Question 1

Article Summary
In an effort to decrease an outflow of capital which has threatened to extend the country's economic slowdown,China's central bank sold $94 billion U.S.dollars in an attempt to support its currency,the yuan.The move followed the largest devaluation of the yuan in more than 20 years.According to analyst Li Miaoxian,"If the central bank continues its intervention,China's foreign-exchange reserves will continue to shrink -- the heavier the intervention,the deeper the fall.It's "inevitable" the nation will see continuous capital outflows and yuan depreciation pressure in the coming months.Over the past decade,the Chinese central bank had purchased dollars in an effort to stem the appreciation of the yuan during a period of a growing trade surplus.Now facing an increasing sell-off of the yuan,Bloomberg economists note that "The fear is that today's data will reinforce the market view that the only way for the yuan to go is down,and further accelerate capital outflows."
-Refer to the Article Summary.All else equal,a depreciation of the Chinese yuan relative to a currency such as the U.S.dollar should ________ Chinese exports and ________ imports to China.
A)increase;increase
B)increase;decrease
C)decrease;increase
D)decrease;decrease

Accepted Answer

A depreciation of the Chinese yuan makes Chinese goods cheaper for foreign buyers, thus increasing exports. Conversely, it makes imports more expensive for Chinese consumers, thus decreasing imports.

Question 2

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 interest rate increase in the United States will cause an increase in demand for dollars, causing the demand curve for dollars to shift to the right. This will result in an increase in the equilibrium exchange rate. However, we cannot determine the effect on the equilibrium quantity of dollars traded because it depends on the shifts in the supply curve for dollars and the demand curve for foreign currency. Without information on those shifts, we cannot determine the effect on the equilibrium quantity.

Question 3

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

The answer of When Americans decrease their demand for Japanese...

Question 4

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

A lower rate of inflation in the United States relative to Canada means that the purchasing power of the US dollar has increased relative to the Canadian dollar. This will lead to an increase in the demand for US goods and services, increasing the value of the US dollar and causing the real exchange rate to fall.

Question 5

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 6

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 answer of Assuming the United States is the "domestic"...

Question 7

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 increase the return that investors can earn on their money, making euros more attractive and shifting demand to the right. An increase in incomes in countries that buy goods from the European Union will increase their purchasing power, allowing them to buy more European goods and increasing demand for euros. Expectations among speculators that the price of the euro will rise in the future will lead them to buy euros now, increasing demand for the currency. Therefore, all of the above factors will shift the demand for the euro to the right.

Question 8

Article Summary
In an effort to decrease an outflow of capital which has threatened to extend the country's economic slowdown,China's central bank sold $94 billion U.S.dollars in an attempt to support its currency,the yuan.The move followed the largest devaluation of the yuan in more than 20 years.According to analyst Li Miaoxian,"If the central bank continues its intervention,China's foreign-exchange reserves will continue to shrink -- the heavier the intervention,the deeper the fall.It's "inevitable" the nation will see continuous capital outflows and yuan depreciation pressure in the coming months.Over the past decade,the Chinese central bank had purchased dollars in an effort to stem the appreciation of the yuan during a period of a growing trade surplus.Now facing an increasing sell-off of the yuan,Bloomberg economists note that "The fear is that today's data will reinforce the market view that the only way for the yuan to go is down,and further accelerate capital outflows."
-Refer to the Article Summary.All else equal,a depreciation of the Chinese yuan relative to a currency such as the U.S.dollar should ________ the current account balance in China and therefore ________ the financial account balance in China.
A)increase;increase
B)increase;decrease
C)decrease;increase
D)decrease;decrease

Accepted Answer

A depreciation of the yuan makes Chinese exports cheaper and imports more expensive, which should increase the current account balance. However, it can lead to capital outflows, decreasing the financial account balance.

Question 9

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 means more foreign money is flowing into the domestic economy, increasing the demand for the domestic currency. This increased demand for the domestic currency leads to an appreciation of the currency's value, making it more expensive to purchase foreign goods and resulting in a decrease in net foreign investment. Therefore, Option D is the correct answer.

Question 10

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 11

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 12

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 fixed exchange rate is one in which the value of a country's currency is fixed to a certain value or basket of currencies, and its central bank must buy and sell its holdings of currencies to maintain that fixed exchange rate. Floating and flexible exchange rates allow the value of a country's currency to fluctuate based on market demand, without intervention from the central bank.

Question 13

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 in the United States rise, it attracts foreign investors looking for higher returns on their investment. This increased demand for dollars causes the dollar to appreciate in value relative to other currencies in international exchange markets.

Question 14

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 15

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 answer of If the exchange rate changes from $2.00...

Question 16

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

A decrease in demand for American-made goods means that fewer foreigners are buying these goods, which means there is less demand for dollars to purchase them. This will result in a decrease in demand for dollars in the foreign exchange market.

Question 17

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 of the country intervenes in the foreign exchange market to keep the exchange rate at a predetermined level. Fixed exchange rates are often used by countries to maintain stability and certainty in their international trade and investment activities.

Question 18

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 19

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 20

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 United States and Switzerland?
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

The answer of Assume the United States is the "domestic"...

Quiz 29: Macroeconomics in an Open Economy

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. )

When Americans decrease their demand for Japanese goods

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. )

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

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

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

An increase in capital inflows will

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

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

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

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

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

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

A decrease in the demand for American-made goods will

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

If the dollar depreciates against the Indian rupee

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?

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 United States and Switzerland?