Exam 19: Open-Economy Macroeconomics

If the government wants to decrease the value of its currency in foreign exchange markets, it can use expansionary monetary policy.

Use the following to answer questions : Scenario: Purchasing Power Parity A car costs $30,000 in the United States and the exchange rate is $1 = £0.50. The same car costs £12,000 in Britain. -(Scenario: Purchasing Power Parity) Look at the scenario Purchasing Power Parity. For there to be purchasing power parity, the nominal exchange rate for the dollar must be:

A current account surplus is generally a result of:

Use the following to answer questions : Scenario: Gizmovia II The Republic of Gizmovia wants to maintain the exchange rate of its currency, the gizmo, at $0.50, but the current exchange rate for the gizmo is $0.75. -(Scenario: Gizmovia II) Look at the scenario Gizmovia II. If Gizmovia uses exchange market intervention to decrease the value of its currency to $0.50, it should _____ gizmos and _____ dollars in the foreign exchange market.

According to Ben Bernanke, the primary cause of the U.S. current account deficit of the early 2000s was:

Assume the nominal exchange rate is £0.593 per dollar, the price level in the United States is 250, and the price level in Britain is 225. The real exchange rate is £0.659 per dollar.

If a country has a positive balance of payments on the current account, then it must:

A country's balance of payments on financial account is the:

A country's balance of payments is made up of:

A family from Peru eats in a restaurant in Salt Lake City. In the accounting for U.S. international transactions, this transaction would appear in the _____, and it would be entered as a payment _____ foreigners.

The difference between a fixed and a floating exchange rate regime is that with a _____ rate system, the _____, whereas with a _____ rate system it does not.

If the target exchange rate of a fixed currency is above the equilibrium exchange rate, to reach the target rate, the government should encourage capital inflows.

Suppose the Federal Reserve is concerned about an inflationary gap, and as a result the Fed reduces the money supply. All else equal, how will this affect the value of the dollar in global currency markets? Explain.

Direct foreign investment means the purchase of:

After a revaluation, all other things equal, a country's balance of payments on the current account will likely increase.

A fixed rate can be expensive because it requires that a country keep large amounts of foreign currency on hand-usually a low-return investment.

The merchandise trade balance:

A floating rate can be expensive because it requires that a country keep large amounts of foreign currency on hand-usually a low-return investment.

To maintain its target exchange rate for the yuan, China had to sell yuan and buy dollars and other currencies.

The current account responds to changes in: