156. Americans needing foreign currencies get those currencies from a bank. The ultimate source of these
currencies is
a.
U.S. investments abroad.
b.
U.S. sales to foreign countries.
c.
U.S. purchases of foreign goods, services, and assets.
d.
the International Monetary Fund.
157. Who among the following is most likely to favor an appreciation of the U.S. dollar?
a.
a German professor visiting Chicago
b.
an American farmer who depends on exports
c.
an American professor on a tour of Austrian universities
d.
Disney World in Orlando, Florida, a popular destination for foreign tourists
158. As the dollar depreciates, which of the following is most likely to occur?
a.
More Americans will travel abroad.
b.
American imports will rise.
c.
More foreigners will visit the United States.
d.
American firms will increase their investments abroad.
159. As the dollar appreciates, which of the following is most likely to occur?
a.
More Americans will travel abroad.
b.
American imports will fall.
c.
More foreigners will visit the United States.
d.
American firms will reduce their investments abroad.
160. If you go to the bank and notice that a dollar buys more Mexican pesos than it used to, then the dollar
has
a.
appreciated. Other things the same, the appreciation would make you less likely to travel
to Mexico.
b.
appreciated. Other things the same, the appreciation would make you more likely to travel
to Mexico.
c.
depreciated. Other things the same, the depreciation would make you less likely to travel
to Mexico.
d.
depreciated. Other things the same, the depreciation would make you more likely to travel
to Mexico.
161. If net exports are negative, then
a.
net capital outflow is positive (indicating an inflow of capital), so foreign assets bought by
Americans are greater than American assets bought by foreigners.
b.
net capital outflow is positive (indicating an inflow of capital), so American assets bought
by foreigners are greater than foreign assets bought by Americans.
c.
net capital outflow is negative (indicating an outflow of capital), so foreign assets bought
by Americans are greater than American assets bought by foreigners.
d.
net capital outflow is negative (indicating an outflow of capital), so American assets
bought by foreigners are greater than foreign assets bought by Americans.
162. If net exports are positive, then
a.
net capital outflow is positive (indicating an inflow of capital), so foreign assets bought by
Americans are greater than American assets bought by foreigners.
b.
net capital outflow is positive (indicating an inflow of capital), so American assets bought
by foreigners are greater than foreign assets bought by Americans.
c.
net capital outflow is negative (indicating an outflow of capital), so foreign assets bought
by Americans are greater than American assets bought by foreigners.
d.
net capital outflow is negative (indicating an outflow of capital), so American assets
bought by foreigners are greater than foreign assets bought by Americans.
163. If for some reason Americans wished to purchase more foreign assets, then other things the same
a.
both the real exchange rate and the quantity of dollars exchanged in the market for
foreign-currency exchange would fall.
b.
both the real exchange rate and the quantity of dollars exchanged in the market for
foreign-currency would rise.
c.
the real exchange rate would rise and the quantity of dollars exchanged in the market for
foreign-currency would fall.
d.
the real exchange rate would fall and the quantity of dollars exchanged in the market for
foreign-currency would rise.
164. Zari takes a summer course in London, England. She doesn’t buy British pounds at the U.S. airport,
where the rate is 1 pound = $1.60. Upon arrival in London, she finds that she can buy pounds for $1.65
each. Which of the following is true?
a.
Zari would have been better off if she had bought pounds in the United States where U.S.
dollars were cheaper.
b.
Zari would have been better off if she had bought pounds in the United States where
pounds were less expensive.
c.
The pounds were more expensive in London because a currency is always most valued in
its home country.
d.
The pounds were more expensive in the United States because they are less available
there.
e.
It doesn’t matter where she buys the pounds, since she can’t use U.S. money anyway once
she’s in England.
165. Suppose U.S. consumers start buying more English shoes and fewer U.S. shoes. What impact will this
trend have on the foreign exchange market?
a.
The U.S. overall demand for foreign exchange, and British pounds, in particular, will
increase.
b.
The U.S. overall demand for foreign exchange, and British pounds, in particular, will
decrease.
c.
The U.S. demand for British pounds will increase, but the overall demand for foreign
exchange will probably decrease.
d.
The U.S. demand for British pounds will decrease, but the overall demand for foreign
exchange will probably increase.
166. Imagine that there are only two nations in the world, the United States and Mexico. If Americans buy
more goods made in Mexico, other things constant, the
a.
U.S. demand curve for Mexican pesos will shift rightward
b.
U.S. demand curve for Mexican pesos will shift leftward
c.
U.S. supply curve of Mexican pesos will shift leftward
d.
U.S. supply curve of Mexican pesos will shift rightward
167. If the U.S. demand for British pounds increases,
a.
the dollar price of a British pound will increase
b.
the dollar price of a British pound will decrease
c.
the exchange rate between dollars and pounds will be out of equilibrium
d.
the pound will fall in value against the dollar
e.
there will be no change in either the value of the dollar or the pound
168. A decrease in the dollar price of the English pound will make
a.
U.S. exports to England increase.
b.
U.S. exports less expensive for the English.
c.
imports from England more expensive for Americans.
d.
U.S. exports to England decrease.
169. The price of one country’s currency in terms of another’s is called
a.
the interest rate.
b.
the inflationary premium.
c.
the discount rate.
d.
the exchange rate.
170. If the dollar price of the English pound goes from $1.50 to $1.20, the dollar has
a.
appreciated, and Americans will find English goods cheaper.
b.
appreciated, and Americans will find English goods more expensive.
c.
depreciated, and Americans will find English goods cheaper.
d.
depreciated, and Americans will find English goods more expensive.
171. If the dollar price of the English pound goes from $1.30 to $1.10, the dollar has
a.
appreciated, and the English will find U.S. goods cheaper.
b.
appreciated, and the English will find U.S. goods more expensive.
c.
depreciated, and the English will find U.S. goods cheaper.
d.
depreciated, and the English will find U.S. goods more expensive.
172. An appreciation in the U.S. dollar would
a.
encourage foreigners to make investments in the United States.
b.
discourage foreign consumers from buying U.S. goods.
c.
increase the number of dollars it would take to buy a Swiss franc.
d.
encourage foreigners to buy more U.S. goods.
173. If a nation’s currency depreciates, this will tend to
a.
shift a nation’s balance of trade toward a deficit.
b.
cause a deficit in the government’s budget (expenditures − revenues).
c.
make foreign goods more expensive for the nation’s citizens.
d.
make foreign goods cheaper for the nation’s citizens.
174. A decrease in the dollar price of foreign currency would cause
a.
the nation’s imports to increase and exports to decline.
b.
the nation’s exports to increase and imports to decline.
c.
both imports and exports to decline.
d.
both imports and exports to rise.
175. When the foreign exchange market is in equilibrium, which of the following will be true?
a.
imports + exports = net capital inflow
b.
imports − exports = net capital inflow
c.
imports − budget deficit = net savings
d.
imports + investment = exports + savings
176. Which of the following is most likely to increase the net inflow of foreign capital?
a.
an increase in the rate of inflation
b.
a decline in real GDP as the economy falls into a recession
c.
a reduction in domestic investment
d.
an increase in the real interest rate in the loanable funds market
177. Which of the following will be true when the foreign exchange market is in equilibrium and exports
exceed imports?
a.
The nation is experiencing a trade deficit.
b.
There will be a net inflow of capital.
c.
There will be a net outflow of capital.
d.
The exchange rate value of the domestic currency must rise.
178. If the nation’s investment opportunities are highly attractive relative to those available abroad, the
nation will tend to
a.
experience an outflow of capital and a trade deficit.
b.
experience an outflow of capital and a trade surplus.
c.
experience an inflow of capital and a trade deficit.
d.
experience an inflow of capital and a trade surplus.
179. If the foreign exchange market is in equilibrium and attractive domestic investment opportunities
result in a net inflow of capital,
a.
the nation will experience a trade deficit.
b.
the nation will experience a trade surplus.
c.
interest rates will rise in the loanable funds market.
d.
the actual rate of unemployment must exceed the natural rate of unemployment.
180. When the exchange rate is determined by market forces and an economy is experiencing a net inflow
of capital, the economy will tend to
a.
run a budget deficit.
b.
run a trade deficit.
c.
experience an increase in the supply of money.
d.
experience a reduction in the supply of money.
181. If equilibrium is present in the foreign exchange market and a nation is experiencing a trade deficit,
a.
the nation must be experiencing a net capital inflow.
b.
the nation must be experiencing a net capital outflow.
c.
the nation’s inflation rate must increase.
d.
the nation’s interest rate must increase.
182. If equilibrium is present in the foreign exchange market and a nation is experiencing a trade surplus,
a.
the nation must be experiencing a net capital inflow.
b.
the nation must be experiencing a net capital outflow.
c.
the nation’s inflation rate must increase.
d.
the nation’s interest rate must increase.
Figure 9-1
183. In Figure 9-1, which of the following correctly labels the curves in the aggregate demand/aggregate
supply model?
a.
(1) is LRAS, (2) is SRAS, and (3) is AD.
b.
(1) is SRAS, (2) is LRAS, and (3) is AD.
c.
(1) is AD, (2) is SRAS, and (3) is LRAS.
d.
(1) is LRAS, (2) is AD, and (3) is SRAS.
Use the figure below to answer the following question(s).
Figure 9-2
184. The output of the economy depicted in Figure 9-2 is
a.
equal to the full-employment output.
b.
greater than the full-employment output.
c.
less than the full-employment output.
d.
not sustainable in the long run.
185. The economy depicted in Figure 9-2 is
a.
operating at less than full employment.
b.
operating at more than full employment.
c.
in short-run equilibrium but not long-run equilibrium.
d.
in long-run equilibrium.
186. The economy depicted in Figure 9-2 is experiencing
a.
an abnormally high rate of unemployment.
b.
an abnormally low rate of unemployment.
c.
its natural rate of unemployment.
d.
an output that cannot be sustained.
187. Which of the following is true for the economy depicted in Figure 9-2?
a.
Output equals potential real GDP.
b.
The actual rate of unemployment equals the natural rate of unemployment.
c.
The output is sustainable in the long run.
d.
All of the above statements are true.
188. Figure 9-2 indicates that the output of the economy, y1, is
a.
greater than the economy’s long-run capacity.
b.
equal to the economy’s long-run capacity.
c.
less than the economy’s long-run capacity.
d.
in short-run equilibrium but not long-run equilibrium.
189. When an economy is experiencing the aggregate demand and supply conditions depicted in Figure 9-2,
a.
the actual rate of unemployment will equal the natural rate of unemployment.
b.
buyers and sellers will have correctly anticipated the level of prices P1.
c.
the output y1 will tend to persist into the future unless market conditions change.
d.
all of the above are correct.
190. Which of the following is true for the economy depicted in Figure 9-2?
a.
Potential output equals y1.
b.
It would be impossible for this economy to achieve an output greater than y1.
c.
When output y1 is achieved, the actual rate of unemployment will exceed the natural rate
of unemployment.
d.
When output y1 is achieved, the actual rate of unemployment will be less than the natural
rate of unemployment.
191. Which of the following is true for the economy depicted in Figure 9-2?
a.
Potential output exceeds y1.
b.
When output y1 is achieved, the actual rate of unemployment will exceed the natural rate
of unemployment.
c.
When output y1 is achieved, the actual rate of unemployment will be less than the natural
rate of unemployment.
d.
When output y1 is achieved, the actual rate of unemployment will equal the economy’s
natural rate of unemployment.
192. Figure 9-2 indicates that the output of the economy, y1, is
a.
greater than the economy’s long-run capacity.
b.
equal to the economy’s long-run capacity.
c.
less than the economy’s long-run capacity.
d.
not consistent will full employment of the economy’s resources.
193. When an economy is experiencing the aggregate demand and supply conditions depicted in Figure 9-2,
a.
the actual rate of unemployment will exceed the natural rate of unemployment.
b.
buyers and sellers will have correctly anticipated the level of prices P1.
c.
the output y1 will not be sustainable in the future.
d.
all of the above are correct.
Figure 9-3
194. Suppose that U.S. tastes for British goods increase. Then, in Figure 9-3
a.
the supply curve shifts from S1 to S2
b.
the supply curve shifts from S2 to S1
c.
the demand curve shifts from D2 to D1
d.
the demand curve shifts from D1 to D2
e.
both demand and supply shift to the right
195. Suppose that British incomes rise relative to incomes in the United States. Then, in Figure 9-3
a.
the demand curve will shift from D1 to D2
b.
the demand curve will shift from D2 to D1
c.
the supply curve will shift from S1 to S2
d.
the supply curve will shift from S2 to S1
e.
neither the demand for nor the supply curve will shift
196. The three reasons why the aggregate demand curve slopes downward are
a.
the international substitution effect, the net exports effect and the interest rate effect.
b.
the interest rate effect, the short run effect and the free rider effect
c.
the net exports effect, the real balance effect and the short run effect
d.
the real balance effect, the international substitution effect and the interest rate effect.