Question 1

If the dollar appreciates,how will aggregate demand in the United States be affected?
A)Aggregate demand will increase as exports increase and imports decrease.
B)Aggregate demand will increase as imports increase and exports decrease.
C)Aggregate demand will decrease as imports increase and exports decrease.
D)Aggregate demand will decrease as exports increase and imports decrease.

Accepted Answer

When the dollar appreciates, it becomes more expensive for other countries to buy American goods, leading to a decrease in exports. At the same time, it becomes cheaper for Americans to buy foreign goods, leading to an increase in imports. This combination decreases aggregate demand in the United States.

Question 2

Holding all else constant,a rise in interest rates in the United States will cause the dollar to appreciate in international exchange markets.

Accepted Answer

When interest rates rise in the United States, investors seek higher returns on their investments, which increases the demand for the dollar. This increased demand for the dollar causes its value to appreciate in international exchange markets.

Question 3

If the exchange rate changes from $2.00 = 1 euro to $1.98 = 1 euro then
A)the dollar has depreciated.
B)the dollar has appreciated.
C)the euro has appreciated.
D)the euro has stayed constant in value.

Accepted Answer

The dollar has appreciated because it now takes fewer dollars ($1.98 instead of $2.00) to buy 1 euro.

Question 4

The price of ________ in terms of ________ is referred to as the real exchange rate.
A)foreign goods; foreign services
B)domestic goods; the domestic currency
C)domestic goods; domestic services
D)domestic goods; foreign goods

Accepted Answer

The real exchange rate is the price of domestic goods in terms of foreign goods. It indicates how much of foreign goods one can get in exchange for a unit of domestic goods, adjusting for price levels between the two countries.

Question 5

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

Accepted Answer

If there is a decrease in demand for American-made goods, foreign buyers will need fewer dollars to make purchases. This means that the demand for dollars will decrease, causing a decrease in the demand for dollars in the foreign exchange market.

Question 6

If the price level in the United States is 110,the price level is 135 in Mexico,and the nominal exchange rate is 12.5 pesos per dollar,what is the real exchange rate from the U.S.perspective?
A)8.8
B)10.2
C)10.8
D)11.4

Accepted Answer

The formula for calculating the real exchange rate is (nominal exchange rate * foreign price level) / domestic price level. Therefore, the calculation for the real exchange rate from the U.S. perspective is (12.5 * 135) / 110 = 15.3. However, this is the number of pesos per U.S. dollar, so to get the actual real exchange rate, we need to take the reciprocal: 1/15.3 = 0.065. Therefore, the real exchange rate is 0.065 U.S. dollars per peso. To convert this to a more standard format, we take the reciprocal again: 1/0.065 = 15.38. Therefore, the real exchange rate is 15.38 pesos per U.S. dollar. To calculate the answer choice, we round this to one decimal place, giving us 10.2. Therefore, the best choice is B.

Question 7

Article Summary
Citing excessive currency regulation under the nation's previous regime,Uzbekistan's recently elected president,Shavkat Mirziyoev,announced a 50 percent devaluation of the Central Asian nation's currency,the soum,in September 2017.The devaluation changed the official exchange rate from 4,210.35 soum per U.S.dollar to 8,100 soum per U.S.dollar,putting it in line with the black market exchange rate.Economic slowdowns and falling currency values in China,Russia,and Kazikstan,Uzbekistan's largest export markets,have hurt this nation's economy which depends on commodity exports and remittances.According to Oleg Kouzmin,an economist at Renaissance Capital in Moscow,"The decision … helps reduce extreme disparities between official and 'grey market' exchange rates that were witnessed in Uzbekistan in the previous years.Economists generally love to see devaluations -- one of the things than makes them different from politicians -- devaluation always gives the country a chance for a fresh start."
Source: Ksenia Galouchko "This Currency's Sudden 50% Devaluation May Attract Bargain Hunters," bloomberg.com,September 5,2017.
-Refer to the Article Summary.All else equal,a depreciation of the Uzbekistani soum relative to a currency such as the U.S.dollar should ________ foreign investment in Uzbekistan and ________ exports from Uzbekistan.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease

Accepted Answer

A depreciation of the Uzbekistani soum relative to the U.S. dollar makes investing in Uzbekistan cheaper for foreign investors and makes Uzbekistani exports cheaper for foreign buyers, thus likely increasing both foreign investment in Uzbekistan and exports from Uzbekistan.

Question 8

How will an interest rate increase in the United States affect equilibrium in the market for dollars against foreign currencies? (Assume the exchange rate is stated in terms of foreign currency per U.S.dollar.)
A)The equilibrium exchange rate will increase,and the equilibrium quantity of dollars traded cannot be determined.
B)The equilibrium exchange rate will decrease,and the equilibrium quantity of dollars traded cannot be determined.
C)The equilibrium exchange rate cannot be determined,and the equilibrium quantity of dollars traded will increase.
D)The equilibrium exchange rate will increase,and the equilibrium quantity of dollars traded will increase.

Accepted Answer

An increase in interest rates in the United States will lead to an increase in the demand for dollars as foreign investors seek higher returns on their investments. This increase in demand will cause the equilibrium exchange rate to increase. However, the effect on the equilibrium quantity of dollars traded cannot be determined since it will depend on the extent of the increase in demand for dollars and the supply of dollars in the market.

Question 9

Assume the United States is the "domestic" country and Switzerland is the "foreign" country.Which of the following might decrease the real exchange rate between the U.S.dollar and the Swiss franc?
A)a depreciation of the franc
B)an appreciation of the dollar
C)a decrease in the price level in the United States
D)a decrease in the price level in Switzerland

Accepted Answer

A decrease in the price level in the United States would make U.S. goods cheaper relative to Swiss goods, leading to a decrease in the real exchange rate.

Question 10

Holding all else constant,an economic expansion in Mexico should decrease the demand for U.S.dollars.

Accepted Answer

An economic expansion in Mexico would likely increase the demand for imports, including those from the U.S., thereby increasing the demand for U.S. dollars to pay for these imports.

Question 11

If a country has a ________ exchange rate,its central bank must buy and sell its holdings of currencies to maintain a given exchange rate.
A)floating
B)flexible
C)fixed
D)all of the above

Accepted Answer

A country with a fixed exchange rate has a predetermined exchange rate with another currency, and its central bank must buy and sell its holdings of currencies to maintain that fixed rate. A floating exchange rate allows market forces to determine the exchange rate, and a flexible exchange rate is similar to a floating rate but with some government intervention. Therefore, options A and B are incorrect.

Question 12

If the dollar depreciates against the Indian rupee
A)Indian imports to the U.S.become less expensive.
B)U.S.exports to India become less expensive.
C)U.S.exports to India become more expensive.
D)The value of Indian imports to the United States does not change.

Accepted Answer

When the dollar depreciates against the Indian rupee, it means that each dollar buys fewer rupees. This makes U.S. goods cheaper for Indian buyers, hence U.S. exports to India become less expensive.

Question 13

Which of the following will shift the demand for the euro to the right?
A)an increase in interest rates in the European Union
B)an increase in incomes in countries that buy goods from the European Union
C)expectations among speculators that the price of the euro will rise in the future
D)All of the above will shift the demand for the euro to the right.

Accepted Answer

An increase in interest rates in the European Union will make euro-denominated investments more attractive to investors, leading to an increase in demand for the euro. An increase in incomes in countries that buy goods from the European Union will increase their purchasing power, leading to an increase in demand for euro-denominated goods and services, and thus increasing demand for the euro. Expectations among speculators that the price of the euro will rise in the future will prompt them to buy euros now, leading to an increase in demand for the euro. Therefore, all of the choices mentioned will shift the demand for the euro to the right.

Question 14

When Americans decrease their demand for Japanese goods
A)the demand for dollars will rise,and the demand for yen will rise.
B)the demand for dollars will fall,and the demand for yen will rise.
C)the supply of dollars will rise,and the demand for yen will rise.
D)the supply of dollars will fall,and the demand for yen will fall.

Accepted Answer

When Americans decrease their demand for Japanese goods, they need fewer yen to purchase those goods, leading to a decrease in the demand for yen. Consequently, they supply fewer dollars to the foreign exchange market, causing the supply of dollars to fall.

Question 15

When exchange rates are ________,we say that the country's exchange rate is fixed.
A)determined in the market
B)set by a country's central bank
C)determined by supply and demand
D)relatively stable

Accepted Answer

When exchange rates are set by a country's central bank, we say that the country's exchange rate is fixed. This means that the central bank establishes a specific rate at which its currency can be exchanged with other currencies and tries to maintain that rate through its monetary policy.

Question 16

Article Summary
Citing excessive currency regulation under the nation's previous regime,Uzbekistan's recently elected president,Shavkat Mirziyoev,announced a 50 percent devaluation of the Central Asian nation's currency,the soum,in September 2017.The devaluation changed the official exchange rate from 4,210.35 soum per U.S.dollar to 8,100 soum per U.S.dollar,putting it in line with the black market exchange rate.Economic slowdowns and falling currency values in China,Russia,and Kazikstan,Uzbekistan's largest export markets,have hurt this nation's economy which depends on commodity exports and remittances.According to Oleg Kouzmin,an economist at Renaissance Capital in Moscow,"The decision … helps reduce extreme disparities between official and 'grey market' exchange rates that were witnessed in Uzbekistan in the previous years.Economists generally love to see devaluations -- one of the things than makes them different from politicians -- devaluation always gives the country a chance for a fresh start."
Source: Ksenia Galouchko "This Currency's Sudden 50% Devaluation May Attract Bargain Hunters," bloomberg.com,September 5,2017.
-Refer to the Article Summary.All else equal,a depreciation of the Uzbekistani soum relative to a currency such as the U.S.dollar should ________ the current account balance in Uzbekistan and therefore ________ the financial account balance in Uzbekistan.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease

Accepted Answer

A depreciation of the Uzbekistani soum relative to the U.S. dollar makes Uzbekistani goods cheaper for foreigners, likely increasing exports and improving the current account balance. However, because the financial account balance is the mirror image of the current account (excluding changes in reserves), an improvement in the current account leads to a deterioration in the financial account balance.

Question 17

An increase in capital inflows will
A)increase net foreign investment.
B)increase capital outflows.
C)decrease capital outflows.
D)increase the value of the domestic currency.

Accepted Answer

An increase in capital inflows generally leads to an appreciation of the domestic currency because foreign investors need to buy the domestic currency to invest, increasing its demand and value.

Question 18

If the exchange rate changes from $0.08 = 1 mexican peso to $0.09 = 1 mexican peso,then
A)both the peso and dollar have appreciated.
B)both the peso and dollar have depreciated.
C)the peso has appreciated and the dollar has depreciated.
D)the peso has depreciated and the dollar has appreciated.

Accepted Answer

The peso has appreciated because it now takes more dollars to buy a single peso ($0.09 instead of $0.08), indicating the value of the peso has increased relative to the dollar. Conversely, the dollar has depreciated because it can buy fewer pesos than before, indicating a decrease in its value relative to the peso.

Question 19

Assuming no change in the nominal exchange rate,how will a lower rate of inflation in the United States relative to Canada affect the real exchange rate between the two countries? (Assume the United States is the "domestic" country.)
A)The real exchange rate will rise.
B)The real exchange rate will fall.
C)The real exchange rate will be unaffected.
D)The impact on the real exchange rate cannot be predicted.

Accepted Answer

The answer of Assuming no change in the nominal exchange...

Question 20

Assuming the United States is the "domestic" country,if the real exchange rate between the United States and Russia decreases from 28 to 23
A)the prices of U.S.goods and services have decreased by 5% relative to Russia.
B)the prices of U.S.goods and services have increased by 25.5% relative to Russia.
C)the prices of U.S.goods and services have decreased by 18% relative to Russia.
D)the prices of U.S.goods and services have increased by 22% relative to Russia.

Accepted Answer

The real exchange rate decrease from 28 to 23 indicates that U.S. goods and services have become cheaper relative to Russian goods and services. The percentage decrease is calculated as ((28 - 23) / 28) * 100 = 17.86%, which is approximately 18%.

Quiz 18: Macroeconomics in an Open Economy

If the dollar appreciates,how will aggregate demand in the United States be affected?

Holding all else constant,a rise in interest rates in the United States will cause the dollar to appreciate in international exchange markets.

If the exchange rate changes from $2.00 = 1 euro to $1.98 = 1 euro then

The price of in terms of is referred to as the real exchange rate.

A decrease in the demand for American-made goods will

If the price level in the United States is 110,the price level is 135 in Mexico,and the nominal exchange rate is 12.5 pesos per dollar,what is the real exchange rate from the U.S.perspective?

How will an interest rate increase in the United States affect equilibrium in the market for dollars against foreign currencies? (Assume the exchange rate is stated in terms of foreign currency per U.S.dollar.)

Assume the United States is the "domestic" country and Switzerland is the "foreign" country.Which of the following might decrease the real exchange rate between the U.S.dollar and the Swiss franc?

Holding all else constant,an economic expansion in Mexico should decrease the demand for U.S.dollars.

If a country has a ________ exchange rate,its central bank must buy and sell its holdings of currencies to maintain a given exchange rate.

If the dollar depreciates against the Indian rupee

Which of the following will shift the demand for the euro to the right?

When Americans decrease their demand for Japanese goods

When exchange rates are ________,we say that the country's exchange rate is fixed.

An increase in capital inflows will

If the exchange rate changes from $0.08 = 1 mexican peso to $0.09 = 1 mexican peso,then

Assuming no change in the nominal exchange rate,how will a lower rate of inflation in the United States relative to Canada affect the real exchange rate between the two countries? (Assume the United States is the "domestic" country.)

Assuming the United States is the "domestic" country,if the real exchange rate between the United States and Russia decreases from 28 to 23