ECON 1BB3 Lecture Notes - Lecture 20: Maple Syrup, Canadian Dollar, Classical Dichotomy

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17 Apr 2014

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I buy a car from u. s. for ,000. Imports going up by 30k nx going down by 30k. Imports go up by 30k because the ,000 car comes into canada. Exports go up by 30k because the maple syrup is sent to u. s. When i send out the k, it means foreigners are purchasing canadian assets. Therefore the foreign purchases of domestic assets will go up. This means the outflow (nco) will go down by k. With that being said, the change in nco is equal to the change in nx both going down by k. Nco = domestic purchases of foreign assets foreign purchases of domestic assets. The domestic ownership of the foreign assets is going down because i am selling the u. s. dollars. The decrease in the domestic purchases of foreign assets will also mean a decrease in the outflow (nco). Exchange rates: nominal exchange rate: the rate at which you can exchange one currency for another.

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Economic Questions, if you have time, explain why that's the answer:

7A. Assume the U.S. dollar and the Canadian dollar are traded in flexible currency markets. Which of the following would cause the U.S. dollar to depreciate relative to the Canadian dollar?

A. Higher price level in Canada relative to the United States.

B. Higher interest rates in the United States relative to Canada.

C. Lower interest rates in the United States relative to Canada.

D. Decreasing GDP in the United States than in Canada.

E. Increasing GDP in Canada relative to the United States.

7B. If an exchange rate is said to be floating, that means it is

A, set by the World Bank.

B. set by the government.

C. set by the market forces of supply and demand.

D. set by the International Monetary Fund.

E. set by individual banks.

7C. When the international value of the U.S. dollar increases,

A. Americans pay more for foreign goods.

B. the U.S. trade deficit decreases.

C. U.S. imports decrease.

D. Americans would demand less foreign currency.

E. U.S. exports decrease.

7D. Suppose interest rates fall in the United States, but they donât fall in other nations. What is the impact on the flow of financial capital, the value of the U.S. dollar, and U.S. net exports (based on the changing value of the dollar)?

Capital Flow / Value of the U.S. dollar / Net Exports

A. Inflow / Appreciate / Increase

B. Inflow / Appreciate / Decrease

C. Outflow / Depreciate / Decrease

D. Outflow / Depreciate / Increase

E. Outflow / Appreciate / Decrease

7E. Which of the following would cause the U.S. dollar (USD) to appreciate as compared to the euro?

A. Interest rates in the United States decrease.

B. American consumers prefer to buy European goods.

C. European consumers boycott American goods.

D. GDP in the European Union decreases.

E. GDP in the European Union increases.

8A.

Which of the following would cause the U.S. dollar (USD) to depreciate as compared to the euro?

A. Interest rates in the United States decrease.

B. Interest rates in the European Union decrease.

C. Price levels in the European Union increase.

D. Price levels in the United States decrease.

E. GDP in the European Union increases.

8B. The U.S. dollar is currently trading for 7 pesos per dollar. If the exchange rate adjusts to 10 pesos per dollar then

A. the U.S. dollar has depreciated.

B. the U.S. dollar has appreciated.

C. the Mexican peso has appreciated.

D. both the Mexican peso and the U.S. dollar have appreciated.

E. both the Mexican peso and the U.S. dollar have depreciated.

8C. Suppose the United States and Brazil sign a free trade agreement. If real interest rates increase in the United States but not in Brazil, which of the following will be true of Brazilian capital flow, exports, and the value of the Brazilian real?

Capital Flow / Exports / Value of Brazilian Real

A.Inflow / Increase / Depreciate.

B. Inflow / Decrease / Appreciate.

C. Outflow / Increase / Appreciate.

D. Outflow / Decrease / Appreciate.

E. Outflow / Increase / Depreciate.

8D. Suppose Europeans began purchasing real assets in the United States. How would this impact the foreign exchange market for the euro and the U.S. dollar price of the euro?

Supply of euro / U.S. dollar Price of euro

A. Increase / Increase

B. Increase / Decrease

C. Decrease / Increase

D. Decrease / Decrease

E. Decrease/ Not Change

9. Suppose U.S. consumers decide they like foreign goods better than they like domestic goods. As a result of this change, which of the following is true?

I. The demand for the U.S. dollar will increase.
II. The demand for the U.S. dollar will decrease.
III. U.S. exports will increase as a result of the changing value of the U.S. dollar.
IV. U.S. exports will decrease as a result of the changing value of the U.S. dollar.

A. I only.

B. I and III only.

C. I and IV only.

D. II and IV only.

E. II and III only.

In the AD-AS model, stagflation does not persist, because the working of the self-correcting mechanism of the economy _____ the level of output and _____ the price level until the economy eventually returns to a long-run equilibrium state, where actual output _____ potential output.

	decreases; decreases; falls short of
	increases; decreases; equals
	decreases; increases; exceeds
	decreases; increases; equals
	increases; decreases; exceeds

The LRAS curve is drawn as a vertical line at potential output (Y*) to indicate that

	Y* is independent of the price level and that actual output Y > Y* in the long run
	Y* equals actual output (Y) in the long run
	Y* is independent of the price level and that actual output Y = Y* in the long run
	Y* is independent of the price level
	Y* is independent of the price level and that actual output Y < Y* in the long run

Stagflation arises in the context of the AD-AS model when some external factor causes

	the LRAS curve to shift to the right
	the AD curve to shift leftwards
	the SRAS curve to shift downwards
	the SRAS curve to shift upwards
	the AD curve to shift rightwards

If the SRAS curve is positively sloped, then a decrease in the demand for Canadian-made goods in Europe will lead to _____ in the price level, in the short run.

	either an increase or a decrease
	no change
	an increase
	a decrease
	an initial increase, and then a decrease

Which of the following will shift the aggregate demand curve to the right?

	Consumers become pessimistic about the future
	A new technology is developed that will increase profits
	Income taxes are raised
	Foreign economies fall into recession, reducing their demand for domestic exports
	The government reduces purchases to balance the budget

Suppose a stock market crash decreases the stock of household wealth and therefore causes autonomous consumption to fall. Which of the following is the likely result?

	A leftward shift the AD curve
	There will be no movement of the AD curve
	A movement down the AD curve
	A movement up the AD curve
	A rightward of the shift the AD curve

An economy is characterized by the AD equation P = 200 ? 0.02Y, SRAS equation P = 100 and LRAS equation Y* = 5000. In the absence of any change in policy or exogenous shocks, this economy will achieve a long-run price level of

	100
	110
	120
	90
	105

The AD-AS model depicts a self-correcting economy. This means that the price level in the model adjusts automatically in response to a(n) _____ gap, so as to eliminate the _____ gap in the long run, without requiring any help from government policies.

	recessionary; recessionary
	recessionary; expansionary
	expansionary; expansionary
	output; output
	expansionary; recessionary

The aggregate demand curve shows

	the amount of planned aggregate expenditure (and output) at the current price level
	the amount of planned aggregate expenditure (and output) at an average price level
	the amount of planned aggregate expenditure (and output) at a constant price level
	the amount of planned aggregate expenditure (and output) at various price levels
	the amount of planned aggregate expenditure (and output) at last year's price level

Consider an economy initially at long-run equilibrium with output (Y) equal to potential output (Y*). If the SRAS is positively sloped, then a shift to the right of the AD curve will lead to _____ in the price level, in the short run. In the long run, the SRAS curve will shift to the _____ and the equilibrium will be at __________.

	an increase; left; Y = Y*
	a decrease; right; Y > Y*
	an increase; right; Y = Y*
	a decrease; left; Y > Y*
	no change; left; Y = Y*

ECON 1BB3 Lecture Notes - Lecture 20: Maple Syrup, Canadian Dollar, Classical Dichotomy

ECON 1BB3 Full Course Notes

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