Name: __________________________  Date: _____________

1.	International macroeconomics studies:	
A)	decisions of individual households in other countries.	
B)	decisions by governments in other countries.	
C)	the interrelationship of large-scale economic issues across countries.	
D)	the interrelationship of politics and economics within a country.	

2.	International macroeconomics focuses on:	
A)	isolated nations.	
B)	economy-wide variables such as interest rates, income, prices, and wealth.	
C)	city-level economic problems.	
D)	market-specific variables such as the price of orange juice.	

3.	Key elements of the international macroeconomy are:	
A)	political alliances, capital accumulation, and monopoly power.	
B)	many currencies, financial integration, and economic policy choices made in context.	
C)	competition, efficiency, and openness.	
D)	waste and overuse of natural resources, disregard for the environment, and unfair competition.	

4.	It is _________ to assume that all goods are priced in a common currency in international markets.	
A)	correct in every case	
B)	dangerous	
C)	incorrect in every case	
D)	unrealistic	

5.	Understanding how a nation's economy works requires a complete understanding of the:	
A)	political system.	
B)	level of imports and exports.	
C)	exchange rate with other currencies.	
D)	tax system.	

6.	What is an exchange rate?	
A)	It is percentage rate of interest charged by international banks to exchange currency.	
B)	It is fees banks charge their best customers to exchange currency.	
C)	It is price of one nation's currency measured in units of another nation's currency.	
D)	It is lending rate for international credit.	

7.	Which of the following would be an exchange rate?	
A)	One car trades for 1,000 books.	
B)	One dollar trades for two candy bars.	
C)	One dollar trades for four quarters.	
D)	One dollar trades for three pesos.	

8.	Exchange rate behavior is:	
A)	unimportant in determining income, prices, and flows of goods and services.	
B)	very important in determining income, prices, and flows of goods and services.	
C)	very predictable, steady, and not of interest to policy makers.	
D)	not subject to market forces, but is determined by international agreements.	

9.	Changes in a nation's exchange rates have an impact on:	
A)	prices of equities but not domestic bonds	
B)	relative prices of home and foreign goods.	
C)	prices of nontradable services.	
D)	prices of international bonds but not equities.	

10.	Compared with 100 years ago, the number of currencies exchanged today is:	
A)	dozens fewer.	
B)	insignificant.	
C)	many times more.	
D)	the same.	

11.	Exchange rates exhibit:	
A)	steady behavior across the board.	
B)	erratic behavior across the board.	
C)	very different behavior, depending on whether the rates are fixed or floating.	
D)	variable behavior (sometimes steady and other times erratic), depending on the business cycle.	

12.	In general, economists divide the world into two types of exchange rate systems:	
A)	long run and short run.	
B)	fixed and floating.	
C)	liberal and conservative.	
D)	speculative and risk averse.	

13.	Which best describes the dollar–yuan exchange rate over time?	
A)	volatile	
B)	steady	
C)	gradually rising	
D)	gradually declining	

14.	The exchange rate between the U.S. dollar and the Chinese yuan:	
A)	resulted in a rise in Chinese buying power.	
B)	declined 15% between 2005 and the financial crisis in 2008.	
C)	has created a situation in which China is able to get cheap products from the United States.	
D)	has been unchanged since July 2005.	

15.	In June of 2010, the Chinese government:	
A)	cracked down on illegal currency trading.	
B)	reduced the value of the yuan in terms of the U.S. dollar.	
C)	allowed a gradual appreciation in the value of the yuan in terms of the U.S. dollar.	
D)	allowed the yuan to fluctuate freely according to the market.	

16.	When an exchange rate is said to be fixed, it:	
A)	does not vary at all.	
B)	can vary a lot.	
C)	changes every day.	
D)	is volatile.	

17.	Compared with the dollar–yuan exchange rate, the dollar–euro exchange rate is best described as:	
A)	volatile.	
B)	steady.	
C)	gradually falling.	
D)	gradually rising.	

18.	Compared with the U.S. dollar–euro, the U.S. dollar–yuan exchange rate has exhibited:	
A)	extreme fluctuation.	
B)	much less fluctuation.	
C)	a constant value.	
D)	complete control by the World Bank.	

19.	Compared with the U.S. dollar–yuan, the average fluctuation in the U.S. dollar–euro exchange rate is:	
A)	6 or 7 times as large.	
B)	about the same.	
C)	somewhat smaller.	
D)	6 or 7 times less.	

20.	Which one of the following reasons does NOT explain why exchange rates are important?	
A)	They affect the affordability of imports.	
B)	They make exports either more or less expensive for foreign buyers.	
C)	They affect the value of foreign assets and their returns.	
D)	They affect the profits of all domestic producers.	

21.	A good's relative price indicates its:	
A)	value only in its own nation.	
B)	value compared with the same good sold in another nation, expressed in a common currency.	
C)	exchange value only.	
D)	net value after taxes and depreciation.	

22.	In the mid-2000s, a Swiss cheese maker blamed its decline in U.S. sales on:	
A)	the fall of the euro in terms of the Swiss franc.	
B)	the rise of the euro in terms of the Swiss franc.	
C)	German tariffs that made the cheese more expensive.	
D)	the Euro area recession.	

23.	When the exchange value of the euro rises in terms of the U.S. dollar, U.S. residents find that European imports are:	
A)	cheaper.	
B)	more expensive.	
C)	oversupplied to the United States.	
D)	more heavily taxed by the U.S. government.	

24.	European residents who hold U.S. dollar assets experience a _______ in their value when the dollar exchanges for fewer units of foreign currency.	
A)	rise	
B)	decline	
C)	stagnation	
D)	rise in instability	

25.	If in January 2007, $1 = 110 yen, and in July 2007, $1 = 90 yen, then a Harley Davidson motorcycle that cost $8,000 in January would now cost _______ in Japan in July.	
A)	180,000 yen	
B)	880,000 yen	
C)	720,000 yen	
D)	890,000 yen	

26.	Assume that in 2006, the dollar–euro exchange rate was 1 and in 2007 it was .75.  If you have $100 million in assets in Germany in 2006, then in 2007 your assets in Germany are:	
A)	lower by 75 million euro.	
B)	higher by 75 million euro.	
C)	worth $133.33 million.	
D)	worth less than in 2006.	

27.	Exchange rate crises:	
A)	are extremely rare.	
B)	are related to political crises.	
C)	typically occur in every nation several times each year.	
D)	are fairly common.	

28.	A nation (featured in the text) that recently experienced a severe drop in the value of its currency is:	
A)	New Zealand.	
B)	Zimbabwe.	
C)	Argentina.	
D)	Canada.	

29.	Argentina's currency crisis, which began in 2002, is blamed for:	
A)	the lack of literacy and moral corruption.	
B)	extreme poverty, high unemployment, and social unrest.	
C)	disturbing the international trade balance.	
D)	its subsequent high debts.	

30.	In the 12-year period from 1997 to 2009, there were ____ instances of exchange rate crises worldwide.	
A)	3	
B)	10	
C)	16	
D)	24	

31.	Since 1990, which of the following did NOT have an exchange rate crisis?	
A)	China	
B)	Korea	
C)	Argentina	
D)	Russia	

32.	A severe drop in the value of a nation's currency usually results in:	
A)	high inflation.	
B)	low unemployment.	
C)	enhanced ability to pay foreign debts.	
D)	rising imports.	

33.	Compared with earlier decades, the prevalence of exchange rate crises during the turn of the century (1997–2002) was:	
A)	much less severe than in the 1970s with its high inflation and high unemployment.	
B)	much more severe in rapidly developing economies such as in South America and East Asia.	
C)	very typical of modern economic history, indicating a need for international cooperation.	
D)	much reduced as a result of the swift and effective response by the International Monetary Fund.	

34.	The fallout from an international currency crisis episode:	
A)	has major and lasting effects on trading partners, financial relationships, and financial and political institutions.	
B)	usually has a pattern of brief turmoil followed by periods of relative stability.	
C)	is instrumental in getting needed debt relief for poor nations.	
D)	is seen in permanent changes in the ways nations handle their international transactions.	

35.	Nations undergoing currency and financial crises often experience:	
A)	rising currency values.	
B)	falling population.	
C)	government financial problems.	
D)	increasing GDP.	

36.	The International Monetary Fund is an example of a(n):	
A)	credit union.	
B)	multinational bank.	
C)	international development organization.	
D)	bond-rating firm.	

37.	In Argentina, when the exchange rate was floated in 2002, all of the following took place, EXCEPT a sharp:	
A)	decline in the exchange rate of the peso.	
B)	increase in the level of poverty.	
C)	increase in inflation.	
D)	decline in unemployment rates.	

38.	Following its 2001 currency crisis, Argentina's unemployment:	
A)	fell back to the pre-2001 level.	
B)	was lower than during the crisis but higher than before.	
C)	was at an all-time high.	
D)	was unresponsive to the crisis.	

39.	Globalization of financial markets provides benefits to nations but also carries risk to international stability due to:	
A)	unmanageable debt and subsequent defaults.	
B)	political infighting regarding whose currency will be the world leader.	
C)	military conflict over control of vital assets.	
D)	accumulation of wealth.	

40.	Which of the following are financial instruments?	
A)	real estate properties	
B)	grocery store loyalty cards	
C)	retail store inventories	
D)	savings accounts, credit cards, and mortgages	

41.	A nation's current account is:	
A)	its current budget deficit.	
B)	the previous year's budget deficit.	
C)	a record of a nation's income, expenditure, deficit, and surplus during a particular period.	
D)	the difference between its total wealth and its total debt.	

42.	Whenever gross national income is less than gross national expenditure for some time, a nation will experience a(n):	
A)	deficit in its current account.	
B)	surplus in its current account.	
C)	increase in GDP, since firms' sales will rise.	
D)	rise in national wealth.	

43.	In 2009, the area with the largest trade deficit was:	
A)	China.	
B)	the Eurozone.	
C)	the United States.	
D)	Japan.	

44.	Which of the following situations would NOT be compatible with the others?	
A)	a deficit in the current account	
B)	expenditure being greater than income (production) in a nation	
C)	a rise in national wealth	
D)	new borrowing from the rest of the world	

45.	The definition of total external net wealth is:	
A)	the value of buildings, bank deposits, and monetary gold.	
B)	the value of a nation's foreign assets minus the value of a nation's foreign liabilities.	
C)	the value of stocks sold daily on international exchanges.	
D)	minerals and oil reserves owned by a nation but located in another nation.	

46.	External wealth can increase by all of the following, EXCEPT:	
A)	rises in the value of international assets (capital gains).	
B)	decreases in the value of liabilities to international entities.	
C)	borrowing from international entities.	
D)	lending to international entities.	

47.	If a nation is a net creditor internationally, it means that:	
A)	residents of the nation have more foreign assets than foreign liabilities.	
B)	the nation is running low on international assets.	
C)	residents of the nation have more foreign liabilities than foreign assets.	
D)	the nation's government has extended credit to other nations' governments.	

48.	A nation's net creditor position indicates that it:	
A)	has collected more in taxes than its government has spent.	
B)	owes money to other foreign and international government agencies.	
C)	has positive net external wealth.	
D)	has negative net external wealth.	

49.	A nation's external wealth can be affected by which of the following?
I.  the difference between international spending and income from the rest of the world
II. changes in currency values
III. capital gains and losses on equities and real estate	
A)	I	
B)	II and III	
C)	I and III	
D)	I, II, and III	

50.	A country's external wealth is equal to:	
A)	its exports minus imports.	
B)	its overall debt.	
C)	its foreign assets minus its foreign liabilities.	
D)	the amount foreigners have invested in the United States.	

51.	Suppose that a loan made in euros has experienced a capital gain. This indicates that the:	
A)	dollar appreciated.	
B)	dollar depreciated.	
C)	euro depreciated.	
D)	dollar experienced a capital loss.	

52.	When a country makes a loan in its own currency and its currency depreciates, it experiences:	
A)	a capital gain.	
B)	a capital loss.	
C)	a capital depreciation.	
D)	neither a capital gain nor a capital loss.	

53.	When an individual's income is smaller than his or her expenditure, the individual CANNOT:	
A)	borrow money.	
B)	draw down his or her savings.	
C)	print his or her own money.	
D)	take another job to increase his or her income.	

54.	A nation with a relatively high country risk factor would MOST likely have:	
A)	stable exports and unstable imports.	
B)	low levels of external debt.	
C)	excessive levels of spending compared with its income and current account surpluses.	
D)	unstable exports, a high level of external debt, and excessive levels of spending.	

55.	International lenders want to know the likelihood that a nation will repay its debt. Therefore, they rely on:	
A)	collateral.	
B)	international ratings of country risk.	
C)	the faith and credit of the sovereign nation.	
D)	advice from the International Monetary Fund (IMF).	

56.	To analyze whether an international private or sovereign borrower will repay a loan, creditors resort to:	
A)	collateral requirements for loans.	
B)	International Monetary Fund expertise.	
C)	international credit rating agencies that operate much like they do in sophisticated financial markets.	
D)	incentives to repay, such as threats of foreclosure, force, or economic sanctions for delinquent borrowers.	

57.	What is country risk?	
A)	the risk that the nation will suffer unemployment and inflation as a result of its economic policies	
B)	a number of economic indicators reflecting the economic health of the nation that affect the ability of its residents to repay loans	
C)	the relative risk of political instability, terrorist attacks, and military capability	
D)	the total of the government's national debt plus private debt owed to international creditors	

58.	Emerging market countries are:	
A)	countries with high levels of income per person that are well-integrated into the global economy.	
B)	mainly countries that are growing and becoming more integrated into the global economy.	
C)	mainly countries that are not yet well-integrated into the global economy and are not democratic.	
D)	countries with low levels of income per person.	

59.	Which of the following credit ratings is MOST favorable?	
A)	BBB+	
B)	BBB–	
C)	CC	
D)	D	

60.	A credit rating of A means:	
A)	easy access to low-interest loans.	
B)	more limited credit and possibly punitive interest rates.	
C)	higher interest rates.	
D)	you can set your own interest rates.	

61.	What remedy does an international lender have against a foreign borrower who defaults?	
A)	It can foreclose on the collateral and sell it.	
B)	It can sue the borrower in the international credit court.	
C)	The national government will always pay up and make the loan good.	
D)	Usually, there is no remedy.	

62.	Governments affect international financial relationships through their policy regimes. These might include:	
A)	economic philosophies like liberalism and Marxism.	
B)	laws or regulations affecting investment, reserves, or credit.	
C)	larger sets of rules that define a general context to which specific laws or regulations conform.	
D)	very broad legal, social, political, and commercial structures that influence economic behavior.	

63.	Governments affect international financial relationships through their institutions. These might include:	
A)	border controls regulating goods coming into or leaving from the nation.	
B)	laws or regulations affecting investment, reserves, or credit.	
C)	larger sets of rules that define a general context to which specific laws or regulations conform.	
D)	very broad legal, social, political, and commercial structures that influence economic behavior.	

64.	What is the difference between an open economy and a closed economy?	
A)	A closed economy has sealed borders and allows no tourism or migration.	
B)	An open economy has very few restrictions on trade or financial flows.	
C)	A closed economy has very tough wage and hour laws and will not tolerate labor unions.	
D)	An open economy has lax restrictions on drugs or other illegal activities.	

65.	One indicator of international financial openness in advanced countries is that:	
A)	defaults by borrowers have decreased significantly.	
B)	cross-border financial transactions in advanced nations have increased tenfold.	
C)	restrictions on mortgage lending or bank capital requirements have decreased.	
D)	governments no longer try to control interest rates.	

66.	Since 1970, governments worldwide have:	
A)	discouraged trade and raised levels of protection for workers.	
B)	discouraged international investment to favor domestic financial markets.	
C)	rejected globalization because it makes a nation more vulnerable.	
D)	lifted barriers to international capital movements and trade.	

67.	In general, we currently classify nations into three categories, depending on the level of economic advancement. These are:	
A)	advanced, emerging, and developing.	
B)	high-achievers, low-achievers, and infant industry nations.	
C)	First World, Second World, Third World.	
D)	fully integrated, moderately integrated, and closed.	

68.	The advanced nations:	
A)	were least open to globalization and free movement of capital.	
B)	led the movement toward globalization and openness during the 1980s.	
C)	had to compete with the developing nations and finally learned that financial openness was beneficial to their economies.	
D)	were not as open to globalization as were the emerging markets.	

69.	A consequence of the world movement toward financial integration and openness is:	
A)	depreciating exchange rates.	
B)	financial interdependence coupled with a tenfold increase in the volume of foreign assets.	
C)	a retreat toward safety and heavier regulation of financial flows.	
D)	dominance by the United States as being the only destination for investment funds.	

70.	Which of the following would count as an emerging market?	
A)	Canada	
B)	Poland	
C)	Ireland	
D)	Bangladesh	

71.	Which of the following would count as a developing country?	
A)	Mexico	
B)	Italy	
C)	Guatemala	
D)	Germany	

72.	The list of developed countries includes:	
A)	South Korea	
B)	Panama.	
C)	Estonia.	
D)	Poland.	

73.	Nations are free to choose and use their own currency and control its value. Normally, they must choose between a ______ regime.	
A)	fixed or floating exchange rate	
B)	variable or stable exchange rate	
C)	controlled or laissez-faire	
D)	centrally planned or market-based	

74.	What is the eurozone?	
A)	a common European defense system supplemented by radar and strategic monitoring systems	
B)	a trade agreement among the nations of Europe not to impose tariffs on one another	
C)	a group of European nations that have adopted a common currency	
D)	regions of the world that allow traders to make bank deposits in euros	

75.	The idea of dollarization is:	
A)	the use of domestic currency in a variable proportion with neighboring countries' currency.	
B)	the use of the U.S. dollar for paying the native country's debt.	
C)	a nation's use of a foreign currency over which it has no policy control.	
D)	the use of domestic currency in countries in Europe that are not part of the European Union.	

76.	Economic institutions are important in helping to govern and determine economic outcomes. Which of the following would NOT be an example of an economic institution?	
A)	the existence of various regulatory agencies, such as the Securities and Exchange Commission, that affect the integrity of the investment community	
B)	First National Bank of Chicago	
C)	the tendency of the public to deposit funds in banks and financial institutions, which are considered safe, rather than purchasing gold or jewelry	
D)	disclosure provisions in investment contracts	

77.	Poor governance often results in:	
A)	insurgency and chaos.	
B)	more poverty and macroeconomic shocks.	
C)	less equality but more efficiency.	
D)	the rich putting their money in overseas banks.	

78.	The great divergence refers to:	
A)	the widening U.S. trade deficit.	
B)	the growing gap between rich and poor workers.	
C)	the growing Chinese trade surplus.	
D)	the gap in income per capita between rich and poor nations.	

79.	The income gap between rich and poor nations has _____ over the last two decades and is the largest in history.	
A)	doubled	
B)	tripled	
C)	grown by 10 times	
D)	grown by 50 times	

80.	Policies that work well in stable, well-governed nations:	
A)	may not work well in poor nations if these nations lack stability and good governance.	
B)	should be looked at as an alternate policy regime for poor nations.	
C)	often do not represent the best policies for other rich nations.	
D)	tend to be less desirable during election years or in times of political upheaval.	

81.	Economists say that the relationship between good institutions and good economic results is that:	
A)	good institutions are essential to good economic outcomes.	
B)	good economic outcomes enable a society to build good institutions.	
C)	good institutions are not necessary for good government and good economic outcomes.	
D)	good economic results are usually based on access to essential natural resources and a competent labor force—not on access to societal institutions.	

82.	Optimal policies and policy regimes generally:	
A)	require standard approaches.	
B)	require different approaches in rich and poor countries.	
C)	have similar results in both rich and poor countries.	
D)	require the government to be authoritarian.	

83.	Countries with good institutions have:	
A)	higher per capita income.	
B)	greater income volatility.	
C)	higher per capita income and greater income volatility.	
D)	lower per capita income.	

84.	The main lessons of the study of international macroeconomics are that:	
A)	there is a consensus regarding the best policies to follow.	
B)	poor countries will become rich if they just adopt the institutions of the rich countries.	
C)	financial openness will quickly lead to economic growth.	
D)	the best policies to follow depend on the institutional structure of a country and the specific situation.	

85.	Problems in developing nations can involve:	
A)	governments with corrupt officials that increase the costs of starting and maintaining businesses.	
B)	too much emphasis on sound business practices and efficiency.	
C)	good institutions and reasonable taxes, which provide sufficient infrastructure for new business.	
D)	government that is too large to be effective.	

86.	Rent-seeking activities include:	
A)	bribes.	
B)	lobbying.	
C)	favoritism.	
D)	bribes, lobbying, and favoritism.	

87.	Rank these regions in order of economic growth from fastest to slowest: Europe, South America, and Africa.	
A)	Europe, Africa, South America	
B)	South America, Africa, Europe	
C)	Europe, South America, Africa	
D)	Africa, South America, Europe	

88.	According to the text, there are two reasons we care so much about exchange rates. List and fully explain these reasons in your own words.	

89.	What is an exchange rate crisis, and what are the characteristics of an exchange rate crisis?	

90.	Explain why/how a fall in the exchange rate of a country can lead to default.	

91.	Explain what is meant by the globalization of finance, and describe the trends in this area since 1970. Be sure to distinguish between the trends in advanced, emerging, and developing countries.	

92.	Explain why the current account balance of the world is zero.	

93.	What is the relationship between income, expenditure, current account and external wealth?	

94.	What is the link between current account imbalances and country risk?	

95.	What are the differences between a policy, a regime, and an institution?	

96.	Compare and contrast policies, regimes and institutions as they relate to government action.	

97.	"Governance" is an important element in economic success and prosperity for any nation. List at least four of the six dimensions presented in the text that are highly correlated with good economic outcomes.	

98.	The study of international macroeconomics will enable you to understand important issues and identify good solutions to problems and tensions. Name several items in the study of international macroeconomics, an understanding of which can help clarify and instruct policy and governance.	

99.	What are the six characteristics of “good” institutions, and why are they considered good (i.e., what are the benefits of good institutions)?	

100.	What role does history play in the “Great Divergence”?	

Answer Key

1.	C	
2.	B	
3.	B	
4.	D	
5.	C	
6.	C	
7.	D	
8.	B	
9.	B	
10.	C	
11.	C	
12.	B	
13.	B	
14.	B	
15.	C	
16.	A	
17.	A	
18.	B	
19.	A	
20.	D	
21.	B	
22.	B	
23.	B	
24.	B	
25.	C	
26.	C	
27.	D	
28.	C	
29.	B	
30.	D	
31.	A	
32.	A	
33.	B	
34.	A	
35.	C	
36.	C	
37.	D	
38.	B	
39.	A	
40.	D	
41.	C	
42.	A	
43.	C	
44.	C	
45.	B	
46.	C	
47.	A	
48.	C	
49.	D	
50.	C	
51.	B	
52.	D	
53.	C	
54.	D	
55.	B	
56.	C	
57.	B	
58.	B	
59.	A	
60.	A	
61.	D	
62.	C	
63.	D	
64.	B	
65.	B	
66.	D	
67.	A	
68.	B	
69.	B	
70.	B	
71.	C	
72.	A	
73.	A	
74.	C	
75.	C	
76.	B	
77.	B	
78.	D	
79.	D	
80.	A	
81.	A	
82.	B	
83.	A	
84.	D	
85.	A	
86.	D	
87.	C	
88.		
89.		
90.		
91.		
92.		
93.		
94.		
95.		
96.		
97.		
98.		
99.		
100.