Macro Unit 6
The current account balance is the sum of
Net exports (exports - imports)
Depreciation
The loss of value of a country's value in relation to a foreign currency
Appreciation
an increase in the value of a currency as measured by the amount of foreign currency it can buy
Suppose that the exchange rate between the United States dollar ($) and the Thai currency, baht (฿), is ฿1=$0.05. Leticia wants to buy a ฿600 souvenir from Thailand. What is the souvenir's price in dollars?
$30
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 ?
1 Turkish lira == 0.8 Qatari riyal, and the Turkish lira depreciated.
Which of the following is an example of foreign direct investment?
A United States automobile manufacturer building a steel plant in Russia
Which of the following would be a current account transaction?
A United States firm sells $500 million of its products to a Chinese company.
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?
A contractionary monetary policy will increase interest rates, which will cause the currency to appreciate.
Which of the following most undermines the ability of a nation's currency to store value?
A decrease in the purchasing power of the currency
Which of the following will happen to aggregate demand in the United States if the United States dollar appreciates in foreign exchange markets?
Aggregate demand will decrease because net exports will decrease.
Which of the following changes in the United States will most likely increase aggregate demand in Japan?
An appreciation of the United States dollar relative to the yen.
Which of the following will cause the United States dollar to depreciate relative to the euro?
An increase in household income in the United States
Which of the following will most likely cause an inflow of financial capital to Canada?
An increase in the Canadian federal budget deficit
If a currency is less accessible on the world market its value will...
Appreciate
With an increase in investment demand in the United States, the real interest rate 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?
Capital stock: increase International value: increase
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
Net Exports
Exports - Imports
Which of the following transactions is recorded as a credit entry in the country's current account?
Exports of consumer goods
Which of the following is recorded in a country's balance of payments accounts?
Financial capital flows between the country and the rest of the world.
Assuming fixed exchange rates, if country Z's rate of inflation increases relative to its trading partners, Country Z's imports and exports will most likely change in which of the following ways?
Imports: Increase Exports: Decrease
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?
International Value: increase Trade deficit: increase
If Japan has an interest rate of 2% and Austrailia has an interest rate of 6%, what will happen?
Investors will invest in Austrailian currency because it offers a higher rate of return. The Austrailian dollar will appreciate due to the increased demand.
If a country has a current account deficit, which of the following must be true?
It must show a surplus in its capital account. because they have to balance out
If the Federal Reserve undertakes a policy to reduce interest rates, international capital flows will be affected in which of the following ways?
Short-run capital inflows to the United States will decrease.
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?
The Swiss franc with appreciate.
An appreciation of the United States dollar on the foreign exchange market could be caused by a decrease in which of the following?
The United States consumer price index
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 United States will experience financial capital outflows, and the dollar will depreciate.
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?
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?
The demand curve for the currency will shift to the left, and the currency will depreciate.
It cost $1.52 to get £ 1 in 2015, and $1.36 to get £ 1 in 2018. What happened?
The dollar appreciated and the pound depreciated
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 the foreign exchange value of the Angolan currency, the kwanza, and the Angolan net exports?
The kwanza will depreciate and net exports will decrease.
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 supply of the currency will decrease and the currency will appreciate.
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 will increase and the demand will decrease.
An increase in which of the following would reduce the United States balance-of-trade deficit?
The value of foreign currency relative to the United States dollar
If a country has a deficit in the current account, they have
a surplus in the financial account
Direct investment
an investment in a foreign business enterprise designed to acquire a controlling interest in this enterprise.
Forex Supply and Demand
buying must be supplied with the buyers currency
A country can have an increased surplus in its balance of trade as a result of
declining imports and rising exports
An increase in household income
depreciates a currency's value
Trade Surplus
exporting more than importing
If income increases
exports decrease, imports increase, account balance decreases, and deficit goes up
If the value of the dollar depreciates
exports increase, imports decrease, account balance increases
Trade deficit
importing more than exporting
Current account
net exports, investment income, net transfers
If other things are held constant, an increase in United States imports will
tend to cause the dollar to depreciate because the world supply of dollars will rise
Balance of payments
the difference between the flow of money into and out of a country in domestic currency
The price of one nation's currency expressed in terms of another nation's currency is called
the exchange rate
Financial account
the part of the balance of payments that records purchases of assets a country has made abroad and foreign purchases of assets in the country
Net capital outflow
the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners