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Use the word labels to fill the blanks and complete the sentences below. Not all of the words will be used, but all the blanks should be filled.

Assume the world has only the U.S. and Germany, and that trade between them is balanced such that neither runs a trade deficit nor surplus. If exchange rates now change such that the U.S. dollar becomes more expensive for Germans to buy (and all else remains the same), we would expect: U.S. exports to Germany will____, and U.S. imports from Germany will ____. These changes in trade will cause net exports (NX) in the U.S. to______. The U.S would begin to run a trade ______ and experience a net capital_____. U.S. savings will be _______domestic investment.

Word Bank

increase

greater than

surplus

outflow

decrease

less than

deficit

not change

equal to

inflow

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28 Sep 2019

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Related questions

5-

In the short run, a tighter monetary policy by the U.S. Federal Reserve leads to:

Select one:

a. an increase in the supply of dollars and a dollar depreciation.

b. a decrease in the supply of dollars and a dollar appreciation.

c. an increase in the demand for dollars and a dollar depreciation.

d. a decrease in the demand for dollars and a dollar appreciation.

6-

Which theorem states that exchange rates will adjust until the prices of goods in different countries approximate one another?

Select one:

a. purchasing power parity

b. the law of multiple prices

c. the principle of comparative advantage

d. dollarization

7-

A country's balance of trade is the difference between its:

Select one:

a. nominal and real exchange rates.

b. monetary and fiscal policy.

c. exports and imports.

d. capital inflow and capital outflow.

8-

When a foreign business buys stock in a U.S. company, the U.S. capital account will:

Select one:

a. move in a positive direction.

b. move in a negative direction.

c. remain unchanged.

d. become more volatile.

9-

Saying that the United States is running a large current account deficit is equivalent to saying that:

Select one:

a. exports exceed imports in the United States.

b. the United States is running a large capital account surplus.

c. the balance of payments is negative.

d. the value of the current capital stock in the United States exceeds the value of future capital flows.

10-

An increase in the demand for a country's exports will have what effect on its currency?

Select one:

a. Its value will not change.

b. Its value will increase.

c. Its value will decrease.

d. Its value will depreciate.

11-

When the United States has a current account deficit, the U.S. capital account:

Select one:

a. will have a deficit also.

b. will be balanced.

c. will have a surplus.

d. must be falling.

12-

Which of the following is NOT a way that a country can finance a trade deficit?

Select one:

a. increased borrowing

b. sale of assets

c. decreased exports

d. reduction in cash reserves

13-

A trade deficit occurs when the value of a country's:

Select one:

a. imports exceeds the value of its exports.

b. exports exceeds the value of its imports.

c. inflow of foreign capital exceeds the outflow of domestic capital.

d. outflow of domestic capital exceeds its inflow of foreign capital.

14-

Which of the following is a U.S. current account transaction?

Select one:

a. Selling a computer chip to a resident in Europe.

b. Buying stock shares of a Canadian company.

c. Selling U.S. dollars in exchange for euros.

d. A foreign investor's purchase of a manufacturing plant in the United States.

15-

An exchange rate is:

Select one:

a. a yearly summary of all the economic transactions between residents of one country and residents of the rest of the world.

b. the sum of the balance of trade, net income on capital held abroad, and net transfer payments.

c. the price of one currency in terms of another currency.

d. a currency whose value is not pegged but governments will intervene extensively in the market to keep the value within a certain range.

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 don’t 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.

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