Question 1

Suppose the exchange rate between the Canadian dollar and the Japanese yen was $1 = 220 yen in 2012.In 2014, the exchange rate was $1 = 100 yen.Refer to the above information.Between 2012 and 2014, the:

Accepted Answer

The yen appreciated in value relative to the dollar. This is because in 2012, $1 could buy 220 yen, but in 2014, $1 could only buy 100 yen. The decrease in the number of yen that can be purchased for $1 indicates that the yen has become relatively more valuable or appreciated in value relative to the dollar.

Question 2

The following table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place.  Refer to the above table.The exchange rate is:

Accepted Answer

The answer of The following table indicates the dollar price...

Question 3

Assume that Switzerland and Britain have flexible exchange rates.Other things unchanged, if the price level is stable in Britain but Switzerland experiences rapid inflation:

Accepted Answer

When Switzerland experiences rapid inflation while Britain's price level is stable, the Swiss franc will depreciate because the purchasing power of the franc decreases, making Swiss goods more expensive relative to British goods. This leads to a decrease in demand for the franc and an increase in demand for the pound.

Question 4

The following table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place.  Refer to the above table.The equilibrium dollar price of libras is:

Accepted Answer

The answer of The following table indicates the dollar price...

Question 5

Under a system of flexible exchange rates a Canadian trade deficit with Mexico will tend to cause:

Accepted Answer

A trade deficit occurs when a country is importing more goods and services than it is exporting. In a system of flexible exchange rates, the market will adjust the exchange rate to reflect the relative demand for currencies. As Canadians import more from Mexico, they will need to exchange Canadian dollars for Mexican pesos, increasing the demand for pesos and reducing the demand for Canadian dollars. This will cause the peso to appreciate relative to the Canadian dollar, which means that it will take more Canadian dollars to buy the same amount of pesos. Therefore, there will be an increase in the dollar price of pesos.

Question 6

An increase in Canadian interest rates can be expected to:

Accepted Answer

An increase in Canadian interest rates typically strengthens the Canadian dollar, making Canadian goods more expensive for foreign buyers, thus adversely affecting Canadian exporters.

Question 7

Suppose interest rates fall sharply in Canada but are unchanged in Great Britain.Other things unchanged, under a system of flexible exchange rates we can expect the demand for pounds in Canada to:

Accepted Answer

When interest rates fall in Canada, the demand for Canadian dollars decreases as investors seek higher interest rates. This would result in a decrease in the demand for pounds in Canada, causing the supply of pounds to increase. As a result, the value of the pound would appreciate relative to the dollar, causing the dollar to depreciate relative to the pound. Therefore, the best choice is C.

Question 8

Assume that, under a system of flexible exchange rates, Mexicans decide to increase their investments in Canada.As a result:

Accepted Answer

If Mexicans increase their investments in Canada, they will need Canadian dollars to purchase Canadian assets. To obtain Canadian dollars, Mexicans will sell pesos on the foreign exchange market, increasing the supply of pesos relative to the demand. This will cause the value of the peso to depreciate. On the other hand, Canadians will need pesos to purchase Mexican goods at the new exchange rate. To obtain pesos, Canadians will sell Canadian dollars, increasing the supply of Canadian dollars relative to the demand. This will cause the value of the Canadian dollar to appreciate. Therefore, the peso will depreciate and the Canadian dollar will appreciate in value.

Question 9

Refer to the diagram below where D and S are Canada's demand for and supply of Swiss francs.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.A shift of the demand curve to D' might be the result of:

Accepted Answer

The answer of Refer to the diagram below where D...

Question 10

Which of the following will generate a demand for country X's currency in the foreign exchange market?

Accepted Answer

All of the above options generate demand for country X's currency in the foreign exchange market. When foreigners travel to country X, they need to exchange their currency for country X's currency, thereby increasing demand. Similarly, when foreigners buy stocks and bonds of firms in country X, they need to exchange their currency for country X's currency, leading to an increase in demand. Lastly, when country X exports goods and services to other countries, they receive payment in foreign currency, which leads to an increase in the demand for their own currency.

Question 11

Assume that Switzerland and Britain have flexible exchange rates.Other things unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland:

Accepted Answer

The answer of Assume that Switzerland and Britain have flexible...

Question 12

Assume that Switzerland and Britain have flexible exchange rates.Other things unchanged, if economic growth is more rapid in Switzerland than in Britain:

Accepted Answer

When economic growth is more rapid in Switzerland, it may lead to increased imports and capital outflows, causing the Swiss franc to depreciate relative to the pound.

Question 13

Depreciation of the Canadian dollar will tend to:

Accepted Answer

Depreciation of the Canadian dollar makes imports more expensive for Canadians as they need more Canadian dollars to buy foreign currency. Conversely, it makes Canadian exports cheaper for foreigners as they need less of their currency to buy Canadian dollars.

Question 14

If Canada has full employment and the dollar dramatically depreciates in value, we can expect:

Accepted Answer

When the Canadian dollar depreciates, imported goods become more expensive, leading to higher overall price levels, which can cause inflation.

Question 15

If country A experiences rapid inflation while country B has a stable price level, this will:

Accepted Answer

The answer of If country A experiences rapid inflation while...

Question 16

Which of the following have substantially equivalent effects insofar as a nation's volume of exports and imports is concerned?

Accepted Answer

The answer of Which of the following have substantially equivalent...

Question 17

The following table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place.  Refer to the above table.Suppose that Libra decided to import more Canadian products.We would expect the quantity of libras:

Accepted Answer

The answer of The following table indicates the dollar price...

Question 18

Suppose the exchange rate between the Canadian dollar and the Japanese yen was $1 = 220 yen in 2012.,In 2014, the exchange rate was $1 = 100 yen.Refer to the above information.Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate in 2014?

Accepted Answer

The answer of Suppose the exchange rate between the Canadian...

Question 19

According to the purchasing power parity theory of exchange rates:

Accepted Answer

The purchasing power parity theory of exchange rates suggests that in the long run, exchange rates should adjust in a way that the same basket of goods and services should cost the same amount in different countries. This implies that a dollar should have the same purchasing power in different countries when converted at the prevailing exchange rate. Choice B is incorrect because the theory of purchasing power parity is based on price levels of goods and services and not gold. Choice C is incorrect as it describes the principle of law of one price, which is related to the theory of purchasing power parity but not the same.

Question 20

The idea that flexible exchange rates equate the purchasing power of national currencies is called the:

Accepted Answer

The idea that flexible exchange rates equate the purchasing power of national currencies is called the purchasing power parity theory. This theory suggests that the exchange rate between two currencies should adjust until the cost of an identical basket of goods is the same in both countries, after accounting for the exchange rate.

Quiz 18: B: The Balance of Payments and Exchange Rates

Suppose the exchange rate between the Canadian dollar and the Japanese yen was $1 = 220 yen in 2012.In 2014, the exchange rate was $1 = 100 yen.Refer to the above information.Between 2012 and 2014, the:

The following table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place. Refer to the above table.The exchange rate is:

Assume that Switzerland and Britain have flexible exchange rates.Other things unchanged, if the price level is stable in Britain but Switzerland experiences rapid inflation:

The following table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place. Refer to the above table.The equilibrium dollar price of libras is:

Under a system of flexible exchange rates a Canadian trade deficit with Mexico will tend to cause:

An increase in Canadian interest rates can be expected to:

Suppose interest rates fall sharply in Canada but are unchanged in Great Britain.Other things unchanged, under a system of flexible exchange rates we can expect the demand for pounds in Canada to:

Assume that, under a system of flexible exchange rates, Mexicans decide to increase their investments in Canada.As a result:

Refer to the diagram below where D and S are Canada's demand for and supply of Swiss francs.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.A shift of the demand curve to D' might be the result of:

Which of the following will generate a demand for country X's currency in the foreign exchange market?

Assume that Switzerland and Britain have flexible exchange rates.Other things unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland:

Assume that Switzerland and Britain have flexible exchange rates.Other things unchanged, if economic growth is more rapid in Switzerland than in Britain:

Depreciation of the Canadian dollar will tend to:

If Canada has full employment and the dollar dramatically depreciates in value, we can expect:

If country A experiences rapid inflation while country B has a stable price level, this will:

Which of the following have substantially equivalent effects insofar as a nation's volume of exports and imports is concerned?

The following table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place. Refer to the above table.Suppose that Libra decided to import more Canadian products.We would expect the quantity of libras:

Suppose the exchange rate between the Canadian dollar and the Japanese yen was $1 = 220 yen in 2012.,In 2014, the exchange rate was $1 = 100 yen.Refer to the above information.Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate in 2014?

According to the purchasing power parity theory of exchange rates:

The idea that flexible exchange rates equate the purchasing power of national currencies is called the: