Question 1

The U.S. dollar exchange rate, e, expressed as Japanese yen per U.S. dollar, will appreciate when:

Accepted Answer

Americans will demand less Japanese currency when real GDP decreases and we cannot spend as much abroad. This means that the supply of dollars will decrease and the U.S. dollar exchange rate will depreciate when Americas real GDP decreases.

Question 2

Holding all else constant, a decrease in the real interest rate on U.S. assets will ________ the demand for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.

Accepted Answer

A decrease in the real interest rate on U.S. assets will decrease the demand for dollars in the foreign exchange market as foreigners desire fewer U.S. investments. This decreases the exchange rate of pesos per dollar.

Question 3

As the dollar exchange rate, e, decreases, the quantity of dollars supplied in the foreign exchange market ________, and the quantity of dollars demanded in the foreign exchange market ________.

Accepted Answer

Foreign exchange markets operate on the same principals as other markets: as the price of a dollar (the dollar exchange rate)falls, suppliers decrease the number of dollars they bring to market and demanders increase the number of dollars they want to buy.

Question 4

Each of the following would increase the supply of U.S. dollars, shifting the supply curve for dollars to the right, EXCEPT:

Accepted Answer

An appreciation of the U.S dollar relative to other currencies is an upward movement along the supply curve for U.S. dollars. The other answer choices shift the supply curve for dollars to the right.

Question 5

Holding all else constant, an increase in the real interest rate on Mexican assets will ________ the supply for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.

Accepted Answer

Note that if Americans desire Mexican investments, they must first supply dollars to the foreign exchange market to obtain pesos. If the real interest rate on Mexican assets increases, then Americans will want to hold more such investments and supply more dollars. This increase in the supply of dollars will decrease the exchange rate of pesos per dollar.

Question 6

Holding all else constant, an increase in Mexican real GDP will ________ the demand for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.

Accepted Answer

Increased Mexican real GDP increases Mexican demand for American goods and increases the demand for dollars in the foreign exchange market as Mexicans trade pesos for dollars. This increases the exchange rate of pesos per dollar.

Question 7

As the dollar exchange rate, e, increases, the quantity of dollars supplied in the foreign exchange market ________, and the quantity of dollars demanded in the foreign exchange market ________.

Accepted Answer

Foreign exchange markets operate on the same principals as other markets: as the price of a dollar (the dollar exchange rate)rises, suppliers increase the number of dollars they bring to market and demanders decrease the number of dollars they want to buy.

Question 8

The U.S. dollar exchange rate, e, expressed as Japanese yen per U.S. dollar, will depreciate when:

Accepted Answer

The U.S. dollar exchange rate will depreciate when Americans want more Japanese currency. Americans want more Japanese currency when real U.S. GDP increases and Americans desire to spend more abroad.

Question 9

Holding all else constant, a decrease in the real interest rate on Mexican assets will ________ the supply of dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.

Accepted Answer

A decrease in the real interest rate on Mexican assets will decrease the supply of dollars in the foreign exchange market as Americans desire fewer Mexican investments. This increases the exchange rate of pesos per dollar.

Question 10

Holding all else constant, a decrease in U.S. real GDP will ________ the supply for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.

Accepted Answer

Decreased U.S. real GDP decreases U.S. demand for Mexican goods and therefore decreases the supply of dollars in the foreign exchange market as Americas will trade less of their dollars for pesos. This decrease in supply will increase the exchange rate of pesos per dollar.

Question 11

The U.S. dollar exchange rate, e, expressed as Japanese yen per U.S. dollar, will depreciate when:

Accepted Answer

People in Japan will demand less American currency when their real GDP decreases and cannot spend as much abroad. The U.S. dollar exchange rate will depreciate when the Japanese want or demand less American currency.

Question 12

Holding all else constant, an increase in preferences by Mexicans for U.S. goods will ________ the demand for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.

Accepted Answer

An increase in the preferences of Mexicans for American goods will increase the demand for dollars in the foreign exchange market as Mexicans trade pesos for dollars. This increases the exchange rate of pesos per dollar.

Question 13

The exchange rate that equates the quantities of currency supplied and demanded in the foreign exchange market is called the ________ exchange rate.

Accepted Answer

The market equilibrium value of an exchange rate is the exchange rate that equates the quantities of the currency supplied and demanded in the foreign exchange market.

Question 14

Holding all else constant, an increase in U.S. real GDP will ________ the supply for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.

Accepted Answer

Increased U.S. real GDP increases U.S. demand for Mexican goods and therefore increases the supply of dollars in the foreign exchange market as Americas trade more of their dollars for pesos. This increase in supply will decreases the exchange rate of pesos per dollar.

Question 15

Holding all else constant, an increase in the preferences of Americans for Mexican goods will ________ the supply of dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.

Accepted Answer

Increased preferences of Americans for Mexican goods will increase the supply of dollars in the foreign exchange market as Americans trade dollars for pesos. This decreases the exchange rate of pesos per dollar.

Question 16

Each of the following would decrease the demand for U.S. dollars, shifting the demand curve for dollars to the left, EXCEPT:

Accepted Answer

A depreciation of foreign currencies relative to the U.S. dollar is a movement along a given demand curve. The other answers choices shift the demand curve for dollars leftward.

Question 17

Each of the following would increase the demand for U.S. dollars, shifting the demand curve for dollars to the right, EXCEPT:

Accepted Answer

An appreciation of foreign currencies relative to the U.S. dollar is a movement along a given demand curve. The other answer choices shift the demand curve for dollars rightward.

Question 18

Holding all else constant, an increase in the real interest rate on U.S. assets will ________ the demand for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.

Accepted Answer

An increase in the real interest rate on U.S. assets will increase the demand for dollars in the foreign exchange market as foreigners desire more U.S. investments. This increases the exchange rate of pesos per dollar.

Question 19

Each of the following would decrease the supply of U.S. dollars, shifting the supply curve for dollars to the left, EXCEPT:

Accepted Answer

A depreciation of the U.S dollar relative to other currencies is a downward movement along the supply curve for U.S. dollars. The other answer choices shift the supply curve for dollars to the left.

Question 20

The U.S. dollar exchange rate, e, expressed as Japanese yen per U.S. dollar, will appreciate when:

Accepted Answer

The U.S. dollar exchange rate will appreciate when foreigners want more U.S. currency. The Japanese will want more U.S. currency when their real GDP increases and they desire to buy more American goods and services.

Quiz 28: Exchange Rates and the Open Economy

The U.S. dollar exchange rate, e, expressed as Japanese yen per U.S. dollar, will appreciate when:

Holding all else constant, a decrease in the real interest rate on U.S. assets will the demand for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S. dollar exchange rate.

As the dollar exchange rate, e, decreases, the quantity of dollars supplied in the foreign exchange market , and the quantity of dollars demanded in the foreign exchange market .

Each of the following would increase the supply of U.S. dollars, shifting the supply curve for dollars to the right, EXCEPT:

Holding all else constant, an increase in the real interest rate on Mexican assets will the supply for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S. dollar exchange rate.

Holding all else constant, an increase in Mexican real GDP will the demand for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S. dollar exchange rate.

As the dollar exchange rate, e, increases, the quantity of dollars supplied in the foreign exchange market , and the quantity of dollars demanded in the foreign exchange market .

The U.S. dollar exchange rate, e, expressed as Japanese yen per U.S. dollar, will depreciate when:

Holding all else constant, a decrease in the real interest rate on Mexican assets will the supply of dollars in the foreign exchange market and the equilibrium Mexican peso/U.S. dollar exchange rate.

Holding all else constant, a decrease in U.S. real GDP will the supply for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S. dollar exchange rate.

The U.S. dollar exchange rate, e, expressed as Japanese yen per U.S. dollar, will depreciate when:

Holding all else constant, an increase in preferences by Mexicans for U.S. goods will the demand for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S. dollar exchange rate.

The exchange rate that equates the quantities of currency supplied and demanded in the foreign exchange market is called the ________ exchange rate.

Holding all else constant, an increase in U.S. real GDP will the supply for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S. dollar exchange rate.

Holding all else constant, an increase in the preferences of Americans for Mexican goods will the supply of dollars in the foreign exchange market and the equilibrium Mexican peso/U.S. dollar exchange rate.

Each of the following would decrease the demand for U.S. dollars, shifting the demand curve for dollars to the left, EXCEPT:

Each of the following would increase the demand for U.S. dollars, shifting the demand curve for dollars to the right, EXCEPT:

Holding all else constant, an increase in the real interest rate on U.S. assets will the demand for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S. dollar exchange rate.

Each of the following would decrease the supply of U.S. dollars, shifting the supply curve for dollars to the left, EXCEPT:

The U.S. dollar exchange rate, e, expressed as Japanese yen per U.S. dollar, will appreciate when: