Exam 9: The Exchange Rate and the Balance of Payments

What role can the Fed play in the foreign exchange market?

An increase in the U.S. interest rate differential increases the demand for dollars.

ʺIn the foreign exchange market, if the demand for the U.S. dollar increases, the U.S. dollar appreciates in value.ʺ Briefly explain whether the previous statement is correct or incorrect.

With everything else the same, in the foreign exchange market which of the following increases the supply of U.S. dollars? I. a fall in the U.S. interest rate II. a fall in interest rates in foreign countries III. a rise in expected future exchange rate

If net interest and net transfers are $0, and a nationʹs purchases of foreign goods and services are $3)5 billion while its sales of goods and services to foreigners are $4.5 billion,

-In the above figure, suppose the demand for dollars permanently decreases to D₂. To maintain the target, the Fed

-In the figure above, the shift in the supply curve for U.S. dollars from S₀ to S₂ could occur when

Component Amount (billions of dollars) Government expenditure,G 700 Net taxes, T 600 Investment ,I 350 Savings, S 500 -In the table above, what does the private sector surplus equal?

When we have a negative current account, we are

The Fed

If the current account balance is $30 billion, and the capital and financial account balance is $35 billion, then the official settlements account balance is _________billion, and the official reserves _________

Suppose that the price of an identical sport-utility vehicle is $32,000 in U.S. dollars in the United States and $32,000 in Canadian dollars in Canada. Suppose in addition that the exchange rate between Canada and the United States is one Canadian dollar equals $0.75 U.S. dollar. Does purchasing power parity hold for SUVs between the United States and Canada?

Since 1997, the Peopleʹs Bank of China has

In the long run, the nominal exchange rate

If the Federal Reserve increases interest rates,

Which of the following statements is INCORRECT?

In July 2008, a British pound could buy $2. By October 2008, a pound could buy $1.55. Over the four months, the

As a result of the 2008-2009 financial crisis and the decrease in GDP in many European economies, we would expect

Item Billions of dollars Exp orts of goods and services, X 500 Imports of goods and services, M Net taxes, T 750 Government exp enditure, G Saving, S 1,000 Investment, I -Using the data in the above table, suppose imports equals $250 billion and investment equals $1,000 billion. Hence government expenditure equals

Suppose the exchange rate between the U.S. dollar and the Jamaican dollar was $1 U.S. = $40 Jamaican dollars. A beach towel sells for $20 in Miami and $60 Jamaican in Negril.