Question 1

If the exchange rate $E$ rises, what happens to the quantity of dollars demanded and along which curve does the movement occur?

Accepted Answer

The quantity demanded decreases; movement occurs along the demand curve for dollars.

Question 2

If the U.S. dollar depreciates against the euro, what can the Federal Reserve do to keep the dollar's exchange rate stable?

Accepted Answer

Buy dollars in the foreign exchange market.

Question 3

If the prices for the same goods and services are different in two nations, the exchange rate adjusts over the long run to achieve:

Accepted Answer

Purchasing power parity between the two currencies.

Question 4

If the exchange rate is constant and U.S. imports increase, then in the foreign exchange market the:

Accepted Answer

Supply of U.S. dollars increases.

Question 5

If the exchange rate appreciates, then:

Accepted Answer

Quantity of dollars demanded decreases.

Question 6

To appreciate the U.S. dollar against the Mexican peso, in the foreign exchange market the Fed could ______ dollars and ______ pesos.

Accepted Answer

Buy dollars; sell pesos.

Question 7

An increase in the U.K. interest rate ______ the demand for U.S. dollars and ______ the exchange rate.

Accepted Answer

Decreases; depreciates.

Question 8

When the U.S. interest rate differential rises, the demand for dollars ______ and the demand curve for dollars shifts ______.

Accepted Answer

Rises; rightward.

Question 9

The U.S. interest rate has ______ on the supply of dollars and has ______ on the demand for dollars.

Accepted Answer

No effect; an effect.

Question 10

As the U.S. exchange rate falls, the price of U.S. imports ______ and the quantity supplied of dollars ______.

Accepted Answer

Rises; increases.

Question 11

If the exchange rate changes from 1.00 euro per dollar to 1.10 euro per dollar, the dollar has:

Accepted Answer

Appreciated against the euro.

Question 12

Fluctuations in the current account balance are mainly the result of fluctuations in:

Accepted Answer

Net exports.

Question 13

A nation that has invested more in the rest of the world than other countries have invested in it is called a:

Accepted Answer

Creditor nation.

Question 14

The United States switched from being a ______ to being a ______ in the early 1980s, when it started to run large current account ______.

Accepted Answer

Net lender; net borrower; deficits.

Question 15

For most of the years since 1981, the United States has had:

Accepted Answer

A current account deficit.

Question 16

The government's holdings of foreign currency is recorded in the:

Accepted Answer

Capital and financial account.

Question 17

Toyota purchases a truck factory in San Antonio, Texas. This purchase is entered into which of the balance of payment accounts?

Accepted Answer

Capital and financial account.

Question 18

In the capital and financial account, the largest category of international transactions is:

Accepted Answer

Foreign investment in the United States.

Question 19

Foreign investment in the United States and U.S. investment abroad is recorded in the:

Accepted Answer

Capital and financial account.

Question 20

In the current account, the largest category of international transactions is:

Accepted Answer

Imports.

Chapter 19 Quiz

Study Guide - Practice Questions