MindTap Economics, 1 term (6 months) Printed Access Card for Mankiw's Principles of Macroeconomics, 8th (MindTap Course List)
8th Edition
ISBN: 9781337096591
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 18, Problem 4CQQ
To determine
Effect of doubling the currency.
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If there is a decrease in the desire of foreigners to purchase goods and services from the United States and a lower desire to invest in U.S. banks and businesses, then how would this affect the U.S. foreign exchange market?
A. The equilibrium quantity of foreign currency would decrease and the U.S. dollar would depreciate.
B. The equilibrium quantity of foreign currency would decrease and the U.S. dollar would appreciate.
C. The equilibrium quantity of foreign currency would increase and the U.S. dollar would depreciate.
D. The equilibrium quantity of foreign currency would increase and the U.S. dollar would appreciate.
In some cases, governments will intervene in the currency markets to incresae or decrease the value of the country's currency. Which of the following is an example of direct intervention in foreign exchange markets?
A.
The European Central Bank lowers interest rates to increase the value of the euro.
B.
The Japanese government purchasing JPY with USD to increase the value of the Japanese yen.
C.
China imposing barriers on imports from Europe.
D.
The U.S. lowers interest rates to decrease the value of the U.S. dollar.
When Country A’s currency becomes less valuable relative to Country B’s currency, we say that Country A’s currency has __________ relative to Country B’s currency.
a) depreciated
b) stagnated
c) shifted
d) appreciated
Chapter 18 Solutions
MindTap Economics, 1 term (6 months) Printed Access Card for Mankiw's Principles of Macroeconomics, 8th (MindTap Course List)
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- An exchange rate is best described as? A)The price of goods in terms of a foreign currencyB)The price of one nation's currency in terms of another'sC)The amount of currency you need to buy a Big MacD)The rate at which goods are exchanged between two countriesarrow_forwardWhen Country A’s currency becomes more valuable relative to Country B’s currency, we say that Country A’s currency has __________ relative to Country B’s currency? a) appreciated b) depreciated c) stagnated d) shiftedarrow_forwardThe demand curve for a currency will typically slope down, because, for a given future value of a currency, the ____ the current exchange rate, the____ is the rate of return on the currency A. higher, higher B. higher, more risky C. lower, higher D. Lower, less riskyarrow_forward
- In quoting exchange rates: a. One should always quote these as units of foreign currency over a unit of domestic currency b. One should always quote the rate as the units of domestic currency over a unit of foreign currency c. Usually one should quote the rate in such a way that the value is greater than one d. Each country's central bank determines how the rate is to be quotedarrow_forward1. The principal function of the foreign exchange market is the transfer of funds, thus purchasing power, from one nation and currency to another. 2. If it takes 116.57 yen to buy one dollar, it takes $.0085785 to buy one yen. 3. Purchasing-power parity theory postulates that the change in the exchange rate between two currencies is proportional to the change in the ratio in the two countries' general price levels. 4. The price-specie-flow adjustment mechanism operates by the deficit nation losing gold and experiencing a reduction in its money supply. 5. Monetary policy is very effective under a fixed exchange rate policy. True or Falaearrow_forwardThe___________exchange rate between the currencies of two countries is the rate at which the currency of one country needs to be converted into that of a second country to ensure that a given amount of the first country's currency will purchase ______________quantity of goods and services in the second country as it does in the first. purchasing power-parity (PPP), the same purchasing power-parity (PPP), a larger market, the same market, a smallerarrow_forward
- Suppose a country trades with three countries: Brazil (20% of trade), China (45%), and France(35%). Over the last year, the currency of this country has depreciated by 4% against theBrazilian real, appreciated by 3% against the Chinese yuan, and depreciated by 7% against theeuro. What has happened to the effective exchange rate of the country?arrow_forwardUnder flexible exchange rate regime, the spot exchange rate a. Is maintained by the monetary authority's intervention to buy domestic currency b. Increase in the demand of the domestic currency causes appreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the right. c. Increase in the demand of the domestic currency causes depreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the right. d. Increase in the demand of the domestic currency causes appreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the left. e. Increase in the demand of the domestic currency causes depreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the left. f. None of the abovearrow_forwardCountry A’s goods have become relatively less expensive for Country B’s buyers due to a change in the exchange rate between those two country’s currencies. All other things remaining constant, this could be because Country B’s currency has __________ relative to Country A’s currency. a) shifted b) appreciated c) stagnated d) depreciatedarrow_forward
- A 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.arrow_forwardIf a country with floating exchange rates uses an expansionary monetary policy, the domestic interest rate: A) increases, demand for the domestic currency increases, supply of the domestic currency decreases, and the exchange rate increases. B) falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the exchange rate decreases. C) falls, demand for the domestic currency remains unchanged, supply of the domestic currency increases, and the exchange rate decreases. D) falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the effect on the exchange rate is ambiguous.arrow_forwardThe pressures on the foreign exchange market are such that they cause the British pound to depreciate against the US dollar. If the British pound tries to maintain the exchange rate against the US dollar, which of the following pressures will stop the pressure to devalue the British pound? a. Britain has to sell pounds to buy dollarsb. Britain will have to increase its money supply to create a domestic productarrow_forward
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