Question 1

Explain how a floating exchange rate can cause problems for countries that have a substantial number of foreign loans denominated in US dollars.How might a fixed exchange rate pegged to the US dollar help the country avoid these problems?
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Accepted Answer

The answer of Explain how a floating exchange rate can...

Question 2

Since the 1970s,Australia's imports and exports have both grown from less than ________ of GDP,to approximately ________ of GDP by 2016.

Accepted Answer

The answer of Since the 1970s,Australia's imports and exports have...

Question 3

The 'current account balance' is defined as _________.

Accepted Answer

The current account balance includes the value of net exports (exports minus imports), net primary income (income from employment and investment), and net secondary income (transfers of money and goods between countries). Therefore, option B is the correct definition of the current account balance. Options A, C, and D do not include all the necessary components to accurately calculate the current account balance.

Question 4

Hypothetically,what would a report that argues that the dollar is 'undervalued' mean? How would foreign exchange markets respond to this information? Support your answer graphically.
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Accepted Answer

The answer of Hypothetically,what would a report that argues that...

Question 5

Suppose that South Korea is attempting to peg its exchange rate to the US dollar.Speculators think the value of the South Korean won is going to fall.Use a graph to show how this affects the demand for and supply of the won.What will the South Korean central bank have to do in order to maintain the peg? Show how raising interest rates affect the central bank's attempt to maintain the peg.
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Accepted Answer

The answer of Suppose that South Korea is attempting to...

Question 6

If the current account balance is negative,

Accepted Answer

The answer of If the current account balance is negative,
...

Question 7

If a current account deficit increases and investment levels remain the same,national saving must increase.

Accepted Answer

If the current account deficit increases and investment levels remain the same, national saving does not necessarily have to increase. It could decrease, indicating that more funds are being borrowed from abroad to finance the deficit. Alternatively, the deficit could be financed by a decrease in foreign investment or an increase in exports that offsets the increase in imports.

Question 8

Suppose that China wants to fix its exchange rate for US dollars below the equilibrium exchange rate,making the yuan undervalued against the US dollar and many other currencies.How does that benefit China? Does it harm anyone in China?
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Accepted Answer

The answer of Suppose that China wants to fix its...

Question 9

Suppose the flow of capital from Japan into Australia begins to slow in the coming year.Show how this would affect the value of the dollar in the market for Australian dollars (with the exchange rate defined as yen per dollar).If this occurs,what is the effect on the balance of trade in goods and services?
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Accepted Answer

The answer of Suppose the flow of capital from Japan...

Question 10

'Private saving' is equal to

Accepted Answer

Private saving is the amount of national income that is not consumed or paid in taxes, which is represented by national income minus consumption minus taxes.

Question 11

According to the saving and investment equation,if net foreign investment rises by $35 million,

Accepted Answer

According to the saving and investment equation, Net foreign investment = National saving - Domestic investment. If net foreign investment rises by $35 million, it means that national saving exceeds domestic investment by $35 million. Therefore, national saving in excess of domestic investment will increase by $35 million.

Question 12

Explain why a country might want their currency to appreciate against the currency of a major trading partner in order to fight inflation.
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Accepted Answer

The answer of Explain why a country might want their...

Question 13

If CAB = current account balance,I = private sector investment,S = national saving and NX = net exports,then _________.

Accepted Answer

In a closed economy, national saving (S) equals private sector investment (I) plus government investment. In an open economy, net exports (NX) can also affect the national saving equation. Therefore, the correct identity is CAB + I = S, which states that the current account balance plus private sector investment equals national saving.

Question 14

Suppose that the current equilibrium exchange rate between the US dollar and Philippine peso is $0.20 per peso.The Philippine government pegged the peso to the US dollar at the rate of $0.25 per peso.Draw the market demand and supply curve of pesos for US dollars.Would the Philippine central bank have to buy or sell pesos to maintain the peg? Show on the diagram how many pesos would be bought and sold.
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Accepted Answer

The answer of Suppose that the current equilibrium exchange rate...

Question 15

If S = national saving,I = private investment and NFI = net foreign investments,then _________.

Accepted Answer

National saving (S) consists of private saving (which includes saving by households and businesses) plus public saving (which is the difference between government revenue and expenditure). Private investment (I) is the amount of investment made by households and businesses. Net foreign investment (NFI) is calculated as the difference between exports and imports of goods and services plus net income flows from assets abroad. Therefore, the correct equation is S = I + NFI.

Question 16

a.Suppose that the current equilibrium exchange rate between the US dollar and Philippine peso is $0.20 per peso and the Philippine government pegged the peso to the US dollar at the rate of $0.25 per peso.Draw the market demand and supply curve of pesos for US dollars.
b.Suppose that currency traders think that the government will soon allow the peso to float.Show on the diagram how this affects the demand and supply curves.
c.How would the events in b.affect the number of pesos that the Philippine central bank must buy or sell?
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Accepted Answer

The answer of a.Suppose that the current equilibrium exchange rate...

Question 17

Explain how The Economist's (2016)'Big Mac Index' is related to purchasing power parity.Does the Big Mac Index suggest that purchasing power parity exists? Explain why or why not.
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Accepted Answer

The answer of Explain how The Economist's (2016)'Big Mac Index'...

Question 18

Your friend states that (i)a strong dollar (appreciation of the dollar)is a sign of a healthy economy and that (ii)a weak dollar (depreciation of the dollar)is a sign of a weak economy.Assuming that other factors that could affect the exchange rate do not change,explain that the opposite is true when the following are considered:
a.the effect of rapidly falling incomes in Australia during a recession
b.the effect of rapidly rising incomes in Australia during an economic expansion
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Accepted Answer

The answer of Your friend states that (i)a strong dollar...

Question 19

If net primary income and net secondary income are $10 billion,and a country's purchases of foreign goods and services are $25 billion while its sales of goods and services overseas are $26 billion,it has a

Accepted Answer

The current account is the balance of payments component that includes trade in goods, services, primary income, and secondary income between a country and the rest of the world. 
In this scenario, purchases of foreign goods and services are greater than sales of domestic goods and services to other countries, resulting in a current account deficit. 
Therefore, the answer cannot be A or B. 
Since net primary income and net secondary income are positive, they contribute to the current account surplus. 
Given that exports of goods and services are greater than imports, it will further add to the current account surplus. 
Thus, the answer is D - $11 billion current account surplus.

Question 20

Why do countries peg their currencies? What problems can result from pegging?
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Accepted Answer

The answer of Why do countries peg their currencies? What...

Quiz 20: Macroeconomics in an Open Economy

Explain how a floating exchange rate can cause problems for countries that have a substantial number of foreign loans denominated in US dollars.How might a fixed exchange rate pegged to the US dollar help the country avoid these problems? _ _

Since the 1970s,Australia's imports and exports have both grown from less than of GDP,to approximately of GDP by 2016.

The 'current account balance' is defined as _________.

Hypothetically,what would a report that argues that the dollar is 'undervalued' mean? How would foreign exchange markets respond to this information? Support your answer graphically. _ _

If the current account balance is negative,

If a current account deficit increases and investment levels remain the same,national saving must increase.

Suppose that China wants to fix its exchange rate for US dollars below the equilibrium exchange rate,making the yuan undervalued against the US dollar and many other currencies.How does that benefit China? Does it harm anyone in China? _ _

'Private saving' is equal to

According to the saving and investment equation,if net foreign investment rises by $35 million,

Explain why a country might want their currency to appreciate against the currency of a major trading partner in order to fight inflation. _ _

If CAB = current account balance,I = private sector investment,S = national saving and NX = net exports,then _________.

If S = national saving,I = private investment and NFI = net foreign investments,then _________.

Explain how The Economist's (2016)'Big Mac Index' is related to purchasing power parity.Does the Big Mac Index suggest that purchasing power parity exists? Explain why or why not. _ _

If net primary income and net secondary income are $10 billion,and a country's purchases of foreign goods and services are $25 billion while its sales of goods and services overseas are $26 billion,it has a

Why do countries peg their currencies? What problems can result from pegging? _ _

Quiz 20: Macroeconomics in an Open Economy

Since the 1970s,Australia's imports and exports have both grown from less than ________ of GDP,to approximately ________ of GDP by 2016.

The 'current account balance' is defined as _________.

If the current account balance is negative,

If a current account deficit increases and investment levels remain the same,national saving must increase.

'Private saving' is equal to

According to the saving and investment equation,if net foreign investment rises by $35 million,

If CAB = current account balance,I = private sector investment,S = national saving and NX = net exports,then _________.

If S = national saving,I = private investment and NFI = net foreign investments,then _________.

If net primary income and net secondary income are $10 billion,and a country's purchases of foreign goods and services are $25 billion while its sales of goods and services overseas are $26 billion,it has a

Why do countries peg their currencies? What problems can result from pegging? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Since the 1970s,Australia's imports and exports have both grown from less than of GDP,to approximately of GDP by 2016.

Why do countries peg their currencies? What problems can result from pegging? _ _