Question 1

(Figure: Exchange Rate Shifts) When demand for U.S. goods increases, the demand curve will shift from _____ to _____, and the exchange rate will shift from _____ to _____.

Accepted Answer

The answer of (Figure: Exchange Rate Shifts) When demand for...

Question 2

Which fiscal event increases a country's current account?

Accepted Answer

A drop in disposable income typically leads to a decrease in consumer spending on imported goods, which can improve a country's current account by reducing its imports.

Question 3

If the dollar depreciates relative to the yuan, then American exports to China will

Accepted Answer

When the dollar depreciates relative to the yuan, exports from the US to China become relatively cheaper for Chinese consumers. This makes American goods more competitive in the Chinese market and increases demand for them, leading to an increase in exports.

Question 4

Suppose a car sells for $20,000 in the United States while the same car sells for 2.4 million yen in Japan. Which exchange rate is consistent with purchasing power parity?

Accepted Answer

The exchange rate that is consistent with purchasing power parity is the one that equalizes the prices of goods in the two countries. If we convert the price of the car in Japan from yen to dollars using the current exchange rate of approximately ¥110 for US$1, we get a price of approximately $21,818. This is higher than the price of the same car in the United States, suggesting that the yen is overvalued relative to the dollar. Using purchasing power parity, we would expect the exchange rate to be somewhere between ¥120 and ¥130 for US$1, which would make the price of the car in Japan roughly equal to its price in the United States. Thus, the best choice is A.

Question 5

The rate of exchange that allows a specific amount of currency in one country to purchase the same quantity of goods in another country is called

Accepted Answer

This is the definition of purchasing power parity. The real and nominal exchange rates do not specifically refer to the ability to purchase goods in another country, and current account exchange is not a commonly recognized term.

Question 6

A currency depreciates when

Accepted Answer

A currency depreciates when its value decreases relative to other currencies. This can happen due to various factors such as inflation, political instability, a widening trade deficit, or a decrease in demand for that currency in the international market. When a currency depreciates, it means that it can buy fewer units of other currencies, making imports more expensive and exports cheaper.

Question 7

The two main parts of the balance of payments are the _____ accounts.

Accepted Answer

The capital account and current account are the two main components of the balance of payments. The current account includes all transactions related to goods, services, and income, while the capital account includes transactions related to capital transfers and the acquisition or disposal of non-produced, non-financial assets.

Question 8

Suppose the exchange rate is US$1 = ¥100. This means that

Accepted Answer

An exchange rate of US$1 = ¥100 means that someone with US$1 can purchase 100 yen. Option A is incorrect because it states that it takes US$100 to purchase 1 yen, which is the opposite of the given exchange rate. Option C is unsupported by the information given and Option D is incorrect because the given exchange rate is already stated as US$1 = ¥100, not 1 yen per dollar.

Question 9

Which of these items is NOT a component of the balance of payments account?

Accepted Answer

The commercial account is not a component of the balance of payments account. The other three options (capital account, current account, financial account) are all categories that make up the balance of payments.

Question 10

Money provided by the United States to disable landmines in Serbia is included in the _____ account.

Accepted Answer

The money provided by the United States to disable landmines in Serbia would fall under the category of transfers, which includes government grants, foreign aid, and other similar transfers between countries. Imports and exports refer to goods and services being brought into or out of a country, while capital refers to investments and financial assets.

Question 11

Suppose a country is undergoing political, economic, and social turmoil. Many foreign businesses no longer wish to buy either goods or financial securities in this country. The country's currency would be expected to

Accepted Answer

When foreign businesses lose confidence in a country due to political, economic, and social turmoil, they are less likely to buy goods or financial securities from that country, which leads to a decrease in demand for the country's currency. As a result, the currency is expected to depreciate in value.

Question 12

Absolute purchasing power parity suggests that the real exchange rate between two countries will be equal to

Accepted Answer

Absolute purchasing power parity suggests that the real exchange rate between two countries will be equal to 1, or the nominal exchange rate will adjust to reflect the difference in price levels between two countries. This implies that a unit of currency in one country will have the same purchasing power as a unit of currency in another country.

Question 13

If the dollar gets weaker against most major foreign currencies

Accepted Answer

When the dollar weakens against major foreign currencies, it means that more dollars are needed to buy the same amount of foreign currency. This makes foreign products more expensive for American consumers, as it costs more dollars to purchase these products.

Question 14

(Figure: Exchange Rate Shifts) When demand for U.S. goods increases, the U.S. dollar will _____, and the equilibrium exchange rate will shift from _____ to _____.

Accepted Answer

The answer of (Figure: Exchange Rate Shifts) When demand for...

Question 15

If the United States is trading with Italy and has high inflation while Italy does not, the prices of American goods in Italy will be high.

Accepted Answer

If the US has high inflation, the prices of American goods will be high regardless of where they are sold, including in Italy. This means that American goods will be relatively more expensive than Italian goods, and hence may not be as competitive in the Italian market.

Question 16

In 2018, U.S. imports totaled about

Accepted Answer

In 2018, U.S. imports were approximately $3,123 billion, which is equivalent to $3.123 trillion.

Question 17

The balance of trade is/are

Accepted Answer

The balance of trade is the difference between a country's exports of goods and services and its imports of goods and services. It is commonly used as an indicator of a country's economic strength and competitiveness in the global marketplace.

Question 18

Usually, the country with the most rapid income growth also sees

Accepted Answer

The answer of Usually, the country with the most rapid...

Question 19

In the exchange market between the U.S. dollar and the yen, a person who has a demand for dollars also

Accepted Answer

In the exchange market, when a person demands dollars, it means they are looking to acquire dollars in exchange for another currency. In this case, if they are exchanging yen for dollars, they are supplying yen to the market in order to receive dollars.

Question 20

Today, monetary policies are relatively unlikely to be reinforced because of the flexible exchange rate system.

Accepted Answer

Monetary policies can still be effectively implemented in countries with flexible exchange rate systems. The flexibility in exchange rates can actually provide central banks with more autonomy in using monetary policy tools to manage the economy, as they are not committed to maintaining a fixed exchange rate.

Quiz 16: Open Economy Macroeconomics

(Figure: Exchange Rate Shifts) When demand for U.S. goods increases, the demand curve will shift from ___ to _, and the exchange rate will shift from _ to ___.