Econ 102 Chapter 9

If a nation's central bank increased domestic interest rates, the nation's exchange rate would change if the country's exchange rate was a A) a crawling peg. B) a flexible exchange rate. C) a fixed exchange rate. D) a nominally fixed exchange rate.

B) a flexible exchange rate.

When the U.S. exchange rate rises, foreign goods become ________ and U.S. imports ________. A) less expensive; decrease B) less expensive; increase C) more expensive; increase D) more expensive; decrease

B) less expensive; increase

The table above gives some of the entries in the national income and product accounts. The government sector has a ________, and the private sector has a ________. A) surplus of $50 billion; deficit of $25 billion B) surplus of $50 billion; surplus of $25 billion C) deficit of $50 billion; deficit of $25 billion D) deficit of $50 billion; surplus of $25 billion

B) surplus of $50 billion; surplus of $25 billion

In the figure above, the shift in the supply curve for U.S. dollars from S0 to S2 could occur when A) the current exchange rate falls. B) the expected future exchange rate falls. C) the current exchange rate rises. D) the expected future exchange rate rises.

B) the expected future exchange rate falls.

Suppose China Airlines wants to purchase a French Airbus. The price of the Airbus is 95 million Euro. If the exchange rate is 1 euro per 10 yuan, the price of this airplane to China Airlines is A) 10.52 million yuan. B) 10 million yuan. C) 950 million yuan. D) 9.5 million yuan.

C) 950 million yuan.

When the U.S. exchange rate falls, U.S. goods become ________ to foreign residents and U.S. exports ________. A) more expensive; decrease B) more expensive; increase C) less expensive; increase D) less expensive; decrease

C) less expensive; increase

The higher the exchange rate today, the A) greater the quantity of U.S. dollars demanded in the foreign exchange market today. B) greater is the expected profit from buying U.S. dollars today and holding them. C) smaller is the expected profit from buying U.S. dollars today and holding them. D) smaller is the expected profit from buying foreign currency today and holding it.

C) smaller is the expected profit from buying U.S. dollars today and holding them.

In the figure above, the shift in the supply curve for U.S. dollars from S0 to S1 could occur when A) the expected future exchange rate falls. B) the U.S. interest rate differential decreases. C) the U.S. interest rate differential increases. D) the current exchange rate falls.

C) the U.S. interest rate differential increases.

Airbus is a European jet airline producer. Indian Airlines wants to buy 23 Airbus planes from Airbus, due to increased demand for world travel. As a result A) only the demand curve for Indian rupees shifts rightward. B) only the demand curve for European euros shifts rightward. C) the demand curve for European euros and the supply curve for Indian rupees both shift rightward. D) the demand curve for European euros shifts rightward and the supply curve for Indian rupees shifts leftward.

C) the demand curve for European euros and the supply curve for Indian rupees both shift rightward.

Suppose China Airlines wants to purchase a French Airbus. The price of the Airbus is 95 million Euro. If the exchange rate is 1 euro per 9 yuan, the price of this airplane to China Airlines is A) 85.5 million yuan. B) 10.6 million yuan. C) 11.11 million yuan. D) 855 million yuan.

D) 855 million yuan.

The term "foreign currency" refers to foreign I. coins II. notes III. bank deposits A) II only B) II and III only C) I and II only D) I, II, and III

D) I, II, and III

Which of the following will lead to an appreciation of the U.S. dollar against the British pound? A) an increase in U.S. demand for British imports B) an increase in British interest rates C) a decrease in British demand for U.S. assets D) an increase in British demand for U.S. exports

D) an increase in British demand for U.S. exports

The data in the table above are the U.S. balance of payments. The current account balance is A) $140 billion. B) -$45 billion. C) $155 billion. D) $170 billion.

A) $140 billion.

If the price level in the U.S. is 120, the price level in South Africa is 140, and the nominal exchange rate is 7 South African rands per dollar, then the real exchange rate is A) 6 South African goods per U.S. good. B) 8.4 South African goods per U.S. good. C) 1.4 South African goods per U.S. good. D) 9.8 South African goods per U.S. good.

A) 6 South African goods per U.S. good.

Suppose a deposit in New York earns 6 percent a year and a deposit in London earns 4 percent a year. Interest rate parity holds if the A) U.S. dollar depreciates by 2 percent a year. B) U.K. pound depreciates by 2 percent a year. C) U.S. dollar appreciates by 2 percent a year. D) None of the above answers is correct because interest rate parity requires that the interest rates be the same in both countries.

A) U.S. dollar depreciates by 2 percent a year.

According to purchasing power parity, a rise in inflation in the United States relative to the rest of the world will lead to A) an exchange rate depreciation. B) an exchange rate appreciation. C) a balance of payments deficit. D) a balance of payments surplus.

A) an exchange rate depreciation.

Which of the following exchange rate policies uses a target exchange rate, but allows the target to change? A) crawling peg B) fixed exchange rate C) flexible exchange rate D) moving target

A) crawling peg

When a good is imported into the United States, a ________is created. A) demand for foreign currencies and a supply of dollars B) supply of foreign currency with no effect on the market for the dollar C) supply of foreign currencies and a demand for dollars D) demand for dollars with no effect on markets for foreign currencies

A) demand for foreign currencies and a supply of dollars

Suppose a British bank offers a 3 percent interest rate while a U.S. bank offers a 7 percent interest rate. People must expect the U.S. dollar will A) depreciate 4 percent. B) depreciate 10 percent. C) appreciate 10 percent. D) appreciate 4 percent.

A) depreciate 4 percent.

With everything else the same, in the foreign exchange market the A) larger the value of U.S. exports, the greater is the quantity of dollars demanded. B) the higher the exchange rate, the cheaper are U.S.-produced goods and services. C) the lower the exchange rate, the smaller is the expected profit from buying dollars. D) lower the exchange rate, the smaller the amount of U.S. exports.

A) larger the value of U.S. exports, the greater is the quantity of dollars demanded.

Arbitrage in the foreign exchange market, international loans markets, and goods markets results in A) purchasing power parity, interest rate parity and law of one price. B) purchasing power parity, price parity and no round-trip profit. C) purchasing power parity, interest rate parity and round-trip profit. D) purchasing power parity, interest rate parity and price parity.

A) purchasing power parity, interest rate parity and law of one price.

The demand for Mexican tomatoes by an American food grocery chain creates a A) supply of U.S. dollars. B) demand for the U.S. dollar. C) supply of Mexican pesos. D) demand for an interest rate differential.

A) supply of U.S. dollars.

In the figure above, the shift in the supply curve for U.S. dollars from S0 to S1 could occur when A) the expected future exchange rate rises. B) the current exchange rate falls. C) the expected future exchange rate falls. D) the U.S. interest rate differential decreases.

A) the expected future exchange rate rises.

A country's balance of payments accounts records A) the international trading, borrowing, and lending positions of a country over a period of time. B) only the goods and services purchases among countries over a period of time. C) the flow of human and non-human capital among countries over a period of time. D) only official transactions between governments over a period of time.

A) the international trading, borrowing, and lending positions of a country over a period of time.

Using the table above, if the current market value of the dollar is 70 francs A) investor A holds dollars, but B and C hold francs. B) all three investors hold dollars. C) investor A holds francs, but B and C hold dollars. D) all three investors hold francs.

B) all three investors hold dollars.

Using the table above, if the current market value of the dollar is 125 francs A) investor A holds francs, but B and C hold dollars. B) all three investors hold francs. C) investor A holds dollars, but B and C hold francs. D) all three investors hold dollars.

B) all three investors hold francs.

Suppose the peso-dollar foreign exchange rate changes from 50 pesos per dollar to 30 pesos per dollar. Then the peso has ________ against the dollar and the dollar has ________ against the peso. A) depreciated; appreciated B) appreciated; depreciated C) appreciated; appreciated D) depreciated; depreciated

B) appreciated; depreciated

Suppose Mitsubishi Bank (a Japanese bank) expects the exchange rate to be 125 yen per U.S. dollar at the end of the year. If today's exchange rate is 120 yen per U.S. dollar, Mitsubishi bank A) sells U.S. dollars today because it expects losses from buying U.S. dollars and holding them. B) buys U.S. dollars today because it expects profit from buying U.S. dollars and holding them. C) does not buy or sell any U.S. dollars today because it expects zero profit from buying U.S. dollars and holding them. D) None of the above answers is correct because a foreign commercial bank cannot buy or sell U.S. dollars.

B) buys U.S. dollars today because it expects profit from buying U.S. dollars and holding them.

In the figure above, suppose the demand for dollars temporarily decreases so that the demand curve shifts to D2. To maintain the target exchange rate, the Fed A) must violate both interest rate parity and purchasing power parity. B) can buy dollars. C) can sell dollars. D) cannot maintain the target exchange rate.

B) can buy dollars.

In the above figure, suppose the demand for dollars temporarily increases so that the demand curve shifts to D1. To maintain the target exchange rate, the Fed A) can buy dollars. B) can sell dollars. C) must violate interest rate parity but not purchasing power parity. D) cannot maintain the target exchange rate.

B) can sell dollars.

When people who are holding the money of some other country want to exchange it for U.S. dollars, they ________ U.S. dollars and ________ that other country's money. A) demand; demand B) demand; supply C) supply; demand D) supply; supply

B) demand; supply

A small country is an international borrower and its domestic supply of loanable funds increases. Consequently, the equilibrium quantity of loanable funds used in the country ________ and the country's international borrowing ________. A) does not change; does not change B) does not change; decreases C) does not change; increases D) increases; does not change

B) does not change; decreases

A factor determining the supply of U.S. dollars in the foreign exchange market is the A) expected future interest rate in the United States. B) expected future exchange rate. C) U.S. supply of exports. D) expected future interest rate in foreign countries.

B) expected future exchange rate.

In the figure above, suppose the economy is initially at point B. Then the interest rate in Japan rises relative to the interest rate in the United States. This change ________ the supply of dollars and the market moves to a point such as ________. A) decreases; A B) increases; C C) decreases; E D) increases; D

B) increases; C

In the figure above, the shift in the demand curve for U.S. dollars from D0 to D2 could occur when A) the expected future exchange rate increases. B) people expect that the dollar will depreciate. C) the U.S. interest rate rises. D) foreign interest rates fall.

B) people expect that the dollar will depreciate.

Suppose the Fed wants to fix the U.S. dollar/Mexican peso rate at 11 pesos per dollar under a fixed exchange rate policy. If the exchange rate falls to 10 pesos per dollar, the Fed can A) sell dollars. B) attempt to freeze all sales of dollars. C) buy dollars. D) any of the above actions could take place.

C) buy dollars.

If the world real interest rate falls, then a country that is an international lender A) does not change the amount of its lending. B) increases the amount of its lending. C) decreases the amount of its lending. D) None of the above answers is correct because lending might increase, decrease, or not change.

C) decreases the amount of its lending.

In the foreign exchange market, an increase in the world demand for U.S. exports shifts the A) supply curve for U.S. dollars rightward. B) supply curve for U.S. dollars leftward. C) demand curve for U.S. dollars rightward. D) demand curve for U.S. dollars leftward.

C) demand curve for U.S. dollars rightward.

If the Fed wants to depreciate the dollar against the yen, the Fed will A) increase the demand for dollars by selling yen. B) increase the supply of dollars by selling yen. C) increase the supply of dollars by buying yen. D) decrease the supply of dollars by selling yen.

C) increase the supply of dollars by buying yen.

In the figure above, the shift in the demand curve for U.S. dollars from D0 to D1 could occur when A) the U.S. interest rate decreases. B) foreign interest rates increase. C) people expect that the dollar will appreciate. D) the expected future exchange rate falls.

C) people expect that the dollar will appreciate.

Last year the exchange rate between U.S. dollars and Mexican pesos was 10 pesos per dollar. Today is it 11 pesos per dollar. Here, the dollar ________ against the peso, and the peso ________ against the dollar A) depreciated; appreciated B) depreciated; depreciated C) appreciated; appreciated D) appreciated; depreciated

D) appreciated; depreciated

The demand curve for U.S. dollars slopes downward because as the dollar ________ U.S. goods become ________ expensive to foreign residents, so they purchase fewer U.S. goods, and the quantity of dollars demanded decreases. A) depreciates; more B) appreciates; less C) depreciates; less D) appreciates; more

D) appreciates; more

In the foreign exchange market, the supply curve for dollars slopes upwards because A) supply curves always slope upwards. B) as the exchange rate rises, more dollars are supplied since the profit from selling dollars falls. C) as the exchange rate rises, imports become more expensive, and more dollars are supplied to pay for the imports. D) as the exchange rate rises, imports become cheaper, and more dollars are supplied to pay for the increase in the quantity of imports.

D) as the exchange rate rises, imports become cheaper, and more dollars are supplied to pay for the increase in the quantity of imports.

If 100 Japanese yen buy more U.S. dollars today than yesterday, the dollar has ________ and the yen has ________. A) depreciated; depreciated B) appreciated; appreciated C) appreciated; depreciated D) depreciated; appreciated

D) depreciated; appreciated

A small country is an international lender and its domestic supply of loanable funds increases. Consequently, the equilibrium quantity of loanable funds used in the country ________ and the country's international lending ________. A) increases; does not change B) increases; decreases C) does not change; does not change D) does not change; increases

D) does not change; increases

The lower the exchange rate today, ceteris paribus, the A) smaller the quantity of U.S. dollars demanded in the foreign exchange market today. B) smaller is the expected profit from buying U.S. dollars today and holding them. C) greater is the expected profit from buying foreign currency today and holding it. D) greater is the expected profit from buying U.S. dollars today and holding them.

D) greater is the expected profit from buying U.S. dollars today and holding them.

In the above figure, suppose the economy is initially at point A. The interest rate in Japan rises relative to the interest rate in the United States. As a result, there will be a change from point A to a point such as ________. A) point B B) point C C) point D D) point E

D) point E

If the People's Bank of China adopted a flexible exchange rate policy A) the yuan would depreciate. B) the U.S. dollar would appreciate. C) the yuan-U.S. dollar exchange rate would rise. D) the U.S. dollar would depreciate.

D) the U.S. dollar would depreciate.

If the European Central Bank increases interest rates A) the demand curve for European euros shifts leftward and the supply curve of European euros shifts rightward. B) the demand curve for European euros and the demand curve for U.S. dollars both shift rightward. C) the demand curve for European euros shifts leftward and the demand curve for U.S. dollars shifts rightward. D) the demand curve for European euros shifts rightward and the supply curve of European euros shifts leftward.

D) the demand curve for European euros shifts rightward and the supply curve of European euros shifts leftward.

If the Federal Reserve increases interest rates A) the demand curve for U.S. dollars and the demand curve for European euros both shift rightward. B) the demand curve for U.S dollars shifts leftward and the demand curve for European euros shifts rightward. C) the demand curve for U.S. dollars shifts leftward and the supply curve of U.S. dollars shifts rightward. D) the demand curve for U.S. dollars shifts rightward and the supply curve of U.S. dollars shifts leftward.

D) the demand curve for U.S. dollars shifts rightward and the supply curve of U.S. dollars shifts leftward.