1. If the value of the U.S. dollar rises from €1.0 per dollar to €1.3 per dollar,

    a.   imports of automobiles from Germany will decline

1. American inflation will increase
2. German exports of all traded goods will decline
3. American exports to Germany will decrease
4. sales by American manufacturers for the export markets will increase.

2.   An appreciation of the U.S. dollar has what impact on U.S. manufacturers?

1. domestic sales increase and foreign sales increase
2. domestic sales decrease and foreign sales increase
3. domestic sales increase and foreign sales decrease
4. domestic sales decrease and foreign sales decrease

3.     In the last twenty-five years, the Yen and German mark and now the Euro have

1. fluctuated widely against the dollar
2. appreciated against the dollar
3. exchanged without restrictions
4. all of the above
5. none of the above

4.  In an open economy with few capital restrictions and substantial import-export trade, a rise in interest rates and a decline in the producer price index of inflation will

1. raise the value of the currency
2. lower the nominal interest rate
3. increase the volume of trading in the foreign exchange market
4. lower the trade-weighted exchange rate
5. increase consumer inflation.

5. When a manufacturer's home currency appreciates substantially,

1. domestic sales decline
2. foreign sales decline
3. company-owned foreign plant and equipment will increase
4. margins often decline
5. all of the above

6.           An increase in the exchange rate of the U.S. dollar relative to a trading partner can result from

1. higher anticipated costs of production in the U.S.
2. higher interest rates and higher inflation in the U.S.
3. higher growth rates in the trading partner's economy
4. a change in the terms of trade
5. lower export industry productivity

7.  The purchasing power parity hypothesis implies that an increase in inflation in one country relative to another will over a long period of time

1. increase exports
2. reduce the competitive pressure on prices
3. lower the value of the currency
4. increase foreign aid
5. increase the speculative demand for the currency

8.  The North America Free Trade Association (NAFTA)

1. encompasses less than 15% of world trade
2. includes the two largest trading partners of the U.S.
3. exceeds the EU's share of world trade
4. all of the above
5. none of the above

9.   Trading partners should specialize production in accordance with comparative advantage, then trade and diversify in consumption because

1. out-of-pocket costs of production decline
2. free trade areas protect infant industries
3. economies of scale are present
4. manufacturers face diminishing returns
5. more goods are available for consumption

10.  European Union labor costs exceed U.S. and British labor costs primarily because

1. worker productivity is lower in the EU
2. union wages are higher in the EU
3. layoffs and plant closings are more restrictive in the U.S. and Britain
4. paid time off is higher in the EU
5. labor-management relations are better in the EU

11.  Companies that reduce their margins on export products in the face of appreciation of their home currency may be motivated by a desire to

1. sacrifice market share abroad but build market share at home
2. increase production volume to realize learning curve advantages
3. sell foreign plants and equipment to lower their debt
4. reduce the costs of transportation
5. all of the above

12.In a recession, the trade balance often improves because

1. service exports exceed manufactured good exports
2. banks sell depressed assets
3. fewer households can afford luxury imports
4. direct investment abroad declines
5. the capital account exceeds the current account