1. The use of quarterly data to develop the forecasting model Yt = a +bYt-1 is an illustration of which forecasting method?

a) Barometric forecasting

b) Time-series forecasting

c) Survey and opinion

d) Econometric methods based on an understanding of the underlying economic variables included

e) Input-output analysis

2. Purchasing power parity or PPP states the ratios composed of:

a) interest rates describe the direction of exchange rates.

b) growth rates describe the direction of exchange rates.

c) inflation rates describe the direction of exchange rates.

d) services describe the direction exchange rates.

e) public opinion polls describe the direction of exchange rates.

3. If Ben Bernanke, Chair of the Federal Reserve Board, starts to tighten monetary policy by increasing US interest rates next year, what is the probable impact on the value of the dollar?

a) The value of the dollar drops when US interest rates rise.

b) The value of the dollar increases when US interest rates rise.

c) The value of the dollar is not associated to US interest rates.

d) This is termed as Purchasing Power Parity or PPP.

4. If the British pound (£) appreciates by 10% against the dollar:

a) both the US importers from Britain and US exporters to Britain will be helped by appreciating pound.

b) the US exporters will find out it harder to sell to foreign customers in Britain.

c) the US importer of British goods will tend to find out that their cost of goods rises, hurting its bottom line.

d) both US importers of British goods and exporters to Britain will be unaffected by changes in the foreign exchange rates.

5. Trading partners must specialize in producing goods in accordance with comparative benefit, then trade and diversify in consumption as:

a) out-of-pocket costs of production decline

b) free trade areas protect infant industries

c) economies of scale are present

d) manufacturers face diminishing returns

e) more goods are available for consumption