Lesson M4.2.2

M4.2.2 Causes and consequences of exchange rate changes Quiz: OCR Economics, Unit 9

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson M4.2.2, Causes and consequences of exchange rate changes: 20 multiple choice questions for the OCR Economics (H460), Unit 9: The global context, written with Revision Ninja.

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The 20 questions

  1. What term describes a fall in the value of a currency in a floating exchange rate system?

    • Depreciation
    • Appreciation
    • Devaluation
    • Revaluation

  2. What term describes an official reduction in the fixed value of a country's currency?

    • Devaluation
    • Appreciation
    • Depreciation
    • Revaluation

  3. Which condition states that currency depreciation improves trade balance only if export/import elasticities sum above one?

    • Purchasing power parity
    • Fisher equation
    • Harrod-Domar model
    • Marshall-Lerner condition

  4. Which effect describes a worsening trade balance immediately following currency depreciation before long-term improvement?

    • Accelerator effect
    • J-curve effect
    • Multiplier effect
    • Crowding out effect

  5. If UK interest rates increase relative to other countries, what happens to the exchange value of pounds?

    • It appreciates
    • It revalues
    • It depreciates
    • It devalues

  6. Which acronym describes the effect of a stronger domestic currency on import and export prices?

    • PED
    • WACC
    • SPICED
    • WPIDEC

  7. What happens to domestic cost-push inflation when a country's currency depreciates?

    • It increases
    • It remains constant
    • It fluctuates randomly
    • It decreases

  8. What happens to official foreign reserves when a central bank defends a fixed exchange rate against depreciation?

    • They decrease
    • They double
    • They remain unchanged
    • They increase

  9. Which exchange rate system is determined entirely by market supply and demand without central bank intervention?

    • Pegged system
    • Fixed system
    • Floating system
    • Managed system

  10. What term describes short-term speculative financial capital moving rapidly between countries seeking high interest rates?

    • Direct investment
    • Portfolio debt
    • Sovereign debt
    • Hot money

  11. If export demand elasticity is 0.4 and import demand elasticity is 0.3, will depreciation improve trade balance?

    • No, sum equals 1
    • No, sum below 1
    • Yes, sum equals 0.7
    • Yes, sum above 1

  12. Which exchange rate system pegs currency value to another currency while allowing fluctuation within narrow bands?

    • Free market system
    • Pure floating system
    • Semi-fixed system
    • Sovereign union system

  13. How does a depreciation of the pound affect international price competitiveness of UK export goods?

    • Competitiveness increases
    • Competitiveness decreases
    • Competitiveness stays equal
    • Competitiveness disappears

  14. Which balance of payments account directly records the trade balance in physical goods and services?

    • Current account
    • Reserve account
    • Financial account
    • Capital account

  15. Why might strong currency appreciation lead to a decrease in real GDP growth in the short run?

    • Increased money supply
    • Lower net exports
    • Higher import costs
    • Rising hyperinflation

  16. What happens to the market supply of pounds if UK consumers significantly increase imports from Europe?

    • Shifts to left
    • Moves along curve
    • Does not shift
    • Shifts to right

  17. Why is import demand often price inelastic in the immediate short run following a currency depreciation?

    • Fixed trade contracts
    • Flexible supplier networks
    • Perfect factor mobility
    • High cross elasticity

  18. If inflation in the UK is significantly higher than in major trading partners, what happens to pounds?

    • It stays unchanged
    • It depreciates
    • It appreciates
    • It revalues

  19. What term describes central bank buying or selling of currency within a floating exchange rate system?

    • Free floating
    • Fixed pegging
    • Managed floating
    • Fiscal intervention

  20. How does sustained currency depreciation affect economic growth in domestic industries focused on exports?

    • Prevents growth
    • Reduces growth
    • Causes recession
    • Increases growth

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