Question 1

If the central bank pegs the exchange rate above its free -market equilibrium level,there will be a(n) of foreign exchange and the central bank will foreign currency.

Accepted Answer

When the central bank pegs the exchange rate above its free-market equilibrium level, it makes the domestic currency more expensive relative to foreign currencies. This leads to a decrease in demand for the domestic currency and an increase in its supply in the foreign exchange market, resulting in an excess supply of foreign exchange. To maintain the pegged rate, the central bank will purchase foreign currency using its reserves to absorb the excess supply.

Question 2

A country can impose a tariff to improve its own terms of trade if it

Accepted Answer

A country can improve its own terms of trade by imposing a tariff if it constitutes a large fraction of the world demand for some commodity that it imports. This is because its demand has a significant impact on the world price of that commodity. By imposing a tariff, it can reduce its demand for that commodity, potentially lowering the world price and improving the terms under which it trades.

Question 3

The Chinese government fixes its exchange rate above its free-market equilibrium level.Its purpose in keeping the Chinese currency depreciated is probably to

Accepted Answer

By fixing the exchange rate below the free-market equilibrium level, China can make its exports cheaper and more attractive to foreign buyers. This can help boost demand for Chinese exports, thereby stimulating economic growth and creating jobs in China.

Question 4

China fixes its exchange rate (yuan per units of foreign currency)at a rate above its free -market equilibrium level.In order to maintain this exchange rate,and to prevent its currency from ________, the Chinese central bank must be accumulating ________.

Accepted Answer

When China fixes its exchange rate above the free-market equilibrium level, its currency is overvalued and there is a higher demand for foreign currency in exchange for yuan. To maintain this exchange rate, the Chinese central bank would have to accumulate foreign-exchange reserves, which are reserves of foreign currency held by a central bank. This helps them to intervene in the foreign exchange market by buying yuan with foreign currency and reducing the supply of yuan, which in turn prevents its currency from appreciating. Therefore, the correct answer is A.

Question 5

Continued tariff protection for industries that have already attained all potential economies of scale and possibilities for learning by doing is likely to

Accepted Answer

Continued tariff protection for mature industries can lead to inefficiencies and higher prices for consumers, which can reduce average real income as resources are not allocated to their most productive uses. It might temporarily increase employment in the protected industries due to the artificial support, but this is not sustainable long-term and comes at the cost of overall economic welfare.

Question 6

World commodity prices increased significantly over the years 2002 -2008.Since Canada is a large exporter of commodities,it is not surprising that over this time period Canada experienced

Accepted Answer

Since Canada is a large exporter of commodities, an increase in world commodity prices would result in higher demand for Canadian exports and an increase in the demand for Canadian dollars. This would lead to an appreciation of the Canadian dollar against the U.S. dollar.

Question 7

Many of the worldʹs industrialized countries initially developed their industries with heavy tariff protection.In Canadaʹs case,this was the basis for

Accepted Answer

The National Policy of 1876 was a protectionist economic policy implemented by the Canadian government which included high tariffs on imported goods. This policy was intended to promote domestic industry and protect it from foreign competition, and was similar to the tariff protection measures taken by other industrialized countries at the time. The other answer choices are not relevant to the question of Canada's historical use of tariff protection.

Question 8

Consider a country that is operating under a fixed exchange -rate system.The countryʹs balance of payments will always show total debits equal to total credits because

Accepted Answer

In a fixed exchange-rate system, the government or central bank is committed to maintaining a set exchange rate, and will intervene in the foreign exchange market to buy or sell its own currency in order to maintain that rate. This means that any deficit or surplus in the balance of payments accounts will be offset by official financing (such as foreign currency reserves) in order to maintain the fixed exchange rate, ensuring that total debits and credits balance out.

Question 9

If the central bank pegs the exchange rate below its free-market equilibrium level, there will be a(n) ________of/for foreign exchange and the central bank will ________ foreign currency.

Accepted Answer

When the central bank pegs the exchange rate below its free-market equilibrium level, it creates excess demand for foreign exchange. In order to meet this excess demand, the central bank will need to sell its own currency and purchase foreign currency. Therefore, the correct option is D - excess demand; sell.

Question 10

Suppose the Bank of Canada raises its target for the overnight interest rate from 3% to 3.25%,while interest rates in other countries do not change.The result will be

Accepted Answer

When the Bank of Canada raises its target for the overnight interest rate, it makes Canadian assets more attractive to foreign investors as they can earn higher returns. This leads to an inflow of financial capital into Canada, which increases the demand for Canadian dollars. The increased demand for Canadian dollars will cause the currency to appreciate. Therefore, the correct answer is an inflow of financial capital, an increase in demand for Canadian dollars, and an appreciation of the Canadian dollar.

Question 11

Suppose the Bank of Canada raises its target for the overnight interest rate from 3% to 3.25%,while interest rates in other countries do not change.How will this policy action affect Canadaʹs imports and exports?

Accepted Answer

When the Bank of Canada raises its target for the overnight interest rate, it makes holding Canadian dollars more attractive to investors, leading to an appreciation of the Canadian dollar. This appreciation makes foreign goods cheaper for Canadians, thereby encouraging imports into Canada.

Question 12

A common,but invalid argument for using tariffs to maximize national income and raise domestic living standards is to

Accepted Answer

The argument to "keep Canadian currency in Canada" is a common but invalid argument for using tariffs to maximize national income and raise domestic living standards. It is based on a mercantilist view that misunderstands the benefits of trade and the role of currency in a global economy.

Question 13

If the Bank of Canada pursues an expansionary monetary policy,

Accepted Answer

Expansionary monetary policy typically involves lowering interest rates to stimulate economic growth. Lower interest rates make borrowing cheaper, which can lead to a capital outflow as investors seek higher returns elsewhere, and this can cause the domestic currency, in this case, the Canadian dollar, to depreciate due to decreased demand.

Question 14

Economists would tend to accept which of the following arguments in favour of tariffs?

Accepted Answer

Economists may accept the argument that temporary tariff protection in some situations may help to generate an eventual comparative advantage in that product. This is because the tariff protection can provide domestic industries with time to develop and become more efficient, eventually leading to a competitive advantage in the global market. However, this argument only applies in specific circumstances and cannot be applied universally to all products and industries.

Question 15

A common argument for the use of tariffs (for a large economy)when the objective is to maximize a countryʹs national income is to

Accepted Answer

Tariffs can improve a country's terms of trade by making imports more expensive, which makes domestic goods relatively cheaper, thus increasing demand for domestic goods and boosting the country's national income.

Question 16

An example of the ʺinfant industryʺ argument for trade protection is that

Accepted Answer

The infant industry argument for trade protection suggests that a new industry in a country may require protection from foreign competition in order to develop and achieve economies of scale. This could potentially lead to the country developing a comparative advantage in the product in the long run. Therefore, option C is the best choice as it describes the reasoning behind the infant industry argument. The other options do not specifically relate to the concept of infant industry protection.

Question 17

China fixes its exchange rate (yuan per units of foreign currency)at a rate above its free -market equilibrium level,which means that China is keeping the external value of the yuan

Accepted Answer

The answer of China fixes its exchange rate (yuan per...

Question 18

Suppose Canadaʹs central bank fixes the Canada-U.S.exchange rate between the limits of Cdn$1.10 and Cdn$1.20 to the U.S dollar.If the free market equilibrium exchange rate would otherwise be Cdn$1.05,then

Accepted Answer

If the free market equilibrium exchange rate would be Cdn$1.05 to the U.S. dollar, which is below the fixed lower limit of Cdn$1.10, Canada's central bank would need to buy U.S. dollars to increase the demand for the U.S. dollar, thereby raising its value relative to the Canadian dollar to maintain the exchange rate within the set limits.

Question 19

Suppose the Bank of Canada fixes the Canada-U.S.exchange rate between the limits of Cdn$1.10 and Cdn$1.20 to the U.S dollar.If the free-market equilibrium exchange rate would otherwise be Cdn$1.25,then the

Accepted Answer

The Bank of Canada must sell U.S. dollars to buy Canadian dollars, increasing the demand for the Canadian dollar and thus supporting its value within the desired range. This action helps to prevent the exchange rate from moving to its free-market equilibrium of Cdn$1.25 to the U.S. dollar.

Question 20

A business which contends that it needs temporary protection so that it can expand significantly and thereby reduce its costs so as to enable it to compete with foreign producers is using an argument known as the

Accepted Answer

The infant-industry case for tariffs argues that a young or new industry needs temporary protection from foreign competition so that it can grow and become competitive in the future. This protection is believed to help the industry develop economies of scale and reduce costs, which will enable it to eventually compete with foreign producers. Therefore, the business that needs temporary protection to expand and reduce costs fits the description of the infant-industry case for tariffs.

Quiz 34: Exchange Rates and the Balance of Payments

If the central bank pegs the exchange rate above its free -market equilibrium level,there will be a(n) of foreign exchange and the central bank will foreign currency.

A country can impose a tariff to improve its own terms of trade if it

The Chinese government fixes its exchange rate above its free-market equilibrium level.Its purpose in keeping the Chinese currency depreciated is probably to

China fixes its exchange rate (yuan per units of foreign currency) at a rate above its free -market equilibrium level.In order to maintain this exchange rate,and to prevent its currency from , the Chinese central bank must be accumulating .

Continued tariff protection for industries that have already attained all potential economies of scale and possibilities for learning by doing is likely to

World commodity prices increased significantly over the years 2002 -2008.Since Canada is a large exporter of commodities,it is not surprising that over this time period Canada experienced

Many of the worldʹs industrialized countries initially developed their industries with heavy tariff protection.In Canadaʹs case,this was the basis for

Consider a country that is operating under a fixed exchange -rate system.The countryʹs balance of payments will always show total debits equal to total credits because

If the central bank pegs the exchange rate below its free-market equilibrium level, there will be a(n) of/for foreign exchange and the central bank will foreign currency.

Suppose the Bank of Canada raises its target for the overnight interest rate from 3% to 3.25%,while interest rates in other countries do not change.The result will be

Suppose the Bank of Canada raises its target for the overnight interest rate from 3% to 3.25%,while interest rates in other countries do not change.How will this policy action affect Canadaʹs imports and exports?

A common,but invalid argument for using tariffs to maximize national income and raise domestic living standards is to

If the Bank of Canada pursues an expansionary monetary policy,

Economists would tend to accept which of the following arguments in favour of tariffs?

A common argument for the use of tariffs (for a large economy) when the objective is to maximize a countryʹs national income is to

An example of the ʺinfant industryʺ argument for trade protection is that

China fixes its exchange rate (yuan per units of foreign currency) at a rate above its free -market equilibrium level,which means that China is keeping the external value of the yuan

Suppose Canadaʹs central bank fixes the Canada-U.S.exchange rate between the limits of Cdn$1.10 and Cdn$1.20 to the U.S dollar.If the free market equilibrium exchange rate would otherwise be Cdn$1.05,then

Suppose the Bank of Canada fixes the Canada-U.S.exchange rate between the limits of Cdn$1.10 and Cdn$1.20 to the U.S dollar.If the free-market equilibrium exchange rate would otherwise be Cdn$1.25,then the

A business which contends that it needs temporary protection so that it can expand significantly and thereby reduce its costs so as to enable it to compete with foreign producers is using an argument known as the

Quiz 34: Exchange Rates and the Balance of Payments

If the central bank pegs the exchange rate above its free -market equilibrium level,there will be a(n) of foreign exchange and the central bank will foreign currency.

A country can impose a tariff to improve its own terms of trade if it

The Chinese government fixes its exchange rate above its free-market equilibrium level.Its purpose in keeping the Chinese currency depreciated is probably to

China fixes its exchange rate (yuan per units of foreign currency) at a rate above its free -market equilibrium level.In order to maintain this exchange rate,and to prevent its currency from ________, the Chinese central bank must be accumulating ________.

Continued tariff protection for industries that have already attained all potential economies of scale and possibilities for learning by doing is likely to

World commodity prices increased significantly over the years 2002 -2008.Since Canada is a large exporter of commodities,it is not surprising that over this time period Canada experienced

Many of the worldʹs industrialized countries initially developed their industries with heavy tariff protection.In Canadaʹs case,this was the basis for

Consider a country that is operating under a fixed exchange -rate system.The countryʹs balance of payments will always show total debits equal to total credits because

If the central bank pegs the exchange rate below its free-market equilibrium level, there will be a(n) ________of/for foreign exchange and the central bank will ________ foreign currency.

Suppose the Bank of Canada raises its target for the overnight interest rate from 3% to 3.25%,while interest rates in other countries do not change.The result will be

Suppose the Bank of Canada raises its target for the overnight interest rate from 3% to 3.25%,while interest rates in other countries do not change.How will this policy action affect Canadaʹs imports and exports?

A common,but invalid argument for using tariffs to maximize national income and raise domestic living standards is to

If the Bank of Canada pursues an expansionary monetary policy,

Economists would tend to accept which of the following arguments in favour of tariffs?

A common argument for the use of tariffs (for a large economy) when the objective is to maximize a countryʹs national income is to

An example of the ʺinfant industryʺ argument for trade protection is that

China fixes its exchange rate (yuan per units of foreign currency) at a rate above its free -market equilibrium level,which means that China is keeping the external value of the yuan

Suppose Canadaʹs central bank fixes the Canada-U.S.exchange rate between the limits of Cdn$1.10 and Cdn$1.20 to the U.S dollar.If the free market equilibrium exchange rate would otherwise be Cdn$1.05,then

Suppose the Bank of Canada fixes the Canada-U.S.exchange rate between the limits of Cdn$1.10 and Cdn$1.20 to the U.S dollar.If the free-market equilibrium exchange rate would otherwise be Cdn$1.25,then the

A business which contends that it needs temporary protection so that it can expand significantly and thereby reduce its costs so as to enable it to compete with foreign producers is using an argument known as the

China fixes its exchange rate (yuan per units of foreign currency) at a rate above its free -market equilibrium level.In order to maintain this exchange rate,and to prevent its currency from , the Chinese central bank must be accumulating .

If the central bank pegs the exchange rate below its free-market equilibrium level, there will be a(n) of/for foreign exchange and the central bank will foreign currency.