Question 1

Use the following to answer questions:
Figure: International Capital Flows 
-(Figure: International Capital Flows) Look at the figure International Capital Flows. Assume that each country's equilibrium interest rate is 4%. To reconcile the apparent disequilibrium in both markets, assuming that assets and liabilities are viewed as homogeneous, capital _____ will _____ interest rates.

Accepted Answer

A) outflow from the United States; lower U.S. 
B) outflow from Britain; lower British 
C) outflow from Britain; raise British 
D) inflow to the United States; raise U.S.

Question 2

Fast-growing economies often have a greater demand for loanable funds than do slower-growing economies because fast-growing economies:

Accepted Answer

A) also have high private savings rates. 
B) have more investment opportunities. 
C) tend to have high public savings rates. 
D) tend to have a surplus balance of payments most of the time.

Question 3

If a country's loanable funds market is initially in equilibrium and then there are capital outflows, this will result in a _____ in the equilibrium interest rate, while the equilibrium quantity of loanable funds will _____.

Accepted Answer

A) fall; increase 
B) rise; decrease 
C) fall; decrease 
D) rise; increase

Question 4

What are the advantages and disadvantages of fixed and floating exchange rates?

Accepted Answer

The answer of What are the advantages and disadvantages of...

Question 5

Suppose that the value of the euro fell from $1.32 on April 30, 2012, to $1.24 on July 5, 2012. This implies that during this period the euro _____ and the dollar _____.

Accepted Answer

A) depreciated; appreciated 
B) appreciated; depreciated 
C) depreciated; fluctuated 
D) appreciated; did not change

Question 6

Which of the following would supply dollars 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

Accepted Answer

A) I only 
B) II only 
C) III only 
D) I, II, and III

Question 7

Foreign exchange controls are the same thing as floating exchange rates.

Accepted Answer

A) True 
 B)False

Question 8

Use the following to answer questions :
Figure: Change in the Demand for U.S. Dollars 
-(Figure: Change in the Demand for U.S. Dollars) Look at the figure Change in the Demand for U.S. Dollars. The change from D1 to D2 will occur, all other things being equal, if the:

Accepted Answer

A) supply of euros decreases. 
B) demand for euros increases. 
C) demand for euros decreases. 
D) demand for dollars increases.

Question 9

If Japanese buyers demand more U.S. dollars, then the dollar will _____, the yen will _____, the U.S. balance of payments on current account will _____, and the U.S. balance of payments on financial account will _____.

Accepted Answer

A) appreciate; depreciate; rise; fall 
B) depreciate; appreciate; rise; fall 
C) appreciate; depreciate; rise; rise 
D) appreciate; depreciate; fall; rise

Question 10

Use the following to answer questions :
Scenario: Gizmovia
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 $0.40.
-(Scenario: Gizmovia) Look at the scenario Gizmovia. If Gizmovia uses monetary policy to bring the exchange rate for the gizmo to $0.50, it should _____ interest rates by _____ the money supply.

Accepted Answer

A) decrease; decreasing 
B) decrease; increasing 
C) increase; increasing 
D) increase; decreasing

Question 11

All other things unchanged, a decrease in the value of the dollar against the euro _____ U.S. net exports and shifts the aggregate demand curve to the _____.

Accepted Answer

A) increases; right 
B) decreases; right 
C) increases; left 
D) decreases; left

Question 12

A U.S. firm buys a new Volvo, built in Sweden. In the U.S. balance of payments, this transaction causes the balance on the _____ account to _____.

Accepted Answer

A) current; decrease 
B) current; increase 
C) financial; decrease 
D) financial; increase

Question 13

Which of the following is NOT true of a fixed exchange rate system?

Accepted Answer

A) It is good for business. 
B) Foreign exchange reserves are costly. 
C) It keeps a country from using inflationary policies. 
D) It makes pursuing domestic macroeconomic objectives easier.

Question 14

The exchange rate is determined in the commodities markets.

Accepted Answer

A) True 
 B)False

Question 15

If a country runs a deficit on its balance of payments for goods and services, to pay for its imports, it must:

Accepted Answer

A) raise taxes. 
B) print new money. 
C) sell assets to foreigners. 
D) decrease its exports.

Question 16

Which of the following is a payment from the United States to foreigners?

Accepted Answer

A) the dollar value of tea the United States imports from India 
B) the dollar value of services provided to Canada 
C) the dollar value of tourism by visitors from the European Union 
D) the fees for financial services provided by the United States to China

Question 17

A fixed exchange rate means that the government keeps the exchange rate against some other currency at or near a particular target.

Accepted Answer

A) True 
 B)False

Question 18

All of the following are major drawbacks of a fixed exchange rate EXCEPT that:

Accepted Answer

A) exchange controls must be imposed at the cost of administrative red tape and corruption. 
B) resources must be diverted to the accumulation of large foreign exchange reserves. 
C) monetary policy cannot be used to stabilize output and the inflation rate. 
D) commerce among countries is more uncertain and riskier.

Question 19

If the government wants to increase the value of its currency in foreign exchange markets, it can limit the ability of foreigners to buy its currency.

Accepted Answer

A) True 
 B)False

Question 20

Suppose that China's target exchange rate for the yuan is below its equilibrium exchange rate. What is the possible disadvantage of using monetary policy to achieve the target exchange rate?

Accepted Answer

The answer of Suppose that China's target exchange rate for...

Exam 19: Open-Economy Macroeconomics

Fast-growing economies often have a greater demand for loanable funds than do slower-growing economies because fast-growing economies:

If a country's loanable funds market is initially in equilibrium and then there are capital outflows, this will result in a _ in the equilibrium interest rate, while the equilibrium quantity of loanable funds will _.

What are the advantages and disadvantages of fixed and floating exchange rates?

Suppose that the value of the euro fell from $1.32 on April 30, 2012, to $1.24 on July 5, 2012. This implies that during this period the euro _ and the dollar _.

Which of the following would supply dollars 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

Foreign exchange controls are the same thing as floating exchange rates.

Use the following to answer questions : Figure: Change in the Demand for U.S. Dollars -(Figure: Change in the Demand for U.S. Dollars) Look at the figure Change in the Demand for U.S. Dollars. The change from D₁ to D₂ will occur, all other things being equal, if the:

If Japanese buyers demand more U.S. dollars, then the dollar will ___, the yen will _, the U.S. balance of payments on current account will _, and the U.S. balance of payments on financial account will ___.

All other things unchanged, a decrease in the value of the dollar against the euro _ U.S. net exports and shifts the aggregate demand curve to the _.

A U.S. firm buys a new Volvo, built in Sweden. In the U.S. balance of payments, this transaction causes the balance on the _ account to _.

Which of the following is NOT true of a fixed exchange rate system?

The exchange rate is determined in the commodities markets.

If a country runs a deficit on its balance of payments for goods and services, to pay for its imports, it must:

Which of the following is a payment from the United States to foreigners?

A fixed exchange rate means that the government keeps the exchange rate against some other currency at or near a particular target.

All of the following are major drawbacks of a fixed exchange rate EXCEPT that:

If the government wants to increase the value of its currency in foreign exchange markets, it can limit the ability of foreigners to buy its currency.

Suppose that China's target exchange rate for the yuan is below its equilibrium exchange rate. What is the possible disadvantage of using monetary policy to achieve the target exchange rate?

Exam 19: Open-Economy Macroeconomics

Fast-growing economies often have a greater demand for loanable funds than do slower-growing economies because fast-growing economies:

If a country's loanable funds market is initially in equilibrium and then there are capital outflows, this will result in a _____ in the equilibrium interest rate, while the equilibrium quantity of loanable funds will _____.

What are the advantages and disadvantages of fixed and floating exchange rates?

Suppose that the value of the euro fell from $1.32 on April 30, 2012, to $1.24 on July 5, 2012. This implies that during this period the euro _____ and the dollar _____.

Which of the following would supply dollars 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

Foreign exchange controls are the same thing as floating exchange rates.

Use the following to answer questions : Figure: Change in the Demand for U.S. Dollars -(Figure: Change in the Demand for U.S. Dollars) Look at the figure Change in the Demand for U.S. Dollars. The change from D1 to D2 will occur, all other things being equal, if the:

If Japanese buyers demand more U.S. dollars, then the dollar will _____, the yen will _____, the U.S. balance of payments on current account will _____, and the U.S. balance of payments on financial account will _____.

All other things unchanged, a decrease in the value of the dollar against the euro _____ U.S. net exports and shifts the aggregate demand curve to the _____.

A U.S. firm buys a new Volvo, built in Sweden. In the U.S. balance of payments, this transaction causes the balance on the _____ account to _____.

Which of the following is NOT true of a fixed exchange rate system?

The exchange rate is determined in the commodities markets.

If a country runs a deficit on its balance of payments for goods and services, to pay for its imports, it must:

Which of the following is a payment from the United States to foreigners?

A fixed exchange rate means that the government keeps the exchange rate against some other currency at or near a particular target.

All of the following are major drawbacks of a fixed exchange rate EXCEPT that:

If the government wants to increase the value of its currency in foreign exchange markets, it can limit the ability of foreigners to buy its currency.

Suppose that China's target exchange rate for the yuan is below its equilibrium exchange rate. What is the possible disadvantage of using monetary policy to achieve the target exchange rate?

If a country's loanable funds market is initially in equilibrium and then there are capital outflows, this will result in a _ in the equilibrium interest rate, while the equilibrium quantity of loanable funds will _.

Suppose that the value of the euro fell from $1.32 on April 30, 2012, to $1.24 on July 5, 2012. This implies that during this period the euro _ and the dollar _.

Use the following to answer questions : Figure: Change in the Demand for U.S. Dollars -(Figure: Change in the Demand for U.S. Dollars) Look at the figure Change in the Demand for U.S. Dollars. The change from D₁ to D₂ will occur, all other things being equal, if the:

If Japanese buyers demand more U.S. dollars, then the dollar will ___, the yen will _, the U.S. balance of payments on current account will _, and the U.S. balance of payments on financial account will ___.

All other things unchanged, a decrease in the value of the dollar against the euro _ U.S. net exports and shifts the aggregate demand curve to the _.

A U.S. firm buys a new Volvo, built in Sweden. In the U.S. balance of payments, this transaction causes the balance on the _ account to _.