Question 1

In the early 1980s,high interest rates in the U.S.attracted enormous amounts of capital into the U.S.to buy stocks,bonds,real estate,and other assets.All other things being equal,supply-and-demand analysis of exchange rates would predict that the U.S.dollar would experience ___________ relative to other currencies.

Accepted Answer

When there is an increase in the demand for a currency due to foreign investment, the value of that currency is expected to appreciate relative to other currencies. Therefore, in the scenario described in the question, the US dollar would experience an appreciation relative to other currencies.

Question 2

Relative to the case of a closed economy,monetary policy is ___________ in an open economy with a flexible exchange rate.

Accepted Answer

In an open economy with a flexible exchange rate, monetary policy is more effective because changes in interest rates can lead to exchange rate adjustments, which amplify the effects of monetary policy on aggregate demand.

Question 3

The market equilibrium value of a country's exchange rate is

Accepted Answer

The market equilibrium value of a country's exchange rate is determined by the intersection of the supply of and demand for the country's currency in the foreign exchange market. The supply of the country's currency comes from domestic residents and firms selling their currency while the demand for the country's currency comes from foreign consumers, firms, and investors wanting to buy the country's currency to invest or purchase goods and services. The foreign exchange market is where these buyers and sellers meet to determine the equilibrium exchange rate. The equilibrium exchange rate can fluctuate over time as the supply and demand factors change.

Question 4

The yen-dollar exchange rate,e,where e is the nominal exchange rate expressed as Japanese yen per dollar,will increase when

Accepted Answer

The answer of The yen-dollar exchange rate,e,where e is the...

Question 5

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

Accepted Answer

A decrease in the real interest rate on Canadian assets makes them less attractive to investors, reducing the demand for Canadian dollars and leading to a depreciation of the Canadian dollar relative to the Mexican peso.

Question 6

Holding all else constant,tighter monetary policy in Canada will _________ the demand for dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

Accepted Answer

Tighter monetary policy in Canada typically leads to higher interest rates, making Canadian assets more attractive to investors. This increases the demand for Canadian dollars, leading to an appreciation of the Canadian dollar relative to the Mexican peso, thus increasing the equilibrium exchange rate.

Question 7

The yen-dollar exchange rate,e,where e is the nominal exchange rate expressed as Japanese yen per Canadian dollar,will increase when

Accepted Answer

The answer of The yen-dollar exchange rate,e,where e is the...

Question 8

Holding all else constant,easier monetary policy in Canada will _________ the demand for dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

Accepted Answer

Easier monetary policy in Canada typically leads to lower interest rates, reducing the demand for Canadian dollars as investors seek higher returns elsewhere. This decrease in demand for Canadian dollars leads to a depreciation of the Canadian dollar relative to the Mexican peso, thus decreasing the equilibrium Mexican peso-dollar exchange rate.

Question 9

Easy monetary policy __________ interest rates,which __________ the demand for a currency and __________ the market equilibrium value of the exchange rate.

Accepted Answer

Easy monetary policy typically involves lowering interest rates, which decreases the demand for a currency and subsequently decreases the market equilibrium value of the exchange rate.

Question 10

Suppose that the demand for euros in the foreign exchange market equals 11,000 - 1,000e and the supply of euros in the foreign exchange market equals 8,000 + 1,000e,where e is the nominal exchange rate expressed in dollars per euro.The market equilibrium value of the euro is _________ euros per dollar or ___ dollars per euro.

Accepted Answer

The answer of Suppose that the demand for euros in...

Question 11

When the Bank of Canada raises the domestic real interest rate to close an expansionary gap,it __________ the __________ Canadian assets by foreign investors.Under the flexible exchange rate system this,in turn,increases the __________ dollars,resulting in a(n)___________ of the dollar.

Accepted Answer

Raising the real interest rate makes Canadian assets more attractive, increasing demand for them. This increases demand for Canadian dollars, leading to appreciation.

Question 12

A fall in the real interest rate in Canada may be expected to raise demand for Canadian goods through each of these channels EXCEPT

Accepted Answer

A fall in the real interest rate in Canada would lead to a decrease in the value of the Canadian dollar, making imports relatively more expensive and exports relatively cheaper. Therefore, a fall in the real interest rate can be expected to stimulate net exports, but it would not stimulate imports. Hence, option E is the correct answer.

Question 13

The currency used in the Duchy of Saxony is the ducet.The demand for the Saxonian ducet in the foreign exchange market equals 14,000 - 3,000e and the supply of ducets in the foreign exchange market equals 2,000 + 2,000e,where e is the nominal exchange rate expressed in dollars per ducet.The market equilibrium value of ducet is _________ ducets per dollar or _________ dollars per ducet.

Accepted Answer

The answer of The currency used in the Duchy of...

Question 14

A rise in the real interest rate in Canada may be expected to lower demand for Canadian goods through each of these channels EXCEPT

Accepted Answer

A rise in the real interest rate typically discourages net exports by making the domestic currency stronger, which makes exports more expensive and imports cheaper, thus not discouraging imports.

Question 15

Suppose that the demand for euros in the foreign exchange market equals 8,000 - 2,000e and the supply of euros in the foreign exchange market equals 4,500 + 3,000e,where e is the nominal exchange rate expressed in dollars per euro.The market equilibrium value of the euro is _________ euros per dollar or ___ dollars per euro.

Accepted Answer

At market equilibrium, demand equals supply. Therefore, we set the demand equal to the supply and solve for e:

8,000 - 2,000e = 4,500 + 3,000e

5,500 = 5,000e

e = 1.1

Therefore, the market equilibrium value of the euro is 1 euro per 1.1 dollars or 0.909 dollars per euro. Rounded to three decimal places, the answer is 1.428 euros per dollar or 0.7 dollars per euro, which is choice C.

Question 16

If the Bank of Canada were to respond to a slowdown in the domestic economy by easing monetary policy,all other things being equal,one would predict,in the short run,a(n)

Accepted Answer

Easing monetary policy typically leads to a decrease in the real interest rate, which reduces the demand for the currency, leading to its depreciation.

Question 17

Tight monetary policy __________ interest rates which __________ the demand for a currency and __________ the market equilibrium value of the exchange rate.

Accepted Answer

Tight monetary policy typically involves raising interest rates, which increases the demand for a currency as investors seek higher returns, thereby increasing the market equilibrium value of the exchange rate.

Question 18

During the second half of the 1990s,real GDP in the U.S.grew faster than that in most other industrial countries.All other things being equal,supply-and-demand analysis of exchange rates would predict that,in the short run,the U.S.dollar would _____________ relative to the currencies of the other industrialized countries.

Accepted Answer

The answer of During the second half of the 1990s,real...

Question 19

The currency used in the Duchy of Saxony is the ducet.The demand for the Saxonian ducet in the foreign exchange market equals 12,000 - 3,000e and the supply of ducets in the foreign exchange market equals 2,000 + 2,000e,where e is the nominal exchange rate expressed in dollars per ducet.The market equilibrium value of the ducet is _________ ducets per dollar or _________ dollars per ducet.

Accepted Answer

To find the equilibrium value of the ducet, we need to set the demand for ducets equal to the supply of ducets and solve for e (the nominal exchange rate).
12,000 - 3,000e = 2,000 + 2,000e
5,000e = 10,000
e = 2
Therefore, the equilibrium value of the ducet is 0.5 ducets per dollar or 2 dollars per ducet. The correct answer is D.

Question 20

Holding all else constant,an increase in the real interest rate on Canadian assets will _________ the demand for dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

Accepted Answer

An increase in the real interest rate on Canadian assets makes them more attractive to investors, increasing the demand for Canadian dollars and thus increasing the equilibrium exchange rate of the Mexican peso to the Canadian dollar.

Quiz 13: Savings, Capital Formation and Comparative Economic Growth

Relative to the case of a closed economy,monetary policy is ___________ in an open economy with a flexible exchange rate.

The market equilibrium value of a country's exchange rate is

The yen-dollar exchange rate,e,where e is the nominal exchange rate expressed as Japanese yen per dollar,will increase when

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

Holding all else constant,tighter monetary policy in Canada will _ the demand for dollars in the foreign exchange market and _ the equilibrium Mexican peso-dollar exchange rate.

The yen-dollar exchange rate,e,where e is the nominal exchange rate expressed as Japanese yen per Canadian dollar,will increase when

Holding all else constant,easier monetary policy in Canada will _ the demand for dollars in the foreign exchange market and _ the equilibrium Mexican peso-dollar exchange rate.

Easy monetary policy interest rates,which the demand for a currency and __ the market equilibrium value of the exchange rate.

When the Bank of Canada raises the domestic real interest rate to close an expansionary gap,it the Canadian assets by foreign investors.Under the flexible exchange rate system this,in turn,increases the dollars,resulting in a(n) _ of the dollar.

A fall in the real interest rate in Canada may be expected to raise demand for Canadian goods through each of these channels EXCEPT

A rise in the real interest rate in Canada may be expected to lower demand for Canadian goods through each of these channels EXCEPT

If the Bank of Canada were to respond to a slowdown in the domestic economy by easing monetary policy,all other things being equal,one would predict,in the short run,a(n)

Tight monetary policy interest rates which the demand for a currency and __ the market equilibrium value of the exchange rate.

Holding all else constant,an increase in the real interest rate on Canadian assets will _ the demand for dollars in the foreign exchange market and _ the equilibrium Mexican peso-dollar exchange rate.

Quiz 13: Savings, Capital Formation and Comparative Economic Growth

Relative to the case of a closed economy,monetary policy is ___________ in an open economy with a flexible exchange rate.

The market equilibrium value of a country's exchange rate is

The yen-dollar exchange rate,e,where e is the nominal exchange rate expressed as Japanese yen per dollar,will increase when

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

Holding all else constant,tighter monetary policy in Canada will _________ the demand for dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

The yen-dollar exchange rate,e,where e is the nominal exchange rate expressed as Japanese yen per Canadian dollar,will increase when

Holding all else constant,easier monetary policy in Canada will _________ the demand for dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

Easy monetary policy __________ interest rates,which __________ the demand for a currency and __________ the market equilibrium value of the exchange rate.

When the Bank of Canada raises the domestic real interest rate to close an expansionary gap,it __________ the __________ Canadian assets by foreign investors.Under the flexible exchange rate system this,in turn,increases the __________ dollars,resulting in a(n) ___________ of the dollar.

A fall in the real interest rate in Canada may be expected to raise demand for Canadian goods through each of these channels EXCEPT

A rise in the real interest rate in Canada may be expected to lower demand for Canadian goods through each of these channels EXCEPT

If the Bank of Canada were to respond to a slowdown in the domestic economy by easing monetary policy,all other things being equal,one would predict,in the short run,a(n)

Tight monetary policy __________ interest rates which __________ the demand for a currency and __________ the market equilibrium value of the exchange rate.

Holding all else constant,an increase in the real interest rate on Canadian assets will _________ the demand for dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

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

Holding all else constant,tighter monetary policy in Canada will _ the demand for dollars in the foreign exchange market and _ the equilibrium Mexican peso-dollar exchange rate.

Holding all else constant,easier monetary policy in Canada will _ the demand for dollars in the foreign exchange market and _ the equilibrium Mexican peso-dollar exchange rate.

Easy monetary policy interest rates,which the demand for a currency and __ the market equilibrium value of the exchange rate.

When the Bank of Canada raises the domestic real interest rate to close an expansionary gap,it the Canadian assets by foreign investors.Under the flexible exchange rate system this,in turn,increases the dollars,resulting in a(n) _ of the dollar.

Tight monetary policy interest rates which the demand for a currency and __ the market equilibrium value of the exchange rate.

Holding all else constant,an increase in the real interest rate on Canadian assets will _ the demand for dollars in the foreign exchange market and _ the equilibrium Mexican peso-dollar exchange rate.