19.3 Chapter Figures
The igure above shows the demand curve for dollars in the foreign exchange market.
1) If the exchange rate rises as shown by the arrow, the price of American exports to
foreigners will be ________, and foreign nations will demand ________ dollars in order to buy
________ American exports.
A) cheaper; more; more
B) higher; more; more
C) cheaper; fewer; fewer
D) cheaper; fewer; more
E) higher; fewer; fewer
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
71
2) Which of the following factors could lead to an upward movement along the demand
curve as indicated by the arrow?
i. an increase in the U.S. interest rate
ii. a decrease in the U.S. interest rate
iii. an increase in the expected future U.S. exchange rate.
A) i only
B) ii only
C) i and iii
D) ii and iii
E) None of the factors could lead to the upward movement illustrated by the arrow.
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
72
The igure above shows demand curves for dollars in the foreign exchange market.
3) The demand curve shifts rightward from D0 to D1 when the U.S. interest rate ________
and foreign interest rates are unchanged. The demand curve shifts rightward from D0 to
D1 when the expected future exchange rate ________.
A) rises; falls
B) falls; rises
C) rises; rises
D) falls; falls
E) None of the above answers is correct because the factors mentioned lead to movements
along the demand curve and not to shifts of the demand curve.
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
73
4) Based on the igure above, which of the following factors could lead the demand curve to
shift rightward from D0 to D1?
A) a rise in the U.S. exchange rate
B) a fall in the U.S. exchange rate
C) a rise in the U.S. interest rate
D) a fall in expected future U.S. exchange rate
E) a rise in foreign interest rates
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
5) Based on the igure above, which of the following factors could lead the demand curve to
shift leftward from D0 to D2?
A) a rise in the U.S. exchange rate
B) a fall in the U.S. exchange rate
C) a rise in the U.S. interest rate
D) a rise in expected future U.S. exchange rate
E) a fall in foreign interest rates
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
6) Based on the igure above, which of the following factors could lead the demand curve to
shift leftward from D0 to D2?
A) a rise in the U.S. exchange rate
B) a fall in the U.S. exchange rate
C) a rise in the U.S. interest rate
D) a fall in expected future U.S. exchange rate
E) a rise in foreign interest rates
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
74
The igure above shows the supply curve of dollars in the foreign exchange market.
7) If the exchange rate rises as shown by the arrow in the igure above, the price of imports
coming into the United States will be ________, Americans will supply ________ dollars in
order to get the foreign exchange to purchase ________ imported goods.
A) lower; fewer; more
B) higher; more; more
C) lower; fewer; fewer
D) lower; more; more
E) higher; fewer; more
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
75
The igure above shows supply curves of dollars in the foreign exchange market.
8) The supply curve shifts rightward from S0 to S2 when the U.S. interest rate ________ and
foreign interest rates are unchanged. The supply curve shifts rightward from S0 to S2
when the expected future exchange rate ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls
E) None of the above answers is correct because the factors mentioned lead to movements
along the demand curve and not to shifts of the demand curve.
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
76
9) Based on the igure above, which of the following factors could lead the supply curve to
shift rightward from S0 to S2?
A) a rise in the U.S. exchange rate
B) a fall in the U.S. exchange rate
C) a fall in the U.S. interest rate
D) a rise in expected future U.S. exchange rate
E) a fall in foreign interest rates
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
10) Based on the igure above, which of the following factors could lead the supply curve to
shift leftward from S0 to S1?
A) a rise in the U.S. exchange rate
B) a fall in the U.S. exchange rate
C) a fall in the U.S. interest rate
D) a rise in expected future U.S. exchange rate
E) a rise in foreign interest rates
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
11) Based on the igure above, which of the following factors could lead the supply curve to
shift leftward from S0 to S1?
A) a rise in the U.S. exchange rate
B) a fall in the U.S. exchange rate
C) a fall in the U.S. interest rate
D) a rise in expected future U.S. exchange rate
E) a fall in foreign interest rates
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
77
The igure above shows the market for foreign exchange in 2001 and 2009.
12) Which of the following could have led to the shifts illustrated in the igure above?
i. The U.S. exchange rate was expected to depreciate between 2001 and 2009.
ii. The U.S. exchange rate was expected to appreciate between 2001 and 2009.
iii. The U.S. interest rate rose relative to interest rates in other countries between 2001
and 2009.
A) i only
B) ii only
C) iii only
D) i and iii
E) ii and iii
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
78
13) Which of the following could have led to the shifts illustrated in the igure above?
i. The U.S. exchange rate was expected to depreciate between 2001 and 2009.
ii. The U.S. exchange rate was expected to appreciate between 2001 and 2009.
iii. The U.S. interest rate fell relative to interest rates in other countries between 2001 and
2009.
A) i only
B) ii only
C) iii only
D) i and iii
E) ii and iii
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
14) What would the Fed have done if it had tried to keep the exchange rate at its 2001
level?
A) buy dollars and sell euros
B) buy dollars and buy euros
C) sell dollars and buy euros
D) sell dollars and sell euros
E) None of the above is correct because the Fed cannot afect the exchange rate.
Skill: Level 4: Applying models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
15) Suppose the Fed had tried to keep the exchange rate at its 2001 level. In that case the
Fed would have ________ dollars and its foreign reserves would have ________.
A) bought; decreased
B) sold; decreased
C) bought; increased
D) sold; increased
E) None of the above is correct because the Fed cannot afect the exchange rate.
Skill: Level 4: Applying models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
79
19.4 Integrative Questions
1) Which of the following generally becomes positive when the value of U.S. exports
exceeds the value of U.S. imports?
A) the exchange rate
B) the balance of payments account
C) capital and inancial account
D) current account
E) the oicial settlements account
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
2) For many years, U.S. investment has exceeded savings and government expenditure has
exceeded taxes. These imbalances (deicits) have been inanced through international
________ by the United States as shown by the surplus on the balance of payments ________
account.
A) borrowing; capital and inancial
B) lending; current
C) borrowing; current
D) lending; oicial settlements
E) borrowing; oicial settlements
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
3) If the exchange rate appreciates, then the
A) quantity of dollars demanded decreases.
B) quantity of dollars demanded increases.
C) demand for dollars decreases.
D) demand for dollars increases.
E) supply of dollars decreases.
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Relective thinking
80