Econ Unit 7
The currency in Great Britain is the pound (£), and the price of a particular British car is £12,000. Suppose the exchange rate is £0.67 per dollar. What is the price of the British car in the United States?
$17,910
What does a "most-favored-nation (MFN)" status mean?
A country pays the same tariffs as those paid by all MFN countries.
Which of the following statements best describes the impact of a decrease in Japanese income on aggregate demand in the United States?
Aggregate demand will decrease because demand for U.S. exports decreases.
If exchange rates are allowed to fluctuate freely and the U.S. demand for Japanese yen increases, which of the following will happen?
Americans will have to pay more for Japanese goods.
Suppose the Fed decided to purchase bonds in an open market operation. What would be the effect, ceteris paribus, on a trading partner's currency such as Great Britain?
Appreciate.
Which of the following resulted in a retaliation by the United States of increased tariffs on cheeses and meats from Europe?
Beef War of 1999
Which of the following is an indirect cost of protecting domestic markets:
Certain domestic goods that rely on foreign inputs increase in price as well.
What is a major disadvantage in the use of import barriers to make domestic goods cheaper?
Domestic manufacturers may lose the economic incentive to become more efficient.
Ecuador has a comparative advantage in the production of bananas over the United States. Which of the following statements is true?
Ecuador can produce bananas at a lower opportunity cost than the United States
If real interest rates in the European Union increase, what will happen to the international value of the Euro and international trade in Europe?
Euro will appreciate, net exports will fall.
In which area did the 12 member nations replace their individual currencies with the euro in 2002?
Europe
A depreciation of the euro relative to the dollar will have which of the following effects on the exports of Germany and the exports of the U.S.?
German exports increase
Which of the following would cause the aggregate demand curve to shift to the left?
Higher value of the dollar on the foreign exchange market
What does a balance of trade deficit imply?
Imports of goods and services exceed exports of goods and services.
What happens when a nation's currency depreciates?
Its products become cheaper to other nations.
Which of the following is a treaty to eliminate all trade barriers between Canada, Mexico, and the United States?
NAFTA
If government spending causes government budget deficits to add to the public debt and push up interest rates, how would an increase in G of $100 million affect net exports?
Net Exports would fall because the higher interest rates make U.S. dollar assets more attractive to foreign savers and the value of the U.S. Dollar would rise.
Which of the following is NOT an argument in favor of protectionism?
Protectionism fosters competition and keeps prices regulated.
A country's current account includes which of the following?
The country's trade balance
Assume the European Union's Central Bank begins selling European bonds in an attempt to fight inflation. How would this policy impact the international value of the euro and the balance of trade in the European Union?
The international value of euro would increase and the European Union would move towards a trade deficit.
Ceteric paribus, which of the following best illustrates the net exports effect?
The price level in Canada decreases, so Canada's real GDP increases.
The currency in Great Britain is the pound (£), and the price of a particular British car is £12,000. On Monday, the exchange rate is £0.67 per dollar. On Friday, the exchange is £0.58 per dollar. What will happen to the price of the British car in the United States on Friday?
The price will rise.
Suppose the United States decreases the tariff on imported tuna steaks. What would the consequences be?
There would be an increase in the number of imported tuna steaks and a decrease in the number of tuna steaks produced in the United States.
What does it mean when an economist says that an area specializes in producing certain products?
They produce only certain goods rather than everything they need.
When the value of the U.S. dollar appreciates relative to other currencies' which of the following is the most likely to occur?
U.S. residents will take more vacations in foreign countries.
If the balance on the current account is zero, which of the following transactions will cause it to go into deficit?
U.S. tourists in Great Britain purchase pounds sterling.
Assume US consumers increase their demand for foreign prducts and decrease their demande for domestic products. How will this affect: -Unemployment in the US -The current account of the US -The international value of the dollar
US unemployment increases; US current account deficit; and the international value of the dollar decreases.
What country is the world's largest exporter of services?
United States
An increase in the international value of the United States dollar will tend to cause:
United States exports to fall.
You are returning from a European vacation and decide to buy some chocolates in the duty-free shop at London Heathrow airport. What does "duty free" mean?
You pay no customs duty on the chocolates.
An increase in real income in the euro area will have which of the following effects in the foreign currency market?
a depreciation of the euro
What is an infant industry?
a developing domestic industry that needs tariff protection
What is a currency system in which each country tries to keep the value of its currency constant against one another called?
a fixed exchange-rate system
What is the European Union?
a regional trade organization of European nations
suppose there is a balance of trade in both the US and canada. Then, the US dollar appreciates against the Canadian dollar. what would the likely outcome be?
a trade surplus in Canada
Ed and Wendy decide to make extra money working at a local fair by painting names on coffee mugs and making sketches. Ed can paint 6 mugs or draw 2 sketches per hour. Wendy can paint 8 mugs or make 3 sketches per hour. Wendy has
an absolute advantage over Ed
The United States placed a limit on the number of cars that can be brought into the country for sale. This is an example of
an import quota.
Which of the following would cause the United States dollar to increase in value compared to the Japanese yen?
an increase in interest rates in the United States
In the balance of payments, the trade balance
appears in the current account
If a nation has normal trade relations (NTR) status, then exports from that country
are taxed at the same rate as all other nations with NTR status.
Regarding the balance of payments, if one sums the Current Accounts, and Capital Accounts and the Reserve Changes then the answer will be: HINT: The sum of the accounts reflects the actual balancing of financial transaction between the country and its trading partners the reserve charges are the opposite of the sum of the Capital and Current accounts reflecting who the balance of payment affect the country
be zero.
How do countries protect their domestic economy from excessive influence by multinational corporations?
by requiring the multinational to export a certain percentage of its product
With a managed float
countries occasionally intervene in foreign exchange markets.
Suppose a British cistizen booked a flight from London to Berlin on a U.S. owned airliner. In the U.S. balance of payments that transaction is a
credit to the Current Account.
Suppose an American investor held bonds issued by the German government. When the bond, valued at $10,000 American dollars, matured, the investor received the principle plus $1,100 in earned interest. That transaction would be classified in the U.S. Balance of Trade as
credit to the Current Account.
If a French firm buys computers from the United States, there would be an increase in which of the following in the foreign exchange market?
demand for United States dollars and supply of euros
If the demand for dollars rises while the supply of dollars falls, then the
dollar will appreciate.
One strategy a corporation may use to gain market share in a foreign market is
dumping
If the value of the U.S. dollar depreciates, ceteris paribus, then U.S.
exports will rise.
An increase in the international value of the United States dollar will tend to cause U.S. exports to:
fall
When the exchange rates are allowed to be determined by supply and demand, they are called which of the following?
flexible
Which of the following is an advantage for the host country of a multinational corporation?
greater employment opportunities
"Duty-free" shops in airports and on international boats sell merchandise that can be brought into the country without which of the following?
import tariffs
An increase in U.S. real interest rates relative to the rest of the world can be expected to
increase the international value of the dollar.
Expansionary fiscal policy
is less effective in an open economy with floating exchange rates.
When a country has a balance of trade deficit
its imports exceed its exports.
A balance of trade surplus can be the result of
low levels of income relative to other nations.
Tariffs and quotas
lower the amount of the product sold domestically.
What economic status can the United States grant to countries that allows them to pay the same tariffs as other countries with the same status?
most-favored-nation status
If a country has a negative value on its current account, then it must
pay that amount to its trading Partners.
Tariffs and quotas
result in higher domestic prices.
According to the law of comparative advantage, a country should
specialize and export goods with the lowest opportunity cost.
Which of the following will occur if there is an increase in the demand for the dollar in the foreign exchange market?
supply of foreign currency increases (shifts right); U.S. dollar appreciates; foreign currency depreciates
In recent years, many countries have formed customs unions that abolished tariffs and trade restrictions among its members, as well as adopted uniform tariffs for nonmember countries. A successful example of such a customs union is
the European Union (EU).
In terms of US government revenue, a quote on Japanese goods is different form a protective tariff in that:
the U.S. probably sustains less net revenue from a quota than a tariff.
What was the result of the Bretton Woods Conference?
the creation of a fixed exchange-rate system for the United States and much of western Europe
The price of one nation's currency expressed in terms of another nation's currency is:
the exchange rate.
U.S. industries like steel, computers, and energy need to be protected from foreign competition to ensure which of the following?
the presence of these industries during a crisis
If interest rates rise in the United States relative to other nations, then
the value of the dollar will tend to appreciate.
If the demand for our exports rises while our tastes for foreign goods falls off, then
the value of the dollar will tend to appreciate.
If prices rise in the United States relative to other countries, then
the value of the dollar will tend to depreciate'.
Suppose the exchange rate between the United States and Japan changes from $1 = 100 yen to $1 = 110 yen. What would happen to the prices of American goods in Japan?
they will increase
Which of the following is NOT an argument for restricting trade?
to fight inflation
When a nation imports more than it exports, economists say it has which of the following?
trade deficit
If the real interest rates in the United States rise relative to rates in other countries, what will happen to the international value of the United States dollar and United States net exports?
value of the dollar appreciates; net exports decreases
