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Exam 31: Open-Economy Macroeconomics

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Question 21

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Use the following to answer questions Scenario: Purchasing Power Parity A car costs $30,000 in the United States and the exchange rate is $1 = £0.50. The same car costs £12,000 in Britain. -(Scenario: Purchasing Power Parity) Look at the scenario Purchasing Power Parity. For there to be purchasing power parity, the nominal exchange rate for the dollar must be:

A) £2.
B) £1.25.
C) £1.
D) £0.40.

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Question 22

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A floating exchange rate: I. leaves monetary policy available for domestic stabilization. II) reduces the uncertainty of international trade.

A) I only
B) II only
C) I and II
D) neither I nor II

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Question 23

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A statement of spending that flows into and out of the country for purchases of assets during a particular period is the nation's:

Use the following to answer questions Scenario: Gizmovia The Republic of Gizmovia wants to maintain the exchange rate of its currency, the gizmo, at $0.50, but the current exchange rate for the gizmo is $0.40. -(Scenario: Gizmovia) Look at the scenario Gizmovia. If Gizmovia uses monetary policy to bring the exchange rate for the gizmo to $0.50, it should _____ interest rates, which will _____ capital outflows of gizmos.

A fixed exchange rate is:

The Canadian dollar is a floating currency. If the exchange rate for the Canadian dollar changes from US$0.95 to US$0.98, the Canadian dollar has appreciated.

If a country adopts a fixed rate, it is committing not to engage in inflationary policies because inflationary policies would destabilize the exchange rate.

Foreign exchange reserves are stocks of foreign currencies that a government maintains to buy its currency in foreign exchange markets.

Money flows into the United States from other countries as a result of:

If a government wants to increase the value of its currency in foreign exchange markets, it can:

When a country's currency undergoes a real appreciation:

Use the following to answer questions Figure: Exchange Market Intervention -(Figure: Exchange Market Intervention) Look at panel (b) in the figure Exchange Market Intervention. Which of the following approaches could the Genovian government use to decrease the value of the geno below its present equilibrium exchange rate and into the target range?

The exchange rate is determined in the commodities markets.

Use the following to answer questions Figure: Change in the Demand for U.S. Dollars -(Figure: Change in the Demand for U.S. Dollars) Look at the figure Change in the Demand for U.S. Dollars. A movement from E₁ to E₂ in this foreign exchange market would cause Americans to purchase _____ goods and services from Europe.

A revaluation will make exports _____expensive and imports _____ expensive.

A devaluation of a currency tends to decrease the current account deficit.

If the government wants to decrease the value of its currency in foreign exchange markets, it can use expansionary monetary policy.

Why did China buy $450 billion in foreign exchange reserves in 2010?

Explain the impact of an expansionary monetary policy in the United States, where exchange rates are floating.

Suppose a country has floated its currency and the central bank sets an expansionary monetary policy. Which of the following is LIKELY to occur?