Question Details

If domestic costs rose above foreign costs then 



1. "If Ukrainian prices hadn't risen in line with Russia, market forces would have sucked Ukraine dry of food and consumer goods as Russians sought cheaper goods than they could get at home." How would this result have been different if both areas had their own currencies? 
a) the Ukraine currency would have fallen and the Russian currency risen 
b) the Ukraine currency would have risen and the Russian currency fallen 
c) the currency values would not have changed because offsetting capital inflows to Russia would have occurred 
d) the currency values would not have changed because offsetting capital inflows to the Ukraine would have occurred 
2. "All countries that consistently run lower inflation rates than their trading partners over a long period of time have an upward trend in their......" This clipping is best completed with 
a) exports b) interest rate c) exchange rate d) unemployment rate 
3. "How does the average Chinese survive on just enough money each month for 17 Big Macs - which is what official Chinese per capita income implies? The answer is, of course, that he doesn't, because converting incomes at current exchange rates doesn't reflect .........." This clipping is best completed with 
a) tax differences b) inflation differences c) cost of living differences 
d) actual supplies of and demands for the currencies 
"A second issue concerns how long the fixed exchange rate could be maintained. This, of course, depends on an uncertain future, but if the initial value chosen was appropriate and if domestic costs remained in line with foreign costs, then the rate may be sustainable for some time." 
4. If domestic costs remain in line with foreign costs then these countries must have similar 
a) tax rates b) interest rates c) inflation rates d) unemployment rates 
5. If domestic costs rose above foreign costs then 
a) a balance of trade deficit would develop 
b) a balance of trade surplus would develop 
c) the balance of payments would be affected, but not the balance of trade 
d) capital inflows would adjust automatically to prevent an imbalance in the balance of trade



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