Exam 18: International Macroeconomics

Devaluation of a currency occurs under _____ exchange rates when the price of the domestic currency in terms of foreign currency _____.

Scenario: Gizmovia II The Republic of Gizmovia wants to maintain the exchange rate of its currency, the gizmo, at $0.50, but the current exchange rate for the gizmo is $0.75. If Gizmovia uses exchange market intervention to decrease the value of its currency to $0.50, it should _____ gizmos and _____ dollars in the foreign exchange market.

A revaluation can help reduce a(n) _____ gap. I. inflationary II) deflationary

If asset owners in Japan and the United States consider Japanese and U.S. assets as good substitutes for each other and if the U.S. interest rate is 5% while the Japanese interest rate is 2%:

After a hurricane devastates New Orleans, a Canadian charity sends $1 million to the United States to help the survivors rebuild their homes. In the U.S. balance of payments, this transaction causes the balance on the _____ account to _____.

The benefits of floating exchange rates served as one of the motivations for the international system of floating rates established after World War II.

A devaluation can help reduce _____ of domestic currency. I. shortages II) surpluses

Which argument was made in favor of Britain's adopting the euro? I. Using the same currency as many other European countries would expand trade and increase productivity. II) Using the euro would increase the effectiveness of monetary policy.

A family from Peru eats in a restaurant in Salt Lake City. In the accounting for U.S. international transactions, this transaction would appear in the _____, and it would be entered as a payment _____ foreigners.

Fixed exchange rates are determined by the:

Purchasing power parity refers to the:

The Bretton Woods agreement called for a flexible exchange rate system.

If the equilibrium exchange rate is below the target rate, the government should: I. buy its domestic currency in foreign exchange markets. II) engage in expansionary monetary policy. III) restrict the purchase of the domestic currency by foreigners.

If exports from the United States decrease because of a recession in Europe, all other things equal, the demand for the dollar will decrease.

If the supply of U.S. dollars in Britain increases, what does NOT occur?

Government purchases or sales of currency in the foreign exchange market constitute: I. a floating exchange rate regime. II) foreign exchange controls. III) exchange market intervention.

Between 1993 and 2013, the Mexican peso fell against the U.S. dollar by almost three-fourths of its original value. However, economists have concluded that this did not result in a corresponding fall in the price of Mexican products expressed in dollars. What explains this apparent paradox?

Scenario: Japan and the United States Suppose that the interest rate in the United States is 4%, in Japan it is 7%, and financial assets in the two countries are equal in risk. Assuming that loans in Japan and the United States carry equal risk, this implies that:

The Bretton Woods agreement called for:

When a currency becomes more valuable in terms of other currencies, it appreciates.