Question 1

If one United States dollar could be exchanged for one Australian dollar in 1970,and one United States dollar can now be exchanged for 0.94 Australian dollars,which of the following is true?

Accepted Answer

A)  The United States dollar gained value against the Australian dollar. 
B)  The Australian dollar lost value against the United States dollar. 
C)  The Australian dollar gained value against the United States dollar. 
D)  The United States dollar gained value against the Australian dollar; and the Australian dollar lost value against the United States dollar.

Question 2

A currency exchange rate system under which the currency is determined by demand and supply,and occasional government intervention is a

Accepted Answer

A)  floating currency system. 
B)  fixed currency system. 
C)  managed float exchange rate system. 
D)  gold standard system.

Question 3

Suppose the world is currently experiencing a period of strong economic growth.Both the European Union and Australia experience robust increases in income.Illustrate how this will affect the exchange rate using a graph of the demand and supply of dollars for euros.Will the dollar appreciate or depreciate against the euro? Explain why.

Accepted Answer

The answer of Suppose the world is currently experiencing a...

Question 4

Figure 19.2 
-Refer to Figure 19.2.Suppose that Italians reduce their demand for Australian steel by half.Assuming all else remains constant,this would be represented as a movement from

Accepted Answer

A)  B to A. 
B)  D to C. 
C)  B to C. 
D)  A to D.

Question 5

Figure 19.4 
-Which of the following would cause the change depicted in Figure 19.4? Note that the figure depicts the quantity of euros traded.

Accepted Answer

A)  Australian productivity falls relative to European productivity. 
B)  Australians decrease their preferences for goods produced in the European Union (EU) relative to Australian goods. 
C)  The EU increases its quotas on Italian wine. 
D)  The price level of goods produced in the EU decreases relative to the price level of goods produced in Australia.

Question 6

The real exchange rate of Japanese yen to Australian dollars will increase if Australia's price level ________ and the nominal exchange rate of yen to the dollar ________.

Accepted Answer

A)  increases; rises 
B)  decreases; rises 
C)  increases; falls 
D)  decreases; falls

Question 7

Outline the three main components of the current account.

Accepted Answer

The answer of Outline the three main components of the...

Question 8

If the rate of inflation in Australia exceeds the rate of inflation in Great Britain,we would expect the Australian dollar to depreciate in value against the British pound.

Accepted Answer

A) True 
 B)False

Question 9

What effect does an open economy have on the effectiveness of monetary policy and fiscal policy?

Accepted Answer

The answer of What effect does an open economy have...

Question 10

Assume the exchange rate between the dollar and yen is ¥80= $1.Suppose that the exchange rate changes to ¥75 = $1.As a result of the change,there will be

Accepted Answer

A)  more Japanese goods sold in Australia and less Australian goods sold in Japan. 
B)  less Japanese goods sold in Australia and more Australian goods sold in Japan. 
C)  more Japanese goods sold in Australia and the same amount of Australian goods sold in Japan. 
D)  the same number of Japanese goods sold in Australia and less Australian goods sold in Japan.

Question 11

The model of purchasing power parity is the only way to determine whether a country's currency is undervalued or overvalued.

Accepted Answer

A) True 
 B)False

Question 12

An example of a fixed exchange rate system is

Accepted Answer

A)  a floating currency exchange rate system. 
B)  the gold standard. 
C)  a managed float exchange rate system. 
D)  an exchange rate system where currencies are determined by the market.

Question 13

The demand by other countries for Australian dollars will increase when

Accepted Answer

A)  there is a decrease in demand by other countries for Australia's goods and services. 
B)  more Australians travel overseas. 
C)  Australians import more goods. 
D)  foreigners purchase more Australian goods.

Question 14

During the 1980s,Australia ________ twin deficits and in the 1990s,Australia ________ twin deficits.

Accepted Answer

A)  experienced; experienced 
B)  experienced; did not experience 
C)  did not experience; experienced 
D)  did not experience; did not experience

Question 15

Suppose the prices of Australian goods are rising faster than prices of goods in Great Britain.If purchasing power parity holds,then

Accepted Answer

A)  the Australian dollar will depreciate against the British pound. 
B)  the Australian dollar will appreciate against the British pound. 
C)  the value of the Australian dollar relative to the British pound will remain the same. 
D)  it will take fewer Australian dollars to buy one British pound.

Question 16

Contractionary fiscal policy lowers the budget deficit.In an open economy this may ________ the foreign exchange value of the dollar,and ________ net exports.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  reduce; increase 
D)  reduce; decrease

Question 17

Which of the following is a true statement describing expansionary fiscal policy's impact in open and closed economies?

Accepted Answer

A)  Expansionary fiscal policy crowds out only investment spending and purchases of consumer durables in an open economy. 
B)  Expansionary fiscal policy crowds out investment spending, purchases of consumer durables, and net exports in an open economy. 
C)  Expansionary fiscal policy crowds out investment spending, purchases of consumer durables, and net exports in a closed economy. 
D)  Expansionary fiscal policy does not crowd out investment spending and purchases of consumer durables in an open economy.

Question 18

In an open economy,expansionary monetary policy will cause

Accepted Answer

A)  consumption, investment, and net exports to rise. 
B)  consumption and investment to rise, but net exports to fall. 
C)  consumption to rise, but investment and net exports to fall. 
D)  consumption to fall, but investment and net exports to rise.

Question 19

The ________ account records flows of funds into and out of a country.

Accepted Answer

A)  financial 
B)  capital 
C)  current 
D)  net errors and omissions

Question 20

A speculative attack is the result of investors' expectations that the future value of a currency will decline.

Accepted Answer

A) True 
 B)False

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

If one United States dollar could be exchanged for one Australian dollar in 1970,and one United States dollar can now be exchanged for 0.94 Australian dollars,which of the following is true?

A currency exchange rate system under which the currency is determined by demand and supply,and occasional government intervention is a

Figure 19.2 -Refer to Figure 19.2.Suppose that Italians reduce their demand for Australian steel by half.Assuming all else remains constant,this would be represented as a movement from

Figure 19.4 -Which of the following would cause the change depicted in Figure 19.4? Note that the figure depicts the quantity of euros traded.

The real exchange rate of Japanese yen to Australian dollars will increase if Australia's price level and the nominal exchange rate of yen to the dollar .

Outline the three main components of the current account.

If the rate of inflation in Australia exceeds the rate of inflation in Great Britain,we would expect the Australian dollar to depreciate in value against the British pound.

What effect does an open economy have on the effectiveness of monetary policy and fiscal policy?

Assume the exchange rate between the dollar and yen is ¥80= $1.Suppose that the exchange rate changes to ¥75 = $1.As a result of the change,there will be

The model of purchasing power parity is the only way to determine whether a country's currency is undervalued or overvalued.

An example of a fixed exchange rate system is

The demand by other countries for Australian dollars will increase when

During the 1980s,Australia twin deficits and in the 1990s,Australia twin deficits.

Suppose the prices of Australian goods are rising faster than prices of goods in Great Britain.If purchasing power parity holds,then

Contractionary fiscal policy lowers the budget deficit.In an open economy this may the foreign exchange value of the dollar,and net exports.

Which of the following is a true statement describing expansionary fiscal policy's impact in open and closed economies?

In an open economy,expansionary monetary policy will cause

The ________ account records flows of funds into and out of a country.

A speculative attack is the result of investors' expectations that the future value of a currency will decline.