ECO 111 Ch. 15
Each of the following would increase the demand for U.S. dollars, shifting the demand curve for dollars to the right, except: A. an appreciation of foreign currencies relative to the U.S. dollar. Each of the following would increase the demand for U.S. dollars, shifting the demand curve for dollars to the right, except: A. an appreciation of foreign currencies relative to the U.S. dollar. B. an increase in the real interest rate on U.S. assets. C. an increased preference for U.S.-made goods. D. an increase in real GDP abroad.
A. an appreciation of foreign currencies relative to the U.S. dollar.
The U.S. trade deficit has been mainly caused by: A. cheap labor in other countries. B. a low rate of national saving. C. unfair trade restrictions imposed by other countries on imports. D. production of inferior goods in the U.S.
B. a low rate of national saving.
If the exchange rate moves from 10 Mexican pesos per U.S. dollar to 8 Mexican pesos per U.S. dollar, then the Mexican peso has ________ and the U.S. dollar has ________. A. depreciated; appreciated B. appreciated; depreciated C. depreciated; depreciated D. appreciated; appreciated
B. appreciated; depreciated
Holding all else constant, a decrease in the real interest rate on U.S. assets will ________ the demand for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate. A. increase; increase B. decrease; decrease C. increase; decrease D. decrease; increase
B. decrease; decrease
An economy with a trade deficit must also have: A. a trade deficit. B. positive net capital inflows. C. positive net capital outflows. D. a budget surplus.
B. positive net capital inflows.
An increase in the value of a currency relative to other currencies is called a(n): A. overvaluation. B. devaluation. C. evaluation. D. appreciation.
D. appreciation.
For a given domestic and foreign price level, an increase in the nominal exchange rate ________ the real exchange rate. A. decreases B. may either increase or decrease C. offsets any change in D. increases
D. increases
In an open economy with flexible exchange rates, monetary policy affects consumption and investment by changing the ________ and affects net exports by changing the ________. A. inflation rate; unemployment rate B. exchange rate; real interest rate C. growth of domestic real GDP; growth of foreign real GDP D. real interest rate; exchange rate
D. real interest rate; exchange rate
The price of gold is 300 U.S. dollars per ounce in New York and 435 Canadian dollars per ounce in Toronto, Canada. If the law of one price holds for gold, the nominal exchange rate is ________ Canadian dollars per U.S. dollar. A. 1.45 B. 1 C. 0.333 D. 0.690
A. 1.45
The major suppliers of U.S. dollars to the foreign exchange market are: A. U.S. households or firms wishing to purchase foreign goods or assets. B. U.S. households or firms wishing to purchase U.S. goods or assets. C. the Federal Reserve. D. foreigners wishing to purchase U.S. goods or assets.
A. U.S. households or firms wishing to purchase foreign goods or assets.
As U.S. real GDP falls, poorer households may decide to buy ________ foreign goods and assets, which would cause a(n) ________ of the U.S. dollar. A. fewer; appreciation of the U.S. dollar. B. more; depreciation C. fewer; depreciation D. more; appreciation
A. fewer; appreciation of the U.S. dollar.
In an open economy with a given level of real interest rates and risk, a decrease in real interest rates abroad will ________ capital inflows and ________ the equilibrium domestic real interest rate. A. increase; decrease B. increase; increase C. decrease; decrease D. decrease; increase
A. increase; decrease
For a given nominal exchange rate and domestic price level, a decrease in the foreign price level ________ the real exchange rate. A. increases B. may either increase or decrease C. offsets any change in D. decreases
A. increases
Net exports will tend to be low when the real exchange rate: A. is high. B. equals the nominal exchange rate. C. depreciates. D. is low.
A. is high.
All else equal, compared to the case of a closed economy, monetary policy is ________ effective in an open economy with a ________ exchange rate. A. more; flexible B. less; nominal C. less; real D. more; fixed
A. more; flexible
Suppose the price of gold is $300 per ounce in the United States and 2,400 pesos per ounce in Mexico. If purchasing power parity holds then, if the price of oil is $25 per barrel in the United States, the price of oil is ________ pesos per barrel in Mexico. A. 3.125 B. 200 C. 96 D. 250
B. 200 If purchasing power parity holds, then the relative value of the dollar and peso will be the same when buying a tradable commodity like oil or gold. Thus, since 2,400 pesos ÷ $300 = 8 pesos per dollar, the price of oil in Mexico must be 8 ×25 = 200 pesos per barrel.
The benefits of net capital inflows to a country include all of the following except: A. a larger pool of total savings. B. interest and dividend payments owed to foreign investors. C. a potentially higher growth rate. D. a higher rate of investment in new capital.
B. interest and dividend payments owed to foreign investors.
Someone who wants both the U.S. dollar to be ________ compared to other currencies and the value of U.S. net exports to be ________ wants two things that may be contradictory. A. weak; small B. strong; large C. floating; large D. strong; small
B. strong; large
If domestic saving is less than domestic investment, then a country will have a ________ and positive net capital ________. A. trade deficit; outflows B. trade deficit; inflows C. trade surplus; outflows D. trade balance; inflows
B. trade deficit; inflows
Which of the following equations is equivalent to the equation S - NX = I? A. S + I = NX - KI B. S - KI = NX C. S + KI = I D. S - I = KI
C. S + KI = I This follows from the accounting identity NX + KI = 0 and the equation S - I = NX. We know NX = -KI and -NX = KI, so by substitution, S + KI = I.
An increase in the nominal exchange rate, e, defined as the number of units of the foreign currency that one unit of the domestic currency will buy, indicates that the domestic currency has ________ relative to the foreign currency. A. become overvalued B. depreciated C. appreciated D. become undervalued
C. appreciated
Purchasing power parity is the theory that nominal exchange rates are determined: A. by the forces of supply and demand. B. by real exchange rates. C. as necessary to achieve the fundamental value of the exchange rate. D. as necessary for the law of one price to hold.
D. as necessary for the law of one price to hold.
When an American buys stock in a French company, from the perspective of the United States, this is a(n): A. capital inflow. B. import. C. export. D. capital outflow.
D. capital outflow.
The gold standard is an example of a ________ exchange rate system. A. flexible B. nominal C. dollarized D. fixed
D. fixed
Large economies, such as the U.S. economy, should ________ adopt a flexible exchange rate, because giving up the power to stabilize the domestic economy via monetary policy ________. A. almost never; is of little consequence B. nearly always; is of little consequence C. almost never; comes with a high cost D. nearly always; comes with a high cost
Large economies give up too much control over their economies when they adopt fixed exchange rates. Thus, it's usually better for large countries to adopt flexible exchange rates.
During the 1960s and 1970s, the U.S. trade balance was close to zero, but during the 1980s, the trade deficit ballooned to unprecedented levels due to: A. a decline in national saving caused largely by rapidly rising government budget deficits. B. a decline in private saving that resulted from an upsurge in consumption. C. an inability of U.S. companies to compete in the international market. D. a worldwide recession that made it difficult for American companies to sell their products abroad.
A. a decline in national saving caused largely by rapidly rising government budget deficits.
Net capital inflows equal: Select one: A. capital inflows minus capital outflows. B. domestic production. C. capital outflows minus capital inflows. D. international production
A. capital inflows minus capital outflows.
When a Peruvian buys a U.S. government bond, from the perspective of Peru, this is a(n): A. capital outflow. B. export. C. import. D. capital inflow.
A. capital outflow.
Based on the theory of purchasing power parity, in the long run, currencies of countries with significant inflation will tend to: A. depreciate. B. be flexible. C. appreciate. D. have nominal exchange rates.
A. depreciate.
A decrease in the value of a currency relative to other currencies is called a(n): A. depreciation. B. devaluation. C. appreciation. D. revaluation.
A. depreciation.
In an open economy, domestic investment equals: A. domestic saving plus net capital inflows. B. domestic saving plus net capital outflows. C. net capital inflows. IncorrectIn an open economy, investment funds come from both domestic saving and net capital inflows from abroad. D. domestic saving.
A. domestic saving plus net capital inflows.
All else being equal, if the prospect of a recession leads the Federal Reserve to ease monetary policy, the equilibrium value of the exchange rate for the U.S. dollar will: A. fall. B. either rise or fall depending on whether the supply or demand for dollars changes more. C. rise. D. remain fixed.
A. fall.
The PPP theory is most useful in predicting: A. long-run changes in the exchange rate for a country that mainly produces heavily-traded standardized goods. B. short-run changes in the exchange rate for a country that mainly produces heavily-traded standardized goods. C. short-run changes in the exchange rate for a country that mainly produces lightly-traded standardized goods. D. long-run changes in the exchange rate for a country that mainly produces lightly-traded non-standardized goods.
A. long-run changes in the exchange rate for a country that mainly produces heavily-traded standardized goods.
Because many European nations have adopted the euro as their common currency, they are ________ able to conduct independent ________ policy. A. no longer; monetary B. increasingly; monetary C. increasingly; fiscal D. no longer; fiscal
A. no longer; monetary
The impact of monetary policy through exchange rates tends to ________ the impact of monetary policy through real interest rates. A. reinforce B. totally negate C. be exactly the same as D. contradict
A. reinforce
If one euro nation is experiencing rapid growth and inflation while another is facing sluggish growth and recession: A. the two countries will disagree about the monetary policy that ought to be employed by the European Central Bank. B. the European Central Bank ought to employ an easy monetary policy. C. only an appreciation of the euro can help both countries simultaneously. D. the European Central Bank ought to employ a tight monetary policy.
A. the two countries will disagree about the monetary policy that ought to be employed by the European Central Bank.
If the nominal exchange rate is 4 Israeli shekels per U.S. dollar, and 0.178 Jordanian dinars per Israeli shekel, then there are ________ Jordanian dinars per U.S. dollar. A. 0.025 B. 0.712 C. 5.618 D. 0.045
B. 0.712 The nominal exchange rates are 4 shekel/dollar and 0.178 dinar/shekel, so 4 shekels could buy either 0.712 dinars or one dollar.
The price of gold is $300 per ounce in New York and 2,550 pesos per ounce in Mexico City. If the law of one price holds for gold, the nominal exchange rate is ________ pesos per U.S. dollar. A. 85.5 B. 8.5 C. 0.118 D. 1.18
B. 8.5 If the law of one price holds, which we expect, then 2,550 pesos ÷ 300 dollars = 8.5 pesos per dollar should be the relative value of the two currencies.
Tight monetary policy will ________ net exports as a result of a ________ currency. A. increase; weaker B. decrease; stronger C. increase; stronger D. decrease; weaker
B. decrease; stronger
In an open economy, an increase in capital inflows ________ the equilibrium domestic real interest rate and ________ the quantity of domestic investment. A. decreases; decreases B. decreases; increases C. increases; increases D. increases; decreases
B. decreases; increases
European firms wishing to purchase American goods and services are ________ the foreign exchange market. A. demanders of Euros in B. demanders of U.S. dollars in C. supplied dollars by the European Central Bank for use in D. suppliers of U.S. dollars in
B. demanders of U.S. dollars in
A decrease in the nominal exchange rate, e, defined as the number of units of the foreign currency that one unit of the domestic currency will buy, indicates that the domestic currency has ________ relative to the foreign currency. A. become undervalued B. depreciated C. become overvalued D. appreciated
B. depreciated
The principal demanders of U.S. dollars in the foreign exchange market are: A. U.S. households or firms wishing to purchase U.S. goods or assets. B. foreigners wishing to purchase U.S. goods or assets. C. U.S. households or firms wishing to purchase foreign goods or assets. D. the Federal Reserve.
B. foreigners wishing to purchase U.S. goods or assets.
At each value of the domestic interest rate, decreases in the riskiness of domestic assets ________ capital inflows, ________ capital outflows, and ________ net capital inflows. A. increase; increase; decrease B. increase; decrease; increase C. decrease; decrease; decrease D. increase; increase; increase
B. increase; decrease; increase
Holding constant risk and the real returns available abroad, higher domestic real interest rates ________ capital inflows, ________ capital outflows, and ________ net capital inflows. A. increase; increase; decrease B. increase; decrease; increase C. decrease; decrease; decrease D. increase; increase; increase
B. increase; decrease; increase
Proponents of fixed exchange rates argue that the predictability of the fixed exchange rate: A. prevents exchange rate overvaluation. B. increases trade and economic integration. C. allows monetary policy to be used to stabilize the domestic economy. D. decreases trade and economic integration.
B. increases trade and economic integration.
As the dollar exchange rate, e, increases, the quantity of dollars supplied in the foreign exchange market ________, and the quantity of dollars demanded in the foreign exchange market ________. A. decreases; decreases B. increases; decreases C. increases; increases D. decreases; increases
B. increases; decreases
If monetary policy must be used to set the market equilibrium value of the exchange rate equal to the official value, it: A. will be unable to stabilize the market equilibrium value of the exchange rate. B. is no longer available to stabilize the domestic economy. C. will simultaneously stabilize the domestic economy. D. will increase the rate of growth in the economy.
B. is no longer available to stabilize the domestic economy.
A fixed exchange rate is an exchange rate whose value: A. varies according to supply and demand for the currency in the foreign exchange market. B. is set by official government policy. C. reflects the comparative advantage of the home country versus other foreign countries. D. is established annually by the International Monetary Fund.
B. is set by official government policy.
If a country pegs its currency to a foreign currency, it no longer has the ability to use monetary policy to stabilize the economy because: A. it no longer has a central bank. B. monetary policy must be used to keep the exchange rate's market equilibrium value at its official value. C. it must eliminate its currency from circulation and replace it with the foreign currency. D. banks will begin to hold 100% of their deposits in reserves.
B. monetary policy must be used to keep the exchange rate's market equilibrium value at its official value.
The nominal exchange rate is the: A. market on which currencies of various nations are traded for one another. B. rate at which two currencies can be traded for each other. C. quantity of foreign currency assets held by a government for the purpose of purchasing the domestic currency in the foreign exchange market. D. price of the average domestic good or service relative to the price of the average foreign good or service, when prices are expressed in terms of a common currency.
B. rate at which two currencies can be traded for each other.
The following table provides nominal exchange rates for the U.S. dollar. Country Poland (zloty) Foreign currency/ dollar 4.367 Dollar/ foreign currency .229 Country South Africa (rand) Foreign Currency/dollar 6.944 Dollar/foreign currency .144 Based on these data, the nominal exchange rate equals approximately ________ zloty per South African rand or, equivalently, ________ rand per Polish zloty. A. 1.590; 0.629 B. 47.640; 0.021 C. 0.629; 1.590 D. 0.021; 47.640
C. 0.629; 1.590 To find the nominal exchange rate in zloty per rand, we must first find their values with respect to the U.S. dollar. The zloty is 4.367/dollar and the rand is 6.944/dollar, so the zloty to rand ratio is 4.367/6.944 = 0.629 zloty/rand. The reciprocal, 6.944/4.367 = 1.590, is the rate of rand per zloty.
The following table provides nominal exchange rates for the U.S. dollar. Country Switzerland (franc) Foreign Currency/ dollar 1.730 Dollar/ foreign currency 0.578 Country Brazil (real) Foreign Currency/ dollar 1.821 Dollar/ foreign currency 0.549 Based on these data, the nominal exchange rate equals approximately ________ reals per Swiss franc or, equivalently, ________ Swiss francs per real. A. 0.950; 1.053 B. 3.551; 0.282 C. 1.053; 0.950 D. 0.282; 3.551
C. 1.053; 0.950 To find the nominal exchange rate in reals per franc, we must first find their values with respect to the U.S. dollar. The real is 1.821/dollar and the franc is 1.730/dollar, so the real to franc ratio is 1.821/1.730 = 1.053 reals/franc. The reciprocal, 1.730/1.821 = 0.950, is the rate of francs per real.
Which of the following events will increase the domestic real interest rate in an open economy? A. A decrease in the perceived riskiness of investing in the domestic economy B. An increase in net capital inflow C. A decrease in the domestic saving D. An increase in domestic saving
C. A decrease in the domestic saving
Which of the following events will decrease the domestic real interest rate in an open economy? A. An increase in the perceived riskiness of investing in the domestic economy. B. A decrease in the domestic saving. C. An increase in domestic saving. D. An decrease in net capital inflow.
C. An increase in domestic saving.
When a U.S. oil company purchases oil from Saudi Arabia and the Saudi Arabian firm uses the proceeds from the sale to buy transportation services from the U.S., U.S. net exports ________ and the capital inflow to the United States ________. A. are positive; is negative B. are negative; is positive C. are unchanged; is unchanged D. are negative; is negative
C. are unchanged; is unchanged
At each value of the domestic interest rate, increases in the riskiness of domestic assets ________ capital inflows, ________ capital outflows, and ________ net capital inflows. A. increase; increase; increase B. increase; increase; decrease C. decrease; increase; decrease D. increase; decrease; increase
C. decrease; increase; decrease
For a given domestic and foreign price level, a decrease in the nominal exchange rate ________ the real exchange rate. A. offsets any change in B. increases C. decreases D. may either increase or decrease
C. decreases
If the nominal exchange rate were to be expressed as the number of units of domestic currency per unit of foreign currency, and that rate increases, then the domestic currency has: A. become overvalued. B. appreciated. C. depreciated. D. become undervalued.
C. depreciated.
A trade surplus occurs when: A. quotas exceed tariffs. B. tariffs exceed quotas. C. exports exceed imports. D. imports exceed exports
C. exports exceed imports.
An exchange rate that is set by official government policy is called a ________ exchange rate. A. real B. flexible C. fixed D. nominal
C. fixed
A currency appreciation is a(n): A. decrease in the value of a currency relative to other currencies. B. reduction in the official value of a currency in a fixed-exchange-rate system. C. increase in the value of a currency relative to other currencies. D. increase in the official value of a currency in a fixed-exchange-rate system.
C. increase in the value of a currency relative to other currencies.
Holding all else constant, an increase in the preferences of Americans for Mexican goods will ________ the supply of dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate. A. decrease; increase B. decrease; decrease C. increase; decrease D. increase; increase
C. increase; decrease
Holding all else constant, an increase in Mexican real GDP will ________ the demand for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate. A. decrease; increase B. increase; decrease C. increase; increase D. decrease; decrease
C. increase; increase
Tight monetary policy raises the real interest rate, which ________ the demand for dollars, ________ the supply of dollars, and ________ the equilibrium value of the dollar. A. decreases; increases; increases B. increases; increases; increases C. increases; decreases; increases D. decreases; decreases; decreases
C. increases; decreases; increases
The purchasing power parity theory is not a good explanation of nominal exchange rate determination in the short run because: A. there is no evidence that low inflation is associated with less rapid nominal exchange rate depreciation. B. most nominal exchange rates are fixed and foreign exchange markets do not bring the supply and demand for currencies into equilibrium. C. many goods and services are not traded internationally and not all internationally-traded goods are standardized. D. most goods and services are traded internationally and are standardized.
C. many goods and services are not traded internationally and not all internationally-traded goods are standardized.
As U.S. real GDP rises, wealthier households may decide to buy ________ foreign goods and assets, which would cause a(n) ________ of the U.S. dollar. A. more; appreciation B. fewer; depreciation C. more; depreciation D. fewer; appreciation
C. more; depreciation
The U.S. dollar exchange rate, e, expressed as Japanese yen per U.S. dollar, will depreciate when: A. real GDP in Japan increases. B. U.S. consumers decrease their preference for Japanese cars. C. real GDP in the U.S. increases. D. the U.S. Federal Reserve tightens monetary policy.
C. real GDP in the U.S. increases.
All else being equal, if Asian restaurants switch from serving French champagne to serving California wines, then the market equilibrium value of the exchange rate for the U.S. dollar will: A. become fixed. B. either rise or fall depending on whether the supply or demand for dollars changes more. C. rise. D. fall.
C. rise.
U.S. households wishing to purchase shares of stock in a European company are ________ the foreign exchange market. A. demanders of U.S. dollars in B. suppliers of Euros in C. suppliers of U.S. dollars in D. supplied Euros by the Fed for use in
C. suppliers of U.S. dollars in
From the point of view of a particular country, capital outflows are: A. purchases of domestic assets by foreigners. B. purchases of foreign assets by domestic households or firms. C. purchases of foreign goods or services by domestic households or firms. D. purchases of domestic goods or services by foreigners.
Capital outflows from the U.S. occur, for example, when a household buys a bond issued by a firm in Paraguay.
Suppose the price of gold is initially 300 U.S. dollars per ounce in New York and 450 Canadian dollars per ounce in Toronto, Canada. If the law of one price holds for gold, the nominal exchange rate is ________ Canadian dollars per U.S. dollar. If Canada experiences inflation, such that the price of gold rises to 510 Canadian dollars per ounce, but the U.S. does not experience any inflation, the nominal exchange rate would be ________ Canadian dollars per U.S. dollar. Select one: A. 1.70; 1.50 B. 0.59; 0.67 C. 0.67; 0.59 D. 1.50; 1.70
D. 1.50; 1.70 If the law of one price holds, the nominal exchange rate is 450 ÷ 300 = 1.50 Canadian dollars per U.S. dollar. If Canada experiences inflation but the U.S. does not, then the nominal exchange rate is 510 ÷ 300 = 1.70 Canadian dollars per U.S. dollar.
The following table provides nominal exchange rates for the U.S. dollar. Country Canada (canadian dollar) Foreign currency/ dollar 1.488 Dollar/foreign currency .627 Country Mexico (peso) Foreign currency/ dollar 9.259 Dollar/ foreign currency .108 Based on these data, the nominal exchange rate equals approximately ________ pesos per Canadian dollar or, equivalently, ________ Canadian dollars per peso. A. 0.672; 1.488 B. 9.259; 0.108 C. 7.771; 0.129 D. 6.222; 0.161
D. 6.222; 0.161 To find the nominal exchange rate in pesos per Canadian dollar, we must first find their values with respect to the U.S. dollar. The peso is 9.259/U.S. dollar and the Canadian dollar is 1.488/U.S. dollar, so the peso to Canadian dollar ratio is 9.259/1.488 = 6.222 pesos/Canadian dollar. The reciprocal, 1.488/9.259 = 0.161, is the rate of Canadian dollars per peso.
Each of the following would increase the supply of U.S. dollars, shifting the supply curve for dollars to the right, except: A. an increase in U.S. real GDP. B. an increase in the real interest rate on foreign assets. C. an increased preference for foreign-made goods. D. an appreciation of the U.S. dollar relative to other currencies.
D. an appreciation of the U.S. dollar relative to other currencies.
In an open economy with flexible exchange rates, monetary policy affects ________ through changes in the real interest rate and affects ________ through changes in the exchange rate. A. net exports; taxes and saving B. taxes and saving; net exports C. productivity and growth; consumption D. consumption and investment; net exports
D. consumption and investment; net exports
The foreign exchange market is the market on which the ________ of various nations are traded for one another. A. international financial securities B. stocks and bonds C. goods and services D. currencies
D. currencies
A currency depreciation is a(n): A. increase in the official value of a currency in a fixed-exchange-rate system. B. increase in the value of a currency relative to other currencies. C. reduction in the official value of a currency in a fixed-exchange-rate system. D. decrease in the value of a currency relative to other currencies.
D. decrease in the value of a currency relative to other currencies.
Easy monetary policy reduces the real interest rate, which ________ the demand for dollars, ________ the supply of dollars, and ________ the equilibrium value of the dollar. A. decreases; decreases; decreases B. increases; increases; increases C. increases; decreases; increases D. decreases; increases; decreases
D. decreases; increases; decreases
When the nominal exchange changes from 120 yen per dollar to 110 yen per dollar, the dollar has: A. become undervalued. B. become overvalued. C. appreciated. D. depreciated.
D. depreciated.
All else equal, if U.S. stocks are perceived to have become riskier compared to financial investments in other countries, then the market equilibrium value of the exchange rate for the U.S. dollar will: A. be equal to the value chosen by the Federal Reserve. B. rise. C. become fixed. D. fall.
D. fall.
A trade deficit occurs when: A. quotas exceed tariffs. B. tariffs exceed quotas. C. exports exceed imports. D. imports exceed exports.
D. imports exceed exports.
When a U.S. restaurant purchases French wine and the French wine company uses the proceeds to buy U.S. government debt, U.S. ________ and there is a capital ________ the United States. A. imports decrease; inflow to B. exports increase; outflow from C. imports increase; outflow from D. imports increase; inflow to
D. imports increase; inflow to
In an open economy, an increase in the government's budget deficit will ________ the domestic real interest rate and ________ the level of capital investment in the country, holding other factors constant. A. decrease; decrease B. increase; increase C. decrease; increase D. increase; decrease
D. increase; decrease
The exchange rate that equates the quantities of currency supplied and demanded in the foreign exchange market is called the ________ exchange rate. A. real value of the B. target value of the C. fixed value of the D. market equilibrium value of the
D. market equilibrium value of the
If the United States has a $300 billion trade deficit, then there must be: A. net capital inflows of -$300 billion. B. net capital outflows of $300 billion. C. no capital inflows or capital outflows. D. net capital inflows of $300 billion.
D. net capital inflows of $300 billion.
There is ________ connection between the strength of a country's currency and the strength of its ________. A. a solid; real wage growth B. a direct; economy C. an inverse; central bank independence D. no simple; economy
D. no simple; economy
An economy with a trade surplus must also have: A. positive net capital inflows. B. a budget surplus. C. a trade deficit. D. positive net capital outflows.
D. positive net capital outflows.
The law of one price states that if transportation costs are relatively small, then the: A. producer with the lowest opportunity cost should be the only producer any commodity. B. nominal exchange rate for a currency must equal the real exchange rate for that currency. C. nominal exchange rates for every country's currency must be equal. D. price of an internationally traded commodity must be the same in all locations.
D. price of an internationally traded commodity must be the same in all locations.
The sum of national saving and capital inflows from abroad must equal: Select one: A. aggregate demand. B. domestic investment in new capital goods. C. the trade deficit. D. capital outflows.
Not C Since S - NX = I, and NX + KI = 0, then S + KI = I.
If domestic saving is greater than domestic investment, then a country will have a ________ and positive net capital ________. A. trade surplus; outflows B. trade deficit; inflows C. trade deficit; outflows D. trade surplus; inflows
Not D If domestic savings is greater than domestic investment then capital inflows are negative (there are capital outflows). This follows from the equation S + KI = I. Since KI is negative, NX must be positive (there must be a trade surplus), as is shown by the equation NX + KI = 0.
