Question 1

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph. An increase in the demand for yen will result in

Accepted Answer

The answer of  Assume that Japan and the United...

Question 2

If there is a recession in the United Kingdom and a reduction in British imports, and an economic boom in the United States and an increase in U.S. imports, then these events are most likely to cause the British pound to

Accepted Answer

The British pound is likely to appreciate because there is a reduction in British imports, which means that there is less demand for the pound. The U.S. dollar is likely to depreciate because there is an increase in U.S. imports, which means that there is more demand for the dollar.

Question 3

A market basket of goods costs $350 in the United States and 200 pounds in the United Kingdom. According to the purchasing power parity theory, the exchange rate should move toward

Accepted Answer

The answer of A market basket of goods costs $350...

Question 4

According to the purchasing power parity theory, exchange rates will eventually adjust such that they equalize the various

Accepted Answer

Purchasing power parity theory posits that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries. This means that the amount of goods and services one can buy with a certain amount of currency should be the same regardless of the country.

Question 5

If currency speculators believe South Korea will have much lower inflation in the future than the United States, then this event is most likely to cause the South Korean won to

Accepted Answer

Lower inflation in South Korea compared to the United States makes the South Korean won more attractive to investors, leading to its appreciation. Conversely, the U.S. dollar would depreciate relative to the won.

Question 6

Assume that Japan and the United States are engaged in a system of flexible exchange rates. If more people in the United States decide to purchase Japanese cars, what effect will this have on the market for yen?

Accepted Answer

When more people in the United States decide to purchase Japanese cars, they need to convert their dollars into yen to make the purchase. This increases the demand for yen, which, under a system of flexible exchange rates, leads to an increase in the price of yen.

Question 7

If the U.S. national income grows much faster than that of Canada, this would tend to make the U.S. dollar

Accepted Answer

If the U.S. national income grows much faster than Canada's, Americans may increase their demand for Canadian goods and services, leading to a higher demand for Canadian dollars. This increased demand for Canadian dollars would cause the U.S. dollar to depreciate against the Canadian dollar.

Question 8

Which of the following would tend to raise the value of the U.S. dollar in foreign exchange markets?

Accepted Answer

A rise in U.S. interest rates would attract foreign capital, increasing demand for the U.S. dollar and raising its value in foreign exchange markets.

Question 9

With flexible exchange rates, an increase in U.S. interest rates can be expected to

Accepted Answer

An increase in U.S. interest rates makes U.S. financial assets more attractive to investors, leading to an appreciation of the dollar. This makes U.S. goods more expensive abroad, adversely affecting U.S. exporters.

Question 10

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph. An increase in the supply of yen will result in

Accepted Answer

The answer of  Assume that Japan and the United...

Question 11

Assume that U.S. and European governments adopt a system of flexible exchange rates. The figure shows the market for euros. If currency traders think the European economy will experience a recession and the U.S. economy will not, then this event will most likely cause the

Accepted Answer

The answer of  Assume that U.S. and European governments...

Question 12

Assume that U.S. and European governments adopt a system of flexible exchange rates. The figure shows the market for euros. One U.S. dollar will purchase how many euros?

Accepted Answer

The answer of  Assume that U.S. and European governments...

Question 13

Which of the following is not a major disadvantages of a flexible exchange-rate system?

Accepted Answer

Option B is incorrect because it describes a disadvantage of a fixed exchange-rate system, not a flexible exchange-rate system. In a flexible exchange-rate system, the currency's value is allowed to fluctuate according to the foreign exchange market, and there is no need to maintain foreign-exchange reserves to support the currency's value.

Question 14

If real interest rates rise in the United Kingdom relative to the United States, then this event is most likely to cause the British pound to

Accepted Answer

When real interest rates rise in the United Kingdom relative to the United States, it makes holding assets denominated in British pounds more attractive, leading to an inflow of capital into the UK. This increased demand for the pound causes it to appreciate, while the U.S. dollar, in comparison, depreciates.

Question 15

If Japanese autos surge in popularity in the United States, then this event is most likely to cause the Japanese yen to

Accepted Answer

If Japanese autos surge in popularity in the United States, this will lead to an increase in demand for Japanese goods and services, thereby increasing the demand for the Japanese yen. As a result, the Japanese yen is likely to appreciate while the U.S. dollar depreciates.

Question 16

Assume that U.S. and European governments adopt a system of flexible exchange rates. The figure shows the market for euros. If more people in Europe decide to purchase U.S. cars, what effect will this have on the market for euros?

Accepted Answer

The answer of  Assume that U.S. and European governments...

Question 17

Assume that Japan and the United States are engaged in a system of flexible exchange rates. If more Japanese tourists decide to visit the United States for their vacations,

Accepted Answer

When more Japanese tourists visit the United States, they convert yen into U.S. dollars, increasing the demand for dollars and the supply of yen in foreign exchange markets. This leads to the appreciation of the U.S. dollar and the depreciation of the yen.

Question 18

An increase in the income of country A relative to the income of country B will usually lead to an increase in country

Accepted Answer

The answer of An increase in the income of country...

Question 19

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph. One U.S. dollar will purchase how many Japanese yen?

Accepted Answer

The answer of  Assume that Japan and the United...

Question 20

Suppose that a U.S. firm converts dollars into pounds in order to invest in a British enterprise in the U.K. A year later, the return on the investment is 12 percent in terms of pounds. If, during that period, the dollar appreciated against the pound, then the return on the investment in dollar terms would be

Accepted Answer

When the dollar appreciates against the pound, the value of the pound decreases relative to the dollar. Therefore, when converting the investment returns back to dollars, the investor receives fewer dollars per pound than initially invested, leading to a return in dollar terms that is less than the 12 percent return in terms of pounds.

Quiz 27: The Balance of Payments, Exchange Rates, and Trade Deficits

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph. An increase in the demand for yen will result in

If there is a recession in the United Kingdom and a reduction in British imports, and an economic boom in the United States and an increase in U.S. imports, then these events are most likely to cause the British pound to

A market basket of goods costs $350 in the United States and 200 pounds in the United Kingdom. According to the purchasing power parity theory, the exchange rate should move toward

According to the purchasing power parity theory, exchange rates will eventually adjust such that they equalize the various

If currency speculators believe South Korea will have much lower inflation in the future than the United States, then this event is most likely to cause the South Korean won to

Assume that Japan and the United States are engaged in a system of flexible exchange rates. If more people in the United States decide to purchase Japanese cars, what effect will this have on the market for yen?

If the U.S. national income grows much faster than that of Canada, this would tend to make the U.S. dollar

Which of the following would tend to raise the value of the U.S. dollar in foreign exchange markets?

With flexible exchange rates, an increase in U.S. interest rates can be expected to

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph. An increase in the supply of yen will result in

Assume that U.S. and European governments adopt a system of flexible exchange rates. The figure shows the market for euros. If currency traders think the European economy will experience a recession and the U.S. economy will not, then this event will most likely cause the

Assume that U.S. and European governments adopt a system of flexible exchange rates. The figure shows the market for euros. One U.S. dollar will purchase how many euros?

Which of the following is not a major disadvantages of a flexible exchange-rate system?

If real interest rates rise in the United Kingdom relative to the United States, then this event is most likely to cause the British pound to

If Japanese autos surge in popularity in the United States, then this event is most likely to cause the Japanese yen to

Assume that U.S. and European governments adopt a system of flexible exchange rates. The figure shows the market for euros. If more people in Europe decide to purchase U.S. cars, what effect will this have on the market for euros?

Assume that Japan and the United States are engaged in a system of flexible exchange rates. If more Japanese tourists decide to visit the United States for their vacations,

An increase in the income of country A relative to the income of country B will usually lead to an increase in country

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph. One U.S. dollar will purchase how many Japanese yen?