Exam 22: The Economic Case for and Against Government: Five Topics Considered

Proponents of the flexible exchange rate system argue that under a fixed exchange rate system,

When exports of American goods increase,this __________ the demand for U.S.dollars and at the same time __________ foreign currencies.

Suppose that the exchange rate between the U.S.dollar and the Mexican peso starts out at $0.12 per peso,and then changes to $0.09 per peso.The result will be that Americans will buy __________ pesos because Mexican goods become relatively __________ expensive.

The answer is: "The price of one currency in terms of another currency." What is the question?

In the long run,the purchasing power parity theory predicts exchange rates accurately,particularly when there is a large difference in inflation rates across countries.

An American good with a price tag of $89 costs 809 pesos.The exchange rate must be approximately

Americans buying Japanese cars create a

Suppose that an American-made pair of blue jeans has a price of $80.If the exchange rate is $0.095 = 1 peso,then a Mexican consumer would have to pay approximately __________ pesos to purchase the blue jeans,but if the exchange rate is $0.085 = 1 peso,then a Mexican consumer would have to pay _________ pesos to purchase the blue jeans.

If the Japanese yen trades at $1 = 98 yen,a Honda that sells for $29,000 in the U.S.would be worth approximately how many yen?

A currency has depreciated in value if it takes more of a foreign currency to buy it.

In the foreign exchange market between dollars and pesos,the demand for dollars by Mexicans creates the supply of pesos.

Suppose that prices in the United States rise relative to prices in France.We expect that (on the foreign exchange market)the demand for U.S.dollars will __________ and the supply of dollars will __________.

We start with a 3 percent real interest rate in the United States and in Japan.Next,the real interest rate in Japan falls to 2 percent,and the U.S.real interest remains constant.As a result,

When the official dollar price of a foreign currency is set below its equilibrium level,the dollar

China has intervened in the foreign exchange market to maintain the value of its currency vis-à-vis other countries.

If $1 is equal to 120 yen,then 1 yen is equal to approximately

Suppose that on Monday,a Big Mac cost $3.00 in the United States and 320 Japanese yen in Japan.On Monday,the exchange rate was $1 = 90 yen.According to the purchasing power parity theory,the yen was __________ by approximately __________ percent.

If the U.S.dollar appreciates in the foreign exchange market,U.S.exports will be __________ and U.S.imports will be __________.

When the equilibrium dollar price of a foreign currency decreases due to changes in demand for or supply of the foreign currency,the domestic currency

As the dollar price of a foreign currency (for example,dollars per yen)increases,__________ dollars will be demanded by foreigners,U.S.goods will be __________ expensive for foreigners,__________ U.S.goods will be purchased by foreigners,and __________ foreign currency will be supplied to the foreign exchange market.