Quiz 10
1. Everyone expects the US stock market to be very risky in the coming months. How will this affect the value of the USD?
a. The USD will appreciate
b. The USD will depreciate
c. The value of the USD will stay the same
d. We cannot determine what will happen to the value of the USD
2. Given your answer to question 1… how will this affect the amount of importing that the US does?
a. Imports will increase
b. Imports will decrease
c. Imports will stay the same
3. Given your answer to question 1… how will this affect the amount of exporting that the US does?
a. Exports will increase
b. Exports will decrease
c. Exports will stay the same
4. Given your answers to the questions above… how will this affect the dollar-amount of US bonds that are purchased by Chinese investors?
a. The amount of money that Chinese citizens invest in US bonds will increase
b. The amount of money that Chinese citizens invest in US bonds will decrease
c. The amount of money that Chinese citizens invest in US bonds will stay the same
5. Given your answers to the questions above… how will this affect housing prices in the US?
a. Housing prices will increase
b. Housing prices will decrease
c. Housing prices will stay the same
6. Given your answers to the questions above… how will this affect the price of lumber in the US?
a. Lumber prices will increase
b. Lumber prices will decrease
c. Lumber prices will stay the same
7. When China intentionally devalues its currency, this leads to…
a.
More goods exported from China to the US and Chinese citizens saving more money in the US
b.
More goods exported from China to the US and Chinese citizens saving less money in the US
c. Fewer goods exported from China to the US and Chinese citizens saving more money in the US
d. Fewer goods exported from China to the US and Chinese citizens saving less money in the US
8. The advent of CDOs ___________ for housing. This resulted in ____________ for housing.
a. Increased the savers’ curve; increased demand
b. Increased the savers’ curve; decreased demand
c. Increased the savers’ curve; increased supply
d. Increased the savers’ curve; decreased supply
e. Increased the borrowers’ curve; increased demand
f. Increased the borrowers’ curve; decreased demand
g. Increased the borrowers’ curve; increased supply
h. Increased the borrowers’ curve; decreased supply
9. A Big Mac is priced at $3.95 in the US and 14.25 Krone in Denmark. Currently, the nominal exchange rate means that $1 is worth 0.82 Krones. Solve for the RER from Denmark’s perspective and explain specifically what this value means.
10. A Big Mac is priced at $3.95 in the US and 11.25 Krone in Denmark. Currently, the nominal exchange rate means that $1 is worth 0.82 Krones. Solve for the RER from Denmark’s perspective and explain specifically what this value means.
11. If the price of avocados increases, how will this affect the market for tortilla chips? (note that avocados are used to make guacamole)
a. The price or tortilla chips will rise, the quantity of tortilla chips will rise
b. The price or tortilla chips will rise, the quantity of tortilla chips will fall
c. The price or tortilla chips will fall, the quantity of tortilla chips will rise
d. The price or tortilla chips will fall, the quantity of tortilla chips will fall
e. None of the above.
12. Draw the “market for Pesos” graph for Mexico (relative to the Euro) AND the market for the Euro (relative to Pesos). Suppose that the US stock market investments are expected to be extremely profitable in the coming months. How will this affect the market for Pesos (ceteris paribus)?
a. The Peso will appreciate relative to the Euro.
b. The Peso will depreciate relative to the Euro.
c. The Peso’s value will not change relative to the Euro.
d. We cannot determine what will happen the Peso’s value relative to the Euro.
13. Draw the “market for Pesos” graph for Mexico (relative to the Euro) AND the market for the Euro (relative to Pesos). Suppose that the US stock market investments are expected to be extremely profitable in the coming months. How will this affect the market for Pesos (ceteris paribus)?
a. The quantity of Pesos exchanged for Euros will increase.
b. The quantity of Pesos exchanged for Euros will decrease.
c. The quantity of Pesos exchanged for Euros will not change.
d. We cannot determine what will happen to the quantity of Pesos exchange for Euros.
14. In the past year or so, the US government has offered increasingly better interest rates to foreign and domestic investors in an effort to borrow trillions of dollars. This will…
a. Make the trade deficit with China bigger
b. Make the trade deficit with China smaller
c. Not affect the trade deficit with China
15. In the past year or so, the US government has offered increasingly better interest rates to foreign and domestic investors in an effort to borrow trillions of dollars. Considering general equilibrium theory, explain how this will affect the housing market in the US. Be sure to identify the effects (if any) on supply, demand, price, and quantity. (This question is worth 2 points)
16. If I’m going to buy a house in three years (using cash,
not
a mortgage). During this three-year period, I hope that the China…
a. Devalues its currency
b. Doesn’t devalue its currency
17. Which of the following would be the least risky investment?
a. An investment in a traditional mortgage-backed security
b. The top tranche of a CDO
c. The middle tranche of a CDO
d. The bottom tranche of a CDO
18. When a person defaults on their mortgage, this will… (choose the most obvious answer)
a. Increase housing demand and increase housing prices
b. Increase housing demand and decrease housing prices
c. Decrease housing demand and increase housing prices
d. Decrease housing demand and decrease housing prices
e. Increase housing supply and increase housing prices
f. Increase housing supply and decrease housing prices
g. Decrease housing supply and increase housing prices
h. Decrease housing supply and decrease housing prices
19. Homebuyers are more likely to go underwater on their mortgage when their downpayment is…
a. Large
b. Small
20. In 2005, everyone expected housing prices to rise. How did this expectation affect the housing market?
a. Supply and demand to increase
b. Supply to increase; demand to decrease
c. Supply to decrease; demand to increase
d. Supply and demand to decrease