Exam 19: Open-Economy Macroeconomics

When the interest rate in the U.S. decreases as a result of expansionary monetary policy, investment spending _____ and consumption _____ .

The 1944 Bretton Woods agreement established a system of fixed exchange rates among major currencies.

Countries A and B trade freely with each other. Suppose interest rates in the loanable funds market in country A are lower than in the country B. This means:

The first country to adopt the euro was Great Britain.

As a result of expansionary monetary policy, lower U.S. interest rates will result in a(n) _____ in the demand for dollars and a(n) _____ in the supply of dollars.

The underlying motives behind capital flows reflect international differences in:

If the government wants to increase the value of its currency in foreign exchange markets, it can sell its domestic currency in the foreign exchange market.

If a country with floating exchange rates uses an expansionary monetary policy, the domestic interest rate _____, demand for the domestic currency _____, supply of the domestic currency _____, and the effect on the exchange rate is _____.

If the dollar appreciates because of a capital inflow from Asia, the balance on the U.S. financial account will increase and the balance on the current account will decrease.

If the U.S. receives increased capital inflows from Europe, the dollar will depreciate.

Suppose that on January 1 the exchange rate was ¥120 per U.S. dollar. On December 31 of that year, it was ¥125 per dollar. Over the course of that year, did the dollar appreciate or depreciate against the yen? Did the change in the exchange rate make U.S. goods and services more or less attractive to Japanese consumers? Explain.

Which of the following would be included in the U.S. current account?

If the exchange rate is initially $1 = 12.95 pesos but changes to $1 = 15 pesos, then the dollar has _____ and the price in Mexico of a $10,000 U.S.-built Harley Davidson motorcycle has _____.

Which of the following would NOT maintain a fixed exchange rate?

Countries with government budget surpluses are likely to have capital inflows, all other things equal.

The United States dollar-Mexican peso exchange market is initially in equilibrium. Suppose there is a decrease in demand for U.S. dollars. Holding everything else constant, this will result in a movement along the _____ of U.S. dollars and a(n) _____ in pesos per U.S. dollar.

Under fixed exchange rates, a devaluation:

Foreign exchange controls decrease the costs of red tape and corruption surrounding international trade.

Suppose a country has floated its currency and the central bank sets a contractionary monetary policy. Which of the following is LIKELY to occur?

If the exchange rate for the euro is $1.38, $1 exchanges for €0.7246.