Managerial Economics Applications Strategies and Tactics 14th Edition McGuigan Test Bank Download

Managerial Economics Applications
Strategies and Tactics 14th Edition

McGuigan Test Bank
Full download at link: https://testbankpack.com/p/test-bank-for-
managerial-economics-applications-strategies-and-tactics-14th-
edition-mcguigan-moyer-harris-1305506383-9781305506381/
Multiple Choice
1. Using demand and supply curves for the Japanese yen based on the $/¥ price for yen, an increase in US INFLATION
RATES would
a. Decrease the demand for yen and decrease the supply of the yen.
b. Increase the demand for yen and decrease the supply of the yen.
c. Increase the demand and increase the supply of yen.
d. Decrease both the supply and the demand of yen.
e. Have no impact on the demand or supply of the yen.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
TOPICS: Determinants of Long-Run Trends in Exchange Rates
KEYWORDS: BLOOM’S: Comprehension
DATE CREATED: 6/21/2016 8:58 AM
DATE MODIFIED: 6/21/2016 8:58 AM
2. 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 the appreciating pound.
b. the US exporters will find it harder to sell to foreign customers in Britain.
c. the US importer of British goods will tend to find 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 foreign
exchange rates.
e. all of the above.
ANSWER: c
POINTS: 1
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3. Purchasing power parity or PPP says the ratios composed of:

a. interest rates explain the direction of exchange rates.
b. growth rates explain the direction of exchange rates.
c. inflation rates explain the direction of exchange rates.
d. services explain the direction exchange rates.
e. public opinion polls explain the direction of exchange rates.
ANSWER: c
POINTS: 1
TOPICS: Purchasing Power Parity
4. If Janet Yellen, Chair of the Federal Reserve Board, begins to tighten monetary policy by raising US interest rates next
year, what is the likely impact on the value of the dollar?
a. The value of the dollar falls when US interest rates rise.
b. The value of the dollar rises when US interest rates rise.
c. The value of the dollar is not related to US interest rates.
d. This is known as Purchasing Power Parity or PPP.
e. The Federal Reserve has no impact at all on interest rates.
ANSWER: b
POINTS: 1
TOPICS: Free Trade Areas: The European Union and NAFTA
DATE MODIFIED: 8/16/2016 3:41 PM
5. If the domestic prices for traded goods rises 5% in Japan and rises 7% the US over the same period, what would
happened to the Yen/US dollar exchange rate? HINT: S1/S0 = (1+πh) / (1+ πf) where S0 is the direct quote of the yen at
time 0, the current period.
a. The direct quote of the yen ($/¥) rises, and the value of the dollar falls.
b. The direct quote of the yen ($/¥) falls, and the value of the dollar rises.
c. The direct quote of the yen would remain the same.
d. Purchasing power parity does not apply to inflation rates.
e. Both a and d.
ANSWER: b
POINTS: 1
TOPICS: Import-Export Sales and Exchange Rates
6. US and Canada can both grow wheat and can do mining. Use the following table to look for which country has a
comparative advantage in mining. (HINT: Find the cost of mining in terms of wheat in each country.)
Absolute Cost in US Absolute Cost in Canada
Wheat $5 C$8
Mining $10 C$12
a. Canada has a comparative advantage in mining.
b. The US has a comparative advantage in mining.
c. No comparative advantage in mining exists for either nation.
d. We must first know the exchange rate to be able to answer this question.
e. Both a and b.
ANSWER: a
POINTS: 1
TOPICS: International Trade: A Managerial Perspective
7. The optimal currency area involves a trade-off of reducing transaction costs but the inability to use changes in
exchange rates to help ailing regions. If the US, Canada, and Mexico had one single currency (the Peso-Dollar) we would
tend to see all of the following EXCEPT:
a. Even more intraregional trade of goods across the three countries.
b. Lower transaction costs of trading within North America.
c. A greater difficulty in helping Mexico as you can no longer deflate the Mexican peso.
d. Less migration of workers across the three countries.
e. An elimination of correlated macroeconomic shocks across the countries.
ANSWER: d
POINTS: 1
8. 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
b. American inflation will increase
c. German exports of all traded goods will decline
d. American exports to Germany will decrease
e. sales by American manufacturers for the export markets will increase.
ANSWER: d
POINTS: 1
9. An appreciation of the U.S. dollar has what impact on Harley-Davidson (HD), a U.S. manufacturer of motorcycles?
a. domestic sales of HD motorcycles increase and foreign sales of HD motorcycles increase
b. domestic sales of HD motorcycles decrease and foreign sales of HD motorcycles increase
c. domestic sales of HD motorcycles increase and foreign sales of HD motorcycles decrease
d. domestic sales of HD motorcycles decrease and foreign sales of HD motorcycles decrease
e. only manufacturers who produce traded goods are affected
ANSWER: d
POINTS: 1
10. In the last twenty-five years, the Yen and German mark and now the Euro have
a. fluctuated widely against the dollar
b. appreciated against the dollar and then depreciated against the dollar
c. exchanged without restrictions
d. all of the above

e. none of the above
ANSWER: d
POINTS: 1
NATIONAL STANDARDS: United States - BPROG: Analytic
TOPICS: The Market for U.S. Dollars as Foreign Exchange
KEYWORDS: BLOOM’S: Knowledge
11. 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
a. raise the value of the currency
b. lower the nominal interest rate
c. increase the volume of trading in the foreign exchange market
d. lower the trade-weighted exchange rate
e. increase consumer inflation.
ANSWER: a
POINTS: 1
12. When a manufacturer's home currency appreciates substantially,

a. domestic sales decline
b. foreign sales decline
c. company-owned foreign plant and equipment will increase
d. margins often decline
e. all of the above
ANSWER: e
POINTS: 1

13. An increase in the exchange rate of the U.S. dollar relative to a trading partner can result from
a. higher anticipated costs of production in the U.S.
b. higher interest rates and higher inflation in the U.S.
c. higher growth rates in the trading partner's economy
d. a change in the terms of trade
e. lower export industry productivity
ANSWER: c
POINTS: 1
14. The purchasing power parity hypothesis implies that an increase in inflation in one country relative to another will
over a long period of time
a. increase exports
b. reduce the competitive pressure on prices
c. lower the value of the currency in the country with the higher inflation rate
d. increase foreign aid
e. increase the speculative demand for the currency
ANSWER: c
POINTS: 1
TOPICS: Purchasing Power Parity
15. Trading partners should specialize in producing goods in accordance with comparative advantage, then trade and
diversify in consumption because
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
ANSWER: e
POINTS: 1
DIFFICULTY: Modserate
16. European Union labor costs exceed U.S. and British labor costs primarily because
a. worker productivity is lower in the EU
b. union wages are higher in the EU
c. layoffs and plant closings are more restrictive in the U.S. and Britain
d. the amount of paid time off is higher in the EU
e. labor-management relations are better in the EU
ANSWER: d
POINTS: 1
17. Companies that reduce their margins on export products in the face of appreciation of their home currency may be
motivated by a desire to
a. sacrifice market share abroad but build market share at home
b. increase production volume to realize learning curve advantages
c. sell foreign plants and equipment to lower their debt
d. reduce the costs of transportation
e. all of the above
ANSWER: b
POINTS: 1
18. In a recession, the trade balance often improves because

a. service exports exceed manufactured good exports
b. banks sell depressed assets
c. fewer households can afford luxury imports
d. direct investment abroad declines
e. the capital account exceeds the current account
ANSWER: c
POINTS: 1
19. In Chinese coastal provinces, brick housing for a fast expanding middle class is very comparable in size to housing in
the U.S. for a family with median income of $51,000 because
a. median income per capita has risen in China to nearly equal median income in the U.S.
b. the Chinese government builds much of the housing in China
c. construction companies have begun to migrate to the coastal provinces of China
d. housing is an income inferior good
e. bricks, trade skill workers and construction labor are very cheap in China
ANSWER: e
POINTS: 1
20. The import of Apple iPads assembled in Shanghai at a $295 wholesale price ($213 cost and $82 profit margin) adds
more than it should to the U.S. trade deficit with China because
a. Chinese assembly labor represents only 47 % of the wholesale cost
b. the iPad’s popularity has triggered an enormous number of unit sales
c. wholesale prices only count in the trade statistics if final product prices are higher
d. as with foreign-assembled minivans, most of the subassembly components come from the U.S.
e. the Chinese yuan is a managed currency
ANSWER: d
POINTS: 1

KEYWORDS: BLOOM’S: Knowledge
21. Regarding operating risk exposure, which of the following statements is NOT true?
a. they are more difficult to hedge than transaction risk exposures
b. they are easier to forecast than translation risk exposures
c. they necessitate more managerial attention and extensive analysis
d. only a and b
e. all of the above are true
ANSWER: b
POINTS: 1
DATE CREATED: 8/16/2016 3:28 PM
22. Regarding short-range exchange rate movements, which of the following statements is NOT true?
a. they may vary from week to week
b. they may vary from hour to hour
c. are similar to those of the transaction demand determinants of long-term trends in exchange rates
d. determined by arbitrage activity
e. both a and b are false
ANSWER: c
POINTS: 1
TOPICS: The Market for U.S. Dollars as Foreign Exchange
DATE CREATED: 8/16/2016 3:29 PM
Subjective Short Answer
23. Suppose nominal interest rates in the U.S. rise from 4.6% to 5% and decline in Britain from 6% to 5.5%, while U.S.
consumer inflation remains unchanged at 1.9% and British inflation declines from 4% to 3%. In addition suppose, real
growth in the U.S. is forecasted for next year at 4% and in Britain real growth is forecasted at 5%. Finally, suppose
producer price inflation in the U.S. is declining from 2% to 1% while in Britain producer price inflation is rising from 2%
to 3.2%. Explain what effect each of these factors would have on the long-term trend exchange rate ( per $) and why?
ANSWER: Nominal interest rates should be adjusted for anticipated inflationary purchasing power loss
using current consumer inflation rates as a forecast of future consumer inflation. Hence in the
U.S. real rates of interest are 0.4% higher while British real rates have risen by 0.5%, an
insignificant difference.
Should the higher real growth rate forecast in Britain prove correct, this factor will cause
British imports to increase, American exports to increase, transaction demand for U.S. dollars
to increase, and the dollar to appreciate. If the forecasts are reliable, speculators may drive the
dollar higher now in anticipation of these events.
Falling producer prices in the U.S. and rising producer prices in Britain imply that American
exports will expand again, causing dollar appreciation. The reason is that the PPI measures
the expected costs that manufacturers of exports will want to recover in long-term supply
contracts written today. So buyers around the world will likely get lower, more attractive
prices from American exporters than from British exporters and, therefore, will execute more
purchase contracts with American companies.
Two of the three factors suggest longer-term appreciation of the dollar.

POINTS: 1
QUESTION TYPE: Subjective Short Answer

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Managerial Economics Applications

Strategies and Tactics 14th Edition

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

Copyright Cengage Learning. Powered by Cognero. Page 1

3. Purchasing power parity or PPP says the ratios composed of:

Copyright Cengage Learning. Powered by Cognero. Page 4

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

Copyright Cengage Learning. Powered by Cognero. Page 5

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

Copyright Cengage Learning. Powered by Cognero. Page 8

Subjective Short Answer

Two of the three factors suggest longer-term appreciation of the dollar.

Copyright Cengage Learning. Powered by Cognero. Page 10

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