Question 1

Suppose a deposit in New York earns 6 percent a year and a deposit in London earns 4 percent a year. Interest rate parity holds if the

Accepted Answer

A)  U.S. dollar appreciates by 2 percent a year. 
B)  U.S. dollar depreciates by 2 percent a year. 
C)  U.K. pound depreciates by 2 percent a year. 
D)  None of the above answers is correct because interest rate parity requires that the interest rates be the same in both countries. 
A)  U.S. dollar appreciates by 2 percent a year. 
B)  U.S. dollar depreciates by 2 percent a year. 
C)  U.K. pound depreciates by 2 percent a year. 
D)  None of the above answers is correct because interest rate parity requires that the interest rates be the same in both countries. B

Question 2

If 100 Japanese yen buy more U.S. dollars today than yesterday, the dollar has ________ and the yen has ________.

Accepted Answer

A)  depreciated; appreciated 
B)  appreciated; depreciated 
C)  depreciated; depreciated 
D)  appreciated; appreciated 
A)  depreciated; appreciated 
B)  appreciated; depreciated 
C)  depreciated; depreciated 
D)  appreciated; appreciated A

Question 3

Suppose the exchange rate for the U.S. dollar rises. This could be caused by

Accepted Answer

A)  an increase in U.S. import demand. 
B)  a decrease in the world demand for U.S. exports. 
C)  a fall in the expected future exchange rate. 
D)  an increase in the U.S. interest rate differential. 
A)  an increase in U.S. import demand. 
B)  a decrease in the world demand for U.S. exports. 
C)  a fall in the expected future exchange rate. 
D)  an increase in the U.S. interest rate differential. D

Question 4

The supply of dollars in the foreign exchange market decreases and that means that the supply curve of dollars shifts leftward if

Accepted Answer

A)  the U.S. interest rate differential decreases. 
B)  the expected future exchange rate rises. 
C)  the exchange rate for the dollar rises. 
D)  the U.S. interest rate decreases. 
A)  the U.S. interest rate differential decreases. 
B)  the expected future exchange rate rises. 
C)  the exchange rate for the dollar rises. 
D)  the U.S. interest rate decreases.

Question 5

The United States has net exports of -$350 billion and the private sector balance is -$400 billion. What is the government sector balance?

Accepted Answer

The sum of the private sector balance pl

Question 6

If the Fed raises the U.S. interest rate, the demand for dollars ________ and the exchange rate ________.

Accepted Answer

A)  increases; rises 
B)  increases; falls 
C)  decreases; rises 
D)  decreases; falls 
A)  increases; rises 
B)  increases; falls 
C)  decreases; rises 
D)  decreases; falls

Question 7

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

Accepted Answer

A)  the supply curve of dollars shifts leftward. 
B)  the supply curve of dollars shifts rightward. 
C)  there is an upward movement along the supply curve for dollars. 
D)  there is a downward movement along the supply curve for dollars. 
A)  the supply curve of dollars shifts leftward. 
B)  the supply curve of dollars shifts rightward. 
C)  there is an upward movement along the supply curve for dollars. 
D)  there is a downward movement along the supply curve for dollars.

Question 8

As the value of U.S. exports ________, the quantity of ________ demanded increases.

Accepted Answer

A)  increases; foreign currencies 
B)  increases; dollars 
C)  decreases; dollars 
D)  None of the above is correct because the value of U.S. exports has nothing to do with the quantity of dollars or foreign currency demanded. 
A)  increases; foreign currencies 
B)  increases; dollars 
C)  decreases; dollars 
D)  None of the above is correct because the value of U.S. exports has nothing to do with the quantity of dollars or foreign currency demanded.

Question 9

Americans demand Japanese yen in order to

Accepted Answer

A)  buy Japanese products. 
B)  supply American goods in Japanese markets. 
C)  allow the Japanese to buy U.S. products. 
D)  balance the current account. 
A)  buy Japanese products. 
B)  supply American goods in Japanese markets. 
C)  allow the Japanese to buy U.S. products. 
D)  balance the current account.

Question 10

The lower the exchange rate, the cheaper are foreign-produced goods and services.

Accepted Answer

A) True 
 B)False

Question 11

-In the figure above, suppose the demand for dollars temporarily decreases so that the demand curve shifts to D2. To maintain the target exchange rate, the Fed

Accepted Answer

A)  can sell dollars. 
B)  can buy dollars. 
C)  must violate both interest rate parity and purchasing power parity. 
D)  cannot maintain the target exchange rate. 
A)  can sell dollars. 
B)  can buy dollars. 
C)  must violate both interest rate parity and purchasing power parity. 
D)  cannot maintain the target exchange rate.

Question 12

With everything else the same, in the foreign exchange market the

Accepted Answer

A)  larger the value of U.S. exports, the greater is the quantity of dollars demanded. 
B)  lower the exchange rate, the smaller the amount of U.S. exports. 
C)  the lower the exchange rate, the smaller is the expected profit from buying dollars. 
D)  the higher the exchange rate, the cheaper are U.S.-produced goods and services. 
A)  larger the value of U.S. exports, the greater is the quantity of dollars demanded. 
B)  lower the exchange rate, the smaller the amount of U.S. exports. 
C)  the lower the exchange rate, the smaller is the expected profit from buying dollars. 
D)  the higher the exchange rate, the cheaper are U.S.-produced goods and services.

Question 13

Suppose the current account of a country is in balance and the official settlements account equals zero. A new transaction occurs so that the current account is now in surplus, but the official settlements account does not change. From this we know that

Accepted Answer

A)  the balance of trade is now in surplus. 
B)  the government is running a budget deficit. 
C)  the capital and financial account is now in deficit. 
D)  the government must make official reserve transactions. 
A)  the balance of trade is now in surplus. 
B)  the government is running a budget deficit. 
C)  the capital and financial account is now in deficit. 
D)  the government must make official reserve transactions.

Question 14

Suppose Italy currently lends 1.5 billion euros to other nations and borrows 1 billion euros from other nations. Italy is definitely a

Accepted Answer

A)  net borrower. 
B)  net lender. 
C)  creditor nation. 
D)  debtor nation. 
A)  net borrower. 
B)  net lender. 
C)  creditor nation. 
D)  debtor nation.

Question 15

When the U.S. exports goods to foreign countries, the U.S.

Accepted Answer

A)  receives payments from the rest of the world. 
B)  makes payments to the rest of the world. 
C)  inflation rate rises. 
D)  inflation rate falls. 
A)  receives payments from the rest of the world. 
B)  makes payments to the rest of the world. 
C)  inflation rate rises. 
D)  inflation rate falls.

Question 16

The account that records foreign investment in the United States minus U.S. investment abroad is the

Accepted Answer

A)  capital and financial account. 
B)  official settlements account. 
C)  current account. 
D)  U.S. official reserves account. 
A)  capital and financial account. 
B)  official settlements account. 
C)  current account. 
D)  U.S. official reserves account.

Question 17

-Using the table above, if the current market value of the dollar is 125 francs

Accepted Answer

A)  investor A holds dollars, but B and C hold francs. 
B)  investor A holds francs, but B and C hold dollars. 
C)  all three investors hold francs. 
D)  all three investors hold dollars. 
A)  investor A holds dollars, but B and C hold francs. 
B)  investor A holds francs, but B and C hold dollars. 
C)  all three investors hold francs. 
D)  all three investors hold dollars.

Question 18

In June 2008, $1 bought 104 yen and in October, $1 bought 93 yen. This change means

Accepted Answer

A)  U.S. exports became more expensive for Japanese buyers. 
B)  there will be a movement down along the demand curve for dollars. 
C)  there was an increase in the value in the dollar, relative to the yen. 
D)  the dollar appreciated relative to the yen. 
A)  U.S. exports became more expensive for Japanese buyers. 
B)  there will be a movement down along the demand curve for dollars. 
C)  there was an increase in the value in the dollar, relative to the yen. 
D)  the dollar appreciated relative to the yen.

Question 19

Explain the effect on the demand for dollars in the foreign exchange market of an increase in the U.S. interest rate differential.

Accepted Answer

As the U.S. interest rate differential i

Question 20

The United States is a creditor nation.

Accepted Answer

A) True 
 B)False

Suppose a deposit in New York earns 6 percent a year and a deposit in London earns 4 percent a year. Interest rate parity holds if the

If 100 Japanese yen buy more U.S. dollars today than yesterday, the dollar has and the yen has .

Suppose the exchange rate for the U.S. dollar rises. This could be caused by

The supply of dollars in the foreign exchange market decreases and that means that the supply curve of dollars shifts leftward if

The United States has net exports of -$350 billion and the private sector balance is -$400 billion. What is the government sector balance?

If the Fed raises the U.S. interest rate, the demand for dollars and the exchange rate .

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

As the value of U.S. exports , the quantity of demanded increases.

Americans demand Japanese yen in order to

The lower the exchange rate, the cheaper are foreign-produced goods and services.

-In the figure above, suppose the demand for dollars temporarily decreases so that the demand curve shifts to D₂. To maintain the target exchange rate, the Fed

With everything else the same, in the foreign exchange market the

Suppose the current account of a country is in balance and the official settlements account equals zero. A new transaction occurs so that the current account is now in surplus, but the official settlements account does not change. From this we know that

Suppose Italy currently lends 1.5 billion euros to other nations and borrows 1 billion euros from other nations. Italy is definitely a

When the U.S. exports goods to foreign countries, the U.S.

The account that records foreign investment in the United States minus U.S. investment abroad is the

-Using the table above, if the current market value of the dollar is 125 francs

In June 2008, $1 bought 104 yen and in October, $1 bought 93 yen. This change means

Explain the effect on the demand for dollars in the foreign exchange market of an increase in the U.S. interest rate differential.

The United States is a creditor nation.

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

Suppose a deposit in New York earns 6 percent a year and a deposit in London earns 4 percent a year. Interest rate parity holds if the

If 100 Japanese yen buy more U.S. dollars today than yesterday, the dollar has ________ and the yen has ________.

Suppose the exchange rate for the U.S. dollar rises. This could be caused by

The supply of dollars in the foreign exchange market decreases and that means that the supply curve of dollars shifts leftward if

The United States has net exports of -$350 billion and the private sector balance is -$400 billion. What is the government sector balance?

If the Fed raises the U.S. interest rate, the demand for dollars ________ and the exchange rate ________.

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

As the value of U.S. exports ________, the quantity of ________ demanded increases.

Americans demand Japanese yen in order to

The lower the exchange rate, the cheaper are foreign-produced goods and services.

-In the figure above, suppose the demand for dollars temporarily decreases so that the demand curve shifts to D2. To maintain the target exchange rate, the Fed

With everything else the same, in the foreign exchange market the

Suppose the current account of a country is in balance and the official settlements account equals zero. A new transaction occurs so that the current account is now in surplus, but the official settlements account does not change. From this we know that

Suppose Italy currently lends 1.5 billion euros to other nations and borrows 1 billion euros from other nations. Italy is definitely a

When the U.S. exports goods to foreign countries, the U.S.

The account that records foreign investment in the United States minus U.S. investment abroad is the

-Using the table above, if the current market value of the dollar is 125 francs

In June 2008, $1 bought 104 yen and in October, $1 bought 93 yen. This change means

Explain the effect on the demand for dollars in the foreign exchange market of an increase in the U.S. interest rate differential.

The United States is a creditor nation.

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

If 100 Japanese yen buy more U.S. dollars today than yesterday, the dollar has and the yen has .

If the Fed raises the U.S. interest rate, the demand for dollars and the exchange rate .

As the value of U.S. exports , the quantity of demanded increases.

-In the figure above, suppose the demand for dollars temporarily decreases so that the demand curve shifts to D₂. To maintain the target exchange rate, the Fed