Question 1

If the exchange rate of the English pound goes from $1.50 to $2.00, the pound has

Accepted Answer

A) appreciated, and the English will find U.S.goods cheaper. 
B) appreciated, and the English will find U.S.goods more expensive. 
C) depreciated, and the English will find U.S.goods cheaper. 
D) depreciated, and the English will find U.S.goods more expensive. 
A) appreciated, and the English will find U.S.goods cheaper. 
B) appreciated, and the English will find U.S.goods more expensive. 
C) depreciated, and the English will find U.S.goods cheaper. 
D) depreciated, and the English will find U.S.goods more expensive.

Question 2

Under a flexible exchange rate system, a nation that offers more attractive investment opportunities than its trading partners can expect to run a

Accepted Answer

A) surplus on current account transactions. 
B) deficit on current account transactions. 
C) balance of trade surplus. 
D) capital account deficit. 
A) surplus on current account transactions. 
B) deficit on current account transactions. 
C) balance of trade surplus. 
D) capital account deficit.

Question 3

An American investor purchasing a Japanese government bond

Accepted Answer

A) creates a demand for dollars and a supply of yen in the foreign exchange market. 
B) creates a demand for yen and a supply of dollars in the foreign exchange market. 
C) causes the yen to depreciate. 
D) causes the dollar to appreciate. 
A) creates a demand for dollars and a supply of yen in the foreign exchange market. 
B) creates a demand for yen and a supply of dollars in the foreign exchange market. 
C) causes the yen to depreciate. 
D) causes the dollar to appreciate.

Question 4

Figure 18-3    
-Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The demand curve in graph (A) is comprised of

Accepted Answer

A) U.S.citizens attempting to purchase Japanese-made goods. 
B) Japanese attempting to purchase U.S.-made goods. 
C) U.S.businesses attempting to sell to the Japanese. 
D) Japanese businesses attempting to sell to the U.S. 
E) the U.S.government attempting to unload dollars to the international market. 
A) U.S.citizens attempting to purchase Japanese-made goods. 
B) Japanese attempting to purchase U.S.-made goods. 
C) U.S.businesses attempting to sell to the Japanese. 
D) Japanese businesses attempting to sell to the U.S. 
E) the U.S.government attempting to unload dollars to the international market.

Question 5

Use the figure below to answer the following question(s).
Figure 18-2  
-In Figure 18-2, which of the following would cause the American demand for foreign exchange (pounds) to shift from D1 to D2?

Accepted Answer

A) an increase in the U.S.real interest rate 
B) higher inflation in Britain than in the United States 
C) higher income growth in Britain than in the United States 
D) an increased level of vacation travel to Britain by Americans 
A) an increase in the U.S.real interest rate 
B) higher inflation in Britain than in the United States 
C) higher income growth in Britain than in the United States 
D) an increased level of vacation travel to Britain by Americans

Question 6

Explain how an increase in the Mexican demand for American goods leads to a change in the Mexican peso relative to the U.S. dollar.

Accepted Answer

Mexicans who wish to buy more American g

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

If a country fixes the exchange-rate value of its currency, it will have to

Accepted Answer

A) follow a highly expansionary monetary policy in order to maintain the convertibility of its currency. 
B) give up its monetary independence in order to maintain the convertibility of its currency. 
C) fix its domestic interest rates in order to maintain the convertibility of its currency. 
D) raise taxes in order to maintain the convertibility of its currency. 
A) follow a highly expansionary monetary policy in order to maintain the convertibility of its currency. 
B) give up its monetary independence in order to maintain the convertibility of its currency. 
C) fix its domestic interest rates in order to maintain the convertibility of its currency. 
D) raise taxes in order to maintain the convertibility of its currency.

Question 9

If the United States is viewed by foreigners as a great nation in which to invest, generating a large inflow of foreign investment, this will cause the United States to run a

Accepted Answer

A) deficit on the current account. 
B) surplus on the current account. 
C) deficit on the capital account. 
D) deficit on the official reserve account. 
A) deficit on the current account. 
B) surplus on the current account. 
C) deficit on the capital account. 
D) deficit on the official reserve account.

Question 10

If the U.S. dollar depreciates, it means that

Accepted Answer

A) the value of the U.S.dollar has increased. 
B) the value of foreign exchange has decreased. 
C) fewer U.S.dollars are required to purchase foreign exchange. 
D) more U.S.dollars are required to purchase foreign exchange. 
E) exports will immediately fall. 
A) the value of the U.S.dollar has increased. 
B) the value of foreign exchange has decreased. 
C) fewer U.S.dollars are required to purchase foreign exchange. 
D) more U.S.dollars are required to purchase foreign exchange. 
E) exports will immediately fall.

Question 11

Which of the following would be most likely to cause an appreciation of the dollar relative to foreign currencies?

Accepted Answer

A) higher domestic interest rates 
B) a reduction in the rate of inflation abroad 
C) a shift to a more expansionary monetary policy 
D) rapid growth of income in the United States 
A) higher domestic interest rates 
B) a reduction in the rate of inflation abroad 
C) a shift to a more expansionary monetary policy 
D) rapid growth of income in the United States

Question 12

Other things constant, which of the following will most likely cause the dollar to appreciate on the exchange rate market?

Accepted Answer

A) higher interest rates in the United States 
B) a relatively low rate of inflation in the United States 
C) high rates of income growth in Europe 
D) all of the above 
A) higher interest rates in the United States 
B) a relatively low rate of inflation in the United States 
C) high rates of income growth in Europe 
D) all of the above

Question 13

A wealthy English executive decides to buy a large amount of U.S. financial assets. This would contribute to

Accepted Answer

A) a deficit in the U.S.capital account. 
B) a surplus in the U.S.current account. 
C) a surplus in the U.S.capital account. 
D) a deficit in the total balance of payments. 
A) a deficit in the U.S.capital account. 
B) a surplus in the U.S.current account. 
C) a surplus in the U.S.capital account. 
D) a deficit in the total balance of payments.

Question 14

A nation's trade deficit will tend to expand when

Accepted Answer

A) its economy is expanding. 
B) its economy is shrinking. 
C) its investment environment is less attractive to foreigners. 
D) both b and c above are true. 
A) its economy is expanding. 
B) its economy is shrinking. 
C) its investment environment is less attractive to foreigners. 
D) both b and c above are true.

Question 15

Which one of the following would supply dollars to the foreign exchange market?

Accepted Answer

A) the spending of U.S.tourists in Europe 
B) the purchase of U.S.automobiles by Japanese consumers 
C) the sale of U.S.automobiles to European consumers 
D) the purchase of an American electronics factory by a Japanese investor 
A) the spending of U.S.tourists in Europe 
B) the purchase of U.S.automobiles by Japanese consumers 
C) the sale of U.S.automobiles to European consumers 
D) the purchase of an American electronics factory by a Japanese investor

Question 16

If the exchange rate changes from 1 euro per U.S. dollar to 1.2 euros per U.S. dollar, the Euro has

Accepted Answer

A) appreciated, since its value has increased. 
B) appreciated, since the price of U.S.dollars has increased. 
C) appreciated, making U.S.goods cheaper in Euros. 
D) depreciated, since its value has declined. 
E) depreciated, since its value has increased. 
A) appreciated, since its value has increased. 
B) appreciated, since the price of U.S.dollars has increased. 
C) appreciated, making U.S.goods cheaper in Euros. 
D) depreciated, since its value has declined. 
E) depreciated, since its value has increased.

Question 17

Although popular opinion frequently portrays trade deficits (actually, account deficits) as "bad," can you present economic reasons why a trade deficit might be considered "good"?

Accepted Answer

A current account deficit simply means t

Question 18

(I) The U.S. trade deficit is a financial obligation of the federal government, and if it is not paid off, foreigners will be reluctant to loan money to the U.S. government. (II) When a nation runs a current account deficit due to a merchandise trade deficit, it must also be true that the nation has a surplus on its capital account due to an inflow of foreign capital.

Accepted Answer

A) I is true; II is false. 
B) I is false; II is true. 
C) Both I and II are true. 
D) Both I and II are false. 
A) I is true; II is false. 
B) I is false; II is true. 
C) Both I and II are true. 
D) Both I and II are false.

Question 19

If the U.S. dollar appreciates in the foreign exchange market,

Accepted Answer

A) American goods will become more expensive for foreign buyers and foreign goods will be cheaper for Americans. 
B) American goods will become less expensive for foreign buyers and foreign goods will be more expensive for Americans. 
C) American goods will become more expensive for foreign buyers and foreign goods will be more expensive for Americans. 
D) American goods will become cheaper for foreign buyers and foreign goods will be cheaper for Americans. 
E) neither the price of U.S.exports nor the price of U.S.imports will change. 
A) American goods will become more expensive for foreign buyers and foreign goods will be cheaper for Americans. 
B) American goods will become less expensive for foreign buyers and foreign goods will be more expensive for Americans. 
C) American goods will become more expensive for foreign buyers and foreign goods will be more expensive for Americans. 
D) American goods will become cheaper for foreign buyers and foreign goods will be cheaper for Americans. 
E) neither the price of U.S.exports nor the price of U.S.imports will change.

Question 20

If the value of a nation's merchandise imports exceeds merchandise exports, the nation is running a

Accepted Answer

A) balance of payments deficit. 
B) balance of payments surplus. 
C) merchandise trade deficit. 
D) merchandise trade surplus. 
A) balance of payments deficit. 
B) balance of payments surplus. 
C) merchandise trade deficit. 
D) merchandise trade surplus.

If the exchange rate of the English pound goes from $1.50 to $2.00, the pound has

Under a flexible exchange rate system, a nation that offers more attractive investment opportunities than its trading partners can expect to run a

An American investor purchasing a Japanese government bond

Figure 18-3 -Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The demand curve in graph (A) is comprised of

Use the figure below to answer the following question(s). Figure 18-2 -In Figure 18-2, which of the following would cause the American demand for foreign exchange (pounds) to shift from D₁ to D₂?

Explain how an increase in the Mexican demand for American goods leads to a change in the Mexican peso relative to the U.S. dollar.

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

If a country fixes the exchange-rate value of its currency, it will have to

If the United States is viewed by foreigners as a great nation in which to invest, generating a large inflow of foreign investment, this will cause the United States to run a

If the U.S. dollar depreciates, it means that

Which of the following would be most likely to cause an appreciation of the dollar relative to foreign currencies?

Other things constant, which of the following will most likely cause the dollar to appreciate on the exchange rate market?

A wealthy English executive decides to buy a large amount of U.S. financial assets. This would contribute to

A nation's trade deficit will tend to expand when

Which one of the following would supply dollars to the foreign exchange market?

If the exchange rate changes from 1 euro per U.S. dollar to 1.2 euros per U.S. dollar, the Euro has

Although popular opinion frequently portrays trade deficits (actually, account deficits) as "bad," can you present economic reasons why a trade deficit might be considered "good"?

If the U.S. dollar appreciates in the foreign exchange market,

If the value of a nation's merchandise imports exceeds merchandise exports, the nation is running a

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

If the exchange rate of the English pound goes from $1.50 to $2.00, the pound has

Under a flexible exchange rate system, a nation that offers more attractive investment opportunities than its trading partners can expect to run a

An American investor purchasing a Japanese government bond

Figure 18-3 -Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The demand curve in graph (A) is comprised of

Use the figure below to answer the following question(s). Figure 18-2 -In Figure 18-2, which of the following would cause the American demand for foreign exchange (pounds) to shift from D1 to D2?

Explain how an increase in the Mexican demand for American goods leads to a change in the Mexican peso relative to the U.S. dollar.

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

If a country fixes the exchange-rate value of its currency, it will have to

If the United States is viewed by foreigners as a great nation in which to invest, generating a large inflow of foreign investment, this will cause the United States to run a

If the U.S. dollar depreciates, it means that

Which of the following would be most likely to cause an appreciation of the dollar relative to foreign currencies?

Other things constant, which of the following will most likely cause the dollar to appreciate on the exchange rate market?

A wealthy English executive decides to buy a large amount of U.S. financial assets. This would contribute to

A nation's trade deficit will tend to expand when

Which one of the following would supply dollars to the foreign exchange market?

If the exchange rate changes from 1 euro per U.S. dollar to 1.2 euros per U.S. dollar, the Euro has

Although popular opinion frequently portrays trade deficits (actually, account deficits) as "bad," can you present economic reasons why a trade deficit might be considered "good"?

If the U.S. dollar appreciates in the foreign exchange market,

If the value of a nation's merchandise imports exceeds merchandise exports, the nation is running a

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

Use the figure below to answer the following question(s). Figure 18-2 -In Figure 18-2, which of the following would cause the American demand for foreign exchange (pounds) to shift from D₁ to D₂?