Question 1

Suppose the exchange rate is €0.70 = $1. Then the exchange rate becomes €0.80 = $1. What can be said about the value of the dollar and the value of the euro?

Accepted Answer

The answer of Suppose the exchange rate is €0.70 =...

Question 2

U.S. tourists planning a trip to Australia:

Accepted Answer

If the U.S. dollar appreciates against the Australian dollar, U.S. tourists will get more Australian dollars for each U.S. dollar, making their trip cheaper. Therefore, they benefit by converting their money before the U.S. dollar depreciates.

Question 3

If the exchange rate changes from US$1 = €1.2 to US$1 = €1.4, then the U.S. dollar _____ and the euro _____.

Accepted Answer

The answer of If the exchange rate changes from US$1...

Question 4

Australian tourists planning a trip to the United States:

Accepted Answer

Australian tourists benefit by converting their currency before the Australian dollar depreciates, as they will receive more U.S. dollars for their Australian dollars, making their trip less expensive.

Question 5

If the yen is appreciating relative to the British pound, then the:

Accepted Answer

If the yen is appreciating relative to the British pound, it means that one pound can buy less yen than before. Therefore, the pound is depreciating relative to the yen.

Question 6

If the dollar gets weaker against most major foreign currencies:

Accepted Answer

When the dollar gets weaker against major foreign currencies, foreign products become more expensive in the United States. This is because it takes more dollars to purchase the same amount of foreign currency, meaning that the cost of goods imported from other countries increases. As a result, domestic consumers are more likely to purchase domestically-produced goods, which can boost demand for American-made products. However, this can also lead to a decrease in exports from the United States, as American-made goods become more expensive in the global market.

Question 7

Suppose a country is undergoing growing political, economic, and social turmoil. Many foreign businesses no longer wish to buy either goods or financial securities in this country. The country's currency would be expected to:

Accepted Answer

When foreign businesses lose interest in buying goods or financial securities from a country due to turmoil, demand for that country's currency decreases, leading to depreciation.

Question 8

Consider the following scenario. Inflation in Argentina pushes the price of Argentine wine up 25%. Inflation in the United States pushes the price of California wine up 10%. If the exchange rate remains constant, the U.S. demand for wine from Argentina:

Accepted Answer

With the price of Argentine wine going up by 25%, it becomes relatively more expensive than California wine, causing the consumers in the United States to switch from Argentine wine to California wine which is up by only 10%. Therefore, the US demand for wine from Argentina decreases.

Question 9

Consider the U.S. dollar and the British pound. When the dollar price per the British pound rises:

Accepted Answer

When the dollar price per the British pound rises, it means that it takes more dollars to buy a single pound, indicating that the value of the dollar has decreased in relation to the pound, or the dollar has depreciated against the pound.

Question 10

If European products become more popular in world markets because of excellent marketing, then the _____ can be expected to _____.

Accepted Answer

As European products become more popular in world markets due to excellent marketing, demand for the euro will increase, causing its value to appreciate.

Question 11

Usually, a country with a rapid increase in its interest rate also sees:

Accepted Answer

When a country raises its interest rates, the return on its currency-denominated assets increases, making them more attractive to foreign investors. This, in turn, increases the demand for the country's currency, causing it to appreciate in value.

Question 12

If the U.S. dollar appreciates by 10% against the British pound, but during that same time Britain has a 15% inflation rate, then British wool sweaters will appear:

Accepted Answer

The answer of If the U.S. dollar appreciates by 10%...

Question 13

If the exchange rate changes from C$1.50 per U.S. dollar to C$1.67 per U.S. dollar:

Accepted Answer

The answer of If the exchange rate changes from C$1.50...

Question 14

Usually, the country with the most rapid income growth also sees:

Accepted Answer

The answer of Usually, the country with the most rapid...

Question 15

If the dollar depreciates relative to the yuan, then American exports to China will:

Accepted Answer

If the dollar depreciates relative to the yuan, then American exports to China become cheaper for Chinese buyers. This, in turn, increases demand for American goods and thus results in an increase in American exports to China.

Question 16

Suppose Argentina has a 10% rate of inflation, while inflation is 3% in the United States. If exchange rates do not change:

Accepted Answer

With Argentina having a higher inflation rate, the value of the Argentine peso will decrease relative to the U.S. dollar, making Argentine goods more expensive for U.S. consumers. This means that Argentine goods will become more expensive in the United States.

Question 17

Assume that the vertical axis of the graph for the foreign exchange market measures the exchange rate in euros per dollar. As the exchange rate rises:

Accepted Answer

When the exchange rate rises, meaning it takes more euros to buy a dollar, American goods become more expensive for Europeans, making them less attractive and leading to a decrease in demand for dollars.

Question 18

A country decides to depreciate its currency. In the short run _____, but in the long run _____.

Accepted Answer

When a country depreciates its currency, exports become relatively cheaper and more competitive, which leads to an increase in aggregate demand for the country's goods and services. However, since imported inputs become more expensive, this can lead to rising costs of production and a decrease in aggregate supply in the long run. Therefore, option B is the most appropriate choice as it reflects the short-run and long-run effects of currency depreciation.

Question 19

Suppose last month 1 British pound could buy US$4. This month, 2 British pounds is equivalent to US$4. From this, we know that:

Accepted Answer

The value of the British pound relative to the U.S. dollar has decreased, meaning it now takes more pounds to buy the same amount of dollars, indicating the pound has depreciated and the dollar has appreciated.

Question 20

Last year when Laura attended a business conference in Berlin, the exchange rate was €0.7 for US$1. This year she plans to attend that same conference and she notes that the exchange rate is €0.8 for US$1. Laura estimates that her lodging and meals will be _____ expensive than last year.

Accepted Answer

The exchange rate has increased from €0.7 to €0.8 per US$1, meaning Laura gets more euros for each dollar. This makes her expenses in euros less expensive by approximately 13%.

Quiz 16: Open Economy Macroeconomics