Exam 19: Open-Economy Macroeconomics

According to purchasing power parity, if the price of a Big Mac is lower in India and China than in Europe, then the currencies of India and China are undervalued.

A financial investor from Los Angeles purchases bonds issued by the government of Peru. In the accounting for U.S. international transactions, this transaction would appear in the _____, and it would be entered as a payment _____ foreigners.

If the target exchange rate of a fixed currency is below the equilibrium exchange rate, to reach the target rate, the government should sell that currency and buy foreign currencies.

A fixed exchange rate: I. leaves monetary policy available for domestic stabilization. II. is less expensive to maintain than a floating exchange rate.

Use the following to answer questions: Figure: International Capital Flows -(Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the quantity of loanable funds demanded by U.S. borrowers is _____ the quantity of loanable funds supplied by U.S. lenders.

A major drawback of a floating exchange rate is the:

The Japanese will demand U.S. dollars in all of the following cases EXCEPT:

A rule governing policy for the exchange rate is: I. the terms of trade. II. an exchange rate regime.

Suppose the U.S. dollar depreciates nominally against the Mexican peso by 5%. The price level in the United States increases by 7%, but Mexico's price level does not change. From this we can conclude that:

In the absence of international capital flows, the equilibrium interest rate in the U.S. market for loanable funds is 3%, while in Germany it is 7%. International borrowing and lending between the United States and Germany may result in a common interest rate of _____ and _____.

The real exchange rate between the U.S. dollar and the Canadian dollar will remain constant if an increase in the value of the U.S. dollar against the Canadian dollar is offset by:

Use the following to answer questions : Scenario: Exchange Rates The value of a euro goes from US$1.25 to US$1.50. -(Scenario: Exchange Rates) Look at the scenario Exchange Rates. In the United States, exports will _____ and imports will _____.

The nominal exchange rate is the number of times that a unit of currency changes hands in a year.

Britain has changed from a fixed exchange rate regime to a floating exchange rate regime.

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 monetary policy to bring the exchange rate for the gizmo to $0.50, it should _____ interest rates, which will _____ capital inflows of gizmos.

The rule that governs a country's policy toward its exchange rate is known as:

When the dollar appreciates, exports will _____ and imports will _____ .

A revaluation will make exports less expensive and imports more expensive.

Use the following to answer questions : Figure: The Loanable Funds Model in the U.S. Market -(Figure: The Loanable Funds Model in the U.S. Market) Look at the figure The Loanable Funds Model in the U.S. Market. If the actual interest rate is less than 4% in the U.S. market, then the quantity supplied of loanable funds will be _____ the quantity of loanable funds demanded.

Which of the following would demand euros in the foreign exchange market? I. Americans who want to buy U.S. goods, services, and assets II. Americans who want to buy European goods, services, and assets III. Europeans who want to buy U.S. goods, services, and assets