Question 1

If there is currently a surplus of dollars,which of the following would you expect to see in the foreign exchange market?
A) The dollar will appreciate.
B) The dollar will depreciate.
C) There will be a decrease in the demand for dollars.
D) There will be a decrease in the supply of dollars.

Accepted Answer

When there is a surplus of dollars, this means that there is an excess supply of dollars in the market. According to the law of supply and demand, when there is an excess supply of a good, its price (or value) tends to decrease. In the foreign exchange market, this translates to a depreciation of the currency (in this case, the dollar). Therefore, option B is the correct choice. Option A (appreciation) would be the opposite of what happens when there is a surplus of dollars. Option C (decrease in demand) and option D (decrease in supply) are not likely outcomes because a surplus implies that there is already an excess supply of dollars.

Question 2

Figure 29-1
 
-Refer to Figure 29-1.The appreciation of the euro is represented as a movement from ________.
A) D to A
B) D to C
C) B to C
D) A to C
E) A to B

Accepted Answer

The answer of Figure 29-1
 
-Refer to Figure 29-1.The appreciation...

Question 3

An increase in the demand for American-made goods will
A) increase the supply of dollars on the foreign exchange market.
B) decrease the supply of dollars on the foreign exchange market.
C) increase the demand for dollars on the foreign exchange market.
D) decrease the demand for dollars on the foreign exchange market.

Accepted Answer

An increase in demand for American-made goods means that foreign countries will need to purchase more dollars in order to pay for those goods. This will increase the demand for dollars on the foreign exchange market.

Question 4

How does an increase in a country's exchange rate affect its balance of trade?
A) An increase in the exchange rate raises imports, reduces exports, and reduces the balance of trade.
B) An increase in the exchange rate reduces imports, raises exports, and reduces the balance of trade.
C) An increase in the exchange rate reduces imports, raises exports, and increases the balance of trade.
D) An increase in the exchange rate raises imports, reduces exports, and increases the balance of trade.

Accepted Answer

An increase in exchange rate means that the domestic currency has become more expensive relative to foreign currencies. This makes imports cheaper and exports more expensive, leading to an increase in imports and a decrease in exports. Therefore, choice A is correct as it reflects the impact of an increase in exchange rate on a country's balance of trade.

Question 5

Figure 29-1
 
-Refer to Figure 29-1.Europe suffers a recession.Assuming all else remains constant,this would be represented as a movement from ________.
A) D to A
B) C to D
C) B to C
D) A to D
E) A to B

Accepted Answer

A recession would result in a decrease in aggregate demand, which would be represented as a movement from point C to point D on the AD-AS diagram.

Question 6

Table 29-1
 
-Refer to Table 29-1.Given the following exchange rates in the above table,what are the exchange rates stated as U.S.dollars per Mexican peso and U.S.dollars per British pound respectively?
A) 0.10 dollars per peso and 2.00 dollars per pound
B) 1.00 dollars per peso and 20.00 dollars per pound
C) 0.01 dollars per peso and 0.20 dollars per pound
D) 0.10 dollars per peso and 5.00 dollars per pound
E) 0.01 dollars per peso and 0.50 dollars per pound

Accepted Answer

The exchange rate of 0.10 dollars per peso and 2.00 dollars per pound is the correct conversion from the given rates.

Question 7

You're traveling in Ireland and are thinking about buying a new digital camera.You've decided you'd be willing to pay $125 for a new camera,but cameras in Ireland are all priced in euros.If the exchange rate is 0.85 euros per dollar,what's the highest price in euros you'd be willing to pay for a camera?
A) 105 euros
B) 106.25 euros
C) 110.15 euros
D) 147 euros

Accepted Answer

The answer of You're traveling in Ireland and are thinking...

Question 8

Figure 29-1
 
-Refer to Figure 29-1.The French fall in love with California wines and triple their purchases of this beverage.Assuming all else remains constant,this would be represented as a movement from ________.
A) B to A
B) C to D
C) B to C
D) A to D
E) A to B

Accepted Answer

The answer of Figure 29-1
 
-Refer to Figure 29-1.The French...

Question 9

Explain why economies with financial account surpluses usually have current account deficits.

Accepted Answer

The answer of Explain why economies with financial account surpluses...

Question 10

Figure 29-1
 
-Refer to Figure 29-1.Suppose that the U.S.government deficit causes interest rates in the United States to rise relative to those in the European Union.Assuming all else remains constant,how would this be represented?
A) Supply would decrease, demand would decrease and the economy moves from B to C to D.
B) Supply would increase, demand would decrease and the economy moves from C to B to A.
C) Supply would decrease, demand would increase and the economy moves from A to D to C.
D) Supply would increase, demand would increase and the economy moves from D to A to B.

Accepted Answer

If interest rates in the United States rise relative to those in the European Union due to the government deficit, demand for U.S. currency and U.S. assets would decrease as foreign investors turn to other countries with higher returns. This decrease in demand would cause the supply of U.S. currency to increase, leading to a depreciation of the dollar. As a result, the economy would move from point A to point D to point C, representing a decrease in demand for U.S. currency and assets, and a decrease in the value of the U.S. dollar.

Question 11

Figure 29-1
 
-Refer to Figure 29-1.Currency speculators believe that the value of the euro will increase relative to the dollar.Assuming all else remains constant,how would this be represented?
A) Supply would decrease, demand would decrease and the economy moves from B to C to D.
B) Supply would increase, demand would decrease and the economy moves from C to B to A.
C) Supply would decrease, demand would increase and the economy moves from A to D to C.
D) Supply would increase, demand would increase and the economy moves from D to A to B.

Accepted Answer

The answer of Figure 29-1
 
-Refer to Figure 29-1.Currency speculators...

Question 12

If the dollar appreciates against the Mexican peso,
A) Mexican imports to the U.S. become more expensive.
B) U.S. exports to Mexico become less expensive.
C) U.S. exports to Mexico become more expensive.
D) The value of Mexican imports to the United States does not change.

Accepted Answer

When the dollar appreciates against the Mexican peso, it means that each dollar can buy more pesos than before. Therefore, goods priced in dollars become more expensive for those holding pesos, making U.S. exports to Mexico more expensive.

Question 13

When the market value of the dollar rises relative to other currencies around the world,we say that
A) the dollar has appreciated.
B) the dollar has depreciated.
C) the demand for dollars has increased.
D) the supply of dollars has increased.

Accepted Answer

When the market value of the dollar rises relative to other currencies, it means that the dollar has appreciated in value. This is because it now has a higher purchasing power compared to other currencies, making it more valuable in the global market.

Question 14

Currency traders expect the value of the dollar to fall.What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?
A) Demand for dollars will increase, and supply of dollars will decrease.
B) Demand for dollars will increase, and supply of dollars will increase.
C) Demand for dollars will decrease, and supply of dollars will increase.
D) Demand for dollars will decrease, and supply of dollars will decrease.

Accepted Answer

If traders expect the value of the dollar to fall, then they will not want to hold as many dollars, and thus the demand for dollars will decrease. Additionally, as they try to sell off their dollars, there will be an increase in the supply of dollars on the foreign exchange market. Therefore, the correct choice is C.

Question 15

You're traveling in Ireland and are thinking about buying a new digital camera.You've decided you'd be willing to pay $125 for a new camera,but cameras in Ireland are all priced in euros.If the camera you're looking at costs 115 euros,under which of the following exchange rates would you be willing to purchase the camera? (Assume no taxes or duties are associated with the purchase.)
A) 0.56 euros per dollar
B) 0.89 euros per dollar
C) 0.92 euros per dollar
D) You would purchase the new camera at any of the above exchange rates.

Accepted Answer

The answer of You're traveling in Ireland and are thinking...

Question 16

Currency traders expect the dollar to appreciate.What impact will this have on equilibrium in the foreign exchange market?
A) The dollar will appreciate, and the equilibrium quantity of dollars will decrease.
B) The dollar will depreciate, and the equilibrium quantity of dollars exchanged will decrease.
C) The dollar will appreciate, and the equilibrium quantity of dollars will increase.
D) The dollar will appreciate, and the change in the equilibrium quantity of dollars exchanged cannot be determined.

Accepted Answer

When currency traders expect the dollar to appreciate, it leads to an increase in demand for dollars as investors seek to benefit from the appreciation. This expectation itself can cause the dollar to appreciate. However, the impact on the equilibrium quantity of dollars exchanged is ambiguous without more information about how supply and demand curves shift in response to these expectations.

Question 17

Which of the following would cause the dollar to appreciate?
A) an increase in the demand for dollars
B) a decrease in the demand for dollars
C) an increase in the supply of dollars
D) an increase in the demand for imports from foreign countries

Accepted Answer

An increase in the demand for dollars means that more people want to buy dollars, which creates a scarcity of the currency and drives up its value (appreciation).

Answer: B
 A decrease in the demand for dollars means that fewer people want to buy dollars, which creates an oversupply of the currency and lowers its value (depreciation).

Answer: C
 An increase in the supply of dollars means that there are more dollars available in the market, which lowers its value (depreciation).

Answer: D
 An increase in the demand for imports from foreign countries means that more dollars are flowing out of the country, which increases the supply of dollars in the market and lowers its value (depreciation).

Question 18

Figure 29-1
 
-Refer to Figure 29-1.The depreciation of the dollar is represented as a movement from ________.
A) B to A
B) D to C
C) B to C
D) A to C
E) A to B

Accepted Answer

The answer of Figure 29-1
 
-Refer to Figure 29-1.The depreciation...

Question 19

If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar,how many American dollars are required to buy a product that costs 2.5 Canadian dollars?
A) $1.32
B) $2.23
C) $2.75
D) $2.81

Accepted Answer

The answer of If the nominal exchange rate between the...

Question 20

Why is the balance of payments always zero?

Accepted Answer

The answer of Why is the balance of payments always...

Quiz 18: Macroeconomics in an Open Economy

If there is currently a surplus of dollars,which of the following would you expect to see in the foreign exchange market?

Figure 29-1 -Refer to Figure 29-1.The appreciation of the euro is represented as a movement from ________.

An increase in the demand for American-made goods will

How does an increase in a country's exchange rate affect its balance of trade?

Figure 29-1 -Refer to Figure 29-1.Europe suffers a recession.Assuming all else remains constant,this would be represented as a movement from ________.

Table 29-1 -Refer to Table 29-1.Given the following exchange rates in the above table,what are the exchange rates stated as U.S.dollars per Mexican peso and U.S.dollars per British pound respectively?

Figure 29-1 -Refer to Figure 29-1.The French fall in love with California wines and triple their purchases of this beverage.Assuming all else remains constant,this would be represented as a movement from ________.

Explain why economies with financial account surpluses usually have current account deficits.

Figure 29-1 -Refer to Figure 29-1.Suppose that the U.S.government deficit causes interest rates in the United States to rise relative to those in the European Union.Assuming all else remains constant,how would this be represented?

Figure 29-1 -Refer to Figure 29-1.Currency speculators believe that the value of the euro will increase relative to the dollar.Assuming all else remains constant,how would this be represented?

If the dollar appreciates against the Mexican peso,

When the market value of the dollar rises relative to other currencies around the world,we say that

Currency traders expect the value of the dollar to fall.What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?

Currency traders expect the dollar to appreciate.What impact will this have on equilibrium in the foreign exchange market?

Which of the following would cause the dollar to appreciate?

Figure 29-1 -Refer to Figure 29-1.The depreciation of the dollar is represented as a movement from ________.

If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar,how many American dollars are required to buy a product that costs 2.5 Canadian dollars?

Why is the balance of payments always zero?