Open Economy Unit Test
Which of the following represents the balance of payments?
C A = - F A
Which of the following is NOT a reason why citizens of the United States would want to buy the euro?
For tourism travel to the United States from Europe
Which of the following best describes the balance of payments accounts?
A record of all international transactions
Which term describes the situation in the foreign exchange market for the euro where the quantity demanded of the euro is equal to the quantity supplied of the euro?
Equilibrium
A budget surplus in Hamsterville has decreased the real interest rate there. Assume there are no restrictions on the flow of assets between Hamsterville and Maxistan. What will happen to the value of Hamsterville's currency and the value of Hamsterville's exports ?
Hamsterville's currency depreciates and its exports increase.
Maxistan and Ile are trading partners. Maxistan is currently experiencing a recession and, as a result, investors in Ile have less demand for Maxistan's financial assets. What will happen to the value of Ile's currency and the value of Ile's exports as a result of the decreased demand for foreign financial assets?
Ile's currency appreciates; exports from Ile decrease
The economies of Maxistan and Ile are open economies. If Maxistan runs a budget surplus, how will this impact Ile in the short run?
Increases the unemployment rate in Ile
The currency of Guatemala is the quetzal, and the currency in the eurozone is the euro. The current exchange rate is 10 quetzals per euro. What will happen to net exports and aggregate demand (AD) in the eurozone if the exchange rate changes to 5 quetzals per euro?
Net exports and AD in the eurozone will increase.
Which of the following describes who benefits from a depreciation of the Japanese yen in international currency markets?
South African residents visiting Japan
Leah is a Canadian citizen who wants to go to the World Cup, which is being held in Russia. If Leah wants to enjoy some delicious blini while watching the game, she will need to trade in her Canadian dollars for Russian rubles. Which of the following is the correct way to express the exchange rate of a Canadian dollar?
40 Rubles per 1 CAD$
Mr. Frank is a citizen of Gatorland. He wants a better return on his savings than he gets in Gatorland, so he buys newly issued government bonds from the nation of Hamsterville. How is this purchase counted in the balance of payments in each country?
A debit in Gatorland's financial account; a credit in Hamsterville's financial account.
Which of the following statements is true about the balance of payments account?
A surplus in the financial account means there is a deficit in the current account
Which of the following describes something that would definitely be recorded as an increase in the current account?
An increase in net exports
Which of the following is most likely to cause a currency to depreciate while discouraging capital formation?
An increase in the demand for loanable funds.
Dodgeland and Burginville are trading partners. An increase in the demand for capital in Dodgeland has affected its market for loanable funds. What effect does the change in the market for loanable funds in Dodgeland have on Burginville's currency and the real interest rate in Burginville?
Burginville's real interest rates increase and its currency depreciates.
The central bank of Johnsrudia engaged in contractionary monetary policy that lead to an increase in interest rates. What will happen to the value of Johnsrudia's currency, its imports, and its exports?
Currency appreciates; imports increase; exports decrease
What happens to the currency of Maxistan and aggregate demand in Maxistan if the demand for its financial assets decreases?
Currency depreciates; aggregate demand (AD) increases
Hamsterville is a tourist destination for Canadian citizens. The currency of Hamsterville is the Hamsterville snark (S N), and the currency of Canada is the Canadian dollar (C AD$). If tourism to Hamsterville increases, what will happen in the foreign exchange market for the S N and the exchange rate for the S N (in terms of the Canadian dollar)?
Demand for the S N increases; S N appreciates
The Great Central Bank of Hamsterville sells bonds, which has influenced the interest rate in Hamsterville. What is the impact of this action on the financial account, the value of the Hamsterville currency (the Hamsterville snark), and imports into Hamsterville in the short run?
Financial account increases; snark appreciates; imports increase
What change will occur in the balance of payments accounts in Wakanda when it sells bonds to Hamsterville?
Financial capital inflows increase
The currency of Hamsterville is the Hamsterville Snark (S N). If citizens of Hamsterville want to buy U.S. goods, what happens in the market for the Snark and in the market for the U.S. dollar?
Hamsterville supplies snarks in the market for snarks; Hamsterville demands dollars in the market for dollars
Flora is traveling to Russia from Argentina for the World Cup to root for Argentina in their match against Iceland. The currency of Argentina is the peso, and the currency of Russia is the ruble. If Flora hears that the peso has appreciated, which of the following best describes the impact the appreciation has on her trip?
Her purchasing power has increased.
Bill is traveling to Russia from New Zealand for the World Cup to root for New Zealand in their match against Fiji. The currency of New Zealand is the dollar, and the currency of Russia is the ruble. If Bill hears that the New Zealand dollar has depreciated against the Russian ruble, which of the following best describes the impact the depreciation has on his trip?
His purchasing power has decreased.
Which of the following best describes what an exchange rate is in the foreign exchange market?
How much of one currency it takes to buy another currency
The currency of Ghana is the cedi and the currency of India is the rupee. India and Ghana are trading partners. Which of the following would cause the demand for the cedi to increase?
Indian demand for Ghanian products increases.
The currency of Hamsterville is the snark. The central bank of Hamsterville recently engaged in expansionary monetary policy. What effect will expansionary monetary policy have on interest rates, the price level, and the exchange rate of the snark?
Interest rates and the exchange rate will decrease, but the price level will increases
What happens to interest rates and exports in the short run in Atlantis if the central bank of Atlantis buys bonds?
Interest rates decrease; exports increase
Which of the following statements about the financial account is true?
It can be balanced, show a surplus, or show a deficit
If a country has a trade deficit, which of the following must also be true?
It has a financial account surplus
Which of the following statements about the current account is accurate?
It is not always balanced.
Which of the following best describes a depreciated currency?
It takes less of another currency to buy that currency
Which of the following best describes depreciation of a currency?
It takes less of another currency to purchase that currency
Which of the following best describes an appreciated currency?
It takes more of another currency to buy that currency
The international quidditch tournament is being held in Ghana. The currency of Ghana is the cedi. If the cedi has depreciated. What does that mean for tourists heading to Ghana to watch the tournament
It will take less of their currency to buy the cedi
Suppose the Russian ruble appreciated between May and June 2018. What would this have meant for tourists heading to Russia to watch the World Cup in June 2018?
It would have taken more of their currency to buy the ruble
Which of the following would increase the demand in the foreign exchange market for the U.S. dollar?
Japanese residents want to buy more goods exported from the U.S.
Maxistan and Ile are trading partners. The savings rate in Maxistan recently increased, which affected real interest rates there. What effect does this have on real interest rates in Maxistan and the value of Ile's currency?
Maxistan's real interest rate decreases and the value of Ile's currency appreciates
The currency of Ghana is the cedi, and the currency of the United States is the dollar. Currently, the exchange rate is 5 cedi per dollar. If the exchange rate changes to 8 cedis per dollar, what will be the effect on net exports and employment in the United States?
Net exports and employment will decrease.
Hamsterville's currency is the snark and it has no restriction on the movement of financial assets in or out of the country. All of the following increase the demand for the snark EXCEPT
Other countries buy less of Hamsterville's exports
Assuming there is no change in the nominal exchange rate, what will be the effect of contractionary monetary policy in Canada on the Canadian price level and the real exchange rate (RER) of the Canadian dollar?
Price level will decrease; RER will decrease.
Frankland's citizens are living longer which has resulted in more retirement saving. Which of the following best describes the effect of this action on real interest rates in Frankland and the value of the Frankland's currency, the percy?
Real interest rates decrease and the Frankland percy appreciates.
An increase in the savings rates in Johnsrudia has affected the market for loanable funds. What effect does this have on real interest rates and the value of Johnsrudia's currency?
Real interest rates decrease and the currency depreciates
The government of Marthaland has a budget surplus. What effect does this have in Marthaland on real interest rates and the value of Marthaland's currency in the short run and economic growth in the long run?
Real interest rates decrease, Marthaland's currency depreciates, and economic growth increases.
Irrational exuberance by firms in Hamsterville has lead to an increase in investment in capital. Most firms in Hamsterville borrow to pay for investment in plant and equipment. What effect does this have on real interest rates, exports, and long-run aggregate supply?
Real interest rates increase, exports decrease, and long-run aggregate supply increases.
An increase in business optimism in Maxistan has changed the real interest rate in Maxistan which has resulted in a change in the flow of financial assets between Maxistan and its trading partners and impacted the value of Maxistan's currency. Which of the following describes an appropriate action that the central bank of Maxistan could take to offset the change in the value of Maxistan's currency?
Sell its currency or buy another country's currency.
The euro is the currency of the European Union (E.U.). If the (E.U.) imposes a quota limiting imports from the United States, what will happen to the market for Euros and the exchange rate for the Euro?
Supply of the euro decreases; the euro appreciates
The citizens of Burginland are convinced that there will never be an improvement in the economic situation there and that there are likely to be widespread defaults on bonds and bank failures. As a result, they want to buy more financial assets from their trading partner, Marthaland. The currency in Burginland is the eagle and the currency in Marthaland is the jean. What is the effect of the increased demand for Marthaland's financial assets on the real value of each country's currency?
The Burginland eagle depreciates and the Marthland jean appreciates.
In 2017 the exchange rate for the Nickelstan Nickel (N N) was 20 Schrute Buck (S B) per N N. In 2018 the exchange rate for the Nickelstan Nickel (N N) was 30 Schrute Buck (S B B) per N N. Based on this information, which of the following statements must be true?
The S B depreciated
Which of the following happens if the U.S. imposes tariffs on Chinese goods?
The U.S. dollar appreciates.
Maxistan and Theopolis are trading partners. The currency of Maxistan is the peso and the currency of Theopolis is the card. What happens to the value of each currency if Maxistan places a tariff on exports from Theopolis?
The card depreciates and the peso appreciates.
The current account in Wakanda is currently balanced. Which of the following will occur in the balance of payments if Wakanda begins to export more than it imports?
The current account will move to a surplus
The government of Atlantis engaged in expansionary fiscal policy that resulted in an increase in the price level. What will be the impact of the increase in the price level in Atlantis on the foreign exchange market for the Atlantian dollar and the exchange rate for the Atlantian dollar?
The demand for the Atlantian dollar decreases; the Atlantian dollar depreciates
Which of the following best describes the impact if Japan places a tarriff on Canadian exports?
The demand for the Canadian dollar decreases and the supply of the Japanese yen decreases.
The government of Johnsrudia engaged in contractionary fiscal policy that resulted in a decrease in the price level. What will be the impact of the decrease in the relative price level in Johnsrudia on the foreign exchange market for the Johnrsrudian dollar and the exchange rate for the Johnrsrudian dollar?
The demand for the Johnrsrudian dollar increases; the Johnrsrudian dollar appreciate
France and the United States are trading partners. France's currency is the euro and the United States' currency is the dollar. Which of the following would definitely lead to an appreciation of the dollar?
The demand for the dollar increases
The currency of Thailand is the baht. Which of the following would be an example of an appreciation of the baht?
The exchange rate changes from 2 rupees per baht to 3 rupees per baht
Flora is traveling from Argentina to Russia to watch the World Cup. The currency of Argentina is the peso, the currency of Russia is the ruble, and the exchange rate is 1 peso equals 2 rubles. Which of the following can be concluded based on this exchange rate?
The exchange rate of the ruble is 0.5 pesos per ruble
Kundu initially had a financial account balance, but then its exports increased. Which of the following will occur as a result of an increase in exports?
The financial account will move to a deficit
Which of the following would NOT be included in the current account of Wakanda?
The nation of Maxistan buys a bond from Wakanda
Assets in Canada are more attractive to Mexican savers and as a result, the supply of the Mexican peso has increased. Which of the following happen to the value of the Mexican peso and the Canadian dollar?
The peso depreciates and the dollar appreciates.
In the foreign exchange market for the Mexican peso, which of the following would best describe the exchange rate for the peso?
The price of a peso in terms of some other currency
Which of the following describes an equilibrium in the foreign exchange market?
The quantity of a currency demanded is equal to the quantity of a currency supplied
The currency of Ghana is the cedi and the currency of Aruba is the florin. Which of the following best defines the exchange rate for the Aruban florin?
The quantity of cedi per florin
How would Japan react to a depreciation of its own currency (the yen)?
The quantity of yen supplied would decrease
The exchange rate of the Guatemalan quetzal to the U.S. dollar is 10 quetzal per dollar. If the exchange rate changes to 5 quetzal per dollar, what happened to the value of the quetzal and what happens to Guatemala's exports?
The quetzal appreciated and its exports will decrease.
Japan and India are trading partners. Japan's currency is the yen and India's currency is the rupee. Which of the following happens when the supply of the rupee increases?
The rupee depreciates and the yen appreciates.
The currency of Hamsterville is the snark, and the currency of Gatorland is the percy. At the current exchange rate, the quantity of Hamsterville snark demanded exceeds the quantity of Gatorland percies supplied. What will happen to the exchange rate of the snark and the exchange rate of the percy?
The snark will appreciate; the percy will depreciate.
Sheila lives in the United States and wants to buy Brian some chocolates imported from Belgium. The currency of the United States is the dollar; Belgium's currency is the euro. How will the importation of chocolate from Belgium impact the market for the dollar and the market for the euro?
The supply of the dollar and the demand for the euro will increase.
Guatemala and the United States are trading partners. Guatemala's currency is the quetzl and the United States' currency is the dollar. Which of the following causes the quetzl to appreciate?
The supply of the dollar increases.
The currency of Hamiltonia is the shot, and the currency of the United States is the dollar. If citizens of Hamiltonia want to take advantage of relatively higher interest rates in the United States, which of the following will happen?
The supply of the shot in the foreign exchange market for the shot will increase.
The government of Hamiltonia engaged in expansionary fiscal policy and, as a result, ran a budget deficit. Assume Hamiltonia has an open economy and a flexible exchange rate. What happens to real interest rates and the value of Hamiltonia's currency as a result of the budget deficit?
There will be an increase in real interest rates and an appreciation of Hamiltonia's currency.
As a result of deficit spending, the government of Japan borrowed money in the market for loanable funds. What happens to the exchange rate for the yen and Japanese exports as the result of the change in the market for loanable funds?
Yen appreciates; exports decrease
One of Ghana's top trading partners is India. The currency in Ghana is the cedi and the currency in India is the rupee. Which of the following is a likely consequence of an increase in business optimism in Ghana?
a depreciation of the rupee against the cedi
Read → as "leads to." Which of the following best describes the chain of events that will occur if the value of the U.S. dollar appreciates?
exports ↓ → Aggregate demand (AD) ↓
