Question 1

Which of the following will not shift the demand for the euro to the right?

Accepted Answer

A decrease in the demand for European goods will not increase the demand for the euro. In fact, it will likely decrease the demand for the euro as fewer people will need to purchase euros to buy European goods. The other options (A, B, and C) are all factors that can increase the demand for the euro. An increase in interest rates in the European Union can make the euro more attractive to investors, an increase in incomes in countries that buy goods from the European Union can lead to more demand for those goods and thus the euro needed to buy them, and expectations among speculators that the price of the euro will rise in the future can make them more willing to buy euros now.

Question 2

If American demand for purchases of Mexican goods has increased,how would you expect the equilibrium exchange rate in the market for dollars to respond? Support your answer graphically.

Accepted Answer

The answer of If American demand for purchases of Mexican...

Question 3

An increase in capital inflows will

Accepted Answer

The answer of An increase in capital inflows will
...

Question 4

How will an interest rate decrease in the United States affect equilibrium in the foreign exchange market?

Accepted Answer

When the interest rate decreases in the United States, it becomes less attractive for foreign investors to hold US dollar-denominated assets. This leads to a decrease in demand for the dollar and, therefore, a decrease in the exchange rate. However, it is not possible to determine the exact effect on the equilibrium quantity of dollars traded as other factors such as changes in the foreign economy, government policies, and trade factors also play a role in determining the quantity traded.

Question 5

If the exchange rate between the Mexican peso and the U.S.dollar expressed in terms of pesos per dollar is 13.5 pesos = 1 dollar,what is the exchange rate when expresses in terms of dollars per peso?

Accepted Answer

The answer of If the exchange rate between the Mexican...

Question 6

When exchange rates are not determined in the market but are instead set by a country's central bank,we say that the country's exchange rate is

Accepted Answer

When a country's central bank sets the exchange rate, it is called a fixed exchange rate. Flexible exchange rates are determined by the market. Nominal exchange rates refer to the exchange rate at face value, while real exchange rates adjust for changes in inflation.

Question 7

An appreciating yen makes Japanese products

Accepted Answer

An appreciating currency makes exports more expensive in foreign markets, as the exchange rate increases the cost of buying Japanese yen to purchase goods. This would make Japanese products more expensive and therefore less competitive in foreign markets.

Question 8

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

Accepted Answer

If the dollar appreciates, it becomes more expensive to buy foreign goods, making imports relatively more expensive. As a result, consumers are likely to buy fewer imports, causing a decrease in aggregate demand.

Question 9

Explain and show graphically how an increase in incomes in the United States will affect equilibrium in the foreign exchange market?

Accepted Answer

The answer of Explain and show graphically how an increase...

Question 10

The recession of 2007-2009 decreased the demand for imports in Japan,which caused the ________ curve for the yen to ________,increasing the exchange rate and the value of the yen.

Accepted Answer

The answer of The recession of 2007-2009 decreased the demand...

Question 11

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, foreign investors are attracted to invest in the US, leading to a higher demand for the dollar, which causes its value to appreciate in international exchange markets.

Question 12

An expansionary monetary policy in the United States should

Accepted Answer

An expansionary monetary policy typically involves lowering interest rates or increasing the money supply, which tends to weaken the domestic currency (in this case, the U.S. dollar) relative to foreign currencies. This makes U.S. exports cheaper for foreign buyers, effectively decreasing the foreign currency price of U.S. exports.

Question 13

If currency speculators decide that the value of the dollar should rise in the future relative to the yen,this will increase the demand for dollars and decrease the supply of dollars.

Accepted Answer

When currency speculators anticipate a future increase in the value of the dollar relative to the yen, they will demand more dollars in order to profit from the expected appreciation. This increases the demand for dollars and decreases the supply of dollars in the market, leading to an increase in the value of the dollar.

Question 14

If a country has a fixed exchange rate,

Accepted Answer

With a fixed exchange rate, the central bank of the country must buy and sell their holdings of currency to maintain the given exchange rate. This means that they will intervene in the market if the exchange rate goes above or below the fixed rate. This is done by buying or selling their own currency to other countries, which can greatly affect the supply and demand for that currency in the market.

Question 15

When Americans increase their demand for Japanese goods,

Accepted Answer

When Americans increase their demand for Japanese goods, they need more yen to purchase these goods. This leads to an increase in the supply of dollars in the foreign exchange market (as Americans exchange dollars for yen) and an increase in the demand for yen.

Question 16

How will contractionary monetary policy in Japan affect the demand and supply of the yen in the foreign exchange market?

Accepted Answer

Contractionary monetary policy in Japan typically involves increasing interest rates or reducing the money supply, making Japanese assets more attractive to foreign investors. This increases the demand for yen as investors exchange their currency for yen to invest in Japan, and decreases the supply of yen in the foreign exchange market as more yen are held by investors.

Question 17

What effect does a depreciation of the dollar have on real GDP in the United States in the short run?

Accepted Answer

In the short run, a depreciation of the dollar makes exports cheaper and imports more expensive. This leads to an increase in net exports and an overall increase in aggregate demand, which is likely to result in a rise in real GDP.

Question 18

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.

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