Question 1

The real exchange rate is the amount of an overseas currency that can be purchased with the local (domestic)currency.

Accepted Answer

The real exchange rate adjusts the nominal exchange rate by the relative prices of a basket of goods in the two countries, reflecting the purchasing power of the two currencies rather than just the amount of foreign currency that can be exchanged for a unit of domestic currency.

Question 2

Suppose that the euro depreciates against the dollar.Assuming all other factors remain constant,the real exchange rate of euros to Australian dollars will ________.

Accepted Answer

If the euro depreciates against the dollar, it will also depreciate against other currencies, including the Australian dollar. Therefore, the real exchange rate of euros to Australian dollars will decrease.

Question 3

Suppose that the average price of goods imported from Great Britain increased.Is it likely that the value of the Australian dollar would appreciate or depreciate versus the British pound,ceteris paribus? Is it likely that the average price in British pounds of goods exported from Australia to Great Britain would rise or fall?
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Accepted Answer

The answer of Suppose that the average price of goods...

Question 4

When the value of a currency is fixed relative to a particular country's currency,this is referred to as a ________ exchange rate.

Accepted Answer

A fixed exchange rate is when the value of a currency is pegged to the value of another currency, usually the US dollar. This means that the central bank of the country with the fixed exchange rate will buy or sell their own currency in order to maintain the fixed exchange rate.

Question 5

Show the impact that a relative increase in Australian interest rates will have on the exchange rate of Chinese yuan for dollars.Explain what this will do to the level of goods imported from China to Australia and discuss the effect it will have on Australia's current account.
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Accepted Answer

The answer of Show the impact that a relative increase...

Question 6

Show what will happen in the market for yen if Japan's central bank sells yen for dollars.Explain what will happen to Australia's current account,ceteris paribus,because of this action.
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Accepted Answer

The answer of Show what will happen in the market...

Question 7

Graph the demand and supply of Australian dollars for euros.Currency speculators think that the value of the dollar relative to the euro is going to fall in the future.Show graphically and explain the effect of this change in currency traders' expectations on the demand and supply of dollars and the resulting change in the exchange rate of euros for Australian dollars.
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Accepted Answer

The answer of Graph the demand and supply of Australian...

Question 8

If the exchange rate between the dollar and the yen is ¥80 = $1 this week,and is ¥87 = $1 next week,we say that the dollar appreciated.

Accepted Answer

When the exchange rate changes from ¥80 = $1 to ¥87 = $1, it means that now you need more yen to buy a single dollar. This indicates that the value of the dollar has increased relative to the yen, which is described as the dollar appreciating.

Question 9

If Australian demand for purchases of British goods has decreased,how would you expect the equilibrium exchange rate in the market for dollars to respond? Support your answer graphically.
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Accepted Answer

The answer of If Australian demand for purchases of British...

Question 10

A currency exchange rate system under which the currency is determined by demand and supply,and occasional government intervention is a

Accepted Answer

The answer of A currency exchange rate system under which...

Question 11

Ceteris paribus,an appreciation of the dollar will increase net exports in Australia.

Accepted Answer

An appreciation of the dollar will make Australian exports more expensive for other countries and therefore, decrease net exports.

Question 12

A rise in the dollar price of the Chinese yuan signals an appreciation of the yuan and a depreciation of the dollar.

Accepted Answer

When the dollar price of the Chinese yuan increases, it means that more dollars are required to purchase one unit of yuan. This indicates that the yuan has appreciated in value and the dollar has depreciated in value.

Question 13

Suppose that the world is currently experiencing a period of strong economic growth.Both the European Union and Australia experience robust increases in income.Illustrate how this will affect the exchange rate using a graph of the demand and supply of dollars for euros.Will the dollar appreciate or depreciate against the euro? Explain why.
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Accepted Answer

The answer of Suppose that the world is currently experiencing...

Question 14

Suppose that health experts discover that French red wine lowers cholesterol.How will this affect the demand and supply of dollars in exchange for euros? Illustrate with a graph and explain.Will the dollar appreciate or depreciate?
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Accepted Answer

The answer of Suppose that health experts discover that French...

Question 15

A country that allows its exchange rate to be determined by the market,without government intervention,has a

Accepted Answer

A country that allows its exchange rate to be determined by the market without government intervention has a floating currency. This means that the exchange rate will fluctuate based on supply and demand in the foreign exchange market. The government does not intervene to maintain a specific exchange rate level.

Question 16

Suppose that Australia's price level is 200,the British price level is 100,and the nominal exchange rate of pounds to the dollar is £0.40 = $1,then the real exchange rate of pounds to the dollar is ________.

Accepted Answer

Real exchange rate= (Nominal exchange rate x Domestic Price)/Foreign Price
Real exchange rate= (0.40 x 100)/200
Real exchange rate= 0.20 or 0.20 pounds per dollar

Therefore, the correct answer is B) 0.80.

Question 17

Graph the demand for and supply of Australian dollars for euros.Suppose the Reserve Bank of Australia decides to follow a contractionary monetary policy.Show graphically and explain the effect of this policy on the demand and supply of dollars and the resulting change in the exchange rate of euros for dollars.
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Accepted Answer

The answer of Graph the demand for and supply of...

Question 18

An example of a 'fixed exchange rate system' is

Accepted Answer

The gold standard is an example of a fixed exchange rate system where the value of a currency is fixed to a specific amount of gold. Other examples of fixed exchange rate systems include currency boards and pegged exchange rate systems.

Question 19

What are the three main sets of factors that cause the supply and demand curves in the foreign exchange market to shift?
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Accepted Answer

The answer of What are the three main sets of...

Question 20

What is the 'real exchange rate' and how is it calculated?
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Accepted Answer

The answer of What is the 'real exchange rate' and...

Quiz 20: Macroeconomics in an Open Economy

The real exchange rate is the amount of an overseas currency that can be purchased with the local (domestic)currency.

Suppose that the euro depreciates against the dollar.Assuming all other factors remain constant,the real exchange rate of euros to Australian dollars will ________.

When the value of a currency is fixed relative to a particular country's currency,this is referred to as a ________ exchange rate.

Show the impact that a relative increase in Australian interest rates will have on the exchange rate of Chinese yuan for dollars.Explain what this will do to the level of goods imported from China to Australia and discuss the effect it will have on Australia's current account. _ _

Show what will happen in the market for yen if Japan's central bank sells yen for dollars.Explain what will happen to Australia's current account,ceteris paribus,because of this action. _ _

If the exchange rate between the dollar and the yen is ¥80 = $1 this week,and is ¥87 = $1 next week,we say that the dollar appreciated.

If Australian demand for purchases of British goods has decreased,how would you expect the equilibrium exchange rate in the market for dollars to respond? Support your answer graphically. _ _

A currency exchange rate system under which the currency is determined by demand and supply,and occasional government intervention is a

Ceteris paribus,an appreciation of the dollar will increase net exports in Australia.

A rise in the dollar price of the Chinese yuan signals an appreciation of the yuan and a depreciation of the dollar.

Suppose that health experts discover that French red wine lowers cholesterol.How will this affect the demand and supply of dollars in exchange for euros? Illustrate with a graph and explain.Will the dollar appreciate or depreciate? _ _

A country that allows its exchange rate to be determined by the market,without government intervention,has a

Suppose that Australia's price level is 200,the British price level is 100,and the nominal exchange rate of pounds to the dollar is £0.40 = $1,then the real exchange rate of pounds to the dollar is ________.

An example of a 'fixed exchange rate system' is

What are the three main sets of factors that cause the supply and demand curves in the foreign exchange market to shift? _ _

What is the 'real exchange rate' and how is it calculated? _ _

Quiz 20: Macroeconomics in an Open Economy

The real exchange rate is the amount of an overseas currency that can be purchased with the local (domestic)currency.

Suppose that the euro depreciates against the dollar.Assuming all other factors remain constant,the real exchange rate of euros to Australian dollars will ________.

When the value of a currency is fixed relative to a particular country's currency,this is referred to as a ________ exchange rate.

If the exchange rate between the dollar and the yen is ¥80 = $1 this week,and is ¥87 = $1 next week,we say that the dollar appreciated.

A currency exchange rate system under which the currency is determined by demand and supply,and occasional government intervention is a

Ceteris paribus,an appreciation of the dollar will increase net exports in Australia.

A rise in the dollar price of the Chinese yuan signals an appreciation of the yuan and a depreciation of the dollar.

A country that allows its exchange rate to be determined by the market,without government intervention,has a

Suppose that Australia's price level is 200,the British price level is 100,and the nominal exchange rate of pounds to the dollar is £0.40 = $1,then the real exchange rate of pounds to the dollar is ________.

An example of a 'fixed exchange rate system' is

What is the 'real exchange rate' and how is it calculated? _____________________________________________________________________________________________ _____________________________________________________________________________________________

What is the 'real exchange rate' and how is it calculated? _ _