Question 1

How will the exchange rate (foreign currency per dollar)respond to a decrease in the relative rate of productivity growth in Australia in the long run?

Accepted Answer

When the relative rate of productivity growth in Australia decreases, it means that the country is becoming less efficient in producing goods and services compared to other countries. This would reduce the demand for Australian exports, leading to a decrease in demand for the Australian dollar, and therefore a decrease in the exchange rate (foreign currency per dollar) in the long run. Therefore, choice B is the best answer.

Question 2

The demand by other countries for Australian dollars will increase when

Accepted Answer

When foreigners purchase more Australian goods, they need to convert their currency into Australian dollars in order to make the purchase. This increases the demand for Australian dollars, leading to an increase in its value.

Question 3

The model of purchasing power parity is the only way to determine whether a country's currency is undervalued or overvalued.

Accepted Answer

While the model of purchasing power parity is one way to determine whether a country's currency is undervalued or overvalued, there are other factors that can also impact currency value, such as interest rates, political stability, and economic growth.

Question 4

Figure 19.4 
-Which of the following would cause the change depicted in Figure 19.4? Note that the figure depicts the quantity of euros traded.

Accepted Answer

The increase in the price level of goods produced in the EU relative to the price level of goods produced in Australia has caused a decrease in demand for European goods in Australia, which is depicted in the figure as a decrease in the quantity of euros traded.

Question 5

If the average productivity of Indian firms is rising more quickly than the average productivity of Australian firms,which of the following would you expect to see? (India's currency is the rupee.)

Accepted Answer

As Indian firms become more productive, they can produce goods more efficiently, potentially lowering costs and prices, leading to an increase in the quantity demanded of Indian products relative to Australian products.

Question 6

According to purchasing power parity,currencies will generally appreciate in countries whose inflation rates are higher than the rest of the world.

Accepted Answer

According to purchasing power parity, currencies will generally depreciate in countries whose inflation rates are higher than the rest of the world because their goods and services become relatively more expensive.

Question 7

How will the exchange rate (foreign currency per dollar)respond to an increase in the preference for imported goods by Australians in the long run,ceteris paribus?

Accepted Answer

An increase in preference for imported goods will lead to an increase in demand for foreign currency to purchase those goods, which will cause the exchange rate to fall in the long run, ceteris paribus.

Question 8

One advantage of adopting a fixed exchange rate is that

Accepted Answer

Adopting a fixed exchange rate makes business planning easier as there is certainty and stability in the exchange rates. This helps companies in forecasting and making decisions regarding exports, imports, and investments.

Question 9

Figure 19.4 
-Which of the following would cause the change depicted in Figure 19.4? Note that the figure depicts the quantity of euros traded.

Accepted Answer

If Australians decrease their preferences for EU goods, the demand for euros would decrease, affecting the quantity of euros traded.

Question 10

If interest rates in Australia fall,ceteris paribus,the value of the Australian dollar will

Accepted Answer

When interest rates fall in Australia, the return on Australian investments decreases, making them less attractive to foreign investors. This decreases the demand for Australian dollars and, therefore, lowers its value relative to other currencies.

Question 11

A country that imports a significant proportion of its consumer goods can avoid inflation by adopting a fixed exchange rate because it can avoid the price increases of ________ that occur when the value of the domestic currency ________.

Accepted Answer

When a country imports a significant proportion of its consumer goods, it is highly dependent on foreign currencies to pay for those imports. If the value of the domestic currency falls, it means that the country needs to spend more of its currency to purchase the same amount of foreign currency to pay for imports. This increased cost of imports will ultimately result in an increase in the prices of goods and services for consumers, leading to inflation.

By adopting a fixed exchange rate, the country ensures that its currency maintains a stable value in relation to the foreign currencies it trades with. This stability eliminates the risk of sudden price increases for imported goods due to fluctuations in the exchange rate. Therefore, choice B is the correct answer as it suggests that fixing the exchange rate can avoid the price increases of imports that occur when the value of the domestic currency falls.

Question 12

With a common currency such as the euro:

Accepted Answer

With a common currency such as the euro, individual countries using the currency are no longer able to run independent monetary policies, as the decisions are made by a central bank that covers all countries using the currency. Trade barriers may or may not be affected, and the prices of goods may still vary based on consumer preferences. Fiscal policies may also be affected, but this is not the primary effect of a common currency.

Question 13

If one United States dollar could be exchanged for one Australian dollar in 1970,and one United States dollar can now be exchanged for 0.94 Australian dollars,which of the following is true?

Accepted Answer

The US dollar now exchanges for fewer Australian dollars than in 1970, indicating the Australian dollar has gained value against the US dollar.

Question 14

If the purchase by foreigners of Australian assets decreased,we would expect the demand for Australian dollars to ________ and the dollar to ________.

Accepted Answer

If the purchase by foreigners of Australian assets decreased, it means that there would be less demand for Australian dollars. As a result, the value of the Australian dollar will depreciate.

Question 15

Assume that Australians develop a strong preference for German cars relative to cars manufactured in Australia.This will,ceteris paribus,

Accepted Answer

When Australians prefer German cars, the demand for German cars increases, leading to an increased demand for euros to purchase these cars, causing the euro to appreciate against the dollar.

Question 16

Australians demand Japanese yen to

Accepted Answer

Australians demand Japanese yen in order to buy Japanese products. This is because they need to have the local currency of Japan in order to make purchases from Japanese businesses. The other options (A, C, and D) all involve the need for Japanese yen in order to facilitate trade between Australia and Japan, but they do not directly address the question of why Australians would demand the yen.

Question 17

Which of the following would decrease the value of the Australian dollar in the long run?

Accepted Answer

If the demand for Australian goods decreases relative to goods from other countries, then there will be less demand for the Australian dollar, which will cause its value to decrease in the long run. The decrease in inflation (A) might actually increase the value of the Australian dollar as it would make it more attractive to investors. An increase in tariffs (C) might also decrease the demand for Australian goods, but it would depend on the specific circumstances. A decrease in the supply of Australian dollars (D) might actually increase the value of the currency as it would make it more scarce and potentially more valuable.

Question 18

Today,there are some developing countries that attempt to fix their currencies against the United States dollar.

Accepted Answer

Some developing countries, particularly those with weaker economies, may choose to fix their currencies against the US dollar as a way to stabilize their own currency and attract international investment. However, this strategy also carries risks and can limit the ability of the country to respond to economic shocks.

Question 19

If inflation in Australia is higher than inflation in Japan,what will happen to the exchange rate between the Australian dollar and the Japanese yen in the long run,ceteris paribus?

Accepted Answer

If inflation in Australia is higher than inflation in Japan, the Australian goods will become relatively more expensive compared to Japanese goods. This will decrease demand for Australian goods, leading to a decrease in demand for Australian dollars. As a result, the exchange rate will adjust, causing the Australian dollar to depreciate against the Japanese yen.

Question 20

The United States of America implements a quota on imported cotton.This will ________ the supply of United States dollars relative to the currencies of foreign cotton producers and lead to a(n)________ of United States dollars relative to these foreign currencies.

Accepted Answer

Implementing a quota on imported cotton reduces the amount of cotton that can be imported into the United States. This means that U.S. importers will need to buy less foreign currency to pay for cotton, leading to a decrease in the supply of U.S. dollars on the foreign exchange market. With fewer U.S. dollars available, its value appreciates relative to the currencies of foreign cotton producers.

Quiz 19: Comparative Advantage, international Trade, and Exchange Rates

How will the exchange rate (foreign currency per dollar) respond to a decrease in the relative rate of productivity growth in Australia in the long run?

The demand by other countries for Australian dollars will increase when

The model of purchasing power parity is the only way to determine whether a country's currency is undervalued or overvalued.

Figure 19.4 -Which of the following would cause the change depicted in Figure 19.4? Note that the figure depicts the quantity of euros traded.

If the average productivity of Indian firms is rising more quickly than the average productivity of Australian firms,which of the following would you expect to see? (India's currency is the rupee.)

According to purchasing power parity,currencies will generally appreciate in countries whose inflation rates are higher than the rest of the world.

How will the exchange rate (foreign currency per dollar) respond to an increase in the preference for imported goods by Australians in the long run,ceteris paribus?

One advantage of adopting a fixed exchange rate is that

Figure 19.4 -Which of the following would cause the change depicted in Figure 19.4? Note that the figure depicts the quantity of euros traded.

If interest rates in Australia fall,ceteris paribus,the value of the Australian dollar will

A country that imports a significant proportion of its consumer goods can avoid inflation by adopting a fixed exchange rate because it can avoid the price increases of that occur when the value of the domestic currency .

With a common currency such as the euro:

If one United States dollar could be exchanged for one Australian dollar in 1970,and one United States dollar can now be exchanged for 0.94 Australian dollars,which of the following is true?

If the purchase by foreigners of Australian assets decreased,we would expect the demand for Australian dollars to and the dollar to .

Assume that Australians develop a strong preference for German cars relative to cars manufactured in Australia.This will,ceteris paribus,

Australians demand Japanese yen to

Which of the following would decrease the value of the Australian dollar in the long run?

Today,there are some developing countries that attempt to fix their currencies against the United States dollar.

If inflation in Australia is higher than inflation in Japan,what will happen to the exchange rate between the Australian dollar and the Japanese yen in the long run,ceteris paribus?

The United States of America implements a quota on imported cotton.This will the supply of United States dollars relative to the currencies of foreign cotton producers and lead to a(n) of United States dollars relative to these foreign currencies.

Quiz 19: Comparative Advantage, international Trade, and Exchange Rates

How will the exchange rate (foreign currency per dollar) respond to a decrease in the relative rate of productivity growth in Australia in the long run?

The demand by other countries for Australian dollars will increase when

The model of purchasing power parity is the only way to determine whether a country's currency is undervalued or overvalued.

Figure 19.4 -Which of the following would cause the change depicted in Figure 19.4? Note that the figure depicts the quantity of euros traded.

If the average productivity of Indian firms is rising more quickly than the average productivity of Australian firms,which of the following would you expect to see? (India's currency is the rupee.)

According to purchasing power parity,currencies will generally appreciate in countries whose inflation rates are higher than the rest of the world.

How will the exchange rate (foreign currency per dollar) respond to an increase in the preference for imported goods by Australians in the long run,ceteris paribus?

One advantage of adopting a fixed exchange rate is that

Figure 19.4 -Which of the following would cause the change depicted in Figure 19.4? Note that the figure depicts the quantity of euros traded.

If interest rates in Australia fall,ceteris paribus,the value of the Australian dollar will

A country that imports a significant proportion of its consumer goods can avoid inflation by adopting a fixed exchange rate because it can avoid the price increases of ________ that occur when the value of the domestic currency ________.

With a common currency such as the euro:

If one United States dollar could be exchanged for one Australian dollar in 1970,and one United States dollar can now be exchanged for 0.94 Australian dollars,which of the following is true?

If the purchase by foreigners of Australian assets decreased,we would expect the demand for Australian dollars to ________ and the dollar to ________.

Assume that Australians develop a strong preference for German cars relative to cars manufactured in Australia.This will,ceteris paribus,

Australians demand Japanese yen to

Which of the following would decrease the value of the Australian dollar in the long run?

Today,there are some developing countries that attempt to fix their currencies against the United States dollar.

If inflation in Australia is higher than inflation in Japan,what will happen to the exchange rate between the Australian dollar and the Japanese yen in the long run,ceteris paribus?

The United States of America implements a quota on imported cotton.This will ________ the supply of United States dollars relative to the currencies of foreign cotton producers and lead to a(n) ________ of United States dollars relative to these foreign currencies.

A country that imports a significant proportion of its consumer goods can avoid inflation by adopting a fixed exchange rate because it can avoid the price increases of that occur when the value of the domestic currency .

If the purchase by foreigners of Australian assets decreased,we would expect the demand for Australian dollars to and the dollar to .

The United States of America implements a quota on imported cotton.This will the supply of United States dollars relative to the currencies of foreign cotton producers and lead to a(n) of United States dollars relative to these foreign currencies.