Question 3 An expansionary monetary policy by the Fed would be expected to: Redu

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Question 3

An expansionary monetary policy by the Fed would be expected to:

Reduce income, reduce imports, and reduce the trade deficit.

Raise income, raise imports, and increase the current account trade deficit.

Reduce income, raise imports, and reduce the trade deficit.

Raise domestic income, reduce imports, and increase the current account trade deficit.

Question 4

Looking at the Euro-Dollar exchange rate, if the demand curve for dollars shifts to the right:

The values of all currencies have depreciated.

The dollar has depreciated.

The dollar has appreciated.

The values of all currencies have appreciated.

Question 5

Looking at the Euro-Dollar exchange rate, if the supply curve for dollars shifts to the right:

The value of the dollar has depreciated.

The cost of U.S. goods to the French has increased.

The value of the dollar has appreciated.

The cost of French goods to Americans has decreased.

Question 6

With a system of flexible floating exchange rates, a United States trade deficit with Japan will lead to (holding everything else constant):

A depreciation of the dollar in relation to the yen.

A decrease in the balance of gold held by the United States.

An increase in the balance of gold held by Japan.

An appreciation of the dollar in relation to the yen.

Question 7

When the dollar appreciates in relation to the Euro, it means that:

It takes more dollars to purchase a fixed amount of gold.

It takes more dollars to purchase Euros.

It takes fewer dollars to purchase a fixed amount of gold.

It takes fewer dollars to purchase Euros.

Question 8

Which of the following happens when the dollar declines in value against other currencies:

The U.S. current account trade deficit remains constant.

The U.S. current account trade deficit increases.

U.S. products become more expensive for foreigners.

The U.S. current account trade deficit declines.

Question 9

If fewer dollars are needed to buy a Euro:

German goods become relatively more expensive to Americans.

Americans will buy more German goods.

Americans will buy fewer German goods.

The dollar loses purchasing power in relation to the Euro.

Question 10

Other things held constant, higher U.S. income would:

Increase the supply of dollars, causing the dollar to appreciate.

Increase the supply of dollars, causing the dollar to depreciate.

Reduce the supply of dollars, causing the dollar to depreciate.

Reduce the supply of dollars, causing the dollar to appreciate.

Question 11

The real exchange rate equals:

The exchange rate adjusted for differences in monetary policy in countries.

The exchange rate adjusted for changes in interest rates in countries.

The exchange rate adjusted for changes in relative prices in countries.

The rate of inflation in other countries less the rate of inflation in the United States.

Question 12

Assume that in the past month there is a $200 billion increase from the previous month in US exports of airplanes, computer software and other goods. Holding everything else constant (including imports), the effect will be:

A decrease in the value of GDP.

An increase in the value of GDP.

This is a current account transaction, thus there is no change in the value of GDP.

This is a capital account transaction, thus there is no change in the value of GDP.

Question 13

Assume that in the past month there is a $200 billion increase from the previous month in the value of US imports of oil due to higher oil prices. Holding everything else constant (including exports), the effect will be:

This is a capital account transaction, thus there is no change in the value of GDP.

A decrease in the value of GDP.

This is a current account transaction, thus there is no change in the value of GDP.

An increase in the value of GDP.

Question 14

Assume that the Chinese government purchases $100 billion worth of U.S. Treasury bonds. The effect will be:

This is a capital account transaction, thus there is no change in the value of GDP.

An increase in the value of GDP.

This is a current account transaction, thus there is no change in the value of GDP.

A decrease in the value of GDP.

Question 15

Caterpillar is a U.S. company that makes construction equipment manufactured in the United States. Which of the following scenarios will be the most advantageous for the company:

The dollar depreciates and there is a decrease in the U.S. economic growth.

The dollar depreciates and there is a decrease in foreign economic growth.

The dollar depreciates and there is an increase in foreign economic growth.

The dollar appreciates and there is an increase in foreign economic growth.

Question 16

Siemens is a European industrial firm. Which of the following scenarios will be the most advantageous for the company's exports to the United States:

The dollar depreciates and there is an increase in U.S. economic growth.

The dollar appreciates and there is an increase in foreign economic growth.

The dollar depreciates and there is a decrease in foreign economic growth.

The dollar appreciates and there is an increase in U.S. economic growth.

Question 17

In January 2001, $1 was equal to 1.06 euro. By January 2009 $1 was worth 0.78 Euro. During this period:

The dollar appreciated and the euro depreciated.

The dollar depreciated and the euro appreciated.

Both the dollar and the euro appreciated.

Both the dollar and the euro depreciated.

Question 18

In January 2001, $1 was equal to 1.06 euro. By January 2009, $1 was worth 0.78 euro. As a result of the change in the value of the dollar:

The prices of imports from Europe increased and the prices of U.S. exports to European consumers increased.

The prices of imports from Europe decreased and the prices of U.S. exports to European consumers decreased.

The prices of imports from Europe decreased and the prices of U.S. exports to European consumers increased.

The prices of imports from Europe increased and the prices of U.S. exports to European consumers decreased.

Question 19

If the value of a currency is determined by the equilibrium of demand and supply in the foreign exchange market, this is called:

Floating exchange rate.

Pegged exchange rate.

Dollarization.

A Currency Board.

Question 20

Assume that government starts a $500 billion stimulus program of increased spending and tax cuts. As a result:

The current account deficit will increase and holding everything else constant, the dollar will appreciate.

The current account deficit will decrease and holding everything else constant, the dollar will appreciate.

The current account deficit will increase and holding everything else constant, the dollar will depreciate.

The current account deficit will decrease and holding everything else constant, the dollar will depreciate.

Question 21

Which of the following statements is accurate in regards to the US dollar:

The central bank is responsible for printing the domestic currency and the value of the currency is adjusted to maintain a fixed level to another currency.

The central bank has no ability to print the domestic currency and dollarization was adopted to minimize domestic inflation.

Banks are responsible for printing the domestic currency and there is a floating exchange rate.

The central bank (e.g. Federal Reserve) is responsible for printing the domestic currency and there is a floating exchange rate.

Question 22

Suppose that monetary policy in the United States leads to an increase in interest rates relative to those in Japan. Which of the following will occur in the capital account:

The demand for yen will increase.

The dollar will appreciate relative to the yen.

The supply of dollars will increase.

The dollar will depreciate relative to the yen.

Question 23

An expansionary monetary policy by the Fed would tend to:

Lower the U.S. inflation rate, make exports cheaper, make imports more expensive, and raise the value of the dollar.

Raise the U.S. inflation rate, make exports more expensive, make imports cheaper, and lower the value of the dollar.

Raise the U.S. inflation rate, make exports cheaper, make imports more expensive, and raise the value of the dollar.

Lower the U.S. inflation rate, make exports more expensive, make imports cheaper, and lower the value of the dollar.

A.

Reduce income, reduce imports, and reduce the trade deficit.

B.

Raise income, raise imports, and increase the current account trade deficit.

C.

Reduce income, raise imports, and reduce the trade deficit.

D.

Raise domestic income, reduce imports, and increase the current account trade deficit.

Explanation / Answer

3 C Reduce income, raise imports, and reduce the trade deficit.

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