Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
57. The exchange rate for the Mexican peso changes from $1 = 5 pesos to $1 = 6 pesos. This
change will lead to:
58. If the U.S. dollar appreciates relative to the British pound, then:
59. All else being equal, increased U.S. exports to nations in the European Union create a:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
60. In a market graph showing the supply and demand for British pounds in terms of U.S.
dollars, the demand-for-pounds curve is downsloping because:
61. In a market graph showing the supply and demand for British pounds in terms of U.S.
dollars, the supply-of-pounds curve is upsloping because:
62. Consider the currency market for British pounds and U.S. dollars. A decrease in the
supply of British pounds results in:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
63. Consider the currency market for British pounds and U.S. dollars. An increase in the
demand for British pounds results in:
64. Consider the currency market for British pounds and U.S. dollars. An increase in the
supply of British pounds:
65. Consider the currency market for Japanese yen and U.S. dollars. An increase in the supply
of Japanese yen results in:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
66. Consider the currency market for Japanese yen and U.S. dollars. A decrease in the demand
for Japanese yen results in:
67. Refer to the above graph. If Canadians buy more U.S. goods, then:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
68. Refer to the above graph. If U.S. citizens flock to Canada for summer vacations and buy
more Canadian goods and services, then the:
69. Refer to the above graph. Higher inflation in the United States relative to that in Canada,
ceteris paribus, is predicted to cause a(n):
70. Other things being equal, an increase in the U.S. rate of inflation is likely to cause an
increase in the:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
71. Which statement is correct?
72. A currency depreciation on the foreign exchange market will:
73. United States exports, foreign travel in the United States, and foreign capital inflow into
the United States give rise to:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
74. When the U.S. dollar decreases in value relative to foreign currencies the:
75. All of the following would add to the demand for U.S. dollars except:
76. Other things being equal, which is a necessary consequence of a depreciation of the U.S.
dollar ($) against other currencies?
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
77. Other things being equal, the international value of foreign currencies will increase against
the U.S. dollar ($) if:
78. When real interest rates fall in the United States as compared to other nations, other things
being equal, we would expect the dollar to experience:
79. If Japanese autos increase in popularity in the United States, then this event is most likely
to cause the Japanese yen to:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
80. If there is a recession in the United Kingdom, and a reduction in British imports, and an
economic boom in the United States, and an increase in U.S. imports, then these events are
most likely to cause the British pound to:
81. If Switzerland has a much lower inflation rate than the United States, then this event is
most likely to cause the Swiss franc to:
82. If real interest rates rise in the United Kingdom relative to the United States, then this
event is most likely to cause the British pound to:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
83. If currency speculators believe South Korea will have much lower inflation in the future
than the United States, then this event is most likely to cause the South Korean won to:
84. An increase in the income of country A relative to the income of country B will usually
lead to an increase in country:
85. Which would cause the supply of U.S. dollars in the United Kingdom to increase?
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
Assume that Japan and the United States are engaged in a system of flexible exchange rates.
86. Refer to the above graph. If more people in the United States decide to purchase Japanese
cars, what effect will this have on the market for yen?
87. Refer to the above graph. If more Japanese decide to visit the United States for their
vacations:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
88. Refer to the above graph. One U.S. dollar will purchase how many Japanese yen?
89. Refer to the above graph. An increase in the supply of yen will result in:
90. Refer to the above graph. An increase in the demand for yen will result in:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
21–33
91. Which of the following would tend to raise the value of the U.S. dollar in foreign
exchange markets?
Assume that U.S. and European governments adopt a system of flexible exchange rates, and
the figure below shows the market for euros.
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
92. Refer to the above graph. If more people in Europe decide to purchase U.S. cars, what
effect will this have on the market for euros?
93. Refer to the above graph. One U.S. dollar will purchase how many euros?
94. Refer to the above graph. If currency traders think the European economy will experience
a recession and the U.S. economy will not, then this event will most likely cause the:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
21–35
95. With flexible exchange rates, an increase in U.S. interest rates can be expected to:
96. To maintain a fixed exchange rate, the government can use the following tools, except:
The figure below shows the supply and demand graphs for dollars.
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
97. Refer to the above diagram. Assume the initial demand for and supply of dollars are
shown by D1 and S1. The exchange rate will be:
98. Refer to the above diagram. Assume the initial demand for and supply of dollars are
shown by D1 and S1. Now suppose that Great Britain increases its imports of American
products. Assuming freely floating exchange rates:
99. Refer to the above diagram. Assume the initial demand for and supply of dollars are
shown by D1 and S1. Assume Britain’s demand for dollars increases from D1 to D2. If the
British government wishes to fix the exchange rate at the initial level, then it would be faced
with a problem of:
Chapter 21 – The Balance of Payments, Exchange Rates, and Trade Deficits
21–37
100. Refer to the above diagram. Assume the initial demand for and supply of dollars are
shown by D1 and S1. Assume Britain’s demand for dollars increases from D1 to D2. If the
British government wishes to fix the exchange rate at the initial level, one possible way to do
this is for the government to: