Question 1

Explain why a country with a fixed exchange rate loses control over its monetary policy.

Accepted Answer

If Canada decides to 'peg' the value of

Question 2

What is the difference between a fixed,flexible,and managed ("dirty")float exchange rate regime?

Accepted Answer

A fixed exchange rate regime is when the

Question 3

Assuming a fixed exchange rate system,which of the following would contribute to a Canadian balance of payments surplus?

Accepted Answer

A) The USA increases the tariff on Canadian softwood lumber. 
B) The popularity of Mexican tequila in Canada increases dramatically. 
C) Canada increases its investment in Mexican oil fields. 
D) Canada increases the number of military personal stationed abroad. 
E) The number of Japanese tourists visiting Canada increases greatly. 
A) The USA increases the tariff on Canadian softwood lumber. 
B) The popularity of Mexican tequila in Canada increases dramatically. 
C) Canada increases its investment in Mexican oil fields. 
D) Canada increases the number of military personal stationed abroad. 
E) The number of Japanese tourists visiting Canada increases greatly.

Question 4

The following table contains hypothetical data for Canada's balance of payments in a particular year.
  
-Refer to the information above to answer this question.What is Canada's balance on its current account?

Accepted Answer

A) A surplus of $10 billion. 
B) A deficit of $10 billion. 
C) A surplus of $15 billion. 
D) A surplus of $20 billion. 
E) A deficit of $20 billion. 
A) A surplus of $10 billion. 
B) A deficit of $10 billion. 
C) A surplus of $15 billion. 
D) A surplus of $20 billion. 
E) A deficit of $20 billion.

Question 5

Which of the following statements is correct?

Accepted Answer

A) When the Canadian dollar appreciates,the effective price of Canadian imports decreases and total imports are likely to fall. 
B) When the Canadian dollar appreciates,the effective price of Canadian imports decreases and total imports are likely to rise. 
C) When the Canadian dollar depreciates,the effective price of Canadian imports increases and total imports are likely to rise. 
D) When the Canadian dollar depreciates,the effective price of Canadian imports decreases and total imports are likely to rise. 
A) When the Canadian dollar appreciates,the effective price of Canadian imports decreases and total imports are likely to fall. 
B) When the Canadian dollar appreciates,the effective price of Canadian imports decreases and total imports are likely to rise. 
C) When the Canadian dollar depreciates,the effective price of Canadian imports increases and total imports are likely to rise. 
D) When the Canadian dollar depreciates,the effective price of Canadian imports decreases and total imports are likely to rise.

Question 6

What are the four determinants of the demand of the Canadian dollar?

Accepted Answer

The four determinants of the demand for

Question 7

Assume Canada has a flexible exchange rate regime.Explain the impact on the Canadian foreign exchange market if there is a decrease in the Canadian price level.

Accepted Answer

A decrease in the Canadian price level w

Question 8

If a French importer can buy 8 Swiss francs for 10 euros,then what is the rate of exchange?

Accepted Answer

A) 1 euro = 1.2 Swiss francs. 
B) 1 euro = 0.8 Swiss francs. 
C) 1 euro = 1.25 Swiss francs. 
D) 1 Swiss franc = 1.20 French francs. 
A) 1 euro = 1.2 Swiss francs. 
B) 1 euro = 0.8 Swiss francs. 
C) 1 euro = 1.25 Swiss francs. 
D) 1 Swiss franc = 1.20 French francs.

Question 9

What is the long-term result of a central bank fixing an exchange rate below the equilibrium market rate?

Accepted Answer

A) The money supply will have to decrease resulting in inflation. 
B) The money supply will have to decrease resulting in deflation. 
C) The money supply will have to increase resulting in inflation. 
D) The money supply will have to increase resulting in deflation. 
E) The money supply will decrease but the price level will be unaffected. 
A) The money supply will have to decrease resulting in inflation. 
B) The money supply will have to decrease resulting in deflation. 
C) The money supply will have to increase resulting in inflation. 
D) The money supply will have to increase resulting in deflation. 
E) The money supply will decrease but the price level will be unaffected.

Question 10

The following table contains hypothetical data for Canada's balance of payments in a particular year.
  
-Refer to the information above to answer this question.As a result of international financial transactions summarized in Canada's balance of payments,which of the following is true?

Accepted Answer

A) There was an increase in Canada's foreign reserves. 
B) There was a decrease in Canada's foreign reserves. 
C) There was no change in Canada's foreign reserves. 
D) The demand for Canadian dollars exceeded the supply. 
E) The supply of foreign currencies exceeded the demand. 
A) There was an increase in Canada's foreign reserves. 
B) There was a decrease in Canada's foreign reserves. 
C) There was no change in Canada's foreign reserves. 
D) The demand for Canadian dollars exceeded the supply. 
E) The supply of foreign currencies exceeded the demand.

Question 11

Assume that Canada has a fixed exchange rate regime.Explain the effect on the foreign exchange market if there is an increase in exports.What will the Bank of Canada do to maintain the fixed exchange rate?

Accepted Answer

An increase in exports will increase the

Question 12

Suppose that the price of a ton of coal in France is 1,000 euros while it is $200 in Canada.If the purchasing power parity theory holds true,what would you expect the exchange rate to be?

Accepted Answer

A) $1 Canadian =.2 euros. 
B) $1 Canadian =.5 euros. 
C) $1 Canadian = 5 euros. 
D) $1 Canadian = 2 euros. 
A) $1 Canadian =.2 euros. 
B) $1 Canadian =.5 euros. 
C) $1 Canadian = 5 euros. 
D) $1 Canadian = 2 euros.

Question 13

List the four arguments for a fixed exchange rate regime.

Accepted Answer

The four arguments for a fixed exchange

Question 14

If the Swiss franc appreciates in terms of the U.S.dollar,what follows?

Accepted Answer

A) The U.S.dollar will depreciate in terms of the Swiss franc. 
B) Swiss exports to the U.S.will increase. 
C) The Canadian dollar is worth less than it was in terms of Swiss francs. 
D) US exports to Switzerland will decrease. 
E) The U.S.dollar will depreciate in terms of the Swiss franc and Swiss exports to the U.S.will increase. 
A) The U.S.dollar will depreciate in terms of the Swiss franc. 
B) Swiss exports to the U.S.will increase. 
C) The Canadian dollar is worth less than it was in terms of Swiss francs. 
D) US exports to Switzerland will decrease. 
E) The U.S.dollar will depreciate in terms of the Swiss franc and Swiss exports to the U.S.will increase.

Question 15

-Refer to the graph above to answer this question.Suppose that the demand for the American dollar shifts from D1 to D2.What might be the reason for this shift?

Accepted Answer

A) The Canadian dollar has depreciated. 
B) The prices of Canadian goods and services have increased relative to American prices. 
C) The prices of American goods and services have increased relative to Canadian prices. 
D) The Canadian economy has entered a boom period. 
E) Interest rates in the USA have decreased relative to Canadian rates. 
A) The Canadian dollar has depreciated. 
B) The prices of Canadian goods and services have increased relative to American prices. 
C) The prices of American goods and services have increased relative to Canadian prices. 
D) The Canadian economy has entered a boom period. 
E) Interest rates in the USA have decreased relative to Canadian rates.

Question 16

Suppose a country has a balance on its current account of negative $10 billion,while the balance on its capital account is a positive $4 billion.What can we conclude?

Accepted Answer

A) That the country has a surplus on its balance of trade. 
B) That the country has a deficit on its balance of trade. 
C) That its reserves of foreign currencies are falling. 
D) That the country has a balance of payments surplus. 
E) That the country has a balance of payments of zero. 
A) That the country has a surplus on its balance of trade. 
B) That the country has a deficit on its balance of trade. 
C) That its reserves of foreign currencies are falling. 
D) That the country has a balance of payments surplus. 
E) That the country has a balance of payments of zero.

Question 17

If the Canadian dollar appreciates which of the following is true?

Accepted Answer

A) Canadian interest rates must have recently fallen. 
B) The effective price of Canadian exports increases. 
C) Total exports from Canada are likely to rise 
D) Canadian importers are hurt. 
A) Canadian interest rates must have recently fallen. 
B) The effective price of Canadian exports increases. 
C) Total exports from Canada are likely to rise 
D) Canadian importers are hurt.

Question 18

If a country is suffering perennial balance of payments deficits,all except one of the following will help solve the problem.Which is the exception?

Accepted Answer

A) The introduction of exchange controls to restrict the outflow of foreign currencies. 
B) The introduction of quotas on imported goods. 
C) An increase in interest rates. 
D) The reduction in tariffs on imported goods. 
E) An increase in subsidies to exporting industries. 
A) The introduction of exchange controls to restrict the outflow of foreign currencies. 
B) The introduction of quotas on imported goods. 
C) An increase in interest rates. 
D) The reduction in tariffs on imported goods. 
E) An increase in subsidies to exporting industries.

Question 19

Explain how a recession can correct an overvalued fixed exchange rate.

Accepted Answer

Imports are a function of normal income.

Question 20

Suppose a mobile phone cost $350 in Canada and $\times$2,500 in China.If the nominal exchange rate is $1 Canadian dollar is equal to $\times$7.75.
a)What is the value of the real exchange rate?
b)In which country is the mobile phone cheaper?

Accepted Answer

The answer of Suppose a mobile phone cost $350 in...

Explain why a country with a fixed exchange rate loses control over its monetary policy.

What is the difference between a fixed,flexible,and managed ("dirty")float exchange rate regime?

Assuming a fixed exchange rate system,which of the following would contribute to a Canadian balance of payments surplus?

The following table contains hypothetical data for Canada's balance of payments in a particular year. -Refer to the information above to answer this question.What is Canada's balance on its current account?

Which of the following statements is correct?

What are the four determinants of the demand of the Canadian dollar?

Assume Canada has a flexible exchange rate regime.Explain the impact on the Canadian foreign exchange market if there is a decrease in the Canadian price level.

If a French importer can buy 8 Swiss francs for 10 euros,then what is the rate of exchange?

What is the long-term result of a central bank fixing an exchange rate below the equilibrium market rate?

The following table contains hypothetical data for Canada's balance of payments in a particular year. -Refer to the information above to answer this question.As a result of international financial transactions summarized in Canada's balance of payments,which of the following is true?

Assume that Canada has a fixed exchange rate regime.Explain the effect on the foreign exchange market if there is an increase in exports.What will the Bank of Canada do to maintain the fixed exchange rate?

Suppose that the price of a ton of coal in France is 1,000 euros while it is $200 in Canada.If the purchasing power parity theory holds true,what would you expect the exchange rate to be?

List the four arguments for a fixed exchange rate regime.

If the Swiss franc appreciates in terms of the U.S.dollar,what follows?

-Refer to the graph above to answer this question.Suppose that the demand for the American dollar shifts from D1 to D2.What might be the reason for this shift?

Suppose a country has a balance on its current account of negative $10 billion,while the balance on its capital account is a positive $4 billion.What can we conclude?

If the Canadian dollar appreciates which of the following is true?

If a country is suffering perennial balance of payments deficits,all except one of the following will help solve the problem.Which is the exception?

Explain how a recession can correct an overvalued fixed exchange rate.

Suppose a mobile phone cost $350 in Canada and $\times$ 2,500 in China.If the nominal exchange rate is $1 Canadian dollar is equal to $\times$ 7.75. a)What is the value of the real exchange rate? b)In which country is the mobile phone cheaper?

The Economic Problem

Demand and Supply: an Introduction

Measuring the Economy 1: GDP and Economic Growth

Measuring the Economy 2: Unemployment and Inflation

Aggregate Demand and Supply

Aggregate Expenditures

Fiscal Policy

Money and Banking

The Money Market and Monetary Policy

International Trade

Macroeconomic Policy Revisited

A Walk Through the Twentieth Century and Beyond

Filters

Exam 11: Exchange Rates and the Balance of Payments

Explain why a country with a fixed exchange rate loses control over its monetary policy.

What is the difference between a fixed,flexible,and managed ("dirty")float exchange rate regime?

Assuming a fixed exchange rate system,which of the following would contribute to a Canadian balance of payments surplus?

The following table contains hypothetical data for Canada's balance of payments in a particular year. -Refer to the information above to answer this question.What is Canada's balance on its current account?

Which of the following statements is correct?

What are the four determinants of the demand of the Canadian dollar?

Assume Canada has a flexible exchange rate regime.Explain the impact on the Canadian foreign exchange market if there is a decrease in the Canadian price level.

If a French importer can buy 8 Swiss francs for 10 euros,then what is the rate of exchange?

What is the long-term result of a central bank fixing an exchange rate below the equilibrium market rate?

The following table contains hypothetical data for Canada's balance of payments in a particular year. -Refer to the information above to answer this question.As a result of international financial transactions summarized in Canada's balance of payments,which of the following is true?

Assume that Canada has a fixed exchange rate regime.Explain the effect on the foreign exchange market if there is an increase in exports.What will the Bank of Canada do to maintain the fixed exchange rate?

Suppose that the price of a ton of coal in France is 1,000 euros while it is $200 in Canada.If the purchasing power parity theory holds true,what would you expect the exchange rate to be?

List the four arguments for a fixed exchange rate regime.

If the Swiss franc appreciates in terms of the U.S.dollar,what follows?

-Refer to the graph above to answer this question.Suppose that the demand for the American dollar shifts from D1 to D2.What might be the reason for this shift?

Suppose a country has a balance on its current account of negative $10 billion,while the balance on its capital account is a positive $4 billion.What can we conclude?

If the Canadian dollar appreciates which of the following is true?

If a country is suffering perennial balance of payments deficits,all except one of the following will help solve the problem.Which is the exception?

Explain how a recession can correct an overvalued fixed exchange rate.

Suppose a mobile phone cost $350 in Canada and ×\times× 2,500 in China.If the nominal exchange rate is $1 Canadian dollar is equal to ×\times× 7.75. a)What is the value of the real exchange rate? b)In which country is the mobile phone cheaper?

The Economic Problem

Demand and Supply: an Introduction

Measuring the Economy 1: GDP and Economic Growth

Measuring the Economy 2: Unemployment and Inflation

Aggregate Demand and Supply

Aggregate Expenditures

Fiscal Policy

Money and Banking

The Money Market and Monetary Policy

International Trade

Macroeconomic Policy Revisited

A Walk Through the Twentieth Century and Beyond

Filters

Suppose a mobile phone cost $350 in Canada and $\times$ 2,500 in China.If the nominal exchange rate is $1 Canadian dollar is equal to $\times$ 7.75. a)What is the value of the real exchange rate? b)In which country is the mobile phone cheaper?