Question 1

If the exchange rate changes from $0.08 = 1 mexican peso to $0.09 = 1 mexican peso,then

Accepted Answer

A) both the peso and dollar have appreciated. 
B) both the peso and dollar have depreciated. 
C) the peso has appreciated and the dollar has depreciated. 
D) the peso has depreciated and the dollar has appreciated.

Question 2

Currency traders expect the value of the dollar to rise.What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?

Accepted Answer

A) Demand for dollars will increase,and supply of dollars will decrease. 
B) Demand for dollars will increase,and supply of dollars will increase. 
C) Demand for dollars will decrease,and supply of dollars will increase. 
D) Demand for dollars will decrease,and supply of dollars will decrease.

Question 3

Which of the following would you expect to increase both interest rates and exchange rates?

Accepted Answer

A) expansionary monetary policy 
B) contractionary monetary policy 
C) expansionary fiscal policy 
D) Both B and C will increase both interest rates and exchange rates.

Question 4

Assuming no change in the nominal exchange rate,how will a lower rate of inflation in the United States relative to Canada affect the real exchange rate between the two countries? (Assume the United States is the "domestic" country.)

Accepted Answer

A) The real exchange rate will rise. 
B) The real exchange rate will fall. 
C) The real exchange rate will be unaffected. 
D) The impact on the real exchange rate cannot be predicted.

Question 5

If American demand for purchases of Mexican goods has increased,how would you expect the equilibrium exchange rate in the market for dollars to respond? Support your answer graphically.

Accepted Answer

The answer of If American demand for purchases of Mexican...

Question 6

Public saving equals taxes minus government spending minus transfer payments.

Accepted Answer

A) True 
 B)False

Question 7

A Canadian oil company hires geological survey services from the United States.If all else remains equal,this will

Accepted Answer

A) increase net exports. 
B) increase the balance of trade. 
C) decrease the current account balance. 
D) increase the financial account.

Question 8

The price of domestic goods in terms of foreign goods is referred to as

Accepted Answer

A) the nominal exchange rate. 
B) the relative inflation rate. 
C) the current account balance. 
D) the real exchange rate.

Question 9

The difference between the value of the goods a country exports and the value of the goods a country imports is the country's

Accepted Answer

A) financial account balance. 
B) current account balance. 
C) balance of trade. 
D) capital account balance.

Question 10

If the exchange rate between the Mexican peso and the U.S.dollar expressed in terms of pesos per dollar is 13.5 pesos = 1 dollar,what is the exchange rate when expresses in terms of dollars per peso?

Accepted Answer

The answer of If the exchange rate between the Mexican...

Question 11

If net foreign investment is positive,which of the following must be true? (Assume that the capital account is zero and net transfers are zero.)

Accepted Answer

A) Capital outflows are less than capital inflows. 
B) Domestic investment must be less than national saving. 
C) Net exports are negative. 
D) None of the above are true when net foreign investment is positive.

Question 12

Based on the following information,what is the balance on the current account? Exports of goods and services = $12 billion
Imports of goods and services= $14 billion
Net income on investments = -$4 billion
Net transfers = -$1 billion
Increase in foreign holdings of assets in the United States = $6 billion
Increase in U.S.holdings of assets in foreign countries = -$3 billion

Accepted Answer

A) -$7 billion 
B) -$3 billion 
C) -$2 billion 
D) $1 billion

Question 13

When the United States sends money to the Philippines to help typhoon survivors,the transaction is recorded in

Accepted Answer

A) the capital account. 
B) the current account. 
C) the financial account. 
D) the foreign exchange account.

Question 14

If national saving increases,________.(Assume that the capital account is zero and net transfers are zero.)

Accepted Answer

A) the sum of domestic investment and net exports must decrease 
B) the sum of domestic investment and foreign investment must increase 
C) the sum of domestic investment and foreign investment must decrease 
D) foreign investment must decrease to cover the gain

Question 15

Suppose the Fed pursues a policy that leads to higher interest rates in the United States.How will this policy affect real GDP in the short run if the United States is an open economy? This policy

Accepted Answer

A) reduces investment spending,consumption spending and net exports,all of which reduce GDP. 
B) reduces investment spending and consumption spending,both of which reduce GDP.Net exports rise which increases GDP. 
C) reduces investment spending and consumption spending,both of which reduce GDP.Net exports fall which increases GDP. 
D) increases investment spending,consumption spending,and net exports,all of which increase GDP.

Question 16

Which of the following equations is true in an open economy?

Accepted Answer

A) Private saving = net foreign investment + domestic investment. 
B) Domestic saving = net capital flows. 
C) Net exports = -Financial account balance. 
D) Net exports = net foreign investment.

Question 17

Article Summary
Over the past two years, the Indian rupee has fallen 26 percent in value against the U.S. dollar, reaching a record low of 61.80 rupees per dollar in August 2013. The decline reflects increasing capital outflows and pessimism regarding the government's attempts to reverse this trend. The Indian government was expected to announce potential measures to increase the inflow of capital, including the possibility of raising debt abroad, raising money from Indians who live abroad, easing restrictions on overseas borrowing, and raising interest rates. Critics argue that current and well-entrenched policies deter capital inflow from investors and corporations, and raising interest rates may reduce confidence in the economy, which experienced a decade-low growth rate of 5 percent in 2013.
Source: Rafael Nam, "Rupee over 60: Why Indian currency weakness may be here to stay," Reuters, August 8, 2013.

-Refer to the Article Summary.All else equal,a depreciation of the Indian rupee relative to a currency such as the U.S.dollar should ________ the current account balance in India and therefore ________ the financial account balance in India.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease

Question 18

How is the impact of expansionary fiscal policy different in an open economy than in a closed economy?

Accepted Answer

The answer of How is the impact of expansionary fiscal...

Question 19

If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar,how many American dollars are required to buy a product that costs 2.5 Canadian dollars?

Accepted Answer

A) $1.32 
B) $2.23 
C) $2.75 
D) $2.81

Question 20

The recession of 2007-2009 decreased the demand for imports in Japan,which caused the ________ curve for the yen to ________,increasing the exchange rate and the value of the yen.

Accepted Answer

A) supply; right 
B) supply; left 
C) demand; right 
D) demand; left

Exam 18: Macroeconomics in an Open Economy