Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
57. A market in which the money of one nation is exchanged for the money of another nation
is a:
58. If the dollar price of yen rises, then:
59. If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 200 yen, then
the dollar price of yen is:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
60. The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $.10. We
can conclude that:
61. The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can
conclude that:
62. If the rate of exchange for a pound is $4, the rate of exchange for the dollar is:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
63. In considering yen and dollars, when the dollar rate of exchange for the yen rises:
64. In considering euros and dollars, the rates of exchange for the euro and the dollar:
65. If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South
Korean won, then:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
66. If the exchange rate changes so that more Mexican pesos are required to buy a dollar,
then:
67. Depreciation of the dollar will:
68. Appreciation of the Canadian dollar will:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
69. If the dollar depreciates relative to the Russian ruble, the ruble:
70. The U.S. demand for British pounds is:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
71. The U.S. supply of Japanese yen is:
72. The U.S. demand for euros is:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
73. Which of the following will generate a demand for country X’s currency in the foreign
exchange market?
The following diagram is a flexible exchange market for foreign currency:
74. Refer to the above diagram. At the equilibrium exchange rate:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
75. Refer to the above diagram. At the price $.80 for 1 euro:
76. Refer to the above diagram. Other things equal, a rightward shift of the demand curve
would:
77. Refer to the above diagram. Other things equal, a leftward shift of the demand curve
would:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
78. Refer to the above diagram. Other things equal, a leftward shift of the supply curve
would:
79. Refer to the above diagram. Other things equal, a rightward shift of the supply curve
would:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
80. Refer to the above diagram. The initial demand for and supply of pesos are shown by D1
and S1. The exchange rate will be:
81. Refer to the above diagram. The initial demand for and supply of pesos are shown by D1
and S1. Suppose the United States reduces its imports of Mexican goods, shifting its demand
for pesos from D1 to D2. If the United States was operating under a system of exchange
controls, the U.S. government would:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
82. Refer to the above diagram. The initial demand for and supply of pesos are shown by D1
and S1. Suppose the United States reduces its imports of Mexican goods, shifting its demand
for pesos from D1 to D2. If the United States and Mexico were both on the international gold
standard:
83. Refer to the above diagram. The initial demand for and supply of pesos are shown by D1
and S1. Suppose the United States reduces its imports of Mexican goods, shifting its demand
for pesos from D1 to D2. Under a system of freely floating exchange rates:
84. Under a system of freely flexible (floating) exchange, rates a U.S. trade deficit with
Mexico will tend to cause:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
21–32
85. Which of the following have substantially equivalent effects on a nation’s volume of
exports and imports?
86. If in a system of fixed exchange rates the dollar price of euros is above the market
equilibrium level:
Answer the question on the basis of the following table which indicates the dollar price of
libras, the currency used in the hypothetical nation of Libra. Assume that a system of freely
floating exchange rates is in place.
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
87. Refer to the above table. The equilibrium dollar price of libras is:
88. Refer to the above table. The exchange rate is:
89. Refer to the above table. Suppose that Libra decided to import more U.S. products. We
would expect the quantity of libras:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
Answer the question on the basis of the following information: In 1985, the exchange rate
between the U.S. dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 =
110 yen.
90. Refer to the above information. Between 1985 and 2003 the:
91. Refer to the above information. Which one of the following might be a plausible
explanation for the change in the dollar-yen exchange rate from 1985 to 2003?
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
21–35
92. Under a system of freely floating exchange rates, an increase in the international value of
a nation’s currency will:
93. According to the purchasing power parity theory of exchange rates:
94. The idea that freely floating exchange rates equate the buying power of national
currencies is called:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
95. Assume that Japan and South Korea have flexible exchange rates. Other things equal, if
economic growth is more rapid in Japan than in South Korea:
96. Assume that Brazil and Mexico have floating exchange rates. Other things unchanged, if
the price level is stable in Mexico but Brazil experiences rapid inflation:
97. Assume that Switzerland and Britain have floating exchange rates. Other things
unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
98. Refer to the above diagram where D and S are the United States’ demand for and supply of
Swiss francs. At the equilibrium exchange rate, E, the United States’ balance of payments is in
equilibrium. A shift of the demand curve to D’ might be the result of:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
99. Refer to the above diagram where D and S are the United States’ demand for and supply of
Swiss francs. At the equilibrium exchange rate, E, the United States’ balance of payments is in
equilibrium. Given a change in demand from D to D’ the United States could maintain the
dollar price of Swiss francs by:
100. Refer to the above diagram where D and S are the United States’ demand for and supply
of Swiss francs. At the equilibrium exchange rate, E, the United States’ balance of payments is
in equilibrium. Under a system of flexible exchange rates, the shift in demand from D to D’
will:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
101. Refer to the above diagram where D and S are the United States’ demand for and supply
of Swiss francs. At the equilibrium exchange rate, E, the United States’ balance of payments is
in equilibrium. Under a system of fixed exchange rates, the shift in demand from D to D’ will
cause:
102. If the United States has full employment and the dollar dramatically depreciates in value,
we can expect (other things equal):