T).
C)
I - CA - (G - T).
D)
I + CA + (G - T).
E)
I + CA + (G + T).
Answer:
D
Page Ref: 350-358
Difficulty: Easy
22.
Ricardian equivalence argues that when the government cuts taxes and raises its deficit,
A)
consumers anticipate that the low tax rates will continue.
B)
consumers anticipate that they will face lower taxes later to pay for the resulting government debt.
C)
consumers anticipate that they will face higher taxes later to pay for the resulting government debt.
D)
consumers anticipate it will affect their future taxes, in general in the direction of lowering future taxes.
E)
consumers anticipate that they will higher services from the government.
Answer:
C
Page Ref: 350-358
Difficulty: Easy
23.
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Ricardian equivalence argues that when the government
A)
cuts taxes and raises its deficit, consumers anticipate that they will face higher taxes later to pay for the
resulting government debt, thus people will raise their own private saving to offset the fall in government
saving.
B)
cuts taxes and raises its deficit, consumers anticipate that they will face lower taxes later to pay for the
resulting government debt, thus people will raise their own private saving to offset the fall in government
saving.
C)
cuts taxes and raises its surplus, consumers anticipate that they will face higher taxes later to pay for the
resulting government debt, thus people will raise their own private saving to offset the fall in government
saving.
D)
increases taxes and raises its deficit, consumers anticipate that they will face higher taxes later to pay for
the resulting government debt, thus people will raise their own private saving to offset the fall in
government saving.
E)
cuts taxes and decreases its deficit, consumers anticipate that they will face higher taxes later to pay for
the resulting government debt, thus people will raise their own private saving to offset the fall in
government saving.
Answer:
A
Page Ref: 350-358
Difficulty: Easy
24.
In the United States over the past fifty years, the fraction of GNP devoted to consumption has fluctuated in
a range of about
A)
42 to 49 percent.
B)
62 to 70 percent.
C)
32 to 39 percent.
D)
22 to 29 percent.
E)
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82 to 89 percent.
Answer:
B
Page Ref: 350-358
Difficulty: Easy
25.
In the United States, (gross) investment has fluctuated between ________ of GNP in recent years.
A)
2 and 12 percent
B)
42 and 52 percent
C)
32 and 42 percent
D)
22 and 32 percent
E)
11 and 22 percent
Answer:
E
Page Ref: 350-358
Difficulty: Easy
26.
Government purchases currently take up about
A)
18 percent of U.S. GNP, and this share has been decreasing since the late 1950s.
B)
20 percent of U.S. GNP, and this share has not changed much since the late 1950s.
C)
25 percent of U.S. GNP, and this share has been decreasing since the late 1950s.
D)
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38 percent of U.S. GNP, and this share has not changed much since the late 1950s.
E)
18 percent of U.S. GNP, and this share has been increasing since the late 1950s.
Answer:
B
Page Ref: 350-358
Difficulty: Easy
27.
The position of the United States current account balance in 2009 was
A)
borrowed over 9 percent of its GNP, leading to a large current account deficit.
B)
borrowed over 10 percent of its GNP, leading to a large current account deficit.
C)
achieved a currant account balance of zero.
D)
lent over 6 percent of its GNP, resulting in a large current account surplus.
E)
borrowed less then 5 percent of its GNP, leading to a large current account surplus.
Answer:
A
Page Ref: 350-358
Difficulty: Easy
28.
Which one of the following statements is FALSE?
A)
The United States had accumulated substantial foreign wealth by the early 1980s.
B)
In 1987, the country became a net debtor to foreigners for the first time since World War I.
C)
U.S. foreign debt has continued to grow and now stands at 25 percent of GNP.
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D)
The 1980s witnessed a sustained current account deficit of proportions unprecedented in the twentieth
century opened up.
E)
The U.S. foreign debt was paid off in the 1990s, allowing the U.S. to attain a current account surplus.
However, the deficit has returned in recent years.
Answer:
E
Page Ref: 350-358
Difficulty: Easy
29.
What is the national income identity for a closed economy?
Answer:
Y=C+I+G
Page Ref: 350-358
Difficulty: Easy
30.
What is the national income identity for an open economy?
Answer:
Y = C + I + G + EX - IM
Page Ref: 350-358
Difficulty: Easy
31.
Discuss the values of private saving in closed and open economies.
Answer:
In a closed economy, private saving, , is equals to, I + (G - T). In a open economy, private saving, , is
equals to I + CA + (G - T). Open economy helps in extending the opportunities for private saving or dissaving, or borrowing.
Page Ref: 350-358
Difficulty: Moderate
32.
Discuss the effects of government deficits on the current account.
Answer:
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A hard and difficult issue. During the Reagan administration, the creation of twin deficits, where by
slashing taxes, government deficits increased, which was accompanied with increased current account
deficits.
Using the identity, CA = SP + Sg - I and Ricardian equivalence, which argues that an increase in the
government deficit (by definition lowers ) will cause a roughly equal increase in SP to offset an expected
tax hike in the future. Thus, for I constant, there is roughly no effect on the current account.
However, government budget deficit may change both private savings and investment, thus avoiding a
creation of the twin deficits. An example is the European countries reducing their budget deficits just prior
to the introduction of the euro in January 1999. Now, under the "twin deficits: theory, one would have
expected the EU's current account surpluses to increase. This has never happened. The main reason was
sharp reduction in private saving rates.
A good answer should discuss Ricardian equivalence that argues that when the government cut taxes and
raises its deficit, consumers anticipate that they will face higher taxes later to pay for the resulting
government debt. In anticipation, they raise their own private saving to offset the fall in government
saving. In addition, one should mention wealth effect in anticipation of one Europe, assets prices
increased, lowering private saving rates.
Page Ref: 350-358
Difficulty: Difficult
33.
Explain how government deficits fell yet current account surpluses remained the same in the EU prior to
adopting the euro. Also explain this in the context of the "twin deficits" theory.
Answer:
Current accounts didn't change due to a sharp fall in the private saving rate, which declined by about 4
percent of output, almost as much as the increase in government saving. The behavior of private savers
neutralized the government's efforts to raise national saving. The twin deficits theory, the idea of
government deficit coupled with a sharply increased current account deficit, expects the EU's current
account surplus sharply as a result of the fiscal change, which didn't work in this case.
Page Ref: 350-358
Difficulty: Moderate
34.
Explain the concept of Ricardian equivalence.
Answer:
This an economic theory of taxes and government deficits. It argues that when the government cuts taxes
and raises its deficit, consumers anticipate higher taxes later to pay off the eventual government debt.
Thus, they will raise their own private saving to offset the fall in government saving. Governments that
lower their deficits will induce the private sector to lower its own saving. However, this doesn't hold in
practice. Economists attribute only half of the decline in European private saving to Ricardian effects.
Page Ref: 350-358
Difficulty: Moderate
35.
Assume:
C = 40 + 0.8(Y - T)
G = 10
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I = 20
T = 0, where T are taxes.
(a)
Calculate Y at equilibrium.
(b)
Calculate C, I, and G at equilibrium.
(c)
Now assume,
EX = 5 + 4EP/P
IM = 10 + 0.1 (Y - T) - 3EP/P
E=3
P = 1.5
P=2
Find equilibrium Y.
Answer:
(a) Y = C + I + G
Y = 350
(b) C = 40 + 0.8 Y = 320
I = 20
G = 10
(c) Y = 269.1667
Page Ref: 350-358
Difficulty: Moderate
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36.
Fill in the following table.
Answer:
Page Ref: 350-358
Difficulty: Moderate
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37.
What can one learn from the following figure?
Answer:
The figure shows the U.S. current account and net foreign wealth from 1977 until 2008. It shows that a
string of current account deficits in the 1980s reduced America's net foreign wealth until, by the end 2008,
the country had accumulated a substantial net foreign debt. In 1987 the country became a net debtor to
foreigners for the first time since World War I.
Page Ref: 350-358
Difficulty: Easy
38.
Assume:
C = 50 + 0.6 (Y - T)
G = 15
I = 15
T=2
(a)
Calculate Y at equilibrium
(b)
Calculate C
(c)
Assume
EX = 4 + 3EP/P
IM = 8 + 0.1 (Y - T) - 2EP/P
E=3
P = 1
P = 1.5
Find equilibrium Y.
Answer:
(a) Y = C + I + G
Y = 50 + 0.6(Y - 2 + 15 + 15)
Y = 197
(b) C = 50 + 0.6 (197 - 2) = 117
(c) Y = 170
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Page Ref: 350-358
Difficulty: Moderate
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39.
Fill in the following table.
Answer:
Page Ref: 350-358
Difficulty: Moderate
40.
Fill in the following table.
Answer:
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Page Ref: 350-358
Difficulty: Moderate
13.3 The Balance of Payments Accounts
1.
Every international transaction automatically enters the balance of payments
A)
twice, both times as debit.
B)
once as a credit.
C)
once either as a credit or as a debit.
D)
the times, once as a credit, onces as a debit, and once as an exchange.
E)
twice, once as a credit and once as a debit.
Answer:
E
Page Ref: 358-369
Difficulty: Easy
2.
The official settlements balance or balance of payments is the sum of
A)
the current account balance and the interest in all investments.
B)
the current account balance and the non reserve portion of the financial account balance.
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C)
the current account balance, the capital account balance, the non reserve portion of the financial account
balance, the statistical discrepancy.
D)
the current account balance, the capital account balance, the non reserve portion of the financial account
balance.
E)
the current account balance and the capital account balance.
Answer:
C
Page Ref: 358-369
Difficulty: Easy
3.
An American buys a Japanese car, paying by writing a check on an account with a bank in New York. How
would this be accounted for in the balance of payments?
A)
current account, a Japanese good import
B)
financial account, a U.S. asset export
C)
current account, a U.S. good import
D)
financial account, a U.S. asset import
E)
a current account as a U.S. good import and a financial account, a U.S. asset export
Answer:
E
Page Ref: 358-369
Difficulty: Easy
4.
The United States issues a $10,000 debt forgiveness to Argentina. How is this accounted for in the balance
of payments?
A)
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financial account, U.S. asset import
B)
current account, Argentina transfer payment
C)
financial account, U.S. asset export
D)
current account, Argentina good import
E)
current account, U.S. service export
Answer:
C
Page Ref: 358-369
Difficulty: Easy
5.
A U.S. citizen buys a newly issued share of stock in England, paying for his order with a check, which the
British company deposits in its own U.S. bank account in New York. How is this transaction accounted for in
the balance of payments?
A)
financial account, U.S. asset import
B)
financial account, U.S. asset export
C)
current account, U.S. service import
D)
financial account, British asset import
E)
current account, British good export
Answer:
B
Page Ref: 358-369
Difficulty: Easy
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6.
You travel to Paris and pay for a $100 dinner with your credit card. How is this accounted for in the balance
of payments?
A)
financial account, French asset export
B)
financial account, U.S. asset export
C)
current account, French service import
D)
financial account, U.S. asset import
E)
current account, U.S. good export
Answer:
B
Page Ref: 358-369
Difficulty: Easy
7.
The German government carries out an official foreign exchange intervention in which it uses dollars held
in an American bank to buy French currency from its citizens. How is this accounted for in the balance of
payments?
A)
financial account, German asset import
B)
financial account, German asset export
C)
current account, French good export
D)
current account, German good import
E)
financial account, French asset export
Answer:
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E
Page Ref: 358-369
Difficulty: Easy
8.
The earnings of a Spanish factory with British owners are
A)
only part of Spain's GNP.
B)
part of Britain's GNP.
C)
only counted in Britain's GDP.
D)
counted in Spain's GDP.
E)
counted in Britain's GDP and are a part of Spain's GNP.
Answer:
E
Page Ref: 358-369
Difficulty: Easy
9.
The services British capital provides in Spain are a service export from Britain
A)
therefore they are added to Spanish GDP in calculating Spanish GDP.
B)
therefore they are subtracted from British GDP in calculating British GNP.
C)
therefore they are added to British GDP in calculating British GNP.
D)
therefore they are subtracted from Spanish GNP.
E)
therefore they are added to Spanish GNP in calculating Spanish GDP.
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Answer:
C
Page Ref: 358-369
Difficulty: Easy
10.
Unilateral transfers between countries are
A)
known for reducing the income of capital owners.
B)
only international gifts, never payments that do not correspond to the purchase of any good, service, or
asset.
C)
the difference between Y and GNP if the identity Y = C + I + G + CA holds exactly.
D)
part of the current account but not a part of national income.
E)
long-term loans.
Answer:
C
Page Ref: 358-369
Difficulty: Easy
11.
Which of the following statements about the central bank is TRUE?
A)
Only the central bank may hold foreign reserves and intervene officially in exchange markets.
B)
Today, central banks' reserves consist largely of gold.
C)
Central banks never inject money into the economy.
D)
Central banks have little power to alter macroeconomic conditions.
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E)
The Federal Reserve holds only a small level of official reserve assets other than gold.
Answer:
E
Page Ref: 358-369
Difficulty: Easy
12.
How do we allocate statistical discrepancy among the current, capital, and financial accounts?
A)
Depend on the degree of certainty by which we attribute to these accounts.
B)
Depend on the convention adopted by the specific financial institution.
C)
We have no way of knowing exactly how to allocate this discrepancy.
D)
Divide it evenly amongst the three accounts.
E)
Statistical discrepancy signals human errors made when dealing with financial accounts.
Answer:
C
Page Ref: 358-369
Difficulty: Easy
13.
Which of the following is TRUE about current cost method and market value method?
A)
These methods lead to the same valuations.
B)
Foreign direct investments of the U.S. are valued at their original purchase price.
C)
The current cost method is preferred by the BEA.
D)
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Based on the current cost method, the BEA's 2009 estimate of U.S. net foreign wealth was $2,737.86
billion.
E)
They are used by the BEA to place current values on foreign indirect investments.
Answer:
D
Page Ref: 358-369
Difficulty: Moderate
14.
What types of international transactions are recorded in the balance of payment accounts?
Answer:
Three types: transactions that involve exports and imports of good and services; transactions that involve
the purchase or sell of financial assets; and exports and imports of good and services; other activities
resulting in transfer of wealth between countries which are recorded in the capital account.
Page Ref: 358-369
Difficulty: Moderate
15.
"The Balance of payments is always balances." Discuss.
Answer:
True. Every international transaction automatically enters the balance of payments twice, once as a credit
and once as a debit.
Current account + financial account + capital account = 0
Page Ref: 358-369
Difficulty: Easy
16.
"The balance of payments is seldom in balance in practice." Discuss.
Answer:
True. The main reasons are due to the fact that data collected or received from different sources may
differ in coverage, accuracy, and timing. In addition, data on services are not reliable as well as data from
the financial account. Moreover, accurate measurements of international interest and dividend receipts are
particularly difficult.
Page Ref: 358-369
Difficulty: Easy
17.
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How does an economy's central bank manage the supply of money through official reserve transactions?
Answer:
Official foreign exchange interventions are a way for the central bank to inject money into the economy or
withdraw it from circulation. They can buy or sell international reserves in private asset markets in order to
alter macroeconomic conditions without noticeably impacting the money supply. When a central bank
purchases or sells a foreign asset, the transaction appears in its country's financial account as if a private
citizen had carried out the same transaction.
Page Ref: 358-369
Difficulty: Moderate
18.
How can changes in the market price of wealth previously acquired alter a country's net foreign wealth?
Answer:
When Japan's stock market lost value in the 1990s, American and European owners of Japanese asset lost
value in their claims, while Japan's net foreign wealth increased. Similarly, exchange rate changes can
have this effect. When the dollar depreciates against foreign currency, foreigners who hold dollar assets
will see their wealth fall when measured in their home currencies.
Page Ref: 358-369
Difficulty: Moderate
19.
Discuss the two different methods the Bureau of Economic Analysis (BEA) uses to place current values on
foreign direct investments.
Answer:
The current cost method values direct investments at the cost of buying them today. The market value
method is meant to measure the price at which the investments could be sold. These two methods can
lead to different valuations because the cost of replacing a particular direct investment and the price it
would command if sold on the market may be hard to measure.
Page Ref: 358-369
Difficulty: Moderate
20.
Consider how the United States balance of payments accounts are affected when U.S. banks forgive two
billion in debt owed to them by the government of Argentina.
Answer:
In this case, the United States makes a two billion dollars capital transfer to Argentina, which should
appear as a negative two billions entry in the capital account. The associated credit is in the financial
account, in the form of a two billion dollars reduction in U.S. assets held abroad, i.e., a net asset "export,"
and therefore a positive balance of payments entry.
Page Ref: 358-369
Difficulty: Moderate
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21.
What can one learn from Figure 13-3 from the text, shown below?
Answer:
This figure shows that since the 1980s, United States foreign assets and liabilities have both increased
rapidly. However, liabilities have risen faster than assets, resulting in a substantial net foreign debt.
Page Ref: 358-369
Difficulty: Easy
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International Economics, 10e Global Edition (Krugman/Obstfeld/Melitz)
Chapter 14 Exchange Rates and the Foreign Exchange Market: An Asset Approach
14.1 Exchange Rates and International Transactions
1.
How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the
exchange rate is 1.25 dollars per one British pound?
A)
62.5 dollars
B)
50 dollars
C)
60 dollars
D)
70 dollars
E)
40 British pounds
Answer:
A
Page Ref: 374-378
Difficulty: Easy
2.
How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the
exchange rate is 1.50 dollars per one British pound?
A)
60 dollars
B)
75 dollars
C)
80 dollars
D)
50 dollars
E)
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70 dollars
Answer:
B
Page Ref: 374-378
Difficulty: Easy
3.
How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the
exchange rate is 1.80 dollars per one British pound?
A)
100 dollars
B)
40 dollars
C)
50 dollars
D)
90 dollars
E)
95 dollars
Answer:
D
Page Ref: 374-378
Difficulty: Easy
4.
The Japanese currency is called the
A)
Euro.
B)
Yen.
C)
DM.
D)
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Pound.
E)
Dollar.
Answer:
B
Page Ref: 374-378
Difficulty: Easy
5.
How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the
exchange rate is 1.50 dollars per British pound?
A)
25 British pounds
B)
10 British pounds
C)
30 British pounds
D)
35 British pounds
E)
20 British pounds
Answer:
C
Page Ref: 374-378
Difficulty: Easy
6.
How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the
exchange rate is 1.80 dollars per British pound?
A)
30 British pounds
B)
20 British pounds
C)
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40 British pounds
D)
10 British pounds
E)
25 British pounds
Answer:
E
Page Ref: 374-378
Difficulty: Easy
7.
How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the
exchange rate is 2.00 dollars per British pound?
A)
30 British pounds
B)
40 British pounds
C)
22.5 British pounds
D)
12.5 British pounds
E)
32.5 British pounds
Answer:
C
Page Ref: 374-378
Difficulty: Easy
8.
How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the
exchange rate is 1.60 dollars per British pound?
A)
38.125 British pounds
B)
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28.125 British pounds
C)
48.125 British pounds
D)
18.125 British pounds
E)
58.125 British pounds
Answer:
B
Page Ref: 374-378
Difficulty: Easy
9.
What is the exchange rate between the dollar and the British pound if a pair of American jeans costs 50
dollars in New York and 100 Pounds in London?
A)
0.5 dollars per British pound
B)
2.5 dollars per British pound
C)
2 dollars per British pound
D)
3.5 dollars per British pound
E)
1.5 dollars per British pound
Answer:
A
Page Ref: 374-378
Difficulty: Easy
10.
What is the exchange rate between the dollar and the British pound if a pair of American jeans costs 60
dollars in New York and 30 Pounds in London?
A)
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2.5 dollars per British pound
B)
3.5 dollars per British pound
C)
1.5 dollars per British pound
D)
0.5 dollars per British pound
E)
2 dollars per British pound
Answer:
E
Page Ref: 374-378
Difficulty: Easy
11.
When a country's currency depreciates
A)
foreigners are not affected, but domestic residents find that imports from abroad are more expensive.
B)
foreigners find that its exports are more expensive, and domestic residents find that imports from abroad
are more expensive.
C)
foreigners find that its exports are cheaper and domestic residents find that imports from abroad are more
expensive.
D)
foreigners find that its exports are cheaper; however, domestic residents are not affected.
E)
foreigners find that its exports are more expensive, and domestic residents find that imports from abroad
are cheaper.
Answer:
C
Page Ref: 374-378
Difficulty: Easy
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12.
An appreciation of a country's currency
A)
decreases the relative price of its exports and lowers the relative price of its imports.
B)
lowers the relative price of its exports and raises the relative price of its imports.
C)
raises the relative price of its exports and raises the relative price of its imports.
D)
raises the relative price of its exports and does not affect the relative price of its imports.
E)
raises the relative price of its exports and lowers the relative price of its imports.
Answer:
E
Page Ref: 374-378
Difficulty: Easy
13.
Which one of the following statements is the MOST accurate?
A)
An appreciation of a country's currency makes its goods more expensive.
B)
A depreciation of a country's currency makes its goods more expensive for foreigners.
C)
A depreciation of a country's currency makes its goods cheaper.
D)
A depreciation of a country's currency makes its goods cheaper for its own residents.
E)
A depreciation of a country's currency makes its goods cheaper for foreigners.
Answer:
E
Page Ref: 374-378
Difficulty: Easy
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14.
A(n) ________ of a nation's currency will cause imports to ________ and exports to ________, all other things
held constant.
A)
appreciation; increase; increase
B)
depreciation; decrease; decrease
C)
depreciation; increase; decrease
D)
appreciation; decrease; increase
E)
depreciation; decrease; increase
Answer:
E
Page Ref: 374-378
Difficulty: Easy
15.
If the goods' money prices do not change, an appreciation of the dollar against the pound
A)
makes British jeans more expensive in Britain.
B)
makes British sweaters cheaper in terms of American jeans.
C)
makes American jeans cheaper in terms of British sweaters.
D)
doesn't change the relative price of sweaters and jeans.
E)
makes British sweaters more expensive in terms of American jeans.
Answer:
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B
Page Ref: 374-378
Difficulty: Easy
16.
If the goods' money prices do not change, a depreciation of the dollar against the pound
A)
makes British jeans more expensive in Britain.
B)
doesn't change the relative price of sweaters and jeans.
C)
makes British sweaters cheaper in terms of American jeans.
D)
makes British sweaters more expensive in terms of American jeans.
E)
makes American jeans more expensive in terms of British sweaters.
Answer:
D
Page Ref: 374-378
Difficulty: Easy
17.
In the year 2012, Shinzo Abe became prime minister of Japan, promising bold policies to improve Japan's
economy. What was the focus of his policies and how did they affect Japan's trade position?
Answer:
What has been called "Abenomics" involved monetary policies designed to reduce the value of the
Japanese Yen relative to other currencies. This resulted in increased exports and reduced imports,
strengthening the Japanese economy.
Page Ref: 374-378
Difficulty: Moderate
18.
Based on the case study, "Exchange Rates, Auto Prices, and Currency Wars," explain why exchange rates
are of critical importance to firms in the automobile industry, and how Japan has benefited from changes in
the value of the Yen.
Answer:
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See the discussion at the beginning of the chapter and in the case. Japan experienced a 15% drop in the
value of the yen relative to the U.S. dollar in 2013. This increased Japanese exports of autos while reducing
imports from the U.S.
Page Ref: 374-378
Difficulty: Moderate
19.
Compute how many dollars it would cost to buy an Edinburgh Woolen Mill sweater costing 50 British
pounds for the following exchange rates.
Answer:
Page Ref: 374-378
Difficulty: Easy
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20.
Compute how many British pounds it would cost to buy a pair of American designer jeans costing $45.
Answer:
Page Ref: 374-378
Difficulty: Easy
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21.
Find the exchange rate between the dollar and the British pounds for the following cases.
Answer:
Page Ref: 374-378
Difficulty: Moderate
14.2 The Foreign Exchange Market
1.
The largest trading of foreign exchange occurs in
A)
Tokyo.
B)
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London.
C)
New York.
D)
Frankfurt.
E)
Singapore.
Answer:
B
Page Ref: 378-384
Difficulty: Easy
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2.
Which of the following type of funds cater to wealthy individuals, are not bound by government
regulations, and are actively traded in foreign exchange markets?
A)
mutual funds
B)
pension funds
C)
exchange funds
D)
hedge funds
Answer:
D
Page Ref: 378-384
Difficulty: Easy
3.
The future date on which the currencies are actually exchanged is called what?
A)
the two-day window
B)
the spot exchange date
C)
the commitment date
D)
the forward exchange rate
E)
the value date
Answer:
E
Page Ref: 378-384
Difficulty: Easy
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4.
In 2010, about
A)
20 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
B)
30 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
C)
10 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
D)
40 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
E)
85 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
Answer:
E
Page Ref: 378-384
Difficulty: Easy
5.
Which one of the following statements is the MOST accurate?
A)
Spot exchange rates and forward exchanges rates are equal when the value date and the date of the spot
transaction are the same.
B)
Spot exchange rates and forward exchange rates never move closely together.
C)
Spot exchange rates are always higher than forward exchange rates.
D)
Spot exchange rates are always lower than forward exchange rates.
E)
Spot exchange rates and forward exchanges rates are always equal.
Answer:
A
Page Ref: 378-384
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Difficulty: Easy
6.
Forward and spot exchange rates
A)
move closely together and are equal on the value date.
B)
are always such that the forward exchange rate is higher.
C)
are necessarily equal.
D)
do not move closely together.
E)
are unrelated to the value date.
Answer:
A
Page Ref: 378-384
Difficulty: Easy
7.
A foreign exchange swap
A)
is a spot sale of a currency.
B)
make up a negligible proportion of all foreign exchange trading.
C)
is a forward repurchase of the currency.
D)
is a spot sale of a currency combined with a forward repurchase of the currency.
E)
is a spot sale of a currency combined with a forward sale of the currency.
Answer:
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D
Page Ref: 378-384
Difficulty: Easy
8.
Nondeliverable forward exchange markets in centers such as Hong Kong and Singapore help to circumvent
which problem?
A)
inconvertible currencies cannot be traded in foreign markets
B)
high travel costs from Asia to "traditional" foreign exchange markets
C)
loss of goods shipped from Hong Kong and Singapore
D)
lag between the spot exchange date and the value date
E)
unstable currencies that hold no purchasing power
Answer:
A
Page Ref: 378-384
Difficulty: Easy
9.
The following is an example of Radio Shack hedging its foreign currency risk
A)
needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward-exchange
deal to sell yen.
B)
needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen in a forwardexchange deal.
C)
needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen at a spot-exchange 1
month from now.
D)
needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward-exchange
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deal to buy yen.
E)
needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack buys yen at a spot-exchange 1
month from now.
Answer:
D
Page Ref: 378-384
Difficulty: Easy
10.
Which of the following is NOT an example of a financial derivative?
A)
swaps
B)
forwards
C)
bonds
D)
futures
E)
options
Answer:
C
Page Ref: 378-384
Difficulty: Easy
11.
Which major actor is at the center of the foreign exchange market?
A)
non-bank financial institutions
B)
individual firms
C)
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commercial banks
D)
corporations
E)
central banks
Answer:
C
Page Ref: 378-384
Difficulty: Easy
12.
Which of the following is NOT a major actor in the foreign exchange market?
A)
non-bank financial institutions
B)
commercial banks
C)
corporations
D)
tourists
E)
central banks
Answer:
D
Page Ref: 378-384
Difficulty: Easy
13.
By April 2010
A)
only about 60 percent of foreign exchange trades were against euros.
B)
only about 39 percent of foreign exchange trades were against euros.
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C)
only about 10 percent of foreign exchange trades were against euros.
D)
only about 24 percent of foreign exchange trades were against euros.
E)
only about 42 percent of foreign exchange trades were against euros.
Answer:
B
Page Ref: 378-384
Difficulty: Easy
14.
Which of the following statements is TRUE about a vehicle currency?
A)
There is much skepticism that the euro will ever evolve into a vehicle currency on par with the dollar.
B)
The dollar is sometimes called a vehicle currency because of its pivotal role in many foreign exchange
deals.
C)
It is widely used to denominate contracts made by parties who reside in the country that issues the vehicle
currency.
D)
Vehicle currencies include nondeliverable currencies like the renminbi.
E)
The pound sterling, once second only to the dollar as a key international currency, is beginning to rise in
importance.
Answer:
B
Page Ref: 378-384
Difficulty: Easy
15.
The action of arbitrage is
A)
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the process of buying and selling currency at the same price.
B)
the process of buying a currency cheap and selling it dear.
C)
the process of selling currency at different prices in different markets.
D)
the process of buying a currency and holding onto it to take it off the market.
E)
the process of buying a currency dear and selling it cheap.
Answer:
B
Page Ref: 378-384
Difficulty: Easy
16.
Futures contracts differ from forward contracts in that
A)
future contracts ensures you will receive a certain amount of foreign currency at a specified future date.
B)
future contracts are a disadvantage if your views about the future spot exchange rate are to change.
C)
future contracts allow you to sell your contract on an organized futures exchange.
D)
future contracts bind you into your end of the deal.
E)
futures contracts don't allow you to realize a profit of a loss right away.
Answer:
C
Page Ref: 378-384
Difficulty: Easy
17.
Exxon Mobil wants to pay 160,000 to a German supplier. They get an exchange rate quotation from its
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own commercial bank and instructs it to debit their dollar account and pay 160,000 to the supplier's
German account. If the exchange rate quoted is $1.2 per euro, how much is debited to Exxon Mobil's
account?
A)
$172,000
B)
$160,000
C)
$192,000
D)
$150,000
E)
$180,000
Answer:
C
Page Ref: 378-384
Difficulty: Easy
18.
Who are the major participants in the foreign exchange market?
Answer:
(1)
(2)
(3)
(4)
Commercial banks
Corporations
Nonbank financial institutions
Central banks
Page Ref: 378-384
Difficulty: Easy
19.
Explain what is a "vehicle currency." Why is the U.S. dollar considered a vehicle currency?
Answer:
A vehicle currency is one that is widely used to denominate international contracts made by parties who
do not reside in the country that issues the vehicle currency. Since in 2004, nearly 90 percent of foreign
exchange transactions involve exchanges of foreign currencies for U.S. dollars; therefore, it is considered a
vehicle currency.
Page Ref: 378-384
Difficulty: Moderate
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20.
Explain the purpose of the following figure.
Answer:
To show that spot and forward exchange rates are in general close to each other.
Page Ref: 378-384
Difficulty: Easy
21.
Explain the purpose of the following figure 14-2 from the text in the context of the interest rates on the
dollar and the Japanese Yen between 1980 and 2010.
Answer:
Since the dollar and the Yen interest rates are not measured in comparable terms, they can move quite
differently over time. Except for a period from 1990 to 1993 when the Yen interest rate was higher than
the dollar, dollar interest rates have been higher than the Yen, indicating depreciation of the dollar against
the Yen.
Page Ref: 378-384
Difficulty: Easy
14.3 The Demand for Foreign Currency Assets
1.
What is the expected dollar rate of return on euro deposits if today's exchange rate is $1.10 per euro, next
year's expected exchange rate is $1.166 per euro, the dollar interest rate is 10%, and the euro interest
rate is 5%?
A)
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-1%
B)
15%
C)
11%
D)
10%
E)
0%
Answer:
C
Page Ref: 384-393
Difficulty: Easy
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2.
What is the expected dollar rate of return on dollar deposits if today's exchange rate is $1.10 per euro,
next year's expected exchange rate is $1.165 per euro, the dollar interest rate is 10%, and the euro
interest rate is 5%?
A)
0%
B)
15%
C)
-1%
D)
11%
E)
10%
Answer:
E
Page Ref: 384-393
Difficulty: Easy
3.
What is the expected dollar rate of return on euro deposits if today's exchange rate is $1.167 per euro,
next year's expected exchange rate is $1.10 per euro, the dollar interest rate is 10%, and the euro interest
rate is 5%?
A)
11%
B)
-1%
C)
0%
D)
10%
Answer:
B
Page Ref: 384-393
Difficulty: Easy
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4.
The dollar rate of return on euro deposits is
A)
the euro interest rate plus the rate of inflation against the euro.
B)
the euro interest rate minus the rate of inflation against the euro.
C)
approximately the euro interest rate minus the rate of depreciation of the dollar against the euro.
D)
the rate of appreciation of the dollar against the euro.
E)
approximately the euro interest rate plus the rate of depreciation of the dollar against the euro.
Answer:
E
Page Ref: 384-393
Difficulty: Easy
5.
If the dollar interest rate is 10 percent and the euro interest rate is 6 percent, then an investor should
A)
invest only in dollars.
B)
invest only in euros if the exchange rate is expected to remain constant.
C)
invest only in dollars if the exchange rate is expected to remain constant.
D)
be indifferent between dollars and euros.
E)
invest only in euros.
Answer:
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C
Page Ref: 384-393
Difficulty: Easy
6.
If the dollar interest rate is 4 percent, the euro interest rate is 6 percent, then
A)
invest only in euros if the exchange rate is expected to remain constant.
B)
an investor should invest only in dollars.
C)
an investor should invest only in euros.
D)
invest only in dollars if the exchange rate is expected to remain constant.
E)
an investor should be indifferent between dollars and euros.
Answer:
A
Page Ref: 384-393
Difficulty: Easy
7.
If the dollar interest rate is 10 percent, the euro interest rate is 6 percent, then
A)
an investor should invest only in dollars.
B)
an investor should invest only in euros.
C)
an investor should invest only in euros if the expected dollar depreciation against the euro is 4 percent.
D)
an investor should invest only in dollars if the expected dollar depreciation against the euro is 4 percent.
E)
an investor should be indifferent between dollars and euros if the expected dollar depreciation against the
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euro is 4 percent.
Answer:
E
Page Ref: 384-393
Difficulty: Easy
8.
If the dollar interest rate is 10 percent and the euro interest rate is 6 percent, then
A)
an investor should invest only in dollars if the expected dollar depreciation against the euro is 8 percent.
B)
an investor should invest only in euros.
C)
an investor should invest only in dollars.
D)
an investor should invest only in euros if the expected dollar depreciation against the euro is 8 percent.
E)
an investor should be indifferent between dollars and euros if the expected dollar depreciation against the
euro is 8 percent.
Answer:
D
Page Ref: 384-393
Difficulty: Easy
9.
If the dollar interest rate is 10 percent, the euro interest rate is 12 percent, then
A)
an investor should invest only in euros.
B)
an investor should invest only in euros an investor should invest only in dollars if the expected dollar
appreciation against the euro is 4 percent.
C)
an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent.
D)
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an investor should be indifferent between dollars and euros an investor should invest only in dollars if the
expected dollar appreciation against the euro is 4 percent.
E)
an investor should invest only in dollars.
Answer:
C
Page Ref: 384-393
Difficulty: Easy
10.
A the beginning of 2012, you pay $100 for a share of stock that then pays you a dividend of $1 at the
beginning of 2013. If the stock price rises from $100 to $109 per share over the year, then you have
earned an annual rate of return of
A)
1 percent.
B)
5 percent.
C)
9 percent.
D)
10 percent.
E)
4 percent.
Answer:
D
Page Ref: 384-393
Difficulty: Easy
11.
What are the three factors that affect the demand for foreign currency?
Answer:
The three factors that affect the demand for foreign currency are expected return, risk and liquidity.
Page Ref: 384-393
Difficulty: Easy
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12.
Explain risk and liquidity of assets.
Answer:
Risk is the variability an asset contributes to a savers' wealth. An asset's real return can be unpredictable
and savers dislike this uncertainty if the return fluctuates widely. Liquidity refers to the ease with which an
asset can be sold or exchanged for goods. Cash is the most liquid of assets because it is always acceptable
at face value as payment for goods or other assets. Thus, savers consider an asset's liquidity and its
expected return and risk in deciding how much of it to hold.
Page Ref: 384-393
Difficulty: Moderate
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13.
For the following 15 cases, compare the dollar rates of return on dollar and euro deposits.
Answer:
Page Ref: 384-393
Difficulty: Moderate
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14.
For the table below calculate the EXACT relationship.
Answer:
Page Ref: 384-393
Difficulty: Moderate
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15.
Assume that the euro interest rate is constant at 5 percent, and that the expected exchange rate is 1.05
dollars per one euro. Find the expected dollar return on euro deposits for the following cases.
Answer:
Page Ref: 384-393
Difficulty: Moderate
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16.
Using the data in the table above, plot today's dollar/euro exchange rate against the expected dollar
return on euro deposits.
Answer:
Page Ref: 384-393
Difficulty: Moderate
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17.
Determine for each, whether the interest parity condition holds or not, if
= 1.10
Answer:
Page Ref: 384-393
Difficulty: Moderate
14.4 Equilibrium in the Foreign Exchange Market
1.
Which one of the following statements is the MOST accurate?
A)
Since dollar and yen interest rates are measured in comparable terms, they move quite the same over
time.
B)
Since dollar and yen interest rates are measured in comparable terms, they still move quite differently
over time.
C)
Since dollar and yen interest rates are measured in comparable terms, they can move quite differently
over time.
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D)
Since dollar and yen interest rates are not measured in comparable terms, they can move quite differently
over time.
E)
Since dollar and yen interest rates are so similar, they move quite the same way over time.
Answer:
D
Page Ref: 393-397
Difficulty: Easy
2.
Suppose that the one-year forward price of euros in terms of dollars is equal to $1.113 per euro. Further,
assume that the spot exchange rate is $1.05 per euro, and the interest rate on dollar deposits is 10
percent and on euro it is 4 percent. Under these assumptions
A)
it is hard to tell whether interest parity does or does not hold.
B)
interest parity does not hold.
C)
interest parity does hold.
D)
Not enough information is given to answer the question.
E)
interest parity fluctuates.
Answer:
C
Page Ref: 393-397
Difficulty: Easy
3.
What is the interest parity condition?
Answer:
The condition that the expected returns on deposits of any two currencies are equal when measured in the
same currency is called the interest parity condition. It implies that potential holders of foreign currency
deposits view them as equally desirable assets, i.e. risk is assumed away.
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In notational forms:
R$ = RE + (
- E$/E)/E$/E
Page Ref: 393-397
Difficulty: Easy
4.
Explain why the interest parity condition must hold if the foreign exchange market is in equilibrium.
Answer:
The foreign exchange market is in equilibrium when deposits of all currencies offer the same expected rate
of return. Potential holders of foreign currency deposits view them all as equally desirable assets. If
expected rate of return on any currency deposit is higher or lower than the other, there will exist an excess
supply or demand for that currency because one will yield a higher return than the other.
Page Ref: 393-397
Difficulty: Moderate
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5.
Calculate the interest rate in the United States, if interest parity condition holds, for the following 15 cases.
Answer:
Page Ref: 393-397
Difficulty: Moderate
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6.
Calculate the interest rate in the euro zone if interest parity condition holds, for the following 15 cases.
Answer:
Page Ref: 393-397
Difficulty: Moderate
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7.
Assume the U.S. interest rate is 10 percent, and the interest rate on euro deposits is 5 percent. For the
following exchange rates, find the forward exchange rates.
Answer:
Using the covered interest rate parity will yield the second column in the table:
F$/E = (R$ - RE) E$/E + E$/E
Page Ref: 393-397
Difficulty: Moderate
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8.
Calculate the Expected Dollar Depreciation Rate against the euro and the expected dollar return on euro
deposits if the expected exchange rate is $1.10 per euro.
Answer:
Page Ref: 393-397
Difficulty: Moderate
14.5 Interest Rates, Expectations, and Equilibrium
1.
Which one of the following statements is the MOST accurate?
A)
A rise in the interest rate offered by dollar deposits does not affect the U.S. dollar.
B)
A rise in the interest rate offered by the dollar causes the euro to appreciate.
C)
A rise in the interest rate offered by dollar deposits causes the dollar to appreciate.
D)
A rise in the interest rate offered by dollar deposits causes the dollar to depreciate.
E)
For a given euro interest rate and constant expected exchange rate, a rise in the interest rate offered by
dollar deposits causes the dollar to appreciate.
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Answer:
E
Page Ref: 398-402
Difficulty: Easy
2.
Which one of the following statements is the MOST accurate?
A)
For a given dollar interest rate and a constant expected exchange rate, a rise in the interest rate of the
euro causes the dollar to depreciate.
B)
For a fixed interest rate, a rise in the expected future exchange rate causes a rise in the current exchange
rate.
C)
For a fixed interest rate, a rise in the expected future exchange rate causes a fall in the current exchange
rate.
D)
For a fixed interest rate, a fall in the expected future exchange rate causes a rise in the current exchange
rate.
E)
For a fixed interest rate, a rise in the expected future exchange rate does not cause a change in the
current exchange rate.
Answer:
B
Page Ref: 398-402
Difficulty: Easy
3.
Discuss the effects of a rise in the dollar interest rate on the exchange rate.
Answer:
There are two effects to consider. A rise in the interest rate offered by dollar deposits combined with a
constant expected exchange rate will cause the dollar to appreciate (see Figure 14-5 from the text).
However, the expected exchange rate will likely change. As Figure 14-6 from the text shows, if the
expected exchange rate increases, the dollar will depreciate.
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Figure 14-5
Figure 14-6
Page Ref: 398-402
Difficulty: Moderate
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4.
Discuss the effects of a rise in the interest rate paid by euro deposits on the exchange rate.
Answer:
There are two effects to consider. If we make the unrealistic assumption that the expected exchange rate
will not change, then a rise in the interest rate paid by Euro deposits causes the dollar to depreciate.
However, if the expected exchange rate were to rise, then the current exchange rate would also rise. (See
Figure 14-6 from the text.)
Page Ref: 398-402
Difficulty: Moderate
5.
Explain why (holding interest rates constant), a rise in the expected depreciation in a country's currency
leads to depreciation of that currency today.
Answer:
A rise in the expected depreciation rate of the dollar raises the expected dollar return on euro deposits.
Now, there are excess supply of dollar deposits (euro deposits offer higher expected rate of return than do
dollar deposits). The dollar must depreciate to remove this excess supply.
Page Ref: 398-402
Difficulty: Moderate
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6.
Show graphically a drop in the interest rate paid by euro deposits. What is the effect on the dollar?
Answer:
A drop in the interest rate from R1$ to R2$ causes the dollar to depreciate from
(point 1). (See Figure 14-5 from the text.)
(point 2) to
Page Ref: 398-402
Difficulty: Difficult
7.
Show graphically a drop in the interest rate offered by dollar deposits, R$, and the effect on the exchange
rate,
.
Answer:
A drop in the interest rate paid by euro deposits causes the dollar to appreciate from
(point 2) to
(point 1). The expected future exchange rate also drops. (See Figure 14-6 from the text.)
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Page Ref: 398-402
Difficulty: Difficult
14.6 Appendix to Chapter 14: Forward Exchange Rates and Covered Interest Parity
1.
The covered interest rate parity condition can be stated as follows: The interest rate on dollar deposits
equals the interest rate on euro deposits ________ the forward ________ on euros against dollars.
A)
plus; premium
B)
times; premium
C)
minus; premium
D)
plus; discount
E)
minus; discount
Answer:
A
Page Ref: 408-410
Difficulty: Easy
2.
The covered interest rate parity condition can be stated as follows: The interest rate on dollar deposits
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equals the interest rate on euro deposits ________ the forward ________ on dollars against euros.
A)
plus; premium
B)
times; premium
C)
plus; discount
D)
minus; discount
E)
minus; premium
Answer:
C
Page Ref: 408-410
Difficulty: Easy
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Test bank 15 tif - multiple choice questions
International Economics (Istanbul Teknik Üniversitesi)
StuDocu is not sponsored or endorsed by any college or university
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International Economics, 10e Global Edition (Krugman/Obstfeld/Melitz)
Chapter 15 Money, Interest Rates, and Exchange Rates
15.
1Mone
yDe
fine
d:ABr
i
e
fRe
vi
e
w
1.
Thee
x
c
hanger
a
t
ebe
t
we
e
nc
ur
r
e
nc
i
e
sde
pe
ndson
A)
na
t
i
onalout
put
.
B)
t
hei
nt
e
r
e
s
tr
a
t
et
ha
tc
anbee
ar
ne
donde
pos
i
t
soft
hos
ec
ur
r
e
nc
i
e
s
.
C)
t
hee
xpe
c
t
e
df
ut
ur
ee
x
c
hanger
a
t
e
.
D)
t
hei
nt
e
r
e
s
tr
a
t
et
ha
tc
anbee
ar
ne
donde
pos
i
t
soft
hos
ec
ur
r
e
nc
i
e
sandt
hee
xpe
c
t
e
df
ut
ur
ee
x
c
hanger
a
t
e
.
E)
t
hei
nt
e
r
e
s
tr
a
t
et
ha
tc
anbee
ar
ne
donde
pos
i
t
soft
hos
ec
ount
r
i
e
sandt
hena
t
i
onalout
put
.
Ans
we
r
:
D
Pa
geRe
f
:
411-413
Di
ffic
ul
t
y:Eas
y
2.
Mone
ys
e
r
ve
sasal
loft
hef
ol
l
owi
ngEXCEPT
A)
as
t
or
eofval
ue
.
B)
auni
tofac
c
ount
.
C)
ahi
ghl
yl
i
qui
das
s
e
t
.
D)
as
ymbolt
ha
ti
smadeoforc
anber
e
de
e
me
df
orafix
e
damountofpr
e
c
i
ousme
t
al
.
E)
ame
di
um ofe
x
c
hange
.
Ans
we
r
:
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lOMoARcPSD|6749524
D
Pa
geRe
f
:
411-413
Di
ffic
ul
t
y:Eas
y
3.
Mone
yi
nc
l
ude
s
A)
c
he
c
ki
ngde
pos
i
t
she
l
dbyhous
e
hol
dsandfir
ms
.
B)
f
ut
ur
e
sandde
pos
i
t
si
nt
hef
or
e
i
gne
x
c
hangemar
ke
t
.
C)
c
ur
r
e
nc
yandc
he
c
ki
ngde
pos
i
t
she
l
dbyhous
e
hol
dsa
ndfir
ms
.
D)
c
ur
r
e
nc
y
.
E)
de
pos
i
t
si
nt
hef
or
e
i
gne
x
c
hangemar
ke
t
s
.
Ans
we
r
:
C
Pa
geRe
f
:
411-413
Di
ffic
ul
t
y:Eas
y
4.
I
nt
heUni
t
e
dSt
a
t
e
sa
tt
hee
ndof2012,t
het
ot
almone
ys
uppl
y
,M1,amount
e
dt
oappr
oxi
ma
t
e
l
y
A)
40pe
r
c
e
ntoft
ha
tye
ar
'
sGNP
.
B)
20pe
r
c
e
ntoft
ha
tye
ar
'
sGNP
.
C)
30pe
r
c
e
ntoft
ha
tye
ar
'
sGNP
.
D)
50pe
r
c
e
ntoft
ha
tye
ar
'
sGNP
.
E)
16pe
r
c
e
ntoft
ha
tye
ar
'
sGNP
.
Ans
we
r
:
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E
Pa
geRe
f
:
411-413
Di
ffic
ul
t
y:Eas
y
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5.
Wha
tar
et
hemai
nf
unc
t
i
onsofmone
y?
Ans
we
r
:
Mone
ys
e
r
ve
si
nge
ne
r
alt
hr
e
ei
mpor
t
antf
unc
t
i
ons
:ame
di
um ofe
x
c
hange
;auni
tofac
c
ount
;andas
t
or
eofval
ue
.Asa
me
di
um ofe
x
c
hange
,mone
ya
voi
dsgoi
ngbac
kt
oabar
t
e
re
c
onomy
,wi
t
ht
hee
nor
mouss
e
ar
c
hc
os
t
sc
onne
c
t
e
dwi
t
hi
t
.As
auni
tofac
c
ount
,t
heus
eofmone
ye
c
onomi
ze
sont
henumbe
rofpr
i
c
e
sani
ndi
vi
dualf
a
c
e
s
.Cons
i
de
rane
c
onomywi
t
hN
goods
,t
he
nonene
e
dsonl
y(
N - 1)pr
i
c
e
s
.Asas
t
or
eofval
ue
,t
heus
eofmone
yi
nge
ne
r
ale
ns
ur
e
st
ha
tyouc
ant
r
ans
f
e
r
we
al
t
hbe
t
we
e
npe
r
i
ods
.
Pa
geRe
f
:
411-413
Di
ffic
ul
t
y:Mode
r
a
t
e
15.
2TheDe
mandf
orMone
ybyI
ndi
vi
dual
s
1.
I
ndi
vi
dual
sbas
et
he
i
rde
mandf
oranas
s
e
ton
A)
t
hee
xpe
c
t
e
dr
e
t
ur
n,how r
i
s
kyt
ha
te
xpe
c
t
e
dr
e
t
ur
ni
s
,andt
heas
s
e
t
'
sl
i
qui
di
t
y
.
B)
t
heas
s
e
t
'
sl
i
qui
di
t
y
.
C)
t
her
i
s
ki
ne
s
soft
heas
s
e
t
'
se
xpe
c
t
e
dr
e
t
ur
n.
D)
t
hee
xpe
c
t
e
dr
e
t
ur
nt
heas
s
e
toffe
r
sc
ompar
e
dwi
t
ht
her
e
t
ur
nsoffe
r
e
dbyot
he
ras
s
e
t
s
.
E)
t
heae
s
t
he
t
i
cqual
i
t
i
e
soft
heas
s
e
t
.
Ans
we
r
:
A
Pa
geRe
f
:
414-415
Di
ffic
ul
t
y:Eas
y
2.
Af
ami
l
y'
ss
umme
rhous
eonCapeCodpa
ysar
e
t
ur
ni
nt
hef
or
m of
A)
c
api
t
algai
nsandpl
e
as
ur
e
.
B)
t
hepl
e
as
ur
eofvac
a
t
i
onsa
tt
hebe
ac
h.
C)
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lOMoARcPSD|6749524
s
t
oc
kopt
i
ons
.
D)
c
api
t
algai
ns
.
E)
i
nt
e
r
e
s
tr
a
t
e
.
Ans
we
r
:
A
Pa
geRe
f
:
414-415
Di
ffic
ul
t
y:Eas
y
3.
I
nawor
l
dwi
t
hmone
yandbondsonl
y
A)
i
ti
sr
i
s
kyt
ohol
dmone
y
.
B)
t
he
r
ei
snor
e
l
a
t
i
ons
hi
pbe
t
we
e
nr
i
s
kandhol
di
ngmone
y
.
C)
i
ti
snotr
i
s
kyt
ohol
dmone
y
.
D)
as
s
e
t
sbe
c
omeme
ani
ngl
e
s
s
.
E)
r
i
s
ki
sani
mpor
t
antf
a
c
t
ori
nt
hede
mandf
ormone
y
.
Ans
we
r
:
A
Pa
geRe
f
:
414-415
Di
ffic
ul
t
y:Eas
y
4.
Whi
c
honeoft
hef
ol
l
owi
ngs
t
a
t
e
me
nt
si
st
heMOSTa
c
c
ur
a
t
e
?
A)
Ar
i
s
ei
nt
hea
ve
r
a
geval
ueoft
r
ans
ac
t
i
onsc
ar
r
i
e
doutbyahous
e
hol
dorafir
mc
aus
e
si
t
sde
mandf
orr
e
almone
yt
or
i
s
e
.
B)
Ar
i
s
ei
nt
hea
ve
r
a
geval
ueoft
r
ans
ac
t
i
onsc
ar
r
i
e
doutbyahous
e
hol
dorafir
mc
aus
e
si
t
sde
mandf
ormone
yt
or
i
s
e
.
C)
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lOMoARcPSD|6749524
Ar
i
s
ei
nt
hea
ve
r
a
geval
ueoft
r
ans
ac
t
i
onsc
ar
r
i
e
doutbyahous
e
hol
dorafir
mc
aus
e
si
t
sde
mandf
ormone
yt
of
al
l
.
D)
Ar
e
duc
t
i
oni
nt
hea
ve
r
a
geval
ueoft
r
ans
ac
t
i
onsc
ar
r
i
e
doutbyahous
e
hol
dorafir
mc
aus
e
si
t
sde
mandf
ormone
yt
or
i
s
e
.
E)
ade
c
r
e
as
ei
nt
hea
ve
r
a
geval
ueoft
r
ans
ac
t
i
onsc
ar
r
i
e
doutbyahous
e
hol
dorafir
mc
aus
e
si
t
sde
mandf
orr
e
almone
yt
o
r
i
s
e
.
Ans
we
r
:
A
Pa
geRe
f
:
414-415
Di
ffic
ul
t
y:Eas
y
5.
Ani
ndi
vi
dual
'
sne
e
df
orl
i
qui
di
t
ywoul
di
nc
r
e
as
ei
f
A)
t
hei
ndi
vi
dualgotar
ai
s
e
.
B)
t
hei
ndi
vi
dualwant
e
dt
oa
voi
dr
i
s
ks
.
C)
t
hei
ndi
vi
dualr
e
c
e
i
ve
dane
w ATM c
ar
d.
D)
t
hea
ve
r
a
geval
ueoft
r
ans
ac
t
i
onsc
ar
r
i
e
doutbyt
hei
ndi
vi
dualr
os
e
.
E)
t
hea
ve
r
a
geval
ueoft
r
ans
ac
t
i
onsc
ar
r
i
e
doutbyt
hei
ndi
vi
dualf
e
l
l
.
Ans
we
r
:
D
Pa
geRe
f
:
414-415
Di
ffic
ul
t
y:Eas
y
6.
Wha
tar
et
hef
ac
t
or
st
ha
tde
t
e
r
mi
net
heamountofmone
yani
ndi
vi
dualde
s
i
r
e
st
ohol
d?
Ans
we
r
:
Thr
e
emai
nf
a
c
t
or
s
:fir
s
t
,t
hee
xpe
c
t
e
dr
e
t
ur
nt
hea
s
s
e
toffe
r
sc
ompar
e
dwi
t
ht
her
e
t
ur
nsoffe
r
e
dbyot
he
ras
s
e
t
s
;s
e
c
ond,t
he
r
i
s
ki
ne
s
soft
heas
s
e
t
'
se
xpe
c
t
e
dr
e
t
ur
n;andt
hi
r
d,t
heas
s
e
t
'
sl
i
qui
di
t
y
.
Pa
geRe
f
:
414-415
Di
ffic
ul
t
y:Mode
r
a
t
e
15.
3Aggr
e
ga
t
eMone
yDe
mand
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lOMoARcPSD|6749524
1.
Thea
ggr
e
ga
t
emone
yde
mandde
pe
ndson
A)
t
hei
nt
e
r
e
s
tr
a
t
e
.
B)
t
hepr
i
c
el
e
ve
l
.
C)
t
hepr
i
c
el
e
ve
landt
hel
i
qui
di
t
yoft
heas
s
e
t
.
D)
t
hei
nt
e
r
e
s
tr
a
t
e
,pr
i
c
el
e
ve
l
,andr
e
alna
t
i
onali
nc
ome
.
E)
r
e
alna
t
i
onali
nc
ome
.
Ans
we
r
:
D
Pa
geRe
f
:
415-417
Di
ffic
ul
t
y:Eas
y
2.
I
ft
he
r
ei
si
ni
t
i
al
l
yan
A)
e
x
c
e
s
ss
uppl
yofmone
y
,t
hei
nt
e
r
e
s
tr
a
t
ewi
l
lf
al
l
,andi
ft
he
r
ei
sal
s
oane
x
c
e
s
sde
mand,i
twi
l
lf
a
l
lr
api
dl
y
.
B)
e
x
c
e
s
ss
uppl
yofmone
y
,t
hei
nt
e
r
e
s
tr
a
t
ewi
l
lr
i
s
e
,andi
ft
he
r
ei
sal
s
oane
x
c
e
s
sde
mand,i
twi
l
lr
i
s
er
api
dl
y
.
C)
e
x
c
e
s
ss
uppl
yofmone
y
,t
hei
nt
e
r
e
s
tr
a
t
ewi
l
lr
i
s
e
,andi
ft
he
r
ei
si
ni
t
i
al
l
yane
x
c
e
s
sde
mand,i
twi
l
lf
al
l
.
D)
e
x
c
e
s
sde
mandf
ormone
y
,t
hei
nt
e
r
e
s
tr
a
t
ewi
l
lf
al
l
,andt
hes
uppl
yofmone
yi
twi
l
lr
i
s
e
.
E)
e
x
c
e
s
ss
uppl
yofmone
y
,t
hei
nt
e
r
e
s
tr
a
t
ewi
l
lf
al
l
,andi
ft
he
r
ei
si
ni
t
i
al
l
yane
x
c
e
s
sde
mand,i
twi
l
lr
i
s
e
.
Ans
we
r
:
E
Pa
geRe
f
:
415-417
Di
ffic
ul
t
y:Eas
y
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lOMoARcPSD|6749524
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
3.
Whi
c
honeoft
hef
ol
l
owi
ngs
t
a
t
e
me
nt
si
st
heMOSTa
c
c
ur
a
t
e
?
A)
Ade
c
r
e
as
ei
nt
hemone
ys
uppl
yl
owe
r
st
hei
nt
e
r
e
s
tr
a
t
ewhi
l
eani
nc
r
e
as
ei
nt
hemone
ys
uppl
yr
ai
s
e
st
hei
nt
e
r
e
s
tr
a
t
e
,
gi
ve
nt
hepr
i
c
el
e
ve
landout
put
.
B)
Ani
nc
r
e
as
ei
nt
hemone
ys
uppl
yl
owe
r
st
hei
nt
e
r
e
s
tr
a
t
ewhi
l
eaf
al
li
nt
hemone
ys
uppl
yr
ai
s
e
st
hei
nt
e
r
e
s
tr
a
t
e
,gi
ve
nt
he
pr
i
c
el
e
ve
landout
put
.
C)
Ani
nc
r
e
as
ei
nt
hemone
ys
uppl
yl
owe
r
st
hei
nt
e
r
e
s
tr
a
t
ewhi
l
eaf
al
li
nt
hemone
ys
uppl
yr
ai
s
e
st
hei
nt
e
r
e
s
tr
a
t
e
,gi
ve
nt
he
pr
i
c
el
e
ve
l
.
D)
Ani
nc
r
e
as
ei
nt
hemone
ys
uppl
yl
owe
r
st
hei
nt
e
r
e
s
tr
a
t
ewhi
l
eaf
al
li
nt
hemone
ys
uppl
yr
ai
s
e
st
hei
nt
e
r
e
s
tr
a
t
e
,gi
ve
nt
he
out
putl
e
ve
l
.
E)
Ani
nc
r
e
as
ei
nt
hemone
ys
uppl
ydoe
snotus
ual
l
ya
ffe
c
tt
hei
nt
e
r
e
s
tr
a
t
e
.
Ans
we
r
:
B
Pa
geRe
f
:
415-417
Di
ffic
ul
t
y:Eas
y
4.
Ani
nc
r
e
as
ei
n
A)
r
e
alout
putde
c
r
e
as
e
st
hei
nt
e
r
e
s
tr
a
t
ewhi
l
eaf
al
li
nr
e
alout
puti
nc
r
e
as
e
st
hei
nt
e
r
e
s
tr
a
t
e
,gi
ve
nt
hepr
i
c
el
e
ve
l
.
B)
nomi
nalout
putr
ai
s
e
st
hei
nt
e
r
e
s
tr
a
t
ewhi
l
eaf
al
li
nr
e
alout
putl
owe
r
st
hei
nt
e
r
e
s
tr
a
t
e
,gi
ve
nt
hepr
i
c
el
e
ve
landt
he
mone
ys
uppl
y
.
C)
r
e
alout
putr
ai
s
e
st
hei
nt
e
r
e
s
tr
a
t
ewhi
l
eaf
al
li
nr
e
alout
putl
owe
r
st
hei
nt
e
r
e
s
tr
a
t
e
,gi
ve
nt
hepr
i
c
el
e
ve
landt
hemone
y
s
uppl
y
.
D)
r
e
alout
putr
ai
s
e
st
hei
nt
e
r
e
s
tr
a
t
ewhi
l
eaf
al
li
nr
e
alout
putl
owe
r
st
hei
nt
e
r
e
s
tr
a
t
e
,gi
ve
nt
hemone
ys
uppl
y
.
E)
nomi
nalout
putr
ai
s
e
st
hei
nt
e
r
e
s
tr
a
t
ewhi
l
eaf
al
li
nr
e
alout
putl
owe
r
st
hei
nt
e
r
e
s
tr
a
t
e
,gi
ve
nt
hepr
i
c
el
e
ve
l
.
Ans
we
r
:
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lOMoARcPSD|6749524
C
Pa
geRe
f
:
415-417
Di
ffic
ul
t
y:Eas
y
5.
Thea
ggr
e
ga
t
ede
mandf
ormone
yc
anbee
xpr
e
s
s
e
dby
A)
Md= P× Y(
R,L)
.
B)
Md= P× L(
R,
Y)
.
C)
Md= L× P(
R,
Y)
.
D)
Md= R× L(
P
,
Y)
.
E)
Md= R× L(
R,P)
.
Ans
we
r
:
B
Pa
geRe
f
:
415-417
Di
ffic
ul
t
y:Eas
y
6.
Wha
tar
et
hemai
nf
a
c
t
or
st
ha
tde
t
e
r
mi
nea
ggr
e
ga
t
emone
yde
mand?
Ans
we
r
:
Thet
hr
e
emai
nf
a
c
t
or
sar
ei
nt
e
r
e
s
tr
a
t
e
,t
hepr
i
c
el
e
ve
landr
e
alna
t
i
onali
nc
ome
.Ar
i
s
ei
nt
hei
nt
e
r
e
s
tr
a
t
ec
aus
e
s
i
ndi
vi
dual
si
nt
hee
c
onomyt
or
e
duc
et
he
i
rde
mandf
ormone
y
.I
ft
hepr
i
c
el
e
ve
lr
i
s
e
s
,i
ndi
vi
dualhous
e
hol
dsandfir
ms
wi
l
ls
pe
ndmor
emone
yt
hanbe
f
or
e
.Whe
nr
e
alna
t
i
onali
nc
ome(
GNP)r
i
s
e
st
hede
mandf
ormone
ywi
l
lal
s
or
i
s
e
.
Pa
geRe
f
:
415-417
Di
ffic
ul
t
y:Mode
r
a
t
e
7.
Expl
ai
nwhyonec
anwr
i
t
et
hede
mandf
ormone
yast
hepr
i
c
el
e
ve
lt
i
me
saf
unc
t
i
onoft
hei
nt
e
r
e
s
tr
a
t
eandr
e
ali
nc
omeas
f
ol
l
ows
:
= PxL(
R,Y)
Ans
we
r
:
Thea
ggr
e
ga
t
emone
yde
mandi
spr
opor
t
i
onalt
ot
hepr
i
c
el
e
ve
l
.I
ma
gi
net
ha
tal
lpr
i
c
e
si
nane
c
onomydoubl
e
d,butt
he
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lOMoARcPSD|6749524
i
nt
e
r
e
s
tr
a
t
eande
ve
r
yone
'
sr
e
ali
nc
ome
sr
e
mai
ne
dunc
hange
d.The
n,t
hemone
yval
ueofe
ac
hi
ndi
vi
dual
'
sa
ve
r
a
gedai
l
y
t
r
ans
ac
t
i
onswoul
ds
i
mpl
ydoubl
e
,aswoul
dt
heamountofmone
ye
ac
hwi
s
he
st
ohol
d.
Pa
geRe
f
:
415-417
Di
ffic
ul
t
y:Mode
r
a
t
e
15.
4TheEqui
l
i
br
i
um I
nt
e
r
e
s
tRa
t
e
:TheI
nt
e
r
a
c
t
i
onofMone
ySuppl
yandDe
mand
1.
Thea
ggr
e
ga
t
er
e
almone
yde
mands
c
he
dul
eL(
R,
Y)
A)
s
l
ope
sdownwar
dbe
c
aus
ear
i
s
ei
nt
hei
nt
e
r
e
s
tr
a
t
emake
sc
ons
ume
r
sl
e
s
sf
oc
us
e
dont
hel
i
qui
di
t
yoft
he
i
ras
s
e
t
s
.
B)
hasaze
r
os
l
opebe
c
aus
eaf
al
li
nt
hei
nt
e
r
e
s
tr
a
t
eke
e
psc
ons
t
antt
hede
s
i
r
e
dr
e
almone
yhol
di
ngsofe
ac
hhous
e
hol
dand
fir
mi
nt
hee
c
onomy
.
C)
s
l
ope
sdownwar
dbe
c
aus
eaf
al
li
nt
hei
nt
e
r
e
s
tr
a
t
er
e
duc
e
st
hede
s
i
r
e
dr
e
almone
yhol
di
ngsofe
ac
hhous
e
hol
dandfir
mi
n
t
hee
c
onomy
.
D)
s
l
ope
sdownwar
dbe
c
aus
eaf
al
li
nt
hei
nt
e
r
e
s
tr
a
t
er
ai
s
e
st
hede
s
i
r
e
dr
e
almone
yhol
di
ngsofe
ac
hhous
e
hol
dandfir
mi
n
t
hee
c
onomy
.
E)
s
l
ope
supwar
dbe
c
aus
eaf
al
li
nt
hei
nt
e
r
e
s
tr
a
t
er
ai
s
e
st
hede
s
i
r
e
dr
e
almone
yhol
di
ngsofe
ac
hhous
e
hol
dandfir
mi
nt
he
e
c
onomy
.
Ans
we
r
:
D
Pa
geRe
f
:
417-420
Di
ffic
ul
t
y:Eas
y
2.
Foragi
ve
nl
e
ve
lof
A)
r
e
alGNP
,c
hange
si
ni
nt
e
r
e
s
tr
a
t
e
sc
aus
eade
c
r
e
as
eoft
heL(
R,
Y)s
c
he
dul
e
.
B)
r
e
alGNP
,c
hange
si
ni
nt
e
r
e
s
tr
a
t
e
sc
aus
emove
me
nt
sal
ongt
heL(
R,
Y)s
c
he
dul
e
.
C)
nomi
nalGNP
,c
hange
si
ni
nt
e
r
e
s
tr
a
t
e
sc
aus
eani
nc
r
e
as
ei
nt
heL(
R,
Y)s
c
he
dul
e
.
D)
nomi
nalGNP
,c
hange
si
ni
nt
e
r
e
s
tr
a
t
e
sc
aus
emove
me
nt
sal
ongt
heL(
R,
Y)s
c
he
dul
e
.
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
E)
r
e
alGNP
,c
hange
si
ni
nt
e
r
e
s
tr
a
t
e
sc
aus
eani
nc
r
e
as
eoft
heL(
R,
Y)s
c
he
dul
e
.
Ans
we
r
:
B
Pa
geRe
f
:
417-420
Di
ffic
ul
t
y:Eas
y
3.
Themone
ys
uppl
ys
c
he
dul
ei
s
A)
hor
i
z
ont
albe
c
aus
e
B)
ve
r
t
i
c
albe
c
aus
e
C)
hor
i
z
ont
albe
c
aus
e
D)
ve
r
t
i
c
albe
c
aus
e
E)
i
ss
e
tbyt
hec
e
nt
r
albankwhi
l
ePi
st
a
ke
nasgi
ve
n.
i
ss
e
tbyt
hec
e
nt
r
albankwhi
l
ePi
st
a
ke
nasgi
ve
n.
i
ss
e
tbyt
hec
e
nt
r
albank.
andPar
es
e
tbyt
hec
e
nt
r
albank.
ve
r
t
i
c
albe
c
aus
e i
ss
e
tbyt
hehous
e
hol
dsandfir
mswhi
l
ePi
st
ake
nasgi
ve
n.
Ans
we
r
:
B
Pa
geRe
f
:
417-420
Di
ffic
ul
t
y:Eas
y
4.
I
fi
ndi
vi
dual
sar
ehol
di
ngmor
emone
yt
hant
he
yde
s
i
r
e
A)
t
he
ywi
l
la
t
t
e
mptt
or
e
duc
et
he
i
rl
i
qui
di
t
ybyus
i
ngmone
yt
opur
c
has
ei
nt
e
r
e
s
t
-be
ar
i
ngas
s
e
t
s
.
B)
t
he
ywi
l
lke
e
pt
he
i
rhol
di
ngsc
ons
t
ant
.
C)
t
he
ywi
l
la
t
t
e
mptt
or
e
duc
et
he
i
rl
i
qui
di
t
ybyus
i
ngmone
yt
opur
c
has
egoods
.
D)
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t
he
ywi
l
la
t
t
e
mptt
or
e
duc
et
he
i
rl
i
qui
di
t
ybyc
onve
r
t
i
ngr
e
almone
yhol
di
ngsi
nt
onomi
nalmone
yhol
di
ngs
.
Ans
we
r
:
A
Pa
geRe
f
:
417-420
Di
ffic
ul
t
y:Eas
y
5.
I
ft
he
r
ei
sane
x
c
e
s
ss
uppl
yofmone
y
A)
t
her
e
almone
ys
uppl
ys
hi
f
t
sl
e
f
tt
omakeane
qui
l
i
br
i
um.
B)
t
hei
nt
e
r
e
s
tr
a
t
er
i
s
e
s
.
C)
t
hei
nt
e
r
e
s
tr
a
t
es
t
a
ysc
ons
t
ant
,butc
ons
ume
rc
onfide
nc
ef
al
t
e
r
s
.
D)
t
her
e
almone
ys
uppl
ys
hi
f
t
sr
i
ghtt
omakeane
qui
l
i
br
i
um.
E)
t
hei
nt
e
r
e
s
tr
a
t
ef
al
l
s
.
Ans
we
r
:
E
Pa
geRe
f
:
417-420
Di
ffic
ul
t
y:Eas
y
6.
Ar
e
duc
t
i
oni
nac
ount
r
y'
smone
ys
uppl
yc
aus
e
s
A)
affe
c
t
sot
he
rc
ount
r
i
e
sc
ur
r
e
nc
yi
nt
hef
or
e
i
gnmar
ke
t
.
B)
doe
sa
ffe
c
ti
t
sc
ur
r
e
nc
yi
nt
hef
or
e
i
gnmar
ke
ti
nanambi
guousmanor
.
C)
doe
snotaffe
c
ti
t
sc
ur
r
e
nc
yi
nt
hef
or
e
i
gnmar
ke
t
.
D)
i
t
sc
ur
r
e
nc
yt
ode
pr
e
c
i
a
t
ei
nt
hef
or
e
i
gne
x
c
hangemar
ke
t
.
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lOMoARcPSD|6749524
E)
i
t
sc
ur
r
e
nc
yt
oappr
e
c
i
a
t
ei
nt
hef
or
e
i
gne
x
c
hangemar
ke
t
.
Ans
we
r
:
E
Pa
geRe
f
:
417-420
Di
ffic
ul
t
y:Eas
y
7.
Wha
twi
l
lbet
hee
ffe
c
t
sofani
nc
r
e
as
ei
nt
hemone
ys
uppl
yont
hei
nt
e
r
e
s
tr
a
t
e
?
Ans
we
r
:
Ani
nc
r
e
as
ei
nt
hemone
ys
uppl
ywi
l
lc
aus
ei
nt
e
r
e
s
tr
a
t
et
ode
c
r
e
as
e
.Thi
ss
houl
di
nc
r
e
as
ei
nve
s
t
me
ntandpos
s
i
bl
y
c
ons
umpt
i
onofdur
abl
egoods
.Ther
e
duc
t
i
oni
nt
hei
nt
e
r
e
s
tr
a
t
ewi
l
lc
aus
eade
pr
e
c
i
a
t
i
onoft
hedol
l
ar
.
Pa
geRe
f
:
417-420
Di
ffic
ul
t
y:Mode
r
a
t
e
8.
Wha
twi
l
lbet
hee
ffe
c
t
sofani
nc
r
e
as
ei
nr
e
alout
putont
hei
nt
e
r
e
s
tr
a
t
e
?
Ans
we
r
:
Ani
nc
r
e
as
ei
nr
e
alout
putwi
l
li
nc
r
e
as
et
hei
nt
e
r
e
s
tr
a
t
e
.I
fi
nve
s
t
me
ntde
pe
ndsonl
yoni
nt
e
r
e
s
tr
a
t
e
,t
hi
swi
l
lc
aus
e
i
nve
s
t
me
ntt
ogodown.Thei
nc
r
e
as
e
si
nt
e
r
e
s
tr
a
t
ewi
l
lc
aus
eanappr
e
c
i
a
t
i
onoft
hedol
l
ar
.
Pa
geRe
f
:
417-420
Di
ffic
ul
t
y:Mode
r
a
t
e
15.
5TheMone
ySuppl
yandt
heEx
c
hangeRa
t
ei
nt
heShor
tRun
1.
Ani
nc
r
e
as
ei
nac
ount
r
y'
smone
ys
uppl
yc
aus
e
s
A)
i
t
sc
ur
r
e
nc
yt
ode
pr
e
c
i
a
t
ei
nt
hedome
s
t
i
cmar
ke
ta
ndappr
e
c
i
a
t
ei
nt
hef
or
e
i
gnmar
ke
t
.
B)
i
t
sc
ur
r
e
nc
yt
oappr
e
c
i
a
t
ei
nt
hef
or
e
i
gne
x
c
hangemar
ke
twhi
l
ear
e
duc
t
i
oni
nt
hemone
ys
uppl
yc
aus
e
si
t
sc
ur
r
e
nc
yt
o
de
pr
e
c
i
a
t
e
.
C)
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lOMoARcPSD|6749524
noe
ffe
c
tont
heval
ue
sofi
tc
ur
r
e
nc
yi
ni
nt
e
r
na
t
i
onalmar
ke
t
s
.
D)
i
t
sc
ur
r
e
nc
yt
ode
pr
e
c
i
a
t
ei
nt
hef
or
e
i
gne
x
c
hangemar
ke
twhi
l
ear
e
duc
t
i
oni
nt
hemone
ys
uppl
yc
aus
e
si
t
sc
ur
r
e
nc
yt
o
f
ur
t
he
rde
pr
e
c
i
a
t
e
.
E)
i
t
sc
ur
r
e
nc
yt
ode
pr
e
c
i
a
t
ei
nt
hef
or
e
i
gne
x
c
hangemar
ke
twhi
l
ear
e
duc
t
i
oni
nt
hemone
ys
uppl
yc
aus
e
si
t
sc
ur
r
e
nc
yt
o
appr
e
c
i
a
t
e
.
Ans
we
r
:
E
Pa
geRe
f
:
421-426
Di
ffic
ul
t
y:Eas
y
2.
Whi
c
honeoft
hef
ol
l
owi
ngs
t
a
t
e
me
nt
si
st
heMOSTa
c
c
ur
a
t
e
?
A)
Gi
ve
nYUS,whe
nt
hemone
ys
uppl
yr
i
s
e
s
,t
hedol
l
a
ri
nt
e
r
e
s
tr
a
t
ede
c
l
i
ne
sandt
hedol
l
arde
pr
e
c
i
a
t
e
sa
gai
ns
tt
hee
ur
o.
B)
Gi
ve
nPUSandYUS,whe
nt
hemone
ys
uppl
yde
c
r
e
as
e
s
,t
hedol
l
ari
nt
e
r
e
s
tr
a
t
ede
c
l
i
ne
sandt
hedol
l
a
rde
pr
e
c
i
a
t
e
sa
gai
ns
t
t
hee
ur
o.
C)
Gi
ve
nPUS,whe
nt
hemone
ys
uppl
yr
i
s
e
s
,t
hedol
l
a
ri
nt
e
r
e
s
tr
a
t
ede
c
l
i
ne
sandt
hedol
l
arde
pr
e
c
i
a
t
e
sa
gai
ns
tt
hee
ur
o.
D)
Gi
ve
nPUSandYUS,whe
nt
hemone
ys
uppl
yr
i
s
e
s
,t
hedol
l
a
ri
nt
e
r
e
s
tr
a
t
ede
c
l
i
ne
sandt
hedol
l
arappr
e
c
i
a
t
e
sa
gai
ns
tt
he
e
ur
o.
E)
Gi
ve
nPUSandYUS,whe
nt
hemone
ys
uppl
yr
i
s
e
s
,t
hedol
l
a
ri
nt
e
r
e
s
tr
a
t
ede
c
l
i
ne
sandt
hedol
l
arde
pr
e
c
i
a
t
e
sa
gai
ns
tt
he
e
ur
o.
Ans
we
r
:
E
Pa
geRe
f
:
421-426
Di
ffic
ul
t
y:Eas
y
3.
Gi
ve
nPUSandYUS
A)
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lOMoARcPSD|6749524
Ani
nc
r
e
as
ei
nt
heEur
ope
anmone
ys
uppl
yc
aus
e
st
hee
ur
ot
oappr
e
c
i
a
t
ea
gai
ns
tt
hedol
l
ar
,buti
tdoe
snotdi
s
t
ur
bt
heU.
S.
mone
ymar
ke
te
qui
l
i
br
i
um.
B)
Ani
nc
r
e
as
ei
nt
heEur
ope
anmone
ys
uppl
yc
aus
e
st
hee
ur
ot
ode
pr
e
c
i
a
t
ea
gai
ns
tt
hedol
l
ar
,anddi
s
t
ur
bi
ngt
heU.
S.mone
y
mar
ke
te
qui
l
i
br
i
um.
C)
Ani
nc
r
e
as
ei
nt
heEur
ope
anmone
ys
uppl
yc
aus
e
st
hee
ur
ot
ode
pr
e
c
i
a
t
ea
gai
ns
tt
hedol
l
ar
,andi
tc
r
e
a
t
e
se
x
c
e
s
sde
mand
f
ordol
l
ar
si
nt
heU.
S.mone
ymar
ke
t
.
D)
Ani
nc
r
e
as
ei
nt
heEur
ope
anmone
ys
uppl
yc
aus
e
st
hee
ur
ot
oappr
e
c
i
a
t
ea
gai
ns
tt
hedol
l
ar
,andi
tc
r
e
a
t
e
se
x
c
e
s
sde
mand
f
ordol
l
ar
si
nt
heU.
S.mone
ymar
ke
t
.
E)
Ani
nc
r
e
as
ei
nt
heEur
ope
anmone
ys
uppl
yc
aus
e
st
hee
ur
ot
ode
pr
e
c
i
a
t
ea
gai
ns
tt
hedol
l
ar
,buti
tdoe
snotdi
s
t
ur
bt
heU.
S.
mone
ymar
ke
te
qui
l
i
br
i
um.
Ans
we
r
:
E
Pa
geRe
f
:
421-426
Di
ffic
ul
t
y:Eas
y
4.
Anal
yzet
hee
ffe
c
t
sofani
nc
r
e
as
ei
nt
heEur
ope
anmone
ys
uppl
yont
hedol
l
ar
/e
ur
oe
x
c
hanger
a
t
e
.
Ans
we
r
:
Themai
npoi
nt
sar
e
:Ani
nc
r
e
as
ei
nt
heEur
ope
anmone
ys
uppl
ywi
l
lr
e
duc
et
hei
nt
e
r
e
s
tr
a
t
eont
hee
ur
o,andt
husc
aus
e
s
t
hee
ur
ot
ode
pr
e
c
i
a
t
e
sa
gai
ns
tt
hedol
l
ar
.TheU.
S.mone
yde
mandandmone
ys
uppl
yar
enotgoi
ngt
obeaffe
c
t
e
d,and
t
hust
hei
nt
e
r
e
s
tr
a
t
ei
nt
heU.
S.wi
l
lr
e
mai
nt
hes
ame
.
Pa
geRe
f
:
421-426
Di
ffic
ul
t
y:Mode
r
a
t
e
5.
Expl
ai
nhow t
hemone
ymar
ke
t
soft
woc
ount
r
i
e
sar
el
i
nke
dt
hr
ought
hef
or
e
i
gne
x
c
hangemar
ke
t
.
Ans
we
r
:
Themone
t
ar
ypol
i
c
yac
t
i
onsbyt
heFe
da
ffe
c
tt
heU.
S.i
nt
e
r
e
s
tr
a
t
e
,c
hangi
ngt
hedol
l
ar
/e
ur
oe
x
c
hanger
a
t
et
ha
tc
l
e
ar
st
he
f
or
e
i
gne
x
c
hangemar
ke
t
.TheEur
ope
anS
ys
t
e
m ofCe
nt
r
alBanks(
ESCB)c
anaffe
c
tt
hee
x
c
hanger
a
t
ebyc
hangi
ngt
he
Eur
ope
anmone
ys
uppl
yandi
nt
e
r
e
s
tr
a
t
e
.
Pa
geRe
f
:
421-426
Di
ffic
ul
t
y:Mode
r
a
t
e
6.
Wha
twoul
dbet
hee
ffe
c
tofani
nc
r
e
as
ei
nt
heEur
ope
anMone
ySuppl
yi
nt
heDol
l
a
rEur
oEx
c
hangeRa
t
e
?
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lOMoARcPSD|6749524
Ans
we
r
:
Ani
nc
r
e
as
ei
nt
heEur
ope
anmone
ys
uppl
yl
owe
r
st
hedol
l
arr
e
t
ur
nonEur
ode
pos
i
t
s
,i
.
e
.t
hedol
l
a
rappr
e
c
i
a
t
e
sa
gai
ns
t
t
heEur
o.The
r
ei
snoc
hangei
nt
heUSmone
ymar
ke
t
.
Pa
geRe
f
:
421-426
Di
ffic
ul
t
y:Mode
r
a
t
e
7.
Us
i
ngafigur
ede
s
c
r
i
bi
ngbot
ht
heU.
S.mone
ymar
ke
tandt
hef
or
e
i
gne
x
c
hangemar
ke
t
,ana
l
yzet
hee
ffe
c
t
sofat
e
mpor
ar
y
i
nc
r
e
as
ei
nt
heEur
ope
anmone
ys
uppl
yont
hedol
l
ar
/e
ur
oe
x
c
hanger
a
t
e
.
Ans
we
r
:
Ani
nc
r
e
as
ei
nt
heEur
ope
anmone
ys
uppl
ywi
l
lr
e
duc
et
hei
nt
e
r
e
s
tr
a
t
eont
hee
ur
oandt
huswi
l
lc
aus
et
hes
c
he
dul
eof
t
hee
xpe
c
t
e
de
ur
or
e
t
ur
ne
xpr
e
s
s
e
si
ndol
l
ar
st
os
hi
f
tdown,c
aus
i
ngar
e
duc
t
i
oni
nt
hedol
l
ar
/e
ur
oe
x
c
hanger
a
t
e
,i
.
e
.
,an
appr
e
c
i
a
t
i
onoft
heU.
S.Dol
l
ar
.Thee
ur
ode
pr
e
c
i
a
t
e
sa
gai
ns
tt
hedol
l
ar
.TheU.
S.mone
yde
mandandmone
ys
uppl
yar
e
notgoi
ngt
obeaffe
c
t
e
d,andt
hust
hei
nt
e
r
e
s
tr
a
t
ei
nt
heU.
S.wi
l
lr
e
mai
nt
hes
ame
.
Pa
geRe
f
:
421-426
Di
ffic
ul
t
y:Mode
r
a
t
e
8.
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
Us
i
ngafigur
ede
s
c
r
i
bi
ngbot
ht
heU.
S.mone
ymar
ke
tandt
hef
or
e
i
gne
x
c
hangemar
ke
t
,ana
l
yzet
hee
ffe
c
t
sofani
nc
r
e
as
e
i
nt
heU.
S.mone
ys
uppl
yont
hedol
l
ar
/e
ur
oe
x
c
hanger
a
t
e
.
Ans
we
r
:
Ani
nc
r
e
as
ei
nt
heU.
S.mone
ys
uppl
ywi
l
lc
aus
ei
nt
e
r
e
s
tr
a
t
et
ode
c
r
e
as
e
.Thi
ss
houl
di
nc
r
e
as
ei
nve
s
t
me
ntandpos
s
i
bl
y
c
ons
umpt
i
onofdur
abl
egoods
.Ther
e
duc
t
i
oni
nt
hei
nt
e
r
e
s
tr
a
t
ewi
l
lc
aus
eamove
me
ntt
ot
hel
e
f
tal
ongt
hes
c
he
dul
e
de
pi
c
t
i
ngt
hee
xpe
c
t
e
de
ur
or
e
t
ur
ne
xpr
e
s
s
e
di
ndol
l
ar
.Ther
e
s
ul
ti
sani
nc
r
e
as
ei
nEorade
pr
e
c
i
a
t
i
onoft
hedol
l
ar
.
Pa
geRe
f
:
421-426
Di
ffic
ul
t
y:Mode
r
a
t
e
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
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9.
Expl
ai
nt
hef
ol
l
owi
ngfigur
e
.
Ans
we
r
:
Thefigur
ee
xpl
ai
nshow t
hemone
ymar
ke
t
soft
woc
ount
r
i
e
sar
el
i
nke
dt
hr
ought
hef
or
e
i
gne
x
c
hangemar
ke
t
.The
mone
t
ar
ypol
i
c
yac
t
i
onsbyt
heFe
da
ffe
c
tt
heU.
S.i
nt
e
r
e
s
tr
a
t
e
,c
hangi
ngt
hedol
l
a
r
/e
ur
oe
x
c
hanger
a
t
et
ha
tc
l
e
ar
st
he
f
or
e
i
gne
x
c
hangemar
ke
t
.TheEur
ope
anS
ys
t
e
m ofCe
nt
r
alBanks(
ESCB)c
anaffe
c
tt
hee
x
c
hanger
a
t
ebyc
hangi
ngt
he
Eur
ope
anmone
ys
uppl
yandi
nt
e
r
e
s
tr
a
t
e
.
Pa
geRe
f
:
421-426
Di
ffic
ul
t
y:Mode
r
a
t
e
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
10.
Combi
neagr
aphs
howi
ngt
hei
nt
e
r
e
s
tpar
i
t
yc
ondi
t
i
onandones
howi
ngmone
yde
mandands
uppl
yt
ode
mons
t
r
a
t
e
s
i
mul
t
ane
ouse
qui
l
i
br
i
um i
nt
hemone
ymar
ke
tandt
hef
or
e
i
gne
x
c
hangemar
ke
t
.
How woul
dani
nc
r
e
as
ei
nt
heU.
S.mone
ys
uppl
ya
ffe
c
tt
heDol
l
ar
/Eur
oe
x
c
hanger
a
t
eandt
heU.
S.i
nt
e
r
e
s
tr
a
t
e
?I
l
l
us
t
r
a
t
e
yourans
we
rgr
aphi
c
al
l
yande
xpl
ai
n.
Ans
we
r
:
Abovet
heaxi
si
sde
pi
c
t
e
dt
hef
or
e
i
gne
x
c
hangemar
ke
t
,whe
r
ec
hange
si
nt
her
a
t
eofr
e
t
ur
nont
hedol
l
arar
emappe
di
nt
o
c
hange
si
nt
hee
x
c
hanger
a
t
e
.Be
l
ow t
heaxi
si
sde
pi
c
t
e
dt
heU.
S.mone
ymar
ke
tands
howst
her
e
l
a
t
i
onbe
t
we
e
nt
her
a
t
eof
r
e
t
ur
nont
hedol
l
arandU.
S.r
e
almone
yhol
di
ngs
.Theme
c
hani
s
m wor
ksasf
ol
l
ows
.Cons
i
de
rani
nc
r
e
as
ei
nt
heU.
S.r
e
al
mone
yhol
di
ngs
.Suppl
yandde
manddi
c
t
a
t
et
ha
tt
hede
mandf
ormone
ymus
ti
nc
r
e
as
e
,s
ot
her
a
t
eofr
e
t
ur
nmus
tl
owe
rt
o
e
qui
l
i
br
a
t
ea
tpoi
nt2.Thel
owe
rr
a
t
eofr
e
t
ur
nont
hedol
l
arwi
l
lc
aus
et
hedol
l
a
rt
ode
pr
e
c
i
a
t
e(
e
x
c
hanger
a
t
emove
st
o
poi
nt )
.
Pa
geRe
f
:
421-426
Di
ffic
ul
t
y:Mode
r
a
t
e
15.
6Mone
y
,t
hePr
i
c
eLe
ve
l
,andt
heEx
c
hangeRa
t
ei
nt
heLongRun
1.
Ane
c
onomy'
sl
ong-r
une
qui
l
i
br
i
um i
s
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lOMoARcPSD|6749524
A)
t
hee
qui
l
i
br
i
um t
ha
twoul
doc
c
uri
fpr
i
c
e
swe
r
epe
r
f
e
c
t
l
yfle
xi
bl
eandal
wa
ysa
dj
us
t
e
di
mme
di
a
t
e
l
y
.
B)
t
hee
qui
l
i
br
i
um t
ha
twoul
doc
c
uri
fpr
i
c
e
swe
r
epe
r
f
e
c
t
l
yfix
e
da
tt
hef
ul
le
mpl
oyme
ntpoi
nt
.
C)
t
hee
qui
l
i
br
i
um t
ha
twoul
doc
c
uri
fpr
i
c
e
swe
r
epe
r
f
e
c
t
l
yfix
e
dt
opr
e
s
e
r
vef
ul
le
mpl
oyme
nt
.
D)
t
hee
qui
l
i
br
i
um t
ha
twoul
doc
c
uri
fpr
i
c
e
swe
r
epe
r
f
e
c
t
l
yfle
xi
bl
eandal
wa
ysa
dj
us
t
e
di
mme
di
a
t
e
l
yt
opr
e
s
e
r
vef
ul
l
e
mpl
oyme
nt
.
E)
t
hee
qui
l
i
br
i
um t
ha
twoul
doc
c
uri
fpr
i
c
e
swe
r
epe
r
f
e
c
t
l
yfle
xi
bl
e
.
Ans
we
r
:
D
Pa
geRe
f
:
426-429
Di
ffic
ul
t
y:Eas
y
2.
Ape
r
mane
nti
nc
r
e
as
ei
nac
ount
r
y'
smone
ys
uppl
y
A)
l
e
a
ve
si
t
spr
i
c
el
e
ve
lc
ons
t
anti
nl
ong-r
une
qui
l
i
br
i
um.
B)
c
aus
e
sapr
opor
t
i
onali
nc
r
e
as
ei
ni
t
spr
i
c
el
e
ve
l
.
C)
c
aus
e
sal
e
s
st
hanpr
opor
t
i
onali
nc
r
e
as
ei
ni
t
spr
i
c
el
e
ve
l
.
D)
c
aus
e
samor
et
hanpr
opor
t
i
onali
nc
r
e
as
ei
ni
t
spr
i
c
el
e
ve
l
.
E)
c
aus
e
sani
nve
r
s
e
l
ypr
opor
t
i
onalf
al
li
ni
t
spr
i
c
el
e
ve
l
.
Ans
we
r
:
B
Pa
geRe
f
:
426-429
Di
ffic
ul
t
y:Eas
y
3.
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lOMoARcPSD|6749524
Ac
hangei
nt
hel
e
ve
loft
hes
uppl
yofmone
y
A)
de
c
r
e
as
e
st
hel
ong-r
unval
ue
soft
hei
nt
e
r
e
s
tr
a
t
eandr
e
alout
put
.
B)
hasnoe
ffe
c
tont
hel
ong-r
unval
ue
soft
hei
nt
e
r
e
s
tr
a
t
eandr
e
alout
put
.
C)
hasnoe
ffe
c
tont
hel
ong-r
unval
ue
soft
hei
nt
e
r
e
s
tr
a
t
e
,butma
yaffe
c
tr
e
alout
put
.
D)
hasnoe
ffe
c
tont
hel
ong-r
unval
ue
sofr
e
alout
put
,butma
yaffe
c
tt
hei
nt
e
r
e
s
tr
a
t
e
.
E)
i
nc
r
e
as
e
st
hel
ong-r
unval
ue
soft
hei
nt
e
r
e
s
tr
a
t
eandr
e
alout
put
.
Ans
we
r
:
B
Pa
geRe
f
:
426-429
Di
ffic
ul
t
y:Eas
y
4.
Change
si
nt
hemone
ys
uppl
ygr
owt
hr
a
t
e
A)
ne
e
dnotbene
ut
r
ali
nt
hel
ongr
un.
B)
ne
e
dnotbene
ut
r
ali
nt
hes
hor
tr
un.
C)
ar
ene
ut
r
ali
nt
hel
ongr
un.
D)
affe
c
tt
her
e
alout
putoft
hee
c
onomy
.
E)
ar
ene
ut
r
ali
nt
hes
hor
tr
un.
Ans
we
r
:
A
Pa
geRe
f
:
426-429
Di
ffic
ul
t
y:Eas
y
5.
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lOMoARcPSD|6749524
As
us
t
ai
ne
dc
hangei
nt
hemone
t
ar
ygr
owt
hr
a
t
ewi
l
l
A)
e
ve
nt
ual
l
yaffe
c
te
qui
l
i
br
i
um r
e
almone
ybal
anc
e
sbyr
e
duc
i
ngt
hemone
yi
nt
e
r
e
s
tr
a
t
e
.
B)
e
ve
nt
ual
l
yaffe
c
te
qui
l
i
br
i
um r
e
almone
ybal
anc
e
sbyr
ai
s
i
ngt
her
e
ali
nt
e
r
e
s
tr
a
t
e
.
C)
e
ve
nt
ual
l
yaffe
c
te
qui
l
i
br
i
um nomi
nalmone
ybal
anc
e
sbyr
ai
s
i
ngt
hemone
yi
nt
e
r
e
s
tr
a
t
e
.
D)
i
mme
di
a
t
e
l
yaffe
c
te
qui
l
i
br
i
um r
e
almone
ybal
anc
e
sbyr
ai
s
i
ngt
hemone
yi
nt
e
r
e
s
tr
a
t
e
.
E)
e
ve
nt
ual
l
yaffe
c
te
qui
l
i
br
i
um r
e
almone
ybal
anc
e
sbyr
ai
s
i
ngt
hemone
yi
nt
e
r
e
s
tr
a
t
e
.
Ans
we
r
:
E
Pa
geRe
f
:
426-429
Di
ffic
ul
t
y:Eas
y
6.
Mone
yde
mandbe
ha
vi
orma
y
A)
notc
hangeasar
e
s
ul
tofde
mogr
aphi
ct
r
e
ndsorfina
nc
i
ali
nnova
t
i
onss
uc
hase
l
e
c
t
r
oni
cc
as
h-t
r
ans
f
e
rf
ac
i
l
i
t
i
e
s
.
B)
c
hangeonl
yasar
e
s
ul
tofde
mogr
aphi
ct
r
e
nds
.
C)
c
hangeasar
e
s
ul
tofde
mogr
aphi
ct
r
e
ndsbutnotasar
e
s
ul
toffinanc
i
ali
nnova
t
i
onss
uc
hase
l
e
c
t
r
oni
cc
as
h-t
r
ans
f
e
r
f
ac
i
l
i
t
i
e
s
.
D)
c
hangeonl
yasar
e
s
ul
toffinanc
i
ali
nnova
t
i
onss
uc
hase
l
e
c
t
r
oni
cc
as
h-t
r
ans
f
e
rf
ac
i
l
i
t
i
e
s
.
E)
c
hangeasar
e
s
ul
tofde
mogr
aphi
ct
r
e
ndsorfinanc
i
a
li
nnova
t
i
onss
uc
hase
l
e
c
t
r
oni
cc
as
h-t
r
ans
f
e
rf
ac
i
l
i
t
i
e
s
.
Ans
we
r
:
E
Pa
geRe
f
:
426-429
Di
ffic
ul
t
y:Eas
y
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lOMoARcPSD|6749524
7.
Us
i
ngye
ar
-by-ye
a
rda
t
af
r
om 1987-2007s
howst
ha
t
A)
t
he
r
ei
sas
t
r
ongpos
i
t
i
ver
e
l
a
t
i
onbe
t
we
e
na
ve
r
a
geLa
t
i
nAme
r
i
c
anmone
y-s
uppl
ygr
owt
handde
fla
t
i
on.
B)
t
he
r
ei
sawe
akpos
i
t
i
ver
e
l
a
t
i
onbe
t
we
e
na
ve
r
a
geLa
t
i
nAme
r
i
c
anmone
y-s
uppl
ygr
owt
handi
nfla
t
i
on.
C)
t
he
r
ei
sas
t
r
ongpos
i
t
i
ver
e
l
a
t
i
onbe
t
we
e
na
ve
r
a
geLa
t
i
nAme
r
i
c
anmone
y-s
uppl
ygr
owt
handi
nfla
t
i
on.
D)
i
ti
sdi
ffic
ul
tt
ofindas
t
r
ongpos
i
t
i
ver
e
l
a
t
i
onbe
t
we
e
na
ve
r
a
geLa
t
i
nAme
r
i
c
anmone
y-s
uppl
ygr
owt
handi
nfla
t
i
on.
E)
t
he
r
ei
sas
t
r
ongne
ga
t
i
ver
e
l
a
t
i
onbe
t
we
e
na
ve
r
a
geLa
t
i
nAme
r
i
c
anmone
y-s
uppl
ygr
owt
handi
nfla
t
i
on.
Ans
we
r
:
C
Pa
geRe
f
:
426-429
Di
ffic
ul
t
y:Eas
y
8.
Whi
c
honeoft
hef
ol
l
owi
ngs
t
a
t
e
me
nt
si
st
heMOSTa
c
c
ur
a
t
e
?
A)
Ape
r
mane
nti
nc
r
e
as
ei
nac
ount
r
y'
smone
ys
uppl
yc
a
us
e
sapr
opor
t
i
onall
ong-r
unde
pr
e
c
i
a
t
i
onofi
t
sc
ur
r
e
nc
ya
gai
ns
t
f
or
e
i
gnc
ur
r
e
nc
i
e
s
.
B)
Ape
r
mane
nti
nc
r
e
as
ei
nac
ount
r
y'
smone
ys
uppl
yc
a
us
e
sapr
opor
t
i
onall
ong-r
unappr
e
c
i
a
t
i
onofi
t
sc
ur
r
e
nc
ya
gai
ns
t
f
or
e
i
gnc
ur
r
e
nc
i
e
s
.
C)
Ape
r
mane
nti
nc
r
e
as
ei
nac
ount
r
y'
smone
ys
uppl
yc
a
us
e
sapr
opor
t
i
onals
hor
t
-r
unde
pr
e
c
i
a
t
i
onofi
t
sc
ur
r
e
nc
ya
gai
ns
t
f
or
e
i
gnc
ur
r
e
nc
i
e
s
.
D)
At
e
mpor
ar
yi
nc
r
e
as
ei
nac
ount
r
y'
smone
ys
uppl
yc
aus
e
sapr
opor
t
i
onall
ong-r
unde
pr
e
c
i
a
t
i
onofi
t
sc
ur
r
e
nc
ya
gai
ns
t
f
or
e
i
gnc
ur
r
e
nc
i
e
s
.
E)
Ape
r
mane
nti
nc
r
e
as
ei
nac
ount
r
y'
smone
ys
uppl
yc
a
us
e
sapr
opor
t
i
onals
hor
t
-r
unappr
e
c
i
a
t
i
onofi
t
sc
ur
r
e
nc
ya
gai
ns
t
f
or
e
i
gnc
ur
r
e
nc
i
e
s
.
Ans
we
r
:
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
A
Pa
geRe
f
:
426-429
Di
ffic
ul
t
y:Eas
y
9.
Thel
ongr
une
ffe
c
t
sofmone
ys
uppl
yc
hange
A)
pr
opor
t
i
onale
ffe
c
tont
hel
ong-r
unval
ue
soft
hei
nt
e
r
e
s
tr
a
t
eorr
e
alout
put
,apr
opor
t
i
onalc
hangei
nt
hepr
i
c
el
e
ve
l
'
sl
ongr
unval
uei
nt
hes
amedi
r
e
c
t
i
on.
B)
ambi
guouse
ffe
c
tont
hel
ong-r
unval
ue
soft
hei
nt
e
r
e
s
tr
a
t
eorr
e
alout
put
,Adi
s
pr
opor
t
i
onalc
hangei
nt
hepr
i
c
el
e
ve
l
'
s
l
ong-r
unval
uei
nt
hes
amedi
r
e
c
t
i
on.
C)
noe
ffe
c
tont
hel
ong-r
unval
ue
soft
hei
nt
e
r
e
s
tr
a
t
eorr
e
alout
put
,noc
hangei
nt
hepr
i
c
el
e
ve
l
'
sl
ong-r
unval
ue
.
D)
ambi
guouse
ffe
c
tont
hel
ong-r
unval
ue
soft
hei
nt
e
r
e
s
tr
a
t
eorr
e
alout
put
,apr
opor
t
i
onalc
hangei
nt
hepr
i
c
el
e
ve
l
'
sl
ongr
unval
uei
nt
heoppos
i
t
edi
r
e
c
t
i
on.
E)
noe
ffe
c
tont
hel
ong-r
unval
ue
soft
hei
nt
e
r
e
s
tr
a
t
eorr
e
alout
put
,apr
opor
t
i
onalc
hangei
nt
hepr
i
c
el
e
ve
l
'
sl
ong-r
unval
ue
i
nt
hes
amedi
r
e
c
t
i
on.
Ans
we
r
:
E
Pa
geRe
f
:
426-429
Di
ffic
ul
t
y:Eas
y
15.
7I
nfla
t
i
onandEx
c
hangeRa
t
eDynami
c
s
1.
Wha
tt
e
r
m me
ansane
xpl
os
i
veands
e
e
mi
ngl
yunc
ont
r
ol
l
abl
ei
nfla
t
i
oni
nwhi
c
hmone
yl
os
e
sval
uer
api
dl
yandma
ye
ve
n
gooutofus
e
?
A)
de
fla
t
i
on
B)
s
t
a
gfla
t
i
on
C)
ma
gi
nfla
t
i
on
D)
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
s
upe
r
i
nfla
t
i
on
E)
hype
r
i
nfla
t
i
on
Ans
we
r
:
E
Pa
geRe
f
:
430-437
Di
ffic
ul
t
y:Eas
y
2.
Themos
te
xt
r
e
mei
nfla
t
i
onar
yc
ondi
t
i
onsoc
c
ur
r
e
d
A)
i
nEas
t
e
r
nEur
opei
nt
he1990s
.
B)
i
nChi
l
ei
n2012.
C)
i
nWe
s
t
e
r
nEur
opei
nt
he1980s
.
D)
i
nZi
mbabwei
n2008.
E)
i
nGe
r
manyi
n20013.
Ans
we
r
:
D
Pa
geRe
f
:
430-437
Di
ffic
ul
t
y:Eas
y
3.
Formai
ni
ndus
t
r
i
alc
ount
r
i
e
ss
uc
hasJ
apanandt
heU.
S.
A)
i
ti
shar
dt
ot
e
l
lwhe
t
he
rmont
h-t
o-mont
hvar
i
abi
l
i
t
yoft
hee
x
c
hanger
a
t
ei
ss
i
mi
l
art
oc
hange
si
npr
i
c
el
e
ve
l
s
.
B)
t
he
r
ei
smuc
hmor
emont
h-t
o-mont
hvar
i
abi
l
i
t
yoft
hee
x
c
hanger
a
t
e
,s
ugge
s
t
i
ngt
ha
tpr
i
c
el
e
ve
l
sar
er
e
l
a
t
i
ve
l
ys
t
i
c
kyi
nt
he
l
ongr
un.
C)
t
he
r
ei
smuc
hmor
emont
h-t
o-mont
hvar
i
abi
l
i
t
yoft
hee
x
c
hanger
a
t
e
,s
ugge
s
t
i
ngt
ha
tpr
i
c
el
e
ve
l
sar
er
e
l
a
t
i
ve
l
ys
t
i
c
kyi
nt
he
s
hor
tr
un.
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
D)
t
he
r
ei
smuc
hl
e
s
smont
h-t
o-mont
hvar
i
abi
l
i
t
yoft
hee
x
c
hanger
a
t
e
,s
ugge
s
t
i
ngt
ha
tpr
i
c
el
e
ve
l
sar
er
e
l
a
t
i
ve
l
ys
t
i
c
kyi
nt
he
s
hor
tr
un.
E)
t
he
r
ei
sal
mos
tt
hes
amemont
h-t
o-mont
hvar
i
abi
l
i
t
yoft
hee
x
c
hanger
a
t
eandpr
i
c
el
e
ve
l
s
.
Ans
we
r
:
C
Pa
geRe
f
:
430-437
Di
ffic
ul
t
y:Eas
y
4.
Whi
c
honeoft
hef
ol
l
owi
ngs
t
a
t
e
me
nt
si
st
heMOSTa
c
c
ur
a
t
e
?
A)
The
r
ei
snode
ba
t
eove
rt
hepos
s
i
bi
l
i
t
yt
ha
twa
ge
sandpr
i
c
e
sar
es
t
i
c
kyi
nt
hes
hor
tr
un.
B)
The
r
ei
sal
i
ve
l
yac
ade
mi
cde
ba
t
eove
rt
hepos
s
i
bi
l
i
t
yt
ha
ts
e
e
mi
ngl
ys
t
i
c
kywa
ge
sandpr
i
c
e
sar
ei
nr
e
al
i
t
ymuc
hmor
e
s
t
i
c
kyt
hant
he
or
yas
s
ume
s
.
C)
The
r
ei
snode
ba
t
eove
rt
hepos
s
i
bi
l
i
t
yt
ha
twa
ge
sandpr
i
c
e
sar
es
t
i
c
kyi
nt
hel
ongr
un.
D)
The
r
ei
sal
i
ve
l
yac
ade
mi
cde
ba
t
eove
rt
hepos
s
i
bi
l
i
t
yt
ha
ts
e
e
mi
ngl
ys
t
i
c
kywa
ge
sandpr
i
c
e
sar
ei
nr
e
al
i
t
yqui
t
efle
xi
bl
e
.
E)
The
r
ei
sal
i
ve
l
yac
ade
mi
cde
ba
t
eove
rt
hepos
s
i
bi
l
i
t
yt
ha
ts
e
e
mi
ngl
ys
t
i
c
kywa
ge
sandpr
i
c
e
sar
ei
nr
e
al
i
t
yqui
t
efix
e
d.
Ans
we
r
:
D
Pa
geRe
f
:
430-437
Di
ffic
ul
t
y:Eas
y
5.
Dur
i
nghype
r
i
nfla
t
i
on,e
xpl
odi
ngi
nfla
t
i
onc
aus
e
sr
e
a
lmone
yde
mandt
o
A)
i
nc
r
e
as
eove
rt
i
me
,andt
hi
saddi
t
i
onalmone
t
ar
yc
hangemake
smone
ypr
i
c
e
sr
i
s
ee
ve
nmor
equi
c
kl
yt
hant
hemone
y
s
uppl
yi
t
s
e
l
fr
i
s
e
s
.
B)
f
al
love
rt
i
me
,andt
hi
saddi
t
i
onalmone
t
ar
yc
hangemake
smone
ypr
i
c
e
sde
c
r
e
as
ee
ve
nl
e
s
squi
c
kl
yt
hant
hemone
y
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
s
uppl
yi
t
s
e
l
fr
i
s
e
s
.
C)
i
nc
r
e
as
eove
rt
i
me
,andt
hi
saddi
t
i
onalmone
t
ar
yc
hangemake
smone
ypr
i
c
e
sde
c
r
e
as
ee
ve
nmor
equi
c
kl
yt
hant
hemone
y
s
uppl
yi
t
s
e
l
fr
i
s
e
s
.
D)
f
al
love
rt
i
me
,andt
hi
saddi
t
i
onalmone
t
ar
yc
hangemake
smone
ypr
i
c
e
sde
c
r
e
as
ee
ve
nmor
equi
c
kl
yt
hant
hemone
y
s
uppl
yi
t
s
e
l
fr
i
s
e
s
.
E)
f
al
love
rt
i
me
,andt
hi
saddi
t
i
onalmone
t
ar
yc
hangemake
smone
ypr
i
c
e
sr
i
s
ee
ve
nmor
equi
c
kl
yt
hant
hemone
ys
uppl
y
i
t
s
e
l
fr
i
s
e
s
.
Ans
we
r
:
E
Pa
geRe
f
:
430-437
Di
ffic
ul
t
y:Eas
y
6.
I
nac
l
as
s
i
cpape
r
,Col
umbi
aUni
ve
r
s
i
t
ye
c
onomi
s
tPhi
l
l
i
pCa
gandr
e
wt
hel
i
nebe
t
we
e
ni
nfla
t
i
onandhype
r
i
nfla
t
i
ona
tan
i
nfla
t
i
onr
a
t
eof
A)
10pe
r
c
e
ntpe
rmont
h.
B)
5pe
r
c
e
ntpe
rmont
h.
C)
25pe
r
c
e
ntpe
rmont
h.
D)
20pe
r
c
e
ntpe
rmont
h.
E)
50pe
r
c
e
ntpe
rmont
h.
Ans
we
r
:
E
Pa
geRe
f
:
430-437
Di
ffic
ul
t
y:Eas
y
7.
I
nac
l
as
s
i
cpape
r
,Col
umbi
aUni
ve
r
s
i
t
ye
c
onomi
s
tPhi
l
l
i
pCa
gandr
e
wt
hel
i
nebe
t
we
e
ni
nfla
t
i
onandhype
r
i
nfla
t
i
ona
tan
i
nfla
t
i
onr
a
t
eof
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
A)
mor
et
han1,
000pe
r
c
e
ntpe
rye
ar
.
B)
mor
et
han100pe
r
c
e
ntpe
rye
ar
.
C)
mor
et
han200pe
r
c
e
ntpe
rye
ar
.
D)
mor
et
han120pe
r
c
e
ntpe
rye
ar
.
E)
mor
et
han12,
000pe
r
c
e
ntpe
rye
ar
.
Ans
we
r
:
E
Pa
geRe
f
:
432
Di
ffic
ul
t
y:Eas
y
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
8.
I
nawor
l
dwhe
r
et
hepr
i
c
el
e
ve
lc
oul
dadj
us
ti
mme
di
a
t
e
l
yt
oi
t
sne
wl
ong-r
unl
e
ve
la
f
t
e
ramone
ys
uppl
yi
nc
r
e
as
e
A)
Thedol
l
a
ri
nt
e
r
e
s
tr
a
t
ewoul
df
al
lbe
c
aus
epr
i
c
e
swoul
da
dj
us
ti
mme
di
a
t
e
l
yandpr
e
ve
ntt
hemone
ys
uppl
yf
r
om r
i
s
i
ng.
B)
Thedol
l
a
ri
nt
e
r
e
s
tr
a
t
ewoul
df
al
lbe
c
aus
epr
i
c
e
swoul
dnotbeabl
et
opr
e
ve
ntt
hemone
ys
uppl
yf
r
om r
i
s
i
ng.
C)
Thedol
l
a
ri
nt
e
r
e
s
tr
a
t
ewoul
df
al
lbe
c
aus
epr
i
c
e
swoul
da
dj
us
ti
mme
di
a
t
e
l
yandpr
e
ve
ntt
hemone
ys
uppl
yf
r
om
de
c
r
e
as
i
ng.
D)
Thedol
l
a
ri
nt
e
r
e
s
tr
a
t
ewoul
di
nc
r
e
as
ebe
c
aus
epr
i
c
e
swoul
dadj
us
ti
mme
di
a
t
e
l
yandpr
e
ve
ntt
hemone
ys
uppl
yf
r
om
r
i
s
i
ng.
E)
Thedol
l
a
ri
nt
e
r
e
s
tr
a
t
ewoul
dde
c
r
e
as
ebe
c
aus
epr
i
c
e
swoul
dadj
us
ti
mme
di
a
t
e
l
yandpr
e
ve
ntt
hemone
ys
uppl
yf
r
om
de
c
r
e
as
i
ng.
Ans
we
r
:
A
Pa
geRe
f
:
430-437
Di
ffic
ul
t
y:Eas
y
9.
Af
t
e
rape
r
mane
nti
nc
r
e
as
ei
nt
hemone
ys
uppl
y
A)
t
hee
x
c
hanger
a
t
er
e
mai
nst
hes
ame
.
B)
t
hee
x
c
hanger
a
t
eove
r
s
hoot
si
nt
hel
ongr
un.
C)
t
hee
x
c
hanger
a
t
es
moot
hl
yappr
e
c
i
a
t
e
si
nt
hes
hor
tr
un.
D)
t
hee
x
c
hanger
a
t
eove
r
s
hoot
si
nt
hes
hor
tr
un.
E)
t
hee
x
c
hanger
a
t
es
moot
hl
yde
pr
e
c
i
a
t
e
si
nt
hes
hor
tr
un.
Ans
we
r
:
D
Pa
geRe
f
:
430-437
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
Di
ffic
ul
t
y:Eas
y
10.
Ac
hangei
nt
hemone
ys
uppl
yc
r
e
a
t
e
sde
mandandc
os
tpr
e
s
s
ur
e
st
ha
tl
e
adt
of
ut
ur
ei
nc
r
e
as
e
si
nt
hepr
i
c
el
e
ve
lf
r
om
whi
c
hmai
ns
our
c
e
s
?
I
.
Ex
c
e
s
sde
mandf
orout
putandl
abor
I
I
.
I
nfla
t
i
onar
ye
xpe
c
t
a
t
i
ons
I
I
I
.
Ra
w ma
t
e
r
i
al
spr
i
c
e
s
A)
I
B)
I
I
C)
I
IandI
I
I
D)
IandI
I
E)
I
,I
I
,andI
I
I
Ans
we
r
:
E
Pa
geRe
f
:
430-437
Di
ffic
ul
t
y:Eas
y
11.
I
nZi
mbabwe
,t
hegove
r
nme
nts
t
oppe
dt
hec
ount
r
y'
shype
r
i
nfla
t
i
onby
A)
r
e
duc
i
ngdome
s
t
i
cmone
t
ar
ygr
owt
hdr
as
t
i
c
al
l
y
.
B)
i
mpl
e
me
nt
i
ngane
wc
ur
r
e
nc
ybas
e
dondi
amonds
.
C)
pas
s
i
ngal
a
w maki
ngpr
i
c
ei
nc
r
e
as
e
si
l
l
e
gal
.
D)
s
wi
t
c
hi
ngt
of
or
e
i
gnc
ur
r
e
nc
i
e
s
.t
ha
tar
er
e
l
a
t
i
ve
l
ys
t
abl
e
.
E)
r
e
t
ur
ni
ngt
oagol
d/s
i
l
ve
rc
ur
r
e
nc
ys
t
andar
d.
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
Ans
we
r
:
D
Pa
geRe
f
:
432-433
Di
ffic
ul
t
y:Eas
y
12.
Whi
c
hoft
hef
ol
l
owi
ngc
anhe
l
pt
oe
xpl
ai
nwhyhi
ghe
ri
nfla
t
i
onma
yl
e
adt
oc
ur
r
e
nc
yappr
e
c
i
a
t
i
ons
?
A)
Ce
nt
r
albanksi
nc
r
e
as
et
hemone
ys
uppl
yl
e
adi
ngt
oove
r
s
hoot
i
ngoft
hee
x
c
hanger
a
t
e
.
B)
I
nfla
t
i
onwi
l
li
nc
r
e
as
et
hepur
c
has
i
ngpowe
rofac
ur
r
e
nc
y
.
C)
Mos
tc
e
nt
r
albanksadj
us
tt
he
i
rpol
i
c
yi
nt
e
r
e
s
tr
a
t
e
se
xpr
e
s
s
l
ys
oast
oke
e
pi
nfla
t
i
oni
nc
he
c
k.
D)
Thewor
l
dmar
ke
tdoe
snotadj
us
tt
he
i
rc
ur
r
e
nc
yt
r
adet
or
e
fle
c
ti
nfla
t
i
on.
E)
Thei
nt
e
r
e
s
tr
a
t
ei
snott
hepr
i
met
ar
ge
tofmone
t
ar
ypol
i
c
y
.
Ans
we
r
:
C
Pa
geRe
f
:
430-437
Di
ffic
ul
t
y:Eas
y
13.
Whi
c
honeoft
hec
ount
r
i
e
sbe
l
ow announc
e
si
nfla
t
i
ont
ar
ge
t
s
?
A)
Canada
B)
Ni
c
ar
a
gua
C)
J
apan
D)
Me
xi
c
o
E)
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
U.
S.
Ans
we
r
:
A
Pa
geRe
f
:
430-437
Di
ffic
ul
t
y:Eas
y
14.
Mi
c
hae
lWoodf
or
ds
a
yst
hef
ol
l
owi
ngi
sanadvant
a
geofi
nt
e
r
e
s
t
-r
a
t
ei
ns
t
r
ume
nt
sf
orc
e
nt
r
albanks
.
A)
Conduc
tmone
t
ar
ypol
i
c
ywi
t
houtgove
r
nme
ntappr
oval
.
B)
Conduc
tmone
t
ar
ypol
i
c
ywi
t
hc
ons
ume
r
si
nmi
nd.
C)
Conduc
tmone
t
ar
ypol
i
c
ywi
t
hwor
ke
r
si
nmi
nd.
D)
Conduc
tmone
t
ar
ypol
i
c
ye
ve
ni
fc
he
c
ki
ngde
pos
i
t
spa
yi
nt
e
r
e
s
ta
tc
ompe
t
i
t
i
ver
a
t
e
s
.
E)
Conduc
tmone
t
ar
ypol
i
c
ywi
t
houti
nfla
t
i
on.
Ans
we
r
:
D
Pa
geRe
f
:
437
Di
ffic
ul
t
y:Eas
y
15.
I
nfla
t
i
ont
ar
ge
t
i
ngwasi
ni
t
i
a
t
e
dbywhi
c
hc
e
nt
r
albanki
n1989?
A)
U.
S.
B)
Canada
C)
U.
K.
D)
Ne
w Ze
al
and
E)
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
J
apan
Ans
we
r
:
D
Pa
geRe
f
:
430-437
Di
ffic
ul
t
y:Eas
y
16.
"
Al
t
hought
hepr
i
c
el
e
ve
l
sappe
art
odi
s
pl
a
ys
hor
t
-r
uns
t
i
c
ki
ne
s
si
nmanyc
ount
r
i
e
s
,ac
hangei
nt
hemone
ys
uppl
yc
r
e
a
t
e
s
i
mme
di
a
t
ede
mandandc
os
tpr
e
s
s
ur
e
st
ha
te
ve
nt
ual
l
yl
e
adt
of
ut
ur
ei
nc
r
e
as
ei
nt
hepr
i
c
el
e
ve
l
.
"Di
s
c
us
s
.
Ans
we
r
:
(
Se
eSe
c
t
i
on7)
.Thes
t
a
t
e
me
nti
st
r
ue
.Thepr
e
s
s
ur
e
sc
omef
r
om t
hr
e
emai
ns
our
c
e
s
:e
x
c
e
s
sde
mandf
orout
putandl
abor
;
i
nfla
t
i
onar
ye
xpe
c
t
a
t
i
ons
;and,r
a
w ma
t
e
r
i
alpr
i
c
e
s
.
Pa
geRe
f
:
430-437
Di
ffic
ul
t
y:Mode
r
a
t
e
17.
Expl
ai
nt
hee
ffe
c
t
sofape
r
mane
nti
nc
r
e
as
ei
nt
heU.
S.mone
ys
uppl
yi
nt
hes
hor
tr
unandi
nt
hel
ongr
un.As
s
umet
ha
tt
he
U.
S.r
e
alna
t
i
onali
nc
omei
sc
ons
t
ant
.
Ans
we
r
:
Ani
nc
r
e
as
ei
nt
henomi
nalmone
ys
uppl
yr
ai
s
e
st
her
e
almone
ys
uppl
y
,l
owe
r
i
ngt
hei
nt
e
r
e
s
tr
a
t
ei
nt
hes
hor
tr
un.The
mone
ys
uppl
yi
nc
r
e
as
ei
sc
ons
i
de
r
e
dt
oc
ont
i
nuei
nt
hef
ut
ur
e
;t
hus
,i
twi
l
la
ffe
c
tt
hee
x
c
hanger
a
t
ee
xpe
c
t
a
t
i
ons
.Thi
swi
l
l
maket
hee
xpe
c
t
e
dr
e
t
ur
nont
hee
ur
omor
ede
s
i
r
abl
eandt
hust
hedol
l
arde
pr
e
c
i
a
t
e
s
.I
nt
hec
as
eofape
r
mane
nti
nc
r
e
as
e
i
nt
heU.
S.mone
ys
uppl
y
,t
hedol
l
a
rde
pr
e
c
i
a
t
e
smor
et
hanunde
rat
e
mpor
ar
yi
nc
r
e
as
ei
nt
hemone
ys
uppl
y
.
Now,i
nt
hel
ongr
un,pr
i
c
e
swi
l
lr
i
s
eunt
i
lt
her
e
almone
ybal
anc
e
sar
et
hes
ameasbe
f
or
et
hepe
r
mane
nti
nc
r
e
as
ei
nt
he
mone
ys
uppl
y
.Si
nc
et
heout
putl
e
ve
li
sgi
ve
n,t
heU.
S.i
nt
e
r
e
s
tr
a
t
e
,whi
c
hde
c
r
e
as
e
dbe
f
or
e
,wi
l
ls
t
ar
tt
oi
nc
r
e
as
e
,unt
i
li
t
wi
l
lmovebac
kt
oi
t
sor
i
gi
nall
e
ve
l
.Thee
qui
l
i
br
i
um i
nt
e
r
e
s
tr
a
t
emus
tbet
hes
ameasi
t
sor
i
gi
nall
ongr
unval
ue
.Thi
s
i
nc
r
e
as
ei
nt
hei
nt
e
r
e
s
tr
a
t
emus
tc
aus
et
hedol
l
a
rt
oappr
e
c
i
a
t
ea
gai
ns
tt
hee
ur
oa
f
t
e
ri
t
ss
har
pde
pr
e
c
i
a
t
i
onasar
e
s
ul
tof
t
hepe
r
mane
nti
nc
r
e
as
ei
nt
hemone
ys
uppl
y
.Soal
a
r
gede
pr
e
c
i
a
t
i
oni
sf
ol
l
owe
dbyanappr
e
c
i
a
t
i
onoft
hedol
l
ar
.
Eve
nt
ual
l
y
,t
hedol
l
arde
pr
e
c
i
a
t
e
si
npr
opor
t
i
ont
ot
hei
nc
r
e
as
ei
nt
hepr
i
c
el
e
ve
l
,whi
c
hi
nt
ur
ni
nc
r
e
as
e
sbyt
hes
ame
pr
opor
t
i
onast
hepe
r
mane
nti
nc
r
e
as
ei
nt
hemone
ys
uppl
y
.Thus
,mone
yi
sne
ut
r
al
,i
nt
hes
e
ns
et
ha
ti
tc
annotaffe
c
ti
nt
he
l
ongr
unr
e
alvar
i
abl
e
s
,s
uc
hasout
put
,i
nve
s
t
me
nt
,e
t
c
.
Pa
geRe
f
:
430-437
Di
ffic
ul
t
y:Di
ffic
ul
t
18.
Expl
ai
nt
hee
x
c
hanger
a
t
eove
r
-s
hoot
i
nghypot
he
s
i
s
.
Ans
we
r
:
Manypr
i
c
e
si
nt
hee
c
onomyar
ewr
i
t
t
e
ni
nt
ol
ong-t
e
r
mc
ont
r
a
c
t
sandc
annotbec
hange
di
mme
di
a
t
e
l
ywhe
nc
hange
si
nt
he
mone
ys
uppl
yoc
c
ur
.Ape
r
mane
nti
nc
r
e
as
ei
nM,hol
di
ngPc
ons
t
ant
,i
nc
r
e
as
e
st
her
e
almone
ys
uppl
y(
M/P)andl
owe
r
s
t
henomi
nali
nt
e
r
e
s
tr
a
t
e(
R)
.Thi
ss
hi
f
t
st
hedol
l
arr
e
t
ur
ns
c
he
dul
el
e
f
t
.Ape
r
mane
nti
nc
r
e
as
ei
nM al
s
oc
r
e
a
t
e
st
he
e
xpe
c
t
a
t
i
ont
ha
ti
nt
hel
ongr
unal
lpr
i
c
e
si
nc
l
udi
ngt
hee
x
c
hanger
a
t
ewoul
dr
i
s
e
.Ar
i
s
ei
nt
hee
xpe
c
t
e
de
x
c
hanger
a
t
e
s
hi
f
t
st
heERR(
DM)s
c
he
dul
er
i
ght
.The
r
e
f
or
e
,i
nt
hes
hor
tr
une
qui
l
i
br
i
um i
se
s
t
abl
i
s
he
da
tpoi
nt2I
nt
hel
ongr
unt
he
pr
i
c
el
e
ve
ladj
us
t
sandr
i
s
e
spr
opor
t
i
ona
t
e
l
ywi
t
ht
hemone
ys
uppl
y
.The
r
e
f
or
e
,M/PandRr
e
t
ur
nt
ot
he
i
ri
ni
t
i
all
e
ve
l
si
n
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
t
hel
ongr
unandt
hee
qui
l
i
br
i
um e
x
c
hanger
a
t
ei
sde
t
e
r
mi
ne
da
tpoi
nt3.I
not
he
rwor
ds
,t
hee
x
c
hanger
a
t
efir
s
tove
r
s
hoot
s
andt
he
nr
e
t
ur
nst
oi
t
sl
ongr
unl
e
ve
l
.The
r
e
f
or
e
,
t
hefluc
t
ua
t
i
onsi
nEar
emuc
hs
t
r
onge
rt
hant
hos
eofP
.
Pa
geRe
f
:
430-437
Di
ffic
ul
t
y:Di
ffic
ul
t
Downloaded by Meri Giunashvili (merigiunashvili05@gmail.com)
lOMoARcPSD|6749524
19.
Us
i
ngfigur
e
sf
orbot
ht
hes
hor
tr
unandt
hel
ongr
un,s
how t
hee
ffe
c
t
sofape
r
mane
nti
nc
r
e
as
ei
nt
heU.
S.mone
ys
uppl
y
.
Tr
yt
ol
i
neupyourfigur
e
st
ot
hes
hor
tandl
ongr
une
qui
l
i
br
i
as
i
debys
i
de
.As
s
umet
ha
tt
heU.
S.r
e
a
lna
t
i
onali
nc
omei
s
c
ons
t
ant
.
Ans
we
r
:
Ani
nc
r
e
as
ei
nt
henomi
nalmone
ys
uppl
yr
ai
s
e
st
her
e
almone
ys
uppl
y
,l
owe
r
i
ngt
hei
nt
e
r
e
s
tr
a
t
ei
nt
hes
hor
tr
un(
t
he
move
me
ntf
r
om 1t
o2ont
hel
owe
rl
e
f
tfigur
e
)
.Themone
ys
uppl
yi
nc
r
e
as
ei
sc
ons
i
de
r
e
dt
oc
ont
i
nuei
nt
hef
ut
ur
e
,and
t
husi
twi
l
la
ffe
c
tt
hee
x
c
hanger
a
t
ee
xpe
c
t
a
t
i
ons
.Thi
swi
l
lmaket
hee
xpe
c
t
e
dr
e
t
ur
nont
hee
ur
omor
ede
s
i
r
abl
eandt
hus
t
hedol
l
arde
pr
e
c
i
a
t
e
s
.I
nt
hec
as
eofape
r
mane
nti
nc
r
e
as
ei
nt
heU.
S.mone
ys
uppl
y
,t
hedol
l
arde
pr
e
c
i
a
t
e
smor
et
han
opoi
nt i
nt
heuppe
rl
e
f
tfigur
e
)
.
unde
rat
e
mpor
ar
yi
nc
r
e
as
ei
nt
hemone
ys
uppl
y(
f
r
om poi
nt t
Now,i
nt
hel
ongr
un,(
t
her
i
ghthands
i
defigur
e
)
,pr
i
c
e
swi
l
lr
i
s
eunt
i
lt
her
e
almone
ybal
anc
e
sar
et
hes
ameasbe
f
or
et
he
pe
r
mane
nti
nc
r
e
as
ei
nt
hemone
ys
uppl
y(
f
r
om poi
nt2t
opoi
nt4,i
nt
hel
owe
rr
i
ghtfigur
e
)
.Si
nc
et
heout
putl
e
ve
li
sgi
ve
n,
t
heU.
S.i
nt
e
r
e
s
tr
a
t
ewhi
c
hde
c
r
e
as
e
dbe
f
or
e
,wi
l
ls
t
ar
tt
oi
nc
r
e
as
e
,unt
i
li
twi
l
lmovebac
kt
oi
t
sor
i
gi
nall
e
ve
l(
f
r
om Poi
nt2
t
o4i
nt
hel
owe
rl
e
f
tfigur
e
)
.Thee
qui
l
i
br
i
um i
nt
e
r
e
s
tr
a
t
emus
tbet
hes
ameasi
t
sor
i
gi
nall
ongr
unval
ue(
a
tpoi
nt4i
nt
he
l
owe
rr
i
ghtfigur
e
)
.Thi
si
nc
r
e
as
ei
nt
hei
nt
e
r
e
s
tr
a
t
emus
tc
aus
et
hedol
l
a
rt
oappr
e
c
i
a
t
ea
gai
ns
tt
hee
ur
oa
f
t
e
ri
t
ss
har
p
de
pr
e
c
i
a
t
i
onasar
e
s
ul
toft
hepe
r
mane
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