Question 1

Suppose the dollar rises from 100 to 125 yen. As a result,

Accepted Answer

A) imports from Japan will likely increase. 
B) exports to Japan will likely increase. 
C) Japanese tourists will be more likely to visit the United States. 
D) U.S.businesses will less likely use Japanese shipping lines to transport their products. 
A) imports from Japan will likely increase. 
B) exports to Japan will likely increase. 
C) Japanese tourists will be more likely to visit the United States. 
D) U.S.businesses will less likely use Japanese shipping lines to transport their products.

Question 2

Because the United States purchases more cars, stereos, and other goods from Japan than Japan purchases from the United States, it is often said that the United States has a "trade deficit" with Japan. Does this mean that the U.S. balance of payments is running a deficit? How would you more accurately characterize the effect that trade with Japan has on the balance of payments?

Accepted Answer

The balance of payments must, by definit

Question 3

Which one of the following would create a demand for a foreign currency and supply of dollars in the foreign exchange market?

Accepted Answer

A) the sale of U.S.automobiles to a Mexican consumer 
B) the spending by British tourists in the United States 
C) the purchase of 1,000 shares of IBM stock by a Latin American investor 
D) the purchase of Japanese televisions by an American distributor 
A) the sale of U.S.automobiles to a Mexican consumer 
B) the spending by British tourists in the United States 
C) the purchase of 1,000 shares of IBM stock by a Latin American investor 
D) the purchase of Japanese televisions by an American distributor

Question 4

An appreciation of one's currency means that

Accepted Answer

A) the country's exports will become less expensive. 
B) the country's imports will become more expensive. 
C) the country's imports will become less expensive. 
D) it now requires more of this currency in exchange for one unit of another currency. 
E) it now requires less units of other currencies in exchange for one unit of this currency. 
A) the country's exports will become less expensive. 
B) the country's imports will become more expensive. 
C) the country's imports will become less expensive. 
D) it now requires more of this currency in exchange for one unit of another currency. 
E) it now requires less units of other currencies in exchange for one unit of this currency.

Question 5

If the U.S. dollar depreciates, then U.S. exports become ____ expensive to foreigners and foreign goods become ____ expensive to U.S. citizens.

Accepted Answer

A) less; less 
B) less; more 
C) more; less 
D) more; more 
A) less; less 
B) less; more 
C) more; less 
D) more; more

Question 6

Under a system of flexible exchange rates, which of the following will most likely cause a nation's currency to appreciate on the foreign exchange market?

Accepted Answer

A) a decrease in domestic interest rates 
B) an increase in foreign interest rates 
C) domestic inflation of 10 percent while the nation's trading partners are experiencing stable prices 
D) stable domestic prices while the nation's trading partners are experiencing 10 percent inflation 
A) a decrease in domestic interest rates 
B) an increase in foreign interest rates 
C) domestic inflation of 10 percent while the nation's trading partners are experiencing stable prices 
D) stable domestic prices while the nation's trading partners are experiencing 10 percent inflation

Question 7

Under a pure flexible exchange rate system, the rate that equates demand and supply in the exchange rate market will also lead to a balance of

Accepted Answer

A) merchandise exports and merchandise imports. 
B) current account transactions. 
C) capital account transactions. 
D) current and capital account transactions. 
A) merchandise exports and merchandise imports. 
B) current account transactions. 
C) capital account transactions. 
D) current and capital account transactions.

Question 8

Under a flexible exchange rate system, which of the following will be most likely to cause a depreciation in the exchange rate value of the dollar (relative to the English pound)?

Accepted Answer

A) An economic boom occurs in England, inducing English consumers to buy more American-made automobiles, trucks, and computer products. 
B) Real interest rates in the United States fall lower than real interest rates in England. 
C) Restrictive monetary policy in the United States causes inflation to be lower than in England. 
D) Attractive investment opportunities in the United States induce English investors to buy stock in U.S.firms. 
A) An economic boom occurs in England, inducing English consumers to buy more American-made automobiles, trucks, and computer products. 
B) Real interest rates in the United States fall lower than real interest rates in England. 
C) Restrictive monetary policy in the United States causes inflation to be lower than in England. 
D) Attractive investment opportunities in the United States induce English investors to buy stock in U.S.firms.

Question 9

Use the figure below to answer the following question(s).
Figure 18-1  
-Figure 18-1 illustrates supply and demand for U.S. dollars and British pounds in the foreign exchange market. If the dollar price of pounds is $1.80, which of the following is true?

Accepted Answer

A) There is an excess supply of pounds, and the dollar price of pounds will rise. 
B) There is an excess demand for pounds, and the dollar price of pounds will rise. 
C) There is an excess supply of pounds, and the dollar price of pounds will fall. 
D) There is an excess demand for pounds, and the dollar price of pounds will fall. 
A) There is an excess supply of pounds, and the dollar price of pounds will rise. 
B) There is an excess demand for pounds, and the dollar price of pounds will rise. 
C) There is an excess supply of pounds, and the dollar price of pounds will fall. 
D) There is an excess demand for pounds, and the dollar price of pounds will fall.

Question 10

When a group of nations adhere to a strict fixed exchange rate system, then

Accepted Answer

A) no country will experience inflation or recession. 
B) each nation loses some control of its monetary policy and its domestic economy. 
C) each nation is able to exercise more control of its fiscal policy and aggregate demand. 
D) each nation is able to exercise more control of its monetary policy and its domestic economy. 
A) no country will experience inflation or recession. 
B) each nation loses some control of its monetary policy and its domestic economy. 
C) each nation is able to exercise more control of its fiscal policy and aggregate demand. 
D) each nation is able to exercise more control of its monetary policy and its domestic economy.

Question 11

An appreciation in the value of the U.S. dollar would

Accepted Answer

A) encourage foreigners to make more investments in the United States. 
B) encourage U.S.consumers to purchase more foreign-produced goods. 
C) increase the number of dollars that could be purchased with the euro. 
D) discourage U.S.consumers from traveling abroad. 
A) encourage foreigners to make more investments in the United States. 
B) encourage U.S.consumers to purchase more foreign-produced goods. 
C) increase the number of dollars that could be purchased with the euro. 
D) discourage U.S.consumers from traveling abroad.

Question 12

With time, a depreciation in the value of a nation's currency in the foreign market will cause the nation's

Accepted Answer

A) imports to increase and exports to decline. 
B) exports to increase and imports to decline. 
C) imports and exports to decline. 
D) imports and exports to rise. 
A) imports to increase and exports to decline. 
B) exports to increase and imports to decline. 
C) imports and exports to decline. 
D) imports and exports to rise.

Question 13

Under a system of flexible exchange rates, which of the following will cause the nation's currency to depreciate in the exchange market?

Accepted Answer

A) an increase in foreign incomes 
B) a domestic inflation rate of 10 percent while the nation's trading partners are experiencing stable prices 
C) an increase in domestic interest rates 
D) a reduction in interest rates abroad 
A) an increase in foreign incomes 
B) a domestic inflation rate of 10 percent while the nation's trading partners are experiencing stable prices 
C) an increase in domestic interest rates 
D) a reduction in interest rates abroad

Question 14

Suppose U.S.-produced wheat costs $5 per bushel and the exchange rate is 100 yen = $1. If the exchange rate changes to 90 yen = $1, the

Accepted Answer

A) wheat would now cost more dollars. 
B) wheat would now cost the Japanese citizen less yen. 
C) wheat would now cost less dollars. 
D) wheat would now cost the Japanese citizen more yen. 
E) yen has depreciated in value. 
A) wheat would now cost more dollars. 
B) wheat would now cost the Japanese citizen less yen. 
C) wheat would now cost less dollars. 
D) wheat would now cost the Japanese citizen more yen. 
E) yen has depreciated in value.

Question 15

Which of the following is most likely to happen as the result of lower real interest rates in the United States?

Accepted Answer

A) the dollar will depreciate on the foreign exchange market and imports will grow relative to exports. 
B) the dollar will appreciate on the foreign exchange market, and exports will grow relative to imports. 
C) the dollar will depreciate on the foreign exchange market, and exports will grow relative to imports. 
D) the dollar will appreciate on the foreign exchange market, and imports will grow relative to exports. 
A) the dollar will depreciate on the foreign exchange market and imports will grow relative to exports. 
B) the dollar will appreciate on the foreign exchange market, and exports will grow relative to imports. 
C) the dollar will depreciate on the foreign exchange market, and exports will grow relative to imports. 
D) the dollar will appreciate on the foreign exchange market, and imports will grow relative to exports.

Question 16

"Wine experts are discovering that California wines of several varieties and vintages are comparable to many of the best French wines. The result is an increased demand, here and abroad, for California wines." With regard to the U.S. balance on current account, this trend will

Accepted Answer

A) increase the U.S.deficit because of the rise in the price of California wine. 
B) decrease the U.S.deficit because of increased shipments of California wines abroad. 
C) decrease the demand for U.S.dollars. 
D) increase the U.S.demand for euros. 
A) increase the U.S.deficit because of the rise in the price of California wine. 
B) decrease the U.S.deficit because of increased shipments of California wines abroad. 
C) decrease the demand for U.S.dollars. 
D) increase the U.S.demand for euros.

Question 17

If on Tuesday you can buy 125 yen per U.S. dollar and on Wednesday you can buy 120 yen per U.S. dollar,

Accepted Answer

A) both the U.S.dollar and the yen have appreciated. 
B) both the U.S.dollar and the yen have depreciated. 
C) the U.S.dollar has appreciated and the yen has depreciated. 
D) the U.S.dollar has depreciated and the yen has appreciated. 
A) both the U.S.dollar and the yen have appreciated. 
B) both the U.S.dollar and the yen have depreciated. 
C) the U.S.dollar has appreciated and the yen has depreciated. 
D) the U.S.dollar has depreciated and the yen has appreciated.

Question 18

Unanticipated expansionary monetary policy will increase economic growth and push inflation upward while lowering real interest rates. This will cause

Accepted Answer

A) an increase in the demand for foreign currencies and a decline in the foreign exchange value of the dollar. 
B) a decrease in the demand for foreign currencies and a decline in the foreign exchange value of the dollar. 
C) an increase in the demand for foreign currencies and an increase in the foreign exchange value of the dollar. 
D) a decrease in the demand for foreign currencies and an increase in the foreign exchange value of the dollar. 
A) an increase in the demand for foreign currencies and a decline in the foreign exchange value of the dollar. 
B) a decrease in the demand for foreign currencies and a decline in the foreign exchange value of the dollar. 
C) an increase in the demand for foreign currencies and an increase in the foreign exchange value of the dollar. 
D) a decrease in the demand for foreign currencies and an increase in the foreign exchange value of the dollar.

Question 19

Which of the following is a current account transaction?

Accepted Answer

A) the purchase of a foreign engineering firm by a domestic investor 
B) the import of shoes by a domestic retailer 
C) a loan by a domestic bank to a foreigner 
D) a loan by a foreign bank to a domestic manufacturer 
A) the purchase of a foreign engineering firm by a domestic investor 
B) the import of shoes by a domestic retailer 
C) a loan by a domestic bank to a foreigner 
D) a loan by a foreign bank to a domestic manufacturer

Question 20

If Australian tourists visit Grand Canyon National Park, what is the effect in the foreign exchange market?

Accepted Answer

A) It will increase demand for U.S.dollars. 
B) It will decrease demand for U.S.dollars. 
C) It will increase supply of U.S.dollars. 
D) It will decrease supply of U.S.dollars. 
A) It will increase demand for U.S.dollars. 
B) It will decrease demand for U.S.dollars. 
C) It will increase supply of U.S.dollars. 
D) It will decrease supply of U.S.dollars.

Suppose the dollar rises from 100 to 125 yen. As a result,

Which one of the following would create a demand for a foreign currency and supply of dollars in the foreign exchange market?

An appreciation of one's currency means that

If the U.S. dollar depreciates, then U.S. exports become expensive to foreigners and foreign goods become expensive to U.S. citizens.

Under a system of flexible exchange rates, which of the following will most likely cause a nation's currency to appreciate on the foreign exchange market?

Under a pure flexible exchange rate system, the rate that equates demand and supply in the exchange rate market will also lead to a balance of

Under a flexible exchange rate system, which of the following will be most likely to cause a depreciation in the exchange rate value of the dollar (relative to the English pound)?

Use the figure below to answer the following question(s). Figure 18-1 -Figure 18-1 illustrates supply and demand for U.S. dollars and British pounds in the foreign exchange market. If the dollar price of pounds is $1.80, which of the following is true?

When a group of nations adhere to a strict fixed exchange rate system, then

An appreciation in the value of the U.S. dollar would

With time, a depreciation in the value of a nation's currency in the foreign market will cause the nation's

Under a system of flexible exchange rates, which of the following will cause the nation's currency to depreciate in the exchange market?

Suppose U.S.-produced wheat costs $5 per bushel and the exchange rate is 100 yen = $1. If the exchange rate changes to 90 yen = $1, the

Which of the following is most likely to happen as the result of lower real interest rates in the United States?

"Wine experts are discovering that California wines of several varieties and vintages are comparable to many of the best French wines. The result is an increased demand, here and abroad, for California wines." With regard to the U.S. balance on current account, this trend will

If on Tuesday you can buy 125 yen per U.S. dollar and on Wednesday you can buy 120 yen per U.S. dollar,

Unanticipated expansionary monetary policy will increase economic growth and push inflation upward while lowering real interest rates. This will cause

Which of the following is a current account transaction?

If Australian tourists visit Grand Canyon National Park, what is the effect in the foreign exchange market?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

Filters

Exam 19: International Finance and the Foreign Exchange Market

Suppose the dollar rises from 100 to 125 yen. As a result,

Which one of the following would create a demand for a foreign currency and supply of dollars in the foreign exchange market?

An appreciation of one's currency means that

If the U.S. dollar depreciates, then U.S. exports become ____ expensive to foreigners and foreign goods become ____ expensive to U.S. citizens.

Under a system of flexible exchange rates, which of the following will most likely cause a nation's currency to appreciate on the foreign exchange market?

Under a pure flexible exchange rate system, the rate that equates demand and supply in the exchange rate market will also lead to a balance of

Under a flexible exchange rate system, which of the following will be most likely to cause a depreciation in the exchange rate value of the dollar (relative to the English pound)?

Use the figure below to answer the following question(s). Figure 18-1 -Figure 18-1 illustrates supply and demand for U.S. dollars and British pounds in the foreign exchange market. If the dollar price of pounds is $1.80, which of the following is true?

When a group of nations adhere to a strict fixed exchange rate system, then

An appreciation in the value of the U.S. dollar would

With time, a depreciation in the value of a nation's currency in the foreign market will cause the nation's

Under a system of flexible exchange rates, which of the following will cause the nation's currency to depreciate in the exchange market?

Suppose U.S.-produced wheat costs $5 per bushel and the exchange rate is 100 yen = $1. If the exchange rate changes to 90 yen = $1, the

Which of the following is most likely to happen as the result of lower real interest rates in the United States?

"Wine experts are discovering that California wines of several varieties and vintages are comparable to many of the best French wines. The result is an increased demand, here and abroad, for California wines." With regard to the U.S. balance on current account, this trend will

If on Tuesday you can buy 125 yen per U.S. dollar and on Wednesday you can buy 120 yen per U.S. dollar,

Unanticipated expansionary monetary policy will increase economic growth and push inflation upward while lowering real interest rates. This will cause

Which of the following is a current account transaction?

If Australian tourists visit Grand Canyon National Park, what is the effect in the foreign exchange market?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

Filters

If the U.S. dollar depreciates, then U.S. exports become expensive to foreigners and foreign goods become expensive to U.S. citizens.