Question 1

The market in which the currency of one country is exchanged for the currency of another country is the

Accepted Answer

A) capital market. 
B) banking market. 
C) money market. 
D) foreign exchange market. 
E) international trading market. 
A) capital market. 
B) banking market. 
C) money market. 
D) foreign exchange market. 
E) international trading market.

Question 2

Refer to the figure below to answer the following questions.
   Figure 9.3.1
-In Figure 9.3.1, suppose the demand for dollars temporarily increases so that the demand curve shifts from D0 to D1.To maintain the target exchange rate, the Bank of Canada

Accepted Answer

A) sells dollars. 
B) buys dollars. 
C) must lower the target exchange rate. 
D) must raise the target exchange rate. 
E) must violate interest rate parity but not purchasing power parity. 
A) sells dollars. 
B) buys dollars. 
C) must lower the target exchange rate. 
D) must raise the target exchange rate. 
E) must violate interest rate parity but not purchasing power parity.

Question 3

The current account records

Accepted Answer

A) current government expenditure. 
B) net value of Canadian investments and foreign investments. 
C) current investment. 
D) net exports, net interest income and net transfers. 
E) current consumption expenditure. 
A) current government expenditure. 
B) net value of Canadian investments and foreign investments. 
C) current investment. 
D) net exports, net interest income and net transfers. 
E) current consumption expenditure.

Question 4

Consider the market for Canadian dollars.If the exchange rate rises from 2 Mexican pesos per dollar to 4 Mexican pesos per dollar,

Accepted Answer

A) a movement down along the demand curve for Canadian dollars occurs. 
B) the supply of Canadian dollars increases. 
C) the demand for Canadian dollars decreases. 
D) the demand for Canadian dollars increases. 
E) a movement up along the demand curve for Canadian dollars occurs. 
A) a movement down along the demand curve for Canadian dollars occurs. 
B) the supply of Canadian dollars increases. 
C) the demand for Canadian dollars decreases. 
D) the demand for Canadian dollars increases. 
E) a movement up along the demand curve for Canadian dollars occurs.

Question 5

A very small country is an international borrower.Its supply of loanable funds increases but it still remains a net foreign borrower.As a result, the equilibrium quantity of loanable funds used in the country _______ and the country's foreign borrowing _______ .

Accepted Answer

A) does not change; increases 
B) increases; does not change 
C) does not change; decreases 
D) does not change; does not change 
E) increases; decreases 
A) does not change; increases 
B) increases; does not change 
C) does not change; decreases 
D) does not change; does not change 
E) increases; decreases

Question 6

The lower the exchange rate, the

Accepted Answer

A) smaller is the quantity of Canadian dollars demanded in the foreign exchange market. 
B) larger is the quantity of Canadian dollars demanded in the foreign exchange market. 
C) smaller is the quantity of Canadian dollars supplied in the foreign exchange market. 
D) larger is the quantity of Canadian dollars supplied in the foreign exchange market. 
E) Both B and C are correct. 
A) smaller is the quantity of Canadian dollars demanded in the foreign exchange market. 
B) larger is the quantity of Canadian dollars demanded in the foreign exchange market. 
C) smaller is the quantity of Canadian dollars supplied in the foreign exchange market. 
D) larger is the quantity of Canadian dollars supplied in the foreign exchange market. 
E) Both B and C are correct.

Question 7

If the price level in Canada is 120, the price level in South Africa is 140, and the exchange rate is 7 South African rands per dollar, then the real exchange rate is

Accepted Answer

A) 9.8. 
B) 8.2. 
C) 7. 
D) 6. 
E) 8.4. 
A) 9.8. 
B) 8.2. 
C) 7. 
D) 6. 
E) 8.4.

Question 8

The official settlements account measures the

Accepted Answer

A) net value of foreign goods officially purchased by Canada. 
B) change in Canada's net exports. 
C) change in the government's holdings of foreign currency. 
D) value of Canadian merchandise purchased by foreigners. 
E) net value of Canadian official exports of services. 
A) net value of foreign goods officially purchased by Canada. 
B) change in Canada's net exports. 
C) change in the government's holdings of foreign currency. 
D) value of Canadian merchandise purchased by foreigners. 
E) net value of Canadian official exports of services.

Question 9

Suppose that a country's government expenditures are $500 billion, net taxes are $400 billion, saving is $200 billion, and investment is $250 billion.The country has a government budget

Accepted Answer

A) surplus and a private sector deficit. 
B) deficit and a private sector deficit. 
C) deficit and a private sector surplus. 
D) surplus and a private sector surplus. 
E) surplus and a private sector balance. 
A) surplus and a private sector deficit. 
B) deficit and a private sector deficit. 
C) deficit and a private sector surplus. 
D) surplus and a private sector surplus. 
E) surplus and a private sector balance.

Question 10

Choose the correct statements about the real exchange rate. 1.The real exchange rate is a measure of how much of one money exchanges for a unit of another money.
2.The real exchange rate is the value of the Canadian dollar expressed in units of foreign currency per Canadian
3.The real exchange rate is the relative price of Canadian- produced goods and services to foreign- produced goo and services.
4.The real exchange rate is a measure of the quantity of the real GDP of other countries that we get for a unit of Canadian real GDP.

Accepted Answer

A) Statements 2 and 3 are correct. 
B) Statements 3 and 4 are correct. 
C) Statements 2 and 4 are correct. 
D) Statements 1 and 3 are correct. 
E) Statements 1 and 2 are correct. 
A) Statements 2 and 3 are correct. 
B) Statements 3 and 4 are correct. 
C) Statements 2 and 4 are correct. 
D) Statements 1 and 3 are correct. 
E) Statements 1 and 2 are correct.

Question 11

The Canadian exchange rate appreciates if

Accepted Answer

A) the Canadian interest rate falls. 
B) the U.S.interest rate rises. 
C) prices increase in the United States and other countries but remain constant in Canada. 
D) all of the above 
E) none of the above 
A) the Canadian interest rate falls. 
B) the U.S.interest rate rises. 
C) prices increase in the United States and other countries but remain constant in Canada. 
D) all of the above 
E) none of the above

Question 12

The exchange rate is volatile because

Accepted Answer

A) the supply curve of dollars is vertical. 
B) the demand curve for foreign exchange is very steep. 
C) the supply of dollars and demand for dollars are influenced by similar events. 
D) government policy promotes interest rate fluctuation. 
E) the demand curve for foreign exchange is very flat. 
A) the supply curve of dollars is vertical. 
B) the demand curve for foreign exchange is very steep. 
C) the supply of dollars and demand for dollars are influenced by similar events. 
D) government policy promotes interest rate fluctuation. 
E) the demand curve for foreign exchange is very flat.

Question 13

Complete the following sentence.Foreign borrowing

Accepted Answer

A) always leads to a lower level of consumption in the future for the debtor nation because part of its future GDP is used to pay off the foreign debt. 
B) always leads to a higher level of consumption in the future for the debtor nation because foreign borrowing enables a greater than otherwise possible increase in the nation's capital stock. 
C) could lead to higher consumption levels in the future, if the borrowing is used to finance investment that generates economic growth. 
D) could lead to lower consumption levels in the future, if the borrowing is used for current consumption. 
E) C and D 
A) always leads to a lower level of consumption in the future for the debtor nation because part of its future GDP is used to pay off the foreign debt. 
B) always leads to a higher level of consumption in the future for the debtor nation because foreign borrowing enables a greater than otherwise possible increase in the nation's capital stock. 
C) could lead to higher consumption levels in the future, if the borrowing is used to finance investment that generates economic growth. 
D) could lead to lower consumption levels in the future, if the borrowing is used for current consumption. 
E) C and D

Question 14

A very small country is an international lender and its supply of loanable funds increases.As a result, the equilibrium quantity of loanable funds used in the country _______ and the country's foreign lending _______.

Accepted Answer

A) increases; decreases 
B) does not change; increases 
C) increases; does not change 
D) does not change; decreases 
E) does not change; does not change 
A) increases; decreases 
B) does not change; increases 
C) increases; does not change 
D) does not change; decreases 
E) does not change; does not change

Question 15

All of the following statements are true except

Accepted Answer

A) China's exchange rate policy results in a yuan that has a lower foreign exchange rate against the U.S.dollar than it would otherwise have. 
B) China's exchange rate policy increases exports in the long run. 
C) China's exchange rate policy does not impact the real exchange rate in the long run. 
D) China's exchange rate policy is mainly an attempt to control inflation. 
E) All of the above are true. 
A) China's exchange rate policy results in a yuan that has a lower foreign exchange rate against the U.S.dollar than it would otherwise have. 
B) China's exchange rate policy increases exports in the long run. 
C) China's exchange rate policy does not impact the real exchange rate in the long run. 
D) China's exchange rate policy is mainly an attempt to control inflation. 
E) All of the above are true.

Question 16

Arbitrage in the foreign exchange market and international loans markets and goods markets achieves all of the following except

Accepted Answer

A) depreciation across all currencies. 
B) interest rate parity. 
C) no round- trip profit. 
D) the law of one price. 
E) purchasing power parity. 
A) depreciation across all currencies. 
B) interest rate parity. 
C) no round- trip profit. 
D) the law of one price. 
E) purchasing power parity.

Question 17

Choose the correct statements. 1.The exchange rate is the value of the Canadian dollar expressed in units of foreign currency per Canadian doll
2.The real exchange rate is the relative price of Canadian- produced goods and services to foreign- produced goo and services.
3.The exchange rate is a measure of the quantity of the real GDP of other countries that a unit of Canadian real G buys.
4.The exchange rate is the relative price of Canadian- produced goods and services to foreign- produced goods a services.

Accepted Answer

A) Statements 1 and 3 are correct. 
B) Statements 3 and 4 are correct. 
C) Statements 2 and 4 are correct. 
D) Statements 1 and 2 are correct. 
E) Statements 2 and 3 are correct. 
A) Statements 1 and 3 are correct. 
B) Statements 3 and 4 are correct. 
C) Statements 2 and 4 are correct. 
D) Statements 1 and 2 are correct. 
E) Statements 2 and 3 are correct.

Question 18

Which one of the following transactions would be recorded as a positive entry in the Canadian balance of payment accounts?

Accepted Answer

A) A French tourist spends $3,000 while visiting Banff. 
B) A Canadian corporation sends interest payments on outstanding bonds to U.S.citizens. 
C) A Canadian citizen purchases a U.K.government bond. 
D) A Canadian tourist spends $3,000 while visiting Banff. 
E) A Canadian tourist spends $3,000 while visiting France. 
A) A French tourist spends $3,000 while visiting Banff. 
B) A Canadian corporation sends interest payments on outstanding bonds to U.S.citizens. 
C) A Canadian citizen purchases a U.K.government bond. 
D) A Canadian tourist spends $3,000 while visiting Banff. 
E) A Canadian tourist spends $3,000 while visiting France.

Question 19

Which of the following factors move the demand curve for Canadian dollars and the supply curve of Canadian dollars in opposite directions?

Accepted Answer

A) The interest rate differential increases or decreases. 
B) The world demand for Canadian exports increases or decreases. 
C) Canadian imports increase or decrease. 
D) The expected future exchange rate rises or falls. 
E) Both A and D above 
A) The interest rate differential increases or decreases. 
B) The world demand for Canadian exports increases or decreases. 
C) Canadian imports increase or decrease. 
D) The expected future exchange rate rises or falls. 
E) Both A and D above

Question 20

Which one of the following is a balance of payments account?

Accepted Answer

A) borrowing account 
B) current account 
C) net interest account 
D) public account 
E) official lending account 
A) borrowing account 
B) current account 
C) net interest account 
D) public account 
E) official lending account

The market in which the currency of one country is exchanged for the currency of another country is the

Refer to the figure below to answer the following questions. Figure 9.3.1 -In Figure 9.3.1, suppose the demand for dollars temporarily increases so that the demand curve shifts from D₀to D₁.To maintain the target exchange rate, the Bank of Canada

The current account records

Consider the market for Canadian dollars.If the exchange rate rises from 2 Mexican pesos per dollar to 4 Mexican pesos per dollar,

A very small country is an international borrower.Its supply of loanable funds increases but it still remains a net foreign borrower.As a result, the equilibrium quantity of loanable funds used in the country _ and the country's foreign borrowing _ .

The lower the exchange rate, the

If the price level in Canada is 120, the price level in South Africa is 140, and the exchange rate is 7 South African rands per dollar, then the real exchange rate is

The official settlements account measures the

Suppose that a country's government expenditures are $500 billion, net taxes are $400 billion, saving is $200 billion, and investment is $250 billion.The country has a government budget

The Canadian exchange rate appreciates if

The exchange rate is volatile because

Complete the following sentence.Foreign borrowing

A very small country is an international lender and its supply of loanable funds increases.As a result, the equilibrium quantity of loanable funds used in the country _ and the country's foreign lending _.

All of the following statements are true except

Arbitrage in the foreign exchange market and international loans markets and goods markets achieves all of the following except

Which one of the following transactions would be recorded as a positive entry in the Canadian balance of payment accounts?

Which of the following factors move the demand curve for Canadian dollars and the supply curve of Canadian dollars in opposite directions?

Which one of the following is a balance of payments account?

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 9: The Exchange Rate and the Balance of Payments

The market in which the currency of one country is exchanged for the currency of another country is the

Refer to the figure below to answer the following questions. Figure 9.3.1 -In Figure 9.3.1, suppose the demand for dollars temporarily increases so that the demand curve shifts from D0 to D1.To maintain the target exchange rate, the Bank of Canada

The current account records

Consider the market for Canadian dollars.If the exchange rate rises from 2 Mexican pesos per dollar to 4 Mexican pesos per dollar,

A very small country is an international borrower.Its supply of loanable funds increases but it still remains a net foreign borrower.As a result, the equilibrium quantity of loanable funds used in the country _______ and the country's foreign borrowing _______ .

The lower the exchange rate, the

If the price level in Canada is 120, the price level in South Africa is 140, and the exchange rate is 7 South African rands per dollar, then the real exchange rate is

The official settlements account measures the

Suppose that a country's government expenditures are $500 billion, net taxes are $400 billion, saving is $200 billion, and investment is $250 billion.The country has a government budget

The Canadian exchange rate appreciates if

The exchange rate is volatile because

Complete the following sentence.Foreign borrowing

A very small country is an international lender and its supply of loanable funds increases.As a result, the equilibrium quantity of loanable funds used in the country _______ and the country's foreign lending _______.

All of the following statements are true except

Arbitrage in the foreign exchange market and international loans markets and goods markets achieves all of the following except

Which one of the following transactions would be recorded as a positive entry in the Canadian balance of payment accounts?

Which of the following factors move the demand curve for Canadian dollars and the supply curve of Canadian dollars in opposite directions?

Which one of the following is a balance of payments account?

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Refer to the figure below to answer the following questions. Figure 9.3.1 -In Figure 9.3.1, suppose the demand for dollars temporarily increases so that the demand curve shifts from D₀to D₁.To maintain the target exchange rate, the Bank of Canada

A very small country is an international borrower.Its supply of loanable funds increases but it still remains a net foreign borrower.As a result, the equilibrium quantity of loanable funds used in the country _ and the country's foreign borrowing _ .

A very small country is an international lender and its supply of loanable funds increases.As a result, the equilibrium quantity of loanable funds used in the country _ and the country's foreign lending _.