Exam 20: Macroeconomics in an Open Economy

What does it mean when one currency is 'pegged' against another currency? _____________________________________________________________________________________________ _____________________________________________________________________________________________

The 'purchasing power parity theory' of exchange rate determination states that:

The 'balance of payments' is a

One advantage of adopting a fixed exchange rate is that

Under the 'Bretton Woods System',

Graph the demand and supply of Australian dollars for euros.Currency speculators think that the value of the dollar relative to the euro is going to fall in the future.Show graphically and explain the effect of this change in currency traders' expectations on the demand and supply of dollars and the resulting change in the exchange rate of euros for Australian dollars. _____________________________________________________________________________________________ _____________________________________________________________________________________________

In order to maintain an undervalued yuan to encourage a trade surplus,the Chinese government must buy US dollars and increase the supply of yuan.

Why does continued foreign investment in Australian shares and bonds,and foreign companies continuing to build businesses in Australia,result in a current account deficit in Australia? _____________________________________________________________________________________________ _____________________________________________________________________________________________

If foreign investment in Australian assets increased,we would expect the demand for Australian dollars to ________ and the dollar to ________.

If Australia exports more than it imports,then

The 'destabilising speculation' that followed the Thai government's attempt to peg its currency to the US dollar resulted in Thailand abandoning its peg.The result was a(n):

How does contractionary monetary policy affect interest rates and net exports in an open economy?

The following are hypothetical data for a country's balance of payments.You can assume the balance on the capital account is zero.Use the data to calculate the following: a.the balance on the current account b.the balance of trade on goods and services c.the balance on the financial account d.net errors and omissions Account Billions of Dollars Exports of Goods 866 Imports of Goods -1118 Exports of Services 335 Imports of Services -266 Net primary income 76 Net secondary income -59 Capital Inflows 1191 Capital Outflows -1050 _____________________________________________________________________________________________ _____________________________________________________________________________________________

A country's balance of payments is best described as a system that records

The demand for yen in exchange for dollars will increase if,ceteris paribus,

The main difficulty with a fixed or pegged exchange rate regime is that the

Refer to Figure 20.5 for the following questions. Figure 20.5 -Assume that the Thai government wants to maintain an exchange rate of 0.04 baht per US dollar,as shown in Figure 20.5.If the Thai economy falls into recession,how will that affect the number of baht the central bank must buy or sell to maintain the peg at 0.04 baht per dollar?

Which of the following is not a feature of the current exchange rate system?

If Australia's current account is in deficit,net foreign investment must be negative by the same amount.

Australian currency continues to be backed by the gold standard to this day.