Question 1

If the Brazilian demand for American exports rises at the same time that U.S. productivity rises relative to Brazilian productivity, then, in the long run, ________, everything else held constant.

Accepted Answer

Increased demand for American exports by Brazil will lead to a higher demand for the U.S. dollar, appreciating its value. Simultaneously, higher U.S. productivity relative to Brazil's makes American goods more competitive, further increasing demand for the dollar and decreasing demand for the real, leading to the depreciation of the Brazilian real relative to the U.S. dollar.

Question 2

Lower tariffs and quotas cause a country's currency to ________ in the ________ run, everything else held constant.

Accepted Answer

The answer of Lower tariffs and quotas cause a country's...

Question 3

Explain the law of one price and the theory of purchasing power parity. Why doesn't purchasing power parity explain all exchange rate movements? What factors determine long-run exchange rates?

Accepted Answer

The answer of Explain the law of one price and...

Question 4

The ________ suggests that the most important factor affecting the demand for domestic and foreign assets is the expected return on domestic assets relative to foreign assets.

Accepted Answer

The theory of portfolio choice suggests that investors choose their portfolio of assets based on the expected return of domestic assets relative to foreign assets, among other factors like risk. This theory emphasizes the importance of expected returns in determining the demand for different types of assets across countries.

Question 5

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, there is a ________ demand for dollar assets and a correspondingly ________ demand for foreign assets.

Accepted Answer

When there is an expectation of a high return on dollar assets, demand for those assets increases, which leads to a higher price for those assets. This results in a corresponding lower demand for foreign assets, leading to a lower price. Conversely, if there is an expectation of a low return on dollar assets, demand for those assets decreases, which leads to a lower price for those assets. This results in a corresponding higher demand for foreign assets, leading to a higher price. Therefore, the answer is B: higher demand for dollar assets and a correspondingly lower demand for foreign assets.

Question 6

Everything else held constant, increased demand for a country's ________ causes its currency to appreciate in the long run, while increased demand for ________ causes its currency to depreciate.

Accepted Answer

When there is an increased demand for a country's exports, such as goods and services, this creates a higher demand for the country's currency as well. This increased demand for the currency causes its value to rise, leading to appreciation. Conversely, if there is an increased demand for imports, this means that the supply of the country's currency is increasing to pay for the imports. This increased supply of the currency can cause its value to fall, leading to depreciation. Therefore, option C is the correct answer.

Question 7

If the U.S. Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices, and Japanese demand for American exports increases at the same time, then, in the long run ________, everything else held constant.

Accepted Answer

If the U.S. Congress imposes a quota on Japanese cars, the demand for Japanese yen will decrease, while the demand for U.S. dollars will increase. This will lead to a decrease in the value of the Japanese yen relative to the U.S. dollar, or in other words, depreciation. In the long run, this would not change unless other factors come into play. Therefore, Choice B is the best answer.

Question 8

Anything that increases the demand for foreign goods relative to domestic goods tends to ________ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ________, everything else held constant.

Accepted Answer

If demand for foreign goods increases relative to domestic goods, then people will need more foreign currency to purchase those goods, leading to a greater supply of domestic currency to purchase foreign currency. This greater supply of domestic currency will result in a depreciation of the domestic currency, everything else held constant. Additionally, domestic goods will only continue to sell well if the value of the domestic currency is lower, as this will make them relatively cheaper compared to foreign goods.

Question 9

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the ________ on these assets relative to one another.

Accepted Answer

The theory of portfolio choice suggests that investors will seek to maximize their expected returns while minimizing risk. Therefore, the expected return on domestic and foreign assets relative to one another is the most important factor affecting the demand for these assets. Interest rate, risk, and liquidity are also important factors, but they are not as directly related to the demand for domestic and foreign assets as expected return.

Question 10

Everything else held constant, increased demand for a country's exports causes its currency to ________ in the long run, while increased demand for imports causes its currency to ________.

Accepted Answer

Increased demand for a country's exports causes an increase in demand for its currency, which leads to an appreciation of the currency. Conversely, increased demand for imports leads to an increase in the supply of the country's currency as it is exchanged for other currencies to pay for the imports, resulting in a depreciation of the currency.

Question 11

Everything else held constant, if a factor decreases the demand for ________ goods relative to ________ goods, the domestic currency will depreciate.

Accepted Answer

If domestic goods are less in demand compared to foreign goods, this means that foreigners are buying less domestic goods and exchanging less foreign currency for domestic currency. As a result, the supply of domestic currency will increase relative to demand, leading to a depreciation of the domestic currency. This scenario is reflected in option D where the decrease in demand is for domestic goods relative to foreign goods.

Question 12

As the relative expected return on dollar assets increases, foreigners will want to hold more ________ assets and less ________ assets, everything else held constant.

Accepted Answer

When the expected return on dollar assets increases, foreigners will want to hold more dollar assets and less foreign assets because they will get a higher return on their dollar investments. Therefore, the best choice is C.

Question 13

Everything else held constant, if a factor increases the demand for ________ goods relative to ________ goods, the domestic currency will appreciate.

Accepted Answer

If there is an increase in demand for domestic goods relative to foreign goods, this means that there is a higher demand for the domestic currency to purchase these goods. This increase in demand for the domestic currency will cause it to appreciate. Therefore, choice D, which has a factor that increases demand for domestic goods relative to foreign goods, is the correct answer.

Question 14

An increase in productivity in a country will cause its currency to ________ because it can produce goods at a ________ price, everything else held constant.

Accepted Answer

An increase in productivity allows a country to produce goods at a lower cost, making its products more competitive internationally. This typically leads to an increase in exports, which can cause the country's currency to appreciate due to higher demand for its currency to purchase its goods.

Question 15

If the inflation rate in the United States is higher than that in Mexico and productivity is growing at a slower rate in the United States than in Mexico, then, in the long run, ________, everything else held constant.

Accepted Answer

Higher inflation and lower productivity growth in the U.S. compared to Mexico would, in the long run, lead to the appreciation of the Mexican peso relative to the U.S. dollar, as Mexico's goods become relatively cheaper and more competitive.

Question 16

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets, there is a ________ demand for dollar assets, everything else held constant.

Accepted Answer

When the return on dollar assets is expected to be higher than the return on foreign assets, there is a higher demand for dollar assets. This is because investors will want to invest in the currency/asset that provides them with better returns. Therefore, choice B is the correct answer as it states that there is a higher demand for dollar assets when the return on dollar assets is expected to be higher than the return on foreign assets.

Question 17

If, in retaliation for "unfair" trade practices, Congress imposes a 30 percent tariff on Japanese DVD recorders, but at the same time, U.S. demand for Japanese goods increases, then, in the long run, ________, everything else held constant

Accepted Answer

The imposition of a tariff on Japanese DVD recorders would make them more expensive for U.S. consumers. This could lead to a decrease in demand for Japanese goods initially. However, if U.S. demand for Japanese goods increases in the long run, it could offset the negative effects of the tariff on Japanese exports.

As a result, it is difficult to predict the exact impact on the exchange rate between the Japanese yen and the U.S. dollar. The exchange rate will be influenced by a range of economic factors, including trade flows, investment flows, interest rate differentials, and inflation rates. Therefore, the Japanese yen could appreciate, depreciate, or remain constant relative to the U.S. dollar depending on how these factors interact.

Question 18

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is

Accepted Answer

According to the theory of portfolio choice, investors weigh the expected return on assets relative to one another in order to choose a portfolio that maximizes returns while minimizing risk. Therefore, the expected return on domestic and foreign assets relative to one another is the most important factor affecting the demand for these assets.

Question 19

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets, there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets.

Accepted Answer

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets. This is because investors would want to invest in assets that provide higher returns, which in turn increases the demand for dollar assets and decreases the demand for foreign assets.

Question 20

Higher tariffs and quotas cause a country's currency to ________ in the ________ run, everything else held constant.

Accepted Answer

The answer of Higher tariffs and quotas cause a country's...

Quiz 20: The Foreign Exchange Market

If the Brazilian demand for American exports rises at the same time that U.S. productivity rises relative to Brazilian productivity, then, in the long run, ________, everything else held constant.

Lower tariffs and quotas cause a country's currency to in the run, everything else held constant.

Explain the law of one price and the theory of purchasing power parity. Why doesn't purchasing power parity explain all exchange rate movements? What factors determine long-run exchange rates?

The ________ suggests that the most important factor affecting the demand for domestic and foreign assets is the expected return on domestic assets relative to foreign assets.

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, there is a demand for dollar assets and a correspondingly demand for foreign assets.

Everything else held constant, increased demand for a country's causes its currency to appreciate in the long run, while increased demand for causes its currency to depreciate.

If the U.S. Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices, and Japanese demand for American exports increases at the same time, then, in the long run ________, everything else held constant.

Anything that increases the demand for foreign goods relative to domestic goods tends to the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is , everything else held constant.

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the ________ on these assets relative to one another.

Everything else held constant, increased demand for a country's exports causes its currency to in the long run, while increased demand for imports causes its currency to .

Everything else held constant, if a factor decreases the demand for goods relative to goods, the domestic currency will depreciate.

As the relative expected return on dollar assets increases, foreigners will want to hold more assets and less assets, everything else held constant.

Everything else held constant, if a factor increases the demand for goods relative to goods, the domestic currency will appreciate.

An increase in productivity in a country will cause its currency to because it can produce goods at a price, everything else held constant.

If the inflation rate in the United States is higher than that in Mexico and productivity is growing at a slower rate in the United States than in Mexico, then, in the long run, ________, everything else held constant.

When Americans or foreigners expect the return on assets to be high relative to the return on assets, there is a demand for dollar assets, everything else held constant.

If, in retaliation for "unfair" trade practices, Congress imposes a 30 percent tariff on Japanese DVD recorders, but at the same time, U.S. demand for Japanese goods increases, then, in the long run, ________, everything else held constant

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is

When Americans or foreigners expect the return on assets to be high relative to the return on assets, there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets.

Higher tariffs and quotas cause a country's currency to in the run, everything else held constant.