Multiple Choice Question. Under flexible exchange rates if there is simultaneously a tax decrease and a monetary expansion, we know with certainty that: A. the exchange rate would decrease (depreciation of the do- mestic currency). B. output will increase. C. the exchange rate would decrease (depreciation of the do- mestic currency) and output would decrease. D. None of the above.
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- a. Explain why in an economy with fixed exchange rates, monetary policy will not cause expenditure switching. b. If interest rates rise, what will happen to the nation's exchange rate?The benefits of adopting a flexible exchange rate is that, a.in response to shocks to the demand for Australian exports, the value of the currency would adjust to moderate these effectsb. changes in the interest rate will have no effect on the exchange rate that is determined in the foreign exchange market c.the exchange rate can be more volatile d. an economy will be able to well predict the prices of exports and imports Why A is the correct answer? What is meant by a flexible exchange rate?Suppose a country imposes a tariff on imports from abroad. a. How does this action affect the country’s imports of foreign goods? b. How does this action affect the world relative demand for foreign goods and the relative demand for home goods? c. How does this action change the long-run real exchange rate between the home and foreign currencies? d. How is the long-run nominal exchange rate affected?
- a. Describe what is happening to the country’s capital account of the balance of payments prior to government changing its tack on supporting the value of the currency? Which items in the capital account are likely to change and how will they change? b. What is likely to happen to the country’s real exchange rate initially and after the government changes its policy stance with respect to supporting the currency? Please justify your answer. c. What happens to the current account balance right after the oil price shock and after the government stops supporting the currency? What items of the current account are likely to change and why? d. How is the market for non-tradables in the domestic economy affected in these two stages?Why do exports increase in the long-run when currency depreciates, according to the J-curve? A. because the demand for exports adjusts B. because the PPP theory suggests that the exchange rate cannot depreciate in the long run C. because exchange rate depreciation will lead to inflation in the long run D. because the demand for currency in the long run will fall more than in the short runA new country has been established on the moon and created a currency called cheesybits. Which of the following does not involve a foreign exchange transaction? OA) Luna lives on the moon and wants to travel to visit relatives in Japan. B) Han is visiting the moon and wants to eat at his favorite restaurant, the Moonglow Bar and Grill. C) Moonrock corporation needs new mining equipment that it buys from a manufacturer in Russia. D) Moonbeam Incorporated, the largest company on the moon, sells building products for houses on the moon.
- If the United States raised its tariff on tires, then at the original exchange rate there would be a a. surplus in the market for foreign-currency exchange, so the real exchange rate would appreciate. b. shortage in the market for foreign-currency exchange, so the real exchange rate would appreciate. Oc. shortage in the market for foreign-currency exchange, so the real exchange rate would depreciate. Od. surplus in the market for foreign-currency exchange, so the real exchange rate would depreciate.There has been a 9% increase in the U.S. Consumer Price Index (which measures the average price level) and a 12% increase in Jamaica's Consumer Price Index. If no other variables change, what can we conclude about the real and nominal exchange rates? Select one: a. The nominal exchange rate has fallen. b. The real exchange rate has risen. c. The real exchange rate has fallen. d. The nominal exchange rate has risen. 3. Oil prices on the world market increase, causing domestic prices to increase. Select one: a. money supply decrease, money demand unchanged, interest rate increase b. money supply increase, money demand unchanged, interest rate decrease c. money supply unchanged, money demand decrease and interest rate decrease d. money supply unchanged, money demand increase, interest rate increase e. money supply increase, money demand increase, interest rate decreaseWhat effect would a devaluation of a country's currency most likely have on its export volumes? A. Export volumes would decrease, as goods become more expensive in foreign markets. B. Export volumes would increase, as goods become cheaper in foreign markets. C. Export volumes would remain unchanged, as currency value does not affect trade. D. Export volumes would initially decrease, but then increase over time due to adjustments in trade agreements.
- If the foreign interest rate increases and U.S. interest rates also increases_______?Group of answer choices 1The exchange rate increases (the US $ appreciates). 2The exchange rate is certainly unaffected and remains the same. 3The exchange rate decreases (the US $ depreciates). 4The exchange rate could decrease (the US $ depreciates) or it could increase (the US $ appreciates).(1) a. If the exchange rate changes from $1.70 per British pound (₤1) to $1.72 per ₤1, has the pound (₤) appreciated or depreciated? Has the dollar appreciated or depreciated? b. What happens to the ₤-price that British residents pay for a $500 U.S. export good due to the exchange rate change above? c. What happens to the $-price that U.S. residents pay for a ₤1200 import good from Britain? d. How do these changes affect the economic welfare of U.S. exporters and U.S. importers? (2) Suppose that the euro (€) appreciates from $1.00 per €1 to $1.20 per €1. Determine whether the underlined individuals listed below would see that appreciation as a good or a bad thing. a. A U.S. business buys €10,000 of chemicals from a German company. b. An Italian clothing company buys $100,000 of leather from a U.S. leather maker. c. A U.S. resident has a retirement account totaling €500,000 in a German bank. d. A U.S. company must make an interest payment of €25,000 to the French bank from which it…A case study in the chapter analyzed purchasingpower parity for several countries using the pricc ofBig Macs. Here arc data for a few more countries: a. For each country, compute the predicted exchangerate of the local currency per U.S. dollar. (Recallthat the U.S. price o( a Big Mac was $4.93.)b. According to purchasing-power parity, what is thepredicted exchange rate between the Hungarianforint and the Canadian dollar? What is the actualexchange rate?c. How well docs the theory of purchasing-powerparity explain exchange rates?