Question 1

If the average rate of productivity growth in Indian firms is greater than in Australia,then

Accepted Answer

A)  the Indian rupee will decrease relative to the Australian dollar in the foreign exchange market. 
B)  the prices of Indian products will increase. 
C)  the quantity demanded of Indian products will increase relative to Australian products. 
D)  All of these options are correct. 
A)  the Indian rupee will decrease relative to the Australian dollar in the foreign exchange market. 
B)  the prices of Indian products will increase. 
C)  the quantity demanded of Indian products will increase relative to Australian products. 
D)  All of these options are correct.

Question 2

The demand by other countries for Australian dollars will increase when

Accepted Answer

A)  there is a decrease in demand by other countries for Australia's goods and services. 
B)  more Australians travel overseas. 
C)  Australians import more goods. 
D)  foreigners purchase more Australian goods. 
A)  there is a decrease in demand by other countries for Australia's goods and services. 
B)  more Australians travel overseas. 
C)  Australians import more goods. 
D)  foreigners purchase more Australian goods.

Question 3

The United States implements a quota on imported cotton.This will ________ the supply of US dollars relative to the currencies of foreign cotton producers and lead to a(n)________ of US dollars relative to these foreign currencies.

Accepted Answer

A)  increase; appreciation 
B)  increase; depreciation 
C)  decrease; appreciation 
D)  decrease; depreciation 
A)  increase; appreciation 
B)  increase; depreciation 
C)  decrease; appreciation 
D)  decrease; depreciation

Question 4

During the 1980s,Australia ________ twin deficits and in the 1990s,Australia ________ twin deficits.

Accepted Answer

A)  experienced; experienced 
B)  experienced; did not experience 
C)  did not experience; experienced 
D)  did not experience; did not experience 
A)  experienced; experienced 
B)  experienced; did not experience 
C)  did not experience; experienced 
D)  did not experience; did not experience

Question 5

Fill in the values for the implied exchange rate in the various currencies per US dollar in the following table.Assume that the Big Mac burger sells for $3.06 in the United States.Explain whether the US dollar is overvalued or undervalued relative to each currency and predict what will happen in the future to each exchange rate.
 $$\begin{array} { | l | l | l | l | } 
\hline & \text { Big Mac Price } & \begin{array} { l } 
\text { Implied Exchange Rate } \
\text { (Foreign Currency per } \
\text { US dollars) }
\end{array} & \begin{array} { l } 
\text { Actual Exchange Rate } \
\text { (Foreign Currency per } \
\text { US dollars) }
\end{array} \
\hline \text { Hong Kong } & \text { 12 HKdollars } & & 7.76 \
\hline \text { Switzerland } & \text { 6.29 Swiss francs } & & 1.23 \
\hline \text { Mexico } & \text { 23.9 pesos } & &10.6 \
\hline \text { The United Kingdom } & 1.86 \text { pounds } & & 0.67 \
\hline
\end{array}$$ _____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

To calculate the implied exchange rate,d

Question 6

The real exchange rate of Japanese yen to Australian dollars will increase if Australia's price level ________ and the nominal exchange rate of yen to the dollar ________.

Accepted Answer

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

Question 7

What is the relationship across the current account,the capital account,the financial account,and the balance of payments?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Leaving aside the statistical discrepanc

Question 8

According to purchasing power parity,currencies will generally appreciate in countries whose inflation rates are higher than the rest of the world.

Accepted Answer

A) True 
 B)False

Question 9

In an open economy,monetary policy has

Accepted Answer

A)  a smaller impact on aggregate demand as compared to a closed economy. 
B)  the same impact on aggregate demand as compared to a closed economy. 
C)  a larger impact on aggregate demand as compared to a closed economy. 
D)  no impact on aggregated demand. 
A)  a smaller impact on aggregate demand as compared to a closed economy. 
B)  the same impact on aggregate demand as compared to a closed economy. 
C)  a larger impact on aggregate demand as compared to a closed economy. 
D)  no impact on aggregated demand.

Question 10

Has the adoption of the euro by many countries in the European Union enhanced economic growth in those countries?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

There is no definitive answer to this qu

Question 11

Suppose that the world is currently experiencing a period of strong economic growth.Both the European Union and Australia experience robust increases in income.Illustrate how this will affect the exchange rate using a graph of the demand and supply of dollars for euros.Will the dollar appreciate or depreciate against the euro? Explain why.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The economy begins at point A with the e

Question 12

The European Union countries that have adopted the euro still conduct independent monetary policies within their countries.

Accepted Answer

A) True 
 B)False

Question 13

a.Suppose that the current equilibrium exchange rate between the US dollar and Philippine peso is $0.20 per peso and the Philippine government pegged the peso to the US dollar at the rate of $0.25 per peso.Draw the market demand and supply curve of pesos for US dollars.
b.Suppose that currency traders think that the government will soon allow the peso to float.Show on the diagram how this affects the demand and supply curves.
c.How would the events in b.affect the number of pesos that the Philippine central bank must buy or sell?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

a.The equilibrium exchange rate is $0.20

Question 14

What effect does an open economy have on the effectiveness of monetary policy and fiscal policy?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Monetary policy is more effective in an

Question 15

If the exchange rate between the dollar and the yen is ¥80 = $1 this week,and is ¥87 = $1 next week,we say that the dollar appreciated.

Accepted Answer

A) True 
 B)False

Question 16

If a current account deficit increases and investment levels remain the same,national saving must increase.

Accepted Answer

A) True 
 B)False

Question 17

Outline the three main components of the current account.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

(i)The balance of trade on goods and ser

Question 18

When the value of a currency is fixed relative to a particular country's currency,this is referred to as a ________ exchange rate.

Accepted Answer

A)  permanent 
B)  variable 
C)  floating 
D)  pegged 
A)  permanent 
B)  variable 
C)  floating 
D)  pegged

Question 19

When Australia sends money to the Philippines to help typhoon survivors,the transaction is recorded in the _________.

Accepted Answer

A)  capital account 
B)  current account 
C)  financial account 
D)  foreign exchange account 
A)  capital account 
B)  current account 
C)  financial account 
D)  foreign exchange account

Question 20

An increase in net foreign investment is possible through either a decrease in national saving or a decrease in domestic investment.

Accepted Answer

A) True 
 B)False

If the average rate of productivity growth in Indian firms is greater than in Australia,then

The demand by other countries for Australian dollars will increase when

The United States implements a quota on imported cotton.This will the supply of US dollars relative to the currencies of foreign cotton producers and lead to a(n) of US dollars relative to these foreign currencies.

During the 1980s,Australia twin deficits and in the 1990s,Australia twin deficits.

The real exchange rate of Japanese yen to Australian dollars will increase if Australia's price level and the nominal exchange rate of yen to the dollar .

What is the relationship across the current account,the capital account,the financial account,and the balance of payments? _ _

According to purchasing power parity,currencies will generally appreciate in countries whose inflation rates are higher than the rest of the world.

In an open economy,monetary policy has

Has the adoption of the euro by many countries in the European Union enhanced economic growth in those countries? _ _

The European Union countries that have adopted the euro still conduct independent monetary policies within their countries.

What effect does an open economy have on the effectiveness of monetary policy and fiscal policy? _ _

If the exchange rate between the dollar and the yen is ¥80 = $1 this week,and is ¥87 = $1 next week,we say that the dollar appreciated.

If a current account deficit increases and investment levels remain the same,national saving must increase.

Outline the three main components of the current account. _ _

When the value of a currency is fixed relative to a particular country's currency,this is referred to as a ________ exchange rate.

When Australia sends money to the Philippines to help typhoon survivors,the transaction is recorded in the _________.

An increase in net foreign investment is possible through either a decrease in national saving or a decrease in domestic investment.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Filters

Exam 20: Macroeconomics in an Open Economy

If the average rate of productivity growth in Indian firms is greater than in Australia,then

The demand by other countries for Australian dollars will increase when

The United States implements a quota on imported cotton.This will ________ the supply of US dollars relative to the currencies of foreign cotton producers and lead to a(n)________ of US dollars relative to these foreign currencies.

During the 1980s,Australia ________ twin deficits and in the 1990s,Australia ________ twin deficits.

The real exchange rate of Japanese yen to Australian dollars will increase if Australia's price level ________ and the nominal exchange rate of yen to the dollar ________.

According to purchasing power parity,currencies will generally appreciate in countries whose inflation rates are higher than the rest of the world.

In an open economy,monetary policy has

The European Union countries that have adopted the euro still conduct independent monetary policies within their countries.

What effect does an open economy have on the effectiveness of monetary policy and fiscal policy? _____________________________________________________________________________________________ _____________________________________________________________________________________________

If the exchange rate between the dollar and the yen is ¥80 = $1 this week,and is ¥87 = $1 next week,we say that the dollar appreciated.

If a current account deficit increases and investment levels remain the same,national saving must increase.

Outline the three main components of the current account. _____________________________________________________________________________________________ _____________________________________________________________________________________________

When the value of a currency is fixed relative to a particular country's currency,this is referred to as a ________ exchange rate.

When Australia sends money to the Philippines to help typhoon survivors,the transaction is recorded in the _________.

An increase in net foreign investment is possible through either a decrease in national saving or a decrease in domestic investment.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Filters

The United States implements a quota on imported cotton.This will the supply of US dollars relative to the currencies of foreign cotton producers and lead to a(n) of US dollars relative to these foreign currencies.

During the 1980s,Australia twin deficits and in the 1990s,Australia twin deficits.

The real exchange rate of Japanese yen to Australian dollars will increase if Australia's price level and the nominal exchange rate of yen to the dollar .

What effect does an open economy have on the effectiveness of monetary policy and fiscal policy? _ _

Outline the three main components of the current account. _ _