14) During this year, a country reports imports of $1,000 billion, exports of $1,100 billion,
foreign investment in the country of $900 billion, investment abroad of $1,200 billion, net
interest and net transfers of zero. What is the country’s current account balance?
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
15) If the current account balance is $235 billion and U.S. oicial reserves increased by
$35 billion, what is the oicial settlements account balance and the capital and inancial
account balance?
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
The table has some of the U.S. balance of payments account.
16) The table above gives some of the balance of payments accounts of the United States in
2017.
a. What is the current account balance?
b. What is the capital and inancial account balance?
c. What is the oicial settlements account balance?
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
89
17) The table above gives some of the balance of payments accounts of the United States in
2019.
a. What is the current account balance?
b. What is the capital and inancial account balance?
c. What is the oicial settlements account balance?
d. What is the balance of all account payments?
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
19.6 Essay: The Exchange Rate
1) In the foreign exchange market, how will each of the following inluences afect the
demand for dollars and the demand curve for dollars?
a. an increase in the exchange rate
b. an increase in the U.S. interest rate
c. a fall in the expected future exchange rate
Skill: Level 1: Deinition
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
90
2) Name three factors in the foreign exchange market that afect either the quantity of
dollars demanded or the demand for dollars. Discuss whether the factor increases or
decreases the number of dollars people want to hold.
Skill: Level 1: Deinition
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
3) Why do people and irms in the United States supply dollars to the foreign exchange
market?
Skill: Level 1: Deinition
Section: Checkpoint 19.2
Status: Old
AACSB: Relective thinking
4) Explain the efect on the demand for dollars in the foreign exchange market of an
increase in the U.S. interest rate diferential.
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
5) In the foreign exchange market, how does a fall in the U.S. interest rate afect the supply
of dollars?
Skill: Level 2: Using deinitions
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
91
6) In the foreign exchange market, how does a change in expected future U.S. exchange
rate afect the supply of dollars?
Skill: Level 2: Using deinitions
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
7) In the foreign exchange market, how does a change in expected future U.S. exchange
rate afect the demand for dollars?
Skill: Level 2: Using deinitions
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
8) What happens in the foreign exchange market if the U.S. interest rate increases? What is
the efect on the exchange rate?
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
9) “In the foreign exchange market, if the demand for the U.S. dollar increases, the U.S.
dollar appreciates in value.” Briely explain whether the previous statement is correct or
incorrect.
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
10) Why can exchange rates be very volatile?
rate soars higher.
Skill: Level 2: Using deinitions
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
11) What are the “deep” factors that change exchange rate expectations?
Skill: Level 2: Using deinitions
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
12) “Fluctuations in exchange rates, other things remaining the same, create a situation in
which money buys the same amount of goods and services in diferent currencies.” What
does the previous statement describe? Will these luctuations occur in the short run or the
long run?
Skill: Level 2: Using deinitions
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
93
13) Explain how the Fed intervenes in the foreign exchange market and what the efects
are of the Fed’s actions.
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
14) If the Fed wants to lower the U.S. exchange rate, what action should it take in the
foreign exchange market? Why does the action lower the exchange rate?
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
94
15) In the igure above, illustrate the efect of an increase in the U.S. interest rate. What is
the efect on the foreign exchange rate?
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
95
16) The igure above illustrates the U.S. foreign exchange market. Illustrate how the
exchange rate changes if the expected future exchange rate falls. Does the dollar
appreciate or depreciate?
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
96