112. All of the following are true regarding flexible exchange rates except
113. A system in which governments intervene in foreign exchange markets to limit but not eliminate exchange rate
fluctuations is referred to as
114. A “dirty float” is a system A.
115. A major problem with managed exchange rates is
A. A constant excess supply of U.S. dollars.
116. An abrupt depreciation of a currency whose value was fixed or managed by the government is referred to
as
117. Which of the following is not true concerning a currency bailout?
118. A currency bailout
119.
Refer to Figure 36.5 for the dollar-euro foreign exchange market with the market exchange rate at P1.
The European Union (EU) and U.S. governments have agreed on a fixed exchange rate of P2. This situation
120. One World View article is titled “Dollar’s Fall Puts Big Crimp in European Tourism.” When the U.S.
dollar depreciates against the euro, for U.S. citizens,
A. Living or traveling in Europe becomes more expensive.
121. One World View article, “Weak Dollar Helps U.S. Firms,” discusses the devaluation of the U.S. dollar. When the
value of a currency depreciates, imports become
122. One World View article, “Weak Dollar Helps U.S. Firms,” discusses the devaluation of the U.S. dollar. When the
value of a currency depreciates, exports become
A. More expensive, and imports are more expensive.
123. One World View article, titled “Nobel Prize Was Nobler in October,” reported this about the Nobel Prize in
1992: “Sweden’s decision last month to let the krona float caused the prizes’value to drop from $1.2 million
each when announced in October to $958,000 when King Carl XVI Gustaf presents them Thursday.” Implicitly,
we can conclude that a Nobel Prize is paid in
A. A depreciating dollar.
124. One cartoon in the text shows a tourist on a far-off island saying, “How can I relax, knowing that out there,
somewhere, somehow, someone’s attacking the dollar?” Which of the following shifts in the foreign exchange
125. One World View article, “The Risks of China’s Foreign-Exchange Stockpile,” states that
126. The article on China’s $4 trillion of reserves indicates that the yuan’s depreciation is due to A.
127. In the article on China holding $4 trillion in dollars, for every dollar it holds in reserves, it prints
128. By holding so much in foreign currency reserves, China is risking
129. To prevent inflation caused by holding so much foreign currency, China must
130. The balance of payments is the domestic price of a foreign currency.
131. The foreign exchange market is where currencies are traded for one another.
132. Foreign demand for U.S. dollars also represents a supply of dollars.
133. When the dollar price of yen increases, Honda automobiles from Japan become cheaper to U.S. residents.
134. The excess supply of dollars created by a balance–of-trade deficit must be offset by outflows of capital.
135. In the current account, a deficit in the trade balance is necessarily offset by a surplus in the service balance.
136. The capital account balance equals foreign purchases of U.S. assets minus U.S. purchases of foreign assets.
137. Yesterday the exchange rate was € 1 = $1.30, and today it is € 1 = $1.35. In this case the dollar has
appreciated.
138. If income in the United States rises relative to income in Japan, the yen should appreciate against the
dollar, ceteris paribus.
139. If income is rising faster in Japan than in the United States, there will be an increase in the demand for the yen
and a decrease in the demand for the dollar.
140. If the Russian ruble depreciates relative to the U.S. dollar, Russian steel becomes more expensive for
American firms to purchase.
141. The inflow of foreign investment into the U.S. economy reflects a level of confidence in the United States.
142. If there are no reserves, domestic adjustments to payment imbalances under fixed exchange rates require
surplus countries to forsake full employment and deficit countries to forsake price stability.
143. Under a flexible exchange rate system, there is no need for foreign exchange reserves.
144. In a floating exchange rate system, the capital account balance equals the negative of the current
account balance.
145. Industrial countries are not usually involved in currency bailouts since they are not likely to be affected by
the devaluation of another country’s currency.
FALSE
146. Explain the forces that can cause an exchange rate to change.
147. Use a model of the dollar-euro foreign exchange market to illustrate how the value of the dollar is determined
in terms of the euro. Identify two factors that would increase the value of the dollar in terms of the euro.
148. Explain what economists mean when they say that the United States is a net debtor nation. Identify a potential
problem and a positive aspect associated with this status.
149. Under a fixed exchange rate regime, what will happen to the balance of payments for the United States and
Mexico when the demand for Mexican goods rises? What is the only possible solution to this problem, given
the fixed exchange rate?
150. How can trade policy, fiscal policy, and monetary policy be used to support fixed exchange rates when there is
a surplus of U.S. dollars?
151. State the case for and the case against currency bailouts.