Question 1

The real exchange rate of Japanese yen to Australian dollars will increase if Australia's price level ________ and the nominal exchange rate of yen to the dollar ________.

Accepted Answer

The answer of The real exchange rate of Japanese yen...

Question 2

Assume that the exchange rate between the dollar and the yen is ¥60 = $1.Suppose the exchange rate changes to ¥100 = $1.Because of the change

Accepted Answer

The exchange rate change indicates the dollar has appreciated relative to the yen, making Japanese goods cheaper for Americans and American goods more expensive for the Japanese. This would generally lead to an increase in imports from Japan to the US (as Japanese goods become cheaper) and a decrease in exports from the US to Japan (as American goods become more expensive for Japanese consumers). However, the question incorrectly references Australia instead of the US or Japan, but the principle of how exchange rate changes affect imports and exports remains the same.

Question 3

Assume that the exchange rate between the dollar and the euro is €0.60 = $1.Suppose the exchange rate changes to €0.50 = $1.Because of the change

Accepted Answer

With the exchange rate decreasing from €0.60 to €0.50, it means that the euro has weakened in value and the dollar has strengthened. This means that US goods become more expensive for Europeans, while European goods become cheaper for Americans. Therefore, Australian exports to Europe should increase as they become relatively cheaper for Europeans, while Australian imports from Europe should decrease due to the increased cost of European goods.

Question 4

Assume that the exchange rate between the dollar and the euro is €1 = $1.Suppose the exchange rate changes to €1.25 = $1.What is the price in dollars of a €200 pair of Italian shoes before and after the exchange rate change?

Accepted Answer

The answer of Assume that the exchange rate between the...

Question 5

Figure 19.2 
-Refer to Figure 19.2.Currency speculators believe that the value of the euro will decrease relative to the dollar.Assuming ceteris paribus,how would this be represented?

Accepted Answer

Supply would decrease, demand would increase and the economy moves from A to D to C.As speculators believe that the value of the euro will decrease relative to the dollar, they will sell euros and buy dollars, leading to a decrease in the supply of euros and an increase in the demand for dollars. This will cause the euro to depreciate against the dollar, moving the economy from point A to point D. As the euro depreciates, it will become cheaper for US consumers to buy European goods, leading to an increase in demand for euros and a decrease in the supply of dollars, moving the economy from point D to point C.

Question 6

An appreciation of a country's currency is likely to

Accepted Answer

An appreciation of a country's currency makes its goods more expensive for foreign buyers, potentially reducing exports and slowing GDP growth.

Question 7

The real exchange rate of British pounds to Australian dollars will increase if the British price level ________ and the nominal exchange rate of pounds to the dollar ________.

Accepted Answer

The real exchange rate increases when the domestic price level decreases or the nominal exchange rate (the value of the domestic currency in terms of the foreign currency) rises. This is because a decrease in the domestic price level makes domestic goods cheaper relative to foreign goods, and a rise in the nominal exchange rate means that the domestic currency can buy more of the foreign currency, making foreign goods relatively more expensive.

Question 8

Figure 19.1 
-Refer to Figure 19.1.Which of the following events causes the shifts in the supply and demand curves in the market for dollars against the British pound shown in the graph above?

Accepted Answer

An increase in interest rates in England would make deposits in British banks more attractive, leading to an increase in demand for British pounds and a decrease in supply of British pounds in the foreign exchange market, causing a shift to the left in the supply curve and a shift to the right in the demand curve for British pounds. This would lead to an appreciation of the British pound against the US dollar. None of the other events listed would directly affect the supply and demand for British pounds in the foreign exchange market.

Question 9

Assume that the exchange rate between the dollar and the yen is ¥100.= $1.Suppose the exchange rate changes to ¥150 = $1.What is the price in yen of a $200 iPod before and after the exchange rate change?

Accepted Answer

Before the exchange rate change: 
$200 x ¥100/$1 = ¥20 000

After the exchange rate change: 
$200 x ¥150/$1 = ¥30 000

Question 10

If the dollar appreciates against the yen,ceteris paribus,this will cause

Accepted Answer

An appreciation of the dollar would make U.S. products more expensive for Japanese consumers, causing a decline in net exports. This decrease in net exports would lead to a fall in the rate of increase in aggregate demand and consequently, real GDP would increase at a lower rate.

Question 11

How does a decrease in value of a country's currency relative to other currencies affect its balance of trade on goods and services?

Accepted Answer

A decrease in the value of a country's currency makes its goods and services cheaper for foreign buyers, leading to an increase in exports. Simultaneously, imports become more expensive, reducing their volume. This typically results in an improved balance of trade.

Question 12

Figure 19.2 
-Refer to Figure 19.2.Assume that Europe experiences an economic boom.Assuming all else remains constant,this would be represented as a movement from

Accepted Answer

An economic boom in Europe would cause an increase in demand for goods and services, which would shift the demand curve from D to D', resulting in a new equilibrium point at C. Therefore, the movement would be from D to C.

Question 13

Figure 19.2 
-Refer to Figure 19.2.A depreciation of the euro is represented as a movement from

Accepted Answer

The answer of Figure 19.2 
-Refer to Figure 19.2.A depreciation...

Question 14

Suppose that interest rates increase in Japan and at the same time the Japanese economy is experiencing a recession.What will happen to the value of the dollar relative to the yen?

Accepted Answer

The increase in interest rates in Japan will make the yen more attractive to investors, leading to an increase in demand for the yen and a decrease in demand for the dollar. The recession in Japan will reduce the demand for imports, leading to a decrease in demand for the yen and an increase in demand for the dollar. The net effect of these two factors will be a depreciation of the dollar relative to the yen.

Question 15

Figure 19.2 
-Refer to Figure 19.2.Suppose that Italians reduce their demand for Australian steel by half.Assuming all else remains constant,this would be represented as a movement from

Accepted Answer

The answer of Figure 19.2 
-Refer to Figure 19.2.Suppose that...

Question 16

Consider the market for dollars against the British pound shown in Figure 19.1.From this graph,we can conclude that the dollar price of a British pound has ________ to ________ dollars per pound.

Accepted Answer

From the graph, we can see that the exchange rate started at around 0.5 dollars per pound and increased to about 2.17 dollars per pound, indicating an increase in the dollar price of a British pound.

Question 17

Figure 19.2 
-Refer to Figure 19.2.An appreciation of the dollar is represented as a movement from

Accepted Answer

The answer of Figure 19.2 
-Refer to Figure 19.2.An appreciation...

Question 18

Figure 19.2 
-Refer to Figure 19.2.Suppose that interest rates in Australia fall relative to those in the European Union.Assuming all else remains constant,how would this be represented?

Accepted Answer

The answer of Figure 19.2 
-Refer to Figure 19.2.Suppose that...

Question 19

Assume the exchange rate between the dollar and yen is ¥80= $1.Suppose that the exchange rate changes to ¥75 = $1.As a result of the change,there will be

Accepted Answer

When the exchange rate changes to ¥75 = $1, the dollar strengthens and the yen weakens. This means that Australian buyers will be able to purchase more Japanese goods for the same amount of dollars. Japanese goods will become relatively cheaper in Australia and therefore, there will be less demand for Australian goods in Japan. This will result in less Japanese goods sold in Australia and more Australian goods sold in Japan.

Question 20

Suppose that the European Union experiences a recession and this causes a decline in income in the European Union relative to Australia.Because of this,the dollar will,ceteris paribus,

Accepted Answer

The answer of Suppose that the European Union experiences a...

Quiz 19: Comparative Advantage, international Trade, and Exchange Rates

The real exchange rate of Japanese yen to Australian dollars will increase if Australia's price level and the nominal exchange rate of yen to the dollar .

Assume that the exchange rate between the dollar and the yen is ¥60 = $1.Suppose the exchange rate changes to ¥100 = $1.Because of the change

Assume that the exchange rate between the dollar and the euro is €0.60 = $1.Suppose the exchange rate changes to €0.50 = $1.Because of the change

Assume that the exchange rate between the dollar and the euro is €1 = $1.Suppose the exchange rate changes to €1.25 = $1.What is the price in dollars of a €200 pair of Italian shoes before and after the exchange rate change?

Figure 19.2 -Refer to Figure 19.2.Currency speculators believe that the value of the euro will decrease relative to the dollar.Assuming ceteris paribus,how would this be represented?

An appreciation of a country's currency is likely to

The real exchange rate of British pounds to Australian dollars will increase if the British price level and the nominal exchange rate of pounds to the dollar .

Figure 19.1 -Refer to Figure 19.1.Which of the following events causes the shifts in the supply and demand curves in the market for dollars against the British pound shown in the graph above?

Assume that the exchange rate between the dollar and the yen is ¥100.= $1.Suppose the exchange rate changes to ¥150 = $1.What is the price in yen of a $200 iPod before and after the exchange rate change?

If the dollar appreciates against the yen,ceteris paribus,this will cause

How does a decrease in value of a country's currency relative to other currencies affect its balance of trade on goods and services?

Figure 19.2 -Refer to Figure 19.2.Assume that Europe experiences an economic boom.Assuming all else remains constant,this would be represented as a movement from

Figure 19.2 -Refer to Figure 19.2.A depreciation of the euro is represented as a movement from

Suppose that interest rates increase in Japan and at the same time the Japanese economy is experiencing a recession.What will happen to the value of the dollar relative to the yen?

Figure 19.2 -Refer to Figure 19.2.Suppose that Italians reduce their demand for Australian steel by half.Assuming all else remains constant,this would be represented as a movement from

Consider the market for dollars against the British pound shown in Figure 19.1.From this graph,we can conclude that the dollar price of a British pound has to dollars per pound.

Figure 19.2 -Refer to Figure 19.2.An appreciation of the dollar is represented as a movement from

Figure 19.2 -Refer to Figure 19.2.Suppose that interest rates in Australia fall relative to those in the European Union.Assuming all else remains constant,how would this be represented?

Assume the exchange rate between the dollar and yen is ¥80= $1.Suppose that the exchange rate changes to ¥75 = $1.As a result of the change,there will be

Suppose that the European Union experiences a recession and this causes a decline in income in the European Union relative to Australia.Because of this,the dollar will,ceteris paribus,