Macro Econ unit 6 MCQ

A contractionary monetary policy will increase interest rates, which will cause the currency to appreciate. A contractionary monetary policy will decrease aggregate demand, real output, and the price level, which will decrease inflation. A contractionary monetary policy will increase interest rates, attracting foreign financial capital (financial capital inflows), increasing the demand for the country's currency, and causing the currency to appreciate.

Assume Country X's economy is experiencing high rates of inflation. Which of the following policies will control the problem of inflation, and what is the consequent effect on the value of Country X's currency in foreign exchange markets?

The supply will increase and the demand will decrease. An expansionary fiscal policy will increase aggregate demand and the price level. The higher domestic price level will make domestic goods more expensive relative to foreign goods, which increases the supply of the nation's currency so that residents can buy relatively less expensive foreign goods and decreases the demand for the nation's currency by foreigners because goods become more expensive.

Assume that a nation's government uses an expansionary fiscal policy to restore full employment. What effect will the resulting change in the price level have on the supply and demand of the nation's currency in the foreign exchange market?

The supply of the currency will decrease and the currency will appreciate.

Assuming the government of a country imposes a tariff on its imports of foreign goods, what is the likely effect on the country's currency in foreign exchange markets?

The United States will experience financial capital outflows, and the dollar will depreciate. An increase in private savings will increase the supply of loanable funds and will cause real interest rates to decrease in the United States, triggering an outflow of financial capital, which will increase the supply of dollars on the foreign exchange market and will cause the value of the dollar to depreciate.

How will an increase in private savings in the United States most likely affect financial capital flows and the value of the dollar in foreign exchange markets?

The Swiss franc will appreciate. The exchange rate of 0.84 euro per Swiss franc is a disequilibrium exchange rate that creates a shortage of Swiss francs in the foreign exchange market and an upward pressure on the exchange rate. Market forces drive exchange rates up toward equilibrium at 0.88 euro per Swiss franc. Therefore, the Swiss franc will appreciate.

If the current exchange rate for one Swiss franc is 0.84 euro and the equilibrium exchange rate for one Swiss franc is 0.88 euro, which of the following will occur in the flexible exchange market for the Swiss franc?

An appreciation of the United States dollar relative to the yen An appreciation of the dollar is a depreciation of the yen, which makes Japanese goods (Japanese exports) relatively less expensive than American goods; this increases net exports in Japan and so increases aggregate demand in Japan.

Japan and the United States are trading partners with flexible exchange rates. The currency of the United States is the dollar, and the currency of Japan is the yen. Which of the following changes in the United States will most likely increase aggregate demand in Japan?

Net exports will decrease and the kwanza will depreciate. An increase in domestic income will increase the demand for imports of foreign goods. An increase in imports will decrease net exports and will result in an increase in the supply of the kwanza, which will depreciate the currency.

Suppose that Angola's economy is booming, resulting in an increase in the income of domestic residents. How will the increase in income most likely affect Angolan net exports and the foreign exchange value of the Angolan currency, the kwanza?

$30 The souvenir's price in dollars == the souvenir's price in baht ×the exchange rate ($/฿) =฿600×0.05($/฿)=$30

Suppose that the exchange rate between the United States dollar ($) and the Thai currency, baht (฿)(฿), is ฿1=$0.05฿1=$0.05. Leticia wants to buy a ฿600฿600 souvenir from Thailand. What is the souvenir's price in dollars?

1 Turkish lira = 0.8 Qatari riyal, and the Turkish lira depreciated. The exchange rate of the Qatari riyal increased from 0.5 to 1.25 Turkish lira. It takes more lira to purchase one riyal. Therefore, the Turkish lira =1/1.25=0.8=1 Qatari riyal, and it has depreciated against the Qatari riyal.

The exchange rate for one Qatari riyal was 0.5 Turkish lira in 2012, and it increased to 1.25 Turkish lira in 2018. Which of the following is true about the value of the Turkish lira in 2018 ?

The surplus of British pounds will cause the British pound to depreciate. The exchange rate of $1.70 per pound is a disequilibrium exchange rate as it is above the equilibrium exchange rate. It creates a surplus of British pounds in the foreign exchange market and puts downward pressure on the exchange rate, driving the exchange rate toward equilibrium at $1.50 per pound. Therefore, the pound will depreciate.

The graph shows the foreign exchange market for the British pound (GBP)(GBP). If the exchange rate is $1.70, which of the following is true?

There will be financial capital outflows from Japan to Australia, and the Australian dollar will appreciate. The real interest rate in Australia is greater than that of Japan, which will result in financial capital outflows from Japan to Australia as investors seek a higher return on Australian financial assets. This will increase the demand for the Australian dollar, resulting in an appreciation of the Australian dollar.

The loanable funds markets in Japan and Australia are in equilibrium, as shown in the graphs above. Which of the following is most likely to happen?

Country X has a current account deficit of $60 million and has net financial capital inflows. The current account balance is the sum of net exports (exports −− imports), net income from abroad, and net unilateral transfers, which is equal to $235 million−$300 million + $20 million + (−$15 million)=−$60 million. Therefore, the current account is in deficit of $60 million. Financial capital flows move in the opposite direction to the goods and services trade claims that give rise to them. Thus, a country with a current account deficit necessarily has a financial capital account surplus (i.e., net financial capital inflows).

The table shows some of Country X's balance of payments data for 2018. Which of the following is true about Country X's current account balance and financial capital flows?

The British pound has depreciated against the dollar. The exchange rate of the British pound decreased from $1.52 to $1.36. It takes fewer dollars to buy the pound. Therefore, the British pound has depreciated against the dollar, or the dollar has appreciated against the British pound.

The table shows the exchange rate for the British pound (£) against the dollar ($) and the euro (€) in 2015 and 2018. Which of the following is true?

This diagram shows a correct labeling of the foreign exchange market for krone, with the quantity of krone on the horizontal axis and the exchange rate of peso/krone on the vertical axis. In the foreign exchange market, equilibrium is achieved when the exchange rate is such that the quantities demanded and supplied of the currency are equal, which occurs at the exchange rate of 1 Swedish krone =0.50 Mexican peso.

Which of the following graphs correctly illustrates the foreign exchange market for the krone with an equilibrium exchange rate of 1 Swedish krone =0.50=0.50 Mexican peso?

Financial capital flows between the country and the rest of the world The balance of payments records the country's international transactions, which include financial capital flows between the country and the rest of the world.

Which of the following is recorded in a country's balance of payments accounts?

Exports of consumer goods Exports are recorded in the current account balance and increase a country's current account balance because exports cause money to flow into the country and therefore they are a credit entry in its current account.

Which of the following transactions is recorded as a credit entry in the country's current account?

Aggregate demand will decrease because net exports will decrease. An appreciation in the dollar increases the purchasing power of the dollar, which makes imports relatively cheaper for domestic consumers and makes domestic goods (or exports) relatively expensive for foreign consumers. This causes an increase in imports and a decrease in exports, which causes net exports to fall and aggregate demand to decrease.

Which of the following will happen to aggregate demand in the United States if the United States dollar appreciates in foreign exchange markets?

An increase in the Canadian federal budget deficit An increase in the budget deficit increases the demand for loanable funds (or reduces the supply of loanable funds), which increases real interest rates in Canada and attracts financial capital from abroad.

Which of the following will most likely cause an inflow of financial capital to Canada?