Exam 20: Macroeconomics in an Open Economy

A 'speculative attack' is the result of investors' expectations that the future value of a currency will decline.

Your friend states that (i)a strong dollar (appreciation of the dollar)is a sign of a healthy economy and that (ii)a weak dollar (depreciation of the dollar)is a sign of a weak economy.Assuming that other factors that could affect the exchange rate do not change,explain that the opposite is true when the following are considered: a.the effect of rapidly falling incomes in Australia during a recession b.the effect of rapidly rising incomes in Australia during an economic expansion _____________________________________________________________________________________________ _____________________________________________________________________________________________

In international exchange markets,a rise in interest rates in Australia,ceteris paribus,will cause the demand for dollars to ________ and the supply of dollars to ________.

A depreciation of a country's currency is likely to

Soon after the Australia dollar was floated,it ________ against the US dollar and ________ against other major currencies.

Suppose that the European Union experiences a recession and this causes a decline in income in the European Union relative to Australia.Because of this,the dollar will,ceteris paribus,

Refer to Figure 20.2 for the following questions. Figure 20.2 -Refer to Figure 20.2.A depreciation of the euro is represented as a movement from ________.

A 'fixed exchange rate system' is one in which

The model of purchasing power parity is the only way to determine whether a country's currency is undervalued or overvalued.

Suppose that large budget deficits in Australia lead to an increase in Australian interest rates.What effect will the increase in interest rates have on the value of the dollar relative to the $US? What will happen to net exports and aggregate demand as a result? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Countries abandoned the 'gold standard' during periods of ________.

Investors who sell a country's currency in anticipation of a devaluation are engaging in

Under the gold standard,if one US dollar could be traded for one half ounce of gold,and one British pound could be redeemed for one ounce gold,the exchange rate would be ________.

A 'pegged exchange rate' is one in which

The 'Bretton Woods System' was a

When countries aim to keep the value of their currency within a range against another currency,their exchange rate system is referred to as ________.

Refer to Figure 20.3 for the following questions. Figure 20.3 -Suppose the graph in Figure 20.3 represents the market for the British pound under the Bretton Woods System.If the par exchange rate was set at 4 US dollars,

An excess demand of the dollar in exchange for yen will cause

Most economists have argued that in the 2000s,the Chinese yuan was ________ relative to the US dollar,causing the Chinese central bank to ________ US dollars to maintain the peg.

The East Asian exchange rate crisis of the late 1990s resulted in a greater number of countries with pegged exchange rates.