Question 1

When the Fed tightens U.S.monetary policy,domestic interest rates ______,making U.S.assets relatively more attractive to foreign investors,and ______ the equilibrium exchange rate.

Accepted Answer

When the Fed tightens monetary policy, it increases interest rates, making U.S. assets more attractive to foreign investors seeking higher returns. As a result, the demand for U.S. dollars increases, causing the value of the dollar to appreciate and the equilibrium exchange rate to increase.

Question 2

Someone who wants both the U.S.dollar to be ______ compared to other currencies and the value of U.S.net exports to be ______ wants two things that may be contradictory.

Accepted Answer

A strong U.S. dollar would make U.S. exports more expensive and therefore decrease the value of U.S. net exports. Therefore, wanting a strong U.S. dollar and large U.S. net exports may be contradictory.

Question 3

Holding all else constant,an increase in the preferences of Americans for Mexican goods will ______ the supply of dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S.dollar exchange rate.

Accepted Answer

An increase in preferences for Mexican goods by Americans means that there will be an increase in demand for Mexican goods. This leads to an increase in exports from Mexico to the United States, which means an increase in the supply of Mexican pesos as Mexican exporters exchange pesos for dollars. The increase in supply of pesos will lead to a decrease in the equilibrium Mexican peso/U.S. dollar exchange rate. Therefore, choice B is the correct answer.

Question 4

Each of the following would decrease the demand for U.S.dollars,shifting the demand curve for dollars to the left,EXCEPT:

Accepted Answer

A depreciation of foreign currencies relative to the U.S. dollar is a movement along a given demand curve. The other answers choices shift the demand curve for dollars leftward.

Question 5

Holding all else constant,a decrease in the real interest rate on U.S.assets will ______ the demand for dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S.dollar exchange rate.

Accepted Answer

A decrease in the real interest rate on U.S. assets will decrease the demand for dollars in the foreign exchange market as foreigners desire fewer U.S. investments. This decreases the exchange rate of pesos per dollar.

Question 6

When the Fed eases U.S.monetary policy,domestic interest rates ______,making U.S.assets relatively less attractive to foreign investors,and ______ the equilibrium exchange rate.

Accepted Answer

When the Fed eases U.S. monetary policy, interest rates fall which discourages foreign investors. Foreign investors then want fewer dollars, which decreases the equilibrium exchange rate.

Question 7

As the U.S.dollar appreciates relative to other currencies,the dollar price of goods imported to the U.S._____,causing net exports and GDP to ______.

Accepted Answer

The answer of As the U.S.dollar appreciates relative to other...

Question 8

All else being equal,if the prospect of a recession leads the Federal Reserve to ease monetary policy,the equilibrium value of the exchange rate for the U.S.dollar will:

Accepted Answer

If the Federal Reserve eases monetary policy, it usually involves decreasing interest rates, which can lead to a decrease in foreign investment in the U.S. and a decrease in demand for dollars. This decrease in demand for dollars will cause the value of the U.S. dollar to fall in relation to other currencies, leading to a lower exchange rate.

Question 9

Each of the following would increase the demand for U.S.dollars,shifting the demand curve for dollars to the right,EXCEPT:

Accepted Answer

Appreciation of foreign currencies relative to the U.S. dollar would decrease the demand for U.S. dollars as foreign goods and services become cheaper for U.S. consumers and U.S. exports become more expensive for foreigners. The other options would increase the demand for U.S. dollars by either increasing the demand for U.S. goods and services (A), increasing the demand for U.S. currency due to higher economic activity abroad (B), or increasing the demand for U.S. assets due to higher interest rates (C).

Question 10

The U.S.dollar exchange rate,e,where e is the nominal exchange rate expressed as Japanese yen per U.S.dollar,will appreciate when:

Accepted Answer

An increase in real GDP in Japan leads to an increase in demand for U.S. goods and services, causing an increase in demand for U.S. dollars and a higher exchange rate. The other options do not directly affect the exchange rate in this way.

Question 11

As U.S.real GDP falls,poorer households may decide to buy ______ foreign goods and assets,which would cause a(n)______ of the U.S.dollar.

Accepted Answer

The answer of As U.S.real GDP falls,poorer households may decide...

Question 12

Holding all else constant,a decrease in the real interest rate on Mexican assets will ______ the supply of dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S.dollar exchange rate.

Accepted Answer

A decrease in the real interest rate on Mexican assets will reduce the return on investment and lead to a decrease in the supply of dollars in the foreign exchange market because investors will be less interested in holding Mexican assets. This decrease in supply will cause a higher equilibrium Mexican peso/U.S. dollar exchange rate, as the demand for dollars will increase relative to the reduced supply.

Question 13

As U.S.real GDP rises,wealthier households may decide to buy ______ foreign goods and assets,which would cause a(n)______ of the U.S.dollar.

Accepted Answer

When the U.S. real GDP rises, wealthy households may decide to buy more foreign goods and assets. This increase in demand for foreign goods and assets would cause an increase in the supply of U.S. dollars in the foreign exchange market. According to the law of supply and demand, an increase in supply of a currency leads to a decrease in its value, causing depreciation of the U.S. dollar. Therefore, the best choice is B) more; depreciation.

Question 14

Holding all else constant,an increase in Mexican real GDP will ______ the demand for dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S.dollar exchange rate.

Accepted Answer

Increased Mexican real GDP increases Mexican demand for American goods and increases the demand for dollars in the foreign exchange market as Mexicans trade pesos for dollars. This increases the exchange rate of pesos per dollar.

Question 15

The U.S.dollar exchange rate,e,where e is the nominal exchange rate expressed as Japanese yen per U.S.dollar,will depreciate when:

Accepted Answer

The answer of The U.S.dollar exchange rate,e,where e is the...

Question 16

There is ______ connection between the strength of a country's currency and the strength of its ______.

Accepted Answer

Because exchange rates are affected by many forces both domestic and foreign, there is no simple connection between the strength of a country's currency and the strength of its economy.

Question 17

In an open economy with flexible exchange rates,monetary policy affects consumption and investment by changing the ______ and affects net exports by changing the _____.

Accepted Answer

In an open economy with flexible exchange rates, monetary policy affects consumption and investment through changes in the real interest rate, which affects the cost of borrowing and lending. Monetary policy also affects net exports through changes in the exchange rate, which can make exports more or less expensive for foreign buyers. Therefore, the correct choice is D, with changes in the real interest rate affecting consumption and investment, and changes in the exchange rate affecting net exports.

Question 18

All else equal,if U.S.stocks are perceived to have become riskier compared to financial investments in other countries,then the market equilibrium value of the exchange rate for the U.S.dollar will:

Accepted Answer

If U.S. stocks are perceived to be riskier compared to financial investments in other countries, then investors may choose to divest from U.S. stocks and invest in other countries. This would decrease the demand for U.S. stocks and increase the supply of U.S. dollars in the foreign exchange market, leading to a decrease in the exchange rate for the U.S. dollar.

Question 19

All else being equal,if Asian restaurants switch from serving French champagne to serving California wines,then the market equilibrium value of the exchange rate for the U.S.dollar will:

Accepted Answer

If Asian restaurants reduce their demand for French champagne and switch to U.S. wine, the restaurants need fewer euros and more dollars. This increases world demand for dollars and the exchange rate for the U.S. dollar will rise.

Question 20

Holding all else constant,an increase in preferences by Mexicans for U.S.goods will ______ the demand for dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S.dollar exchange rate.

Accepted Answer

An increase in preference for U.S. goods by Mexicans would lead to an increase in demand for dollars to purchase those goods. This increased demand for dollars in the foreign exchange market would cause the value of the Mexican peso to decrease relative to the U.S. dollar, resulting in an increase in the equilibrium Mexican peso/U.S. dollar exchange rate.

Quiz 26: Exchange Rates, International Trade, and Capital Flows

When the Fed tightens U.S.monetary policy,domestic interest rates ,making U.S.assets relatively more attractive to foreign investors,and the equilibrium exchange rate.

Someone who wants both the U.S.dollar to be compared to other currencies and the value of U.S.net exports to be wants two things that may be contradictory.

Holding all else constant,an increase in the preferences of Americans for Mexican goods will the supply of dollars in the foreign exchange market and the equilibrium Mexican peso/U.S.dollar exchange rate.

Each of the following would decrease the demand for U.S.dollars,shifting the demand curve for dollars to the left,EXCEPT:

Holding all else constant,a decrease in the real interest rate on U.S.assets will the demand for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S.dollar exchange rate.

When the Fed eases U.S.monetary policy,domestic interest rates ,making U.S.assets relatively less attractive to foreign investors,and the equilibrium exchange rate.

As the U.S.dollar appreciates relative to other currencies,the dollar price of goods imported to the U.S._,causing net exports and GDP to __.

All else being equal,if the prospect of a recession leads the Federal Reserve to ease monetary policy,the equilibrium value of the exchange rate for the U.S.dollar will:

Each of the following would increase the demand for U.S.dollars,shifting the demand curve for dollars to the right,EXCEPT:

The U.S.dollar exchange rate,e,where e is the nominal exchange rate expressed as Japanese yen per U.S.dollar,will appreciate when:

As U.S.real GDP falls,poorer households may decide to buy foreign goods and assets,which would cause a(n) of the U.S.dollar.

Holding all else constant,a decrease in the real interest rate on Mexican assets will the supply of dollars in the foreign exchange market and the equilibrium Mexican peso/U.S.dollar exchange rate.

As U.S.real GDP rises,wealthier households may decide to buy foreign goods and assets,which would cause a(n) of the U.S.dollar.

Holding all else constant,an increase in Mexican real GDP will the demand for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S.dollar exchange rate.

The U.S.dollar exchange rate,e,where e is the nominal exchange rate expressed as Japanese yen per U.S.dollar,will depreciate when:

There is connection between the strength of a country's currency and the strength of its .

In an open economy with flexible exchange rates,monetary policy affects consumption and investment by changing the __ and affects net exports by changing the _.

All else equal,if U.S.stocks are perceived to have become riskier compared to financial investments in other countries,then the market equilibrium value of the exchange rate for the U.S.dollar will:

All else being equal,if Asian restaurants switch from serving French champagne to serving California wines,then the market equilibrium value of the exchange rate for the U.S.dollar will:

Holding all else constant,an increase in preferences by Mexicans for U.S.goods will the demand for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S.dollar exchange rate.

Quiz 26: Exchange Rates, International Trade, and Capital Flows

When the Fed tightens U.S.monetary policy,domestic interest rates ______,making U.S.assets relatively more attractive to foreign investors,and ______ the equilibrium exchange rate.

Someone who wants both the U.S.dollar to be ______ compared to other currencies and the value of U.S.net exports to be ______ wants two things that may be contradictory.

Holding all else constant,an increase in the preferences of Americans for Mexican goods will ______ the supply of dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S.dollar exchange rate.

Each of the following would decrease the demand for U.S.dollars,shifting the demand curve for dollars to the left,EXCEPT:

Holding all else constant,a decrease in the real interest rate on U.S.assets will ______ the demand for dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S.dollar exchange rate.

When the Fed eases U.S.monetary policy,domestic interest rates ______,making U.S.assets relatively less attractive to foreign investors,and ______ the equilibrium exchange rate.

As the U.S.dollar appreciates relative to other currencies,the dollar price of goods imported to the U.S._____,causing net exports and GDP to ______.

All else being equal,if the prospect of a recession leads the Federal Reserve to ease monetary policy,the equilibrium value of the exchange rate for the U.S.dollar will:

Each of the following would increase the demand for U.S.dollars,shifting the demand curve for dollars to the right,EXCEPT:

The U.S.dollar exchange rate,e,where e is the nominal exchange rate expressed as Japanese yen per U.S.dollar,will appreciate when:

As U.S.real GDP falls,poorer households may decide to buy ______ foreign goods and assets,which would cause a(n) ______ of the U.S.dollar.

Holding all else constant,a decrease in the real interest rate on Mexican assets will ______ the supply of dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S.dollar exchange rate.

As U.S.real GDP rises,wealthier households may decide to buy ______ foreign goods and assets,which would cause a(n) ______ of the U.S.dollar.

Holding all else constant,an increase in Mexican real GDP will ______ the demand for dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S.dollar exchange rate.

The U.S.dollar exchange rate,e,where e is the nominal exchange rate expressed as Japanese yen per U.S.dollar,will depreciate when:

There is ______ connection between the strength of a country's currency and the strength of its ______.

In an open economy with flexible exchange rates,monetary policy affects consumption and investment by changing the ______ and affects net exports by changing the _____.

All else equal,if U.S.stocks are perceived to have become riskier compared to financial investments in other countries,then the market equilibrium value of the exchange rate for the U.S.dollar will:

All else being equal,if Asian restaurants switch from serving French champagne to serving California wines,then the market equilibrium value of the exchange rate for the U.S.dollar will:

Holding all else constant,an increase in preferences by Mexicans for U.S.goods will ______ the demand for dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S.dollar exchange rate.

When the Fed tightens U.S.monetary policy,domestic interest rates ,making U.S.assets relatively more attractive to foreign investors,and the equilibrium exchange rate.

Someone who wants both the U.S.dollar to be compared to other currencies and the value of U.S.net exports to be wants two things that may be contradictory.

Holding all else constant,an increase in the preferences of Americans for Mexican goods will the supply of dollars in the foreign exchange market and the equilibrium Mexican peso/U.S.dollar exchange rate.

Holding all else constant,a decrease in the real interest rate on U.S.assets will the demand for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S.dollar exchange rate.

When the Fed eases U.S.monetary policy,domestic interest rates ,making U.S.assets relatively less attractive to foreign investors,and the equilibrium exchange rate.

As the U.S.dollar appreciates relative to other currencies,the dollar price of goods imported to the U.S._,causing net exports and GDP to __.

As U.S.real GDP falls,poorer households may decide to buy foreign goods and assets,which would cause a(n) of the U.S.dollar.

Holding all else constant,a decrease in the real interest rate on Mexican assets will the supply of dollars in the foreign exchange market and the equilibrium Mexican peso/U.S.dollar exchange rate.

As U.S.real GDP rises,wealthier households may decide to buy foreign goods and assets,which would cause a(n) of the U.S.dollar.

Holding all else constant,an increase in Mexican real GDP will the demand for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S.dollar exchange rate.

There is connection between the strength of a country's currency and the strength of its .

In an open economy with flexible exchange rates,monetary policy affects consumption and investment by changing the __ and affects net exports by changing the _.

Holding all else constant,an increase in preferences by Mexicans for U.S.goods will the demand for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S.dollar exchange rate.