Macroeconomics Chapter 17
An easing of monetary policy by the Fed, ______ the demand for dollars and causes the dollar to _______.
decreases; depreciate
The net decline in a country's stock of international reserves over a year is called a balance-of-payments ______.
deficit
A decrease in the value of a currency relative to other currencies is known as_____.
depreciation
The price, or ______ rate, for any currency is determined by the intersection of the supply and demand curves for the currency in the foreign exchange market.
exchange
In a _____ exchange-rate system supply and demand determine exchange rates.
flexible
Under a ____ exchange rate, the value of a currency is determined by the forces of supply and demand in the foreign exchange market.
flexible
International reserves are also called:
foreign currency assets
All else equal, if the demand for a nation's currency ______, that currency will appreciate.
increases
A tightening of monetary policy by the Fed, _______ the demand for dollars and causes the dollar to ________.
increases; appreciate
When prices are expressed in terms of a common currency, the price of the average domestic good or service relative to the price of the average foreign good or service is the_____ exchange rate.
real
Purchasing power parity theory state that the nominal exchange rate between two currencies can be found by setting the _____ of a traded commodity in one country equal to the _____ of the same commodity in another country.
price; price
A stronger dollar, relative to other currencies:
reduce aggregate demand, and increase imports, and increases the cost of U.S. exports
What steps can a central bank take to maintain an overvalued exchange rate?
It can buy the excess supply of its currency in foreign exchange markets, and it can act to increase the fundamental value of the exchange rate.
Why do central banks hold international reserves?
To purchase the domestic currency in the foreign exchange market.
When is a speculative attack most likely?
When a currency is overvalued and When investors fear that an overvalued currency will soon be devalued.
When an exchange rate has an officially fixed value that is less than its fundamental value, we say that it is:
an undervalued exchange rate
An increase in the value of a currency relative to other currencies is know as ______.
appreciation
The devaluation of a fixed-rate currency is the same as:
the depreciation of a flexible-rate currency
The law of one price, states that if transportation costs are relatively small:
the price of an internationally traded commodity must be the same in all locations
an easy monetary policy:
weakens the dollar and increase net exports
Which of the following solution would you suggest in the presence of an overvalued currency?
Buy large amounts of the currency, Restrict international transactions, and Devalue the currency
A reduction in the value of currency is called______.
Devaluation
The value of a_____ exchange rate is set by official government policy.
Fixed
The most effective way to change an exchange rate's fundamental value is to use
monetary policy
In the foreign exchange market, the supply curve for dollars is upward sloping because the ______ of some foreign currency each dollar can buy, the more dollars people are willing to supply.
more
The rate at which two currencies can be traded for each other is called the_________
nominal exchange rate.
