Principles of Macroeconomics (MindTap Course List)
7th Edition
ISBN: 9781285165912
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 18, Problem 6QCMC
To determine
Changes in currency value.
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Under 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 above
Under a flexible exchange rate system a decrease in the vue of a domestic currency in terms of foreign currency is referred to as _____
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.
Chapter 18 Solutions
Principles of Macroeconomics (MindTap Course List)
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Similar questions
- What may cause a nominal appreciation of the domestic currency if the real exchange rate is constant? Select one: a. a decline in the terms of trade. b. an increase in the price of the foreign good. c. an increase in the price of the domestic good. d. an increase in the domestic rate of inflation.arrow_forwardA increase in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant. A. increase; appreciate B. increase; depreciate C. decrease; appreciate D. decrease; depreciatearrow_forwardDonald Company, a manufacturing company based in San Juan City, Philippines, purchased raw materials from a foreigncompany denominated in foreign currency. Which of the following is correct? A. If the foreign currency appreciates, Jonald will recognize foreign exchange loss.B. If the foreign currency appreciates, Jonald will recognize foreign exchange gain.C. If the foreign currency depreciates, Jonald will recognize foreign exchange loss. D. Any gain or loss will be deferred until the date of settlement.arrow_forward
- Suppose the average price of a Big Mac in the United States is $3.50 while in Japan the average price is 400 yen. If the market exchange rate is that 1 dollar is exchanged for 100 yen, the purchasing power parity model of exchange rate determination suggests that: a. The yen is overvalued. b. The yen is undervalued. c. The price of a Big Mac in Japan will rise. d. The dollar will depreciate against the yen.arrow_forwardSuppose the theory of purchasing power parity (PPP) is true. If inflation is higher in Eurozone than in Australia, which of the following is TRUE? a.The nominal exchange rate, expressed in euros per Australian dollar, increases b.The nominal exchange rate, expressed in euros per Australian dollar, decreases c.The nominal exchange rate, expressed in euros per Australian dollar, does not change d.None of the other optionsarrow_forwardSuppose the nominal exchange rate (given as foreign currency per unit of U.S. currency as in class) rises. If purchasing power parity holds, this could mean that domestic prices __________________ or foreign prices ________________ with all else unchanged. Group of answer choices A) increased, decreased B) decreased, decreased C) increased, increased D) decreased, increasedarrow_forward
- 1.The ¥/US$ exchange rate fell from ¥240/US$ to ¥102/dollar, while the US$/£ exchange rate fell from US$2.22/£ to US$1.62/£. As a result, A.the dollar appreciated relative to the yen, but depreciated relative to the pound. B.the dollar appreciated relative to both the yen and the pound. C.the dollar depreciated relative to the yen, but appreciated relative to the pound. D.the dollar depreciated relative to both the yen and the pound. 4.A rise in the real exchange rate is called A.a real depreciation. B.a real bargain. C.a real devaluation. D.a real appreciation. 3.The idea that similar foreign and domestic goods, or baskets of goods, should have the same price when priced in terms of the same currency is called A.purchasing power parity. B.equity. C.efficiency. D.the tragedy of the commons. 4.Purchasing power parity does not hold in the short to medium run because A.exports don’t equal imports. B.exchange rates fluctuate too much. C.most business cycles are caused by shocks to…arrow_forwardThe purchasing power parity: 3. A Ford Escape SUV sells for $24,000 in the U.S. and 720,000 rubles in Russia. If purchasing- power parity holds, what is the nominal exchange rate (rubles per dollar)?arrow_forwardExchange rate (Philippine Peso/ South Korean Won) XR₂ XR₁ XR3 XR₁ FIGURE 1 Q3 Q₂ Q₁ Q4 Supply of South Korean Won Demand for South Korean Won Quantity of South Korean Won 14. Suppose the interest rate in South Korea is 11% and the interest in the Philippines is 4%. What will happen to the demand for South Korean won? a. Shift to the right b. Shift to the left c. Remain the same d. Pivot upwardsarrow_forward
- Suppose that the country of Gizmovia wants to maintain the exchange rate of its currency, the gizmo, at $0.50, but the current equilibrium exchange rate for the gizmo is $0.75. If Gizmovia uses exchange market intervention to decrease the value of its currency to $0.50, it should ________ gizmos and _____ dollars in the foreign exchange market. A) sell; buy B) buy; buy C) sell; sell D) buy; sellarrow_forwardAccording to the UIP condition ... Select one: a. ... any differential between the domestic interest rate and the foreign interest rate causes an immediate change in the nominal exchange rate b. ... any differential between the domestic interest rate and the foreign interest rate is explained by a differential in relative price levels. c. ... any differential between the domestic interest rate and the foreign interest rate causes inflation d. ... there can be no differential between the domestic interest rate and the foreign interest ratearrow_forwardWhich of the following will most likely cause a nation's currency to appreciate on the foreign exchange market? a. A decrease in domestic interest rates O b. An increase in foreign interest rates c. Stable domestic prices while the nation's trading partners are experiencing 10 percent inflation O d. Domestic inflation of 10 percent while the nation's trading partners are experiencing stable pricesarrow_forward
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