Exam 19: Exchange Rates and International Finance

Despite the European Central Bank's (ECB)hawkish stance on inflation,the Great Recession in the second half of the 2000s forced the ECB to lower interest rates in the eurozone.What would be the impact of this policy on the United States economy assuming the Fed did not change interest rates?

In the era of floating exchange rates,currency values relative to each other are determined by:

-Consider Table 19.1.The numbers represent:

When it takes fewer euro to buy one dollar,

The U.S.dollar would appreciate if:

In the long run,the nominal exchange rate is determined by:

-Use the aggregate supply/aggregate demand model in Figure 19.4 to answer the following scenario.The European central bank reduces its interest rates,while the Federal Reserve maintains its federal funds rate.The economy initially moves from point __________ to point __________;eventually,the economy returns to the steady state at point __________.

The reason individuals have to trade currencies is to buy and sell foreign goods.

Which of the following can be used to explain the failure of the law of one price with respect to Big Macs?

The real exchange rate can be decomposed into two parts,the __________ and the __________.

Buying at a low price in one country to sell at a higher price somewhere else to make a profit is called:

In the long run,what value should the real exchange rate have? Explain.In the short run,why is this likely not the case?

If Mexico wants to fix the peso to the U.S.dollar in the short run,

If inflation is higher in the United States than in the United Kingdom,

The Mexican peso crisis was precipitated,in part,by political turmoil.

With the foreign interest rate in the IS model,an increase in the domestic interest rate causes __________ because __________.

Including the interest rate gap,the net export functionbecomes:

In the short run,the real exchange rate moves with:

To extend the short run to include a more sophisticated version of the trade balance,we include the gap between domestic and foreign inflation rates.

The real exchange rate measures: