Exam 19: Comparative Advantage, international Trade, and Exchange Rates

Soon after the Australia dollar was floated,it ________ against the United States dollar and ________ against other major currencies.

Hypothetically,what would a report that argues that the dollar is 'undervalued' mean? How would foreign exchange markets respond to this information? Support your answer graphically.

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

According to the theory of purchasing power parity,the foreign exchange market will

How does a decrease in value of a country's currency relative to other currencies affect its balance of trade on goods and services?

Describe how the Bretton Woods System operated.

Figure 19.3 -Suppose the graph in Figure 19.3 represents the market for the British pound under the Bretton Woods System.If the par exchange rate was set at 4 United States dollars

How will the exchange rate (foreign currency per dollar)respond to a decrease in the relative rate of productivity growth in Australia in the long run?

Figure 19.2 -Refer to Figure 19.2.Currency speculators believe that the value of the euro will decrease relative to the dollar.Assuming ceteris paribus,how would this be represented?

Under the Bretton Woods System

Show what will happen in the market for yen if Japan's central bank sells yen for dollars,and explain what will happen to Australia's current account,ceteris paribus,because of this action.

Your friend states that (i)a strong dollar (appreciation of the dollar)is a sign of a healthy economy and that (ii)a weak dollar (depreciation of the dollar)is a sign of a weak economy.Assuming that other factors that could affect the exchange rate do not change,explain that the opposite is true when the following are considered: a. the effect of rapidly falling incomes in Australia during a recession b. the effect of rapidly rising incomes in Australia during an economic expansion

Under the Bretton Woods System,if the par rate per British pound-defined as United States (US)dollars per pound-was below its equilibrium value,then

If an Australian company sells insurance to a foreign company,how does this affect Australia's balance of payments?

A large federal budget deficit will not lead to a current account deficit if private saving ________ or domestic investment ________.

What is the real exchange rate and how is it calculated?

Suppose that Australia's price level is 125,the British price level is 100,and the nominal exchange rate of pounds to the dollar is £0.60 = $1,then the real exchange rate of pounds to the dollar is

Assume that the exchange rate between the dollar and the yen is ¥60 = $1.Suppose the exchange rate changes to ¥100 = $1.Because of the change

How will the exchange rate (foreign currency per dollar)respond to an increase in the preference for imported goods by Australians in the long run,ceteris paribus?

Suppose that average productivity of Chinese firms increases more rapidly than the average productivity of Australian firms,then