(11) How is it possible for a country to import more goods than it exports? The
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Question
(11) How is it possible for a country to import more goods than it exports? The government can subsidize imports. The government can subsidize exports. Foreigners can lend the country money. Private domestic banks can lend the country money.
(12) The nominal foreign exchange rate is the value of foreign goods in the domestic currency. the value of domestic goods in the foreign currency. the rate at which one currency is traded for another. the difference between what a good costs in the domestic currency and the foreign currency.
(13) If the value of the dollar depreciates, we would expect that more dollars would be needed to purchase a unit of foreign currency. that fewer dollars would be needed to purchase a unit of foreign currency. banks to be less willing to sell dollars than they were before the depreciation. banks to be more willing to sell dollars than they were before the depreciation.
(14) Suppose a bottle of French wine costs 70 francs. If the exchange rate moves from 6 francs/dollar to 7 francs/dollar, how much does the price of the wine change measured in dollars? The price rises from $10 to $11.66. The price falls from $11.66 to $10. The price remains unchanged, because the price in French francs is constant. The change in price depends on how strong the dollar is.
(15) The real exchange rate shows the amount of foreign currency needed to purchase domestic goods. the amount of domestic currency needed to purchase foreign goods. the rate at which foreign exchange can be purchased. the rate at which goods and services in one country can be converted into goods and services in another country.
(16) When interest rates in the U.S. increase, the supply of dollars ________ and the demand for dollars ________. decreases; increases increases; decreases increases; increases decreases; decreases
(17) The World Trade Organization was established as part of the Bretton Woods agreement. requires members to charge the same prices on goods traded internationally. requires members to reduce tariffs and eliminate non-tariff barriers. is made up of business leaders from all over the world.
(18) If the country imposes a tariff on the product depicted in the graph, then imports
increase from QDD to QDD. increase from QDD QDD to QSD QSD. decrease from QDD QSD to QDD QSD. decrease from QDD to QDD.
(19) If political instability increases abroad, the supply of dollars increases and the dollar appreciates. the supply of dollars decreases and the dollar depreciates. the demand for dollars decreases and the dollar depreciates. the demand for dollars increases and the dollar appreciates.
(20) What is the effect of a tariff on the exchange rate? It causes the domestic currency to appreciate. It causes the domestic currency to depreciate. It affects only the quantity of goods imported, not the exchange rate. It affects only the quantity of goods imported and exported, not the exchange rate.
Explanation / Answer
11. Answer – The government can subsidize import.
By subsidizing the import sector the government can increase the import of the country and thereby it is possible to import more goods than it export.
12. Answer: The rate at which one currency is traded for another.
The number for domestic currency needed to purchase one unit of foreign currency is nominal exchange rate. For example $1 = 20 euro. It means that $1 is required to purchase 20 euro or 20 euro is required or purchase $1.
13. Answer: More dollars would be needed to purchase a unit of foreign currency.
For example if the exchange rate is 2 dollar is equal to 2 euro. When dollar depreciate in value it become 3 dollar is equal to 2 euro.
14. The price rise from $10 to $11.66.
15. Answer: The rate at which goods and services in one country can be converted into goods and services in another country.
For example the real exchange rate between dollar and euro means what amount of goods can be purchased with one unit of dollar from euro countries or with one unit of euro currency can purchase how much goods and services from U.S.
16. Answer: when the interest rates in the U.S increase, the supply of dollar decrease and the demand for dollar increase.
When the Federal Reserve decrease the supply of money, the rate of interest increase and the increase in rate of interest attracts foreign capital to U.S which increase the demand for dollar.
17. Answer: The world trade organization requires members to reduce tariffs and eliminate non-tariff barriers.
WTO is the successor of GATT and it was established with Uruguay Round between 1986 and 94 and come into force in 1995. One of the objectives of WTO is the liberalization of trade among the member countries. For that it requires the reduction of tariff and elimination of non-tariff barriers.
18. Answer: Decrease from QDD-QSD to QDD’-QSD’.
Before tariff the price level was Pw and the domestic supply was QSD and the demand was equal to QDD. The excess demand equal to QSD to QDD was met by import. When the tariff impose the domestic price increase to Pw*T. Then the domestic consumption decrease from QDD to QDD’ then import decrease from QSD QDD to QDD’ QSD’.
19. Answer: The demand for dollar decrease and the dollar depreciate.
The instability abroad badly affects the export from U.S to foreign countries. This will reduce the demand for dollar and cause the depreciation in the value of dollar.
20. Answer: it causes the domestic currency to appreciate.
The imposition of tariff reduce the import. When the economy import, it demands foreign currency and the demand for foreign currency reduce the value of domestic currency. The imposition of tariff creates less demand for foreign currency and thus the balance of payment become favourable to the country and its currency appreciate.
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