Question 1

Which of the following is consistent with moving from a surplus to equilibrium in the market for foreign-currency exchange?
A)the exchange rate appreciates making domestic goods relatively more expensive.
B)the exchange rate appreciates making domestic goods relatively less expensive.
C)the exchange rate depreciates making domestic goods relatively more expensive.
D)the exchange rate depreciates making domestic goods relatively less expensive.

Accepted Answer

The answer of Which of the following is consistent with...

Question 2

If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate
A)rises and the quantity of dollars exchanged falls.
B)rises and the quantity of dollars exchanged does not change.
C)rises and the quantity of dollars exchanged rises.
D)falls and the quantity of dollars exchanged does not change.

Accepted Answer

When the supply of dollars in the market for foreign-currency exchange shifts left, it means that the supply of dollars has decreased. As a result, there will be a shortage of dollars in the market, and the demand for dollars will outweigh the available supply. This will cause the exchange rate to rise (since people will be willing to pay more for each dollar) and the quantity of dollars exchanged will fall (since there are fewer dollars available to be exchanged).

Question 3

Figure 32-2 
-Refer to Figure 32-2. If the real exchange rate is 1, then there is a
A)surplus of 100 so the real exchange rate will fall.
B)surplus of 100 so the real exchange rate will rise.
C)shortage of 100 so the real exchange rate will fall.
D)shortage of 100 so the real exchange rate will rise.

Accepted Answer

When the real exchange rate is 1, the quantity of dollars supplied exceeds the quantity demanded by 100, indicating a surplus. In response to a surplus, the real exchange rate tends to fall to restore equilibrium.

Question 4

In the open-economy macroeconomic model, the
A)exchange rate adjusts to equate private saving with the sum of investment, net exports, and net capital outflow.
B)exchange rate adjusts to equate national saving with the sum of investment and net capital outflow.
C)interest rate adjusts to equate private saving with the sum of investment, net exports, and net capital outflow.
D)interest rate adjusts to equate national saving with the sum of investment and net capital outflow.

Accepted Answer

The answer of In the open-economy macroeconomic model, the
A)exchange rate...

Question 5

In the open-economy macroeconomic model, if there is a surplus in the market for foreign-currency exchange, which of the following will move the market to equilibrium?
A)the real exchange rate depreciates and net exports fall.
B)the real exchange rate depreciates and net exports rise.
C)the real exchange rate appreciates and net exports fall.
D)the real exchange rate appreciates and net exports rise.

Accepted Answer

The answer of In the open-economy macroeconomic model, if there...

Question 6

If the supply of dollars in the market for foreign-currency exchange shifts right, then the exchange rate
A)rises and the quantity of dollars exchanged falls.
B)rises and the quantity of dollars exchanged does not change.
C)falls and the quantity of dollars exchanged rises.
D)falls and the quantity of dollars exchanged does not change.

Accepted Answer

The answer of If the supply of dollars in the...

Question 7

If the real exchange rate for the dollar is below the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is
A)less than the quantity demanded and the dollar will appreciate.
B)less than the quantity demanded and the dollar will depreciate.
C)greater than the quantity demanded and the dollar will appreciate.
D)greater than the quantity demanded and the dollar will depreciate.

Accepted Answer

The answer of If the real exchange rate for the...

Question 8

In the open economy macroeconomic model, the price that balances supply and demand in the market for foreign-currency exchange model is the
A)nominal exchange rate.
B)nominal interest rate.
C)real exchange rate.
D)real interest rate.

Accepted Answer

The answer of In the open economy macroeconomic model, the...

Question 9

Figure 32-2 
-Refer to Figure 32-2. At what real exchange rate is the quantity of dollars demanded equal to 500?
A)1
B).8
C).6
D)None of the above are correct.

Accepted Answer

At a real exchange rate of .6, the quantity of dollars demanded is equal to 500. This can be seen by tracing the vertical line from 500 on the y-axis until it intersects with the curve representing the real exchange rate of .6, and then following the horizontal line until it intersects with the x-axis, giving us an exchange rate of .6. Therefore, the correct answer is choice C.

Question 10

If the real exchange rate for the dollar is above the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is
A)greater than the quantity demanded and the dollar will appreciate.
B)greater than the quantity demanded and the dollar will depreciate.
C)less than the quantity demanded and the dollar will appreciate.
D)less than the quantity demanded and the dollar will depreciate.

Accepted Answer

When the real exchange rate for the dollar is above the equilibrium level, it means that the price of the dollar is too high in relation to other currencies, and there is more supply than demand for dollars. This will put downward pressure on the value of the dollar, causing it to depreciate in order to restore the equilibrium. Hence, the quantity of dollars supplied in the market for foreign-currency exchange will be greater than the quantity demanded.

Question 11

If the demand for dollars in the market for foreign-currency exchange shifts right, then the exchange rate
A)rises and the quantity of dollars exchanged rises.
B)rises and the quantity of dollars exchanged does not change.
C)falls and the quantity of dollars exchanged falls.
D)falls and the quantity of dollars exchanged does not change.

Accepted Answer

The answer of If the demand for dollars in the...

Question 12

Which of the following is consistent with moving from a surplus to equilibrium in the market for foreign currency exchange?
A)the exchange rate falls causing U.S. residents to import more
B)the exchange rate falls causing U.S. residents to import less
C)the exchange rate rises causing U.S. residents to import more
D)the exchange rate rises causing U.S. residents to import less

Accepted Answer

Moving from a surplus to equilibrium in the market for foreign currency exchange means that the supply and demand for foreign currency are equal. A decrease in the exchange rate (price of foreign currency in terms of domestic currency) would make foreign goods relatively cheaper for U.S. residents, leading to an increase in demand for imports and a decrease in the surplus of foreign currency. Therefore, the correct option is B - the exchange rate falls causing U.S. residents to import less. This would lead to an increase in demand for foreign currency and help to reach equilibrium in the market.

Question 13

Other things the same, in the open-economy macroeconomic model, if the exchange rate rises,
A)the demand for dollars shifts left.
B)the demand for dollars shifts right.
C)the quantity of dollars demanded falls.
D)the quantity of dollars demanded rises.

Accepted Answer

When the exchange rate (price of foreign currency in terms of domestic currency) rises, it means that the domestic currency has depreciated in value relative to the foreign currency. As a result, domestic goods become cheaper for foreign consumers, which leads to an increase in exports. At the same time, foreign goods become more expensive for domestic consumers, which leads to a decrease in imports. This shift in the trade balance results in a decrease in the demand for dollars (the domestic currency) to purchase foreign goods, and hence a fall in the quantity of dollars demanded.

Question 14

If for some reason Americans desired to decrease their purchases of 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.

Accepted Answer

If Americans decrease their purchases of foreign assets, this would decrease demand for foreign currency, and therefore decrease the quantity of dollars exchanged in the market for foreign currency. At the same time, the decrease in demand for foreign currency would cause the US dollar to appreciate, leading to an increase in the real exchange rate. Therefore, both the real exchange rate would rise and the quantity of dollars exchanged in the market for foreign currency would fall.

Question 15

If the demand for dollars in the market for foreign-currency exchange shifts left, then the exchange rate
A)rises and the quantity of dollars exchanged rises.
B)rises and the quantity of dollars exchanged does not change.
C)falls and the quantity of dollars exchanged falls.
D)falls and the quantity of dollars exchanged does not change.

Accepted Answer

The answer of If the demand for dollars in the...

Question 16

In the open-economy macroeconomic model, equilibrium in the market for foreign-currency exchange is determined by the equality between the supply of dollars which comes from
A)U.S. national saving and the demand for dollars for U.S. net exports.
B)U.S. net capital outflow and the demand for dollars for U.S. net exports.
C)domestic investment and the demand for U.S. net exports.
D)foreign demand for U.S. goods and services and U.S. demand for foreign goods and services.

Accepted Answer

Equilibrium in the market for foreign-currency exchange is determined by the equality between the supply of dollars and the demand for dollars. The supply of dollars comes from U.S. net capital outflow and the demand for dollars comes from U.S. net exports. Therefore, choice B is the best answer.

Question 17

Figure 32-2 
-Refer to Figure 32-2. What are the equilibrium values of the real exchange rate and net exports?
A)1, 300
B).8, 400
C).6, 500
D)None of the above are correct.

Accepted Answer

The intersection point of the Equilibrium Real Exchange Rate (ERER) and the Net Exports (NX) curve occurs at a real exchange rate of 0.8 and net exports of 400. Therefore, the equilibrium values are (ERER=0.8, NX=400).

Question 18

If for some reason Americans desired to increase their purchases of 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.

Accepted Answer

The answer of If for some reason Americans desired to...

Question 19

Which of the following is consistent with moving from a shortage to equilibrium in the market for foreign currency exchange?
A)the exchange rate falls so foreign residents want to buy more U.S. goods and services
B)the exchange rate falls so foreign residents want to buy fewer U.S. goods and services
C)the exchange rate rises so foreign residents want to buy more U.S. goods and services
D)the exchange rate rises so foreign residents want to buy fewer U.S. goods and services

Accepted Answer

The answer of Which of the following is consistent with...

Question 20

Suppose the real exchange rate is such that the market for foreign-currency exchange has a surplus. This surplus will lead to
A)an appreciation of the dollar, an increase in U.S. net exports, and so an increase in the quantity of dollars demanded in the foreign exchange market.
B)an appreciation of the dollar, a decrease in U.S. net exports, and so a decrease in the quantity of dollars demanded in the foreign exchange market.
C)a depreciation of the dollar, an increase in U.S. net exports, and so an increase in the quantity of dollars demanded in the foreign exchange market.
D)a depreciation of the dollar, a decrease in U.S. net exports, and so a decrease in the quantity of dollars demanded in the foreign exchange market.

Accepted Answer

The answer of Suppose the real exchange rate is such...

Quiz 32: A Macroeconomic Theory of the Open Economy

Which of the following is consistent with moving from a surplus to equilibrium in the market for foreign-currency exchange?

If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate

Figure 32-2 -Refer to Figure 32-2. If the real exchange rate is 1, then there is a

In the open-economy macroeconomic model, the

In the open-economy macroeconomic model, if there is a surplus in the market for foreign-currency exchange, which of the following will move the market to equilibrium?

If the supply of dollars in the market for foreign-currency exchange shifts right, then the exchange rate

If the real exchange rate for the dollar is below the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is

In the open economy macroeconomic model, the price that balances supply and demand in the market for foreign-currency exchange model is the

Figure 32-2 -Refer to Figure 32-2. At what real exchange rate is the quantity of dollars demanded equal to 500?

If the real exchange rate for the dollar is above the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is

If the demand for dollars in the market for foreign-currency exchange shifts right, then the exchange rate

Which of the following is consistent with moving from a surplus to equilibrium in the market for foreign currency exchange?

Other things the same, in the open-economy macroeconomic model, if the exchange rate rises,

If for some reason Americans desired to decrease their purchases of foreign assets, then other things the same

If the demand for dollars in the market for foreign-currency exchange shifts left, then the exchange rate

In the open-economy macroeconomic model, equilibrium in the market for foreign-currency exchange is determined by the equality between the supply of dollars which comes from

Figure 32-2 -Refer to Figure 32-2. What are the equilibrium values of the real exchange rate and net exports?

If for some reason Americans desired to increase their purchases of foreign assets, then other things the same

Which of the following is consistent with moving from a shortage to equilibrium in the market for foreign currency exchange?

Suppose the real exchange rate is such that the market for foreign-currency exchange has a surplus. This surplus will lead to