Unit 6
Suppose incomes fall in the United States, but not in Japan. Which of the following will occur?
A: The US dollar will appreciate and the Japanese Yen will depreciate
Which of the following is true in the short run if consumers buy more imported goods and fewer domestic goods?
A: The trade balance moves toward deficit, and equilibrium income decreases
An increase in the international value of the US dollar will tend to cause
A: US exports to fall
Which of the following is an example of foreign direct investment
A: A US automobile manufacturer building a steel plant in Russia
If the value of the United States dollar increases on the foreign exchange market, which of the following is most likely to occur in the short run
A: Aggregate demand will increase
Which of the following will cause the United States dollar to depreciate relative to the euro
A: An increase in household income in the United States
If a French firm buys computers from the US there would be an increase in which of the following in the foreign exchange market
A: Demand for US dollars and supply of euros
Mary Jane is a layer who can earn $150 per hour in her law practice. She is also an excellent carpenter who can build cabinets three times as fast as the best carpenter, whose hourly wage is $20 per hour. Which of the following is a correct economic statement
A: Mary Jane has a comparative advantage in law so she should specialize in law and hire a carpenter to make her cabinets
If the international value of the United States dollar depreciates in comparison with the Japanese yen, which of the following is most likely to occur
A: United States exports to Japan will increase
Which of the following will increase the United States trade deficit?
A: United States firms buying technologically advanced computers from Germany
The value of a country's currency will tend to appreciate if
A: demand for the country's exports increases
If the exchange rate between the United States dollar and the British pound changed from $2 per 1 pound to $3 per 1 pound, and the domestic prices in both countries stayed the same, then the United States dollar would
A: depreciate, making United States imports from Britain more expensive
The theory of comparative advantage implies that Alpha would find it advantageous to
A: export grain and import steel
If a country has a deficit in its current account, there will be a
A: surplus in the financial account (formerly called capital account)
Before specialization and trade, the domestic opportunity cost of producing 1 ton of grain in Alpha and in Beta is which of the following
B: 1 ton of steel and 2 tons of steel
At what real exchange ratio, also referred to as the terms of trade, between grain and steel would both Alpha and Beta find it mutually advantageous to specialize and trade
B: 1G = 1.5S
Which of the following statements best describes the impact of a decreases in Japanese income on AD in the US
B: AD will decrease because the demand for US exports decreases
If country Alpha has been experiencing a higher inflation rate than Country Beta over the past decade, which of the following is true?
B: Alpha's currency will have depreciated relative to Beta's currency
Which of the following would cause the United States dollar to increase in value to the Japanese yen?
B: An increase in interest rates in the United States
In an open economy, an increase in government budget deficit tends to cause the international value of a country's currency and its trade deficit to change in which of the following ways?
B: Appreciate Become larger
Country A can produce either 2 tons of cocoa or 4 cars with 10 units of labor. Country B can produce either 5 tons of cocoa or 25 cars with 10 units of labor. Based on this information, which of the following is true?
B: Country A has a comparative advantage in the production of cocoa, while Country B has a comparative advantage in the production of cars
The table below shows the production alternatives of Country A and Country B for producing computers and cars with equal amounts of resources that are fully and efficiently employed
B: Country B has an absolute and comparative advantage in the production of computers
Which of the following are included in a nation's balance of payments accounts?
B: I and II only
Which of the following would decrease the US financial account
B: a ski chateau purchased in Switzerland by an American entrepreneur
Assume that the world operates under a flexible rate system. If the central bank of Mexico increases its money supply but other countries do not change theirs, Mexico's inflation rate and the international value of the Mexican peso will most likely change in which of the following ways?
B:Increase Depreciate
All of the following are counted in a nation's current account except
C: A $50 million Chinese factory purchased by a Canadian
An increase in net exports for Country X will most likely be caused by which of the following
C: A decrease in the international value of the currency in Country X
Which of the following would be a current account transaction
D: A US firms sells $500 million of its products to a Chinese company
If the real interest rates in the US rise relative to rates in other countries, what will happen to the international value of the US dollar and the US net exports
D: Appreciate Decrease
An increase in Korea's demand for US goods would cause the US dollar to
D: Appreciate because Korea would be buying more US dollars
Suppose two countries are each capable of individually producing two given commodities. Instead, each specializes by producing the commodity for which it has a comparative advantage and then trades with the other country. Which of the following is most likely to result?
D: Both countries will become better off
If the demand for the British pound increases relative to the US dollar, then the
D: British pound would appreciate
In a flexible system of exchange rates, an open market sale of bonds by the Federal Reserve will most likely change the money system, the interest rate, and the value of the United States dollar in which of the following ways?
D: Decrease/Increase/Increase
Suppose interest rates fall in the United States, but they don't fall in Mexico. What is the short run impact on the value of the US dollar and the value of the Mexican Peso
D: Depreciate/ Appreciate
If two nations specialize according to the law of comparative advantage and then trade with each other, which of the following would be true?
D: Each nation would increase its consumption possibilities
As nations specialize in production and trade in international markets, they can expect which of the following domestic improvements
D: I and II only
If the Federal Reserve undertakes a policy to reduce interest rates, international capital flows will be affected in which of the following ways?
D: Short-run capital inflows to the U.S. will decrease
Which of the following would be most likely to occur if the United States placed high tariffs on imported goods
D: The United States economy would become less efficient
Which of the following is most likely to benefit from an appreciation in the United States dollar in the short run
D: United States tourists traveling to foreign countries
An increase in Japan's demand for United States goods would cause the value of the dollar to
D: appreciate because Japan would be buying more United States dollars
The main benefit of free trade between two countries is that
D: each country can consume beyond its constraints of resources and productivity
If other things are held constant, an increase in United States imports will
D: tend to cause the dollar to depreciate because the world supply of dollars will rise
Which of the following best explains why many United States economists support free international trade?
D: the long run gains to consumers and some producers exceed the losses to other products
Comparative advantage implies that
D: two countries should benefit from trade unless both have equal opportunity costs in every good
Suppose that Country A is experiencing high inflation relative to Country B, which is enjoying steady growth with a stable price level. Which of the following would occur in the foreign exachange market?
E: A depreciation of Country A's currency.
An increase in a country's interest rate relative to other country's interest rate will most likely cause which of the following
E: Capital inflow into the country to exceed capital outflow
Assume that the supply of loanable funds increases in Canada. The international value of Canada's currency and Canada's exports will most likely change in which of the following ways
B: Decrease Increase
Suppose price level increases more in the United States than it does in Indonesia. What is the short run impact on US net exports, the value of the US dollar, and the value of the Indonesian rupee?
B: Decrease/ Depreciate/ Appreciate
Assume that the supply of loanable funds increases in Country X. The international value of Country X's exports will most likely change in which of the following ways?
B: Decrease/Increase
To protect high cost domestic producers, a country imposes a tariff on an imported commodity, Y. Which of the following is most likely to occur in the short run
B: II only
If Mexicans increase their investment in the United States, the supply of Mexican pesos to the foreign exchange market and the dollar price of the peso will most likely change in which of the following ways
B: Increase Decrease
If higher United States interest rates cause foreign demand for the dollar to increase, which of the following will occur to the international value of the dollar and to United States exports?
B: Increase/Decrease
Assume that the Federal Reserve pursues a contractionary monetary policy. Based on the resulting change in the interest rate, what will happen to the international value of the dollar, United States imports, and United States exports?
B: Increase/Increase/Decrease
If the real interest rate in Country X increases relative to the real interest rate in Country Y and there are no trade barriers between the two countries, then for Country X which of the following will be true of its capital flow, the value of its currency, and its exports?
B: Inflow Appreciation Decrease
If a country has a current account deficit which of the following must be true?
B: It must show a surplus in its capital account
If both countries always produce at full employment, which of the following statements must be correct?
B: Mutually advantageous trade can occur between two countries when 2 units of steel from Country B are exchanged for 1 computer from Country A
An appreciation of the United States dollar on the foreign exchange market could be caused by a decrease in which of the following
B: The United States consumer price index
Assume that Country A exports one bushel of wheat in exchange for 2.5 bushels of corn from Country B. If the terms of trade are beneficial to both countries, which of the following must be true
B: The cost of producing a bushel of wheat in Country A is less than 2.5 bushels of corn
Assume that the inflation rate in Country X is very high relative to the inflation rates in all of its trading partners. Which of the following is likely to happen to Country X's currency on the foreign exchange market
B: The demand curve for the currency will shift to the left and the currency will depreciate
Which of the following is likely to occur following the depreciation of the United States dollar?
B: United States exports will increase
A country can have an increased surplus in its balance of trade as a result of
B: declining imports and rising exports
The purchase of United States government bonds by Japanese investors will be included in Japan's
B: financial account (formerly called capital account)
If the real interest rate in the United States increases relative to that of the rest of the world, capital should flow
B: into the United States and the dollar will apprecate
The price of one nation's currency expressed in terms of another nation's currency is
B: the exchange rate
Which of the following is true regarding international trade
C: A deficit in the current account is offset by a surplus in the financial account
Using equal amounts of labor hours, Country X and Y can each produce the number of watches and radios shown in the PPCs. Based on the info, which of the following is true?
C: Countries X and Y can engage in mutually advantageous trade by exchanging 1 W for 1 R
Which of the following will lead to a depreciation of a nation's currency
C: Decreased real interest rates in the nation compared with the rest of the world
The increase in capital outflows will most likely have which of the following effects on Country A's net exports and aggregate demand?
C: Increase / Increase
Assuming fixed exchange rates, if Country Z's rate of inflation increases relative to its trading partners, Country Z's imports and exports will mot likely change in which of the following ways?
C: Increase Decrease
With an increase in investment demand in the United States, the real interest rates rises. In this situation, the most likely change in the capital stock in the United States and in the international value of the dollar would be which of the following?
C: Increase/Increase
An increase in United States imports will result in which of the following in foreign exchange markets?
C: Increased United States demand for foreign currencies
The table below indicates the number of labor hours required in Countries X and Y to produce one unit of food or one unit of clothing
C: X has a comparative advantage in food production, whereas Y has a comparative advantage in clothing production
Which of the following is an example of direct foreign investment
E: Chinese company buying a microprocessor factory in Korea
Which of the following changes will occur to the demand for United States dollars and the international value of the dollar in the short run if investors in the United States and abroad increase their purchases of United States government bonds
E: Increase/Increase
Tariffs are different from assigned import quotas in that tariffs will
E: generate additional revenue for the domestic government
Under a flexible exchange rate system, the Indian rupee will appreciate against the Japanese yen when
E: real interest rates in India increase relative to those in Japan
An increase in the international value of the United States dollar will most likely benefit
E: retired United States citizens living overseas on their social security checks
