Copy - Chapter 20: International Finance

A "floating" exchange rate is one determined primarily by market forces.

A "floating" exchange rate is one determined primarily by market forces.

Dollarization occurs when a foreign country uses the U.S. dollar as its "currency."

Dollarization occurs when a foreign country uses the U.S. dollar as its "currency."

An "increase" in the federal government's budget deficit causes interest rates to rise—which increases the demand for dollars, which causes an appreciation of the dollar, which causes U.S. exports to fall, which, finally, causes aggregate demand to fall.

An "increase" in the federal government's budget deficit causes interest rates to rise—which increases the demand for dollars, which causes an appreciation of the dollar, which causes U.S. exports to fall, which, finally, causes aggregate demand to fall.

An economist that tends to focus on the U.S. capital account surplus when interpreting the balance of payments might claim that "the United States is a great place to invest."

An economist that tends to focus on the U.S. capital account surplus when interpreting the balance of payments might claim that "the United States is a great place to invest."

An economist who focuses on the U.S. capital account surplus is likely to interpret the balance of payments as showing that the United States is a "good" place to invest.

An economist who focuses on the U.S. capital account surplus is likely to interpret the balance of payments as showing that the United States is a "good" place to invest.

An increase in the federal government's budget deficit causes interest rates to rise. This increases the demand for dollars, which causes an appreciation of the dollar, which causes U.S. exports to fall, which ultimately causes aggregate demand to "fall."

An increase in the federal government's budget deficit causes interest rates to rise. This increases the demand for dollars, which causes an appreciation of the dollar, which causes U.S. exports to fall, which ultimately causes aggregate demand to "fall."

If Americans decide to buy more goods from India, and the Indian producers send all of the money to a bank in the United States then "the U.S. current account deficit and capital account surplus have both increased."

If Americans decide to buy more goods from India, and the Indian producers send all of the money to a bank in the United States then "the U.S. current account deficit and capital account surplus have both increased."

If a country has a fixed, or pegged, exchange rate, this means that the "government or central bank has promised to convert the currency into another currency at a certain rate."

If a country has a fixed, or pegged, exchange rate, this means that the "government or central bank has promised to convert the currency into another currency at a certain rate."

If the Federal Reserve announces plans for looser monetary policy, the U.S. dollar would depreciate.

If the Federal Reserve announces plans for looser monetary policy, the U.S. dollar would depreciate.

If the demand for a currency falls "the currency will depreciate."

If the demand for a currency falls "the currency will depreciate."

"The balance of trade" is part of the "current account."

The current account is the sum of the balance of trade, net income on capital held abroad, and net transfer payments.

The demand for a currency will fall if the demand for a country's exports falls, if the country becomes less desirable for foreign investment, or if there is an decreased desire to hold the currency in reserve.

The demand for a currency will fall if the demand for a country's exports falls, if the country becomes less desirable for foreign investment, or if there is an decreased desire to hold the currency in reserve.

The pegging of currencies has "become less popular over time."

The pegging of currencies has "become less popular over time."

The purchasing power parity theorem is an application of "the law of 'one' price."

The purchasing power parity theorem is an application of "the law of 'one' price."

The purchasing power parity theorem says that the "real" purchasing power of a money should be the same, whether it is spent at home or converted into another currency and spent abroad.

The purchasing power parity theorem says that the "real" purchasing power of a money should be the same, whether it is spent at home or converted into another currency and spent abroad.

The rate at which you can exchange one currency for another is called the nominal exchange rate.

The rate at which you can exchange one currency for another is "called the nominal exchange rate."

The rate at which you can exchange the goods and services of one country for the goods and services of another is the "real exchange rate."

The rate at which you can exchange the goods and services of one country for the goods and services of another is the "real exchange rate."

To calculate the real exchange rate between two countries, you need to know the nominal exchange rate plus the price of a similar basket of goods in the two countries.

To calculate the real exchange rate between two countries, you need to know the nominal exchange rate plus the price of a similar basket of goods in the two countries.

All else equal, which of the following would cause the U.S. dollar to depreciate?

Which, all else equal, would cause the U.S. dollar to depreciate? The Federal Reserve announces plans for looser monetary policy. For example, This would cause the dollar to depreciate by increasing the supply of the dollar.

A depreciation is a "decrease" in the price of a currency in terms of another currency.

A depreciation is a "decrease" in the price of a currency in terms of another currency.

A trade deficit occurs when "the value of a country's imports exceeds the value of its exports."

A trade deficit occurs when "the value of a country's imports exceeds the value of its exports."

Exchange rates, like other market prices, are determined by the forces of supply and demand.

Exchange rates, like other market prices, are determined by the forces of supply and demand. For example, Figure 20.2 shows the supply and demand for yen.

Which item is part of the capital account? 1; the balance of trade 2; currency held by the government 3; purchases of shares of U.S. stocks by foreigners 4; foreign aid

the purchases of shares of U.S. stocks by foreigners.

An "increase" in the growth rate of the U.S. money supply would cause the value of the U.S. dollar to fall, which would cause U.S. exports to rise, which would cause aggregate demand to rise.

An "increase" in the growth rate of the U.S. money supply would cause the value of the U.S. dollar to fall, which would cause U.S. exports to rise, which would cause aggregate demand to rise.

When the inflow of foreign capital is greater than the outflow of domestic capital to other nations, there is a "capital surplus."

When the inflow of foreign capital is greater than the outflow of domestic capital to other nations, there is a "capital surplus."

When the value of a country's imports exceeds the value of its exports, economists call this a trade deficit

When the value of a country's imports exceeds the value of its exports, economists call this a trade deficit